Welcome to the 3:40 P.M. session at Citi's 2023 Global Property CEO Conference. I'm Craig Mailman with Citi Research. We're pleased to have with us RPT Realty and Urban Edge and CEOs Brian Harper and Jeffrey Olson. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the AV desk. For those in the room or the webcast, you can sign on to liveqa.com and enter code GPC 23 to submit any questions if you do not wanna raise your hand during the session. Brian and Jeffrey, we'll turn it over to you to introduce your companies, any members of the management team, and any introductions that you wanna do, and then we'll move over to Q&A. Thank you for having me, Craig. With me today is Vincent Chao, our managing director of finance, and Mike Fitzmaurice, our CFO. I'm Brian Harper, CEO and president of RPT. We are a predominantly grocery anchored real estate REIT out of New York with diversified holdings across the country, including a large portion here in Miami. It's a pleasure to be here. Great. My name is Jeffrey Olson, Chairman and CEO of Urban Edge Properties. I'm joined with Mark Langer, Chief Financial Officer, Jeffreyrey Mooallem, Chief Operating Officer, and Etan Blumin, our Head of Investor Relations, among many other positions. We're about a $4 billion shopping center REIT. We spun from Vornado about 8 years ago. Most of our properties are in the New York metropolitan area. I think some of the things that differentiate us the most would include our population density, which is the highest in the country. I think within 3 miles, we have about 210,000 people around our properties. Properties have fared very well, you know, throughout COVID. I think the other thing that differentiates us is that we have visibility to grow our NOI by about 18%, simply based on our SNO pipeline that accounts for about three-quarters of that and then leases under negotiation. With that, I'm happy to turn it back to you. Wonderful. We've been kicking off every session asking each management team to provide us what they think are the top three reasons an investor should buy your stock today. You guys can flip a coin to see who gets to go first. You go first this time. I think I would start out with the visibility to grow NOI. The SNO pipeline is the largest in the space, again representing 12% of our current NOI. That's basically baked. I mean, if we were selling a property today, we would expect full credit for that NOI, even though I don't think the market appreciates it or puts that into the value. The second reason would be our demographics. Again, you know, Craig Mailman, I was in your shoes a long time ago as an analyst covering strip shopping centers probably 25 years ago. My thesis back then was to own properties in the most densely populated, supply-constrained markets of the country. I really believe in that thesis on a go-forward basis because land values are so high. You know, we're realizing value on that land. Remember, 75% of our land is basically vacant because it's a parking lot. You know, we have a development team in place that is densifying our locations. From a valuation standpoint, I think many investors flock to the Sun Belt markets at the expense of some of the coastal markets, including the New York metro area. We trade, I think, at an implied cap rate of around 7.5%. To me, relative to transactions that are happening in the New York metro area, I think that's too high. First for us would be we're inching up against Jeffrey. We're second highest sign-not-open leasing backlog. We have great visibility, $14 million of SNO. We just opened $3 million, so it's $11 million of SNO with $4 million of leases that are soon to be signed. Really ramping that up to, call it, $15 million of SNO here shortly. Great visibility, 2023, 2024, and 2025. Two, our mark-to-markets since new management has been at this firm, we've led every year spreads of new leasing spreads of 35%. Our average age centers are 35 years of age. What does that mean? It doesn't mean bad real estate. It means a lot of under-market leases, as we'll get into about Bed Bath & Beyond. We have a $14 AVR center in the heart of Delray Beach. Those are just leases that have been encumbered for years, and we can't get to them. Third reason is our differentiated platform, our fund investments with GIC. We have about a $1 billion grocery, core grocery JV with GIC. We recently bought Mary Brickell Village, which I'm sure all of you have heard. It has been an unbelievable buy. We underwrote $78 in underwriting, and we're seeing rents in $130, $140 a square foot. What's happening in the Brickell sub-market is unbelievable. You look at our valuation, we're trading around an 8 cap, and I look at our JV and our cash flows and our visibility to growth, and it's nonsensical. You both cited, you know, where your portfolios are trading relative to assets in the market, assets that you own that you just bought. I guess, what's the catalyst for each of you to try to narrow that gap? Kind of what do you think is a realistic timeframe on the execution of some of those? Yeah, I think for UE, most important thing is to get these tenants opened and operating so that it's no longer an SNO pipeline that we're talking about, that it's really into FFO, which translates into, you know, more earnings growth. For us, we think that's gonna be quite significant, you know, through 2025. We have an analyst day coming up in about a month. I hope