Prepared remarks
Greetings, and welcome to the Regency Centers Corporation Second Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Christy McElroy. Please go ahead.
Good morning, and welcome to Regency Centers' Second Quarter 2026 Earnings Conference Call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Michael J. Mas, Chief Financial Officer; Alan Todd Roth, East Region President and Chief Operating Officer; and Nicholas Andrew 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. 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. 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. 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 additional follow-up questions. Lisa?
Thank you, Kathryn. Good morning, everyone, and thank you for joining us. Our team delivered another excellent quarter, extending the positive momentum we have built over the past several years. We generated strong NOI and earnings growth, driven by sustained operating fundamentals and a disciplined capital allocation strategy. These results reflect the quality of our portfolio, the strength of our platform, and most importantly, the remarkable execution of our team. Across our portfolio, leasing demand trends remain robust, supported by the strength of our tenant base and their continued expansion plans. Our grocery-anchored neighborhood and community centers continue to benefit from a durable tenant mix of necessity, service, convenience, and value retailers, while the resilience of our consumer base is supported by the compelling demographic profile of the suburban trade areas we serve. We believe this positions us well to perform consistently through shorter-term periods of macro uncertainty as well as longer term across all economic cycles. We also continue to execute on our capital allocation strategy, with momentum across our entire investments platform, including development, redevelopment, and acquisitions. Our national ground-up development program is one of Regency's most important differentiators. In an environment of continued low new supply and a scarcity of high-quality available space, our ability to source, execute, and deliver successful projects across our target markets is not only a driver of meaningful NOI growth, it also creates value in ways that no one else in our sector is replicating. Rather than relying solely on acquiring centers at market prices to drive external growth, we are building premier shopping centers at yields that represent substantial spreads to market cap rates. This platform and our ability to consistently drive value above our cost to build allows us to generate earnings accretion while also growing NAV. Mike will go into more detail, but our favorable year-to-date performance and enhanced visibility into the second half of the year gives us the confidence to raise our full year forecasts for same-property and total NOI growth. And we now expect core operating earnings per share growth to exceed 5%. Before I close, I would also like to briefly mention our recently released corporate responsibility report, which highlights meaningful progress across our priorities. Corporate responsibility has long been a foundational strategy for our company. Its principles are deeply ingrained in our culture and day-to-day operations, and the initiatives continue to generate real cost savings and ancillary revenue growth. In summary, I am energized by our business today and the opportunities ahead. Our high-quality portfolio located in the strongest suburban trade areas, our leading national development platform, our fortress balance sheet, and most importantly, the best team in the business all set us apart. I am confident in our ability to deliver durable, sustainable growth and long-term value for our shareholders. Alan?
Thank you, Lisa, and good morning, everyone. We delivered another outstanding operating quarter, driving overall leased and shop occupancy to new highs while maintaining robust rent growth, reflective of the fundamental strength across our portfolio. These positive results collectively contributed to same-property NOI growth of 3.8% in the quarter, with base rent growth serving as the primary driver. Our same-property leased rate is now nearly 97%, as we are pushing both anchor and shop leasing higher supported by continued strong tenant demand and a retention rate of 84%. This is a direct reflection of the favorable leasing environment, coupled with limited availability of high-quality space. Commenced occupancy was also up 20 basis points in the quarter as we continue to successfully convert our signed-not-yet-open pipeline into rent-paying tenants. Our pipeline of newly executed leases provides us with visibility of further upside in commenced occupancy which will remain an important component of future same-property NOI growth. Leasing is active and broad-based across nearly every category and region in which we operate. Grocers, health and wellness concepts, restaurants, personal services, and value-oriented retailers continue to expand. At the same time, quality space is in short supply, both within our portfolio and throughout our markets, providing our teams significant leverage in lease negotiations, and they are doing an excellent job capturing that opportunity. This is translating into strong rent growth, with cash rent spreads above 10% in the quarter and GAAP spreads of nearly 20%. We also continue to successfully embed annual rent escalators into nearly all of our newly executed leases, one of the primary drivers of sustainable base rent growth well into the future. This fundamental backdrop is also supporting our ability to boost expense recoveries. We are seeing our recovery rate benefit significantly from higher commenced occupancy as well as improved lease terms. We saw the power of this in the second quarter as we completed our expense reconciliations for the prior year with market conditions and the quality of our leases driving success. Building on some of Lisa's comments, our centers benefit from both trade-up and trade-down behavior, sitting at the intersection of convenience, offering value, and everyday essentials. Tenant sales growth is widespread throughout the portfolio, foot traffic is showing steady increases, and accounts receivable remain below historical averages, confirming a very healthy tenant base. Our team remains focused on capitalizing on strong tenant demand and favorable supply dynamics, creating opportunities to drive NOI higher while further strengthening the merchandising quality in our portfolio. That combination of strong fundamentals and disciplined execution gives us confidence in our ability to continue driving NOI growth. With that, I will hand it over to Nick.
