Earnings Call Transcript - RPT Q1 2023

Operator, Operator

Greetings, and welcome to the RPT Realty First Quarter 2023 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Craig Benigno, Senior Analyst, Investor Relations. Thank you, sir. You may begin.

Craig Benigno, Senior Analyst, Investor Relations

Good morning, and thank you for joining us for RPT's First 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 meaning of the Private Securities Litigation Reform Act of 1995. Additionally, statements made during the call are made as of the date of this call. Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statements made. Although we believe that the expectations reflected in any forward-looking statements are based on reasonable assumptions, factors and risks could cause actual results to differ from expectations. Certain of these factors are described as risk factors in our annual report on Form 10-K for the fiscal year ended December 31, 2022, and in our earnings release for the first quarter 2023. Certain of these statements made on today's call also involve non-GAAP financial measures. Listeners are directed to our first quarter 2023 press release, which includes definitions of these non-GAAP financial measures and reconciliations to the nearest GAAP measures, and which are available on our website in the Investors section. Lastly, this quarter, we are introducing our earnings presentation, which we will reference throughout the call to highlight key messages for the quarter. 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.

Brian Harper, President and CEO

Thanks, Craig. Good morning, and thank you for joining our call today. We continue to experience strength in the leasing environment, highlighted by our third consecutive quarter of over 500,000 square feet of signed activity, compelling new re-leasing spreads of about 25%, and substantial progress on backfilling our Bed Bath concepts where we have strong demand and activity at all locations. As mentioned on the prior earnings call, we have been treating our Bed Bath boxes as vacant for some time as we worked on re-leasing plans well ahead of their bankruptcy filing. In some ways, our industry, like the hospitality sector, needs to have hands-on, active day-to-day management to drive alpha and operational results. Given our proactive approach, we believe we can create significant value with top-tier tenants that bring higher credit, stronger sales, and more relevance with our consumer. We have engaged with several retailers across the country regarding these locations, giving us a substantial head start on backfills with single-user tenants, which limits CapEx and downtime. Our in-place rents for Bed Bath are near the lowest in our industry at about $11.50 per square foot, which we expect to grow by 30% to 40%. At the end of 2022, we had 8 Bed Bath & Beyond leases and 4 buybuy BABY. Since then, we have released 3 of our Bed Bath & Beyond locations to strong national tenants, capturing a mark-to-market spread of nearly 50%, highlighted by our HomeGoods lease at River City Marketplace in Florida. While the 50% spread is sizable and akin to industrial spreads, it is not surprising given the mark-to-market story we have been communicating and executing on for the last several years. Expected downtime on these deals is minimal, with rent expected to commence on the HomeGoods deal in the fourth quarter of 2023 and on the other 2 deals in the second quarter of 2024. Additionally, we are negotiating leases or letters of intent on 5 other locations at a weighted average rent spread between 30% to 40% and are in active tenant discussions on our remaining 4 exposures, 2 of which are being considered as part of a larger redevelopment plan. The lack of quality new supply is driving broad-based demand, which includes grocers, off-price, general merchandise, home improvement, health and beauty, medical, and sporting goods tenants. Given this demand, we expect to have signed leases in the next few months for all remaining Bed Bath and buybuy locations, in the event we get the spaces back. Please see Slide 10 in our earnings presentation for additional details about our Bed Bath exposure. In March, we were happy to announce the appointment of Amy Sands as