Rithm Property Trust Inc. Common stock

Greetings and welcome to RPT Realty's second quarter 2023 earnings conference call. At this time, all participants are in the 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, Mr. Benito. You may begin.

Good morning and thank you for joining us for RPT's second quarter 2023 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 meeting 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, and in our earnings release for the second quarter of 2023. Certain of these statements made on today's call also involve non-GAAP financial measures. Listeners are directed to our second quarter 2023 press release, which includes definitions of these non-GAAP measures and reconciliations to the nearest GAAP measures, and which are available on our website in the investor section. As a reminder, last quarter we introduced our quarterly earnings presentations, which we will reference throughout the call to highlight key messages for the relevant quarter. You can find the second quarter 2023 earnings presentation on our website in the investor 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. Thank you, Craig.

Good morning, and thank you for joining our call today. As we pass the midpoint of 2023, I'm very proud of our operational and financial results that exceeded our own expectations despite an elevated impact from bankruptcies. With the bankrupt tenant disruption now largely in the rearview mirror, We are set up for outsized same property NOI and operating FFO growth in 2024 and beyond as we expect to benefit from our sector leading sign not commence backlog of 9 million with an additional 19 million in our leasing pipeline. Starting with the operating fundamentals, we continue to experience a historically strong leasing environment with no slowdown in sight. highlighted by our elevated leasing volumes, record rent growth, and enhanced credit quality. We had our fourth consecutive quarter of over 500,000 square feet of leasing volume, putting us well on our way to accomplishing our goal of 2 million square feet for the year, for the second year in a row. Our S&O pipeline remains full at 9.3 million, with the vast majority expected to commence over the next 12 months. As I mentioned earlier, we have an additional pipeline of deals totaling $19 million, of which $6 million is incremental to our second quarter revenues. Tenant categories are primarily comprised of high-quality grocers, off-price, home improvement, fast casual, boutique fitness, and service tenants. The leasing and legal teams are firing on all cylinders and remain focused on signing these deals in the near term. Regarding our embedded rent upside, it continues to accelerate. Over the last three years, we have averaged over 34% on new releasing spreads, highlighted by our second quarter print of 56%. Rent growth on renewals has been equally impressive, steadily rising from the low to mid single digits in early 2018 to about 11% during the quarter. While leasing volumes and rent growth are important, tenant credit is also a critical ingredient to grow earnings on a sustainable long-term basis. We remain disciplined on this front and have signed many leases with strong national high credit tenants specifically on the grocer front. Since 2019, we have added 17 grocers through leasing and acquisition activities bringing our percentage of ABR from centers with a grocer to 72%, up from 65% at the end of 2019. The performance of our grocers has also been strong. Since 2019, average grocer sales per square foot have grown by 45% to 831 per square foot, reflecting the quality improvement of our portfolio and the enhanced traffic at our grocery anchored centers. Notable grocers in our portfolio include Wegmans, Publix, Trader Joe's, Giant Ahold, Whole Foods, BJ's, and Aldi. Additionally, during the quarter, we signed a lease with a strong regional ethnic grocer at Olentangy Plaza in Columbus that will backfill a Tuesday morning location. In July, we celebrated the grand reopening of a newly remodeled and expanded Publix at the crossroads in the Miami market. We were able to deliver this new prototype in July, generating a 7% incremental return on costs while locking in a high quality, high credit tenant that will anchor the property for years to come. Please see slide 11 for additional details on our grocers. Our proactive approach with Bed Bath & Beyond is beginning to pay dividends. We have released four locations to leading national retailers at our Bridgewater Falls and Deerfield Town Center assets in Cincinnati, as well as Winchester Center in Detroit. This is on top of the home goods deal at River City Marketplace in Jacksonville that we signed last quarter. The blended spread on these deals was about 60% with two locations opening in the fourth quarter, 2023. All of our remaining locations are in either advanced lease negotiations or at LOI. Tenant categories range from grocery, off price, wholesale clubs, and high credit national beverage outlets. We expect that all but one box will be backfilled by single user tenants. The space that shops at Lane will be the only site that is expected to be divided given the demand from high-quality shop tenants that we are in negotiations with at rents per square foot of $45 to $50 triple net. And that's replacing a $17 rent from Bed Bath. Please see slides 7 and 15 of our earnings presentation for more details on this quarter's leasing activity and an update on our Bed Bath backfill progress. We also continue to invest in TJX, which remains our largest tenant representing 5% of our ABR. We recently opened Marshalls and Home Goods stores at Northboro Crossing in Boston, replacing a former Pottery Barn outlet. When a brand new Sierra store opens later this fall, Northboro will become the only shopping center in the country with all five TGX concepts, demonstrating their commitment to this property, which is only a few miles from their headquarters. Including signed leases, Northborough's NOI has grown by 14% since our acquisition, while occupancy has increased by 6.5%. We've provided additional color on Northborough's success on slide 13 of our earnings presentation. The robust anchor demand we are experiencing is also driving occupancy, rent, and retention for our small shop portfolio, as highlighted on slide 16 of our earnings presentation. Our small shop lease rate now sits north of 87%, up 120 basis points year over year. Our blended releasing spread on small shop spaces has averaged 9% in the last trailing 12 months, and we are expecting to retain nearly 87% of our small shop tenants in 2023. Most of our small shop exposure is weighted towards national and regional tenants, which account for nearly 70% of our total small shop ABR. Additionally, our top 15 small shop tenants are comprised largely of leading national brands such as Five Below, Ulta, AT&T, and Dollar Tree. Turning to Mary Brickle, our clear, low risk, and actionable phase one and phase two redevelopment plans for the west side of the center are progressing steadily. We are in active negotiation on approximately 80,000 square feet of new leases. Tenant categories range from first to state wellness, food and beverage, soft goods, and service brands, many of which are international brands. Our goal at MBV is to create a truly unique gathering space that caters to the dynamic 24-7 environment while maximizing rents, which remain in the 120 to 150 per square foot range. While rent is important, The curation of merchandising is equally important. Renewals with tenants we want to keep are being signed at $150 per square foot. Within place rents of $48 per square foot, we have a material mark-to-market opportunity at MBV over the next several years. With that, I'll turn the call over to Mike.