Thank you, Alan. Good morning, everyone. During the second quarter, we continued to build on the success of our investments platform, further extending our external growth trajectory. We made meaningful progress across development, redevelopment, and acquisition activity in addition to identifying future opportunities. Our new project pipelines remain particularly strong, providing a clear path to future growth. As a result, we have raised our eye level on new development and redevelopment projects, and now expect starts in 2026 to approach $400 million. This truly is a unique story to Regency. We have a visible external growth pipeline that results in real value creation on top of earnings accretion. It also allows us to approach acquisitions as opportunistic and strategic rather than as a required deployment of capital. This is especially valuable in environments like today, where transaction markets are extremely competitive and continue to compress cap rates. Year to date, we have started more than $140 million of new projects, one of the highlights of which was the start of the Berkman at Durbin Park during the second quarter. This $55 million ground-up project will be anchored by Whole Foods and TJ Maxx, located within a vibrant master-planned community in a strong suburb of Jacksonville. We are also making great progress executing on our $680 million in-process pipeline, for which we continue to expect blended returns of 9%. Leasing momentum for these projects has been outstanding, with in-process development 80% leased. Beyond accelerated leasing, our team continues to partner with anchors to efficiently get stores open ahead of schedule and accelerate rent commencements, including the recent early openings of Trader Joe's at The Golden Hills in Central California, and Kroger at Westchester Plaza in Cincinnati. These are just a few great examples of the success and positive trends across our pipeline. In closing, our ability to increasingly source new and exciting projects is a testament to the flywheel effect I have referred to in the past. We are excited about the opportunities in front of us as our recent successes, retailer relationships, development expertise, and access to capital allow us to continue to be confident in our ability to drive sustainable and attractive external growth, creating significant value for our shareholders. Mike?
Thank you, Nick, and good morning, everyone. As you have heard from the team, Regency delivered impressive financial results in the second quarter, supported by execution across our operating and investment platforms. We now have enhanced visibility into the second half of the year. And as you heard from Nick, we continue to grow our investment opportunity set and in-process development pipeline. All of this speaks to the power and durability of Regency's growth algorithm. We combine the strong, stable organic performance of our high-quality portfolio with accelerating contribution from accretive capital allocation focused on successful development and redevelopment projects and operating property acquisitions. As a result, we are raising our full-year outlook. We have increased same-property NOI growth by 40 basis points at the midpoint, primarily due to higher commenced occupancy expectations supported by greater clarity around tenant activity in the second half, in addition to higher expense recoveries following the completion of our annual reconciliation process. Our revised outlook now reflects total NOI growth in the mid-6% area as well as core operating earnings per share growth exceeding 5%. I also want to highlight a few atypical items within NAREIT FFO, which are largely offsetting each other within our guidance ranges. These include a singular lease termination fee that will contribute to a higher level of term fees in the third quarter as well as a reduction to our non-cash revenue outlook largely related to lower below-market rent amortization and higher straight-line rent reserves. Our A-rated balance sheet remains a competitive advantage, with leverage comfortably within our target range of 5 to 5.5x along with strong and growing free cash flow and nearly full availability on our $1.5 billion revolving credit facility. This flexible financial and liquidity position provides us with attractive access to low-cost capital and supports our ability to fully fund our investment pipelines and pursue additional growth opportunities. Stepping back, everything that drives value for Regency is working in concert: strong leasing fundamentals, consistent embedded rent growth, and an unmatched development-led external growth strategy, a healthy balance sheet, and disciplined value-creating capital allocation position us for durable and attractive growth ahead. With that, we welcome your questions.
