Earnings Call Transcript
REGENCY CENTERS CORP (REG)
Earnings Call Transcript - REG Q1 2024
Operator, Operator
Greetings and welcome to the Regency Centers Corporation First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Christine McElroy, Senior Vice President, Capital Markets. Thank you. You may begin.
Christine McElroy, Senior Vice President, Capital Markets
Good morning, and welcome to Regency Centers' First Quarter 2024 Earnings Conference Call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Mike Mas, Chief Financial Officer; Alan Roth, East Region President and Chief Operating Officer; and Nick Wibbenmeyer, West Region President and Chief Investment Officer. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance, including forward earnings guidance and future market conditions. They are based on management's current beliefs and expectations and are subject to various risks and uncertainties. It's possible that actual results may differ materially from those suggested by these forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. Please note that we have also posted a presentation on our website with additional information, including disclosures related to forward earnings guidance. Our caution on forward-looking statements also applies to these presentation materials. Lisa?
Lisa Palmer, President and CEO
Thank you, Christy, and good morning, everyone. We had another really solid quarter, in line with our expectations and driven by a continuation of very healthy leasing fundamentals. Robust tenant demand is driving significant leasing activity across all of our shopping centers, and this is evident in an even higher percent leased rate and strong rent growth. With this robust demand and activity, we are poised to accelerate growth into 2025. As you will hear more from Alan, we are having great success quickly re-leasing space. And I will note, some of which we've intentionally recaptured with upgraded merchandising of leading operators and at higher rents. As a result, our pipeline of executed leases is larger than it's ever been, and we look forward to these tenants coming online and propelling our future growth. I'm also really excited about the progress our team has made in executing on our value creation pipeline. Sustained development activity over the long term, which creates value and enhances growth is an important part of our business and is a differentiator for Regency in our sector today. The strength of our platform provides us an unequaled strategic advantage. Our talented and experienced national development team, our relationships with top grocers and retailers, and ready access to capital, are all enabling strong execution on an impressive lineup of great in-process projects and continued growth in our pipeline of opportunities. As you'll hear from Nick, following our impressive execution in 2023 with over $250 million of development and redevelopment starts, we expect to drive a similar level of success this year. The benefits from this ramp-up in activity will continue to grow as NOI comes online in 2025 and beyond. Importantly, the strength of our balance sheet and our liquidity position is what provides Regency with the ability to sustain a meaningful value creation pipeline through cycles to remain opportunistic in our capital allocation strategy and to consistently grow our dividend. And we are really gratified to see this position of strength acknowledged by Moody's with a credit rating upgrade to A3, which occurred in February. We are currently the only REIT in the open-air shopping center sector with an A rating, and we are already seeing the benefits in our relative bond market pricing, further supporting our cost of capital advantage. This is a big accomplishment and a direct result of our team's consistent track record of operational excellence and balance sheet strength over the long term. It's a reflection of what I speak to often, which is what we believe to be Regency's unique and unparalleled combination of strategic advantages that differentiates us from our peers and allows us to drive above-average earnings per share, dividend, and free cash flow growth. It's the favorable attributes of our portfolio, including quality tenants and merchandising mix, formats, and trade area demographics driving rent growth and durability of occupancy. It's the expertise of our people and the strength of our operating platform. It's our ability to create value through development and redevelopment consistently over time. It's the strength of our balance sheet, and it's our commitment to corporate responsibility and stakeholder stewardship. High-quality suburban shopping centers, especially with the particular strength of our portfolio and the trade areas in which we operate, will continue to benefit from structural tailwinds that support continued excellent performance and long-term growth of our business. Alan?
