Q3 2021 RPT Realty Earnings Call
Greetings and welcome to the RPT Realty third quarter 2021 earnings Conference call.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Vin Chao Senior Vice President of Finance. Thank you. Please go ahead.
Good morning, and thank you for joining us for Rpt's third 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 statements made during the call are made as of the date of this call.
Listeners 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. Certain of these factors are described as risk factors in our annual report on Form 10-K.
For the fiscal year ended December 31, 2020, and in our earnings release for the third quarter of 2021.
Certain of these statements made on today's call also involve non-GAAP financial measures listeners are directed to our third quarter 2021, and second quarter 2021 press releases, which include definitions of those 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 Fitzmaurice for their opening remarks, after which we will open the call for questions.
Thank you Dan.
Good morning, and thank you for joining our call today.
We had another very strong quarter, resulting in another raise in our 2021 operating <unk> guidance we.
We experienced balanced success across all our disciplines as we continue to refresh our portfolio tenant mix liquidity and balance sheet, all of which position us to deliver on our future earnings growth.
We closed on several high quality acquisitions across all three of our strategic investment platforms, bringing our gross acquisition volume to $500 million in 2021.
We continue to see strong demand for space in our centers and signed a number of key leases with well capitalized tenants driving our accelerated signed not open balance to almost $4 million.
And lastly, we raised or received commitments on $670 million of capital from our equity debt and joint venture partners strengthening our liquidity profile and balance sheet.
Starting off with our capital raising efforts I'm very pleased with GIC as recent commitment of an additional $500 million to our core grocery anchored <unk> platform.
Positioning in that platform to scale up to $1 7 billion.
Okay.
We believe this is an endorsement of RPT and our ability to create value.
We are grateful to be in the company of top tier reads like Ventas Boston properties.
Clinics and others that are partnering partnering with GIC.
The new commitment provides us with firepower to further accelerate our portfolio transformation, while enhancing our management fee income stream.
We also recently obtained commitments for $130 million and the debt private placement market and received another $40 million through our ATM, demonstrating our ability to access multiple sources of capital to Accretively fund our growth plans.
Turning to investments.
The size of our portfolio is an advantage as it allows us to rapidly reshape our geographic exposures towards higher growth a more durable markets like Boston, which is now our third largest market.
We also increased our exposure to Atlanta, and Tampa, while reducing our concentrations in Detroit and.
And in Chicago.
This real time shift in our mix not only improves our geographic diversification, but also increases our visibility visibility with retailers brokers and other stakeholders, which is leading to increased deal flow on both our leasing and acquisition fronts.
To support our data driven investment decisions, we have an in house data scientist, who developed a proprietary asset scoring model that combines advanced data analytics with our collective knowledge and experience of our investments leasing property management and portfolio management teams.
With this dynamic tool, we can continually assess our existing and potential future properties in real time to inform our capital allocation decisions.
Our scoring model was a key advantage for us as we underwrote our recent acquisitions and will continue to be used as we assess our future acquisitions in and dispositions through the lens of a quality balance sheet and earnings accretion.
Regarding the acquisition environment. We're currently experiencing a very competitive landscape to acquire high quality shopping centers, where cap rates for grocery anchored centers in top U S. Metros are down approximately 50 basis points over the past few months.
As a result, we believe the $500 million of acquisitions that we closed on so far.
It could be up as much as 10% relative to our transacted prices.
The recent cap rate compression or three investment platforms provide us a competitive advantage to acquire at higher returns, allowing us to remain active on the acquisition front and our target markets.
We continue to work tirelessly sourcing additional acquisitions, focusing primarily on off market relationship driven opportunities and expect 2022 to be another active year.
We continue to see a healthy pipeline of deals for grocery anchored centers smaller strips and wealthy infill suburbs in our core communities.
And larger high quality centers over $70 million, where we can allocate the real estate between our platforms.
We also see unique opportunities to acquire value add or opportunistic centers, where we can utilize our tenant relationships to create significant value after the purchase.
For example, we are currently under negotiation to buy an asset in the southeast that is an empty anchor box related to our recent tenant bankruptcy.
