Q2 2021 RPT Realty Earnings Call
[music].
Greetings and welcome to the RPT Realty second quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone.
The people.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Vin Chao.
Dan you may begin.
Good morning, and thank you for joining us for Rpt's second quarter 2021 earnings Conference call. At this time management would like me to inform you that certain statements made during this conference call, which are not historical maybe deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995. Additionally, the statements made during the call are made as of the date of this call.
The series to any replay should understand that the passage of time by itself will diminish the quality of the statements made although we believe that the expectations reflected in any forward looking statements are based on reasonable assumptions factors and risks could cause actual results to differ from expectations sort.
These factors are described as risk factors in our annual report on form 10-K for the fiscal year ended December 31st 2020, and in our earnings release for the second quarter of 2021.
Certain of these statements made on today's call also involve non-GAAP financial measures listeners are directed to our second quarter press release, and our first quarter press release, which includes definitions of the non-GAAP measures and reconciliations to the nearest GAAP measures and which are available on our website in the investors section.
I would now like to turn the call over to President and CEO, Brian Harper and CFO, Mike Morris for their opening remarks, after which we'll open the call for questions.
Good morning, and thank you for joining our second quarter of 2021 conference call I Hope you and your families are all well.
Although the pandemic has created many challenges we are seeing a resurgence in open air shopping center demand as retailers gain a better understanding of the importance of of robust omni channel distribution platform that includes the well located bricks and mortar retail.
Similarly investors have taken notice they've been allocating more capital towards open air shopping centers.
That exceeded our own expectations and we're excited to share of the considerable accomplishments of the reinvented RPT.
During the depth of the pandemic in 2020, while we were working on our G. M C <unk>.
We're also cultivating of significant investment pipeline.
You took a thoughtful.
And the analytical approach.
The curate art, the external growth and markets like Boston.
Atlanta.
Tampa in Nashville that.
That are flourishing in today's modern landscape.
Thankfully.
Our timing worked out very well.
Well each of our acquisition markets has its own unique set of economic drivers. We believe they will all experience strong growth over the long term.
Which should position of the portfolio of well in the coming years.
Boston for instance is seeing a wave of demand send around the life science industry and our centers have significant adjacency advantages with 186 of life science companies within a 10 mile radius of the for Boston properties and will soon be part of the portfolio.
Once the remainder of of our deals clothes and net of expected parcel sales.
Boston will become our third largest market of just under 8% of ABR.
This underscores or size advantage vs peers as we can quickly reshape our portfolio.
Which is particularly important in today's rapidly evolving landscape.
Let me give you a few highlights on our investments in Boston that will fit in nicely with our previously acquired wegmans anchored northborough crossings property.
And collectively boasted of robust hundred 48000 household income within a 3 mile radius.
Bedford marketplace in the Boston MSA is situated in a highly affluent suburb right outside of the 128 loop with the 3 mile average household income of $193000.
This is the center, where whole foods is doing over a thousand dollars per square foot and as of fresh newly renewed 15 year lease term.
Marshals has been here since 1973 and.
It is also doing extremely well.
Shops that can.
This is the hundred and 33000 household income within the 3 mile radius.
This is the top volume Shahs anchored center, where the small shop demand is robust.
The expected NOI CAGR on this asset is about 4 per cent.
Lastly, we are in negotiations on the true infill grocery anchored center inside of the 128 lube with above average household incomes and popular the population densities first of our portfolio averages with the potential for future densification opportunities given the size and.
Proximity to Boston.
In total since our last call, we close for our under contract on 8 Multitenant deals and or an advanced contract negotiations on the ninth asset with the gross value of $500 million.
Covering 2.6 million square feet.
Which will increase R M by over 20 per cent.
To put this of contacts this level of activity equates to almost 50% of our equity market.
Which is quite remarkable.
Rpt's pro rata share of all of this activity and after expected parcel of sales are complete will be around $285 million.
We were only able to execute at this scale because of the power of the platforms that we put together over the last 18 months.
As we discussed last quarter Northborough is 104 million dollar deal we might not have pursued without our GMC given the large ticket size.
Our partnership with our GMC also made northborough, a much more attractive use of capital given the yield enhancement that we expect to generate upon the sale of certain parcels. The R. G M C.
And the southeast region, we acquired of $115 million for property portfolio.
That was split between all 3 platforms RPT R T G and <unk>.
Let me give you a breakdown of this portfolio.