many of you can attend it. We hope during that analyst day to provide some real guidance as to what the SNO pipeline does to earnings growth. To us, it's putting the numbers on the board. I think for us, it's the same thing as SNO into FFO. But also, I think for the entire sector, this Bed Bath and Regal bankruptcies have been a dark cloud, where I think, at least for the Bed Bath, is a wrong indicator. You know, for us, the average Bed Bath tenant or space has been occupied for 20 years. These deals were cut 20 years ago. Our average ABR for Bed Bath is $11. We are replacing at $15-$16, doing 2 total lines, doing TJ Maxx concepts, doing some grocery stores, doing Burlington and all that. I think once those convert, we had 8, we're down to 4. We have 4 in leases that will be signed here soon. I think as much getting that out and having that in the rear view mirror instead of a forward view is definitely a rereading potential. As I look on, you know, another thing that, I mean, you guys could opine on this as well, is from a leverage perspective, both of the companies are above average relative to peers. What does that look like, though, once you normalize for your above-average SNO pipelines, kind of on a go-forward basis? You know, what's the ideal leverage targets for each of your companies on a normalized basis? I mean, for us, it gets us to a net debt to EBITDA of around 6.5 times, which I think makes sense. Another point of differentiation for us versus most of the shopping center group is we have a secure debt strategy. I love that strategy because it's non-recourse mortgage debt that's placed on individual assets, and none of it is crossed. If an asset does get into trouble, and we did have an asset get into trouble in Puerto Rico during COVID, we basically went to the lender and said, "You know, let's figure this out." Effectively, we were able to get about $100 million of debt forgiven on 2 loans in Puerto Rico, which couldn't have happened if we signed a corporate guarantee. Sorry. I think our debt strategy is actually more conservative, even though we carry a little bit more debt than our peers, and it's going down. I think our strategy is probably most differentiated in that regard. Sure, I'll jump in here. Can you guys hear me? You have to push the button. We That button on the side. For RPT, it annualizing our SNO, you get down to, like, 6.3. Our range is, you know, 5.5-6.5. We're right in range for that. I would say 95% of our debt is fixed with no maturities till 2025, which is a good place to be, and Mike and Vin and team have done a great job with that. Perfect. We got some questions coming in. First, what is your blended shop and anchors average annual contractual rent bump, and what does the split look like between the two? Mark, I'll let you take that from our perspective. For us, our shop tenancy has been getting 3% bumps. Jeffrey Mooallem, who runs leasing, it's great to have him back, joined the beginning of this year, has been asked that many times in our meetings. There certainly has been a trend, given the strength of the leasing demand, where we are trying to push shops where we have the most demand above that 3%. Anchors have generally followed, you know, 10% every five years. Again, we're trying to use this environment to see where we can extract more, but that's been about the current run rate. Yeah. Over the last 4 years since you know, Brian and I have been with RPT. If you look at all our sign lease activity since mid-2018, we're averaging across the board between anchor and small shop, about 200 basis points, which is very, very strong relative to peer average. The split between that is between 3% and 4% on the small shop and then about 1% or so on the anchors. Then the follow-up is, could you just talk about rent spreads and what you're getting in anchors and small shops, and just kind of how that looks? Yeah, I mean, you're really... I mean, the anchors, it's as robust of an environment, I think Jeffrey would echo this, as I've ever seen in my career. you know, for our Bed Bath, you know, we're seeing spreads of 40%-50% spreads, with very good tension in the market too, which drives rent up and CapEx down. And small shop, too, for us, this was when we started a 15 and a quarter ABR portfolio with a 6% occupancy cost health ratio. We really have built in mark to market. Those have been double digit, 10%-15% on the small shop, if not, you know, higher in some cases, especially in Florida. There does seem room to push. I mean, I do think we're in a unique period right now. Remember, during COVID, our occupancy got down to around 91%. I mean, we were filling space. Now we're at 95, approaching 96, 97, and now is the time to really push for better rental increases. In many cases, we'll have two to three tenants competing on certain spaces, and that just didn't happen before. We've been fighting, you know, a battle for almost a decade, and now all of a sudden, you know, the balance has changed in our favor. I think as an industry, we need to do more to push these tenants to pay higher rents, to pay better increases than what they've been accustomed to doing. Are you gonna join me on this campaign to ask for more, Brian? I'll help lead it with you. At their doorsteps. Literally, I think I said on the earnings call, you know, the vacancy rate across the country within the strip shopping center sector is at the lowest level since 