Executive Vice President and Head of Investments based in our New York City office. Amy is well known and well respected within the real estate community and brings over 20 years of transactions experience, having last served as Senior Managing Director, Co-Head of the Chicago office at JLL Capital Markets. Amy brings a deep network and a proven track record and will be a great cultural fit at RBT. With $1.7 billion of committed capital to deploy between our two joint venture platforms, we are excited to see the efficiencies of our now consolidated investments team under her leadership. I would like to take a moment to highlight Miami, which represents 8% of our ABR and is now our fourth largest market. We have been actively expanding our presence in Miami due to the incredible growth the area is experiencing. Our leased to occupied spread of 630 basis points in the market provides a clear path to further expansion. It's one of the largest Miami shopping center owners in the public REIT space. And at just 83% leased, we have a unique opportunity to capitalize on one of the fastest-growing markets in the country, where rents are up 25% over the past 5 years, including an 8% increase in 2022. Over the last 2 years, we have been replacing older leases in our Miami portfolio that were paying little to no rent. At Mission Bay Plaza in Boca Raton, we replaced a former Office Depot with Baptist Health, a AA-rated credit healthcare facility, which we highlight on Slide 16 of our earnings presentation. Additionally, we are finalizing a lease with a market-dominant grocer to replace a Save A Lot that was paying $6 per square foot in rent. We are also in lease negotiations with a leading retailer to replace a Winn-Dixie that had been in the portfolio for over 25 years and was paying $6.50 per square foot. On the small shop side, to put it into context the mark-to-market opportunity in our Miami portfolio, we are replacing an older restaurant concept with a nationally recognized restaurant at close to a 70% spread, which equates to an ABR of $60 per square foot. Miami and the rest of Florida will be a meaningful driver for our internal growth for 2024 and beyond. See Slides 14 and 15 in our earnings presentation for more details on why we are so bullish about this market and the near-term opportunity there. The crown jewel of our Miami portfolio is Mary Brickell Village. Our investment thesis was simple: buy great real estate at great value in a market we know well. Our plans to unlock this value are beginning to take shape in the form of a phased redevelopment of the Western parcel that we will realize the embedded mark-to-market opportunity in the near term. Today, the center is 94% occupied, up from 78% when we bought the asset last summer. Sales are over $1,500 per square foot, up nearly 63% since 2019, which equates to a low 4% cost of occupancy, reflective of the significant future mark-to-market upside at MBV. The challenge here is not filling vacancy. It's curating the optimal mix of tenants that will generate the highest level of sales and allow us to maximize rents. We are targeting best-in-class wellness, food and beverage, services, and soft goods retailers, including top international restaurant groups. We are in active negotiations with new and existing tenants at rents in the $120 to $150 per square foot range, which compares to our blended in-place rent of $47 per square foot and our initial underwriting rents in the $75 range. Fundamentals are clearly exceeding our expectations. And we now expect to drive unlevered internal rates of return that are several hundred basis points better than we initially underwrote. Longer term, our plans include a mixed-use vertical densification of the Eastern parcel. We continue to evaluate our densification options and have been working with a top-tier architect on our vision to unlock the air above the site. While the timing of this specific opportunity is a few years away, we are spending time now to understand and evaluate our options to maximize value for our shareholders with an eye on creating an unlevered IRR well into the double digits. See Slides 17 and 18 of the earnings presentation for additional color on our plans at MBV. With that, I'll turn the call over to Mike.