Let's start with Eastlake in Tampa.
This is another grocery anchored center that was added to the R. T G portfolio.
The center is anchored by of high volume Walmart neighborhood market and.
And over 65% of essential or investment grade tendency.
Nude in pavilion.
This is the community center in the Atlanta, MSA with the strong lineup of all of the home depot and Ross.
We are selling the home depot and longhorn to our G. M Z and RPT is left with and all of the anchored center and an 8.6% yield with almost 80% of essential for investment grade tendency.
On balance sheet, we bought Woodstock square in suburban Atlanta.
The center of Shadow anchor by 1 of the highest volume Super targets in the Atlanta MSA.
The center is in the heart of the rapidly growing northwest corridor of Atlanta and is adjacent to of luxury rental of community owned by Grace Star.
We see great Mark to market opportunities on both the small shop in junior boxes at the center.
Woodstock has also demonstrated great stability over the years and has retained its original anchor tenants since it was developed in 2001.
And other balance sheet deal in Bellevue place in suburban Nashville.
The center sits on incredible real estate, where we have conviction around a small redevelopment with the potential future grocery at.
Put everything we've done into context are 2 G. At our gyms, the provided us with the lower cost of capital and we could have achieved even after the rally in our stock price since November.
This lower cost of capital of combined with the yield enhancements from fees and multi the single tenant arbitrage opportunities led us to lock in higher economic spreads on our capital of then we could of otherwise have achieved in the public markets.
Thereby accelerating our earnings growth and our portfolio of transformation.
The summary.
All of our platforms is allowing us to grow earnings.
And to advance our strategic objectives faster than we could do on our own.
Given the level of exit acquisition activity, we put together an additional investor presentation that showcases our recent deals and provides insights into our market strategies.
When time permits please take a look.
On the operational from our second quarter results reflected rpt's reshape portfolio and platform.
We continue to rebound from the Covid induced downturn with another strong leasing quarter.
You signed 58 leases covering of 442000 square feet in the second quarter, which is 59% above the trailing 12 months of quarterly average leasing volume we reported last quarter.
Highlighting the strong demand for our high quality open air centers.
Demand has been particularly robust from the junior anchor category.
His highest I've ever seen in my career.
Leasing highlights for the quarter was in the ideal a ton of country in Saint Louis that replace the majority of of former Stein Mart space and of Lou Lemon deal.
Both of these new tenants will significantly improve the vibrancy of the centers, making them more attractive for both customers and retailers alike.
I'll also improving the credit of the portfolio.
Reflective of the strength of of the off price category, We signed 2 new Burlington deals this quarter the.
The first is at Winchester Center for <unk>.
We're replacing our last dime or box.
And the second does that shops at Lakeland.
For your for placing an office supply of Turner.
[noise] are leasing pipeline as robust as.
Yes, we are in negotiations with several grocers and wholesale clubs and are eager to announce so soon.
Underpinning all of the accomplishments of the quarter is our belief that value creation lies and our ability to improve the quality.
Sustainability.
And growth.
Of our cash flows.
Our success and replacing weaker tenants with stronger ones and our ex increased exposure to Boston and Atlanta.
<unk> to the improved quality and sustainability of our cash flows.
Our increased guidance.
And the 60% increase in our quarterly dividend we.
We flex our accelerated growth trajectory.
With that of turn the call over to Mike to discuss our financial and operational results and are updated guidance and more details.
Thanks, Brian and good morning of everyone today will discuss the second quarter results provided an update on our balance sheet and I know of commentary on our improving guidance expectations. The second half of this year.
Against the backdrop of improving the macro environment second quarter of operating <unk> per share of <unk> was up the <unk> from last quarter.
Driven by lower rent and the problem both collection and abatements of 2 pennies in the reversal of prior periods straight-line ret reserves of about 1 for any per share.
The largest driver of the decline in our bad debt with reduction in our reserves taken for a regal theaters is expected the available for over 2 months and have resumed rent payments accordingly for some context or retina probable collection, including the the payments for you did 5.9 million in the second quarter of 2020 and have phone quickly to the $1.1 million of reported this call.
<unk>.
We are down to just the handful tenants for which we are still reserving expect our bad debt will continue to be a tailwind 2 year over year growth from the second half of the year, which is in line with the the expectations that we set out at the beginning of 2021.
Our fundamentals remained strong we continued experienced accelerating leasing demand with 1 million square feet signed year to day, which is just below the $1.2 million, we completed for the entire year of 2019.