2007. One more question coming in. How are you budgeting for bad debt expense, maybe as a% of NOI or however you measure it in 2023? How does that compare to your normalized levels? We can start here from RPT's perspective. We budgeted about 300 basis points of revenue in 2023. That is absolutely outsized. To break it down further for you, to give you additional context, 75 basis points is about the run rate for this portfolio and has been pre-COVID and a little bit post-COVID last year. Then there's 225 basis points of incremental on top of that, and that's really to cover off any Bed Bath, Regal, Party City, and Tuesday Morning disruption that we could experience in 2023. In our case, our portfolio, similar, and I would say that base run rate is 75 to 100 basis points of revenue in a more normalized period. That was our base level. In our guidance, we also noted we added another 125 basis points for what we identified as either tenants that were in bankruptcy or likely to be, and we provided, you know, details on our earnings call in terms of what comprised that added 125. In total, the answer is 225 of revenue basis points. You touched a bit on OCR. Where are they now versus pre-pandemic levels? I can take that on behalf of Urban Edge. We're seeing OCRs sort of stable from where they were maybe a year ago. They haven't improved in from 2022-2023 the way they did from 2021-2022 as we came out of the pandemic. The retailers will tell you right now that their bigger concern is supply chain management, labor costs, and frankly, finding good real estate. The profit levels and the occupancy costs have held fairly firm in the last few months, and we don't expect that to improve or go down one way or the other. Yeah. I would echo Jeffrey. I mean, I think this is a myriad of logistics meets retail and just the four wall from the store is much more profitable than e-commerce as COVID proved, going to the industrial and then to the homes. Across the board, we're seeing pretty significant sales increases, especially with the box tenants and grocers, which is a good pattern, obviously. Brian, just curious, you know, what markets you're most excited about within your portfolio now, where you see the best opportunity to grow externally but also organically? I'm in a Citi conference, I'll steal from Jamie Dimon, who said earlier this week, Miami. 7.5% of our AVR is coming from here. 4% of that is Brickell. We have phenomenal real estate and repositioning real estate here, where we're literally buying out tenants and 3x-ing rent. Miami represents about a 9% CAGR over the next 3 years. RPT is about 50% of our cash flows are coming from the state of Florida, Boston, Nashville, and Atlanta. I really believe in concentrations of assets to really maximize G&A leverage with tenants, leverage with vendors, leverage with the brokers. I would say you know, all of Florida is really where we're spending a lot of time. You know, Boston is another area where we had 0 exposure prior to COVID. Through the GIC partnership, Boston now will soon be our 1 MSA for the company. Yeah, you beat me on a property. We were competing. That's right. You won it. It was a good, it was a good deal. What's ironic about doing this panel with RPT is about, I mean, I think it was 14 years ago, we had a 10% investment in Ramco, and affected some change there. I think we helped eventually get you in this seat. Anyway. Yeah. It's fun doing this panel with you, Brian. Thank you. Jeffrey, you had mentioned, you know, your concentration sort of the New York area relative to maybe investor focus on some of the Sun Belt given demographic shifts. I mean, what do you think is a little bit miss or underappreciated about your market exposure and the fundamentals that you're seeing versus the, you know, long-term demographic shift of people coming to the Sun Belt? Yeah, I mean, I think some investors just fear there are so many people leaving the, you know, New York City in particular. What we're seeing, we are seeing people leave Manhattan for some of the suburbs for sure, and our properties are in the suburbs. They're in Bergen County, they're in Westchester. Our foot traffic is up 6% since pre-COVID levels. Our centers are full, and they have much better tenants than they did earlier. We had a fair amount of exposure to Toys R Us and to Kmart, and those boxes have now all been replaced with tenants like Target and ShopRite and some of the TJ concepts. Many of those are in the SNO pipeline and we'll be delivering them soon. What I love about the New York market, and I agree with Brian, having critical mass in a market is really important for informational purposes as much as anything else. I mean, being an ex-research analyst, I mean, having better research, you know, gives you a competitive advantage. When you're the largest owner in a market, and we're certainly probably, you know, one of the largest owners of strip retail in the New York metro area, maybe the largest, we do have good intelligence. The retailers generally have their most productive stores in the New York metro area because the population that they're serving are twice as many people as they are, even in some of the Sun Belt markets that may be expanding, you know, at a faster rate. There might be, you know, 40,000 or 50,000 or 60,000 people in a 3-mile ring versus servicing 200,000 people. We may not be growing as fast, but we're servicing a much larger