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RPT Realty (NYSE:RPT)
Q1 2021 Earnings Call
May 6, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to RPT Realty First Quarter 2021 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to your host, Mr. Vin Chao, Senior Vice President of Finance. Thank you, sir. You may begin.

Vincent Chao -- Senior Vice President of Finance

Good morning, and thank you for joining us for RPT's First Quarter 2021 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, 2020, and in our earnings release for the first quarter of 2021. Certain of these statements made on today's call also involve non-GAAP financial measures. Listeners are directed to our first quarter press release, our first quarter supplement and our fourth quarter 2020 press release, 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 like to now turn the call over to President and Chief Executive Officer, Brian Harper; and Chief Financial Officer, Mike Fitzmaurice, for their opening remarks, after which, we will open the call for questions.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Good morning, and thank you for joining our first quarter 2021 conference call. I hope you and your families are all well. We are happy to have kicked off the new year in strong fashion. Our rent collections continue to tick higher. We continue to benefit from the multiyear mark-to-market opportunity and strong demand at our centers. We recently closed on our new net lease platform and are now under contract on our first property in the Boston market that we expect to allocate between RPT's balance sheet and the new platform. We believe we now have the capital and the platforms to generate strong external growth as well as the portfolio quality and leasing demand to drive above-trend internal growth as we move past the pandemic.

While the pandemic has created many hardships, it has also created opportunities that we have been able to capitalize on. For instance, COVID-19 has had a negative impact on many tenant categories. But unlike during the global financial crisis, it has also had a positive impact on many other tenant categories, like grocery, home improvement, electronics, wholesale clubs, general merchandise and medical use. It has also boosted some businesses that were struggling pre pandemic, like pets, office supply and hobby. Ironically, many of the big-box tenants that were not in favor pre pandemic have thrived sense, enough so that we think credit center is a more apt description for the power center category. One of the biggest opportunities that we saw after the onset of COVID was an acceleration of the widening valuation gap between different segments of retail real estate. It soon became clear that there were numerous value creation opportunities to unlock if we could figure out a way to monetize the various dislocations between single- versus multi-tenant properties, larger versus smaller footprints and between essential and high credit but nonessential tenant categories.

Our solution was our new net lease retail real estate platform with our partners, GIC, Zimmer and Monarch, that we are calling RGMZ until we rebrand later this year. Given the relationship with RPT and our existing operating and development capabilities, the new platform gives access to proprietary deal flow from multi-tenant assets, larger-scale sale-leaseback transactions with national tenants, blended extends of shorter-term leases on strong real estate, remerchandising of expiring leases and build-to-suit opportunities. The net lease platform and our R2G joint venture should allow us to grow AUM and expand in target markets faster than we could do on our own. Our joint ventures also add a new, sustainable and diversified cash flow stream to RPT and we believe will improve our FFO growth profile by enhancing our returns and increasing the economic spread on our deployed capital as we take advantage of the valuation dislocations I mentioned earlier. As we've previously noted, the $151 million initial seed sale to RGMZ will close in tranches over the course of 2021. The first tranche of 13 parcels closed on March five for just over $36 million. I won't go into all the transactional details, but overall, we couldn't be more excited about the net lease platform. More information is available in our press release announcing the deal and in a separate RGMZ investor presentation, which both are available on our website.

Our Northborough Crossing deal in the Boston MSA as currently under contract for $104 million is a perfect example of what we are trying to achieve with the net lease platform. Here, we are buying a premier shopping center that, upon close, will be accretive to RPT's earnings from day one. But by selling parcels to RGMZ, we have the opportunity to materially lower our basis and enhance our yield. Our expectations are that we could sell up to $75 million of the center to RGMZ, resulting in a significantly reduced basis for RPT. Consistent with our thesis regarding the value dislocation between multi-tenant and net lease properties, our effective acquisition yield on the retained multi-tenant asset could improve by up to 300 basis points after the acquisition and parcelization processes close. There is real synergy between RPT and the new platform that benefits both sides in a way that is difficult to replicate.

For RGMZ, they get access to high-quality tenants and a location with household incomes of about $148,000 that no other triple-net investor has access to. For RPT, we gain entry into the attractive Boston MSA on a deal that we would likely have passed on without the potential parcel sales to RGMZ. Equally important is that, as a net lease platforms manager, RPT maintains equal control of the net lease components of the center. This type of control is not available to multi-tenant owners that sell pads to unaffiliated entities. The synergies of the two platforms give us a unique opportunity that we believe will result in outsized future earnings growth. We look forward to providing more details on the Northborough and subsequent parcel sales over the next several weeks.