Alan Roth, East Region President and COO
Thank you, Lisa, and good morning, everyone. We had another great quarter of leasing activity in Q1 as tenant demand for our centers remained very strong. The tremendous appetite for space that we saw in 2023 has continued unabated, enabling our team to achieve both higher rents and push our leased rate to even higher levels. We are executing leases with high-quality tenants, further improving upon the strength of our merchandising and creating value at our centers. Our same-property percent leased rate increased by another 20 basis points this quarter to 95.8%. This is especially impressive given the significant anchor move-outs that I discussed on last quarter's call, which I'll come back to in a moment, coupled with the seasonality of higher move-outs we historically experience in the first quarter. Our shop lease rate was up 10 basis points sequentially in the first quarter, reaching yet another new record high for shop of 93.5%. Base rent growth in 2024 is benefiting from shop commencement activity given our record year of lease-up in 2023. You'll recall that a quarter ago, we discussed an expected decline in our commenced occupancy rate in the first quarter, driven by anchor move-outs consistent with our plan, while our leased rate has moved even higher, our same property commenced rate ended the first quarter down 70 basis points from year-end. Roughly half of this decline was attributable to the intentional recapture of a Walmart store in Norwalk, Connecticut. Some of you were with us on a recent tour of the property, seeing firsthand this great opportunity to create value from an anchor tenant lease expiration in an exceptional location. We will experience some downtime impact while the space is built out and the center undergoes a transformative redevelopment, but the new lease of Target has already been executed with significant accretion. This is just one example of similar scenarios within the portfolio. On the surface, this disconnect between leased occupancy and rent-paying occupancy would appear counterintuitive, but the strength in the leasing environment, coupled with our deliberate approach to asset management, is enabling us to take advantage of these accretive opportunities quickly and in many cases, before the tenant vacates. We are remerchandising with upgraded stores and higher rents, improving and growing the long-term value of our centers, and we look forward to getting these new anchors open for business in the coming months. As we've replenished this vacating space with new leases, our pipeline of executed leases has grown. We stand today with a 370 basis point delta between our same property leased and commenced occupancy rates, which is an all-time high for us, reflecting an incremental $50 million of annual base rent that will be very rewarding as these leases commence within our operating portfolio. Beyond what's already based, we have another 1.4 million square feet of space under letter of intent or in negotiation with consistent demand across the portfolio from a wide variety of categories, including grocers, restaurants, health and wellness, off-price, and personal services. Cash re-leasing spreads in the first quarter were more than 8% on a blended basis, including the highest spread for renewals that we've seen since 2019, an indication of our ability to increase rents further as occupancy rises and available spaces limit, reflecting the strong demand in today's environment. Both GAAP and net effective rent spreads were in the mid-teens this quarter, given strength in contractual rent steps in the majority of our leases and our prudent use of leasing capital. Our team across the country is energized by the unwavering strength and leasing activity we are seeing, supported by a limited supply of high-quality retail space available and a surplus of great retailers actively looking to expand. We look forward to harvesting the benefits of our record high SNO pipeline, getting those tenants open and operating and continuing to move the occupancy needle higher in the months ahead. Nick?
Nicholas Wibbenmeyer, West Region President and CIO
Thank you, Alan. Good morning, everyone. Motivated by our tremendous success in 2023, including the start of more than $250 million of new projects, our team remains very active, both executing and growing our development and redevelopment pipelines. Among our first quarter starts was the shops at Stone Bridge in Cheshire, Connecticut. This $67 million ground-up development will be anchored by Whole Foods as well as T.J. Maxx and while we just broke ground last month, we are already seeing significant leasing demand. The project serves as the retail component of a new master plan community, a format with which we've had great success over the years. We recognize the mutual benefits and value that these relationships with master plan developers can provide for our shopping centers as well as the communities they serve. In addition to new starts, we continue to make great progress executing on our in-process pipeline and bringing NOI online. In total, we now have more than $0.5 billion in process, which is nearly 90% leased with blended returns of 9%. And in 2024, we plan to complete over $200 million of these projects. Some examples of the tremendous progress are several exciting recent anchor openings that are worthy of highlighting. At our Glenwood Green ground-up development in Old Bridge, New Jersey, both Target and ShopRite celebrated successful grand openings last month and the project is now nearly 95% leased. Exciting shop tenants opening soon include Honeygrow, Duck Donuts, and Playa Bowls. At Westbard Square in Bethesda, the new giant grocery store opened in January, and rent will start commencing from the shop space over the coming months, including tenants such as Tate, Stretch Zone, Silver and Sons BBQ, and Oak Barrel & Vine. Turning to the private transactions market, although data points and deal volumes remain below historical norms, we are seeing increased activity in deeper bidding pools in the marketplace and cap rates remain low. The implications of the recent move in treasuries remains to be seen, but our team is actively underwriting acquisition opportunities that fit within our portfolio quality, growth, and earnings accretion requirements. This includes a great asset that we are buying in Westport, Connecticut, immediately adjacent to one of our existing centers, adding to our already strong portfolio in that region. As we look ahead, our team is focused on sourcing accretive investment opportunities across our national platform. We expect to execute on acquisitions opportunistically and we have great visibility on development and redevelopment activity as we continue to grow our pipelines. We are planning for another year of project starts north of $200 million and remain on track to meet our strategic objective of completing more than $1 billion of projects over the next five years. We are partnering with leading grocers looking to grow their footprints in high-quality centers within our attractive trade areas and our recent project successes are also driving additional opportunities to further grow our pipeline. The strong momentum within our program is supported by macro tailwinds within the shopping center business, but more importantly, by Regency sourcing and execution capabilities. As you hear me repeatedly say, we have the best development team in the business, which combined with our free cash flow and balance sheet gives us an unequaled ability to fund and drive significant value creation within our investment program. Mike?
