Earnings Call Transcript - RPT Q2 2022

Vincent Chao, Managing Director of Finance and Investment

Good morning and thank you for joining us for RPT's Second 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 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 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 that 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 second quarter 2022. Certain of these statements made on today's call also involve non-GAAP financial measures. Listeners are directed to our second quarter 2022 and first quarter 2022 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, CEO

Thanks, Vin. Good morning and thank you for joining our call today. Since joining the company in 2018, our team knew that this would be a turnaround story, one that required upgrading the portfolio; strengthening our cash flows; implementing strong governance; optimizing our operations team to lease, lease, lease; and attracting the best talent out there. Our data-driven investment and the operating platforms that we put in place over the last 4 years allowed us to do just that. This company has been significantly transformed. We have significantly upgraded the portfolio quality and strengthened cash flows, positioning us for exceptional operational results. We had another excellent quarter, thanks to our outstanding team. We continue to make meaningful strides towards our strategic vision for the reimagined RPT, highlighted by the accretive generational acquisition of Mary Brickell Village in Downtown Miami in July. This is the 13th open-air shopping center that we have acquired in the last year, equating to about $840 million of value. To put this in context and considering our 2022 expected capital recycling activities, almost 50% of our ABR will be in the top-growing markets in the Boston and suburban regions in the country. The transformation of the company has led to our fifth consecutive quarter of year-over-year top and bottom line growth, and we continue to experience tailwinds with operating fundamentals holding steady with a strong backload of rents and double-digit re-leasing spreads that we expect to drive growth over the next several years. And lastly, we would like to thank our banking partners for their support. We were significantly oversubscribed on our credit facility recast, which will result in improved duration and stronger liquidity. As we have been saying for some time, a relatively smaller size is an advantage that has allowed us to rapidly reshape our portfolio towards higher-demand markets with better population growth, job growth, household income, rent growth, sales performance, and essential tenancy, all of which are important factors in this period of economic uncertainty. In a pandemic-shortened last 4 years and considering our remaining '22 investment goals, we have turned over 30% of the portfolio into markets like Boston, Miami, Tampa, Nashville, and Atlanta. These markets now account for about 40% of our ABR, which has nearly doubled since 2019. And for that same period, markets where we are over-indexed, like Detroit and Chicago, are expected to fall about 50% to a blended 14% of our ABR. Overall, our capital recycling efforts were aligned with our buybacks, accretive to earnings, leverage, and portfolio quality, which we believe translates into superior cash flow strength. Through this process, we have also been able to improve our tenancy, replacing weaker credit tenants with the likes of Whole Foods, Wegmans, multiple T.J. Maxx concepts, BJ's, Ulta, Walmart, Giant/Ahold, Nike, and much, much more. By improving the tenancy, we get the ancillary benefit of driving cap rate compression at our centers, particularly in cases where we're adding a grocer to a previously non-grocery-anchored center like at River City Marketplace in Jacksonville, Highland Lakes in Tampa, and Troy Marketplace in Detroit or significantly improving an existing grocery as we are doing at Crofton Center in Baltimore. We have much more to follow at other centers as well. Including our signed-not-commenced properties for which we have a grocery component will contribute over 71% of ABR, up from 65% at the end of 2019. These efforts have created a halo effect for our small shop leasing initiatives, which helped drive cross-shopping, sales performance, and rent growth. This quarter, we signed 26 new small shop leases with strong national tenants like Chase Bank, Fifth Third Bank, Massage Envy at an average ABR per square foot of $31.92, which is 27% above our in-place small shop average. Our small shop leased rate is now at 86.4%, up almost 3% since the end of the second quarter 2021, the strongest increase we have experienced since pre-COVID. I began my remarks