number of people. The retailers are looking for productivity. We have a good product. The other thing that's happening is many of the centers in the New York metro area are deeded and need to be renovated, and that's part of our specialty. We have that level of expertise of finding better tenants to put into some of these centers that still look like they're from the 1980s. You know, the major cities, New York in particular, struggle to get people back into the office. I mean, as you look at either foot traffic data or however you kind of measure it, how much has the work from home through COVID maybe accelerated or saved some of that demand in the New York area versus the trend you would have thought if you were just here in 2019 and the pandemic hadn't happened? Yeah. I mean, I think it has helped. I mean, most people are working three to four days a week, which means, you know, they're at home in Bergen County an extra day or two. That's translating into more foot traffic. It's certainly translating into, you know, higher occupancy levels. So for us, it's really two phases. Phase one is getting these new tenants open and operating. One of our largest properties is in the Bronx. We had a Kmart there, was one of almost the last ones standing because it was a pretty cheap rent, and Kmart was making decent money out of it. We were able to re-lease it to Target. Target will do, I don't know, probably 20 times the volume that Kmart was doing before. The next phase for us after opening them is getting the customers to the center and then finding new tenants that wanna be next to Target and wanna pay market rate, a new market rate that's substantially higher than what it was when Kmart was there. I think there's another level of increases that will be coming as we, you know, go from this 91% occupancy rate back up to our normalized level of 97%-98%. Moving on to kinda cost of capital and external growth. You know, we've got a question here. At what rates would you raise 10-year money today, and how does that compare to your average in-place cost of debt? This will be for both of you. I think our in-place cost of debt today is about 4%. We've been able to take advantage of a, you know, severely inverted yield curve back in December to, you know, keep our in-place rate at that point. I think for us to invest, I think we'd like the rates to come down all-in rate closer to 5%, I think is much more efficient from our perspective, from a capital allocation perspective. When we're raising debt, we're again, using mortgage debt. Mortgage financing is generally now for properties of our quality in the 6% to 6.5% range. There's a pretty liquid market for it. In terms of cost of capital or, I mean, in external growth, there's nothing in the acquisition pipeline today because it's hard to find anything that's accretive to our 7.5% implied cap rate, which is our cost of equity capital. We are, though, putting money into redevelopment, and we have about $200 million of properties under redevelopment, which should earn approximately a 12% incremental return. You know, we'll continue to allocate capital if we're getting a double-digit return. Brian, maybe for you kind of where would you look to put capital out today and where would cap rates be for your assets? I know you have probably some cost of capital advantage with GIC as a partner too, if you want to do something through that route. I mean, cost capital, the way I look at this is a leasing environment, and we're getting double-digit yield on cost for a lot of our leasing deals. That's really priority, and that's upgrading credit that's going to be coming on in, call it 2024. With that said, we have three vehicles. We have a triple-net venture with GIC, Monarch Alternative Capital, and Zimmer Partners, where we have about $1 billion to deploy. Most of that, RPT owns a 6% stake to really accretive fees on that as well. What that fund is doing, just given the dislocation, is we're buying centers with 75%, 80%, 90% investment grade or essential tenancy, putting that in that fund, seeding that, creating that, keeping that alpha, and then selling the rest at a later date. We're very active on that $1 billion of deploying. The GIC core grocery venture has about $780 million left to deploy. Brickle was just bought six months ago, $216 million. We are, you know, right now, the double-digit yields take precedent over, you know, buying those types of core groceries. Really, the product, we haven't seen anything. People are sitting on their hands and sitting, waiting for the world to correct or not. Right now the priority is really leasing and putting outside growth into that triple net venture. What would the unlevered return hurdles be for the triple net venture versus the other GIC bucket? Where we lever that's more opportunistic capital. It's about a 22, 23 levered today. We levered it up 65%. Promotes on that is over a 9 levered. For RPT, it's gonna be good. GIC is an unlevered, you know, buyer, as have we been with them. We've put some small debt at 30% LTV on a couple Boston assets and Tampa assets. That, that unlevered is really today at, like, 9, 10 to even get appealing. What's interesting is we bought an asset in Boston in 2020, really used COVID to sit there and say, "We're gonna be right, or we're gonna be wrong." This is the opportunity to really get to a city that I've long admired and know the real estate pretty well. Surely