Regency Centers Q3 2026 Earnings Call Transcript

Quartr
Provided by Quartr
November 6, 2026

Key Takeaways

  • Positive Sentiment: Regency raised its 2026 outlook, lifting the midpoint of same-property NOI growth to at least 4.25% and forecasting 5.7% Core Operating Earnings per-share growth. It also increased its dividend by 6%.
  • Positive Sentiment: Operating fundamentals remained strong: same-property NOI grew 5.1% in the quarter, the portfolio reached a record 97% leased, and quarterly cash rent spreads were 12% (15% on renewals). Management also cited healthy tenant conditions and strong demand for space.
  • Positive Sentiment: Development is a key growth engine, with about $680 million in projects underway at expected blended returns of 9%; starts are expected to approach $400 million by year-end. Management said its disciplined pipeline and strong balance sheet support continued investment without relying on equity issuance or asset sales.
  • Negative Sentiment: Management expects 2027 same-property NOI growth in the mid-3% range, below 2026, as occupancy gains moderate and bad-debt expense may normalize toward historical levels. Refinancing maturing debt could also reduce long-term earnings growth by roughly 150–200 basis points.
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Earnings Conference Call
Regency Centers Q3 2026
00:00 / 00:00

There are 19 speakers on the call.

Operator

Ladies and gentlemen, thank you for your patience, and please remain on the line. Today's Regency Centers Corporation conference will be beginning shortly. Again, we thank you for your patience and ask that you please remain on the line. Today's Regency Centers conference will be beginning shortly. Greetings, and welcome to Regency Centers Corporation Third Quarter 2026 Earnings Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kathryn McKie, Vice President, Investor Relations. Thank you. Please go ahead.

Speaker 1

Good morning, and welcome to Regency Centers Third Quarter 2026 Earnings Conference Call. Joining me today are Lisa Palmer, President and Chief Executive Officer, Mike Mas, Chief Financial Officer, Alan Roth, Chief Operating Officer, and Nick Wibbenmeyer, 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. These are based on the current beliefs and expectations of management and are subject to various risks and uncertainties. It is 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 in our most recent Form 10-K and 10-Q filings.

Speaker 1

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. As a reminder, given the number of participants we have on the call today, we respectfully ask that you limit your questions to one. Please rejoin the queue if you have any additional follow-up questions. Lisa?

Speaker 2

Thank you, Kathryn. Good morning, everyone, and thank you for joining us. Our team delivered another great quarter. We generated strong same-property NOI and FFO growth, driven by solid operating fundamentals and a creative capital allocation. Demand for space remains robust, and our tenant base is strong, supported by the resiliency of consumers in the communities surrounding our centers. Our ground-up development platform remains a key differentiator for Regency. We have been expanding our pipeline for years, and our team continues to build on that momentum, sourcing high-quality projects across the country. We remain disciplined in the current higher interest rate environment, focused on investments that create meaningful earnings growth and long-term value for our shareholders. Our sector-leading national development platform provides us with a visible source of investment opportunities outside of the transaction markets.

Speaker 2

Our strong growth so far this year has allowed us to once again increase our full-year outlook. We raised our dividend this quarter by 6%, a meaningful increase that extends our long track record of dividend growth, reflecting our performance and the confidence we have in the durability of our cash flows. Looking more broadly and ahead to 2027 and beyond, the fundamentals of our business remain strong. The performance of our portfolio continues to demonstrate sustained strength in tenant demand. Our neighborhood and community centers, anchored by top grocers and focused on necessity, service, convenience, and value, are well-positioned to continue thriving. Our development platform remains the driving force behind our external growth, and we are investing in and leveraging new technologies across our organization, making our team more productive and effective and allowing us to make better, faster decisions. As I close, what sets Regency apart hasn't changed.

Speaker 2

A high-quality portfolio in strong suburban trade areas, a leading national development platform, a fortress balance sheet, and the best team in the business. We are executing on our strategy and have confidence in our ability to drive growth and sustained long-term value for our shareholders in 2027 and beyond. Alan?