We are in lease negotiation with a premier investment grade grocer to take that space, which will drive the occupancy to about 99%.
<unk> and an estimated stabilized yield on cost of 7% and a five cap rate market.
On the other side of the coin current market demand is also creating opportunities for us to monetize assets at attractive yields in noncore markets.
Earlier this week, we closed on the sale of market Plaza in the Chicago market for $30 million.
We received 11 offers and sold the property at a high five buyers cap rate.
Chicago is not a market that we are looking to expand and due to the less and business friendly political environment.
We're also exploring other opportunities to further reduce our exposure to non strategic markets and take advantage of the current frothiness in the private markets.
Now turning to operations, we continue to drive rent and signed leases with high credit the central tendency.
This quarter, we signed a lease with a new investment grade grocer at our Crofton centre in Baltimore, which is replacing a shoppers food warehouse.
In October we signed an expansion lease with Publix at the Crossroads in Palm Beach. This will be a brand new flagship prototype store demonstrating publix commitment to the center and cementing the anchor tenancy for years to come.
In both cases, we locked in strong credit anchors, thereby enhancing the durability of the cash flows at these centers.
We also signed a new medical tenant Piedmont urgent care that replaces a sit down restaurant at promenade at Pleasant Hill.
Just outside of Atlanta, swapping a high COVID-19 risk tenant for an essential tenant at a mid 20% spread to the old rent.
Not only were we able to reduce tenant risk, but we were able to do so at attractive economics.
Lastly, we signed a new deal for Ferguson Gallery showroom Providence marketplace in the Nashville market.
This will be Ferguson's first showroom in Nashville, which we think will be a premier destination for residents to access the latest concepts and quality home fixtures and appliances.
With only five to six Ferguson showroom openings in a typical year. We think this deal is a testament to the strength of our center.
For those of you that are not familiar with Ferguson. They are a $34 billion market cap Triple B, plus rated credit and the largest U S distributor of plumbing and second largest distributor of industrial products.
We think there'll be an attractive regional draw for the property based on the strong demographic match between the center and the Ferguson customer profile.
Looking forward our leasing team remains active with a solid pipeline of deals lined up for the fourth quarter.
Notably we are seeing strong demand in Florida, Boston in Detroit, where we are in negotiations on a number of major box deals ranging from grocer to off price retail as well as several national small shop deals.
Notably we have seen a major pickup in demand in Detroit over the past few quarters and are in negotiations on over a half a dozen grocery deals and another eight to 10 box leases with discount apparel pet outdoor recreation and home good retailers.
With that I'll turn the call over to Mike.
Thanks, Brian and good morning, everyone today, I will discuss our third quarter results provide an update on our balance sheet.
Inventory on our increased guidance.
Third quarter operating <unk> per share of <unk> 27 was up <unk> over last quarter, primarily due to about four cents of higher NOI from acquisitions <unk> from lower rent not probable of collection and about one third from higher lease termination fees, partially offset by lower straight line rent.
The better than expected rent not probable of collection was primarily driven by the reversal of a prior period reserve following an unplanned payment from a theater tenants.
As we look ahead, we expect bad debt to continue to moderate as our collection rate tracks towards pre COVID-19 levels, notably our collection rate for the third quarter was 98% at the end of October.
As Brian mentioned, our operational performance in the quarter remained strong we signed 52 leases totaling 280000 square feet at a blended comparable releasing spread of eight 2%, including a five 2% renewal and 16% new lease spread.
Our renewal spread at the highest level, it's been in over a year and along with the continued strength of our new leasing spreads.
Spreads is it.
But the increasing demand for our centers and embedded mark to market opportunity within our portfolio.
The spreads are on a cash basis, they don't capture future contractual rent steps, which were 160 basis points for the leases signed during the quarter.
Leasing activity in third quarter pushed our signed not open balance of $3 8 million up 19% over last quarters, $3 2 million backlog, which we expect to open over the next 15 months.
On the re merchandising and outlet front, we delivered two projects totaling $3.3 million during the quarter and almost a 12% yield which was ahead of budget.