Michael Mas, CFO
Thank you, Nick, and good morning, everyone. I'll start with some highlights from our first quarter results and then walk through updates to our 2024 guidance and forward expectations before ending with comments on our balance sheet position. We reported Nareit FFO of $1.08 per share and core operating earnings of $1.04 per share for the first quarter. Same-property NOI growth, excluding term fees and COVID period reserve collections was 2.1%. It's worth a reminder that while bad debt this quarter trended closer to our historical averages, we are comping against a year ago bad debt number that was net positive, which we know is unusual. This anomaly impacted our first quarter growth rate by 60 basis points. At 2.7%, base rent was the largest contributor to same-property NOI growth and continues to be the best indicator of portfolio performance. This was largely driven by our team driving rent growth through embedded rent steps and re-leasing spreads as well as executing on our redevelopment pipeline. Our same-property leased occupancy rate is 95.8%, up another 20 basis points in the quarter, reflecting the continued strong leasing environment. First quarter earnings results benefited from a $0.01 of timing-related items outside of the same property pool, as well as $0.01 of straight-line rent, which you can see in our increased full-year noncash guidance. Additionally, recall that we typically recognize more than half of our annual percentage rents in the first quarter, benefiting Q1 by about $0.03 compared to the implied run rate for the balance of the year. I also would like to point out our new AFFO disclosure on Page 9 of our supplemental, which highlights what in our view is one of the most important performance metrics, reflecting a REIT's ability to grow dividends and to invest back into its business in order to grow earnings. This added disclosure also provides transparency around the level of capital used to drive same-property NOI growth and allows for greater apples-to-apples comparison across the peer group. Turning to our guidance updates. As always, I'll refer you to the helpful detail on Slides 5 through 6 in our earnings presentation. We raised our Nareit FFO outlook by $0.01 at the midpoint, which corresponds to the increase in our guidance for noncash items. Our guidance for same-property NOI growth remains unchanged at 2% to 2.5%, excluding term fees and COVID period reserve collections. We also adjusted our full-year transactions outlook. As Nick referenced earlier, the asset we are buying in Westport is now included in our acquisition guidance, and we modestly increased our dispositions guidance to include the potential sale of a few smaller noncore lower growth assets. Notably, our core operating earnings per share guidance, excluding COVID period reserve collections, implies growth of more than 3% at the midpoint despite higher interest rates and the impact of our debt refinancing this year. As we look beyond the calendar year, we wanted to highlight some tailwinds we see impacting our growth, especially as it relates to items where we have greater visibility. We've discussed the meaningful growth coming from our pipeline of executed leases where outsized commencement activity will begin as we approach year-end and move into 2025. As Alan mentioned, our SNO pipeline sits at a historical high of more than $50 million of annual base rent, of which about 65% is scheduled to commence by the end of this year. In fact, we expect our spot commenced occupancy rate to end this year roughly 50 basis points higher compared to year-end 2023. As these lease commencements are weighted to the second half of the year, the NOI and earnings impact will largely occur in 2025. And as Nick discussed, we've continued to ramp up our in-process development and redevelopment activity and look forward to completing these projects delivering space and commencing rental income. We expect same-property NOI to benefit from this redevelopment activity and for growth to accelerate into 2025. The positive contribution to same-property NOI is likely to exceed 100 basis points next year, leading to above-trend overall growth, and total NOI growth will also benefit from the continued momentum of our ground-up development program, which will also start to bear more fruit as we head into next year. Finally, turning to our balance sheet. The recent credit rating upgrade from Moody's to A3 further validates Regency's balance sheet strategy and liquidity position. We are relatively insulated from the current volatility in the debt capital markets as our balance sheet is in phenomenal shape. The majority of this year's maturities have been prefunded following our bond issuance in January, which we are gratified to price at a 10-year treasury yield meaningfully below where it sits today. Our next unsecured bond maturity is not until November 2025. Nearly all of our debt is fixed, our weighted average maturity is close to 7 years, and we remain near the low end of our targeted leverage range of 5 to 5.5 times net debt preferred to EBITDA. We have approximately $1.7 billion of liquidity today including nearly full capacity on our revolver, and we remain on track to generate free cash flow of more than $160 million this year. With that, we are happy to take your questions.
Operator, Operator
Comes from the line of Jeff Spector with Bank of America.
Elizabeth Yang Doykan, Analyst
So I was asking if any of the benefits from same-store performance came through in the first quarter. I wanted to see if you noticed any upside or additional sources of growth that may have exceeded your expectations as we move through the early part of the year.