Speaker 3

Thank you, Lisa, and good morning, everyone. The strength of our results in the third quarter and throughout 2026 reflects the hard work of our team and robust operating fundamentals across our portfolio. Same-property NOI increased 5.1% in the third quarter and 4.4% year-to-date, supported by continued occupancy gains, strong rent growth, and disciplined execution. Our same-property portfolio reached a new historic high of 97% leased, with shop occupancy also reaching a record 94.6%, driven by broad-based tenant demand. Equally encouraging, commenced occupancy increased to 95.1%, yet another historic high, as we continue converting our SNO pipeline into rent-paying tenants. The combination of strong retailer demand, as well as ongoing scarcity of both high-quality space and new supply, continues to bolster our negotiating position across our portfolio. Cash rent spreads were 12% in the quarter, including negotiated renewal spreads at 15%, while GAAP rent spreads reached 22%.

Speaker 3

Nearly all of our new shop leases now include annual rent steps of 3% or higher, strengthening our contractual rent growth well into the future. Importantly, we are capturing this rent growth while remaining disciplined with our leasing capital spend. Overall, our tenants remain healthy, and the underlying indicators remain encouraging. Collections are strong, receivables remain below historic levels, bankruptcy impacts have been minimal this year, and both foot traffic and tenant sales performance remain solid. While we have continued visibility to the benefit of commenced occupancy into 2027, growth opportunities extend well beyond the remaining vacancy in our portfolio. We're leasing space earlier, often while it's still occupied, reducing downtime between tenants and accelerating rent commencement. We're capitalizing on mark-to-market opportunities as leases roll, taking advantage of supply-demand dynamics through negotiated renewals, and embedding strong contractual rent steps into our leases.

Speaker 3

We will continue to unlock redevelopment opportunities that improve merchandising, strengthen the competitive positioning of our centers, and create value. Our team continues to deliver, and I'm excited about the runway we have to keep driving NOI growth. With that, I'll hand it over to Nick.

Speaker 4

Thank you, Alan, and good morning, everyone. We continue to see significant positive momentum across our investments platform. During the third quarter, we started several new development and redevelopment projects, made great progress executing on our in-process pipeline, sourced new opportunities, and acquired high-quality properties. Year-to-date through October, we've started more than $280 million of projects, including more than $100 million in the third quarter alone, and we continue to expect starts to approach $400 million by year-end. Our ground-up starts in the quarter included a Whole Foods-anchored project in Southern California, and shortly after quarter-end, we broke ground on a Sprouts-anchored project in Northern California. Each of these developments pairs a leading grocer with a premier suburban location, which are exactly the types of projects our platform is designed to deliver.

Speaker 4

Our in-process pipeline currently stands at approximately $680 million, with expected blended returns of 9%. We continue to have great momentum leasing up these projects, which is allowing us to bring project NOI online and driving the significant total NOI growth we've seen this year. This success can be seen in the $158 million of projects we've completed so far this year, including the Shops at SunVet on Long Island in the third quarter. This Whole Foods-anchored center has been met with tremendous enthusiasm from both retailers and the community, with a merchandising mix that includes Nordstrom Rack, Sephora, Shake Shack, and Warby Parker, among others. On the transaction side, we acquired more than $100 million of properties in the third quarter, bringing our year-to-date total through October to over $170 million.

Speaker 4

These included a Stop & Shop-anchored center in Northern New Jersey and a Market Basket-anchored property in suburban Boston. We funded several of these acquisitions with joint venture capital alongside a longstanding partner with whom we have additional capacity to invest. We continue to source attractive acquisition opportunities, but it remains a competitive transaction market, and today's rising interest rate environment creates additional challenges. That said, because we don't exclusively rely on acquisitions to drive our external growth, we can remain patient and selective, pursuing only the opportunities that truly meet our standards for quality and accretion. In closing, I'm confident in our ability to keep building and delivering accretive developments and sourcing high-quality acquisitions that create meaningful growth and value for our shareholders, based on our deep grocer relationships, a proven track record, ample access to capital, as well as sustained strong demand. Mike?