We also added one new project Ferguson Gallery showroom at Providence marketplace in Nashville, totaling $1 3 million at an expected yield in the 20% to 22% range. This brings the active re merchandising and outlet project total to $14 million with expected yields in the 10% to 12% range.
We are in active negotiations on a number of other pipeline deals totaling about $30 million with strong box demand in Boston, Florida and Detroit.
Turning to the balance sheet, we ended the third quarter with net debt to annualized adjusted EBITDA of $6 eight times down from seven times last quarter. This was a bit better than expected as a result of the $40 million raised through our ATM and due to better NOI performance. We continue to expect our leverage to fall towards our target range of five five to six and a half times.
Bad debt and occupancy normalized pre COVID-19 levels.
Despite the heavy level of acquisition activity in the quarter. Our liquidity remains strong we ended the third quarter with a cash balance of approximately $10 million and $295 million available on our unsecured line of credit we expect to repay the vast majority of the outstanding balance on our line of credit by the end of the year or shortly thereafter, one of the core tenants of our balanced.
Strategy. In addition to managing overall leverage is to proactively address our pending debt maturities during the fourth quarter, we expect to refinance $177 million of debt included in this amount are all of our private placement notes that mature in 2023, and 2024 and our Bridgewater mortgage that matures in 2022.
We expect to use proceeds from our recent private placement of unsecured notes totaling $130 million our share of expected proceeds for mortgages placed on our two G assets that we locked rate on totaling $15 million and proceeds from the sale market Plaza totaling $30 million to fund these debt repayments.
All of this activity, we will have reduced debt maturities through 2024 to just 16% of our debt stack.
Over the next two quarters, we also expect to generate $96 million and disposition proceeds from parcel sales to our G. M Z, including sales from our recently acquired North Boral, and Newnan pavilion assets and the remaining seed portfolio sales.
These proceeds will effectively be used to fund our share of the denim acquisition of $68 million and repay amounts outstanding on our revolving line of credit move.
Moving to our increased guidance for 2021, we initiated a new range for operating <unk> of 90 to 94 cents per share, which is up two cents or 2% over prior guidance. The primary drivers of the upside we're one penny from a prior period bad debt reversal and about another penny of lease termination fees recognized in the third quarter the key fab.
Actors that would drive results to the high or low end of the range are the timing of closing of the net lease parcel sales and bad debt reserves. In addition, our incentive compensation is not finalized until the fourth quarter, which could result in an uptick in G&A expense similar to what we experienced in late 2019.
As is our normal practice, we will providing initial 2022 guidance with next quarter's earnings release, but I wanted to provide insight into a couple of items as you start to establish your quarterly run rates for 2022.
Our third quarter operating off of <unk> per share of <unk> 27 cents benefited from two cents related to nonrecurring items included in the prior period favorable bad debt adjustment and the onetime lease termination fee. In addition relative to our third quarter results.
22, G&A is expected to increase by approximately one penny per quarter related to an uptick in travel related expenses similar to 2019 levels and continued investments in talent to support our growth platforms.
Before I turn it over to the operator for Q&A I would like to touch upon our strategic thinking around future acquisitions. Our framework can be summarized with three questions does the property improve our overall portfolio quality.
How much future value creation potential is there.
And can we fund the acquisition in a way that is both accretive to earnings and pushes us closer to our target leverage range of five five to six five times.
No deal is that simple is this and each has its own unique set of circumstances, but we think it is important to understand our framework as you build out your own forecast.
Also as a reminder, it is our normal practice. That's includes speculative acquisitions, unless we have a strong light of sight on a potential close and with that I'll turn the call back to the operator to open the line for questions.
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Our first question is coming from Todd Thomas of Keybanc capital markets. Please go ahead.
Hi, Thanks, good morning.
First question, Brian So you talked about the competition for investments I was just wondering if you could just talk more generally about the pipeline today and I'm curious if you can speak to.
The additional 500 million dollar commitment from GIC for the art to G. Venture you know what the timeline is like to deploy that capital.
