Earnings Transcript for RPT - Q1 Fiscal Year 2022

Operator: Greetings and welcome to the RPT Realty First Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vin Chao. Thank you.

Vin Chao: 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, maybe 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, 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. Listeners are directed to our first quarter 2022 and fourth quarter 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 Fitzmaurice, for their opening remarks. After which, we will open the call for questions.

Brian Harper: 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 4 years at the company, I have witnessed a tangible transformation in the quality of our tenants, markets, portfolio, people and processes, all of which have 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 reflective 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 a national wholesale club at River City Marketplace in Jacksonville and key leases with Dick’s Sporting Goods and Ross at Providence Marketplace, 2 T.J. Maxx leases and 3 Dollar Tree leases. 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 re-leasing 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 compression. Another notable [Technical Difficulty] includes sweetgreen at Troy Marketplace in Detroit. The deal was signed on the back of our AA-rated grocer 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 Stein Mart box in yet another example of how the downturn has benefited our business by allowing us to upgrade our tenancy at attractive economics and with investment-grade credit. Strong demand is also resulting in more opportunities to redevelop our centers, often with a grocery anchor leading the way. We continue to make great progress with the redevelopment plans at Marketplace of Delray in Delray Beach and Hunter’s Square in Oakland County outside of Detroit, where we are working with leading grocers to upgrade the centers, while our Publix expansion projects at The Crossroads in Palm Beach is slated to break ground later this month. We are 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, replacing 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 3 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 Crossings 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 ABR. 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 and boasts a true trade area of 251,000, with high average 3-mile income of $114,000. This 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. The 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 and 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 enviable market that boasts 3-mile population of 450,000 and 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 Ansonia Landing, just outside of New Haven, Connecticut for $14 million. Ansonia is a 91,000 square foot Stop & 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 & 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 will turn the call over to Mike.

Mike Fitzmaurice: Thanks, Brian and good morning everyone. Today, I’ll discuss our first quarter results, provide an update on our balance sheet and liquidity, and end with commentary on our guidance. We are very encouraged by our first quarter results. First quarter operating FFO per diluted share of $0.26 was up $0.01 over last quarter, primarily due to higher income from net acquisition activity and management fees. As we move further into 2022, we expect bad debt to revert to pre-pandemic historical levels as collections continue to hold steady. Our operating portfolio delivered strong same-property NOI growth of 9.9% over last year. This growth was driven by lower bad debt expense, which contributed 7.8% and minimum rent growth of 1.7% comprised of occupancy gains, re-leasing spreads and annual rent escalators. Our leasing velocity also continues to accelerate and exceed our expectations. As Brian mentioned, we signed 82 leases totaling 716,000 square feet, driving our signed not commenced balance, including leases in negotiations, to $10.3 million with a weighted average ABR per square foot of over $18, representing a 15% increase over our portfolio average. This upside will continue to provide tailwinds into ‘23 and ‘24, with a total incremental benefit to operating FFO expected to be about $0.11 per share. This quarter’s leasing surge resulted in a sequential uptick in our lease rate to 93.2% despite the expected recapture of a couple of anchor spaces, one of which has already been re-leased through an investment-grade grocer, Giant/Ahold. We are also very pleased with an increase in our small shop leased rate to 85.5%, up from year-end 2021, which is atypical at this point in the year as it is customary for this number to dip in the first quarter post holidays. This is yet another indicator of strong tenant demand in our transformed portfolio. Based on our current leasing pipeline, we continue to see upside to our leased rate as we march to a 95% occupied level. We end the first quarter with net debt to annualized adjusted EBITDA of 6.8x, unchanged from last quarter. However, including our signed not commenced and leases in advanced negotiation of $10.3 million, our leverage would be 0.5 turn better at 6.3x. Given the timing of our expected acquisitions and dispositions, there could be some volatility in our reported leverage levels quarter-to-quarter, but we continue to expect our leverage to fall towards our target range as COVID-related impacts continue to burn off and as our strong SNO backlog comes online over the next few years. Our liquidity remains strong as we continue to opportunistically access the debt and equity markets. At the end of the quarter, we had total liquidity of $383 million, including revolver capacity of $350 million, $17 million of forward basis equity and $16 million of cash. This capacity allows us to take advantage of opportunistic acquisitions across our three investment platforms. In terms of funding 2022 assumed acquisitions, we will continue to be opportunistic with all of our capital allocation options, including non-core asset sales, contributions to our grocery and net lease JV platforms, debt and equity issuance under our ATM, all with an eye on creating sustainable growth and shareholder value, while keeping leverage in check. Regarding debt activities, through our grocery-anchored JV, we obtained a commitment on a mortgage at our Dedham shopping center in Boston, totaling $53 million or $27 million at our share, with a 10-year term and a fixed interest rate of 3.35%. We expect to close on this loan in the second quarter, subject to customary closing conditions. Today, we have zero debt maturing in ‘22 and less than 20% in ‘23 and ‘24. In conjunction with our credit facility recast in the second half of this year, we plan to address all our debt maturing through ‘24. Also, as a reminder, virtually all of our debt was fixed at core rent, mitigating any material risk to interest rate headwinds over the next couple of years. Moving on to guidance, given our strong leasing performance, we are raising the low end of our same-property NOI growth guidance by 50 basis points. We are also raising our operating FFO per share guidance to $1.01 to $1.05 from $1 even to $1.05. As we look forward, we expect our year-over-year same property base rent growth to accelerate in the back half of the year as our SNO backlog comes online. However, given tougher bad debt comps that include prior period reversals in ‘21, we do expect same-property NOI growth to decelerate for the remainder of the year. Also as a reminder, we have not assumed any favorable or unfavorable adjustments from prior year bad debt estimates in our 2022 guidance. And lastly, as Brian noted, we did increase our 2022 investment guidance to roughly $225 million in acquisitions and up to $200 million in dispositions. And with that, I will turn the call back to the operator to open the line for questions.

