Q2 2023 RPT Realty Earnings Call

Greetings and welcome to RPT Realty's second quarter 2023 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 keypad as a reminder, this conference is being recorded.

It is now my pleasure to introduce your host quake predictable senior analyst Investor Relations. Thank you Mr. Vertical you may begin.

Good morning, and thank you for joining us for Rpt's second quarter 2023 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 <unk>.

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, 2022 and in our earnings release for the second quarter 2023 certain of these statements made on today's call also involve non-GAAP financial measures listeners are directed towards second quarter 2023 press release.

Which includes definitions of these non-GAAP measures and reconciliations to the nearest GAAP measures and which are available on our website in the investors section.

As a reminder, last quarter, we introduced our quarterly earnings presentation, which we will reference throughout the call to highlight key messages for the relevant court you can find the second quarter 2023 earnings presentation on our website in the investors section I would like to now turn the call over to President and CEO , Brian Harper and CFO , Mike Fitzmaurice for their opening.

After which we will open the call for questions. Thank.

Thank you Craig good morning, and thank you for joining our call today.

As we pass the midpoint of 2023, I'm very proud of our operational and financial results that exceeded our own expectations. Despite an elevated impact from bankruptcies.

But the bankrupt tenant disruption now largely in our rearview mirror, we are setup for outsized same property NOI and operating <unk> growth in 2024 and beyond as we expect to benefit from our sector, leading signed not commenced backlog of $9 million with an additional.

$19 million and our leasing pipeline.

Starting with the operating fundamentals.

We continue to experience a historically strong leasing environment with no slowdown in sight highlighted by our elevated leasing volumes record rent growth and enhance credit quality we.

We had our fourth consecutive quarter of over 500000 square feet of leasing volume, putting us well on our way to accomplishing our goal of 2 million square feet for the year the second year in a row.

Our ethanol pipeline remains full at $9.3 million with the vast majority expected to commence over the next 12 months.

As I mentioned earlier, we have an additional pipeline of deals totaling $19 million of which 6 million is incremental to our second quarter revenues.

Tenant categories are primarily comprised of high quality grocers off price home improvement fast casual boutique fitness.

Service tenants.

The leasing and legal teams are firing on all cylinders and remained focused on signing these deals in the near term.

Regarding our embedded rent upside it continues to accelerate.

Over the last three years, we have averaged over 34% on new re leasing spreads highlighted by our second quarter print a 56%.

Rent growth on renewals has been equally impressive steadily rising from a low to mid single digits in early 2018 to about 11% during the quarter.

While leasing volumes and rent growth are important tenant credit is also a critical ingredient to grow earnings on a sustainable long term basis.

We remain disciplined on this front and have signed many leases with strong national high credit tenants, specifically on the grocery front.

Since 2019, we have added 17 grocers through leasing and acquisition activities, bringing our percentage of ABR from centers with a grocer to 72% up from 65% at the end of 2019.

The performance of our grocers has also been strong.

2019 average grocery sales per square foot have grown by 45% to 831 per square foot, reflecting the quality improvement of our portfolio and the enhanced traffic at our grocery anchored centers.

Notable grocers in our portfolio include Wegmans, Publix trader Joe's Gina hold whole foods Bj's and Aldi.

Additionally, during the quarter, we signed a lease with a strong regional ethnic grocer at Olin Tangy Plaza in Columbus that will backfill of Tuesday morning location.

In July we celebrated the grand reopening of our newly remodeled and expanded publix at the crossroads in the Miami market.

We were able to deliver this new prototype in July generating a 7% incremental return on cost while locking in a high quality high credit tenants that will anchor the property for years to come.

Please see slide 11 for additional details on our grocers.

Okay.

Our proactive approach with bed Bath <unk> beyond is beginning to pay dividends.

We have released four locations to leading national retailers at our Bridgewater Falls and Deerfield Towne Center assets in Cincinnati as well as Winchester Center in Detroit.

This is on top of the Homegoods deal at River City marketplace in Jacksonville that we signed last quarter.

The blended spread on these deals was about 60% with two locations opening in the fourth quarter 2023.

All of our remaining locations are in either advanced lease negotiations or at LOI.

Tenant categories range from grocery off price wholesale clubs and high credit national beverage outlets.

We expect that all but one box will be back filled by single use or tenants.