Questions and answers
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. Please limit yourself to one question, and you can rejoin the queue for additional questions. You may press 2 if you would like to remove your question from the queue. And our first question will come from Michael Goldsmith with UBS.
Good morning. Thanks a lot for taking my question. Can you provide a little bit more clarity on the term fees? It looks like you are now expecting a larger one in the back half. So can you provide some more details around that? How is that impacting your revised outlook? And then is that included or excluded from your same-property NOI guidance? Thanks.
Hey, Michael. Good morning. It is Alan Todd Roth. I will let Mike answer the guidance side of it. Let me just start with one of our major EV operators decided that they were not going to open 11 of our locations as part of a package deal. The operator is financially sound; they are going to continue to operate about 15 units within our portfolio. And importantly, we are collecting rent through the end of this year. We got a termination fee equal to four years of rent from that, and we are already engaged on eight of those 11 locations for a backfill. So it was overall an exceptional transaction in terms of what is impacting the numbers. Guidance, I will let Mike handle.
Hey, Michael. It is a good opportunity to highlight the excellent disclosure on the reconciliation. If you look at page 6 of our slides, you can see lease termination fees are not part of Regency same-property NOI metric. So that healthy 1.5 cent guide raise in the same-property NOI line is excluding the positive deal that Alan just described. So the $0.015 is incorporated into our core operating earnings raise and FFO raise for the quarter. But what I would like to highlight is that the raise in same-property growth of 40 basis points at the midpoint, raising both the low and high end, is really the material driver to our enhanced outlook: greater leasing activity, enhanced visibility into average commenced occupancy going north from this point forward, and we had a great recovery season in the second quarter. And we think that expense recovery ratio will hold for the balance of the year. Thanks, Michael.
Thank you very much. Thanks, Michael.
Our next question will come from Jamie Feldman with Wells Fargo.
Greg. Thanks for taking the question. So you walked through a wide range of capital options to fund new investment. You are comfortably in your target range for leverage. Can you just talk about how you do think about the different sources of capital, including OP units? As we have seen some of your peers start to use a little bit more, and especially as you find larger deals, or if you want to find larger deals, how you would think about the mix of capital sources? Thank you.
I have got you, Jamie. So everything here starts with free cash flow. And we are very consistent with how we think about sources and uses. Free cash flow is in the area of $180 million this year. We will leverage that neutral to our balance sheet. I appreciate you noting where we are. We are at the lower end of our targeted range, 5 to 5.5x, so we have some capacity there. That levered free cash flow is the fundamental source for driving our development business. So we can go confidently into that business and make commitments and deliver upon those commitments. We do have excess levered free cash flow that we can deploy into acquisitions. And to the extent we find bigger transactions beyond that or to the extent we grow our development platform, we will consider other sources of capital. We are very fortunate to have access to all types. That could be JV capital, which we have deployed and you can see in our results. That can be more debt capital—again, I said we are at the low end of our leverage range—and that could be equity. We have raised equity in the past, and we will raise equity wisely going forward. Rest assured, what you will see us acquire will be accretive to consistent growth, accretive to consistent quality, and most importantly, accretive to whatever source of capital we deploy at that point in time. Thank you, Jamie.