Operator: Thank you. [Operator Instructions] Your first question comes from Derek Johnston with Deutsche Bank. Please go ahead.

Derek Johnston: Hi, good morning, everybody. Hi, Brian. The Brookline deal, first-ring street retail, this is certainly a smaller acquisition. It’s probably one that a lot of your competitors wouldn’t be interested in, but would love to hear more about your justification. Since it is pretty small, is there a potential to – you said it didn’t need much CapEx, but are the rents below market? And do you see this as – and I think you alluded to it, a reasonable growth avenue for the company going forward, where these small deals can move the needle?

Brian Harper: Yes. Good morning, Derek and thank you for that question. Generally speaking, I like and believe in real estate investments that have a moat. A case and example is our deal in Portsmouth. While that’s not Street it has a moat because of its high-barrier entry, coastal market that it’s in, and there is zero threat of anything ever being built or tenant relocation options. Regarding Brookline, iconic first-ring street neighborhoods like that, they have downtowns that can’t be replicated. And really, I would take away four kind of key attributes of kind of my conviction on this first-ring suburban is number one, there is a large runway to scale, given the fractured ownership in the core cities that RPT operates in today. This is an investment, as you said, that requires very little CapEx. But also, it requires on-the-ground investment or leasing professionals, meeting with these families or firms that own these single buildings. This could really move the needle for our company. We are extremely confident in these geographic areas and know the MSAs extremely well. As you’ve seen, I believe in being extremely disciplined in having local markets in selective cities instead of 40 cities and really being an index fund. I think the second attribute is healthy IRRs. Majority of these deals that are signed in areas are targeting our first-ring strategy, require no TA or CapEx, have significant mark-to-market opportunities and usually have at least 3% annual escalators in their leases. As we also gain scale in these communities, we can even create more cap rate compression given the portfolio premiums on portfolio sales. I think the third and something that we could all acknowledge is the pandemic shift. As the pandemic has likely permanently shifted the work environment from ever being an in-office, 5-day-a-week environment again, it has increased visitor frequency and dwell time to these first-ring suburban communities such as Brookline and Cambridge. And fourth is we follow the retailers. Our retailers are the ones that often point us to where they want to be. Having this first-ring strategy is extremely complementary to our other suburban centers. Sweetgreen, as an example, may want to be in Bedford at our Whole Foods center, Dedham at our Stop & Shop center or Canton at our Shaw’s center, but they’d also be looking in Brookline and Winchester. We have seen this throughout our portfolio, and we see that same playbook occurring in this first-ring initiative.

Derek Johnston: Thank you, Brian. No, that was very helpful. And the next question is, you guys obviously have a pipeline of deals and you did raise acquisition guidance. We know that’s just a placeholder. But one avenue we’ve noticed is ATM issuance is being used a bit more and I think it was raised to $150 million from $100 million. So outside of that, could you discuss the varying funding strategies, given the pipeline that you’re seeing, the opportunities, your partners and your thoughts there?

