Rithm Property Trust Inc. Common stock

any vacancies. We see enormous growth from those boxes in 24 and beyond. But I do see back half of the year, if I were to guess now, a much more higher volume acquisition market at large. I would say for RPT, for our capital allocation, we're really focused on lease, lease, lease. We can't get any near these double digit yields really anywhere else. They will all hit, you know, mostly 24 will be a major beneficiary. And we have an under market portfolio where our single highest best use right now is putting capital towards that. Second is we still have a large amount of money with our GMZ. We love those returns and love the fees. That's a focus. And I could see us playing in more of the MES and PREF on a very small number. We already have a PREF position with Zimmer and Monarch and RGMZ Venture, and could look to do more of this if it's the right opportunity.

Thanks, everyone. I'll pass the baton. That's it for me. Thanks, Derek.

Our next question comes from the line of Todd Thomas with KeyBank. Please proceed with your question.

Hi, thanks. Good morning. I just wanted to circle back to some of the comments that you made around Bed Bath. And I think last quarter, Brian, you characterized the mark-to-market on releasing the Bed Bath boxes at around 20%. Now you're projecting 30% to 40%. Is demand and sort of the replacement rents that you're anticipating, are they actually improving Now that Bed Bath filed and I guess the timeline to sign leases and retailers getting in, has that changed at all?

Yeah, I mean, the pricing has changed. The rent's higher. There's more demand. With certainty, retailers now are spending time and money on design and legal costs to put their resources to use. Let me talk about time. That really is the way we started it, really starting this process of treating it like vacant for the last year. That's going to really greatly impact 24. If we didn't do that, you're really not getting tenants opening until mid to late 24 without that proactive approach. So rent's much higher than we projected, and the timeline

same as last quarter just based on our proactive asset management approach okay and are you seeing competition for these boxes I guess you know how much competition or can you characterize the petition that you're seeing are they mostly you know you're talking about and we're hearing a lot about you know single tenant back fills single user back fills you know is it sort of a very surgical process where there's you know one interested retailer or are you starting to see some competition really bought up for these, for these spaces?

I, how do you, how do you get higher rent? It's, it's, it's getting tension in the market. And as I say to the leasing team all the time, it's, it's, it's bidding to the highest bidder. And obviously we're focused on credit too. This is not just the highest rent credit sales performance, the merchandising with the rest of the center. But in the cases of, I can give you some specific examples, Midwest Center, you had six LOIs. Six. For one box, the only vacancy, only box vacancy within that center. Six LOIs for that. And then in Florida, you had four. And the River City had enormous amount of interest and still asking about that box. So this is coming not just one or two users multiple users for this box and i think as we're allowed to say these names you know given permission by the retailers of which we've signed leases already their household names many are investment grade and they'll do you know a lot higher sales performance than obviously bed bath okay and and then uh just last one on bed bath

So the leases that you signed after the quarter end and some of the activity there, what's the exposure look like? I guess if we look in the financial sup today, we see your exposure as of March 31. Has there been any change subsequent to the end of the quarter in terms of additional space or boxes that you've recaptured since then?

Yeah, the quick answer, Todd, it's lower, but, you know, I'll bring it back to last year and bridge it to where we are at as we sit here today. So at the end of 22, we had 12 locations, eight were bed bath concept, four were buy-bys. It equates to about 2.3% of our rents. And then during the first quarter, we captured two bed baths. One is part of the larger redevelopment that Brian alluded to, and the other one we've already released to a national retailer. Subsequent to the quarter and in April, we've captured an additional location that has already been released to the home goods that we highlighted in the release last night. So today we have nine locations. Four of them are buy-bys. We do expect to recapture two more locations, one part of the large redevelopment, the other one that Brian mentioned, and then one that is already signed to another national tenant. So as we sit here today, we'll be left with seven locations and only about 1.3% of AVR. All right, great.

That's helpful. And then in terms of Hunter Square and Marketplace of Delray, how much incremental dilution are you anticipating beyond what's in the run rate today? And can you talk a little bit more around the timeframe for those redevelopments and also discuss the costs and scope for those projects and what you're anticipating?