Turning to our acquisition pipeline. Since we announced our net lease platform, we have engaged with many of you, and a consistent question that comes up is how quickly we can deploy the capital raised at both our RGMZ and R2G joint ventures. Keep in mind that while we only recently announced RGMZ, we had been working on the deal for almost a year, and we're actively cultivating an investment pipeline throughout the pandemic. Our ability to go to contract on Northborough so quickly after closing the new JV is a testament to the strong groundwork that was laid over the past year.

Additionally, we are in active contract negotiations on several other deals and have embedded a total of $100 million of net acquisitions at our pro rata share and after parcel sales to RGMZ into our guidance. We remain optimistic that we will be able to deploy the vast majority of our current cash and future proceeds from the rest of the net lease platform seed sale by year-end, reflecting about $150 million of upside to what is currently reflected in our guidance range. We are currently tracking a diverse pipeline of over $2 billion in markets like Boston, Atlanta, Tampa, Nashville, Miami, Jacksonville and Orlando. Pipeline consisting of RPT, R2G and RGMZ deals runs the gamut from single-property, locally owned deals to institutionally owned portfolios. The tie that binds each of these deals is the durability of underlying property cash flows and our ability to grow future NOI by buying under-market rents or properties with redevelopment opportunities. Tyler Sorenson, who's heading up acquisitions for the net lease platform, brings a wealth of experience to RPT that we believe will further accelerate our net lease acquisition program and our pipeline.

Last quarter, we outlined 11 remerchandising opportunities consisting of redemising, expansions or combinations. With the exact lifts will fluctuate as deals move into and out of the pipeline, these larger leasing deals continue to reflect the best risk-adjusted use of our capital, and we will allocate accordingly. We have made very good progress since last quarter with the grocery deal at Troy Marketplace moving from the shadow pipeline to the active pipeline. three other projects were also added this quarter, bringing the total in-progress pipeline to over $13 million with expected returns in the high single digits. It's no secret that COVID-19 put pressure on certain experiential tenants. But as I noted earlier, this pressure has created opportunities as was the case at our Troy Marketplace property outside of Detroit. Troy Marketplace is a dominant power center that has maintained a high level of occupancy throughout the pandemic, was 97% leased at quarter end. Because of COVID's impact on a recreation tenant, we were able to get the space back without a buyout and replace them with a new, premier, first-to-state investment-grade grocer. We were able to generate an 88% rent spread on the new lease.

Although the incremental return on capital is tighter than our typical underwriting, we believe that attracting a premier grocer at this already strong center will create significant value via cap rate compression of almost 200 basis points and position the asset for success for years to come. As I've previously said, we see a lot of value creation from the addition of a grocer component to these credit centers and are looking forward to executing more of these. We also continue to see strong leasing demand from our former Stein Mart space in St. Louis and are now in lease negotiation with a leading retailer. At Winchester in Detroit, we are finalizing a lease with a quality national off-price tenant to take our only other Stein Mart box. Florida has continued to be a robust leasing market for RPT. We are seeing great activity across the board at our centers within the state and are close to deals that will significantly upgrade the tenant credit at West Broward and Shoppes of Lakeland. There is also strong demand at the Marketplace of Delray, which is creating friction at this property that could result in a significant improvement in the tenant mix.

Before I turn the call over to Mike, I wanted to touch on our development program. As we continue to move past the heart of the pandemic, we are again revisiting our development program we had put on hold pre COVID-19. Although we are still not ready to put shovels in the ground just yet, we have reengaged with potential partners on a few of our properties that we previously flagged for potential residential use in Florida. We are seeing extremely strong demand for residential at both River City and Parkway Shops in Jacksonville. As we've stated in the past, although the highest and best use of certain parts of our centers may not be retail, we will remain focused on our core retail competencies and will look to monetize non-retail components through ground leases, land sales or potentially even land contributions into partnerships with leading residential players to retain some future upside.

And with that, I will turn the call over to Mike.

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Thanks, Brian, and good morning, everyone. Today, I will discuss our first quarter results, our strong balance sheet and liquidity position and end with a commentary on our updated guidance. First quarter operating FFO per share of $0.19 was up $0.01 versus last quarter, driven by our improving rent collections as we experienced a decline in rent not probable collection and abatement, which totaled $3.2 million in the quarter, down from $4.4 million last quarter.