Are positive lease of momentum resulted in sequential increases for our least an occupancy rates of 50 and 40 basis points respectively.
This is in line with our expectations of the trough and Occupancies behind us as we continue to drive occupancy and our newly minted transformed portfolio.
Blended releasing spreads a comparable leases signed in the quarter for 6.6 per cent, including the another strong new lease spread of 17.8%, reflecting once again, the embedded mark to market opportunity in the portfolio.
Over the past 4 quarters are.
Comparable new lease spread with 30 per cent are powerful operating platform continues to drive leasing velocity improve occupancy and secure higher rents.
The merchandising projects remain our best risk adjusted use of capital in our pipeline of projects continue to grow this quarter, we delivered 3 remerchandising in the outlet projects the ground lease with 1 of these at coral free shops, the ground lease with Chase bank at West Broward and the combination of the boxes for of Vayda of merchant square.
These projects were completed and the average return on capital of 17%.
We also started our new Rei Remerchandising project a ton of country.
And an expansion project for Burlington of the shots at Lakeland, where we expect returns of 9 of 13 per cent.
We added 5 new pipeline progress of this quarter of North broke crossing fearful pound Center field Plaza River city marketplace and province marketplace, highlighting the demanded our centers in the future right outside.
We ended the second quarter with net debt the annualized adjusted EBITDA 7 point of times down from 7.2 times last quarter leverage should fall towards our target range of 5 and a half of success times as our bad debt reserve normalizes free COVID-19 levels, and we re stabilize occupancy.
From of liquidity perspective, we end of the second quarter with the cash balance of $38 million and are fully unused 350 million unsecured line of credit.
Subsequent to the end of the quarter, we drew down of $135 million on the revolver the point acquisitions, which we expect will be repaid by the end of the year as we close on parcel sales to our Jim Z that are expected to generate roughly $142 million of proceeds during.
During the quarter, we repaid or 37 million private placement note with cash on hand looking ahead, we have no remaining debt maturing and 21 and only 52 million mature and 22 are refinancing options are plentiful and we are exploring both secured and unsecured options.
We will also continue to look beyond 2022, the refinance debt early to take advantage of the low interest rate environment, while adding duration for capital stack.
And lastly, turning the guidance, we updated our operating the low range to 80, 892 cents, which is up 5 or 6% for the last quarter of guidance and of about 10% of our initial 21 guidance provide of back in February.
The primary driver of the upside is an increase in our acquisition forecast. We are closed on are under contract or or advanced contract negotiation of $285 million of acquisitions at our share which is above the $100 million of acquisition that was embedded in our prior guidance.
Also given the strength in our core business and our accretive acquisitions or board of trustees of the increase the dividend by 60%. The 12 per share quarterly this right allows us to maintain a low payout ratio provide enough flexibility to continue to allocate capital of Accretively, but also leaving the room for additional dividend increases in the future as we grow earnings.
And with that I will turn of the call back the operator to open the line for questions.
Thank you will now be conducting the question and add some sense. If you would like to ask the question. Please press score 1 on your telephone keypad. The confirmation Tom will indicate that you're lying as in the question to you in person or 2 of <unk> you would like to remove your question from the queue for.
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1 moment, please while we pull for the question.
Thank you. Our first question comes from Dark Johnston with Deutsche Bank. Please proceed with your question.
Hi, everyone. Good morning.
So 1 thing that really stood out to us was the strongest leasing volumes and really over 5 years and this is you know with a much smaller and refined portfolio can you talk about the shifting drive of those are the dynamics really meetings of such robust leasing any heading categories geography <unk>.
<unk> sore, even new entrants or newness that stood out.
Yeah of Derek it's sort of said repeatedly.
It's the strongest I've I've seen in my career, particularly the junior boxes.
That really get got out of the gate the fastest.
And of post pandemic world.
Where it's it's been nice to see the interesting thing about this quarter is the new deals for about 50% junior boxes, and 50% of small shop that.
That range from call at 35% of them were off price with a very good.
High percentage of of medical as well with a large percentage of fast casual and QSS are we mentioned the little of <unk>, We mentioned the Ari ideal.
And we even pass this we have a very good backlog of wholesale home improvement gross shares where where it's getting huge yields and a lot of those are going into power centers, we'd like to say credit centers. So it is it is the the leasing team is firing on all cylinders.