Sure, I'll start, Todd. All the dilution occurred, so we had it all. We captured the old Winn-Dixie at Del Rey last year, and then we recaptured about 100,000 square feet at Hunter's during the first quarter. So you should expect no more dilution from those two projects as we move forward. It'll be all incrementally positive as we get signed leases and redevelop both those centers.

And I want to say, especially with Delray, since I've got here, I've been trying to buy many of those tenants out. And so this was all proactive on both parts here. So Delray and Hunter's We'll give you project costs coming up soon in the next supplemental. Yields are good. The demand is good. At Hunter's, you have grocery off-price national retail credit type. Call it 120,000 square feet of lease and LOI negotiating. And then a pretty marquee lease with a tenant in Delray. with another large tenant in LOI. So we're really excited about the value creation and incremental NOIs at both assets, considering that one asset was really 40 years old in Delray, and that's sitting in a $45 ABR market. And Hunter's was a really converted mall into a power center. And now it's the time to replace and re-merchandise that into retailers that are thriving in today's environments. So we'll get back to you on cost and yields at a later date, provide that with clear numbers in our sub.

All right. Thank you. Yep.

Our next question comes from the line of Handel St. Just with Mizuho. Please proceed with your question.

Hi. Good morning. This is Ravi Vey at the end of the line for Handel. Hope you guys are doing well. I just wanted to follow up one more here on Bed Bath. Can you comment on the CapEx requirements and TI spend required to release the boxes, particularly when you look at a single backfill or more broader redevelopment where you're cutting it up?

Yeah, I mean, you're really going from, you know, very minimal CapEx to call it $100, you know, and that varies between the single users and cutting it up. You know, in the cutting it up, I really focus on really the only way we're looking to do this is shops at Lane. You have 150,000 square feet of interest for 30,000 square feet of real estate. So if we proceed to go down that route at Lane and divide the boxes, the box, that will be significant yield. Or if not, there are a number of single users that would take the box as is. So really, I would think of this as zero to 100 bucks, just depending on the box and tenant.

Got it. That's helpful. More than 90% of your leases this quarter were renewals. Can you comment on the broader supply-demand dynamics within your markets? And can we expect this as a run rate going forward? for the proportion of renewals for total leases?

Thanks for asking this question. It's an important one. Leasing pipeline is robust. Obviously, we have a significant on the higher end of S&O in our peer set. We have approximately 13 million in the pipeline, with 10 million of that already in legal. Square footage of that, new leases, is 681,000 square feet, which is really sizable for a portfolio size of ours. The spreads are similar to what we've been printing, and they're extremely high quality nature of tenants, most being national and majority investment grade. Categories run the gamut from grocery, off price, home improvement, and F&B. So it's a robust pipeline. Our foot's on the gas. Legal and leasing are extremely focused, seven days a week, producing and knowing that this is a window where wind is at our back in this environment.

And Robbie, as we look forward to your question around the percentage renewals as percentage of our total leases. Look, we're not a quarter-to-quarter business, so it's going to be choppy at certain times. Well, what I will tell you is that absent some of the bed-bath recaptures that we expect this year, we're going to be well north of 90% on the retention ratio, which is very consistent to how we performed last year, and we expect that to continue given the supply-constraint environment that we're currently in, plus the portfolio quality that we have today given the transformation over the last three years. So we fully expect that 90% to potentially even grow as we get out into 2024-25.

Got it. Appreciate the color, guys.

Thank you. Thank you.

Our next question, Cole, comes from the line of Flores Van Dykem with Compass Point. Please proceed with your question.

Hey, good morning, guys. Well, you know, it's not much to comment here on the balance sheet because you got no debt maturing for the next two years. So that's a nice change. relative to some of the other companies. I wanted to delve into the new leasing costs a little bit. I noticed your new leasing costs were up $100 to $117 a square foot. Presumably, that was impacted by the bed-bath re-tenanting. Most of your leases is retention, so again, lower costs, but obviously... you know, how should we think about new lease capital going forward? And could that come down as the portfolio occupancy, you know, increases?