Sure Good morning, Todd.
I'll start with the pipeline first so we've been in the market.
Since early May of 2020 are we feel really good about unlocking some great assets and feel.
That we can do this in an accretive manner by way of our.
Investment platform and the power of the platforms deal pipeline is extremely active.
Especially with the $500 million upsize with GIC.
We do have a three year horizon on that that opens up avenues that are larger portfolios, but where we're being very selective and rigorous and staying true to our growth communities of which I have outlined previously.
I would say, we're not reliant on brokerage or or whatever comes to market. We were very proactive with a targeted approach in each of our core communities.
We see a lot of value add communities and the acquisition I mentioned in my prepared remarks. This is a.
High quality.
Incredible.
Dense high income area and one of our core communities in the southeast where there was a 25% to 30000 square foot box Bacon.
We are in lease negotiations with a top tier investment grade grow share.
All at a stabilized seven yield when all said things are done and that could be sold for a mid four cap.
So really too.
Todd I just want to stress the acquisitions comes in all shapes and sizes.
We did an example on a case by case study in our Investor deck. If you can go there where we pointed out our deal in Austin, Texas Lake Lake Hills acquisition, the non grocery anchored center.
That is done pretty incredible.
For our platform we're talking.
110000 household income in a three mile 117.
Thousand density, 4% average rent escalator, 7% only NOI capex of NOI from 2021% to 224, and a 14% three year CAGR I like that business a lot. So this is grocer. This is strips this can be.
Are there larger centers over $70 million like the north boroughs that we can divide up between the three platforms.
And we feel very confident that we'll be able to deploy and deploy in an accretive manner.
Okay has the.
The IRR hurdle or a threshold for returns changed at all four for our two G and are you seeing better pricing for one off deals or or.
Some some larger packs or portfolios.
Yeah, I mean, the the IRR hurdle Hasnt changed for our two G N and let me just step step into that a little bit further while cap rates have compressed.
The Unlevered IRR is have stayed pretty the same just due to the rental growth due to know their supply coming online and if you own the best real estate in that market, particularly on the best corner, we're able to drive drive drive rent pretty substantially.
So that's that's pretty held up and I think yeah, I mean, the sniper shot approach of which we are doing and what we have done which led to that 500 million dollar you know acquisitions over this past few months.
A lot of that was off market. So you know obviously, we think.
This is a skill set of being a decentralized team in these markets and that surfaced this deal and are you.
Core community, which which was the 25000 square foot on anchor vacant box.
Okay.
Alright, that's helpful. And then Mike can you just clarify when you went through some of the detail.
For 2022 with regards to G&A can you just clarify your comments there I think you said that you would expect G&A to be up a penny per share per quarter. So is that four cents on the year relative to 'twenty, one I wasn't sure exactly.
What you meant just hoping you could clarify that.
Further if you look at sure.
Sure Todd if you look at our run rate for the quarter was about $7 3 million if you round up there.
About <unk> 5 billion as we as we look ahead, so its about a penny higher than that which is about a million or so per quarter.
To give you a bit more color around that then increase you'll look during the pandemic, we put a freezing all salaries and hiring even amidst building our third investment platform.
You know with GIC zoom in monarch, and we've clearly demonstrated that the platforms can produce growth.
And bolster really hard growth profile as we move into the future and really in order to optimize those platforms will need to invest in talent and quite frankly, we need the people to PON platforms. You know in addition to that we also have.
A material increase in travel as well as theirs basically zero travel in 'twenty and in the mills to 'twenty. One. So we will return to 2019 levels. There. So that's really what's contributed to the increase in our quarterly basis of about 1 million or so.
Okay. So so you're you're looking at about eight and a half million dollars per quarter run rate in 'twenty two.
Yep.
Okay got it alright, that's helpful. Thank you.
Thanks Todd.
Yeah.
Thank you. Our next question is coming from Derek Johnston of Deutsche Bank. Please go ahead.
Hi, everybody good morning.
Uh huh.
Ryan how how do you see your occupancy growth trajectory unfolding. So clearly we're not looking for guidance just perhaps how you see.
