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RPT Realty (NYSE:RPT)
Q3 2021 Earnings Call
Nov 4, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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

It is now my pleasure to introduce your host, Vin Chao, Senior Vice President of Finance. Thank you. Please go ahead.

Vin Chao -- Senior Vice President of Finance

Good morning, and thanks for joining us for RPT's Third 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 third quarter 2021. Certain of these statements made on today's call also involve non-GAAP financial measures. Listeners are directed to our third quarter 2021 and second quarter 2021 press releases, which include definitions of those non-GAAP measures and reconciliations to the nearest GAAP measures and which are available on our website in the Investors section.

I would now like to turn the call over to President and 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

Thank you, Vin, and good morning, and thank you for joining our call today. We had another very strong quarter, resulting in another raise in our 2021 operating FFO guidance. We experienced balanced success across all our disciplines as we continue to refresh our portfolio, tenant mix, liquidity and balance sheet, all of which position us to deliver on future earnings growth. We closed on several high-quality acquisitions across all three of our strategic investment platforms, bringing our gross acquisition volume to $500 million in 2021. We continue to see strong demand for space in our centers and signed a number of key leases with well-capitalized tenants, driving our accelerated signed not opened balance to almost $4 million. And lastly, we raised or received commitments on $670 million of capital from our equity, debt and joint venture partners, strengthening our liquidity profile and balance sheet.

Starting off with our capital-raising efforts. I am very pleased with GIC's recent commitment of an additional $500 million to our core grocery-anchored R2G platform, positioning that platform to scale up to $1.7 billion. We believe this is an endorsement of RPT and our ability to create value. We are grateful to be in the company of top-tier REITs, like Ventas, Boston Properties, Equinix and others, that have partnered with GIC. The new commitment provides us with the firepower to further accelerate our portfolio transformation while enhancing our management fee income stream. We also recently obtained commitments for $130 million in the debt private placement market and received another $40 million through our ATM, demonstrating our ability to access multiple sources of capital to accretively fund our growth plans.

Turning to investments. The size of our portfolio is an advantage as it allows us to rapidly reshape our geographic exposures toward higher-growth and more durable markets like Boston, which is now our third-largest market. We also increased our exposure to Atlanta and Tampa while reducing our concentrations in Detroit, Cincy and Chicago. This real-time shift in our mix not only improves our geographic diversification but also increases our visibility with retailers, brokers and other stakeholders, which is leading to increased deal flow on both the leasing and acquisition fronts. To support our data-driven investment decisions, we have an in-house data scientist who developed a proprietary asset scoring model that combines advanced data analytics with a collective knowledge and experience of our investments, leasing, property management and portfolio management teams. With this dynamic tool, we can continually assess our existing and potential future properties in real time to inform our capital allocation decisions. Our scoring model was a key advantage for us as we underwrote our recent acquisitions and will continue to be used as we assess our future acquisitions and dispositions through the lens of quality, balance sheet and earnings accretion.

Regarding the acquisition environment, we are currently experiencing a very competitive landscape to acquire high-quality shopping centers, where cap rates for grocery-anchored centers in top U.S. metros are down approximately 50 basis points over the past few months. As a result, we believe the $500 million of acquisitions that we closed on so far could be up as much as 10% relative to our transacted prices. Despite the recent cap rate compression, our three investment platforms provide us a competitive advantage to acquire at higher returns, allowing us to remain active on the acquisition front in our target markets. We continue to work tirelessly, sourcing additional acquisitions, focusing primarily on off-market, relationship-driven opportunities and expect 2022 to be another active year. We continue to see a healthy pipeline of deals for grocery-anchored centers, smaller strips and wealthy infill suburbs in our core communities and larger high-quality centers over $70 million, where we can allocate the real estate between our platforms.

We also see unique opportunities to acquire value-add or opportunistic centers, where we can utilize our tenant relationships to create significant value after the purchase. For example, we are currently under negotiation to buy an asset in the Southeast that has an empty anchor box related to a recent tenant bankruptcy. We are in lease negotiation with a premier investment-grade grocer to take that space, which will drive the occupancy to about 99%, resulting in an estimated stabilized yield on cost of 7% in a 5% cap rate market.