Yeah, and really that $100 or in change, I should say, it was home goods at River City. TJ Maxx has their deals. Obviously, I think they're probably the best retailer in our ecosystem. That's a deal where we greatly improved the credit quality of the sales per square foot. And that's a use that we didn't have at River City, which is a dominant asset in Jacksonville. I do think costs could come down over time. And, you know, it's going to be that wide range of zero to 100 on the bed bath backfills, but the spreads are, as you saw this quarter, 50%. So I think the small shop, I think some of the more mid-tier boxes at 10,000 square feet or so will moderate. And I can tell you, even at like Brickell, this is one where there's just there's just not, there's no space. And so when the space comes up and when we're curating the space, it's not only a rent discussion, which are well in the a hundred dollars a square foot, it's a TA discussion. So there the costs for underwriting have come down substantially as well.

Yeah. I mean, most of our CapEx spend this year floors and next year is tied to the SNL. So it's going to be a bit heightened, but we fully expect to, to have that come down in 25. And you've got to spend money to make money here. We're making really, really nice returns on a lot of these bed-bath deals, but also other opportunities within the portfolio, which really is going to lead to better growth in 24 and 25. We have six pennies coming online from our sign-not-commence. next year. I mean, if you just look at the same property NOI growth profile over the next couple of years, it should be re-rated. I mean, we're looking at at least 4% coming from the same property NOI, and then you have contractual increase to 200 basis points, releasing spread. So we're, to use your words, our cruise speed is coming up.

And that's too without, I'll add in, that six cents is without the 10 million in legal, which is robust with 681,000 square feet of new deals, which is extremely sizable.

Maybe as a follow-up question, I was urged by the information you guys put out there on Mary Brickle and some more details. Obviously, tenant sales are very strong. Curious to see what those tenant sales would be without the publics. But if your small shop rents go to $120, based on our math, it looks like that yield on investment goes from, you know, call it a, you know, a low to mid four to, to an 8%, you know, purely based on the, on, on, on that space. And then, and then obviously upside from, from redevelopment as some of the other stuff, is that the right way to think about it?

Yeah, absolutely. I would look at this as, you know, well into the double digits, unlevered return without any densification. Phase one, phase two, not a lot of capital. If you look at ninth and tenth, this is reprogramming ninth and tenth, elevating, hiding storefronts, bringing in the best brands, redoing the courtyard, bringing in a marquee flagship opportunity facing Miami Avenue. we'll provide the costs and the yields on just that direct cost for phase and one and two and a future supplemental, but it's, it's, it's great. I mean, it's, it's much higher than we thought when underwriting obviously at $78 a square foot and really just the migration of people and businesses to the sub market. It's thriving. I mean, when you look at the sales productivity from, and this includes Publix, from 2019 at mid-900s a square foot to 1500 and change today, that's enormous. And you take Publix out, you're $1,100, $1,100 a square foot. You have restaurant comps year over year at 30%, 40% higher. So this is more people, more bodies, more businesses, massive tailwind behind in the brick of submarkets. And I think, too, one thing to put in for us, which is not in any of the numbers I put out there is, because you really can't underwrite this, is the placemaking and ancillary income and marketing events and digital signage that will be a part of phase one and phase two. Give you kind of construct and data. We had a luxury car company pay us $50,000 over 48 hours. That's more rent than some of our small shops pay tenants pay in a year. So we see a lot of that ancillary income and marketing events and digital signage as that's a great payback return. That's a high margin business. And that will just push those yields even higher.

If I can follow up on that, just presumably I know that some communities in particular in California are very difficult about, you know, granting grants. you know, zoning rights for those kinds of digital boards. Las Vegas clearly has less of an issue with that. How does Miami look at that? And how much can you add in terms of, because presumably you have a fair amount of, you have a city block of frontage, street frontage. Only probably two of the four sides are maybe three, but probably only two are suitable for the zone. How much could you add there?