Speaker 5

Thank you, Nick, and good morning, everyone. As you have heard from the team, Regency delivered exceptional results in the third quarter, reflecting the continued fundamental strength of our portfolio and the accretive impact of differentiated capital allocation. Year-to-date, same property NOI growth is 4.4%, driven by continued growth in occupancy, robust new and renewal leasing, high tenant retention, and strong tenant health. Beyond the same property pool, year-to-date total NOI growth is 7.6%, with this metric capturing NOI from our ground-up development projects. The strength of our operating results and our ability to accelerate development NOI allows us to once again raise our current year guidance. We have increased the midpoint of our same property NOI growth rate to 4.25% or higher, and we have also raised the midpoint of Core Operating Earnings per share, which now calls for full-year growth of 5.7% at the midpoint.

Speaker 5

Looking ahead to next year, while we will hold full guidance for our fourth quarter call, I do want to share a couple of early indications. Following two outstanding years of same property NOI growth, we expect 2027 to be another great year for internal growth, as our portfolio is well-positioned to benefit from continued strong fundamental trends. As we sit here today, we anticipate next year's same property NOI growth to be in the mid-3% area, reflecting continued high levels of occupancy, strong rent growth benefiting from our pricing power, steady tenant health, and positive contribution from redevelopment. With respect to our long-term target earnings growth rate, we anticipate the refinancing of our maturing debt early next year will have an impact of somewhere in the area of 150 to 200 basis points.

Speaker 5

Rates have certainly shown some volatility recently, but given where borrowing costs are today, our bias would be towards the lower end of this range. Again, much more to come on 2027 earnings with our full suite of guidance in February. Moving to our capital and liquidity position, in an environment where balance sheet strength matters more, we are comforted to be in a position of financial strength. Our total leverage currently stands just below our target range, and we have A ratings from both Moody's and S&P. We have substantial availability in our $1.5 billion credit facility and continue to generate strong free cash flow, allowing us to fund our growing external growth pipeline without the need to issue equity or sell properties. We also benefit from additional investment capacity available to us through our long-tenured joint venture partner relationships.

Speaker 5

This flexibility allows Regency to continue investing creatively and remain opportunistic. In summary, we have had an exceptional year. Our operating fundamentals are very strong, evidenced by our same property NOI growth rate. Our development pipeline is providing new, sustained total NOI growth, and our balance sheet supports the flexibility to continue investing creatively, even through a more uncertain rate environment. We look ahead with confidence in the underlying strength of Regency's portfolio and in our team's ability to deliver attractive, durable growth over the long term. With that, we would be happy to take your questions.

Operator

Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As previously mentioned, we do ask that you please limit yourself to one question and then re-queue up for any follow-ups. Today's first question is coming from Michael Goldsmith of UBS. Please go ahead.

Speaker 6

Good morning. Thanks a lot for taking my questions. Appreciate the early indication of the 2027 growth numbers. Right now, you just took your 2026 same property NOI growth to more than 4.25%, and for next year, you're pointing at the mid-3s. Are there any factors that are in play that would suggest that same property NOI would decelerate? Maybe you can talk through the puts and takes on the same property NOI for next year.

Speaker 5

Sure. Hey, Michael. Good morning. Appreciate the question. I think I'll start with occupancy, which is where you should start anytime you're talking about the direction of our same property growth. As I mentioned on the call in my prepared remarks, we will continue to expect to maintain this very high level of occupancy that we've delivered so far this year. But the increases will be moderating. It's just kind of natural to expect that to occur. Just as a real brief reminder, and I think to congratulate the Regency team, 2025, we moved our average commenced occupancy by about 150 basis points. We moved it again this year, and we expect to move it by about 80 basis points. I would say that leaves about, I don't know, somewhere in the area of 40 to 50 basis points to move it next year.