[noise] boots on the ground in these markets and I think a lot of this too is helpful of in 2018, we disposed of $200 million of assets and the secondary markets that at an average IRR of 3 and a half.
That was anchoring the portfolio of down that has gone.
So we are mining the portfolio every inch of it couldn't be prouder of of our operations side of the team both leasing and development.
Thank you, Brian and for the second question can you share what was so attractive about the 6 acquisitions you announced any of you gave some details, but maybe a little more context and I'm really overall you know the ones that you're also getting today.
And how did cap range shakeout, especially for the portions destined for our P. T balance sheet vs. The parcels that are you mocking earmarked for J vs.
So Derek it's the way we look at real estate, obviously is IRR driven.
First and foremost an.
And then it comes down to the to the real estate the credit profiles of the tenants and math.
So let's start with the math first.
The total yield on the whole portfolio was of 7 and a half cab.
And the way haven't look at that is would be the following the properties blended 2 of mid sex and the power of the 2 platforms increased it by 100 basis points, that's obviously arbitrage and fees.
This is our target range and our competitive advantage. It's a moat if you will and this highly highly competitive market.
I as I mentioned in my prepared remarks, we obviously had a lot of good timing and we started out on these assets in mid 2020, when we knew our <unk>, our GMC was gone to occur.
We were highly focused on the selective msas highly focused on them and we're negotiating at a time when others weren't weren't underwriting deals.
This early jumped allowed us to secure these assets.
We believe that extremely attractive yields.
Where they would be 75 basis points lower today and.
And I've proven example of this is.
A deal of recently traded in Provo, Utah, Walmart neighborhood anchored shopping center similar cash flow similar credit similar wall Provo, Utah is clearly not the number of 18, Tampa MSA that deal in Provo went for a sub 5 cap.
So what I love about this specific assets, it's 80% grocer. The grocer's that report are averaging 700 bucks per square foot.
This is of 5% CAGR NOI CAGR, 60% of 125000 household income with a high amount of small shop.
And it really all comes down to the execution of how we could get this at this yield at this quality.
And accretive to our balance sheet is the power of the platforms and this will be a unique weapon going forward in this highly competitive landscape, while cap rates of compressing every day.
And we are highly focused on our tier 1 markets of Boston, Atlanta, Tampa, Orlando, Miami, Nashville, and Austin, and really remain disciplined on future pipeline.
Where it has the meat the 3 buckets of accretive in quality accretive in earnings and accretive in balance sheet.
Thanks, Brian.
Thanks to Eric.
Thank you. Our next question comes from Linda Sorry, with Jeffrey. Please proceed with your question.
Alright, the morning, Uhm do you still have a fair amount of capital to be deployed in our G. N Z. How are you thinking about the pieces of the appointment for the remainder of the year and then maybe you just back to your earlier comments about how you know competition is increased slot for the assets that you're looking at.
Yeah, let me start with the bucket and Tyler Sorenson and his team on the Triple net size is doing a phenomenon of job and have a really high.
Really full pipeline Linda.
The way we are looking at this is 3 buckets.
The first would be the arbitrage like we did with north borrow for Noonan.
Second would be billed the suit opportunities.
We are now provide another service to our retail partners, where we can build them.
Where for spilled the suits and obviously keep that spread on the yield as we.
Disposed of that to our G. M C. And then the third would be marketed in off market deals. So the team is very focused and we're seeing a lot of activity in that space.
As a reminder, it's only 6.5% of of RPT.
So it's a very.
The meeting lists kind of number for end of the year for for us.
And your second question that as it relates to the competitive landscape, it's very competitive and our head start on this $500 million of deals.
We had timing right and we do have a nice pipeline behind that.
In the selective markets.
That with this platform, that's 7 and a half yield is kind of our bogey and we believe that this platform is really a moat that gives us a weapon.
And of differentiator that allows us to accretively deploy.
And an external world that's extremely competitive today inland of the only thing I would add to that as as as the reminders. We've talked in the past as we have 3 years to Optimizes. This joint venture, which really allows us to be very very very disciplined and rigorous in our underwriting of these new of new investments just the great spot the being.
Thanks, and then just the follow up for my 2 just you gave them. Some details on briegel Uhm what was what were the overall collections from theaters this quarter and just remind us what it wasn't 1 of <unk>.
Yeah, and the the first quarter, we collect of zero percent from from our theaters, we collected about half or so in the second quarter total collections for the second quarter, we touch about 95%.
3%.