On the other side of the coin, current market demand is also creating opportunities for us to monetize assets at attractive yields in non-core markets. Earlier this week, we closed on the sale of Market Plaza in the Chicago market for $30 million. We received 11 offers and sold the property at a high 5% buyer's cap rate. Chicago is not a market that we are looking to expand in due to the less-than-business-friendly political environment. We are also exploring other opportunities to further reduce our exposure to nonstrategic markets and take advantage of the current frothiness in the private markets.

Now turning to operations. We continue to drive rent and sign leases with high-credit essential tenancy. This quarter, we signed a lease with a new investment-grade grocer at our Crofton Centre in Baltimore, which is replacing a Shoppers Food Warehouse. In October, we signed an expansion lease with Publix at The Crossroads in Palm Beach. This will be a brand-new flagship prototype store, demonstrating Publix' commitment to the center and cementing the anchor tenancy for years to come. In both cases, we locked in strong credit anchors, thereby enhancing the durability of the cash flows at these centers. We also signed a new medical tenant, Piedmont Urgent Care, that replaces a sit-down restaurant at Promenade at Pleasant Hill just outside of Atlanta, swapping a high-COVID-risk tenant for an essential tenant at a mid-20% spread to the old brand. Not only were we able to reduce tenant risk, but we were able to do so at attractive economics.

Lastly, we signed a new deal for a Ferguson gallery showroom at Providence Marketplace in the Nashville market. This will be Ferguson's first showroom in Nashville, which we think will be a premier destination for residents to access the latest concepts in quality home fixtures and appliances. With only five to six Ferguson showroom openings in a typical year, we think this deal is a testament to the strength of our center. For those of you that are not familiar with Ferguson, they are a $34 billion market cap, BBB+-rated credit and the largest U.S. distributor of plumbing and second-largest distributor of industrial products. We think they will be an attractive regional draw for the property based on the strong demographic match between the center and the Ferguson customer profile.

Looking forward, our leasing team remains active with a solid pipeline of deals lined up for the fourth quarter. Notably, we are seeing strong demand in Florida, Boston and Detroit, where we are in negotiations on a number of major box deals, ranging from grocer to off-price retail as well as several national small shop deals. Notably, we have seen a major pickup in demand in Detroit over the past few quarters and are in negotiations on over half a dozen grocery deals and another eight to 10 box leases with discount apparel, pet, outdoor recreation and homegood retailers.

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

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

Thanks, Brian, and good morning, everyone. Today, I'll discuss our third quarter results, provide an update on our balance sheet and end with commentary on our increased guidance. Third quarter operating FFO per share of $0.27 was up $0.05 over last quarter primarily due to about $0.04 of higher NOI from acquisitions, $0.01 from lower rent not probable of collection and about $0.01 from higher lease termination fees, partially offset by lower straight-line rent. The better-than-expected rent not probable of collection was primarily driven by the reversal of a prior period reserve following an unplanned payment from a theater tenant. As we look ahead, we expect bad debt to continue to moderate as our collection rate tracks toward pre-COVID levels. Notably, our collection rate for the third quarter was 98% as of the end of October.

As Brian mentioned, our operational performance in the quarter remained strong. We signed 52 leases totaling 280,000 square feet at a blended comparable releasing spread of 8.2%, including a 5.2% renewal and 16% new lease spread. Our renewal spread is the highest level it's been in over a year, and along with the continued strength of our new leasing spreads, is reflective of the increasing demand for our centers and the embedded mark-to-market opportunity within our portfolio. These spreads are on a cash basis. They don't capture future contractual rent steps, which were 160 basis points for the leases signed during the quarter. Leasing activity in the third quarter pushed our signed not opened balance to $3.8 million, up 19% over last quarter's $3.2 million backlog, which we expect to open over the next 15 months.

On the remerchandising and outlet front, we delivered two projects totaling $3.3 million during the quarter at almost a 12% yield, which was ahead of budget. We also added one new project, Ferguson gallery showroom at Providence Marketplace in Nashville, totaling $1.3 million at an expected yield in the 20% to 22% range. This brings the active remerchandising and outlet project total to $14 million with expected yields in the 10% to 12% range. We are in active negotiations on a number of other pipeline deals totaling about $30 million with strong box demand in Boston, Florida and Detroit.