Speaker 5

More to come on the details of that, but that is kind of a natural occurrence of our portfolio as you reach these historical highs that we find ourselves in. Together with that, you benefit from expense recoveries. We have been benefiting from higher levels of expense recovery rates in 2025 and now into 2026, and we'll continue to have some of that pop in 2027 as well. We are calling for an 87% or 88% recovery rate going forward, which is, again, kind of matching our historical highs. The only other kind of on the downside I would highlight is, we are about 25 basis points on bad debt expense this year, incredibly low. In the third quarter, we had a very low bad debt expense rate.

Speaker 5

I would say as we sit here today, and it is early, I would plan for something more in the historical averages, which is something approximating or approaching 50 basis points. That would be incorporated into that 3.5% area that I identified for next year.

Speaker 6

Thank you very much.

Speaker 1

Thanks, Michael.

Operator

Thank you. The next question is coming from Jamie Feldman of Wells Fargo. Please go ahead.

Speaker 7

Hi, this is Connor with Jamie. Thank you for taking my question. Maybe on ground-up development, can you talk about yields in the next wave of opportunities relative to the 7%+ on the recently announced projects? Are stronger rents and faster leasing creating room for yields to improve, or are higher land costs absorbing that upside?

Speaker 4

Yeah. Good morning, Connor. Appreciate the question. This is Nick. You are absolutely right. I mean, let's just start with the tremendous work our team's been doing over the last several years building this unbelievable development pipeline that we are now seeing come online and build our in-process to now approaching $700 million. As you articulated, our in-process are 7%+ on our ground-up developments, and our teams have been pushing hard to try to get toward the higher end of that 7%+, and they are continuing to push. Do I think we are going to see them gap out at 8%+? No. I think the 7%-8% range is where they are landing, because to your point, there is a lot of inputs, including land costs.

Speaker 4

At 7%+, we still feel really good with that spread compared to, one, our cost of capital to create real accretion, and two, compared to what those assets would be worth on the private market from an NAV standpoint. So, feel really good about those assets. Also feel really good about how we de-risk those. I just want to remind everybody, we have a lot of pre-leasing done on those assets before we close. We are fully entitled, and we have construction bids in hand. As you have seen us bring these projects online, our teams have done an amazing job holding those yields and improving on the margin in many cases compared to what we thought when we closed on those transactions.

Speaker 2

I would love to just come over the top, and as Mike complimented the operating team to complement our development team, our conviction in development is as strong as it has been. It remains a key differentiator for us, and it is an important part and driver of long-term growth. Nick hit on that in terms of the spreads over market cap rates. We are mindful of our cost of capital. Our head is not in the sand on that, and we will remain disciplined in what we pursue. The fundamentals supporting development today are still really constructive, as Nick said.

Speaker 7

Thank you.

Speaker 1

Thank you, Connor.

Operator

Thank you. The next question is coming from Samir Khanal of Bank of America. Please go ahead.

Speaker 8

Good morning, everybody. I guess, maybe Mike, if you can provide an update, expand a little bit on your comments about the transaction market, what you're seeing broadly given the volatility in rates, where are unlevered IRRs today, and any comments on pricing or cap rates would be helpful. Thanks.

Speaker 4

Yeah, Samir, good morning. This is Nick. As Mike alluded to in his opening comments, it is volatile out there. There is no question about that. And so we are still in the early innings of what is that going to mean for the transaction market. As you can appreciate, many deals that are closing now were priced 60, 90 days ago. But early indications are, and this is what you always see in volatility, quality matters. And so early indications are really core grocery-anchored assets with good growth profiles continue to have a lot of demand as there is fund flow into our asset class. And it does appear those assets that did have a little bit more challenges, potentially were going to have a little bit more leverage. Those may be getting retraded in the market from a pricing standpoint.

Speaker 4

But again, early innings, and all indications are our asset classes are still very much in high demand. But more to come over the next 90 days as assets reprice here.

Speaker 1

Thanks, Samir.

Operator

Thank you. The next question is coming from Todd Thomas of KeyBanc Capital Markets. Please go ahead.