Thank you. Our next question will come from Andrew Reel with Bank of America.
Good morning. Thanks for taking my question. I guess just to go back to the FFO reconciliation, you moved a small number of leases to cash basis in the first half. Just any color on what type of tenants those were and maybe if you are anticipating any more cash basis conversions in the back half? Thanks.
Sure. Thanks, Andrew. Yes. So the noncash line item we did revise down this quarter and there is really a couple of things going on there. As you mentioned, this is a normal part of the business. Tenants will move from accrual accounting to cash accounting. As we know, when that occurs, whatever straight-line rent you have accrued to that point in time gets reversed, and that is what is occurring in this quarter. To highlight that, there is one lease in particular that had an outsized impact on that outcome this quarter, and that is really what is driving our revised outlook for the year. By the way, just as an aside, that lease that did convert to cash is current on their cash payments, so we are not losing any cash flow in our core operating earnings guidance. The second element that is going on in the noncash line item is accelerated below-market rent. Pardon me for getting technical, but the good news of retaining more tenants that were on our watch list—tenants we had provisioned for departing or moving out—is that those departures are not occurring. What that also means is below-market rent that you would have accelerated into income is also not occurring. So that is revised out of our noncash outlook this quarter. What does that really mean when you zoom out? Cash earnings are growing at Regency. We are retaining more tenants. Average commenced occupancy continues to increase. That is also translating and amplifying through recovery income. And that is what is driving our core operating earnings guide increase of $0.03 at the midpoint. All of those indications are very positive for outlook. The noncash items affect NFFO, and unfortunately they have moved in the wrong direction on us, but those, again, are not impacting that free cash flow number I mentioned earlier. Thank you, Andrew.
Moving next to Ronald Kamdem with Morgan Stanley.
Hey. Staying on the presentation, the 94.5 percent commenced occupancy— I think we have talked about sort of further upside from here. Can you just tell us in terms of how high you think occupancy can go, specifically in commenced occupancy, and how you guys are sort of incentivizing the team to keep driving that higher? Thanks.
Ronald, good morning. It is Alan. Appreciate the question. I have had the luxury of saying records are meant to be broken for many quarters, so I have stopped saying that and am really not guiding to any specific cap on how far that runway can go. Our teams are focused on great operators and quality merchandising, and they are going to continue to keep that pedal down. When I look back at the last quarter of deals that were completed, there are a number of great users out there where the power of the platform has come into fruition. Sourdough and Company—we signed four deals with them in Oregon, Colorado, and Georgia—where our teams are banding together on a great use. Everbowl, a couple of deals in North Carolina and California. Another concept that is growing is pop-up bagels—we have deals with them. And then if you transition into the fitness sector, you have SolidCore, which has been a strong staple for us, and Pilates Addiction owned by the Sequel brand; there are just some great retailers that the teams are executing multiple deals with around the country, leveraging the platform. So they are going to continue to press forward on great users without any expectation of where ultimately it can go. From a commenced occupancy perspective, to answer that question, we are at roughly a 240-basis-point signed-not-yet-open spread today. If you look back at that historic stabilized number, it is about 180 basis points. So that gives a little bit of context in terms of where we think that can go in terms of future runway, which we certainly have. Thanks, Ronald.
And Greg McGinniss with Scotiabank has our next question.
Hey. Thank you. Was hoping that you could give us maybe a little bit of color on the acquisition environment—the availability of shopping centers that kind of fit your underwriting criteria, cap rate trends, and then your use of JVs to acquire those. Is there dry powder in these structures or mandates to spend where we could see you continue to invest there?
