Rithm Property Trust Inc. Common stock

Greetings and welcome to the RPT Realty First Quarter 2022 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, Vin Chow. Thank you.

Good morning and thank you for joining us for RPT's first quarter 2022 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, 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, 2021, and in our earnings release for the first quarter of 2022. Certain of these statements made on today's call also involve non-GAAP financial measures. Those terms are directed to our first quarter of 2022 and fourth quarter of 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 DesMorris for their opening remarks, after which we will open the call for questions.

Thanks, Vin. Good morning, and thank you for joining our call today. 2022 started off much like we ended in 2021, with positive leasing momentum, success on the investment front, and continued access to capital. In my four years at the company, I've witnessed a tangible transformation in the quality of our tenants, markets, portfolio, people, and processes, all of which has significantly improved the quality of our cash flows. Our first quarter leasing volume was the best quarterly level in over a decade, while our investments team continues to find accretive deals after a record-breaking 2021. We are reshaping our geographic mix in real time, and our success on the operating and investment front is translating into financial success. Our first quarter same property NOI growth of 9.9% and OFFO per share growth of 37% is reflected of the RPT transformation and was consistent with our expectations. Our ticker might be the same, but our company is very different from what it was just a few years ago. As I've been saying for the past few quarters, the leasing environment remains robust across property types, markets, and tenant categories as the pandemic has reinforced the importance of brick and mortar as a key and profitable component of retailers' distribution channels. Reflective of this demand, during the first quarter, we signed 716,000 square feet of leases across 82 transactions. That is more than the last two quarters combined and is the highest quarterly level since the first quarter of 2010, putting us on track to exceed the 1.7 million square feet we signed last year. Leasing activity for the quarter included 19 anchor deals highlighted by our new lease with the National Wholesale Club at River City Marketplace in Jacksonville and key leases with Dick's Sporting Goods and Ross at Providence Marketplace, two TJ Maxx leases, and $3 releases. Further highlighting the strength of the market is our ability to drive price in addition to volume. In the first quarter, we achieved a new lease spread of 20% and 25.7% on a trailing 12 month basis, reflective of the attractive mark to market opportunity in the portfolio that we will continue to harvest over the next several years. The high single-digit renewal spread that we have been reporting also reflected the improved retail landscape with our retention ratio hitting 93%, consistent with last year, but above pre-COVID levels. Tenants that were previously struggling have been exercising renewal options as their businesses improve and the value of their real estate became more apparent in the wake of the pandemic. It is worth noting that our average annual expiring rent per square foot in 2023 through 2027 are all below our in-place portfolio average. Older leases on great real estate like ours should allow us to continue to drive strong releasing spreads and achieve elevated tenant retention rates over the next few years. Strong leasing demand is also resulting in upgrades to our tenancy as retailers flock to the highest quality real estate like ours. This is allowing us to improve the quality and the value of our cash flows. In the first quarter, we signed a deal with a national wholesale club at River City Marketplace in Jacksonville that will replace the Regal Cinema. Not only will this solidify the stability of the center for many years, but it will also create significant value through cap rate compressions. Another notable deal includes Sweetgreen at Troy Marketplace in Detroit. The deal was signed on the back of our AA-rated grocery deal that is scheduled to commence later this year. We also signed Sephora at Town & Country in St. Louis. That, along with an REI that we signed earlier in the year, combined to replace a former Steinmart box. And yet another example of how the downturn has benefited our business by allowing us to upgrade our tenancy attractive economics and with investment grade credit. Strong demand is also resulting in more opportunities to redevelop our centers often with a grocer anchor leading the way. We continue to make great progress for the redevelopment plans at Marketplace of Delray and Delray Beach and Hunter Square in Oakland County outside of Detroit where we are working with leading grocers to upgrade the centers and while our Publix expansion project at the Crossroads in Palm Beach is slated to break ground later this month. We're also zeroing in on another grocer deal to anchor redevelopment at our West Broward property in Miami that will significantly upgrade the tenancy of the center where we're placing a former save-a-lot, which we believe will compress cap rates by as much as 300 basis points once the new grocer is in place. I want to end my opening remarks on investments. where we continue to flex the power of our grocery anchored net lease and wholly owned investment platforms as evidenced by our increased 2022 acquisition guidance to $225 million, up $100 million from last quarter. We are rapidly reshaping the portfolios towards higher growth markets like Boston, Atlanta, Nashville, and Florida, which collectively now account for about 51% of the company's total property value. with our three Florida markets of Tampa, Miami, and Jacksonville accounting for 28% of the total. Just after the end of the quarter, we closed on the acquisition of the Crossing Shopping Center near the high barrier coastal city of Portsmouth, New Hampshire in the greater Boston MSA. With this acquisition, Boston moves up to our second largest market at about 12% of AVR. The asset fits nicely into our last-mile credit center bucket. The Crossings is a market-dominant 510,000-square-foot center that benefits from a lack of state sales tax and year-round tourism. It boasts a true trade area of $251,000 with high average three-mile income of $114,000. The center has two strong grocers in Aldi and Trader Joe's, who is doing $2,500 per square foot in sales. Other strong credits include Dick's Sporting Goods, Best Buy, Kohl's, McDonald's, Ulta, Chipotle, and Five Below. Center's cash flow has proven to be very durable, as the average tenant has been here for over 22 years. We acquired the crossings for $104 million, or just $204 per square foot, which is well below replacement cost. When combined with several parcel sales to our net lease platform expected later this year, we expect to generate an attractive unlevered IRR that is within our targeted 8% to 10% range. This asset also comes with 25,000 square foot of vacancy, which we believe we can realize attractive upside in the near term. We are dividing up the space in order to drive contractual annual rent increases based on tenant demand some of which is coming from a mall that is adjacent to our center. As we have mentioned previously, we have been very focused on the strategy for infill street real estate in existing markets. High street real estate such as Back Bay Boston or SoHo is not the focus here. We are targeting first ring neighborhoods in highly fragmented markets with real estate that can't be replicated. Subsequent to the end of the quarter, we went under contract on Brookline Village, a small 11,000-square-foot collection of properties on Harvard Street in Brookline, Mass., just outside of Cambridge, for $5 million. This is the deal I alluded to on our last call. Brookline Village is located in an envelope market that boasts a three-mile population of 450,000 and a household income of $122,000. Our scale in the greater Boston area gives us the ability to source these types of first-ring neighborhood street properties where we can generate strong annual growth with little to no capex, which equates to solid, unlevered IRRs. This type of product is abundant and fractured, which provides us with a long runway to create a lot of value for our shareholders. We expect to share a lot more about first-ring acquisitions in upcoming quarters. Finally, our net lease platform closed on the acquisition of two single-tenant properties from two of RPT's shopping centers during the quarter for $11.6 million. Early in the second quarter, the platform closed on the acquisition of Starbucks in Ridgeland, Mississippi for $2.2 million, and on Ensonia Landing, just outside of New Haven, Connecticut, for $14 million. Ensonia is a 91,000-square-foot stop-and-shop anchored neighborhood center where the net lease platform can realize significant upside through lease up and sale of the small shop portion of the center while keeping the stop and shop in a market that is outside of RPT's core. 2022 has started off on the right foot as we execute across all aspects of the business. Our transformation is accelerating. We continue to improve our tenancy, our geographic mix, and our portfolio quality while also driving same property and OFFO per share growth that we believe will lead to substantial shareholder value creation. With that, I'll turn the call over to Mike.