Speaker 9

Yeah. Hi. Thanks. Good morning. It's sort of the follow-up on your comments around the early indication for 2027 same property NOI growth in the 3.5% range. Base rent contribution continues to improve. That was up 4% from 3.7% last quarter. You talked about the runway from converting the SNO pipeline to rent-paying tenants. Are you anticipating any known vacates or occupancy pressure in 2027? Then related to your comments on bad debt, is the assumption simply a normalization from current levels, or is there anything specific, any specific tenant issues or anything like that that you're contemplating?

Speaker 5

Hey, Todd. Appreciate the follow-ups. I would characterize the plan as we sit here today, again, as being kind of occupancy neutral. We have done an incredible job, and I congratulate the team again on raising our high level on where occupancy can be in this portfolio, which, by the way, also includes delivering on an incredible amount of redevelopment activity. I would characterize next year as being kind of occupancy neutral, but opportunity to continue to compress that SNO spreads, right? I do think we can continue to move commenced occupancy closer to percent leased. I would characterize the ULI change as a normalization. We are not seeing any evidence of tenant health concerns at all.

Speaker 5

I just can't help but look over my shoulder at a historical average and compare that to where we are today and not at least think that it could normalize back to historical levels. The teams are doing an incredible job on the leasing front, pushing rate, using their leverage where we have it, and we have a lot of it today, given the tailwinds in the marketplace, given the lack of availability in high-quality centers. That could evidence itself in a little bit of pressure on bad debt expense, and we'll just be prudent, plan for that. But to this point, haven't seen a rapid impairment of tenant health.

Speaker 1

Thanks, Todd.

Operator

Thank you. The next question is coming from Ronald Kamdem of Morgan Stanley. Please go ahead.

Speaker 10

Hey, great. Just following up on that, but going more into the portfolio. Just wondering if you could talk a little bit about just what you're seeing in terms of foot traffic, and then some of the categories that are outperforming, and updated thoughts on categories that you're reducing exposure to at this point. Thanks.

Speaker 3

Hey, Ronald. Good morning. Thank you for the question. It's Alan. When I look back at the quarter, there's some really great retailers that we signed multiple leases with, and I think as you know, the food category tends to be sort of the leader in transactions quarter over quarter, but Cava, Paris Baguette, Chipotle, just to sort of name a few on that front. Health and wellness is a key sort of sector that we've been talking a lot about for the last number of years, and we continue to lean into that with 13% of our ABR combined on fitness and medical. When you look back at that quarter again, where were there multiple transactions signed? SweatHouz, IVX Health, JETSET Pilates, all really just great small shop retailers that are filling the portfolio.

Speaker 3

From a milestone perspective, we signed our 75th lease with TJX. Again, another phenomenal retailer. There's just a lot of really great operators that are out there. As Mike had mentioned, we are leasing a lot of occupied space right now. The pipeline is deep, it's healthy, and at these occupancy levels, that is another certainly key focus that we continue to drive rents on some of that occupied space.

Speaker 1

Thanks, Ron.

Operator

Thank you. The next question is coming from Michael Griffin of Evercore ISI. Please go ahead.

Speaker 11

Great, thanks. I saw that Kroger announced plans to expand their store fleet pretty notably over the next couple of years, and as a key partner of theirs, I am wondering how Regency could stand to benefit from this. Could this be incremental ground-up developments, redevelopments of existing stores? Then as you look at kind of the grocery landscape broadly, I realize that being with the right grocer in the right market is really paramount, but does the environment feel better for openings there into the next few years, and then how can Regency benefit as a result? Thank you.

Speaker 2

Hey, Nick. I am going to address the latter and then let you finish with the beginning of the question. Appreciate you answering the question yourself in your question. We certainly always pay attention to the grocers. They are an important part of our business. As many of you know, because you probably did see it on social media, I have been with the company for 30 years now, and for all of those 30 years, the grocery business is extremely competitive, and that environment just becomes more and more so. The traditional grocers are facing more competition from specialty grocers, from different means of customers getting their groceries delivered to them as well. So the competitive pressures are not being reduced in any way, and we never minimize that.