by discussing the progress we've made in transforming our portfolio. The key drivers of this rapid transformation have been our 3 unique investment platforms. In 2021, we were the top buyer of open-air shopping centers and have followed up this year with another $375 million of acquisitions or $223 million at our share. During the second quarter, we closed on more acquisitions in the Boston MSA, including The Crossings and Brookline Village. Both are great additions to the portfolio and continue to build on our scale in Boston, which is now our second-largest market based on ABR. In July, we closed on the acquisition of another first ring center through our grocery-anchored joint venture platform. Mary Brickell Village is an iconic and generational asset, one of the top open-air centers in the country. This property is truly reflective of the new RPT brand, offering cash flow stability, visible near-term growth, attractive long-term growth potential, and finally, significant future value-creation potential through densification. Miami is a market that we have been actively combing for investment given the gravity of the market, which is becoming the Manhattan of the South, with firms like Citadel, Blackstone, Goldman Sachs, Point72, and Elliott Management all recently setting up shop in Miami and West Palm Beach. With Mary Brickell, our Miami exposure rises to over 7% of our ABR. Mary Brickell is all about the density, which is unmatched within our portfolio, as you can see from the statistics we provided in a separate press release that we posted last night. This is simply a great asset in a great location. In addition to the strength of the location, Mary Brickell is also home to an attractive tenant lineup, anchored by a top-performing Publix that is doing more than 2x the Florida average in sales per square foot. Overall, tenants do extremely well here, averaging $1,100 per square foot in sales with an active 24-hour cadence fueled by a complementary mix of food and beverage, service, and necessity tenants. National and regional tenants account for over 60% of the ABR of this center with almost 6 years of remaining term, providing cash flow stability. Placemaking will be a major component for success here, and we have been off to a quick start. While we see a strong and stable lineup today, we also expect above-trend NOI growth at the center, primarily driven by signed leases that have yet to commence. Average rent escalators of about 2.5% and below-market rents. Market rents in Brookline have grown by over 40% over the last decade. This is a $45 ABR per square foot center in a market where the last several tenants have signed leases over $100 per square foot. The demand is robust. Coupled with the fact that this behaves as more of an urban street front setting, tenant allowances will be much lower than your typical suburban shopping center. This is a supply-demand imbalance scenario at its finest. Longer term, we believe unlocking the air above certain components of the center is where the most value could be made at the site as one of the most sizable doughnut holes remaining in the area. Today, the center is 200,000 square feet but is zoned for development of up to 80 stories and about 4.1 million square feet of residential, office, or hotel. The strength of the market for each of these property types gives us significant optionality as we consider future plans. Be sure to check out Page 44 in our investor deck. The stats for both office and residential are staggering. From a land perspective, we acquired Mary Brickell for $42 million per acre, which compares favorably to a parking lot just a few blocks away that just sold for $145 million per acre. Although we did not acquire the property based on development value, we do see this as a material potential driver of future upside. We believe that good things happen to good real estate, and this is great real estate. As you can clearly see, we can play in multiple different sandboxes within the retail real estate ecosystem. Scaling in our target markets amongst the first ring urban types of real estate, grocery-anchored centers, and core power centers continues to be our vision and our strategy. Having detailed market knowledge and large GLA exposure in these markets allows us to optimize our on-the-ground operations teams, leverage our retail partners, and gain access to greater deal flow on the investment front. We will continue to be highly targeted and data-driven with our capital allocation decisions in order to maximize shareholder value. And with that, I'll turn the call over to Mike to discuss our financial performance, acquisition funding details, balance sheet management initiatives, and an updated outlook.