Michael Mas, CFO
I believe I understood the essence of your question regarding earnings cadence, especially in light of our strong performance in the first quarter compared to our expectations for the rest of the year. Overall, we felt we had a solid quarter and were pleased with our results, as they aligned with our plan and reaffirmed our confidence in our projections. Notably, there were some timing variations in the first quarter that will impact our future earnings run rate. For instance, percentage rent is a key factor, with over half of that rent typically collected in the first quarter, leading to a projected earnings deceleration of about $0.03 moving forward. Additionally, there were timing-related elements from the non-same property portfolio, which is larger than usual because our entire Urstadt Biddle merged portfolio is classified as non-same for 2024. However, these timing issues have not altered our yearly outlook. We maintain strong confidence in the guidance we provided last quarter, and we did raise our Nareit FFO by $0.01, which is an addition to our plan stemming from noncash revenue, particularly from improved straight-line rents related to our development pipeline. We also made a mark-to-market adjustment due to a mortgage paydown this quarter, contributing to the $2 million increase in our noncash guidance reflected in our AFFO. In terms of same-property growth, we have kept our range unchanged, as we are confident in it. The anticipated fallout in percent commenced occurred as we expected, and we have successfully re-leased all the space returned to us and then some. We feel positive about our outlook for the remainder of the year, with rent commencing at the end of 2024 and into 2025.
Elizabeth Yang Doykan, Analyst
That's helpful. I apologize for the connection issue. As a follow-up, I know you mentioned that you're looking at external growth opportunities opportunistically and there's plenty of activity on the development and redevelopment front. I'm just curious about which types of opportunities are currently the most interesting to you and what trends you're observing in the market. Any additional insights on that would be appreciated.
Lisa Palmer, President and CEO
I'll take that and allow Nick to come over top of me if he wants to add a little more detail. Really unchanged, our investment strategy, whether it's for acquisitions, which we've had recent success with or whether it's for development, is aligning with our operating portfolio. So above-average quality with regards to merchandising mix, the tenants, and to the extent that we can add our expertise to make that happen, we're looking for those opportunities as well. Grocery anchored primarily and also in great trade areas with above-average demographics. We've had success from both the acquisition and the development strategy and doing that and remaining disciplined. And we continue to find opportunities. I want to reiterate because I know that we continue to get questions about our development pipeline. Remember, we're generating ample free cash flow and the best use of that free cash flow is into our developments and redevelopments, and we have had a really impressive track record in that, especially of late. 2023 was an exceptional year. And as I said in my prepared remarks, we expect that to continue into 2024. I'm not saying that it's easy, but when you take what we have, which is a talented, experienced development team across the country, when you have access to capital with the strength of our balance sheet, and when you have the relationships that we have with top grocers, top retailers, and master plan community developers, it's equaling success, and we're really proud of that.
Operator, Operator
Our next question comes from the line of Michael Goldsmith with UBS.
Michael Goldsmith, Analyst
Same-property NOI growth of 2.1% in the quarter. Mike, you called out a tough bad debt comparison of 60 basis points with base rent contribution at 2.7%. So looking forward, can you remind us of maybe any other moving pieces in the comparisons that if we should use that 2.7%, the high 2% range is the rate, base rent growth is the forward trajectory? And did you say that next year should be about 100 basis points above trend?
Michael Mas, CFO
Thanks, Michael. As we look into the remainder of 2024, we are guiding for a growth rate of 2% to 2.5%, and we remain confident in that forecast. We expect it to stay within that range quarter-over-quarter and to be quite stable as we progress. I appreciate you pointing out that Q1 had a unique anomaly compared to the previous year. When I mentioned a positive contribution of over 100 basis points, I'm referring to the boost from redevelopment deliveries impacting our same-property growth rate. We are very optimistic about our pipeline and the delivery of these projects. You can reference our redevelopment disclosure page for details and to get comfortable with the timing of that income. Keep in mind, we've often discussed our steady-state growth rate, and redevelopments are projected to add around 50 basis points to our growth, with an even better outlook of 100 basis points for 2025. Our confidence is strong, given the projects we have in view and the leasing success our team has achieved. It’s just about executing these deliveries and starting these rental incomes, which you'll begin to see by the end of this year and into 2025.
Lisa Palmer, President and CEO
I'll just add, and I promise, Mike, I won't give guidance for 2025. But what I would like to add, Michael, if you just go back and you look at long-term growth rates, same property NOI growth, AFFO growth rate, I picked 5 years, you will see that Regency is at the top of the sector with that. And that is the result of our strategy. It's all of the things, right? It's our unequaled strategic advantages that I talked about in my prepared remarks. And with that, given 2024 is a temporary dip from those long-term expectations, we would expect 2025 would kind of make up for that. And with the growth of 2025 that we expect, all else being equal with regards to the economy, we would still rise to the top of the sector.
Michael Goldsmith, Analyst
And my follow-up is on the SNO pipeline. It took a step up here now currently sitting at 370 basis points or $50 million with the SNO pipeline. What's the trajectory from here? Should we expect that to be worked down through '24 and '25 or should it kind of still remain elevated and choppy? Just trying to understand better around how quickly you can monetize this elevated pipeline.