Speaker 2

But I think it's really important, because it's something that we always talk about, to really distinguish between the performance of the grocer chains and the underlying value of their best-performing stores. Our strategy is to focus on, to own, to develop the stores that will be the best-performing stores in their portfolio. We continue to believe, and grocers continue to believe, that a physical presence is important for them to be successful across all delivery of their goods to the consumers, whether they walk in the store, order online and pick up, or have it delivered.

Speaker 4

Yeah, Michael, I'll just add to that, the specifics regarding Kroger. Without a doubt, look, we love when important relationships we have double down on what Lisa just said and reinforce that net new stores and brick and mortar is important to them. We believe that as well, as Lisa articulated. When you think about Kroger, yes, we've had a longstanding relationship and a lot of development and redevelopments with Kroger, so any incremental demand they have is a benefit for Regency. You just look, as we talk right now, we just reopened a tear-down rebuild store in West Chester, Ohio with Kroger. Phenomenal redevelopment. We're building a King Soopers, which is a Kroger brand in Colorado, new development in Lone Tree, Colorado. So we are very engaged with Kroger. We're excited to see them ramp back up their store program.

Speaker 4

I think incrementally, again, if you just look over our shoulder, look, we started just over $250 million of developments and redevelopments in 2024. In 2025, we started over $300 million. If you give it a head nod this year, it should be in the $400 million range. So incrementally, as these grocers lean back into store programs, it is beneficial to our development and redevelopment program. So we're appreciative of those relationships. They're very important to us, and that's why I'm excited about our future investment program.

Speaker 1

Thank you, Chris.

Operator

Thank you. The next question is coming from Greg McGinniss of Scotiabank. Please go ahead.

Speaker 12

Hey, good morning. I want to keep on the grocers. We have the strength in Kroger, but that's kind of offset potentially a bit by Albertsons talking about reviewing its real estate. Just curious if you can touch on how your banners with them are performing, whether you see that as any risk or not, just given the quality of your assets. Thank you.

Speaker 3

Greg, thank you for the question. I think Lisa did a really nice job articulating the fact that our stores, when we look at their performance, are trending above what the banners' average volumes are. Again, I think that's a testament to the markets that we're operating in, how we deliberately think about merchandising and operating these assets. We feel really, really good about the overall health of our supermarkets. Some of them, as we talked about, Albertsons came out and said they're working to improve their stores, recognizing that grocery competition is, in fact, fierce. Again, we would bring it back to the overall quality of our real estate. It's great. They too are also an important relationship, not just Kroger. Certainly Whole Foods, Publix, there's a whole host of them, Sprouts, et cetera.

Speaker 3

We're staying close to all of them, as we do with all of our key retailers, not just the grocers. We certainly remain very encouraged by the locations and performance of those stores.

Speaker 1

Thanks, Greg.

Speaker 12

Thank you.

Operator

Thank you. The next question is coming from Juan Sanabria of BMO Capital Markets. Please go ahead.

Speaker 13

Hi, good morning. Just hoping to maybe shift gears a bit. Thinking about some of the trends across retail real estate more broadly, it does seem that landlords are trying to take advantage of eyeballs and foot traffic across their platforms. Just curious on your latest initiatives on media or advertising opportunities that I think would be pretty unique given daily and weekly traffic to your centers.

Speaker 3

Juan, thank you for the question. I think I love the media advertising capabilities because I know Eric Davidson, our group, would love to have the shout-out to his White Box series that I think has got over a million YouTube views on it. Look, there is certainly an environment of landlord leverage in today's environment. At 97%, we are leaning in, and there's a lot of things that certainly we're doing. There's a transition more to fair market value options. There's a transition to no options in many instances. A lot of non-monetary provisions that there's an opportunity to certainly improve that gives more flexibility for leasing decisions and redevelopment decisions in our assets. Again, I think one important thing that Regency has always done is we're very deliberate in how we think about merchandising our assets, how we think about placemaking, connecting with the community.