Further, as disclosed on page 33 of our supplemental, our first quarter rental income, excluding prior year amounts, has ticked up since last quarter and is now only down 5% from first quarter of 2020 despite the continued nonpayment of our theater tenants who have remained closed since the onset of the pandemic. Our four Regals are slated to open in late May and account for about 75% of our total theater exposure. Given Regal's reopening plans and recent liquidity infusions, we expect in our forecasting resumption of rent payments in the next few weeks. We continue to take a conservative stance with uncollected rents and have reserved nearly 80% of our uncollected first quarter recurring billings. Additionally, we effectively have no exposure to tenants in bankruptcy left in the portfolio. As of quarter end, $18 million of our recurring billings for the trailing 12 months remain outstanding, of which $12 million has been reserved with the majority of the $6 million balance expected to be repaid over the course of '21 and 2022.

Operationally, we continue to execute and put runs on the board. We started 2021 on a high note, signing 62 deals in the quarter covering 556,000 square feet. This was the highest number of deals signed in the quarter in almost two years. Blended rent spreads were up 9% as we achieved a 51% comparable new lease spread, our best quarterly spread in almost three years, driven by our Troy Marketplace grocery deal that Brian previously noted. While the TI related to this deal was outsized, it was more than offset by the value of nearly $20 million that was created by cap rate compression. Excluding this deal, our new lease spread would have been up 26%, highlighting a solid, broad-based demand and mark-to-market opportunities in our portfolio. Our renewal spreads also continued to improve, up 3.9%, making the third consecutive quarter of improving renewal spreads.

Given our strong leasing activity, we ended the first quarter with a signed not open backlog of $3.3 million, the majority of which will come online over the next 12 months. We also have a full pipeline of deals with over $2 million of leases in advanced legal negotiations. Additionally, as Brian touched on, we have identified several remerchandising deals that will generate well into double-digit return on cost in addition to cap rate compression across certain properties. In the spirit of transparency, we have outlined these active and pipeline remerchandising opportunities on page 19 and 20 of our supplemental. Occupancy for the quarter was 90.6%, down 90 basis points sequentially due primarily to the proactive and planned recapture of our space at our Troy Marketplace and West Broward properties that will facilitate new grocer deals. Given the lack of bankruptcy exposure in our portfolio, our signed not open backlog, our robust leasing pipeline and our remerchandising opportunities, we believe occupancy has troughed and expect it to track upward over the next several quarters as we march toward restabilization of our portfolio.

The closing of the first tranche of the initial seed sale to our net lease platform benefited both our leverage and liquidity levels in the quarter. We ended the first quarter with net debt to annualized adjusted EBITDA of 7.2 times, down from 7.6 times last quarter. Looking forward, we continue to target leverage in the 5.5 to 6.5 times range, which will be driven by the normalization of EBITDA as the impacts of COVID-19 reverse course in '21 and 2022, the stabilization of our portfolio and as future tranches of the RGMZ seed close in 2021. However, it is important to keep in mind that the timing of acquisitions and subsequent net lease parcel sales may have a temporary impact on reported quarterly leverage levels. From a liquidity perspective, we ended the first quarter with a cash balance of $143 million and a fully unused $350 million unsecured line of credit. Including the expected proceeds from the remaining RGMZ seed sales, our pro forma cash balance would be about $250 million. In short, we have a war chest of cash and a deep acquisition pipeline that we expect will generate strong external growth for RPT shareholders.

Regarding our pending debt maturities through 2022, we have just one $37 million private placement note that matures in June and a $52 million mortgage that is prepayable starting in November and carries an above-market 5.7% interest rate. Based on the positive feedback from our unsecured debt partners, we expect to refinance both these notes later this year. However, given our strong liquidity position and as an interim step, we may repay our $37 million private placement note due in June ahead of our expected refinancing. As with any debt issuance, we look to maintain a flat maturity ladder with a goal of having no more than 15% of our debt stack maturing in any given year.

The last topic I want to touch on is our updated 2021 OFFO per share guidance of $0.81 to $0.89, which is up $0.03 at the midpoint of our prior guidance range of $0.77 to $0.87. Our updated range includes the impact from the sale of the remaining tranches of initial RGMZ seed. Also assumed in our forecast are $100 million of net acquisitions at our pro rata share. Included in this assumption is the gross purchase price of Northborough that is expected to close in the second quarter. However, it's important to again note that we expect to sell certain net lease parcels at Northborough to RGMZ in the fourth quarter that will lower our basis, as Brian mentioned. The net impact of the initial seed sales and net acquisition activity of $100 million is expected to add $0.02 of upside relative to the midpoint of prior guidance. The other $0.01 of upside stems from outperformance in the first quarter that we are now projecting in future periods.