Turning to the balance sheet. We ended the third quarter with net debt to annualized adjusted EBITDA of 6.8 times, down from seven times last quarter. This is a bit better than expected as a result of the $40 million raised through our ATM and due to better NOI performance. We continue to expect our leverage to fall toward our target range of 5.5 to 6.5 times as bad debt and occupancy normalize to pre-COVID levels. Despite the heavy level of acquisition activity in the quarter, our liquidity remains strong. We ended the third quarter with a cash balance of approximately $10 million and have $295 million available on our unsecured line of credit. We expect to repay the vast majority of the outstanding balance on the line of credit by the end of the year or shortly thereafter. One of the core tenets of our balance sheet strategy, in addition to managing overall leverage, is to proactively address our pending debt maturities.

During the fourth quarter, we expect to refinance $177 million of debt. Included in this amount are all of our private placement notes that mature in 2023 and 2024 and our Bridgewater mortgage that matures in 2022. We expect to use proceeds from our recent private placement of unsecured notes totaling $130 million, our share of expected proceeds from mortgages placed on R2G assets that we locked rate on totaling $15 million and proceeds from the sale of Market Plaza totaling $30 million to fund these debt repayments. Following all this activity, we will have reduced debt maturities through 2024 to just 16% of our debt stack. Over the next two quarters, we also expect to generate $96 million in disposition proceeds from parcel sales to RGMZ, including sales from our recently acquired Northborough and Newnan Pavilion assets and the remaining seed portfolio sales. These proceeds will effectively be used to fund our share of the debt of acquisition of $68 million and to repay amounts outstanding on our revolving line of credit.

Moving to our increased guidance for 2021. We initiated a new range for operating FFO of $0.90 to $0.94 per share, which is up $0.02 or 2% over prior guidance. The primary drivers of the upside were $0.01 from a prior period bad debt reversal and about another $0.01 of lease termination fees recognized in the third quarter. The key factors that would drive results to the high or low end of the range are the timing of closing of the net lease parcel sales and bad debt reserves. In addition, our incentive compensation is not finalized until the fourth quarter, which could result in an uptick in G-and-A expense, similar to what we experienced in late 2019. As is our normal practice, we will be providing initial 2022 guidance with next quarter's earnings release. But I wanted to provide insight into a couple of items as you start to establish your quarterly run rate for 2022. Our third quarter operating FFO per share of $0.27 benefited from $0.02 related to nonrecurring items, including a prior period favorable bad debt adjustment and a one-time lease termination fee. In addition, relative to our third quarter results, 2022 G-and-A is expected to increase by approximately $0.01 per quarter related to an uptick in travel-related expenses, similar to 2019 levels, and continued investments in talent to support our growth platforms.

Before I turn it over to the operator for Q-and-A, I would like to touch upon our strategic thinking around future acquisitions. Our framework can be summarized with three questions. Does the property improve our overall portfolio quality? How much future value-creation potential is there? And can we fund the acquisition in a way that's both accretive to earnings and pushes us closer to our target leverage range of 5.5 to 6.5 times? No deal is as simple as this. And each has its own unique set of circumstances. But we think it is important to understand our framework as you build out your own forecast. Also, as a reminder, it is our normal practice not to include speculative acquisitions unless we have a strong line of sight on a potential close.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is coming from Todd Thomas of KeyBanc Capital Markets. Please go ahead.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi. Thanks. Good morning. First question, Brian, so you talked about the competition for investments. I was just wondering if you could just talk more generally about the pipeline today. And I'm curious if you can speak to the additional $500 million commitment from GIC for the R2G venture, what the timeline is like to deploy that capital.

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

Sure. I'll start with the pipeline first. So we've been in the market really since early May of 2020. We feel really good about unlocking some great assets and feel that we can do this in an accretive manner by way of our investment platform and the power of the platforms. Deal pipeline is extremely active, especially with the $500 million upside with GIC, which we do have a three-year horizon on that. That opens up avenues that are larger portfolios, but where we're being very selective and rigorous and staying true to our growth communities, which I've outlined previously. I would say we're not relying on brokerage or whatever comes to market. We're very proactive with a targeted approach in each of our core communities. We see a lot of value-add communities. And the acquisition I mentioned in my prepared remarks, this is a high-quality, incredible, dense, high-income area in one of our core communities in the Southeast, where there was a 25,000 to 30,000 square foot box vacant. We're in lease negotiations with a top-tier investment-grade grocer at, call it, a stabilized 7% yield, when all the things are done. And that could be sold for a mid-4% cap.