Mike Fitzmaurice: Sure. This is Mike, good morning, Derek. At this point, keeping leverage in mind, our lowest cost of capital continues to be our disposition currency. And to your point there a second ago, we did lift our disposition guidance about $100 million to about $200 million. We still currently sit in a very attractive environment for asset sales, specifically our assets. Not only do we have the ability to sell an asset outright, but we also have the option to contribute assets to our two JV platforms that still have about $2 billion to deploy. And that’s – it’s great for us because we get to retain the management and then really enhance our fee income, while still owning very, very quality institutional assets. And all these options are on the table for 2022. So you’ll see that the $200 million that we have out there will be a mix of these various options that was mentioned. But with that said, we have full use of the revolver of about $350 million. And we have been absolutely opportunistic with equity issuance through our ATM. But simply, our goal is to always strive for the right formulaic mix of debt, equity and disposition currency to redeploy into acquisitions to really complete the buy box for us, and that’s improved portfolio quality, be accretive to earnings and keep leverage in check.

Derek Johnston: Excellent. Thank you.

Mike Fitzmaurice: Thank you.

Operator: Next question comes from Todd Thomas with KeyBanc Capital Markets.

Todd Thomas: Hi, thanks. Good morning. I just wanted to follow-up a little bit on the first-ring neighborhood street retail deals that you’re targeting here. I realize it’s a relatively small initial investment, but two questions. I’m curious what the initial yield was like on the $5 million investment and how initial yields sort of compare to what you’re buying otherwise? And then how much capital do you envision allocating to the strategy as you sort of think about the overall portfolio and begin to move a little bit further in that direction?

Brian Harper: Yes. I mean, really, we’re IRR focused, as we’ve said on every call. This Brookline deal was north of a 7% IRR. There are other deals were at high single-digit IRRs. And really what’s driving that is very low and un-embedded mark-to-market rents. These were single-owned property for quite some time. You have a top-performing Starbucks in the region. We have tenants in tow to really put in and really maximize that value. I see the street of being more 10% to 15% of our buys. We are actively looking at other deals in our target MSAs, such as your St. Petes and Tampas of the world and as well as Miami. But there is great unlevered IRRs to achieve here. And at the end of the day, that’s what we’re striving for, for our shareholders.

Todd Thomas: Okay. That’s helpful. And then as you kind of think about allocating capital, deploying capital from here across the different sort of buckets that you’re looking to invest in, does the increase in borrowing costs, I guess, have an impact on return hurdles for, say, RGMZ in any way, such that there are implications for RPT and its ability to execute and be in the market buying assets and contributing parcels? Is there any impact on pricing and economics for RPT?

Brian Harper: There hasn’t been at all yet, Todd. I can tell you all three platforms are hungry with large appetites – I should say large disciplined appetites. RGMZ with the triple-net platform, obviously, that is a volatile world around triple-nets. So we’re being very patient and thankfully, we have patient capital in that fund. We think there is going to be enormous opportunities to deploy that. And Tyler and his team are focused on a lot of larger deals that should come in later this year and into next year. But as far as R2G with GIC, they are unlevered buyers. I think that’s another additive way for us of all cash. And as we’re seeing in the markets today, rooms are being thinned out as they are wanting all – sellers are wanting all-cash buyers as opposed to buyers with – that require debt. And you may be even be able to get a discount on that. So we think having the lowest cost of capital, sovereign wealth fund out there as a partner is a very big advantage in this environment.

Todd Thomas: Okay. Got it. And then one last one, Mike. You mentioned in your comments that you see a path toward achieving 95% occupancy. So it’s a little over 400 basis points of upside. Can you – with regards to the outlook as it stands today, is there an update to the time frame that you anticipate to achieve that portfolio occupancy rate? And then what’s in the guidance for ‘22 at year end? Where do you think occupancy shakes out at the end of the year?