Like last quarter, the range around the midpoint of our updated guidance is largely driven by our performance on the bad debt front, particularly from our theaters. Also, it should be noted that our guidance does not include any assumptions of recovery for prior period bad debt or straight-line rent reserves. And lastly, although we have $100 million of net acquisitions formally built into guidance, we believe we can deploy as much as $250 million into opportunistic acquisitions within our target markets that meet our disciplined underwriting standards, representing upside to our guidance range.

And with that, I'll turn the call back to the operator to open the line for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Derek Johnston with Deutsche Bank. Please proceed with the question.

Derek Johnston -- Deutsche Bank -- Analyst

Hi, everybody. Good morning. Thanks for the details on the RGMZ in the opening. But Brian, what's the criteria? And how do you decide which basket or a platform to utilize for acquisitions, either on-balance sheet or within a JV, as you now have three strong partners? How do the mandates vary? And how do you envision the mix unfolding?

Brian L. Harper -- President, Chief Executive Officer and Trustee

Great. Hi, Derek. Good morning and thank you for that question. So really since December of '19, in equity basis alone, we've raised $800 million of committed capital for our investments. This was done to transform the footprint and portfolio of the company. And really for the following three points: one, diversify cash flow, investment grade and growth; two, increase AUM accretively; three, deploy growth capital into higher-growth assets. We did bring in, in early 2020, a data scientist that has set up a proprietary asset management scoring card model that will help us be disciplined in our acquisitions. So really, the way I would think about this is we have balance sheet, R2G, which is a GIC JV, and the new net lease platform, all with very disciplined focus. And the way I would think about the cadence would be a 2:1 ratio between balance sheet and our JVs. And really, if you look at Northborough as a balance sheet in RGMZ deal as an example, we are roughly buying Northborough at a 7% cap, day one accretive. We spin $75 million to RGMZ and RPT is left with a 10% yield once the new two TJX concepts open. The center sits in a very high barrier-to-entry market with $148,000 household income. It was the first Wegmans in the state and now number one Wegmans in the Boston MSA. BJ's and all the tenants do extremely well as well. Post spin, we are left with 50% IG, four TJ concepts at a 10% yield. That is extremely compelling for our balance sheet and extremely compelling to our investors.

R2G is focused on core grocery. As mentioned previously, the fees associated with this JV are roughly 50 bps, which obviously helps with the pricing. These are core grocery centers in our strategic markets with a top sovereign wealth as our partner. And then RGMZ, as I mentioned in our prepared remarks, in addition to being a complementary partner with the balance sheet, we are focused on build-to-suits, sale-leasebacks, blend and extends and one-off buys. You blend all these platforms together, Derek, and it forms a consortium that can syndicate in a very, very unique way for a REIT. There will be one-off buys, and I wouldn't be surprised if you see several portfolio deals that could be syndicated to all three platforms. So we are focused on the three but really see this as a 2:1 ratio for balance sheet versus our JVs.

Derek Johnston -- Deutsche Bank -- Analyst

Great. Great color. Thank you. Just two quick ones. The 140 basis point drop in small shop occupancy was a pretty noticeable acceleration from previous quarters. I guess, simply, what drove this decrease?

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Yes. Derek, this is Mike. What drove that decrease is the seasonal move-out, this is mainly in tenants. And then number two, as we noted in the release, we did sell the first tranche with an initial fee of about $40 million of the triple-net assets that we contributed to our net lease platform. That also contributed about 10 to 20 basis points of deceleration in the occupancy rate for small shops. But we do see that drop in this quarter, Derek, for small shop and total occupancy and see it mildly ticking up over the year as we continue to restabilize the portfolio.

Derek Johnston -- Deutsche Bank -- Analyst

Okay, makes sense. And then just TIs came in pretty high at $124 per square foot. I mean, we're assuming it's a big-box transition to a grocer. But can you just let us know what the actual drivers behind this were?