The space that shops at Layne will be the only site that is expected to be divided given the demand from high quality shop tenants that weird negotiate negotiations with at rents per square foot of 45 to $50 Triple net.

That's replacing a $17 rent from bed Bath.

Please see slide seven and 15 of our earnings presentation for more details on this quarter's leasing activity and an update on our bed Bath backfill progress.

We also continue to invest in T J X, which remains our largest tenant representing 5% of our ABR.

We recently opened Marshalls and Homegoods stores at Northborough crossing in Boston, replacing a former pottery barn outlet.

When a brand new <unk> store opens later this fall north role will become the only shopping center in the country with all five <unk> concepts demonstrating their commitment to this property, which is only a few miles from their headquarters.

Including signed leases north boroughs NOI has grown by 14%.

Our acquisition, while occupancy has increased by 646, 5%.

We've provided additional color on northborough success on slide 13 of our earnings presentation. So robust tanker demand. We are experiencing is also driving occupancy rent and retention for our small shop portfolio as highlighted on slide 16 of our earnings presentation.

Our small shop lease rate now sits north of 87% up 120 basis points year over year.

Our blended re leasing spread on small shop spaces has averaged 9% in the last trailing 12 months and we are expecting a retained nearly 87% of our small shop tenants in 2023.

Most of our small shop exposure is weighted towards national and regional tenants, which account for nearly 70% of our total small shop ABR.

Additionally, our top 15 small shop tenants are comprised largely of leading national brands, such as five below Ulta AT&T and dollar tree.

Turning to marry Brickell.

Our clear low risk and actionable phase, one and phase II redevelopment plans for the west side of the center are progressing steadily.

We are in active negotiation on approximately 80000 square feet of new leases.

Tenant categories range from first to state wellness food and beverage soft goods and service brands.

While rent is important the curation of merchandising is equally important.

Renewals with tenants, we want to keep our being signed at $150 per square foot.

Within place rents of $48 per square foot, we have a material mark to market opportunity at MTV over the next several years.

With that I'll turn the call over to Mike.

Thanks, Brian and good morning, everyone. We're pleased to report another strong quarter that exceeded our expectations on both the top and bottom line same property NOI growth of 30 basis points came in ahead of plan and on the heels of a four 4% increase in the second quarter of last year.

Outperformance in the quarter was fueled by better than expected bad debt net of abatements lower expense growth and stronger other property income.

Our top line performance drove operating <unk> per share of <unk> 25 in the second quarter in line with the first quarter. Despite several expected move outs of which many have already been re leased at high double digit rent spreads as Brian noted.

It is also important to note that we achieve base rent growth of over 3% the second consecutive quarter. After adjusting for some offsetting accounting movements between base rent and rental income not probable of collection highlighted on slide 20 in our earnings presentation.

As Brian mentioned this quarter, we made significant progress back billing or bed Bath and beyond locations highlighted on slide 15 of our earnings presentation. We continue to expect to generate rent spreads between 30, and 40%, which we expect to contribute an incremental $1 7 million to NOI growth over the next few years.

We have also negotiated amendments with both Regal and party city to keep our in many locations and given the quarter proves sale of David's bridal, we now expect to retain both of those locations as well.

Additionally, subsequent to the end of the second quarter, our lease with Tuesday morning at Merchants' Square was assigned to dollar tree, leaving us with no exposure to this troubled tenant moving forward.

Our ethanol pipeline continues to hold steady down only slightly versus last quarter, given sustained levels of leasing demand and on time rent commencements.

Renewals were the tenant didn't have options during the quarter, we had about 40 leasing transactions.

So one of the questions earlier, the answer we experienced 40% on new leasing spreads over the last couple of years. So youre seeing it that only the new size of the renewal side, where we.

We have leverage with these tenants and have a seat at the table like I said.

Got it that's helpful and kind of to go to the bed Bath.

Box is youre getting back and specifically the box split that youll be doing what's the approximate return on invested capital you guys are targeting I know you threw out the number 20% should we expect that or will it be even higher.

We will get more data it can certainly be double digits, you take a $17 bed bath and youre shopping in that up.

And getting small shops at 45 to 55, there is a box.

<unk> real estate.

Okay.

Thank you for that that's it for me.

Yeah.

Thank you.

Okay.

Thank you.

Spreads in the second half of the year we.

We hope you all enjoy the rest of your summer and look forward to seeing you on the conference circuit in September have a great day.

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