Mike Fitzmaurice: Sure. So we ended the quarter right at 90.6% and then 93.2% on the leased rate. By the end of the year, we’re going to be between 91% and – 91.5% and 92%. So nothing’s changed there from our original guidance that we gave back in February. We do fully expect to get to pretty close to the 95% level by the end of 2024 based on the visibility we have today. We’ve talked a lot about in our disclosure last night and a bit in our prepared remarks that we do have $10.3 million of signed not commenced, which does include some leases in negotiation, and that’s going to come online over the next 3 years, really about $0.11 of operating FFO. But behind that, Todd, we have about $8 million to $9 million of additional ABR in recovery income that will come online during that time as well. That’s currently occupied by spaces. So it’s not necessarily incremental, but at least gives you directional indication and credence for us to get to that 95% level. And we had a really, really good start to the quarter or to the year this year with over 700,000 square feet leased on to – onwards towards our goal to about 2 million square feet leased this year. So we have a lot of conviction to get to that 95% level. And another thing that’s supporting that as well is the retention rate. During the quarter, as Brian mentioned in his prepared remarks, it was at about 93%. We will be at about 85% for this year. That’s what’s embedded in our guidance. Just given some of the proactive anchor recaptures that we’re doing to re-merchandise those in much better tenants, and we continue to see that retention ratio over the next 2 years based on the visibility that we have today around 90%. And to kind of give you the historical context on that for this portfolio, which is a little bit different than it was 2 years ago, it was about 80%. So between the retention ratio, the signed not commenced and the $8 million to $9 million behind that, we feel very, very good about getting to that 95% level by the end of ‘24.

Todd Thomas: Okay. That’s helpful. Just to clarify, what’s the $8 million to $9 million of ABR and recovery income attributable to?

Mike Fitzmaurice: Yes, that is for – that’s rent recovery income for spaces that are currently occupied today that will be taken back over the next several months.

Todd Thomas: Okay. So high – an increase in sort of re-tenanting rent and increase in mark-to-market opportunity there. Okay.

Mike Fitzmaurice: Correct.

Todd Thomas: Okay, got it. Alright. Thank you.

Mike Fitzmaurice: You bet. Thanks, Todd.

Operator: Thank you. Next question comes from Haendel St. Juste with Mizuho. Please go ahead.

Haendel St. Juste: Hi, good morning. So maybe you could spend a second or two on the balance sheet here. I guess a question on the debt maturity you mentioned there is no debt maturing this year. There is a couple of smaller term loans next year and in 2024, like $50 million, $60 million each. And you talked about a plan to address those via, I think, an unsecured issuance last quarter. I’m curious if that’s still the thinking given the move-in rates and maybe a sense of what spot pricing would be for you today? Thanks.

Mike Fitzmaurice: Yes. Thanks, Haendel. Good question. So 100% of our debt is fixed today. So we have our complete term loan component of our debt stack, which is about $310 million. That’s all fixed today and nothing – none of those hedges roll off until next year. So we’re going to have a modest maybe impact to interest rates to that $60 million that will run naked in ‘23, but maybe $0.005 at most, given where that rate is at today, which is about 3%. But in terms of what we are doing in the recast, we’re going to take that $310 million that matures from ‘23 through 2027. And really, just – it’s a duration play. So we’re going to punt it out between ‘26 through ‘29, add about a year to our total duration for our capital stack. We expect to do that in the second half of this year. So really, there isn’t any interest rate headwind for RPT just given we have, currently, 100% of that debt that is hedged currently all the way out through 2027.

Haendel St. Juste: Great. Thank you for that color. And then maybe some thoughts on kind of JV versus balance sheet capital as we go forward in terms of acquisitions, given the move-in rates, where you are seeing your cost of capital? Curious how we should think about maybe the split in terms of what’s on balance sheet versus off balance sheet?

Brian Harper: Yes. I mean it’s very opportunistic driven. We do like this first-ring strategy. And as I said earlier to Todd, that we will dedicate 10% to 15% of our acquisitions towards that. At the same time, we love GIC and the grocer platform. We are spending a lot of time on deals in market, both marketed and off-market deals. And so I see this as like a two to one ratio of what balance sheet versus our JVs, but that could change. So, a lot of this, Haendel, is very dependent on deal-specific.

Haendel St. Juste: Got it. Good to have optionality. And forgive me if I missed this, but the cadence of that $0.11 – sorry, the $7.5 million, including the SNO rents, I guess what’s under advanced negotiation, the split between this year and next year or maybe a quarterly cadence of how we should think about you achieving that $0.11 of potential FFO? Thanks.

Mike Fitzmaurice: Sure. So, in 2022, you will have a $0.02 incremental benefit to your quarterly run rate from Q1. In 2023, you will have a $0.07 incremental benefit, so about $6.2 million or so. And then ‘24, you will have a $0.02 benefit there, which is about $1.4 million. And then you have a smaller benefit, maybe $0.005 or so in 2025.

Haendel St. Juste: Great. Thank you, guys.

Mike Fitzmaurice: You bet.

Brian Harper: Thank you.

Operator: Next question comes from Wes Golladay with Baird.

Wes Golladay: Hey. Good morning guys. Can you give us an update on what’s left on the known tenant move-outs?