Greg, this is Nick. Good morning. We will start first with what we are seeing in the market. The market is very active in the transaction world and we continue to see especially private capital allocate toward grocery-anchored shopping centers for the same reasons we are attracted to them. As I said in my opening remarks, that is continuing to compress cap rates quarter over quarter. When we talked about this last quarter, I was talking mid-fives plus or minus, and we are now seeing some things start trading with a four handle. So very aggressive capital from a core acquisition standpoint. The blessing for our business plan, as Mike already talked about, is first and foremost we are focused on growing our development and redevelopment platform given the yields we are accomplishing there, and we feel really confident in our visibility to continue the in-process ones and continue to grow that pipeline. But then as Mike also said, we do have excess capital. One part of that is our JV capital. We are very proud of our long-term partnership with the State of Oregon; they have renewed that capital commitment, and so there is quite a bit of availability still within that partnership. We still have capacity on our balance sheet, as Mike talked to. So you can see this quarter we are still active in the transaction market, but we are going to be picky. We are going to make sure that the opportunities check all the boxes Mike spoke about earlier: we can fund them accretively, whether that is on balance sheet or with our partnerships, and make sure we like the quality of the asset—from the quality of the trade area, quality of the tenants, and importantly, the quality of the future growth. So when we see those opportunities, we are very particular about them and are doing that very effectively. Thanks, Greg.
Our next question will come from Todd Michael Thomas with KeyBanc Capital Markets.
Hi. Thanks. I wanted to ask about the Kroger/Albertsons merger. I was wondering first, can you just discuss whether there is any geographic overlap across the banners there and if any potential formats could be at risk longer term? And then second, that combination there would create a new top tenant for the company, with almost 150 basis points more rent exposure than Publix. Just any considerations around that larger concentration and whether that creates any asset management needs or opportunities.
Hey, Todd. It is Lisa. I think that you might be confusing Giant, which is Ahold, with Albertsons. The merger is actually Kroger with Albertsons. I will let Alan touch on the market overlap.
Yeah. Todd, Albertsons is Boise-based and that is the announcement with Kroger, of which we do not own any Albertsons in our portfolio. When you think about the roughly 500 assets, the only overlap for us from a market perspective would be Columbus, Ohio, and that is super de minimis. I think there are maybe three Kroger centers that have some trade area overlap there. But it is not a material thing for Regency. Thanks, Todd.
We will go next to Michael Griffin with Evercore ISI.
Greg. Thanks. Maybe sticking on that vein of grocers. One of your larger tenants had some cautious commentary in their recent earnings report around consumer sentiment and I think it's maybe the lower-end consumers getting squeezed. Maybe that is not applicable within your footprint in Regency's portfolio, but do you have a sense has either grocer health or the outlook changed at all or occupancy cost stable? If you could just give us any insights there, that would be helpful.
Of course, Michael. Thanks. I have said this before; I have been in the business a long time, and the grocery business has always been extremely competitive through decades of my experience, and it continues to be so today. The best physical locations with the better operators are going to continue to be critical to the entire grocery sector, and you see that through all of their expansion plans, which both Alan and Nick talked about. We are seeing it in our development pipeline with those expansion plans. I will remind you that there was even more concern pre-COVID and then coming through COVID a renewed appreciation for that physical location, and the grocers understand that they need to invest in every aspect of the business from an omni-channel standpoint, and we are seeing that happen. From our perspective specifically, we have not seen anything in our portfolio or in our close relationships and conversations with our grocers that would give us any pause or change our view of grocery whatsoever. We are in active dialogue, and while it is a really competitive environment, we believe that operating with the best real estate, and with the best grocer banners in those markets, is a winning long-term strategy. Thanks, Michael.
Our next question will come from Floris Van Dijkum with Ladenburg Thalmann.
Hey, thanks. Congrats. Solid quarter again. Maybe if you could talk—you mentioned your fixed rent bumps that you are getting. I would imagine all your shop tenants have 3 percent or greater escalators. Maybe talk a little bit about what you are seeing on the anchor side. How successful are you in getting annual rent bumps for your anchor tenants? And are even grocers now willing to contemplate those leases? Obviously, those do not come up very often. But maybe if you can talk a little bit about what is happening also on the anchor front in terms of pushing those escalators through to your tenants?