Occupancy trending into <unk>, and then where you think you should be able to drive occupancy over 2022 and really beyond 2023.
Yeah.
Yeah, I mean, I think occupancy is where we stand today, we really see overall occupancy in that mid to high <unk> stabilized and see a clear path now you know we are taking four spaces back.
Next year that will ebb and flow, but those four spaces back I think three our wholesale and our grocers and one is at T. J Maxx concept all four [laughter] equate to three three pennies of of future earnings. So they were very good accretive deal.
So, let's see some ebb and flow next year on occupancy, but I think the drive for occupancy both in small shop and overall in that mid nineties level with small shop.
And in the high Eighty's below 90.
Yeah, that's okay give me a little more detail around the four leases that were we're recapturing next year look to recapture those in the first half of the year, It's about 200000 square feet and will have.
About 15 15 months on an average downtime and Youll see most of that coming back online in late 'twenty three early to early 'twenty four.
Okay, Great and then Mike you know some of your.
Ending commentary in the prepared remarks can we can we talk a little more about the private markets and in cap rate trends overall, you know certainly compressing and when you're viewing capital deployment in the current environment, whether it's on balance sheet or your J B's you know can you really.
To acquire Accretively with the cap rate compression that that is taking place in and how do you envision doing that.
I do there.
It's definitely compressed greatly.
But what we have here, especially with the <unk> vehicle is a very large moat and that Mo.
<unk> allows us to extract.
Enhance yield for our shareholders. We think this was certainly we never knew that this was going to compress like this but we think this is actually even a bigger weapon.
Compared to our peer sets so.
And a lot of examples.
We're seeing we could we could acquire in an accretive manner using the three platforms like we did previously.
We also see other deals like this deal I talked about in my prepared remarks, where we can go in with long standing relationships, whether it's grocery or wholesale or home improvement or there may be some off price tenants such as T. J acts in our back pocket and by some value add.
Centres and core Msas with high dense high income trade areas and replace that vacancy maybe even in due diligence and stabilize at seven or north So it's gonna be a mix you'll.
You'll see a mix of of of of a lot of I think variety, but variety of that will be accretive to earnings variety of that will be accretive to our existing portfolio and a variety that would be.
At least neutral or accretive to our balance sheet.
Yeah.
They're just a few additional thoughts on the on the funding side of the COVID-19, like we've demonstrated during the quarter. We did have broad access to debt and equity and obviously enhance relationship greatly with GIC, but from the debt side. After we.
Repay our last night of the revolver down once you send that which is about $350 million up from our long term debt perspective.
Access to the.
So the bank and the private placement in the secured market, notably we did raise the $130 million of notes during the fourth quarter. We could have raised three times that amount based on the demand from those those noteholders and will continue to be opportunistic on the.
The ATM side, as well and utilizing that tool, we were able to raise $40 million there, but to Brian's point you combine. These these these great options in <unk> and <unk>.
Access to these different sources of capital.
With our platform, that's what really what sets us apart and allows us to really investments at those higher yields you know providing us flexibility to get the right mix of.
Debt and equity to Brian's point are.
To really redeploy in an accretive manner to really check the buy box for us, which is enhancing leverage portfolio quality and earnings.
Thank you guys.
Thank you.
Thank you. Our next question is coming from Handel St. Juste of Mizuho. Please go ahead.
Hey, good morning, Thanks for taking my question.
So I wanted to go back to the JV that you expanded here I guess I'm curious why you picked up or thoughts on why get kids, putting more capital into the JV now certainly understand shopping kind of being more in demand, but cap rates have moved competition is pretty fierce. So I'm curious on what you are picking up and the conversations with.
And if you think that JV could be expanded even further and would you or are you considering any new markets.
Yeah, I mean, I think as you see with Blackstone and GIC and our performance with our original JV.
Theres high conviction by both us and GIC in the sector, obviously high conviction with this sizable upsize.
By GIC with RPT, and our platform and our results that we've proved.
So that we are honored and humbled by their upsizing.
This can certainly be.