Mike Fitzmaurice: The known, so yes, so for this year, during the quarter, we recaptured two of the spaces that we previously discussed on earlier conference calls, one was the Shoppers World. It was about 54,000 square feet at our Crofton Centre in Baltimore. We took that back in the first quarter. That, as I mentioned in the prepared remarks, Wes, that’s already re-leased to Giant, Ahold. The second one that we took back during the quarter, first quarter, was a 28,000 square foot space at one of our Michigan assets that we are prepping for redevelopment. The additional spaces that we will take back are going to be primarily in the second and third quarters. That’s about 200,000 square feet or so, all of which has been already re-leased to premier tenants. Over half of that 200,000 square feet, Wes, is the wholesale lease that we did down at our River City project in Florida that’s backfilling a Regal theater, so very excited about that. And then the remaining 100,000-or-so square feet is already re-leased to your essential tenants. We got about three grocers, Total Wine, a couple of TJX concepts and another discount. So, when you kind of add all that up, the rent that’s coming offline is about $3.4 million. The rent that has come back online is about $4 million. That represents about a high-teens re-leasing spread. And that’s going to come online between ‘23 and ‘25.

Wes Golladay: Got it. And then turning to the acquisition front, how was pricing changing for larger centers versus smaller centers? And are you still seeing a lot of cash buyers that are winning deals?

Brian Harper: It’s very kind of under $50 million, Wes. The cash buyers are still there. I mean we have a few dispositions out and have one even with – very competitive on selling where you had some extremely large deposits of $5 million in some cases. So, I would say that under $50 million and even under $30 million, it’s very competitive on the cash front. I think, obviously, as you get into the higher altitude of prices, it becomes less cash buyers and more reliant on debt. So, we think that’s an opportunity in the future, both with GIC and with us. So, it’s – cap rate compressions are still happening. This is power, this is community, this is street, this is grocer. And I think we are in a very good situation with our three platforms to take advantage of that.

Wes Golladay: Got it. One last one for me, I know the asset recycle is going to be highly quality accretive. But can you talk about the spread between the cap rates for acquisitions and dispositions?

Mike Fitzmaurice: Yes, it’s relatively neutral based on our visibility today. So, not much different than what we have guided to, historically.

Wes Golladay: Okay. Got it. Thanks guys.

Mike Fitzmaurice: Thank you.

Operator: Next question comes from Linda Tsai with Jefferies.

Linda Tsai: Hi, good morning. Are you still embedding 100 basis points of bad debt for the whole year, because it sounds like bad debt came in lower than expected?

Mike Fitzmaurice: It did come in a little bit lower than expected. But just given where we are at in the year, Linda, we are still embedding a total of about 100 basis points, which is about $1.3 million, $1.4 million for the year for bad debt.

Linda Tsai: Got it. And then in terms of suburban street retail, you noticed – you noted less CapEx required, more rent upside. What’s your overall approach to scale this strategy? For example, one of your peers purchases contiguous street retail assets to control merchandising. Do you have an approach to scale as to gain efficiencies?

Brian Harper: Sure. I mean, it really depends on the MSA, but we do like scale for efficiency sake. There is some where we really like to try to curate this ourselves and not be buying the portfolios together. I think that’s creating more shareholder value of buying these one-offs and really curating and creating a portfolio out of that. We have boots on the ground in each of those markets, but there are opportunities out there throughout the Southeast and in Boston Northeast, where maybe there are five or six or seven deals to be had in the portfolio. So, it’s a little bit of both. But I really think there is just great value creation in us doing the buying individually and creating a portfolio from that as opposed to our broker-led 20-25 building portfolio that’s already leased. We want to do the buying. We want to get the upside from the under-market rents.

Linda Tsai: And then are there other retail formats you are also considering currently? Like what are your thoughts towards power or lifestyle centers since the overall retailer environment has improved?

Brian Harper: We want really great real estate, and that comes in all shapes and sizes. If you have the real estate, retailers now are agnostic on product type. They will go to power, they will go to lifestyle, they will go to grocery, they will go to street. They just want the best real estate. And so having these deep tenant relationships, they really lead us to where they want to be. There is really no science at all to that. Sure, we use data analytics and use our market intelligence. But it’s mostly the retailers that really lead us to these sites. And an example of that is this deal in Highland Lakes, where it was 50% occupied center. Stein Mart was vacant. We had a AA-rated grocer among two other grocers tell us that, that is a site that they would very much want to be in. We tied up that center and had a lease signed with that AA-rated grocer on the day we closed. So, stabilizing that at 7.5%, call it, could trade that at a low-4% cap. Retailers are a partner to us, and they are very, very important to our investment decisions.