Michael Mas, CFO
I hope for the right reasons that we see growth, and I believe Alan shares that sentiment. We have a strong belief in our leasing team's capabilities and an understanding of how desirable our properties are in the market. We are confident in our ability to continue leasing at a high rate. While I would like to see the occupancy numbers increase, what you're really asking about is our commenced occupancy rate. As we assess our plans, we believe we've reached a low point in terms of occupancy. We anticipated that the move-outs would happen in the first quarter of this year. Now, our focus is on moving forward and increasing that occupancy rate. To help with your question, we have a bit over $50 million in our SNO pipeline, and 65% of those leases are expected to begin by the end of the year, but that does not include rent. Therefore, we're looking at around $14 million that we should recognize in earnings in '24, which is only a quarter of that pipeline. This further reinforces our confidence in 2025, as the remaining ABR will come online as we deliver units.
Juan Sanabria, Analyst
I’m interested in understanding the decisions behind being proactive in improving merchandise mix and increasing rents. How are those decisions made? It seems to reflect a stronger market. Is it possible to do more of this in 2025, which could temporarily offset growth? I’m just trying to consider different perspectives.
Alan Roth, East Region President and COO
Juan, this is Alan. Thank you for the question. We've always taken the long-term view of intense asset management. To answer your question, we're absolutely all about what is the right long-term decision for the asset, for the portfolio, and for the future success of Regency. It's interesting. I said last quarter that we moved three office supply stores out of our portfolio. I'm not so sure that I actually identified who's replacing them. But to take those units and replace those with Sprouts in one location, HomeSense in another location, and a Baptist Health medical facility in a third location. I think it's just really good examples of how we look at enhancing the merchandising, providing durability to our occupancy through better tenant credit and to your point, getting significant rent growth. So it's certainly the mindset of how we're trained. It's certainly the mindset of how we think about managing our portfolio, and I would expect that to continue.
Michael Mas, CFO
Let me take it first, and then I'd like Alan to give some color on what you've seen in the portfolio. But from my perspective, the Urstadt portfolio is performing right on plan. We had high expectations for the portfolio, and the team is doing a remarkable job of delivering on those expectations. Just to reiterate that, we called for about 1.5 points worth of accretion. We're going to deliver that and we haven't come off plus or minus that expectation. And there's a little bit of timing noise from a cadence perspective as I indicated in the first quarter, and that will level off by year-end. Is additive or would have been additive, had we called it same property, by about the same amount I mentioned last quarter, which we said we're up to about 0.25 point. So I'll leave it at that. And if Alan has a comment.
Alan Roth, East Region President and COO
Yes. Juan, the only thing I would add is we continue to be thrilled with the expanded platform, but I am personally probably more thrilled with the great people that have come into the organization as a result of it. We did have another productive quarter. We signed about 50 transactions in that portfolio. As I said the last few quarters, there's runway there. We are going to grow that 93% formerly leased portfolio and leverage the platform, certainly that we have, and that is the hyper-focus of the company right now relative to that acquisition. Redevelopments are something that are more medium to long-term, but we're doing some small little deals out in the parking lot, maybe evaluating a couple of multi-tenant deals, but largely, it's a hyper focus on leasing, and the team is doing well.
Viktor Fediv, Analyst
This is Viktor Fediv for Greg McGinniss. So we've noticed that your new leases, tenant allowances, and landlord work as a percentage of new base rents have increased both on a quarter-over-quarter and year-over-year basis. Just curious, was it something unique this quarter or is it a current market environment? So you need to provide higher TAs and landlord work to get new leases done.
Alan Roth, East Region President and COO
Viktor, this is Alan. Thank you for the question. The short answer is we're not seeing any material shift at all, although there is a slight elevation this quarter. I'll start on the renewal front. The elevation you see there is one tenant that we did a turnkey relocation to make way for a larger junior box. If you take that one out, our capitals are absolutely in line with historic levels. And again, I think that ties back to the intense asset management mindset of what's right for the asset. On the new leasing front, I would just tell you, it's largely elevated by anchor leasing. We had four anchor transactions. Notably, one of them was a space that was vacant for over 7 years. Again, I think there's some mix issue in terms of just anchor transactions that's driving that, but we're not seeing any market shifts as a result.
Lisa Palmer, President and CEO
I think it's important to just reiterate that our strategy and our approach hasn't changed. We're very judicious with our leasing capital and do believe that, that is clearly leads to again ample free cash flow growth, but also helps drive our AFFO growth, which if you were to look at long-term AFFO growth, we do lead the sector.