Was deferred could you the about 98% and.
And then 2% really represent our cash basis tenants that we reserve for we continue to see for the remaining part of the year embedded within our guidance range is about $1 million per quarter for the second half of the year, which is the very consistent with what we reported in the second quarter of.
This year.
Thanks.
Thanks on the.
Thank you. Our next question comes from Craig Smith with Bank of America. Please proceed with your question.
Well thank you.
As you pointed out you beat the the second quarter by Penny and then you raise guidance on the midpoint by 5 cents.
Wonder where this raise growth is coming from regardless of your R. P. T platform vs. Your R. T G and R. G M Z I mean, the rough breaking up.
Yeah of a rough break out of the of the $285 million or so of Craig about 123 million or so is going to come on our balance sheet about $150 million or so is going to go into our <unk> joined.
Joined venture were reopened 51, 5% and then the the last $5 million or so is going to come through Rdm's, the again, where Rio in just 6.5% of that total is to about 285 million and breads. Brian note of that that was redeployed at about 7.5 per cent cap rate.
And that gets you the 5 of swing that we had.
Within our guidance.
Of this quarter and the average acquisition date.
The model Craig is probably going to be likely at the at the end of the third quarter beginning of the fourth.
Right and then maybe touching on some of the early of conversation about the increase leasing volume.
How much of this is just new B C volume of emerging vs. Maybe taking market share from either private or less dominant player. So sort of the is the pie growing or are you starting to get more of that pie. It's both I mean, we're getting a lot of new to market. We're getting a lot of relocations, we're getting a lot of them all 10.
<unk> says the Lou lemons in the athletic and so far as of the World.
Are very active so.
We're very we're very disciplined on increasing market share at the assets, where where you can increase from.
And that's looking at the competitive landscape, that's looking at where we can pick off tenants from competing centers, that's either open air or enclosed.
So I was very very pleased with.
With the new the market and the relocations.
Great. Thank you.
Okay.
Thank you. Our next question comes from West Gala day with Bird. Please proceed with your question.
Good morning, guys. The question on the net lease vs shopping centers you do focus on Irr's can you tell us what do you think the differences between the 2 asset tastes today.
Yeah, I mean, obviously.
The the triple net.
I mean, both it's very frothy.
And when you look at the Triple net.
It's it's compress significantly they've got a headstart, obviously on the shopping centers, we're seeing in a huge compression in the shop shopping center landscape as well.
But I think the interesting thing.
Especially on the on the Nats is it's a lot of these essential tenants that are really seeing the most compression from obviously, you're wholesale to home improvement to grocery and and then even in the <unk>.
So it's it's it's a it's a very very liquid competitive market and the nets. You just have a wider pool just based on the liquidity in the smaller checks size of each of those deals as opposed to.
Some of the centers and some of the century Bud northborough of $104 million that buying pool is obviously not a lot of where the $2 million Chick fillet of the 3.
3 million Chipotle at buying pool is quite wide. So.
It's it's it's certainly competitive on both sides, but obviously nets are trading much tighter than the shopping centers for that yeah. The 1 thing I would add there for for our net was platform just as a reminder of west talked about this in the passes we can love her off the 60, 65% of improve improve that IRR, which is unique to this platform relative.
The public peers. So it gives us a bit of of a manager there.
And I think to west it's like why were of differentiator for for our investors are the arbitrage, where we are seeding these assets.
Call it 50 basis points wider than the market.
We are billed to sue.
For tenants maybe.
Maybe that's an 8 year, maybe that's a 9 year of the contributing that for a 5 or 6 right.
And then looking at selectively maybe it's the.
It's shorter term duration, where we have just excellent relationships with the retailers, we could do a blend and extend.
Indeedy, where we can.
Mike touched upon.
Patients and over the 3 years with.
The investors are patient so we don't have to deploy and we could creatively.
Being IRR, where I think a lot of the public net cat.
Yeah makes sense and then can we go to the the leasing the the T. I's were elevated again, you last quarter, you did the strategic leasing and I imagine the debt is going on now.
When we look to the next 12 months how much strategic we've seen is left in the portfolio.
Yeah, So I mean the.
This really came down there. This was the strategic deal. This was the <unk> the idea of the town and country. It was a vacant Stein Mart box, we had for tenants interested in this.
3 would have taken the box as is.
Hi.
And the multiple <unk> of other tenants had interest in the box. So we decided the divided so that's some of that cost right. There. So if you combine rei with the new other tenant which will announce soon it's about a 15%.