Good morning, Floris. You are right: more than 80% of our new shop leases do have 3 percent or more escalators. Importantly, because we are leaning into the 'or more' component, things have certainly improved on the anchor side as well. Is it as successful on annual escalators as the shop world? No, I do not think the anchor side has transitioned as much as the shop world has. However, what we are experiencing is larger rent spreads than we were seeing before, and there are many anchor tenants who may have had 10- or even up to 20-year terms with flat rents. In today's environment you are getting escalators in maybe 5-year increments. So there is certainly improvement. We are leaning in where we can appropriately lean in, but also being mindful that we want the best operator that is right for our asset, right for the community, and right for further merchandising. Thanks, Floris.
Moving on to Craig Mailman with Citigroup.
Hey. Good morning, everyone. Lisa, I know you spent a lot of time discussing the differentiator that the development platform has been for Regency and you guys are upping the starts this year to $400 million. I am just kind of curious: what the potential sustainability or acceleration is even from here to put capital to work and continue to drive the value? And just kind of curious also, with cap rates falling to below 5% in some instances, how does that change your replacement-cost rent math for you guys or your risk appetite there? Does that free up more projects that may have been a little bit harder to pencil now that the exit value may be even better?
Hi, Craig. Appreciate the question. I will reiterate something I have said before: we have the best national development platform in the business. It is not an easy business. The reason for our success is the experience that we have on the team, the relationships we have locally as well as nationally, and simply the ability to execute. We have confidence that we are able to sustain if not grow the levels at which we have been starting projects and delivering in the years to come. There is no question others have a difficult time making a pencil, but it is all of those things—cost of capital, relationships, experience—that are enabling us to be successful. I have 100% confidence that it is going to continue into the foreseeable future. Thanks, Craig.
Our next question comes from Michael Mueller with JPMorgan.
Yes. Just out of curiosity on the Berkman development here in our backyard. Is that something you have been pursuing for a while and maybe could not get a plan before, or is that just more of a recent opportunity?
Yeah, Mike. Appreciate the question. We have been working on that project now for several years. That is why, as Lisa alluded to, these projects are not easy. They are complicated and do not just fall out of the sky like some acquisitions can. These are blood, sweat, and tears over an extended period of time. Similar to the story we have talked about in the past, it is a great master-planned community. It is the entrance into this master-planned community. We have been working with that owner for several years to come up with a site plan that works for us and works for them. Obviously, bringing another Whole Foods to Jacksonville and bringing a TJ Maxx to St. Johns County—we are really excited about it. It is a several-year process, and I say that to reinforce what Lisa just said on the last question, which is why we are bullish about our ability to continue to deliver. We have a pipeline of projects we are currently working on that is very healthy. We are not going to bat a thousand, but we feel really good about projects like this one, ultimately bringing them online in terms of starting them and more importantly delivering them as we have done time and time again. Really excited about that project and the ones to come in the near future. Thank you for asking the question.
It gives me an opportunity to come over top and just reiterate because that project is a great example of each one of the things I said. One: a fantastic local team that worked on that project. Two: it would not have happened without the relationships that we have in this market. And three: it would not have happened without the relationship with Whole Foods. It is going to be a great center and one that we will own for a very long time. Thanks, Mike.
Moving next to Juan Carlos Sanabria with BMO Capital Markets.
Hi, good morning. Thanks for the time. Just curious on the acquisition front, if you guys have studied or are thinking about expanding the breadth of opportunities to maybe include non-anchored strips or maybe larger lifestyle or power centers, just given the compression in grocery-anchored cap rates? I suspect I know the answer, but curious on the thoughts and the rationale just given the strength of the asset management team to take advantage of opportunities in those other subcategories.