Michael Fitzmaurice, CFO

Thanks, Brian, and good morning, everyone. Recent tenant bankruptcy filings, the elevated rate environment, and concerns of a potential recession serve as reminders of the importance of disciplined balance sheet management. On this front, we continue to be proactive and control the controllables. Our investment-grade rated balance sheet is in a position of strength with no debt maturing until 2025, about $470 million of liquidity, only 5% of our debt tied to floating rates, and the leverage continues to tick down towards our target level of 6x net debt to adjusted EBITDA. Turning to first quarter results. Operating FFO per share of $0.25 was slightly ahead of our internal plan for the quarter and up $0.01 versus last quarter, primarily due to lower G&A. Same-property NOI growth for the quarter came in ahead of plan as well at 3.8%, fueled by 3% base rent growth after adjusting for some offsetting accounting movements between base rent and rental income not probable of collection highlighted on Slide 20 in our earnings presentation. In the first quarter, we signed leases covering approximately 506,000 square feet, resulting in a signed-not-commenced balance of $9.6 million, which equates to about 6% of first quarter NOI. Our signed-not-commenced pipeline was down slightly versus last quarter as we opened almost $3 million of gross rent on schedule, partially offset by $1.2 million of new leasing activity. The pipeline is largely comprised of high-quality grocer and discount tenants that we expect will add an incremental benefit of $0.10 per share of annualized operating FFO by 2025. Please see Slide 7 of our earnings presentation for additional details on the trajectory of our signed-not-commenced upside. Our leasing pipeline continues to be robust with over $10 million in lease or LOI negotiation. We ended the quarter with a strong 95.3% same-property leased rate, up 150 basis points year-over-year. I encourage you to focus on our same-property lease rate as you assess the quality of our portfolio. We are tactically recapturing substantial space at 3 properties that are in active redevelopment or being prepared for one, which is temporarily impacting our leased and occupancy rates for our aggregate portfolio. At Crossroads in the Miami market, we demolished a smaller, older Publix last year, representing 42,000 square feet or 30% of the property GLA and are set to open a brand-new Publix flagship store later this year that we expect to drive incremental sales and rent growth. Additionally, at our Delray Beach asset in Florida, we proactively recaptured 53,000 square feet mid-last year or 25% of the center GLA that was previously leased to a below-average grocer and are in active discussions with an investment-grade rated national tenant as they backfill. In Oakland County, Michigan, at our Hunter's Square asset, we purposely recaptured about 100,000 square feet during the first quarter this year or 30% of the center GLA to be redeveloped. We are in active discussions with a top-tier grocer and 2 Class A national retailers. We look forward to sharing more details on our Hunter's and Delray projects in the coming quarters. During the quarter, we also continued to realize the benefits of our below-market rents, achieving a 39% and 23% rent spread on new leases over the trailing 12 months and during the quarter, respectively. Renewal spreads improved to 7% in the first quarter and were also up 7% on a trailing 12-month basis. Since mid-2018, our rent spread on new leases has averaged 31%, and we see no near-term slowdown, particularly in light of the Bed Bath opportunity. We also continue to drive contractual rent growth with escalators on new leases averaging 2% over the last 12 months as we realize the benefits of our high-quality portfolio. These escalators will contribute to a rising and sustainable NOI growth profile over time. Given our outperformance during the first quarter and with the bankruptcy environment playing out roughly as expected, we are maintaining our operating FFO per diluted share guidance range of $0.97 to $1.01 per diluted share and our expectation of same property NOI growth of 1.5% to 3.25%. The midpoint of our operating FFO guidance continues to assume lost rent totaling 300 basis points of NOI, which is comprised of our typical bad debt reserve of 75 basis points as well as an additional 225 basis points tied to bankruptcies, primarily for Regal and Bed Bath & Beyond. Our operating FFO and same-property NOI range contemplates that we recapture all our remaining Bed Bath & Beyond and buybuy BABY locations by the end of July. We do expect our operating FFO and same-property NOI to decelerate in the second quarter as we recapture space from Bed Bath & Beyond, but to reaccelerate in the back half as our signed-not-commenced tenants begin to open and pay rent. And with that, I will turn the call back to the operator to open the line for questions.

Operator, Operator

Our first question comes from the line of Derek Johnston with Deutsche Bank.

Derek Johnston, Analyst

Brian, how are the other 5 Bed Bath & Beyond backfills progressing? I know you touched on it briefly in the opening remarks, but any additional details here since it's obviously a point of concern would be helpful.

Brian Harper, President and CEO

Certainly. Regarding the other five Bed Bath & Beyond backfills, we currently have leases out on about 80% of those, with significant rent increases of 30% to 40%. This is a unique chance to reclaim below-market leases in a market where supply is tight and vacancies are low. I'm very satisfied with how the leasing team has performed and our proactive strategy. As a result, HomeGoods only experienced 7 months of downtime, with earlier rent start dates; we noted second quarter openings, which might actually take place in the first quarter of 2024, significantly less than 12 months away. Additionally, our approach has attracted five to six letters of intent for some locations. We currently have no vacant spaces in many of these centers. Most of them are occupied by single users, which translates to reduced downtime and lower capital expenditures. Concerning the other two properties we’re considering for non-single users, the first is at Shops on Lane, which features a two-anchor shopping center. Whole Foods is generating $1,200 per square foot there, and small retail spaces are commanding $45 triple net, allowing for substantial value creation by possibly subdividing. The second site, which may be part of a larger development, is in Bellevue, Nashville. We acquired this property in 2021 for less than the value of the land alone. It has always been a long-term land play, and if we regain control of the largest box currently held by Bed Bath, we could leverage the strong residential demand and potential opportunities on adjacent land.

Derek Johnston, Analyst

That's very helpful, actually. And I just wanted to switch gears. You guys have been active in the private markets historically. Given it's been so slow, but with the likely Fed pause, do you see maybe a tightening of the pretty wide bid-ask spread? And are we close to seeing volumes pick up as a 2023 event? Or how are you looking at private markets? And what are you seeing on the ground?