Yield so we liked that a lot and we chose rei for the coke tendency with the whole foods the niche it feels of the market the greater market share we're going to have.
Just think that's a win win of Winchester, where we had the other steinmeier box.
Just really we put Burlington in and didn't divided so it's kind of be.
The pipeline in our supplemental shadow pipeline has increased tremendously and.
And we really see great yields on those so that has been handbag that has been hand curated of that has a lot of the wholesale clubs that has a lot of the grocers. That's a lot of the home improvements that a lot of new pads from Chick Plaids and she'll put lays on all of that that's what you're saying there and the yields are strong. So I think it's of.
Asset by assets selection, where Winchester, we decided to take the box and and just Burlington basically took it as it as is whereas ton of country, we decided to.
Chopped up just given the small small shop demand and Rei yeah for the sheer west were spent of about 20 million or so on the city's discretionary type free Mercury's merchandising projects then based.
Based on the visibility to the have today.
And our cash flows and our business plans will probably spent about 10 of 20 million per year on these opportunities to improve the tendency and the dynamic nature of our Remerchandising mix at the at our centers and I think the cost is justified by these these great.
National High credit high investment great tenants like Brian mentioned between Rei and the strong groceries that we hope to announce soon.
Got it and then I'm going to the the private market I guess is the bid certain the white and is it if you would of so you're maybe the bottom 10% of your portfolio is that bid starting to firm up you can use that as the source of capital for future investments yes.
Again, I think we're seeing it frothy at all sectors I mean, the debt markets are open and very frothy and and thankfully as I said earlier in the call we sold our bottom chair.
Actively are matched funding.
Out of certain non strategic markets will be just that matched funding, we're not going to be diluting the company.
But to sell into the froth are we looking at certain strategic market share that we can match fund and the others and into the east type of strategic markets, absolutely and we are seeing.
Very very good demand.
Got it thanks for taking the question is best for.
Thank you.
Thank you for our next question comes from Mike <unk> with J P. Morgan. Please proceed with your question.
Yeah, Hi, so a couple of questions of dispersed what's an example of the center, where you're comfortable carving of parcels for the net lease furniture.
Compared to 1 where you wouldn't or does it not matter because you have an interest in both of us and the second question is.
In terms of the net lease furniture, where do you see kind of of the average calories levels that that entity, you'll be paying for the card accounts places in today's market.
Yeah. So.
Let me take your first question. It's it comes down to the real estate it comes down to.
You know co tendency clauses it comes down to where the pads are.
Located in the centers it comes down to does that real estate have future densification options.
And it obviously comes down to the.
The the tenants.
And the credit. So we are very very disciplined on looking at going through a rigorous process of what is true trip on at what could be parcel the off how hard is it the parcel often the jurisdiction and of.
Many cases, some are already parcel of off.
Then we look at co tendency we look at.
The use right in.
And I think like with noon and provided is it was a home depot in the back of the center.
Lot of centers in the country right now are already shadow anchored home depot, so long horn out in front of their.
For a number of pads along that area that we're already shadow anchored in.
And we decided to.
Part with that I think the other is that we wouldn't would be more of the densification future opportunities I would look at the new Boston assets, that's like that right, where we have potential great future Air rights and not ready have had made major inbounds from some of the leading residential rates on into.
Rest of if we would look at something like that or the Tampa assets, which I think 1, particularly in Saint Pete South Pasadena is right on the water and just has.
Incredible of the demand.
So we look at all of that and then make a determination.
I would say the cap rates run from 5 to sixes right and it just the patents.
Why that depends on duration in term and.
And the.
Basically so 5 sixes.
Got it that was it thank you. Thanks.
Thank you.
Our next question comes from Florida, then don't income with Compass point. Please proceed with your question.
Thanks for good morning us.
For for Us.
So just the 1 I mean, obviously very active on the on the acquisitions fronts, increasing your exposure to to you know these key markets could you tell us what percentage of the portfolio is currently in your target market and where do you want to get you in it and also in.
<unk>, referring to that you know I think.
27 per cent of your current portfolio of stores in Detroit and in Cincinnati.
Yeah, we don't have.
We don't play the math game of it has to be X percentage of X y and Z in Austin, or Nashville, or Boston or Tampa Orlando.
Or Miami.
We obviously of a large exposure in Florida already.
We won't be getting larger and Boston.