Mike Fitzmaurice, CFO

Thanks, Brian, and good morning, everyone. We are pleased to report another strong quarter, highlighted by 23% operating FFO per share growth, supported by our investment activity and solid fundamentals, including strong same-property NOI growth, healthy re-leasing spreads, and a higher leased rate. We're also very pleased with our proactive balance sheet management, allowing for optimal financial performance for several years to come. Starting with second quarter results. Operating FFO per diluted share of $0.27 was up $0.01 over last quarter, primarily driven by higher-than-expected same-property NOI growth of 4.4%, fueled by lower expenses and bad debt net of abatements. Our same-property NOI growth was more than impressive this quarter as the spread was up against a 13.5% level from second quarter 2021. Leasing volumes, signed-not-commenced balances, re-leasing spreads, and contractual rent increases continue to hold steady. Year-to-date, we have signed 1 million square feet, which is the strongest first half since 2016. We signed about 293,000 square feet during the quarter, resulting in a leased rate of 93.3%, up 10 basis points sequentially; and backstopped by a robust signed-not-commenced and leases in advanced negotiation backlog balance of $10.3 million or $0.11 of operating FFO per share, which is a long tail commence through 2025. We expect $0.01 to come online in the second half of 2022, $0.07 in 2023, $0.02 in 2024, and $0.01 in 2025. Given our long-term embedded mark-to-market opportunity, coupled with the age of our portfolio of over 30 years, we also continue to drive rent with our 42nd consecutive quarter of positive rent growth with our blended spreads coming in at 14% for the quarter. Annual contractual rent increases were also compelling for signed leases during the quarter, coming in at about 200 basis points. We ended the first quarter with net debt to annualized adjusted EBITDA of 7.1x. Including our leasing backlog of $10.3 million, our leverage would be about 0.5 turns better at 6.6x. Our leverage is elevated this quarter as a result of the timing of acquisitions and dispositions. In line with expectations, we will effectively fund acquisitions with dispositions, including contributions to our joint venture platforms. We also have about $17 million of forward equity that we judiciously raised in the first quarter that is yet to be settled as well. In regard to funding acquisitions, dispositions represent our most efficient source of capital, and our timely execution has allowed us to achieve optimal value for these assets. Since the end of the first quarter, we closed the sale of 2 assets, including Rivertowne Square in Deerfield Beach, Florida, and Tel-Twelve in Detroit. We are able to obtain attractive pricing on both assets where we felt we had harvested full value with a combined occupancy of 96%. In the case of Rivertowne, we were able to reduce our exposure to weaker credits with long-term leases, Winn-Dixie and Bealls, while in Tel-Twelve, we were able to realize $84 million of total value between the previous parcel sales of Lowe's and Myers to our net lease platform and the sale of the remaining property. The total value for the 2 sales was about $8 million higher than if we sold the asset together, highlighting the synergy between our investment platforms. We also recently went under contract to sell Mount Prospect plans in Chicago for $35 million that we expect to close in the third quarter, subject to customary closing conditions. Following the sale, we will have reduced our Chicago exposure to just one asset. Finally, we've agreed to terms to contribute 2 Midwest properties into our grocery-anchored joint venture platform: Troy Marketplace in Detroit and Shops on Lane in Columbus, Ohio. Both centers are highly quality assets, but considering our Midwest exposure and the meaningful dislocation between public and private valuations, we believe that contributing these properties is in the best interest of both our shareholders and our joint venture partner. Our measured capital allocation approach has allowed us to trade highly occupied Midwest cash flows for collectively stronger, higher growth cash flows in Boston and Miami. As we are IRR-driven buyers, this was done on an accretive basis. However, for the sake of clarity, our year 1 yield is expected to be about neutral due to 3 reasons. One, we took advantage of the significant dislocation between private and public valuation and optimized pricing for our asset sales, which traded nearly 300 basis points inside our implied cap rate based on where our stock is trading today. Two, a few of the asset sales were contributed to our JV platforms, which created additional management fees. And three, we were able to contribute select components of our open-air centers to our net lease platform, resulting in enhanced yields on the remaining portion of the center that we kept on the balance sheet. All 3 were direct benefits to lowering our cost of capital, enabling us to continue to transform our portfolio quality in an accretive, measured manner. Turning to our financing activities. One of our core principles is to be proactive with our liability management to support our growth initiatives as well as to protect the company through uncertain economic times. To that end, I'm thrilled to announce that we have received binding commitments for an $810 million amended and restated unsecured SOFR-based credit facility, an increase of about $150 million over our existing unsecured credit facility. The facility consists of a $500 million unsecured revolving line of credit and $310 million of term loans. As a result of this recast, we will enhance our liquidity, lower our debt cost, eliminate near-term debt maturities through 2024, and increase our weighted average debt maturity by approximately 1 year. I'm also happy to report that this new facility is the first time we have tied our ESG initiatives directly into our financing options. We expect to close in the facility early August subject to satisfaction of customary closing conditions. And lastly, moving on to guidance. Due to our above planned operational performance during the quarter, we are raising the low end of our same-property NOI growth guidance by 50 basis points to 3% to 4% while maintaining our operating FFO per share range consistent at $101 to $105. We do 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, but given tougher bad debt comps that include prior period reversals in 2021, we expect same-property NOI growth to decelerate for the remainder of the year. Also, as a reminder, we have not forecasted any favorable or unfavorable adjustment from prior year bad debt estimates in our 2022 guidance. Lastly, we are not increasing our acquisitions or dispositions guidance at this time. However, we will not sit idle, and we'll continue to strive to identify opportunities in which RPT is positioned to add value in an accretive, measured manner. And with that, I'll turn the call back to the operator to open the line for questions.