Yeah. Appreciate the question, Juan. We are constantly looking at all opportunities across the spectrum of retail real estate, but we continue—as Mike said earlier and I have said earlier—to be particular. We like our format. We like grocery-anchored neighborhood shopping centers and best-in-class community shopping centers for the durability, merchandising, and long-term ability to grow rents. That is our primary focus, as you have seen time and time again. But we are also looking at add-on opportunities, like small strip centers adjacent to our existing centers, and we have bought those. When they match our strategy and we can fund them accretively, we will move on those. As it relates to power centers, the big-box business is a different business, and so I do not think you are going to see us move into the power center business unless it is something very, very unusual. Thank you, Juan.
As a final reminder, press star one if you would like to ask a question. Our next question will come from Paulina Rojas-Schmidt with Green Street.
Good morning. This is a follow-up on JVs. Some of your JV deals made me wonder how you think about the tradeoffs of growing your JV partnership more aggressively—benefiting from the fee income to boost yields—versus the complexity in general around partial ownership. I ask because we have seen other players in our space and also in other real estate industries scale this arm in an environment where acquisition yields are hard to find.
I will start and Mike can add if I miss anything. Paulina, as we have often said, when we think about JVs we think about employing them for three reasons: access to capital, access to opportunity, and access to expertise. Those cases come when it is a different use perhaps. The other two, we are not in a position where we need access to capital. Never say never, but we do appreciate the partners that we have and we will continue to invest with them and maintain those relationships. If there ever is a need for access to capital or access to opportunity, and as we have been acquiring with Oregon it helps us execute on these acquisitions on an accretive basis, we will consider scaling. Our partner in Oregon is a 20-plus-year partner. We do still have capacity and we will continue to invest capital with them. To the extent of scaling further, that is something we would always evaluate, and again, it needs to check one of those boxes: it gives us access to opportunity, the opportunity checks all the boxes Nick and Mike mentioned, it is accretive to earnings, accretive to future growth rates, and accretive to or equal to the quality of what we already own. That is how we think about it. Thanks, Paulina.
Moving on to Michael R. Herman with BTG Pactual.
Thanks. Good morning. Lisa, you mentioned the corporate responsibility report and obviously Regency has seen significant growth in renewable energy out of the portfolio in recent years. Maybe with the national conversation at the local level pretty active around power generation and electricity bills, I am just curious what the go-forward opportunity is to expand the solar program at Regency and how you think about that not just from a corporate responsibility perspective but from an investment perspective—whether it is on the expense side of Regency or services you can provide to the tenants in the communities. Maybe just some color on where that could go in the coming years. Thank you.
I think I will let Alan hit the tactics, but I will reiterate that corporate responsibility is ingrained in our culture. If you look at our values on our website, we live those: connecting to our communities, being responsible, and striving for excellence all fit our priorities as we think about corporate responsibility, of which renewable energy and solar is part. The opportunity for that, I will let Alan address.
Mike, I would just expand upon that. Obviously, corporate responsibility is step one. A lot of our developments are incorporating that right out of the ground, whether some municipalities require it or others do not. We are also thinking about it from an ancillary income perspective and not just solar—there are various other things we are thinking about. It is not a small part of our business: it is nearly $35 million a year of ancillary income and it is growing. And it is beyond just solar; it is the EV revenues, it is fees, it is temporary deals, it is different marketing events. It is checking a lot of boxes and something we remain keenly focused on.
And I will just add we do continue to invest in our solar program. You see that in the growth that is within our corporate responsibility report. We are adding new projects this year. We are underwriting new projects for future years. We are having the most success in states like Connecticut and Massachusetts and California, so we continue to grow that program. Thanks, Mike.
And we have a follow-up question from Floris Van Dijkum with Ladenburg Thalmann.
Hey, thanks for taking my added question. More on the capital allocation front and development being a unique advantage for Regency. Maybe talk about—you do not seem to have a big land pipeline—how do you tie up land? Because when you do development, land is presumably one of the biggest swing factors in whether a project pencils or not. Can you talk about your strategy regarding getting access to land and how you look at that as you build your future pipeline going forward?