Enlarge this can certainly be looked at.
As a bucket that we could look at for larger portfolios. This is another growth capital bucket that we have at our disposal with a partner that we are extremely value.
That could look at larger size deals.
And with that GIC.
And very durable income stream.
Is that are you know.
Allows us 50 bps, you know are fee income, which obviously helps with the cap rates as well.
So we're excited about the upsize and it's coming now.
Yeah. It was it was at that time of kind of running to our completion of the original JV. So we decided collectively that $500 million was the initial target.
Okay Fair enough thought was there is there any contemplation of entering any new markets.
Right now now we're being very focused and I think to the benefit of having people in these markets that we've identified could there be future markets on a larger strategic deal certainly, but right now we're really focused on the markets we've identified.
Yeah.
Got it thanks for that and maybe on the the Triple net JV, maybe you could talk about the opportunity set or what you're seeing in the market there.
Heard lots of pockets of increased competition.
And that side, new entrants public and private so curious any observations in that JV.
Yeah, No we're actually.
Again really excited about that farm platform as well.
Very frothy cap rates have compressed as it has in the multi tenant side, but we still have a significant pipeline and we're buying wide I would look at this as four buckets of areas, we're focused on for that JV.
Really number one the the are above a center and peeling off pads.
That can be larger grocery wholesale clubs are there is an example, where we have under contract it's grocery anchored with a lowe's those too.
Tenants make up 95% of the ABR.
Once we acquire that will parse of those off and you know it could be 150 basis points wide, maybe a bit higher.
Then where they would trade on the private market.
Second bucket, we're very focused on is build to suits for tenants building.
Building to an eight four and even a nine and a seeding accretively to that platform. It's also another spoke for when we sit down with the tenant communities of another.
Area that we could.
A partner with them on.
Third bucket pre takeout with developers or funding for developers, where we can have some <unk> on that in the fourth and final is.
Off market deals, but selective marketed deals.
Yes, we have.
What a lot of the public Reits don't have us.
The net side as in house leasing and development, where we can even take term risk and renew the tenant a replacement tenant if we have conviction on that real estate.
So we've been very rigorous underwriting process and the partners have been.
Very very value added to us as well so we're excited and you'll be seeing a lot more deal production from that for them in the near quarters.
Great. That's helpful and last one on the lease rate most of its been steady around 84% of last year, but the spread between leased and physical occupancy is widened here, which I guess, we could see as an opportunity. So maybe you could discuss some of the widening.
How would you expect that spread to track near term the lease versus physical.
You mentioned I think $4 million of signed but not opened ABR. So I'm, assuming that that should help narrow to a degree but perhaps there is offsetting factors, though how should we think about that spread.
If mid eighties, the high watermark for small shop.
Sure sure no I would hum.
Pay attention more to the dollars versus the versus the spread but we do we do expect our total dollars of about $4 million or so so not commensurate remained pretty consistent over the next.
Several quarters, you know as we kind of noted in our prepared remarks, we do expect.
That $4 million.
To come online over the next 15 months or so we'll have about $1 million come on line.
The first quarter or the fourth quarter of this year another million.
On the first and second quarter of next year and then the remaining 800 Grand by the end of next year, which is tied to where grocery deal that we did but one of our Michigan assets up in Oakland County, Michigan as it relates to the small shop space. Yeah. We continue to see good traction there as we as we head into the end of the year, we do expect.
Occupancy to be up sequentially in the fourth quarter for for small shop, and you may have some seasonal.
Seasonal fall out in the first quarter of next year, but we expect that to continue to rise over the long term as we march back towards 90% because pre COVID-19 handout, we were about 88% leased or so on that space and we have a much better portfolio today, given all the acquisitions that we've done over the summer. So I fully expect that number to get back up over time are above 90%.
And handle a $2 1 million of that signed not open is small shop.
Got it alright, well. Thank you guys appreciate that.
Yeah.
Yeah.
Thank you. Our next question is coming from Craig Schmidt of Bank of America. Please go ahead.
Yeah. Thank you I just wanted to talk about the targeted markets.
