Rithm Property Trust Inc. Common stock

Greetings and welcome to the RPT Realty fourth 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, Craig Benigno. Senior Analyst, Investor Relations. Thank you, sir. You may begin.

Good morning, and thank you for joining us for RPT's fourth 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, 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, that will be filed later today and in our earnings release for the fourth quarter of 2022. Certain of these statements made on today's call also involve non-GAAP financial measures. Listeners are directed to our fourth quarter 2022 press release, which includes definitions of those non-GAAP measures and reconciliations to the nearest GAAP measures, and which are available on our website in the investor section. I would now like to turn the call over to President and CEO Brian Harper and CFO Mike Fitzmaurice for the opening remarks, after which we will open the call for questions.

Thank you, Craig. Good morning, and thank you for joining our call today. The start of 2022, uncertainty around the economic environment, specifically inflation, began to take shape. It was only a matter of time before inflation took over the headlines. As I say often to the team, control the controllables, act with urgency, and turn risk into opportunity. Simply put, play offense. We leaned into our playbook and focused on five areas. Lease, lease, lease. strengthen and diversify our cash flows through our three differentiated investment platforms, increase our assets under management, add duration to the balance sheet, and lastly, reduce short and long-term floating rate risk. Our team quickly became aligned, leading us to execute with excellence across all business units. We finished the year on a great note with top and bottom line growth in addition to another dividend raise. 2022 same property NOI growth was 4.3%, and operating FFO per share growth was 9.5%. Given the high level of visibility into our growth trajectory over the next few years, we raised our first quarter dividend by 8%. Over the last two years, we have experienced not only an acceleration of our portfolio transformation into wealthy and growing markets such as Boston and Miami, But we have also seen a re-acceleration of demand from retailers due to a very low supply environment coupled with our well-located and affluent open-air shopping center locations. We had another banner year across all operational metrics. Our leasing team remained locked in as we ended the year signing 69 leases covering 500,000 square feet during the fourth quarter. culminating in full year activity of 2.2 million square feet, the highest annual leasing volume achieved since 2014. This activity pushed our lease rate to 93.8%, up 70 basis points year over year, and putting us near our pre-pandemic levels. Embedded in our lease rate is about 390 basis points of occupancy growth, one of the highest levels in our peer set, which translates to over 11 million of rent and recovery income that has yet to come online. We also continue to drive rent, increase annual escalators, and retain our tenant base. Over the trailing 12 months, we produced a new comparable releasing spread of 43%, and annual escalators of nearly 200 basis points for the new leases signed during the year. Retention was 88% in 2022, as we are seeing retailers pay a premium to remain within our revamped portfolio, which is predominantly located in the top 40 MSAs, as they face limited new supply and increased move-out costs. A significant portion of our leasing activity is related to our value-enhancing re-merchandising, redevelopment, and outlook expansion pipeline. where we have built a track record of replacing struggling retailers with more creditworthy tenants at double-digit returns. In the fourth quarter, we delivered three projects totaling $11 million and an average return on cost of 11%. Today, our active value-enhancing pipeline totals $45 million at blended returns of 9% to 11% with top-tier retailers including Publix, Marshalls, HomeGoods, Ulta, BJ's Wholesale, Baptist Health, and Sephora. Regarding our redevelopment pipeline, we expect to share more details later this year in connection with projects at Hunter Square Asset in Oakland County, Michigan, and Marketplace at Delray in the Miami market. We are in discussions with high-credit national and essential tenants for both sites. As we look ahead, demand across the portfolio remains very strong from national retailers looking to expand their footprints in high-quality locations. We continue to see the most demand from discount apparel, club stores, grocers, restaurants, wellness, and medical tenants. Given this demand, our new leasing pipeline remains robust, totaling over $7 million. This activity will be a key driver of occupancy growth as we stabilize our portfolio to our targeted occupancy level of 95% plus over the long term. In fact, we expect to eclipse nearly 2 million square feet of lease commencements