Operator, Operator

Our first question is from Derek Johnston from Deutsche Bank.

Derek Johnston, Analyst

So I see occupancy decreased for the third quarter in a row. Looking on lower anchor, I think you may have telegraphed this, Brian, in the past. But specifically, how are you balancing rent versus occupancy? And are you aggressively taking back space here? How are you thinking about that balance?

Mike Fitzmaurice, CFO

Derek, this is Mike. You're right, we indicated at the beginning of the year that we would actively take back several spaces throughout the year to improve tenancy and the merchandising mix at various centers, which we have been doing for several years. We did see an uptick in our leased rate, which rose to about 93.3% during the quarter. However, as you pointed out, our occupied rate decreased slightly. During the quarter, we reclaimed a couple of spaces: one from a long-term struggling tenant at one of our well-located assets in Florida, which we aim to upgrade with a better grocery store; and the other related to our redevelopment project at our Crossroads asset in Florida, where we demolished a Publix and are currently rebuilding it into a flagship Publix store expected to open in the second quarter of next year. Moving forward, occupancy is expected to remain stable for the rest of the year, with new signed leases partially offset by a space we are reclaiming at our Jacksonville asset. This is a Regal theater that we have already signed a lease for with BJ's Wholesale, which will open at the end of '24. We're very excited about this shift in cash flows from a credit standpoint. Lastly, I want to emphasize that we anticipate our leased rate will exceed 94% by the end of the year, which gives us confidence in our ability to push this portfolio to 95% or 96% over the long term.

Derek Johnston, Analyst

All right. Great. And then, guys, on acquisitions, this Mary Brickell property, it is a high-quality asset. It's in one of the best submarkets in Miami. Kind of have to think, what kind of cap rate was underwritten here? And I have to imagine this was a marketed deal. So did you guys have to go over the top here? Or another way, like what advantage did your team have to win this deal?

Brian Harper, CEO

Thank you, Derek. I won't discuss cap rates, as it's not appropriate considering the 78% occupancy with potential for growth. Rents are currently being set at $117 per square foot in a market with a $45 average base rent, indicating significant upside. The asset is underwritten to an 8% unlevered internal rate of return, not factoring in any densification that will take a few years. We have built-in escalators of 2.5% to 3%. We see substantial potential not only from the asset's curation but also from long-term rent growth. The densification is simply an added benefit. This was a highly competitive process, and as mentioned earlier, we formed our joint venture with GIC in 2019. Our partnership wasn't only about capital; it was about collaborating with intellectual resources and savvy investors with a global presence. They have access to vast deal flows in equity and debt markets, and we have established relationships. Partnering with one of the top sovereigns in the world gives us a strong advantage. Their global reach and reputation, along with ours, played a crucial role in securing this generational asset.

Mike Fitzmaurice, CFO

Yes. And just to offer some clarity on the mark-to-market opportunity. The market is currently, like Brian said, well over $100. This asset today is at $45 in ABR. So we have extremely high mark-to-market opportunities, which runs parallel with our portfolio that continues to drive rent as well. I mean, over the last 16 quarters, we've been here. We've been producing 30% re-leasing spreads.

Brian Harper, CEO

Yes. I have been very pleased with the execution of our asset sales. When you can sell assets and acquire a generational type of asset on a neutral basis, it demonstrates why we established these joint ventures to enhance our portfolio and generate higher, more resilient cash flows in the rapidly growing markets in the country.

Operator, Operator

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

Todd Thomas, Analyst

Just following up there on Mary Brickell Village. Mike, so you mentioned the year 1 yields roughly neutral with that acquisition and the dispositions to fund that investment. But there's a lot of executed leases in the pipeline there that should come online over the next, I guess, 12 to 18 months and maybe some additional leasing, perhaps. That might be likely. What does the spread look like? Or how much accretion would you anticipate sort of heading into sort of the second year of ownership there? Like, what's the yield ramp look like? If you could provide some color there.