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Yes, absolutely. I think you just alluded to it, you're spot on. It has to do with the grocer deal that we did in the Detroit market, the first in the market, high-quality credit grocer that we can't name right now. But hopefully, at some point, we can name in the future. It was tied up to that deal. And whenever you're doing a lease transaction, where you're taking a non-grocer space or to grocer space or where you're redemising the spaces, where you're combining spaces, you're going to have higher TI costs. But the great thing with this deal is: one, the rent spread was about 90% or so; and then two, we increased the value of the property by about 200 basis points in terms of cap rate compression, which created about $20 million of value for that center. So great value creation for the company.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Derek, we're excited to get the name out when we're allowed to. And really, this was, as I said in the prepared remarks, I mean, this is one of the positives of COVID of where -- since I've been here, I've been trying to get at this space, which was $8.30 gross, two combined spaces, creating roughly a 40,000-square foot flagship investment-grade, first-to-state grocer, which we are extremely excited about.

Derek Johnston -- Deutsche Bank -- Analyst

Excellent. Thank you, everyone.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Thanks, Derek.

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Thanks, Derek.

Operator

Our next question comes from Todd Thomas with KeyBanc Capital.

Todd Thomas -- KeyBanc Capital -- Analyst

Hi. Thanks. Good morning. First question, Mike, just a clarification around the guidance. The $0.01 of outperformance for the quarter, I think that you outlined in the guidance provision, I think you may have said that, that's not recurring. What was that attributable to specifically? And can you just clarify that perhaps?

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Yes. It's primarily due to prior year adjustments related to recovery billings associated with our CAM tax billings.

Todd Thomas -- KeyBanc Capital -- Analyst

Okay. And then was there anything, I guess, sort of operationally that offset, I guess, the improved outlook to some extent? I mean, it sounds like the outlook has improved with leasing and demand and sort of the commentary around Regal expected to begin paying rent, which I think is a little bit earlier than you previously anticipated. I'm just curious if there's anything around either the recaptures or otherwise that was not previously anticipated.

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

I mean, look, the outlook is slightly better for bad debt. We did better than expected during the quarter relative to our own expectations plus signed not commenced continues to pick up a bit. We're going to have, probably relative to the first quarter, Todd, you'll have about $0.02 of upside in base rent from signed not commenced. And then based on our expectations today, again relative to the first quarter run rate, you'll have about $0.03 of upside in bad debt and a more favorable bad debt and less abatement. That's really tied to the theaters. Our four Regal theaters, as I mentioned in my prepared remarks, are going to be opening up in a few weeks. And it's our expectation, based on our discussions with them, the deal that we struck, that they're going to be paying contract rent in the second half of the year.

Todd Thomas -- KeyBanc Capital -- Analyst

Okay. That's helpful. And then Brian, in terms of the competition for some of these larger assets, perhaps, I guess, Northborough deal, for example, there's been a lack of transaction activity in some of these centers over the last couple of years really. Are you seeing any change in demand for these assets? Or do you feel that you have -- properties and sort of execute without so much outside competition? How much competition...

Brian L. Harper -- President, Chief Executive Officer and Trustee

Yes. Todd, let me do that. Competition, no doubt, has picked up. The debt markets have opened and competition is there. I think our advantage was we've been cultivating this pipeline since May of '20, when we knew and had an idea that this RGMZ platform was going to go into fruition. So this was a deal that was marketed pre COVID and was purchased on an off-market deal. There's a lot of others in the pipeline that are true off-markets. Some are with institutions, in larger portfolio deals, where we could potentially syndicate between balance sheet, GIC platform and RGMZ. And we're a credible buyer because of that. And I think that when we show up for an acquisition, we now have an arrow that no one else has. And that can help with pricing as well. So the way I look at Northborough, where extremely high barrier-to-entry with top-performing tenants in the MSA, we have more of those in the pipeline. And the pipeline is becoming clearer every day. And as we said, we fully expect to be -- to surpass our guidance on the acquisitions.

Todd Thomas -- KeyBanc Capital -- Analyst

Okay. Where do you think -- I think you mentioned a 7% cap rate on Northborough. Has that changed at all compared to where it would have been pre pandemic, I guess? How do you think pricing compared to...

Brian L. Harper -- President, Chief Executive Officer and Trustee

I think it's hung around the rim. Obviously, the movement in essential triple-nets is horrific and that's a very, very competitive world right now. And when you look at the attractive debt you can get on a lot of those assets, that's opened up a lot of, I mean, an unlimited supply of liquidity in that space. So I think the center kind of hung in but definitely saw some cap rate compression in the kind of essential guys. And I think our platform and the investors are getting it at a very, very attractive yield as well.