in 2023 for the second year in a row. And while bankruptcies have been in the headlines of late, tenant fallout is a natural part of the retail environment and nothing new. for experienced landlords such as us. Our ability to recapture space provides us with the opportunity to showcase the quality of our portfolio and our operating platform as we anticipate releasing these spaces with significantly better tenant credit on an earnings accretive basis. At the end of the year, we had eight Bed Bath Concepts and four Bye Bye Babies. While their situation remains fluid, it is not a surprise. We have been preparing for this situation internally for several years and have put a strategy in motion to create meaningful value through the re-merchandising of these sites. Our leasing team has been cultivating a pipeline of replacement tenants And our very low embedded rents of about $11.50 per square foot provide us with an opportunity to drive rents into the mid-teens range, favorably positioning us to aggressively recapture our location. While we already have significant interest on all bed, bath, and bye-bye locations, we are in advanced negotiations on four of them, which we maintain control of. We are at lease with a leading off-price retailer, DeBafo One, at a 40% releasing spread, with the location set to open in the fourth quarter of this year. For the three remaining locations, we are out for lease with top national retailers at Winchester Center and Hunter Square in Oakland County, Michigan, and are in negotiations for a lease for another. Average rents for these locations were $10.50, with new rents being discussed in the $15 to $16 range, with minimal expected downtime of 12 months on these four deals. Of the remaining locations, it's important to note that four are buy-buy concepts. However, if we were to get the opportunity to recapture all of them, we would expect downtime to range between 12 to 18 months at releasing spreads of 20%. We have multiple backfill options for these locations that are in various stages of negotiations with categories including discount, grocer, medical, health and beauty, and liquor stores, to name a few. Regarding Regal, we have three locations in the portfolio, and none are on the closure list, and each is current on rent payments. At this point, we believe all three locations will be assumed by the surviving entity based on advanced negotiations. We had another strong year on the investment front. We finished within the top quartile of U.S. open-air shopping center buyers in 2022, completing $375 million of acquisitions across all three investment platforms, bringing our two-year acquisition volume to $921 million. At year end, our AUM was $3.6 billion, up 57% since 2018. During the fourth quarter, we closed on the contributions of two core stabilized Midwest assets, Shops at Lane in Columbus and Troy Marketplace in Detroit. These were contributed to our grocery-anchored joint venture platform, which provided the funding for our share of the acquisition of Mary Brickle Village. Although we curtailed our investment activities in the second half of the year as we wait for markets to adjust to the new rate environment, we continue to actively scour our target markets for potential acquisitions. The good news is that we have excellent liquidity between cash and revolver availability and no debt maturities for the next two years, which puts us in a great position to quickly respond to changing market conditions. Also, our joint ventures remain a competitive advantage that provides us with long-term capital and allows us to generate above-market returns while also expanding the breadth of opportunities that we can pursue. Let's touch on Mary Brickell. The asset continues to exceed our expectations. Today, occupancy is 83%, up 5% since we closed on the asset last summer, and we expect it to exceed 90% by the end of 2023. Street-level rents are currently in the $150 to $200 range versus our in-place average rent per square foot in the mid-40s. We have multiple opportunities to recapture leases on both the east and west side of Miami Avenue that will help us deliver a best-in-class, iconic property and capture the growing mark-to-market opportunity over the next few years. Beyond this, we continue to evaluate long-term densification plans that will potentially unlock tremendous value for shareholders as we capitalize on the flexible zoning at the site that allows for up to 4.1 million square feet of residential office or hotel use in the heart of Miami's Brooklyn neighborhood. Finally, we initiated operating FFO per diluted share guidance of 97 cents to $1.01, which includes our expectation of same property NOI growth of 1.5% to 3.25%. Included in our outlook is a prudent level of bad debt considering the current situation with a few at-risk tenants. Mike will provide more details on how we're thinking about bad debt and our overall outlook for 2023 in his prepared remarks. With that, I'll turn the call over to Mike.