Mike Fitzmaurice, CFO

Yes. No, I think there are absolutely some yield ramp from where we're at today relative to where we bought it at. Like Brian said in his prepared remarks, we got about 14% or so of signed-not-commenced that's yet to commence over the next year. So you're probably looking at about, I would say, 75 basis points to 100 basis points of spread above where we bought it at today.

Todd Thomas, Analyst

Okay. And then as you think out a little bit longer term, I realize you didn't underwrite the potential build-out necessarily for anything vertical and that it's probably not something near term on the radar necessarily. But just curious how you would think about that longer term, whether you'd look to execute that within the current structure, the R2G venture or, if you would like, potentially monetize that or offload some development risk and some of the risk of having something like that on balance sheet.

Brian Harper, CEO

Yes. It's a massive upside in the future. I can assure you that we're not taking it on ourselves. Nothing was underwritten as far as the densification. And really, this is about 6 to 7 years out. We have a great relationship with one of the top residential developers in Miami and really the world who would help us monetize the air, but that's a long way down the road.

Todd Thomas, Analyst

Okay. In general, regarding your net investment guidance, you are within the range of what is included in your guidance for acquisitions and dispositions. I understand that there aren't any significant changes in your guidance. However, it appears that other entities might be retreating slightly or mentioning a slowdown in investments, possibly due to rising costs of capital or sellers keeping properties off the market. How do you feel about continuing to invest at this time? It seems like your partners are still interested. What does this mean for RPT?

Brian Harper, CEO

We're approaching the markets with caution. Aside from high-value assets like Brickell, where cap rates remain stable, there's still uncertainty regarding cap rates between buyers and sellers in the market. Until that situation stabilizes, we will stay patient. We may explore additional contributions, perhaps by adding an asset to our platform or making an acquisition that is beneficial for our balance sheet. This flexibility is a unique strength for RPT. When the cost of capital is not favorable, we can use this opportunity. However, at the same time, I want to emphasize that we are aiming for the highest internal rate of return possible, and I'm not yet confident about where yields will settle outside of these high-value assets.

Todd Thomas, Analyst

Okay. And just one last question. Mike, I think you mentioned this in your prepared remarks and perhaps afterwards as well. Regarding the space recaptures you discussed, I believe it was around 200,000 square feet that you identified and targeted at the beginning of the year. Most of that was expected to come offline in the second and third quarters of this year. How much of that occurred before the end of the second quarter? How much more is still to come? I’m trying to gain a better understanding of the potential impact on occupancy rates moving forward.

Mike Fitzmaurice, CFO

Yes. Today, we've recaptured about 150,000 square feet over the first few quarters. For Q3, we expect to take back approximately 90,000 square feet across three spaces, all of which have been re-leased. One space is leased to Total Wine and will open in the third quarter of '23, another is the BJ's lease set to open in the first half of 2024, and we're also reclaiming a space in one of our Boston assets to lease to two TJX concepts. This is a significant improvement in occupancy, although it may cause our occupancy rate to remain steady due to some impacts from SNO command line towards the end of the year. We anticipate finishing the year around the current occupancy level, but I would emphasize the lease rate, which we believe will be above 94%. This will remain stable for the rest of the year and contribute to further occupancy gains in '23 and '24.

Operator, Operator

Our next question comes from Haendel St. Juste from Mizuho.

Ravi Vaidya, Analyst

This is Ravi Vaidya on the line for Haendel St. Juste. With leverage north of 7x, should we expect you to be net sellers in the second half? What is your balance sheet philosophy here? Are you comfortable leveraging that high as you had in the recession? And what's your target leverage? And what's your time horizon to reach that?

Mike Fitzmaurice, CFO

Congratulations on the new role. We did end the quarter at 7.1x. That was a bit elevated given the timing of acquisitions and dispositions. So to your point, we will be net sellers in the second half of the year. We should end the year in the high 6s. And then as signed-not-commenced does come online over '23 and '24, we'll naturally get to the low 6s. And that's where I'm comfortable given the strength of the cash flows, especially as it relates to the improvement we made in our geographic exposure and our focused leasing efforts on essential tenancy like bringing in grocers into non-grocer centers. It's also worth mentioning that leverage is just 1 element of the balance sheet. The other element or second prong as I would call it is liability management. We've been very proactive on that front for the last several years. And once we're done with our recast here in the next couple of weeks of our credit facility, we're going to have 0 debt maturing through 2024. And then the last prong is floating rate risk. 100% of our term loan debt is currently hedged today. So we have minimal interest expense vulnerability there. And the vast, vast majority of our debt is on a fixed rate basis. So when you kind of add it all up, I feel really, really good about the balance sheet strength and where it's going.