Nicholas Wibbenmeyer, West Region President and CIO
Viktor, this is Nick. I appreciate the question. As you referenced, I mean, you answered part of the question in your question, which is we are always looking to fortify our growth profile. And we're always looking to potentially sell noncore, nonstrategic assets at attractive cap rates. So as we look into the future, as you see in our guidance now, we do expect to continue to sell assets at attractive cap rates, recycle that capital into more accretive opportunities that we may see. So it just so happened these two were in Florida, but I would now tell you, strategically, we are trying to exit Florida. As you know, we have a tremendous portfolio in Florida. These are really case-by-case decisions to asset by asset, trade area by trade area. And so I would not expect these additional assets to necessarily be in Florida.
Ronald Kamdem, Analyst
I have two quick questions. First, regarding the acquisition front, there's an addition of $46 million in the guidance. Could you explain how that happened? Additionally, have new opportunities emerged or changed due to the movements in rates, and has that affected activity?
Nicholas Wibbenmeyer, West Region President and CIO
Ronald, this is Nick again. I appreciate the question. So let me talk first to the first part of your question, which is about the asset we've now guided to. That asset, we're very excited about. It's a 76,000 square foot shopping center in Westport, Connecticut, anchored by CVS, and for those of you recently on our tour in the Northeast, you'll be familiar with it. The center is directly across the street from our Trader Joe's asset that we own at the corner of Compo Road and Post Road. Just a tremendous opportunity to bring a great asset into a region that we already are really familiar with and excited about, again, adding to that great portfolio. That asset was fully marketed, and we competed in an on-market process. I think given our reputation and our presence in the market definitely helped us and related to that competition. Excited to get that closed here very, very soon, maybe even as soon as today. Beyond that, we continue to be, again, opportunistic, as Lisa indicated earlier, looking across the country for opportunities that we believe we can create and add value to shopping centers. There are definitely more opportunities on the market over the last quarter than there were in the quarter before. But as we all know, treasuries have moved here in the last couple of weeks. It's TBD if that slows transaction volume or not. But from the chatter we're hearing, we do expect transaction volume to stay pretty steady and we're going to take advantage of any opportunity we see that we think we can add value to.
Ronald Kamdem, Analyst
Yes. My second question was just on the same-store. Look, I'm getting the theme of the call, which seems to be acceleration in 2025 on the same-store. I guess the question is, is the conviction coming from the fact that you have sort of the signed-out lease pipeline and you have visibility or is it more that the tenant health, there's no sort of larger move-outs or bankruptcies, that could be a headwind next year or both, right? Just trying to figure out where the conviction is coming?
Lisa Palmer, President and CEO
I'll provide a general overview, and my partners here can add more specific details if they wish. The situation is a combination of both factors. I'm pleased you mentioned that aspect at the end. Our leasing success and portfolio health indicate that we are achieving record levels, continuously increasing our leasing percentage. The signed but not occupied pipeline is substantial, giving us clear visibility into future rental income. Additionally, we have made significant strides with our redevelopment pipeline, which Mike discussed in the prepared remarks and during one of the questions. We see this also contributing positively in 2025. So, it encompasses everything mentioned.
Ravi Vaidya, Analyst
This is Ravi Vaidya on the line for Haendel. I hope you guys are doing well. We've heard from you and your peers that the leasing environment is very strong and robust. But I just wanted to ask, particularly around healthcare and urgent care centers and things along that line. We've started to hear some softness in demand from some of the operators there, notably Walmart. I just wanted to hear your thoughts on what you're seeing from a leasing demand perspective.
Alan Roth, East Region President and COO
Ravi, it's Alan. Our current medical exposure is about 7% of ABR, and that has grown from 5% where we were pre-COVID. We are very comfortable not only with where it is, but certainly comfortable if it were to continue to grow. Interestingly, we signed nearly 20 new medical leases in the first quarter, and that was our second-highest category for new leasing from a square footage perspective. It was largely dentists, optometrists, physical therapy, and primary care, and it included a new ground lease that we also did with the largest primary care operator in Houston, where they're going to build a new medical building where Regency didn't even invest any capital on that. Overall, we're comfortable certainly with that category. From an urgent care specifically to answer that question, it's just not a significant piece of our medical exposure, it's less than 1% of our ABR. We, interestingly also have all the medical transactions we did in the first quarter; none of our new leasing activity this quarter was in the urgent care facility arena. I would just take us back to the strict vetting process that we do for all of our operators, whether medical, personal services, restaurants, etc. I think the team does a really nice job to align with the right operators.