It could be significant. I don't want to get into specifics, and we'll come into specifics at a later date, but Miami is a market that is commanding a lot of brand awareness where digital is a huge driver. I mean, the billboards... throughout Miami are commanding some of the highest rents in North America today. We are getting very much up to speed and by no means an expert in this space. But we'll come back to you with the exact square footage and digital opportunity at a later date. But I threw it out there. We're not underwriting it. It's still an unknown. We are in conversations with the city. The Department of Transportation will have a lot to do with this. There will be allowable use for this. The question is how much. So, without getting into specifics, I'll come back to you with that.

Thanks, Brian. Yep.

Our next question comes from the line of Lizzie Joyka with Bank of America. Please proceed with your question.

Hi. Good morning, guys. Thanks for having me. I wanted to go back to your comments on, you know, seeing redevelopment opportunities and more of the attractive markets like Bellevue, Nashville, and the opportunity for, you know, a covered land play. How many more opportunities do you see with monetizing peripheral land like that? Or is this more so a unique situation you're seeing recently?

It's not unique and as you see, as you saw in Jacksonville, we had land, we contributed with the DeBartolo group for 50% of roughly 378 units that will stabilize in late or early 25. And we threw in half a million bucks for 50% interest there. So we are in conversations with a number of leading resi people throughout the country. I would say it's broad-based. There's interest from certainly all throughout Florida, Austin, Texas, that are a great asset down there, all the way up to Boston. But in the Cincinnati's and even Detroit's of the world. So we are not gun-shy of doing what's highest and best use to produce outside yields. And we'll provide more clarity on the puts and takes of exactly what opportunities specifically for RESI there are in future.

Great. Thanks. And I had a question on the $0 amount that you recorded for PIs and LC costs just in the first quarter on renewals. Can you kind of just provide more color on that or what that really was a function of? Thanks.

Just the renewals, there was no TA provided to any renewals. So that was just a quarter with no contributions.

Okay, thanks. And, you know, just with the announcement on Amy Sands becoming the head of the newly consolidated investment platform, can you remind us again of the cost savings you had been targeting for the full year this year? And then, you know, maybe over the longer period of time, you're anticipating the consolidation to take place.

Hi, Lizzy. Good morning. This year, it's about $2 million in savings, which is embedded within our guidance range. And going into next year, it'll grow to an annualized basis about $2.5 million.

Great. Thank you.

Thank you.

Our next question comes from the line of Hong Zhang with J.B. Morgan. Please proceed with your question.

Yeah. Hey, guys. Two quick ones for me. I guess the first one is what was the run rate of your bad debt expense in the first quarter in relation to the 300 basis points of guidance?

It was low, Hong. We would be outperformed on the bad debt. We had about $425,000. or so, which equates to about 100 basis points. of NOI, so 200 basis points shy of the 300 that we had estimated for the full year and continue for the full year. But to give you a breakdown of the 425, I think it's very important to understand is 400 of that was related to our reserve for Bed Bath, Party City, and a little bit of Tuesday morning. Only 25,000 was related to the rest of the portfolio, which is a great data point to look at, again, when assessing the quality of the portfolio and the strength of the cash flows, it being such a low amount. And as we think about the rest of the year, it will accelerate as we take back bed baths embedded in our guidances. We take back all remaining locations, including our buy-bys in July. So you will see that number accelerate. But again, I think it's important to note that the majority of this quarter was related to at-risk tenants, those three that are in bankruptcy, and the very little amount to the rest of the portfolio.

Got it. And then, as it relates to the 225 basis points tied to bankruptcies, if I do my math right, I think that closing in July would account for a third of that. Can you talk a little bit about your assumptions for Regal and the other tenants in that bucket?

Yeah, we do believe and we fully expect based on advanced lease negotiations that leasing is currently working through to assume our three Regal locations. We will have slight rent concessions there that are embedded in the uh in the 300 or 225 basis points um also we're taking back uh one of our five party cities um and then also uh we have tuesday morning too that we're taking back a few locations so that really closes the bridge up to your 225 basis points got thanks our next question comes from line of tayo akosanya with credit suisse please proceed with your question

Yes, good morning, everyone. In regards to the acquisition outlook, could you just give us a sense of across all your three platforms where you're most likely to kind of put capital to work, and specifically just around some of the JV platforms, just given, again, they tend to be higher leveraged entities, how you kind of think about, you know, putting capital to work on those platforms?