Ravi Vaidya, Analyst

That's helpful. Just one more here. You've done a great job getting the SNO ABR online ahead of time and even faster than anticipated. But looking forward, do you think there's going to be any signs of store opening delays or anything like that given labor shortages or any supply chain problems?

Brian Harper, CEO

We are highly focused on this and have integrated it into our leases. We adopt a conservative approach with longer lead times, which is reflected in our guidance. We are optimistic about potential upside as our operations team, including leasing, tenant coordination, and asset management, is effectively collaborating with tenants and local authorities, which may allow for earlier openings. We have taken a cautious stance considering supply chain issues, and we are hopeful to exceed our targets for leases and successfully get these tenants operational.

Operator, Operator

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

Omotayo Okusanya, Analyst

Hopefully, I didn't miss these details, but did Ken Bernstein provide you with insights on the benefits of street retail?

Brian Harper, CEO

No, they do a very nice job. Retailers communicate with us, and you know how deep our relationships are with them. Retailers guide us towards these acquisitions. We are smart, but we don’t have insight into retailers’ thoughts. We leverage our relationships to identify opportunities like this. We’re excited about another first ring deal following Brookline in Boston and anticipate more in the future.

Floris Van Dijkum, Analyst

Yes. I want to address that. Recently, I visited Brickell, and it's an appealing center. While there are many vacancies, it's encouraging to see them being filled. Regarding the air rights, do they extend over the east side of South Miami Ave, or do they cover the area where the existing center is located, which includes the Publix on the west side?

Brian Harper, CEO

The 4.1 million square feet of allowable square footage is on both the east and west side on the parcels, including the entire 5 acres, which are both sides of the street.

Floris Van Dijkum, Analyst

So it's both. I'm just considering this, and I understand you mentioned this is a six-year timeline. But would it mean that you need to remove existing structures? Or is the current framework adequate for expanding? It appears that most of your available space is already occupied. So, does this necessitate the demolition of existing buildings?

Brian Harper, CEO

It's a bit of a combination, to be honest. Some buildings may need to be taken down. However, that's still several years away, as we plan to collaborate with a leading residential developer on initial concept plans. This will be about 6 or 7 years in the future, which would undoubtedly lead to significant value creation given the improving demand in the residential market, as well as for office spaces. For instance, a 200,000 square foot office tenant has recently signed a lease for a new construction building across the street at $160 per square foot. We are quite optimistic. Currently, our main focus is on leasing, leasing, and more leasing, while also working on re-merchandising and curating this asset.

Floris Van Dijkum, Analyst

Could you also discuss the cap rates for the Columbus and Detroit assets that contributed to your joint ventures?

Mike Fitzmaurice, CFO

At this point, I'm not going to comment on cap rates for various reasons. However, I can share that if you look at our acquisitions this year in Boston, the Portsmouth asset, and Mary Brickell recently, along with dispositions in Chicago, Detroit, and contributions from Detroit and Ohio, as well as a small asset sold in Florida, it was all funded on a neutral basis. From an internal rate of return perspective, we believe we are acquiring growth-oriented assets that will support the company's significant growth in the coming years.

Floris Van Dijkum, Analyst

And then maybe the last one, you touched upon it briefly. Brookline, small acquisition of street retail, $5 million. I mean, can we expect more of these things? Or I mean, what's the benefit of having just one small retail asset?

Brian Harper, CEO

The value is consolidating and creating a portfolio in that submarket or submarkets around that. So again, it's the highest and best use on our capital, highest unlevered returns. That particular asset had, think the top Starbucks in the region, with a lot of tenant demand. It's a lot of mom-and-pop owners where low ABR existing, so huge mark-to-market in place. So it's a business we like. But at the same time, we're evaluating that compared to other investment opportunities across our core markets. Yes. That's correct. If the unlevered returns are there, absolutely.

Operator, Operator

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

Hongliang Zhang, Analyst

I think you laid out a long-term occupancy target of 94%, 95%, but it sounds like occupancy will be relatively stable for the remainder of the year. Could you talk a little bit about the trajectory of occupancy growth and when you think you'll hit that target?