Todd Thomas -- KeyBanc Capital -- Analyst

Okay. Thank you.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Thank you.

Operator

Our next question comes from Craig Schmidt with Bank of America. Please proceed.

Craig Schmidt -- Bank of America -- Analyst

Great. Thank you. I'm just wondering, do you think there's a good chance or probability that someone else will replicate your net lease platform? Or do you have some advantages that you don't think that they can replicate?

Brian L. Harper -- President, Chief Executive Officer and Trustee

Yes. I think -- I mean, Craig, the interesting thing is this has been going on for 40 years, right, and -- in the private markets. I mean, when you look at developers selling off to -- their land off to Walmart or Target or the pads and building the small shop for the boxes, this has been going on in the private world for a while. What this does in the public space is gives investors that access and that availability to achieve very, very attractive yields. I think this certainly could be replicated, I think it would be difficult. I think the combination of GIC, Monarch and Zimmer together is difficult to replicate. This is a year in the making. And this was something that took a long time. And our pipeline is large, and we've got off to a very, very quick start, which we knew and paid a lot of attention to as we were cultivating the deal in the first place.

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Yes. And then the second thing I would add there is control, Craig. We have 6.4% interest in this net lease platform. That's asymmetrical to our control rights. We have equal voting right, leasing, redevelopment, buying, selling. We have a ROFO under that lease component. So we really control the value creation on the net lease side of the asset and also the multi-tenant side on RPT's balance sheet. So that's very unique, and I think it's also hard to replicate that you don't see with other REITs in our space.

Craig Schmidt -- Bank of America -- Analyst

Okay. Thank you. And then just at River City Marketplace, I see you're retenanting the vacancy with a national fitness center. Maybe you can tell us what you've seen in that format that's gotten you comfortable to retenant to it.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Yes, I mean, I think -- I mean, it depends on the markets and it depends on the credit and the tenants. I mean, personally, I'm pretty comfortable with your LA Fitnesses and some of the boutiques as well as Planet in certain markets. It's a patent, it's a case-by-case. It's understanding the competition in that market. We have seen, particularly in Florida, a good snapback with the health and fitness concepts, and they're seeing good levels of traffic. So we're seeing boots on the ground at all of our assets, good activity in certain parts of the country as it regards to fitness thankfully.

Craig Schmidt -- Bank of America -- Analyst

Thank you.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Yes. Thank you.

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from Linda Tsai with Jefferies. Please proceed.

Linda Tsai -- Jefferies -- Analyst

Hi. Good morning. It looks like net debt-to-EBITDA came down this quarter. As EBITDA improved, how do you expect this to change as you continue to deploy cash proceeds, your RGMZ tranches close and future parcelizations? How much could this metric bounce around over the next few quarters?

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Sure. Good morning, Linda. Great to have you on the call. One, just to level set everybody that our long-term target range is 5.5 to 6.5 times. Also, important to note, given the strategic joint venture that we completed over the last 15 months, the $250 million of war chest of capital that we raised and the opportunity to redeploy this in a high single-digit cap rate asset really gives us that external lever to get to that 5.5, 6.5 times much, much quicker than we would have without the power of the platform, as we say often around here. So that said, we are at 7.2 times today that you just noted. And that will trend downward over time as we return the stabilization of the portfolio and we execute on our external growth opportunities. But as you kind of pointed out, it will be choppy quarter-to-quarter. Northborough is a great example. We're putting that on our balance sheet in the second quarter, just over $100 million or so. So you're going to see our leverage tick up likely in the second quarter. But then once we sell those selected components of the center, up to $75 million as Brian noted in his prepared remarks, later in the year, leverage will tick back down.

Linda Tsai -- Jefferies -- Analyst

Thanks. And then just given the improving environment, do you have better visibility on when occupancy might trough?

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Yes. Look, I think we're pretty close to that. As I said in my prepared remarks, we think it's troughed here in the first quarter. And we think it will pick up over time, and 2021, right where we started the year at about 91.5% or so. And Linda, it's important to note that, that's absent any transactions that we complete over the next, call it, nine months here. We are going to be a net acquirer as we disclosed in our guidance that we're going to be acquiring about $100 million or so. And then we are selling about $150 million or so with the net lease platform. And that was 98% occupied. So that's somewhat dilutive to the occupancy. But all the assets that we're looking at within our pipeline that Brian talked in great detail here in Q-and-A and the prepared remarks, those centers are at 94%, 95% occupied. It's very accretive to where we stand today. So that will be a moving target that will impact occupancy, well, organically, again, 91.5%, 91.5% for the year.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Yes. And just organically, Linda, I've got pretty good visibility -- very good visibility on the pipeline. And I mean, the amount with grocer, medical, fast casual and QSR restaurants, discount apparel, wholesale, has never been stronger since we've been here. And that is including when we put up the sector-leading results in '20 -- I mean, in 2019 and spending really a lot of time with the essential tenants, home improvements, wholesale. And then really, there's a lot of local and regional operators with the entrepreneurial spirit are showing up. And they're seeing this as a chance to expand their reach or in some cases, start something new for more of the small shops. So we're seeing robust demand in all parts of our organization.