Linda Tsai: Thank you.

Brian Harper: Thank you.

Operator: Next question Craig Schmidt with Bank of America.

Craig Schmidt: Thank you. I am just wondering, given the elevated level of acquisitions, do you think this could be a source of additional redevelopment opportunities going forward?

Brian Harper: It could. I mean it really depends, Craig, on the asset level. I think in many ways, we have proven like we did in Jacksonville, where we contribute land to a residential builder in DeBartolo, we own 50% of roughly 375 units. There could be densification opportunities, particularly in Florida and Boston. But relatively, our re-merchandising efforts and all of that, I mean we are getting double-digit yields on that. So, we certainly want to extract the lowest-paying rent tenants and bring in the highest-paying rent tenant with great investment-grade tenants. So, we do look for ways to achieve the highest IRR. And if that’s redevelopment that goes into that, we will look at doing that.

Mike Fitzmaurice: Yes. And then based on our estimates today and the opportunities that are in front of us, to Brian’s point, re-merchandising is the highest yield that we are getting on our capital allocation. And so between that and redevelopment, we will spend probably about $20 million to $30 million over the next 3 years on re-merchandising and some redevelopments that we just disclosed in our supp over the next 2 years.

Brian Harper: That’s a year.

Mike Fitzmaurice: Correct. Per year.

Craig Schmidt: That’s per year?

Mike Fitzmaurice: Yes, per year, correct.

Craig Schmidt: Okay. So say, $60 million to $80 million or so in total for the next 3 years?

Mike Fitzmaurice: Yes, $25 million to $30 million per year.

Craig Schmidt: Okay. Great. Thank you.

Mike Fitzmaurice: You bet.

Operator: Next question, Omotayo Okusanya with Credit Suisse.

Omotayo Okusanya: Yes. Good morning everyone. So, I would like to go back to this kind of first-ring strategy, 7% unlevered IRR. It would force us to assume there is no cap rate compression off the back of that deal as you kind of calculate your exit valuations. When I look at that, it seems like maybe your first year cash NOI yield is probably mid-4s or so. So, should we be kind of thinking the more of this stuff you do, the kind of like the first year or so, it’s actually going to be dilutive to your earnings growth?

Brian Harper: Call it mid-5s. And really, on this one, for example, we can get at that cash flow within that first several months with new leases. So, it really depends on – this one would be not dilutive from an IRR perspective, but it really depends on each asset. I can tell you there is one we are hovering around right now that’s 10% unlevered that really hits cash flows very quickly. And then it’s in one of the hottest markets and fastest-growing markets in the country. So, we are – very much want high IRRs and want them quickly. So, we don’t look at buying real estate and saying, “Oh, we will get that back and we will get that lease back in year four or year five.” We are really looking at this as like a 1 year or 2 years on hopefully getting a crack at that lease.

Omotayo Okusanya: Okay. That’s helpful. And then the second question, your JV partners. Again, your acquisition volume guidance does go up for the year. But just kind of curious, is most of that on balance sheet? And just how your JV partners are thinking about kind of putting capital to work, just given the current uncertainty around capital markets in general and possibly even cap rate?

Brian Harper: That’s one – that, for the guidance, is really one to one from a balance sheet and our JV partner. I think from – as I alluded to before, the triple-net fund, we are being very patient. We think cap rates will move much wider in that sector today and are being very disciplined in that approach. And for GIC, we are really looking at the best real estate, the highest IRRs, iconic real estate. I talked about the moat philosophy earlier in my first question. They have that same conviction around that. So, they do like all shapes and sizes of great real estate. And I think you will be seeing some stuff hopefully soon with that JV announced.

Omotayo Okusanya: Okay. Thank you.

Operator: I will now turn the floor over to Brian for closing remarks.

Brian Harper: Thank you, operator. So, as I mentioned in my opening remarks, we have the same ticker. But RPT is a much different company today than it was just a few years ago. The changes made to our people, processes, portfolio and our platform since 2018 are now being reflected in tangible improvements in our geographic mix, our tenancy, our portfolio quality, most importantly, to our operating and financial performance that we believe will again be amongst the top of the pack amongst the open-air shopping center REITs in 2022. Our sector has great tailwinds coming out of the pandemic and RPT is uniquely positioned to capitalize on these tailwinds, given our differentiated strategy and complementary investment platforms. Thank you all so much for joining. Have a wonderful day.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.