Brian Harper, President and CEO

Yes, I think with the Federal Reserve indicating a pause yesterday, and with more certainty around Bed Bath, we are not planning to sell any vacant spaces. We anticipate significant growth from those locations in 2024 and beyond. However, I believe the latter half of this year will likely see a much higher volume acquisition market broadly. For RPT and our capital allocation, our main focus is on leasing. We can’t find double-digit yields anywhere else. Most of 2024 will greatly benefit from this. We have an under-market portfolio where investing capital now is our top priority. Additionally, we still have substantial funding with RGMZ, which we find appealing for returns and fees. This is a key focus for us. I can see us engaging more in mezzanine and preferred equity, but on a limited scale. We already have a preferred position with Zimmer, Monarch, and the RGMZ venture, and we are eager to pursue more opportunities if they align with our strategy.

Operator, Operator

Our next question comes from the line of Todd Thomas with KeyBanc.

Todd Thomas, Analyst

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 re-leasing the Bed Bath boxes at around 20%. Now you're projecting 30% to 40%. Is demand and the replacement rents that you're anticipating actually improving now that Bed Bath filed? Has the timeline to sign leases and retailers getting in changed at all?

Brian Harper, President and CEO

Yes, the pricing has changed. Rent is higher, and there is increased demand. Retailers are now investing time and money into design and legal costs to utilize their resources. Regarding time, we initiated our process by treating a vacancy as if it had been empty for the past year, which will significantly affect 2024. Without this proactive approach, we wouldn't see tenants opening until mid to late 2024. Rent is now much higher than we initially projected, and the timeline remains the same as last quarter due to our proactive asset management strategy.

Todd Thomas, Analyst

Okay. Are you experiencing competition for these boxes? Can you describe the competition? Are they primarily single-tenant backfills or single-user backfills? Is it a targeted process with one interested retailer, or are you beginning to notice increased competition for these spaces?

Brian Harper, President and CEO

How do you achieve higher rent? It’s becoming increasingly competitive in the market. I frequently remind the leasing team that it’s about bidding to the highest bidder. However, we also prioritize credit. We’re not just considering the highest rent; we look at credit quality, sales performance, and how well they fit with the rest of the center. For instance, at the Midwest Center, we received 6 letters of intent for a single vacancy, and in Florida, there were 4. River City attracted a significant amount of interest, and we continue to receive inquiries about that space. We’re seeing multiple interested parties for this box, not just one or two. As we get permission to disclose the names of retailers with whom we’ve signed leases, many of them are well-known household names and investment grade, and they will likely achieve much higher sales performance compared to Bed Bath.

Todd Thomas, Analyst

Okay. And then just the last one on Bed Bath. Regarding the leases that you signed after the end of the quarter and some of the activity there, can you provide an update on your exposure as of March 31? Has there been any change since the end of the quarter in terms of additional space or stores that you’ve recaptured?

Michael Fitzmaurice, CFO

Yes. The quick answer, Todd, it's lower. But I'll bring it back to last year and bridge it so where we are as we sit here today. So at the end of '22, we had 12 locations. 8 were Bed Bath concepts and 4 were buybuy. That equates to about 2.3% of our rents. 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 re-leased to a national retailer. Subsequent to the quarter end in April, we've captured an additional location that has already been re-leased to HomeGoods, which we highlighted in the release last night. So today, we have nine locations; four of them are buybuys. 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 with another national tenant. So as we sit here today, we'll be left with 7 locations and only about 1.3% of ABR.

Todd Thomas, Analyst

All right. Great. That's helpful. And then in terms of Hunter's 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 cost and scope for those projects and what you're anticipating?

Michael Fitzmaurice, CFO

Sure. I'll start, Todd. All the dilution occurred. So we had it all. We captured the old Winn-Dixie at Delray 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 will be all incrementally positive as we get signed leases and redevelop both those centers.

Brian Harper, President and CEO

And I want to say like especially with Delray. Since I've just got here, I've been trying to buy many of those tenants out. This is 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 tenant, a large tenant in LOI. So we're really excited about the value creation and incremental NOI at both assets, considering that one asset was really 40 years old in Delray, and that's sitting in a $45 ABR market. Hunter's was really converted mall into a power center. And now it's the time to replace and remerchandise that into retailers that are thriving in today's environment. So we'll get back to you on cost and yields at a later date, providing clear numbers in our supplemental.