Linda Tsai -- Jefferies -- Analyst

Thanks for that.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Yes. Thanks [Indecipherable].

Operator

Our next question comes from Floris Van Dijkum with Compass Point. Please proceed.

Floris Van Dijkum -- Compass Point -- Analyst

Good morning, guys. Thanks for taking my question. Obviously, you guys have been very innovative here in accessing capital through the various JVs that you've created. It does complicate things for investors a little bit. So I guess, the onus will be on you to explain that very well. And you've done a nice job so far. Just curious though, Brian, maybe if you can -- the -- it appears that some of the lower growth portions of your portfolio will go into some of these JVs, I mean, I'm thinking grocery-anchored and certainly the net lease segments. As you look out five years, where do you see your small shop percentage as a percentage of the overall space in RPT? Will that go up significantly? And does that make your long-term growth rate obviously significantly higher than what it's been historically? Maybe if you can give some more color on how you see the company evolving over time.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Yes. I mean, this was part of the recipe is to increase small shop. And the battleships of huge credit are parked in a battleship garage with our venture. And to give you kind of context, Northborough pre -- or pre spin, if you will, 15% small shop; post spin, 35%, 36% small shop. That 36% small shop has much more contractual rent increases. So we see, Floris, a much more robust growth trajectory organically and obviously externally for the company. And this is simply syndicating really growth between the two platforms.

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Yes. I mean, today, our small shop percentage on the basis of ABR, Floris, is below 40%. This will, over time, as we execute on the strategy and continue to transform the portfolio and break these assets up between these platforms, they will get north of 50%, which will correlate into much, much better contractual rent increases as part of our growth profile as we move forward. Today, they're about 125 basis points contribution to our NOI growth profile. We see this, based on trajectory in front of us and the essence that we're buying, we could get to 200 basis points over time. And then you layer on the mark-to-market opportunity that we've been experiencing in this portfolio for, geez, since we've been here since June of '18, and that's another percent or so. So you're well north of -- could be well north of 3% on an annual basis, which is outsized relative to our peer set.

Floris Van Dijkum -- Compass Point -- Analyst

Thanks, guys. And then maybe just a follow-up on that particular, why stop at 50% of ABR? Why would you not go to 70% or 80% of ABR or 50% of your total space being small shop space down the line?

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Look, I think it comes down to risk management. I think if you have too much small shop, which are short-term leases, less national tenants, you might have disruption in your cash flow. So I think 50% at this point is a good target in terms of a risk-adjusted growth profile that we look to attain.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Floris, we're not managing to a number though. I mean, this is going to be done asset-by-asset over time and building by -- with growth in mind, balanced with credit in mind to put us on a long-term trajectory for what we believe will be sector-leading growth.

Floris Van Dijkum -- Compass Point -- Analyst

Thanks, guys.

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Thank you.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Thanks, Floris.

Operator

Our next question comes from Mike Mueller with JPMorgan. Please proceed.

Mike Mueller -- JPMorgan -- Analyst

Yes. Hi. I just wanted to touch on guidance here for a second. So you're talking about the theaters starting to pay again, and that's obviously a big portion of the reserve. So when you're looking at guidance, what's baked in there for, I guess, the reserves tied to the theaters that are going to start to pay rents later this month?

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Yes. If you look at what we experienced in the first quarter, Mike, like I said, we had about $3.2 million, which was $2.6 million of bad debt and over $600,000 of abatements. 60% of that was tied to the theaters. And so we -- and our theater is going to be opening up mid-May here. So we'll have like 1.5 quarters of some form of payment. So you're going to see a deceleration in the second quarter in the bad debt line item and then a further bigger deceleration in the second half of the year as they get to full rent based on our expectation. And if you look at -- another way to look at it, too, Mike, is if you look at our quarterly run rate. Based on Q1, we'll have about a $0.03 pickup from bad debt over the course of the year.

