Rithm Property Trust Inc. Common stock

Greetings and welcome to RPT Realty First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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, Mr. Vin Chow, Senior Vice President of Finance. Thank you, sir. You may begin.

Good morning and thank you for joining us for RPT's first 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, may be 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 31st, 2020, and in our earnings release for the first quarter of 2021. Certain of these statements made on today's call also involve non-GAAP financial measures. Listeners are directed to our first quarter press release, our first quarter supplement, and our fourth quarter 2020 press release, 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 like to now 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.

Good morning, and thank you for joining our first quarter 2021 conference call. I hope you and your families are all well. We are happy to have kicked off the new year in strong fashion. Our rent collections continue to tick higher. We continue to benefit from the multi-year mark-to-market opportunity and strong demand at our centers. We recently closed on our new net lease platform and are now under contract on our first property in the Boston market that we expect to allocate between RPT's balance sheet and the new platform. We believe we now have the capital and the platforms to generate strong external growth, as well as the portfolio quality and leasing demand to drive above-trend internal growth as we move past the pandemic. While the pandemic has created many hardships, it has also created opportunities that we have been able to capitalize on. For instance, COVID-19 has had a negative impact on many tenant categories, But unlike during the global financial crisis, this also had a positive impact on many other tenant categories like grocery, home improvement, electronics, wholesale clubs, general merchandise, and medical use. This also boosted some businesses that were struggling pre-pandemic like pets, office supply, and a hobby. Ironically, many of the big box tenants that were not in favor pre-pandemic have thrived since, enough so that we think credit center is a more apt description for the power center category. One of the biggest opportunities that we saw after the onset of COVID was an acceleration of the widening valuation gap between different segments of retail real estate. It soon became clear that there were numerous value creation opportunities to unlock if we could figure out a way to monetize the various dislocations between single versus multi-tenant properties, larger versus smaller footprints, and between essential and high credit, but non-essential tenant categories. Our solution was our new net lease retail real estate platform with our partners GIC, Zimmer, and Bonarch. that we are calling RGMZ until we rebrand later this year. Given the relationship with RPT and our existing operating and development capabilities, the new platform gets access to proprietary deal flow from multi-tenant assets, larger scale sale-leaseback transactions with national tenants, blended extends of shorter-term leases on strong real estate, re-merchandising of expiring leases, and build-to-suit opportunities. The NetLease platform and our R2G joint venture should allow us to grow AUM and expand and target markets faster than we could do on our own. Our joint ventures also add a new, sustainable, and diversified cash flow stream to RPT, and we believe will improve our FFO growth profile by enhancing our returns and increasing the economic spread on our deployed capital as we take advantage of the valuation dislocations I mentioned earlier. As we previously noted, the 151 million initial seed sale to RGMZ will close in tranches over the course of 2021. The first tranche of 13 parcels closed on March 5th for just over 36 million. I won't go into all the transactional details, but overall, we couldn't be more excited about the NetLease platform. More information is available in our press release announcing the deal and in a separate RGMZ investor presentation, which both are available on our website. Our Northborough Crossing deal on the Boston MSA that is currently under contract for $104 million is a perfect example of what we are trying to achieve with the NetLease platform. Here, we are buying a premier shopping center that, upon closed, will be accretive to RPT's earnings from day one. But by selling parcels to RGMZ, we have the opportunity to materially lower our basis and enhance our yield. Our expectations are that we could sell up to $75 million of the center to RGMZ, resulting in a significantly reduced basis for RPT. Consistent with our thesis regarding the value dislocation between multi-tenant and net lease properties, our effective acquisition yield on the retained multi-tenant asset could improve by up to 300 basis points after the acquisition and parcelization process is closed. There is real synergy between RPT and the new platform that benefits both sides in a way that is difficult to replicate. For RGMZ, they get access to high-quality tenants in a location with household incomes of about $148,000 that no other triple net investor has access to. For RPT, we gain entry into the attractive Boston MSA on a deal that we would likely have passed on without the potential parcel sales to RGMZ. Equally important is that at the NetLease Platforms Manager, RPT