Rithm Property Trust Inc. Common stock

Greetings and welcome to the RPT Realty Third Order 2020 Earnings Conference Call. At this time, all participants are on a listen-only mode. The 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. I would now like to turn the conference over to your host today, Mr. Vin Chow, Vice President of Finance. Thank you, sir. You may begin. Thank you, sir.

Good morning, and thank you for joining us for RPP's third quarter 2020 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, may be deemed forward-looking statements within the meaning of the Private Security 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 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, 2019, and quarterly report on Form 10-Q for the second quarter of 2020, and in our earnings release for the third quarter of 2020. Certain of these statements made on today's call also involve non-GAAP financial measures, Listeners are directed to our second and third quarter press releases and third quarter supplement, which includes definitions of those non-GAAP measures and reconciliations of the nearest GAAP measures, and which is 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, Vin. Good morning, and thank you for joining our third quarter 2020 conference call. I hope you and your families are all well. Despite the challenges facing our industry, we experienced an excellent quarter of leasing activity and rent collections, in addition to making strong progress on several of our ESG initiatives and accomplishments. Also, we continue to keep two eyes on the current business and a third eye on the future as we start to see opportunistic shifts in the retail real estate landscape. While we will be disciplined with our capital, we are well positioned to be on the offensive. We are pleased with the level of leasing demand that we are seeing so quickly after the economy reopened. This quarter, we executed 106,000 square feet of total new leasing volume, the highest level since the first quarter of 2019. As a result, our sign-not-open ABR of 3 million nearly doubled since last quarter. As we look ahead, our leasing pipeline is very healthy. Today, we have an additional $1.5 million of ABR that is currently in lease negotiations, with significantly more in advanced LOI stages. Much of this demand is coming from grocery, off-price, QSR, and medical-use tenants. We have also seen an acceleration of traditional mall tenants looking for space in open-air centers. While this demand creates friction in the market and helps drive pricing, We are being highly selective in this area as we are not interested in turning our centers into outdoor malls with a heavy concentration of full-price apparel. Overall, visibility into our leasing pipeline and pending sign-not-open balance gives us comfort that incremental cash flows will provide some cushion from COVID-19 store closures. Along with our solid leasing activity, we achieved double-digit growth in our releasing spreads, including a 43% increase on new leases, the highest level since the second quarter of 2018. In fact, since mid-2018, after the new management team started, our new releasing spreads have averaged 30%, with an incremental return on capital of 12%. Reflecting the mark-to-market opportunity embedded throughout the portfolio. We look forward. We expect to continue to drive rent as we believe our Midwest and Southeast geographies have in-place rents that are more accessible to tenants. Leasing highlights for the quarter were new deals with Nike, Sephora, Burlington, and Bank of America, to name a few. These credit tenants not only improve the quality of our cash flows, but are also providing a good return on capital in the mid-teens range. During the quarter, we opened Lululemon at our Woodbury Lake property in Minneapolis, with initial sales significantly exceeding Lulu's forecast. Touching on our growth share initiative, we continue to see tremendous opportunity for stronger growth and gain share opportunities. including Kroger, Sprouts, and Publix. Each reported impressive quarterly earnings and sales, while Aldi recently announced plans to open 70 new U.S. stores in 2020. The demand is real, and we continue to see a unique opportunity to improve property values and strengthen the resiliency of our cash flows. Our pipeline of deals includes the addition of grocers to non-grocery anchored centers, and then opportunities to enhance the existing grocer tenancy. Negotiations are progressing well on several locations and we hope to provide further updates in the coming weeks. Our collections rates in the third quarter showed noticeable improvement with 87 percent of base rent and recovery income collected as of October 30th. We have seen further improvements in October with 90 percent collected thus far which is ahead of the pace we experienced for September at the same point in time. Our collection levels are rising quickly as deferral periods end and tenants resume payment in accordance with their deferred plans. As a result, our second quarter collections have increased to 76% up from 65% as reported last quarter. We also intended to collect rent from our local mom and pop tenants at a very high rate of 94% in the third quarter. Throughout the sector, these tenants have historically suffered the most in past downturns, and we believe our high collections are a reflection of the quality of our smaller tenants and our boots-on-the-ground leasing and asset management approach. We also believe our relatively lower exposure to this category of just about 10% should provide some shelter from potential future fallout. With our percentage of open tenants by ABR at 94% and October collections sitting at 90%, absent any macro headwinds, we are cautiously optimistic that we will continue to drive collections higher. While we are still in the throes of the pandemic, I think it's important to keep