Speaker 3

In today's environment, again, we try to hone in on everything that can really make that asset sustainable in the long term. So, continue to feel really good about how the teams are focused on various things, and I think that's evidenced in the results. I appreciate the question.

Speaker 13

Thank you.

Speaker 1

Thanks, Juan.

Operator

Thank you. The next question is coming from Haendel St. Juste of Mizuho Securities. Please go ahead.

Speaker 14

Hi, good morning. This is Ravi Vaidya on the line for Haendel. Hope you guys are doing well. I wanted to ask about your capital deployment optionality. With leverage below your long-term range of 5 to 5.5 and what appears to be a disconnect from private market cap rates of maybe 100-150 basis points, why not buy back stock here? How should we think about your capital deployment optionality, particularly for larger portfolio deals, with your peers doing some larger deals such as Summit and Slate? Thanks so much.

Speaker 2

Appreciate the question. We have leveraged free cash flow, but as Nick said, still have really great opportunities to put into our development pipeline and into our in-process developments as well as redevelopments. Those returns are still greater than the returns we would receive buying back stock. Stock buybacks have been and will always continue to be a tool in our toolbox. When we do have the availability of capital to use it, and when the returns are more attractive than what they would be versus our developments and/or acquisitions, we will utilize it. That is not the case today.

Speaker 1

Thanks, Ravi.

Operator

Thank you. Our next question is coming from Sydnie Rohme of Barclays. Please go ahead.

Speaker 15

Hi. Thank you so much for taking the question. I have got kind of a bigger picture one on supply. For a developer that is starting from scratch today and buying land and building at current costs, what rent does a new center need to make sense versus the roughly $38 per foot you are getting on new leases, and how long does that gap sort of keep new supply out, in your opinion?

Speaker 4

Yeah, Sydnie, appreciate the question. This is Nick. I hope you can appreciate it is difficult to answer because it is so market-specific and site-specific. It is our job, as our teams do a tremendous job around the country sourcing these land deals, our job is to put all the inputs into the pro forma to make sure it is a risk-adjusted return we are comfortable with. Certain markets have higher land costs, as you can appreciate, higher construction costs, and so there is no, unfortunately, easy button to hit of what is the rent needed to make those deals pencil. It really is market by market. But as you can see, I am comfortable saying both are true. We are getting more than our fair share of development opportunities. Our teams are doing a tremendous job.

Speaker 4

putting all those inputs into the pro forma, making sure we are getting a risk-adjusted return of north of 7%, which we articulated we are very comfortable with in this environment. But at the same time, we also know how extremely difficult those opportunities are to find and to make pencil. That is why, even with all of our relationships, even with all of our knowledge, we do believe we are the best in the business at it. We know how difficult it is. We do not see a massive amount of supply coming online. I do think there is a pretty material delta from those economics making sense for a massive amount of supply to come online. We are confident on both ends.

Speaker 4

We're confident on our ability to grow our development pipeline like we have been, and we're confident on the operating side that we're going to continue to have leverage given the limited amount of overall supply coming into the market.

Speaker 1

Thanks, Sydnie.

Operator

Thank you. The next question is coming from Michael Mueller of J.P. Morgan. Please go ahead.

Speaker 16

Hi, thanks for taking the question. This is Jacob on for Mike. Keeping on the development theme, some of your recent activity has been tied to master plan communities. Can you tell us if working with these developers gives you more visibility into starts three to five years out, and does it give you any more visibility into the shadow pipeline as well?

Speaker 4

Yeah, really appreciate the question, Jacob. You are absolutely right. We have had a tremendous amount of success working with master plan developers just for the reason you articulated. Number one is they are planning years in advance, which works to our benefit to work with them as a partner to plan arguably their most important amenity in many of these projects is what is their retail center going to be. As you are well aware, new homeowners really want to know where they are going to grocery shop. It is an important part of our everyday lives. Being able to work with what they see as best in class developer grocery anchor centers is an important attribute that they are selling to their future home buyers.