maintains equal control of the NetLease components of the center. This type of control is not available to multi-tenant owners that sell pads to unaffiliated entities. The synergies of the two platforms give us a unique opportunity that we believe will result in outsized future earnings growth. We look forward to providing more details on the Northboro and subsequent parcel sales over the next several weeks. Turning to our acquisition pipeline. Since we announced our net lease platform, we have engaged with many of you, and a consistent question that comes up is how quickly we can deploy the capital raised at both our RGMZ and R2G joint ventures. Keep in mind that while we only recently announced RGMZ, We have been working on the deal for almost a year and we're actively cultivating an investment pipeline throughout the pandemic. Our ability to go to contract on Northborough so quickly after closing the new JV is a testament to the strong groundwork that was laid over the past year. Additionally, we are in active contract negotiations on several other deals and have embedded a total of $100 million of net acquisitions at our ProReta share, and after parcel sales to RGMZ into our guidance. We remain optimistic that we will be able to deploy the vast majority of our current cash and future proceeds from the rest of the net lease platform seed sale by year-end, reflecting about $115 million of upside to what is currently reflected in our guidance range. We are currently tracking a diverse pipeline of over $2 billion in markets like Boston, Atlanta, Tampa, Nashville, Miami, Jacksonville, and Orlando. The pipeline consists of RPT, R2G, and RGNC deals and runs a gamut from single property locally owned deals to institutionally owned portfolios. The tie that binds each of these deals is the durability of underlying property cash flows and our ability to grow future NOI by buying under-market rents or properties with redevelopment opportunities. Tyler Sorensen, who is heading up acquisitions for the NetLease platform, brings a wealth of experience to RPT that we believe will further accelerate our NetLease acquisition program and our pipeline. Last quarter, we outlined 11 re-merchandising opportunities consisting of redemising, expansions, or combinations. While the exact lists will fluctuate as deals move into and out of the pipeline, these larger leasing deals continue to reflect the best risk-adjusted use of our capital, and we will allocate accordingly. We have made very good progress since last quarter, with the grocery deal at Troy Marketplace moving from the shadow pipeline to the active pipeline. Three other projects were also added this quarter, bringing the total in-progress pipeline to over 13 million, with expected returns in the high single digits. It's no secret that COVID-19 put pressure on certain experiential tenants. But as I noted earlier, this pressure has created opportunities, as was the case at our Troy Marketplace property outside of Detroit. Troy Marketplace is a dominant power center that has maintained a high level of occupancy throughout the pandemic, with 97% lease at quarter end. Because of COVID's impact on a recreation tenant, we were able to get the space back without a buyout and replace them with a new, premier first estate investment grade grocer. We were able to generate an 88% rent spread on the new lease. Although the incremental return on capital is tighter than our typical underwriting, we believe that attracting a premier grocer at this already strong center will create significant value via cap rate compression of almost 200 basis points and position the asset for success for years to come. As I previously said, we see a lot of value creation from the addition of a grocer component to these credit centers. They're looking forward to executing more of these. We also continue to see strong leasing demand from our former Stein Mart space in St. Louis and are now in lease negotiation with a leading retailer. At Winchester in Detroit, we are finalizing a lease with a quality national off-price tenant to take our only other Steinmar box. Florida has continued to be a robust leasing market for RPT. We are seeing great activity across the board at our centers within the state and are close to deals that will significantly upgrade the tenant credit at West Broward and shops at Lakeland. There is also strong demand at the marketplace of Del Rey, which is creating friction at this property that could result in a significant improvement in the tenant mix. Before I turn the call over to Mike, I wanted to touch on our development program. As we continue to move past the heart of the pandemic, we are again revisiting our development program we had put on hold pre-COVID-19. Although we are still not ready to put shovels in the ground just yet, we have reengaged with potential partners on a few of our properties that we previously flagged for potential residential use in Florida. We are seeing extremely strong demand for residential at both River City and Parkway shops in Jacksonville. As we've stated in the past, although the highest and best use of certain parts of our centers may not be retail, we will remain focused on our core retail competencies, and we'll look to monetize non-retail components through ground leases, land sales, or potentially even land contributions into partnerships with leading residential players to retain some future upside. With that, I'll turn the call over to Mike.