Mike Mueller -- JPMorgan -- Analyst

Got it. Okay. So basically, as they start to pay, that bad debt is going to go away and hit the numbers. Okay.

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Yes. Correct.

Mike Mueller -- JPMorgan -- Analyst

Got it. Okay. That was it. Thank you.

Operator

Thank you. Our next question comes from R.J. Milligan with Raymond James. Please proceed.

R.J. Milligan -- Raymond James -- Analyst

Good morning, guys. I was wondering if you could give a little bit more detail on what exactly at Northborough you expect to parcel off and what the expected cap rate is or blended cap rate for the parcels you do expect to sell?

Brian L. Harper -- President, Chief Executive Officer and Trustee

Yes, R.J., we'll provide more color after we close. Just -- obviously, since we haven't closed, we just don't want to get into what cap rate is where and what tenant is going -- staying, leaving. So we'll provide some more color in the next few weeks.

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Yes. And in terms of the impact to the guidance, relative to our midpoint that we provided in our fourth quarter call down to now, it's about a $0.04 pickup. But like I said, we're happy to -- once we close the asset on the entire center and then we sell the select components to the platform, we'll talk through obviously at that point what we sold and our thesis and IRR and rationale -- more rationale on the transaction.

R.J. Milligan -- Raymond James -- Analyst

Okay. And then maybe just thinking about longer term after parceling off some of these, I guess, probably more investment-grade or anchor-type tenants, can you talk about the value that you expect to be left with for the remaining property? How does that impact the desirability of potential future buyers? What kind of cap rates -- you mentioned getting to a 10% yield on the remaining. What do you think you could sell that for?

Brian L. Harper -- President, Chief Executive Officer and Trustee

I mean, I think actually cap rate compresses tremendously. We bought Austin, Lakehills in Austin, December of 2019, shadow anchor Target in one of the best intersections in the city for 5.5% cap. We didn't own the Target box. It was a 4% NOI CAGR, $27 ABR in a $42 market. We are -- what we would have left at Northborough still is over roughly 50% investment-grade with four TJX concepts, ULTA small shop, Old Navy. So we feel very bullish, and we feel that it could be a great cap rate compression just because of the more liquidity and high investment-grade tenancy.

R.J. Milligan -- Raymond James -- Analyst

Okay. That's it for me. Thanks, guys.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Thanks, R.J.

Operator

Our next question comes from Peter Hermann with Baird. Please proceed.

Peter Hermann -- Baird -- Analyst

Hello, everyone. How many more opportunities are there to recapture spaces like you did in Detroit this quarter? And will the capex requirements be as high as they were with these opportunities? Thank you.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Thanks. There's a lot. And some of those -- a lot of these spaces were old, tired, neglected spaces that were, call it, mid-single-digit rent. I'm staring at one in West Broward at $6.13. That's not going to be as high of a TA because that's a grocer taking one existing box. The elevated cost for the deal in Troy was really a lot of the combination of the two spaces, creating a 40,000-square foot flagship. Looking at another office support -- office supply store that we're looking at combining another space, of which is currently in vacancy, those combined spaces are $11. And we expect to get, call it, close to low 20s in rent from the new tenant. So we don't see this type of cost as high a cost, but we see a lot of value upside on the rent and really cap rate compression of adding these grocers.

Peter Hermann -- Baird -- Analyst

That's helpful. Thank you.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Thank you.

Operator

There are no further questions in queue at this time. I would like to turn the call back over to Mr. Brian Harper for closing remarks.

Brian L. Harper -- President, Chief Executive Officer and Trustee

Yes. Just appreciate everybody's time. Thank you all for listening, and looking forward to hopefully seeing many of you physically for the first time in quite some time. Thank you all.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Vincent Chao -- Senior Vice President of Finance

Brian L. Harper -- President, Chief Executive Officer and Trustee

Michael P. Fitzmaurice -- Executive Vice President and Chief Financial Officer

Derek Johnston -- Deutsche Bank -- Analyst

Todd Thomas -- KeyBanc Capital -- Analyst

Craig Schmidt -- Bank of America -- Analyst

Linda Tsai -- Jefferies -- Analyst

Floris Van Dijkum -- Compass Point -- Analyst

Mike Mueller -- JPMorgan -- Analyst

R.J. Milligan -- Raymond James -- Analyst

Peter Hermann -- Baird -- Analyst

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