Michael Mas, CFO
Ravi, it's Mike. I may have a somewhat mundane answer, but we do not anticipate any changes. We have maintained a consistent stance on this matter for quite some time. The 11% range represents our standard rate, encompassing all capital expenditures, including maintenance and leasing capital. We don't foresee any significant changes to this over the long term. There will be periods, such as now when we are increasing our commenced occupancy, where this may rise temporarily due to the level of activity. However, our team excels at ensuring that we invest appropriately in the operator's business, securing competitive rents and terms. They are very careful with our capital expenditures, which is the right approach since capital is valuable. We aim to maximize our free cash flow for reinvestment back into our development and redevelopment efforts. When we have excess capital, we will look to acquire properties, such as the excellent asset we plan to add in Westport. Therefore, I don't expect the 11% area to change in the long run.
Lisa Palmer, President and CEO
I do just want to reiterate because it's an intentional strategy to maximize rent while limiting leasing capital, staying within our parameters of our expectations. It’s the strength of our asset quality and our shopping centers that allow us to do that, and we are successful in doing so. It is a reason that it does drive our AFFO growth.
Craig Mailman, Analyst
Just want to follow up. I know you guys increased dispositions a little bit here to partly pay for the Westport acquisition. But just from a need of capital, $125 million with the free cash flow you guys throw off. Is this just a placeholder because you think you could get more acquisitions? Or is this necessary to fund the redevelopment? Just trying to get that accelerated pace of disposal just given the spending you guys have.
Michael Mas, CFO
Yes, I think this will help you, Craig. We don't need to sell the properties to afford or pay for the Westport acquisition. We have the free cash flow available and the capacity on our balance sheet. On a leverage neutral basis, taking into account our free cash flow expectations, we have over $300 million of investment capacity at our disposal. The $25 million increase was simply recognizing some small noncore assets in our portfolio where we have received interest that shows relatively low cap rates. When we consider the option of exiting a noncore asset in an accretive manner, we can reinvest those proceeds into our developments, redevelopments, or acquisitions. Some of these assets could also be used to pay down debt, which is accretive as well. When we identify that trade opportunity, we will pursue it. We're just making some smart adjustments, and over time, this will result in a more stable income stream and earnings growth.
Craig Mailman, Analyst
And the remaining $95 million that you guys have kind of dialed in, how much of that do you have visibility on at this point? And maybe what do you think timing could be on some of these sales?
Michael Mas, CFO
I think the $25 million we've added is fully visible, it's on the market, and currently being discussed. This amount is expected to be back-end weighted. I'm confident that we will successfully execute on that plan. The other transactions are established; they are not just speculative assumptions, but rather actionable disposals that we are very confident in.
Ki Bin Kim, Analyst
So there's been a couple of retailers in the media like Starbucks and McDonald's. And I think grocers have been talking about smaller basket sizes and certain consumers being stretched for some time. I was just curious if you've noticed any of that conversation in your dialogue with tenants today. And I know both things can coexist where demand could be good for a while, even though there might be some challenges. Just curious what you're seeing on the ground.
Lisa Palmer, President and CEO
Let me just take it generally first, and then I'll let Alan talk about the actual discussions with tenants. The future is always uncertain, right? And in today's world, the macroeconomic landscape is unpredictable. What we know is that we have high-quality centers, and our trade areas have been strong, and we expect to continue to do so. Especially given the types of uses within our centers, right? It's value, convenience, and service that we would expect our shopping centers, the trade areas, and the consumers in our trade areas to absorb the macro pressures we’re seeing today. We're generally seeing that through our results in our shopping centers. I want to also make a comment about time constraints that are affecting consumers. This renewal of appreciation for a physical presence of shopping centers close to people's homes is key for servicing their needs and purchasing goods.
Nicholas Wibbenmeyer, West Region President and CIO
Of course. This is Nick. Appreciate the question. You're absolutely right. We do not land bank as a strategy for our development program. We are very, very thoughtful about derisking these projects as part of our diligence while we control the real estate prior to closing. Our process is we make sure we have control of the real estate, ensure high-quality tenants committed to the projects, especially our grocery tenants. We work through the entitlement process, pricing exercise. It is a challenging environment to bring all of these pieces of the puzzle together; however, it is a core competency of ours. Our teams continue to do a tremendous job of finding opportunities across our platform, across the country. We feel bullish about our development program. We continue to lean into it, and our teams are continuing to find more than their fair share of those opportunities in the yields ranging between 7% and 9%.
Floris Van Dijkum, Analyst
I guess it's more of a follow-up question. In terms of development versus redevelopment, one of Regency's core competencies has always been development. I suspect Cheshire is one of those. But how much of an advantage or how much of your development future pipeline do you think is going to come from your existing portfolio versus brand-new opportunities like Cheshire? What's the difference in return on those kinds of opportunities in your view?
Lisa Palmer, President and CEO
I'll start and then let Nick finish. As you have seen in the past, the percentages were more weighted towards redevelopment recently, but we have created a lot of momentum in ground-up development. People are renewing their appreciation for physical retail close to customers' homes. You're correct, development has been a differentiator for us and a competitive edge for almost 28 years. We have an extremely successful track record in this regard. That matters because we have a talented, experienced national team with relationships that helps us find growth opportunities. I do expect to see ground-up grow over the next few years. Redevelopments are also important for fortifying future NOI growth, but we see real momentum in ground-up opportunities.