So far you use.
He had concentrations in Boston, Tampa and Atlanta.
Wondering about Austin, Charlotte Phoenix, Minneapolis, I assume you're still looking in those markets and you know.
Do you think there'll be entering the acquisition pipeline soon.
Our tier one Craig is really Boston, She said Austin Nashville.
Atlanta, Tampa, Jacksonville, Orlando Miami Phoenix.
Phoenix Salt Lake kind of that that that tier two in Denver.
Where.
We would only go if we have a path for scale.
It would be very we Wouldnt go for it just a one off we would have to go for larger.
Centers like we did in Boston Boston was not done on a one off there was a path for four assets.
So if there's a path for certain of those cities, which our data science team and market research team help us identify and all of this as you know.
It's really data is the foundation that is driving us to these cities well look there, but it has to be a path for growth.
Yeah.
And then with the Boston a result of your your your targeted analysis.
Pushing harder there or just opportunity opened up in Boston that made them more.
Our targeted analysis and really hitting in may of 2020, and Boston and really looking at.
A center like we did bought in Bedford with a 15 year new whole foods.
Doing over 1100 Bucks, a square foot and buying that at call. It a five six cap for a 350 Bucks a square foot and comparing that to.
Let's say Charlotte at 900 Bucks a square foot with similar cash flow I look at Boston with the life Science biotech education, and really Tac as one of the top gateway cities in the World. So, yes, our data science led to that and.
And got Us a jumpstart we're now obviously, it's extremely frothy.
But we really while others were shifting to the South East we took that time to go to Boston in and buy it at a great size.
Great and then just.
On the 96 million disposition.
Can we expect the cap rates similar to Chicago or might be somewhat elevated from that.
I think of it I mean, it's too early to tell this will be I mean, maybe a little bit elevated on some where around the edges.
But again this is not going to be a dilutive process. This is gonna be programmatic and we hope to be again the earnings accretive.
We sold all the bad we sold $200 million in 2018 of assets that were.
98% of them are all tertiary with an average IRR of three and a half.
So there's no.
There's no urgency to sell this could be opportunistic where we can move cash flow from certain geographic exposures to new geographic exposures like those seven markets I've identified.
Yeah, Craig the 96 million of dispositions that we referenced in the prepared remarks.
It's done at a cap rate of about 6%. That's all the triple net stuff that we ceded to the <unk> net lease platform.
Okay. Thank you.
Thanks, Greg.
Thank you. Our next question is coming from Tayo Okusanya of Credit Suisse. Please go ahead.
Yes, good morning, everyone. So.
So just a quick question on overall leverage.
Moving towards your target leverage from where you are today as we start to think about 2022, and hopefully a more normalized retail backdrop kind of improving occupancy and things of that sort I mean, do you envision being able to get back to that target leverage in a 12 month timeframe or do you kind of think it's going to take a longer period.
Than that.
Hello, Good morning, it's great to hear from you. One you know, we're very focused on leveraging and getting back to that mid point of our of our range of about six times. You know we ended the quarter at six eight times and when you layer in our signed not commenced.
ABR of about $4 million, you're touching the top end of our range.
So we're getting there and I think organically can we get there by the end of the year.
Two perhaps but what I think what can accelerate us there is really just the power of the platform to where we can ultimately being positioned to over exercise an acquisition to get the leverage down similar to kind of what we did this past quarter with the with the equity raise but we're very very focused on it and we'll use all the tools in our in our trust internally.
Externally to get them to that midpoint as quickly as possible.
Gotcha, Okay Thats helpful. And then the second question again, you you gain about a penny this quarter from the reversal of some of the uncollectible rent could.
Could you talk a little bit about just how we kind of think about that heading into 'twenty, two as well, whether there's probably some opportunities to kind of see some of the written off rent come back kind of the health of some retailers begins to improve.
Not at this point I don't I don't think so I think you know what.
A very very.
I think a reality.
Well, you know our conservative, but realistic approach with our bad debt reserves in 2020, one and we really have only experienced about.
Two pennies to date of favorable bad debt reversal. So we don't at this point in time expect any favorable.