enough, you know, as I said earlier, it's gonna be our 1 MSA. We bought an asset up there where we bought it for a 7 cap, Wegmans anchored, BJ's anchored, 4 parcels. We seeded those into our, you know, triple net fund. It left us with an in-place yield of a 10 and has since stabilized to a 15 with 5 TJX concepts at a 4% CAGR. It's the only center in the country with all 5 TJX brands, where essentially you're owning at a 15% cap with a TJX bond. If we can have more of that, we can that's accretive to what we're trading at today, and we are sourcing for items like that. I think they're out there. Is that in Northborough? Yeah. Good job. Thanks. One more coming in from the audience. Any thoughts on U.S. consumer credit card debt at record levels and delinquencies also on the rise and how this may ultimately be a negative trickle-down effect to your business? I mean, listen, I think we're both sitting up here with a very high average household income. You know, for us, it's a $130,000 household. We don't have any in that, you know, below $75,000. For us, we have been buying and had bought at affluent areas. We want the affluence, we want density, we want growing, we want... We have an in-house data scientist that has helped curate a proprietary model for us. All those factors go into place, even the credit card delinquencies. We as much exposure as we can get from the credit card companies or from credit friends, that expertise in that goes into our model. I think there's reason to be cautious, and I think, you know, taking advantage of the market today and leasing space while we can is important to do. It's more than credit card data. I mean, I think it's inflation, I think it's interest rates, I think it's jobs. I think we're in a very unique position today, and one in which we can be offensive, and we're playing offense for as long as we can. Amen. Turning to ESG, we've been trying to get a sense of, you know, maybe the one or two top initiatives that each company have had for 2023. Maybe I'll start, and I'll have Mark add a little bit. On the S side, we've been refreshing our board quite a bit over the last several years. We're delighted with the refreshment that's taken place, and I think it's just an important part of the process. Earlier this week, we announced Kathryn Rice as an addition to our board. She was an independent director at STORE Capital before and has been in the REIT sector for a long time. Mark, do you want to take the E? We continue to make a lot of progress across the portfolio on the environmental side as well. Everything from white roofs, LED parking, initiatives where we're now working more closely with tenants. We've set a 50% reduction in GHG target by 2030 off of our 2015 base year when we were spun. We're aggressively working on all the initiatives tied into environmental stewardship. I'm gonna turn this to Vincent Chao, who spearheads this effort with Michael McBride on the asset management side. Yeah, thanks, everybody. For ESG, I mean, I'd say overall, I mean, it's still pretty early days for us as a company, but we've done a lot of great stuff since we've been here since 2018. I think starting with governance is probably the biggest area that we focused on to start with. In 2018 and 2019, we basically turned over about half of our independent board. Today we sit with, 50% of our independent board is female, which is something that we're very proud of. We brought in a lot of diversity of experience to really round out and use a skill matrix to say, "Hey, what are the skills we need on the board in order for this company to move to the next level?" Brian and team really did an amazing job of bringing in some really top talent board members like Anderea Weiss, Richard Federico, and others. It's been... Joanne Lau, sorry. It's been incredible from that perspective. I think we've recently just posted our second annual corporate sustainability report in July, so very proud of that. We've been reporting under GRESB for 2 years now, increased our GRESB score by 33% last year-over-year. Significant progress. That really covers the social, environmental. We obviously have, you know, targets, quantitative targets on water consumption, waste, greenhouse gas emissions, and have been making a lot of progress similar to you guys in terms of LED lighting projects and other projects that, you know, can help us achieve those goals over the next two to three years. I think the focus for us going forward is gonna continue to, you know, to be on governance, meeting our environmental goals. On the social front, I think it's really just, you know, our employees are our biggest asset, so continuing to support them with our initiatives, both on the promotion, hiring, and retention side of things. Great. Moving on to rapid fire questions. What will same-store NOI growth be for the strip center group overall, not necessarily your companies, in 2024? 24? 3%. 4%. Price is right. We bring up the average. What's the best real estate decision today? Buy, sell, build, redevelop or hold? Lease. Yeah, it's. I was gonna say redevelop, but it's reanchoring, which is leasing. I agree. lastly, will your property sector have more, fewer or the same number of public companies in a year from now? I'll go with fewer. Yeah, I would agree. All right. Thank you all so much. Appreciate your participation and hope everyone enjoys the rest of the conference. Great. Thank you.