Operator, Operator

Our next question comes from the line of Haendel St. Juste with Mizuho.

Ravi Vaidya, Analyst

This is Ravi Vaidya on the line for Haendel. I just wanted to follow up one more here on Bed Bath. Can you comment on the CapEx requirements and the tenant improvement spend required to re-lease the boxes, particularly when you look at a single backfill or a more broader redevelopment where you're cutting it up?

Brian Harper, President and CEO

Yes. You're really shifting from a very minimal capital expenditure to around $100. This amount varies based on whether we're dealing with single users or dividing the space. When dividing, I am particularly focused on Shops on Lane, where there is 150,000 square feet of interest for relatively little in terms of 30,000 square feet of real estate. So, if we choose to go in that direction at Lane and split the boxes, that would yield significant returns. Alternatively, there are several single users who would take the space as it is. I would think of this as ranging from $0 to $100, depending on the specific box and tenant.

Ravi Vaidya, Analyst

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? Can we expect this as a run rate going forward, where they're proportionate renewals for total leases?

Brian Harper, President and CEO

Thank you for your question; it's an important one. Our leasing pipeline is strong. We have a considerable amount of signed but not commenced leases within our peer group. Currently, we have around $13 million in the pipeline, with $10 million already in the legal stage. The new leases cover approximately 681,000 square feet, which is quite substantial for our portfolio size. The lease spreads are in line with what we've been seeing, and the tenants are of extremely high quality, mostly national brands and the majority being investment grade. The categories include grocery, off-price retail, home improvement, and food and beverage. Overall, it's a strong pipeline. We're actively pursuing opportunities, and our legal and leasing teams are dedicated seven days a week, recognizing that this is a favorable time in the current environment.

Michael Fitzmaurice, CFO

And Ravi, as we look forward to your question around the percentage of renewals as a percentage of our total leases. Look, we're not a quarter-to-quarter business. So it's going to be choppy at certain times. But 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 with how we performed last year. 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 3 years. So we fully expect that 90% potentially then grows as we get out into '24, '25.

Operator, Operator

Our next question comes from the line of Floris Van Dijkum with Compass Point.

Floris Van Dijkum, Analyst

There’s not much to discuss regarding the balance sheet since there’s no debt maturing for the next two years, which is a refreshing situation compared to other companies. I'd like to explore the new leasing costs a bit more. I noticed your new leasing costs have increased from $100 to $117 per square foot, likely influenced by the Bed Bath retenanting. Most of your leases are renewals, resulting in lower costs. How should we approach the capital for new leases moving forward? Is it possible that this could decrease as the portfolio occupancy improves?

Brian Harper, President and CEO

Yes. The $100 figure didn't change; it was HomeGoods at River City. T.J. Maxx has their deals, and I believe they are arguably the best retailer in our ecosystem. We significantly enhanced the credit quality of the sales per square foot there, which is a use we previously didn't have at River City, a key asset in Jacksonville. I believe costs could decrease over time, and we expect a wide range of $0 to $100 on the Bed Bath backfills, but the spreads were 50% this quarter. I think the smaller shops and some mid-tier stores around 10,000 square feet will stabilize. Even at places like Brickell, space is extremely limited. When space does become available and we curate it, it involves not just a rent discussion, which is already above $100 per square foot, but also discussions about tenant improvements. Consequently, the costs for underwriting have decreased significantly as well.

Michael Fitzmaurice, CFO

Most of our capital expenditures this year and next year are associated with the signed-but-not-commenced pipeline. We anticipate a reduction in these spending levels by 2025. It’s important to invest in order to generate returns. We are seeing strong returns from various Bed Bath deals and other opportunities in our portfolio, which could drive better growth in 2024 and 2025. We expect to see a gain of $0.06 from our signed-but-not-commenced projects next year. If you examine the same-property net operating income growth trend over the next couple of years, it should improve. We are projecting at least 4% growth from same-property net operating income, along with increased construction costs and re-leasing spreads of 200 basis points. In your words, our true speed is on the rise.

Brian Harper, President and CEO

And that $0.06 is without the $10 million in legal, which is robust with 681,000 square feet of new deals, which is extremely sizable.