Floris, I am going to let Nick answer the question, but I will just reiterate that it really is a differentiator because we are allocating and investing our free cash flow in shopping centers that you would otherwise need to buy at market cap rates, and we are developing them at returns that are a substantial spread. It provides us visibility to future growth as we deliver these. Appreciate you recognizing it and giving me another opportunity to say it.
Yeah, and I will add specifically to your question, Floris. If you look at our land held, it has actually shrunk over the last couple of years as we have grown our development program. That is because we brought some legacy land into production and we have not had to speculatively buy land to grow the program. We are being very efficient in our ability to, more times than not, not close until the project is effectively derisked. That means entitlements in hand, preleasing with our anchor and even shops in many cases, and hard bids in hand, so we feel really good not only about our going-in yields—as Lisa alluded, our ground-ups are 7% plus—but also delivering them at those yields. It is one thing to plan them at those yields; it is another to bring them online, which we are doing effectively. To your point, we work with the seller and control the real estate through contracts. That is how we continue to work with master-planned developers and other sellers: we share some of that risk to maximize their land value and put it into production. I am proud of the team and our relationships with grocers and sellers; our track record speaks for itself. Thanks, Floris.
Thanks.
And we have another follow-up question from Jamie Feldman with Wells Fargo.
Greg. Thank you. Along those lines, just thinking about some of the other construction costs, can you just give us the state of affairs of construction costs across your markets for the major pieces of your projects? And then if you don't mind, medical and fitness has been growing in the portfolio—what are your thoughts on how large that could get in terms of total ABR and the credit quality of those types of tenants? Thank you.
We are sneaking two questions; I will take the first and then have Alan take the second. The first in terms of cost: it is volatile. There is no question. Fuel prices today are very volatile. The good news about our team—and as I just talked about in the previous question—is our derisking of these projects. We have been doing this for a very long time. Over the last five or six years we've dealt with major supply chain issues coming out of COVID, then tariff impacts, and now fuel price volatility. The volatility is always part of the construction business. Our teams do an excellent job of bidding the majority of these costs before we even start to try to derisk, but we carry appropriate contingencies and cost escalation to deal with unknowns. That is why the vast majority of our projects come in on time and on budget. We are not going to bat a thousand, so every now and then there is a little impact, but on a blended basis we are winning more than we are losing in our underwriting and that is why we continue to feel confident despite the volatility.
Jamie, on your medical and fitness question, we are at about 12% of ABR and that is up about 200 basis points over roughly five years. So we certainly are leaning in more. Medical tenants tend to be stickier, and it has become a bigger part of the open-air shopping center arena. From a fitness standpoint, healthy living is a real mindset in today's environment, and we feel comfortable and confident having fitness as part of the tenant mix. It is really about aligning with the right operators. I do not have a specific target but it is something we are clearly leaning more into. Thanks, Jamie.
And our next question will come from Tayo Okusanya with Deutsche Bank.
Yes. Good morning, everyone. Lisa, while I recognize that the focus from an external growth perspective is on the development side, curious how you are thinking on the acquisition front. I know it has been a while since you have done a large deal. Curious how you are thinking about further consolidation amongst the public names in this space and if the strategy there is really more to be selective finding onesies and twosies where they fit your bill.
Appreciate the question, Tayo. We are always active, and I will remind you that last year we did acquire a large portfolio in Southern California, which was funded accretively. We are constantly evaluating the entire market. We approach opportunities the same way and have always said whether it is a single asset, a portfolio of assets like we acquired last year, or a company— we have the balance sheet to act and the team to capitalize on those opportunities. When they are presented, we will be aggressive and we will act offensively. Thanks.
This now concludes our question-and-answer session. I would like to turn the floor back over to Lisa Palmer for closing comments.
Thank you all for your time today. And happy Thursday.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.