Nicholas Wibbenmeyer, West Region President and CIO
I would add, as Mike alluded to earlier, the great news for us is it's not an either/or process. We are in an enviable position with capital to take advantage of opportunities both in our existing portfolio and new ground-up developments. We continue to see good yields in our current processes, and we have a team focused on finding opportunities.
Linda Tsai, Analyst
For the 39 anchors that have signed but not yet commenced, just wondering who some of those anchor tenants are? Like how many of those are grocers? And then I guess just my second question is do you think your grocer penetration, if it's plus 80% right now, could get much higher?
Alan Roth, East Region President and COO
Linda, this is Alan. I don't have the actual number of what percent were grocers, but there certainly were a number of transactions that are in there. The target that we mentioned in Norwalk, we are very excited about the first Whole Foods Daily Shop, which will open likely in the fourth quarter of this year. If you haven't heard about that concept, that's their new quick and convenient shopping experience. We've got a couple of public deals that are currently under redevelopment right now. There's significant grocer activity within that number. We're excited to get both of those Kroger deals open and expect them to be productive grocery locations.
Michael Mas, CFO
We're currently 80% grocery-anchored. I don't think we see that number materially changing from this point forward. The bias here is around grocery, and we'll continue to pursue grocery-anchored shopping centers as a primary focus. We may not see that go materially higher but I don’t expect it to drop significantly.
Michael Mueller, Analyst
So for the Stone Bridge development that's part of a master plan community, how mature or early stage is the community? As part of a project like that, does it change the risk profile or economics compared to a development outside of those communities?
Nicholas Wibbenmeyer, West Region President and CIO
I appreciate the question. This is Nick. I'm glad you pointed out that it is part of a master plan community because partnering with master plan developers is a real competitive advantage of ours. From the perspective of a master plan developer, one of the most important things to ensure high-quality home sales is retail amenities, especially grocery. We have access to high-quality grocers and the expertise to design those assets at a high level. They know we have the capital and the expectation is to own those assets over the long term. The communities that we're servicing are not greenfield or tertiary markets. They are infill master-planned communities that have been underway for decades. This alignment creates a perfect formula: strong market demand, high rents, and solid community ties, lending to lower risk for our developments.
Omotayo Okusanya, Analyst
So based on all the commentary, everything seems to be going really, really well at the company. Just going back to guidance again, trying to understand the solid beat in Q1 and why that doesn't translate to a bigger increase in guidance. What am I missing?
Michael Mas, CFO
Tayo, listen, I think it's timing. Just about every line item in our outlook reflects what we anticipated delivering on a full year basis, but some of that timing was front-loaded. Percentage rent is a classic first quarter issue, with over half of our percentage rents earned in that quarter. We have confidence in the guidance we shared last quarter, raising Nareit FFO by $0.01, which is incremental to what we planned, coming from noncash revenue. Our same-property growth hasn't been modified, and we have confidence in our performance and trajectory for the balance of the year.
R.J. Milligan, Analyst
First off, I really appreciate the AFFO disclosure, hopefully, the rest of your peers that don't already provide it follow your lead. My question is more philosophical. In your AFFO calculation, you don't include redevelopment CapEx. I think as an industry, it varies widely how peers approach that. How do you think about bucketing those costs to get to your AFFO calculation?
Michael Mas, CFO
I'm happy to take that, RJ. The team enhanced our disclosure, so thank you for your praise. I would encourage you to think of it on a look-through basis. Redevelopments can be hybrids, making it challenging to differentiate. We designate a redevelopment when we're densifying a site and significantly repositioning the asset within the market. If it's more straight lease-for-lease, that falls into the leasing CapEx bucket. If you compare us on an apples-to-apples basis, I think you'll see we stack up well against others.
Anthony Powell, Analyst
Just a question on the Kroger, Albertsons merger and the back and forth with the FTC regarding dispositions. Any concerns that merger may be taking longer than expected or any impact if it doesn't go through?
Lisa Palmer, President and CEO
I can appreciate that you probably are getting questions on that. We don't have any new information. We’re reading what you’re reading and it hasn't impacted our operations. They remain as two separate companies and we're in good relationships with both. If the merger goes through, it may yield a stronger, more well-capitalized grocer. If it does happen, the potential spin-off of stores that could happen is an area of uncertainty. However, we feel good about our stores, which are productive grocery locations and would expect them to continue to be so, regardless of the outcome. Thank you all for joining us this morning. Appreciate your interest, and have a great weekend. Thank you.
Operator, Operator
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.