Floris Van Dijkum, Analyst

As a follow-up question, I was encouraged by the information you shared about Mary Brickell and the additional details provided. Tenant sales are very strong, and I'm curious what those sales would look like without Publix. If your small shop rents increase to $120, it appears that the yield on investment could rise from the low to mid-4% range to around 8%, based solely on that space. Moreover, there's potential upside from redevelopment and other factors. Is that the correct way to approach this?

Brian Harper, President and CEO

Yes, I definitely view this as achieving double-digit unlevered returns without any densification. In Phase 1 and Phase 2, there isn't much capital cost involved. When considering the reimagining of the space, it's about enhancing visibility, attracting top brands, renovating the courtyard, and creating a prominent flagship opportunity facing Miami Avenue. This will influence the costs and yields tied to Phase 1 and 2 in a future update. It's quite positive, as it exceeds our initial expectations when we projected at $78 per square foot. The influx of people and businesses into the submarket is remarkable. For example, if we look at sales productivity, it rose from mid-900s per square foot in 2019 to over $1,500 today, which is significant. Excluding Publix, we see figures around $1,000 to $1,100 per square foot. Restaurant comparisons have increased year-over-year by 30% to 40%. This represents a greater influx of people and businesses, creating strong momentum in the Brickell submarket. It’s important to highlight the place-making and ancillary income opportunities, as well as marketing events and digital signage that will be included in Phase 1 and Phase 2. For instance, we had a luxury car company pay us $50,000 for just 48 hours, which is more than what some of our small shop tenants pay annually. We are recognizing substantial ancillary income and marketing events as having excellent returns. This is a high-margin sector, and it will elevate those yields further.

Floris Van Dijkum, Analyst

I would like to follow up on that by mentioning that some areas, especially in California, face significant challenges when it comes to granting zoning rights for digital billboards. In contrast, Las Vegas seems to have fewer issues with this. How does Miami approach this situation? Additionally, how much potential do you have for development given that you likely have a considerable amount of street frontage?

Brian Harper, President and CEO

Yes.

Floris Van Dijkum, Analyst

Only probably two of the four sites or maybe three, but probably only two are suitable for the zone. How much could you add there?

Brian Harper, President and CEO

It could be significant. I don't want to get into specifics right now, but Miami is a market that has a lot of brand awareness, with digital being a major factor. The billboards throughout Miami are among the most expensive in North America currently. We are getting up to speed, and I don't consider myself an expert in this area. However, we will provide you with the exact square footage and digital opportunities at a later date. I mentioned it as a possibility, but we are not underwriting it yet; it remains uncertain. We are in talks with the city, and the Department of Transportation will play a significant role in this. There will be permitted uses for this, but the key question is how much. Without delving into details, I will follow up with that information later.

Operator, Operator

Our next question comes from the line of Lizzy Doykan with Bank of America.

Lizzy Doykan, Analyst

I wanted to go back to your comments on seeing redevelopment opportunities in more of the attractive markets like Bellevue and Nashville and the opportunity for 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?

Brian Harper, President and CEO

It's not a unique situation. As mentioned earlier, we contributed land with the DeBartolo Group for 50% of around 378 units, which are expected to stabilize in late 2024 or early 2025. We invested $0.5 million for that 50% interest. We're currently in discussions with several top residential teams across the country. There's a widespread interest, particularly in Florida, Austin, Texas, and as far north as Boston, including Cincinnati and Detroit. We are open to pursuing what's most beneficial to achieve outside yields. We'll share more details in the future about the specific residential opportunities we have.

Lizzy Doykan, Analyst

Right. And I had a question on the $0 amount that you recorded for tenant allowances and leasing 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?

Brian Harper, President and CEO

Just the renewals; there was no tenant allowance provided for any renewals. So that was just a quarter with no contributions.

Lizzy Doykan, Analyst

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

Michael Fitzmaurice, CFO

This year, it's about $2 million in savings, which is embedded within our guidance range. Going into next year, it will grow on an annualized basis by about $2.5 million.

Operator, Operator

Our next question comes from the line of Hong Zhang with JPMorgan.

Hong Zhang, Analyst

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?