in mind that several of our top tenants are thriving today, including Whole Foods, Best Buy, and Dick's. We're also seeing a comeback with Bed Bath & Beyond, our fourth largest tenant. They recently launched same-day delivery to complement their focus in curbside pickup services that fueled an 89% increase in digital channel sales in the first positive comparable sales growth quarter in almost four years. Gap recently announced its Power Plan 2020 strategy that will refocus the business on growing just the Old Navy and Athleta brands. Today, 10 of our 13 DAC concepts are Old Navy and Athleta. On the tenant risk front, about 3% of our ABR is currently in bankruptcy proceedings, and we expect to retain about half of this amount. During the quarter, we recaptured 8 of 15 ASEANA locations, and we're actively working on backfills well before the bankruptcy filing. We have already released one location and are in various stages of negotiations on the remaining seven. We expect to vastly upgrade tenancy and experience positive mark-to-market opportunities for these locations. During the fourth quarter, we expect to recapture two Steinmark boxes, representing roughly 60,000 square feet. We are in advanced negotiations on both with off-price concepts, providing us the opportunity to materially enhance credit and merchandising for both properties. At just under $11.50 per square foot, we also see a sizable mark-to-market opportunity upon release of those spaces. Given recent headlines, I wanted to provide some color on our theater exposure. In total, 4% of our ABR comes from theaters, 3% of which is with Regal, that recently announced that it would temporarily reclose due to a lack of studio releases. While this news is disappointing, we believe that the theaters will remain a key source of distribution to the film studios and provide a difficult-to-replace form of entertainment to us as consumers. We are hopeful that the difficult steps taken will allow Regal to continue to weather the pandemic. However, like every troubled tenant, we are not sitting idle and are proactively evaluating our alternatives at all four locations. Three of the four are standalone boxes that give us additional replacement options, including single tenant replacements, box splits, and potentially even some non-retail uses, including last mile distribution. The last location is at our Webster Place asset in Lincoln Park, Chicago, where we have been cultivating densification and mixed-use opportunities. The highest and best use at this asset is residential. We've been trying for quite some time to clear the site so that we can progress towards a JV with a residential partner. Overall, we believe our exposure to the theater category is manageable We are taking the appropriate measures to minimize the impact on our business, including reserving a significant amount of our expanding theater uncollected rent. I think it's worth noting that while many analysts have pointed to our somewhat higher exposure to the theater category as a reason for concern, our collection levels in the third quarter and in October are now at or above peer collection levels. As you think about the risk profile of RPT, I would simply point to the convergence of our collection rates and our below-average at-risk exposure to a broad range of groups versus narrowly focusing on individual tenants and categories that may be in the headlines today. We have a slide in our investor presentation that we think provides context regarding our broader COVID-sensitive exposures versus our peers. Turning to our strategic outlook, without the pressure to raise capital near-term, we are in a position to play offense. While we continue to manage our liquidity closely, we are actively scouring our target markets for acquisition opportunities. We have roughly $95 million of excess cash in our balance that we can strategically and accretively deploy as opportunities arise. Though overall deal volumes in the open-air sector have been light, we are starting to see the first signs of activity, and I'm personally starting to get calls about stressed opportunities. To date, these deals have not met our stringent underwriting criteria, but we believe more appropriate opportunities for RPT will emerge later in the year and in the early part of 2021. At this point, the percentage of retail CMBS debt in special servicing is at an all-time high, and stress debt, which includes debt that is not yet in special servicing, is already above levels seen during the Great Recession. We believe our excess cash and our strategic partnership with GIC will be a key advantage as deal flow materializes. Also, while our current liquidity is strong, we are not resting on our laurels and are actively exploring additional options to generate even more capital at attractive pricing in order to be ready for further deployment opportunities that could be transformational for a company of our size. Before turning the call over to Mike, I wanted to highlight the progress we've made on our ESG initiatives. As noted in our press release, we recently launched a landing page on our website highlighting our ESG mission, goals, and accomplishments. I'm also proud to say that we filed our inaugural graduate assessment as part of our commitment to sustainability and launched our diversity inclusion committee as we fulfill our corporate purpose of turning commercial ground into common ground. Highlighting our efforts on the social front, We were recently recognized as the top place to work by the Detroit Free Press and were selected for the Crain's Detroit 2020 Cool Places to Work list. And just yesterday, Commercial Property Executive announced that RPT won an award for one of 2019's best investment transactions within the portfolio category for our joint venture with GIC. With that, I'll turn the call over to Mike to discuss our financial performance for the quarter.