You'll be getting larger in Nashville.
And it comes down to IRR and it comes down to.
Real estate comes down the sales performance. So I think people get caught where they have a number that they have to hit a certain percentage of groceries certain percentage of market share on X y or Z. We want we want quality real estate and all of these markets.
<unk> dropped the 15% I can see that dropping.
Much further in the near term just based on for off of the market in match funding.
As I've said from day, 1 that's institutional quality of real estate, where we're doing a number of key grocery deals. So 1 of the harvest a lot of that out first.
And and go from there. So we don't we don't have goalpost of 20% Boston 20 per cent Atlanta of 20% Miami It's.
It comes down to the real estate and we're patient so we'll hold out for the right deals.
Thanks, Brian maybe the 1 of the other questions is you talk about the 6.5 per cent cap rate on the the these transactions you've just announced obviously that goes to you know you boost that by.
Through the <unk> through the J vs. Your returns are significantly higher.
You also talked about the 5 per cent hager on them.
If you could explain that a little bit more because 5 per cent same store until I can figure on those acquisitions seems really high, particularly you know I think the southeast foreclosed 94 per cent least where's the ups not is it in red.
There's no no information on the occupancy.
Yeah, So there's a 90%.
As a few centers that are lifting that CAGR up shops of canton has a lot of small shops like 70% small shop and.
And we have some vacancies there already are working on negotiating deals.
So that's that's a massive CAGR the mark to market on some of those renewals as I said the Woodstock was it's a lot of the original deals that are in the 2000 since 2001 original anchors. So some of some people are up for renewals and there are some vacancies and.
Then noonan has.
A number of.
Potential for Mark to market as well and then North borough is like an 8% CAGR just because of 2 new and potentially 3 new.
Tgf's concepts coming online.
So really skewed higher with 3 or 4 of those centers.
Thanks, and then the last question I guess, maybe if you could put in for I mean, I I've done the math <unk> your <unk>. The the the little presentation. You you sent out which I thought was was quite quite slick. The you talk about 449 million of potential AVR upside getting back.
Back to 19 level of Occupancies.
Which I think works out to around additional 3 per cent of of NOI somewhere of that that range, obviously bigger impact on ethical because of the bold average maybe.
Maybe if you can <unk> talk a little bit about when you think you see the company getting back to 19 levels of occupancy you know going forward.
Yeah, No I think if you look at our occupancy today for US we end of the quarter at around 91%. We were up 40 bit basis points. We do thank the trough is behind us as we've message over the last couple of quarters, 1 of the year right around 91, 5% of what you put just just about where we entered 2020 at.
As we as we move forward, we do think the the portfolio re stabilizes in late 22.
Possibly early first half of 23 right back at the at 93% level that we were at pre Covid and we absolutely think this this portfolio as of 95% quality portfolio, we were well on our way of their prey.
Prior to the pandemic. So we think there's even additional upside beyond.
Beyond early 23 with occupancy.
Thanks Bye appreciate it.
Thank you. Our next question comes from the time Thomas with Keybanc Capital markets. Please proceed with your question.
Hi, Good morning, Brian first question. The the mall based tenant demand that you mentioned Lulu and others that are that are signing leases are are you seeing greater interest from them to expand outside of I guess some of the the larger format of lifestyle and sort of commune.
The centers, where they have historically had interest or they expanding the types of space and types of centers that the I'll entertain just curious if you have any thoughts and maybe any examples of that the demonstrates some of the demand that you're seeing from some of the more traditionally mall based the retailers.
Runs the gamut of I mean.
Have.
Claire's now.
Out with the whole open to.
To buy outside of the mall.
They're negotiating of deal up in North Pearl.
That's the wegmans and.
Several of teachers and alter.
So for.
Several areas.
I mean, Todd it's it's almost everybody has an off off mall program now.
Lulu in anthropology kind of led that many years ago.
And those 2 are very robust so for other than followed through foot lockers very active and they're off mall strategy.
I can't think of 1 that doesn't have an off from all strategy or at least not trying it.
So I think with the exception of call. It obviously, the luxury of tenants, which of those stay in high street or luxury of malls.
There is every single 1 of those tenants.
Has.
As of at least engaged in conversation and said half and half mile of platform.
Okay, and that's a as as you sign leases with these retailers, obviously, they're they're occupancy costs in the sort of the open air arena of lower than than they generally would be sort of the mall based and sort of the malls are you achieving sort of premium.