Speaker 4

Also, given the previous question Sydnie asked, they are a little less concerned about the specific land value on that one parcel of land when they are working with thousands of acres. They are a little more realistic on land value to make sure they are bringing in the absolute best in class grocery operator. It is a win-win scenario from our perspective. They know we are going to bring the best operator possible to their development. They know we are going to develop it all cash, and they know we are going to own it and care about it long term. If you are a master plan developer, I say it all the time, I do not know how you would not pick us to be your retail partner. Very important part of our development program. We take those relationships very, very serious.

Speaker 4

To your point, it gives us the confidence as we are working on our shadow pipeline that we are going to be able to continue to have our development starts be in the same ZIP code that we are seeing this year.

Speaker 1

Thanks, Jacob.

Operator

Thank you. The next question is coming from Craig Mailman of Citi. Please go ahead.

Speaker 17

Good morning. Just want to go back to the comments just on the forward demand pipeline even for spaces that are leased. Just kind of want to see if there's any takeaways that you could give on where spreads are trending. Are they strengthening or kind of staying the same? Then just kind of longer term, I know we chatted a little bit on this call about just the vertical makeup in the portfolio. Long term, are there any changes that you would like to see from a remerchandising standpoint to just bolster the sustainability cash flows or bring down bad debt long term as you look to replace some of these tenants who are maybe struggling or just overall strengthen the center?

Speaker 3

Craig, good morning. It's Alan. I appreciate the question. From a forward demand perspective, look, our pipeline remains very strong, and merchandising, as I said, has always been a deliberate strategy. I think what I would look to maybe a bit first is the retention rate. Again, and this sort of ties into the supply-demand dynamic that we're in right now, but we were at 84%, and that's a peak. We do not manage to a number on a retention basis. It's really more of just an outcome. I would say that I'm very comfortable, and it is healthy to take some space back. We do that intentionally via this sort of proactive leasing some occupied space.

Speaker 3

I don't want to make this such a huge prevalent theme, but it's an important one in that we have $2 million of incremental signed SNO pipeline that is on space that is occupied right now. So, that ties directly into your point of why are we doing it. We're doing it because we believe we can get a better operator that should drive better foot traffic, which will drive higher sales, which will drive higher rent for the rest of the asset. It's an accretive transaction, hence the incremental add to our ABR. So, it's a key focus. It's something we've done in the past, and we will certainly continue to do in the future, particularly at 97% lease, where we'll take advantage of that tailwind of driving revenue.

Speaker 1

Thanks, Craig.

Operator

Thank you. Once again, ladies and gentlemen, that is star one if you would like to register any questions at this time. Our next question is coming from Linda Tsai of Truist. Please go ahead.

Speaker 18

Hi. Thanks for the time. Do you view pricing power as more concentrated in the starting rent or higher contractual escalators?

Speaker 3

Linda, I appreciate that question. It's all about GAAP rent from my perspective, and I think, look, it is an art, not a science. There are instances where you're driving a higher initial rent spread, but at the end of the day, on a collective basis, we're focused on both. I think when you look at our new deals for the quarter, we were at, just north of 30% in terms of GAAP rent spreads. When you look at our shop embedded rent steps, 100% of our new shop deals did include rent steps. We're at that point where 90% of them are over 3%, 20% of them are over 4%. The teams are really clicking on all cylinders in terms of the combined long-term sustainable growth in both spreads and steps.

Speaker 1

Thanks, Linda.

Speaker 18

Thank you.

Operator

Thank you. At this time, I'd like to turn the floor back over to Ms. Lisa Palmer for closing comments.

Speaker 2

I think

Speaker 2

Yeah, we thought that maybe perhaps someone else was trying to ask. I appreciate everyone.

Operator

I did see someone come in, but they removed themselves.

Speaker 2

Okay, perfect. Thank you so much. Appreciate everyone's time today. We will see many at Nareit in just a couple weeks, and enjoy the weekend. Thank you.

Operator

Ladies and gentlemen, this concludes today's event. You may disconnect your lines and log off the webcast at this time, and enjoy the rest of your day.

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