Michael Fitzmaurice, CFO

It was low, Hong. We 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. To give you a breakdown of the $425,000, I think it's very important to understand, $400,000 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 being such a low amount. As we think about the rest of the year, it will accelerate as we take back Bed Bath embedded in our guidance as we take back all remaining locations, including our buybuys in July. So you will see that number accelerate. Again, it's important to note that the majority of this quarter was related to at-risk tenants, those 3 that are in bankruptcy and the very little amount to the rest of the portfolio.

Hong Zhang, Analyst

Got it. Regarding the 225 basis points associated with bankruptcies, if my calculations are correct, that closure in July would represent about a third of that. Can you discuss your assumptions for Regal and the other tenants in that category?

Michael Fitzmaurice, CFO

We believe, and we fully expect based on advanced lease negotiations that leasing is currently working through to take over our three Regal locations. We will have slight rent concessions associated with that included in the 300 or 225 basis points. We are also reclaiming one of our five Party Cities, and we are taking back a few locations from Tuesday Morning as well. This effectively addresses the 225 basis points.

Operator, Operator

Our next question comes from the line of Tayo Okusanya with Credit Suisse.

Tayo Okusanya, Analyst

In regards to the acquisition outlook, could you just give us a sense of across all your 3 platforms where you're most likely to kind of put capital to work? And specifically just around some of the JV platforms, given that they tend to be higher leveraged entities, how you kind of think about putting capital to work on those platforms?

Brian Harper, President and CEO

Tayo, I just want to, again, 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. 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. We think there's alpha to be had by buying shopping centers with 70%, 80% of their cash flows coming from investment grades and parceling amounts in the fund owned there. The grocery space is something that we are looking at. We're very, very hesitant just given the capital markets have clearly signaled that 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 with 10 to 25 basis points of cap rate expansion, but not a lot. The combination of the platforms, I look at Northborough, where now that yield cap rate of what we bought is a 13, 14 cap. That was after spinning off 4 parcels, and most of that cash flow are 5 TJX concepts now, which will be the only center in the U.S. with all 5 TJX brands. If we could hit those type of yields and have those types of investment-grade cash flows with that same quality in our core markets, that would be opportunistic to find another Northborough.

Operator, Operator

Our next question comes from the line of Alec Feygin with Baird.

Alec Feygin, Analyst

You guys highlighted that the Miami market is 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.

Brian Harper, President and CEO

It's really broad-based. I was reviewing traffic data last night, and the results are widespread. For instance, in Miami, Lakeland Park in Lakeland, Florida has seen a 32% increase year-over-year. Providence Marketplace in Nashville is up 22% year-over-year, and Dedham in Boston is up 20% year-over-year. This trend aligns with the strong demand from tenants in these markets. There's substantial demand, and we expect some announcements in Detroit. The demand is also significant in Cincinnati. Florida and Boston, which we truly appreciate, are experiencing skyrocketing demand from both small retailers and larger stores. It's not limited to specific geographies; the demand is consistently strong across various locations. This is the foundation of our portfolio strategy. I firmly believe in focusing on the top 40 metropolitan statistical areas. Retailers with the most pricing power tend to thrive in densely populated areas. When comparing them to secondary markets, I anticipate that the top 40 markets will exceed those secondary markets in terms of rent growth. Since 2018, we've been moving away from secondary market investments, and now we are left with 98% to 99% of our focus in top 40 MSAs.

Alec Feygin, Analyst

Okay. And I guess on the second part is, what's your visibility on specific site-level reporting for the portfolio? How well do you know the tenants? And what are some other tenants that are on your watch list now that Bed Bath has gone?

Brian Harper, President and CEO

Yes. We are actively involved asset managers. We have a strong system that allows local managers to communicate with both national and local tenants regarding sales, renovations, and relevant data about our direction. We take a data-driven approach when evaluating tenants, striving for maximum visibility, which requires direct conversations that cannot be held while managing a portfolio remotely from New York. Our local asset team provides valuable feedback. Regarding the watch list, we are examining various sectors, and thankfully, we have no exposure to AMCs or 24-Hour Fitnesses, which are concerns in the credit markets. Aside from Party City and Tuesday Morning, our exposure to other potential issues is limited. We are particularly focused on areas with lower sales volumes and upcoming lease expirations, and we are proactively addressing any risks in these areas.

Operator, Operator

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.

Brian Harper, President and CEO

Thank you, operator. Despite the uncertain macro environment and the return of select national retailer bankruptcies, we believe RPT has 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.

Operator, Operator

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.