Yeah, hey, Teo. Just want to, again, just reemphasize, we're leasing, leasing, leasing. So that's a lot where our capital is going to be going. Now let's go to your direct question on acquisitions. You know, really, RGMZ, that's going to be hopefully a lot of powder put out by the team this year and next. There's disruption in that space. Yields are creeping up amongst the triple nets, and we think there's alpha to be had by buying shopping centers with 70, 80 percent of their cash flows coming from investment grades and parceling them out, and the fund owns that. The grocery. That is something that we are looking at. We're very, very hesitant, just given the capital markets has clearly given their signal of patience is key. For the most part, grocery deals, especially the smaller check sizes, have kind of held steady. I mean, it's been around the edges, 10, 25 bps of cap rate expansion, but not a lot. And really, I think the combination of the platforms, I look at Northboro, where now that yield cap rate of what we bought is 13, 14 cap. And that was after spinning off four parcels. And most of that cash flow are five TJX concepts now, which will be the only center in the U.S. with all five TJX brands. So if we could hit those type of yields and have those type of investment grade cash flows with that same quality in our core markets, that would be opportunistic to find another Northboro.

Thank you. Our next question comes from the line of Alex Fagan with Baird. Please proceed with your question.

Hi, and thank you for taking my question. You guys highlighted the Miami market as seeing strong demand, but I'm curious if there are any other regions or specific shopping center types that are also seeing high tenant demand.

It's really broad-based. I was looking at just traffic data last night. And it is broad. I mean, obviously in Miami, but Lakeland Park in Lakeland, Florida, up 32% year over year. Providence Marketplace in Nashville, 22% up year over year. Dedham in Boston, up 20% year over year. And it goes hand in hand with just the demand of tenants in those markets. So there is massive demand. And you'll see some announcements in the Detroit's of the world. There's massive demands in the Cincinnati's of the world, obviously Florida and Boston, which we absolutely love. The demand from both small shop and boxes is ripping up here. So it's not, it's kind of geography agnostic. And just the demand is really broad brush. And I think that's really how we set up the portfolio, I'm a believer in top 40 MSAs. The retailers where you have most pricing power is by density. And where you can look at that as compared to secondary markets, I think the top 40 markets will outpace those secondary markets for rent growth. And I think that's what we've sold since 2018 all that secondary market stuff. And we've really left with 98, 99% top 40 MSAs.

Okay. Thank you on that. And I guess on the second part is what's your visibility on a specific site level reporting for the portfolio? How, how well do you guys know the tenants and what are, what are some other tenants that are on your watch list now that that path is gone?

Yeah, I mean, we have a very, I mean, we're active hands-on asset managers. We have a very robust kind of system that the local managers speak with the managers of the national tenants, the local tenants, and speak on sales, speak on renovations, provide data is where I'm going. There's a very data analytic approach by how we look at tenants. The small shop tenants, we like to have as much visibility. How do you have visibility? You have to have a conversation. And you can't have a conversation managing a portfolio out of New York. So we have an on-the-ground, hands-on asset team that provides feedback to us. The second question on that from Watchlist, I mean, listen, we're looking at, everything from entertainment. Thankfully, we don't have any AMCs. Thankfully, we don't have any 24-hour fitnesses. Those are what I've just been hearing from people in the credit markets of their concerns. But I think outside of the party cities and the Tuesday mornings, there's things around the edges. Thankfully, we don't have a lot of exposure to that. But where there's lower sales volumes with near-term opportunities, Expirations is really where we're focused as well, and we are well ahead of any of those.

Appreciate it. Thank you for the time. Thank you.

Thank you. We have no further questions at this time. Mr. Harper, I would now like to turn the floor back over to you for closing comments.

Thank you, operator. So despite the uncertain macro environment, return of select national retailer bankruptcies, we believe RPT is the balance sheet and internal growth levers to strengthen our cash flows. Continued robust leasing demand and our track record of quickly backfilling spaces vacated by troubled tenants at superior economics gives us great confidence that 2023 will be another year of solid performance for the company. Looking forward to seeing many of you at ICSC and NAREIT. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.