Adjustments as we move into the fourth quarter.
Or even into.
Into next year.
Okay.
You very much.
Youre welcome.
Thank you. Our next question is coming from Mike Mueller of J P. Morgan. Please go ahead.
Yeah, Hi, a quick clarification question. When you were talking about taking the tour leases back next year I thought I heard about three three cents, a grant and I wasn't sure if that was.
Could it be the near term impact in which case you know we need to take that 24 run rate and kind of tweak it a little bit.
That work that was a comment about future upside from repositioning the boxes. Just wondering if you can run them yeah that was.
Sure. Thanks for the question, but I guess, that's that three cents is related to the upside.
We expect once we have the four spaces re leased to those tenants that Brian described that is.
Is the answer.
Okay. So in that run that pro forma run rate you were talking about the Doe.
That short term fallouts essentially baked in there.
It's not it's not baked in there we do expect to take back the four spaces in the first half of 2022, and then re lease them back up within about 12 to 15 months or so into 'twenty early 'twenty four.
So from it from a quarter from a from a quarter perspective, Mike it's about.
625 grand or so.
Got it okay that was it thank you.
Youre welcome.
Thank you. Our next question is coming from Linda Tsai of Jefferies. Please go ahead.
Hi, good morning.
You sort of touched on this with the whole foods anchored center in Boston, How is data analytics shifted your analysis of how you're evaluating the quality of a grocery anchored center.
I think more than anything.
Especially with it with the froth of today.
Data analytics is more important than ever and May I say, often data is the new oil here and real estate.
His finance and in some way.
Data is the foundation of every decision we make.
As it relates to our capital allocation.
So really this is just another.
Tool that we have at our disposal to make sound business decisions. So we looked at comparing for example that that asset in Boston versus an asset in Charlotte with similar cash flow and the score in the scoring model.
Significantly higher in Boston for a number of reasons three.
Three mile.
Demographics, the future growth population, the adjacency to employment, such as life Science education levels.
Higher barrier to entry of of grocery stores. The existing grocery stores are you the number one or number two grocery store in a market.
We go through a very rigorous continual.
Retooling of that scoring model.
And that is something that will always be refine but is extremely critical especially in a very competitive environment, where we don't want to be seen or we don't ever want to be making a bad investments certainly buying investments.
<unk> don't achieve the IRR, which we're looking for.
And then for my second question with high cap rate compression grocery anchored centers are you seeing any of that demand spill over the power centers or is a key variable having a grocery anchor in terms of you know.
No I think I think we're seeing that I mean its across the sector. We're.
We're seeing significant compression in cap and cap rates on on power in certain areas that are I think youre seeing them more in.
Thankfully, we have top 40, msas youre not seeing them as much in secondary or tertiary.
As you are with the higher Msas, but you know again, you look at the credit mix and profile of maybe 60% of the cash flows T. J acts in Burlington, Nordstrom rack or.
Or I'd have a few pads.
That's a that's a pretty good business and what I like about that business is I mean, they're almost the credit of those tenants. It's you almost playing in the triple in that space.
And what we've been doing a lot of is putting groceries and some of these power centers. So that's even further cap rate compression, which heightens the IRR.
But absolutely we're seeing cap rate compression across the board.
Thanks.
Once again, ladies and gentlemen that is star one to register a question at this time, we will pause for a moment for any additional question.
Yeah.
There's no questions in queue at this time I'd like to turn the floor back over to Mr. Harper for closing comments.
Thank you operator 2021, it's been a year of refreshment for RPT, we are refreshing our portfolio through our acquisition program and we are refreshing our cash flows through our strong leasing activity.
This is resulting in better market diversification, a higher quality portfolio.
Higher credit tenancy and most importantly, more durable cash flows.
We also refreshed our liquidity by assessing joint venture dispositions debt and equity capital to allow us to continue to reshape our portfolio in 2022 and beyond.
Thank you all for joining our call. This morning have a wonderful day.
Ladies and gentlemen, thank you for your participation and interest in RPT Realty.
Disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
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