Mike Fitzmaurice, CFO

Yes. Yes. Yes, like, as we telegraphed over the last several quarters, we did plan on taking back several spaces this year in connection with our remerchandising initiatives, where we're upgrading tenancy at double-digit yields. And our team is doing a fantastic job in that, improving the tenancy at each of those centers and really focused on more of the grocery business and essential tenancies. So very pleased with that effort. And then you'll see that in the lease rate by the end of the year, we'll be north of 94%, which gives you the directional pathway to the 95%, 96% that we hope to get over the long term. And in terms of a target date, I would say, late '24 into '25 is when we start seeing the mid-90s number. And that's going to be largely driven by our small shop lease up. Today, we're at 86% leased, which is just a couple of percent shy of where we were at, at the end of 2019, and we have a much better portfolio than we did then. As Brian remarked in his prepared remarks that we've turned over about 30% of the portfolio, and we believe that number will get to 91%, 92% over time, probably in the same time frame as that '24/'25 time frame.

Hongliang Zhang, Analyst

Got it. And out of curiosity, so you're contributing two grocery-anchored assets to the joint venture later this year. Are there any other properties that fit the criteria that could be potentially contributed at a later point in time as well?

Brian Harper, CEO

Sure. I believe the proceeds will primarily enhance our balance sheet, allowing for growth in a beneficial way. This is a distinct opportunity and partnership; when capital costs are low, we can leverage our venture platforms to achieve the desired yield for the company.

Operator, Operator

Our next question comes from the line of Linda Tsai from Jefferies.

Linda Tsai, Analyst

It seems like you had a solid quarter with execution on all fronts in the second quarter, and you increased same-store NOI guidance. Why didn't you raise earnings guidance, too? Does it have to do with the occupancy coming offline or the impact of Mary Brickell?

Mike Fitzmaurice, CFO

No. No, not at all. Not at all. I mean, both those set the transactions. The planned recaptures and Mary Brickell are all embedded within our guidance over the year. As far as the remaining part of the year, not lifting guidance at this point in time, I just think we're cautious in sort of an uncertain environment. So we're going to sit where we're at right now. We feel pretty good about it.

Linda Tsai, Analyst

Got it. And then I realize that Mary Brickell is a trophy asset. But if you look at the original assets you JV-ed with GIC, three of which were in Florida, one in Missouri, one in Michigan. At the time, those are considered kind of average in quality relative to your overall portfolio. But given the changes you've made over the past few years, how do you think about the quality of those assets today?

Brian Harper, CEO

We've made significant improvements to the original assets. In Boca Raton, Mission Bay, we've accomplished a lot in leasing and are close to finalizing a well-known medical use. In Palm Beach, at Crossroads, we're remerchandising with Publix, which is being redeveloped into a flagship location that will open next year. Coral Creek is nearly 98% leased, and Publix is experiencing fantastic sales. Our small shop leasing efforts have been successful. At Town & Country, we replaced a Steinmart box with signed leases from REI, which just opened, as well as Sephora and Chase, all at very high rent spreads. We've also secured a deal with Athleta next to HomeGoods, making the property more appealing to affluent consumers in St. Louis. Old Orchard, with Plum Market, has shown a strong compound annual growth rate alongside solid sales from the grocer. We’ve been renewing tenants without options and replacing them at much higher rents. Overall, we are very satisfied with the results from the initial asset investment, as we've enhanced cash flows and tenant quality across the board.

Operator, Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. And now I would like to turn the call back to Mr. Brian L. Harper, CEO and President, for closing remarks.

Brian Harper, CEO

Thank you, operator. So the second quarter was another active one for RPT. And although we remain cautious about the macro environment given the rapid rise in rates and inflation, we are optimistic about our business. Our strong performance is reflective of the dramatic improvements in the quality of our cash flows as a result of the portfolio reshaping that has taken place over the past few years, while our joint venture platforms are providing us with observable competitive advantages. Combined with our proactive liability management, we believe that RPT is very well positioned to perform in any environment and are excited about the future. Thank you all for joining this call. Have a wonderful day.

Operator, Operator

Thank you. The conference of RPT Realty has now concluded. Thank you for your participation. You may now disconnect your lines.