Mm rents premium economics from from those retailers or are they generally consistent with market.
No you're getting premium you're absolutely getting premium I say, you're getting premium at most centers.
It's.
We obviously no occupancy cost and can calculate that and that goes into our negotiations with them.
Are they getting a reduction and could they do equal or greater sales and being an <unk>.
Open air and have greater for wall EBITDA.
With the lower rent absolutely.
So we are there accretive in every single 1 of our deals from a from an AVR at at the at the shopping center level because typically in the mall with the cost between 13, 15% in with open air given the the much lower culinary cost you are looking at 709 so.
Backup price point, there's absolutely of premium to be paid here and.
An open air.
Okay.
That's helpful and then Mike left so leverage it's you know, it's inevitably going to bounce around a little bit well with all of this investment activity sort of warehousing certain assets before contributing them to the to the fund or sort of parcels to the funds.
You know and it seems like you're you're in that position today, a little bit with some expect the proceeds from from parcel sales to come you mentioned, the 5 and a half to 6 times leverage target, how how long until you're you're sort of within range and where do you expect to be at year end I guess pro forma.
The sort of $500 million of transactions and all of the activity being completed.
Yes look I mean, we're word.
Of how we're very focused on levers and get it back within a range of the note of the 556 net times are recent investment grade rating very indicative of our philosophy to the low lowered.
And look we are free strategies the to get the air 1 of growth or EBITDA.
And we are well on our way way there I mean, our rents this.
This quarter or only 3% offer free COVID-19 level.
Secondly.
Brian mentioned earlier in the Q&A here, who we will opportunistically fell non core assets sore see more of our existing portfolio of <unk> and paydown could be high coupon that we have an opportunity with our mortgage.
Through early next year or like Brian said, redeploy accretively into acquisitions and then.
The third thing, which I think is the most powerful.
Option here in the era of that we have is the continued to optimize the the power of the platforms.
With the right mix of the equity we can absolutely accretively grow earnings and lower leverage at the same time, you have a whole lot of options. When you can invest in yields at 7.5 per cent.
So we're we're we are very focused on getting down as quickly as we possibly can.
By the end of the year will probably be a little bit north of the 7 absent the.
All else equal epps in any of these other strategies that I mentioned being employed.
Okay. So so a little bit north of where you said today just given all of this activity and then yeah <unk>, yeah, all else equal.
Okay, and then yeah, 2 more questions I guess on the model of so you know you mentioned the mortgage and I think that's Bridgewater falls rights of 52 million 5.7 per cent, what's the plan there as we turned the corner and the 22.
Yeah, I think I think we're looking for is look at many options.
1 is the unsecured market with private placement rates or between.
335% on that front, we're also looking at the secured market, possibly too.
Put some leverage on our assets with the 2 G joint venture modest leverage but again those those rates are sub 3 and then like I said it could be an opportunity to sell non core assets. So we're looking at all 3 right now.
We'll have more color on what we pick.
And likely in the third quarter call.
Okay, and just lastly, then uhm with the activity. That's completed are expected to be completed by your at can you comment on on where recurring fee income.
<unk> I guess, how it is trending from here, but you know where it might be at the end of the year on sort of an annualized basis as we think about 22.
Yeah, I think if we get to the end of the end of the fourth quarter I think of as of right of of about a half Penny about 400 Grand.
And that's from our 2 G N R. G M as a combined set for.
Yeah, that's correct and then and then there'll be a bit north of that if you include the preferred position we've taken our Jim Z like right now we're forecasting about 200 K in the fourth quarter for that.
That's going to be it's going to be a bit more volatile.
Alright, great alright, thank you very much.
You bet. Thanks, Tom.
Thank you for no further questions at this time I would like to turn the for back over to Brian carpets for any closing comments.
Thank you our results for the second quarter and so far the third quarter have clearly demonstrated our ability to create value for shareholders both organically.
And through acquisitions.
Not only are we rapidly increasing our cash flow, but we are also enhancing the sustainability of our cash flow by improving tenant credit.
Our market mix the quality of our properties.
And our continued focus on affluent first ring and fills.
The suburbs.
We also remain focused on advancing are ESG initiatives in order to further strengthen our business.
For the company Say's appropriately and repositioned for success and of rapidly evolving retail environment.
We are confident and rpt's future.
Thank you all for joining our call. This morning have a wonderful day.
This concludes today's conference you may disconnect of your lines at this time. Thank you for your participation.