So really, too, Todd, I just want to stress the acquisitions comes in all shapes and sizes. We did an example on a case study in our investor deck, if you can go there, where we pointed out our deal in Austin, Texas, Lakehills acquisition, the non-grocery-anchored center that has done pretty incredible for our platform. We're talking $110,000 household income in a three-mile, 117,000 density, 4% average rent escalator, 7% only NOI -- capex of NOI from 2021 to '24 and a 14% three-year CAGR. I like that business a lot. So this is grocer, this is strips. This could be other larger centers over $70 million, like the Northborough that we can divide up between the three platforms. And we feel very confident that we'll be able to deploy and deploy in an accretive manner.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. Has the IRR hurdle or threshold for returns changed at all for R2G? And are you seeing better pricing for one-off deals or some larger packs or portfolios?

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

Yes. I mean, the IRR hurdle hasn't changed for R2G. And let me just step into that a little bit further. While cap rates have compressed, the unlevered IRRs have stayed pretty the same just due to the rental growth, due to no other supply coming online. And if you own the best real estate in that market, particularly on the best corner, we're able to drive rent pretty substantially. So that's pretty held up. And I think, yes, I mean, the sniper shot approach of which we are doing and which we have done, which led to that $500 million acquisitions over this past few months, a lot of that was off-market. So obviously, we think this is a skill set of being a decentralized team in these markets. And that surfaced this deal in our core community, which was the 25,000 square foot unanchored -- or vacant box.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. All right. That's helpful. And then Mike, can you just clarify, you went through some of the detail for 2022 with regards to G-and-A. Can you just clarify your comments there? I think you said that you'd expect G-and-A to be up $0.01 per share per quarter. So is that $0.04 on the year relative to '21? I wasn't sure exactly what you meant. I'm just hoping you could clarify that further.

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

Yes. Sure, Todd. If you look at our run rate for the quarter, it was about $7.3 million. So if you round up there, it's about $7.5 million as we look ahead. So it's about $0.01 higher than that, which is about $1 million or so per quarter. And to give you a bit more color around that increase, look, during the pandemic, we put a freeze on all salaries and hiring even amid building our third investment platform with GIC and then Monarch. And we've clearly demonstrated that the platforms can't produce growth and bolster really hard growth profile as we move into the future. And really in order to optimize those platforms, we need to invest in talent. And quite frankly, we need the people to power the platforms. In addition to that, we also have a material increase in travel as well as there's basically zero travel in '20 and in most of '21. So we'll return to 2019 levels there. So that's really what's contributed to the increase on a quarterly basis, about $1 million or so.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. So you're looking at about $8.5 million per quarter run rate in '22?

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

Yes.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. Got it. Alright. That's helpful. Thank you.

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

Welcome.

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

Thank you. Todd.

Operator

Thank you. Our next question is coming from Derek Johnston of Deutsche Bank. Please go ahead.

Derek Johnston -- Deutsche Bank -- Analyst

Hi, everybody. Good morning. Brian, how do you see your occupancy growth trajectory unfolding? Clearly, we're not looking for guidance, just perhaps how you see occupancy trending into 4Q. And then where you think you should be able to drive occupancy over 2022 and really beyond it, to 2023?

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

Yes. I mean, I think occupancy is where we stand today. We really see overall occupancy in the mid- to high 90s stabilized and see a clear path. Now we are taking four spaces back next year that will ebb and flow. But those four spaces back, I think three are wholesale and -- or are grocers and one is a T.J. Maxx concept. All four equate to $0.03 of future earnings. So it's a -- they're very good, accretive deals. So we see some ebb and flow next year on occupancy. But I think the drive for occupancy, both in small shop and overall, in that mid-90s level with small shop in the high 80s, low 90%.

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

Yes. If I can give a little more detail around that, the four leases that we're recapturing next year, we look to recapture those in the first half of the year. It's about 200,000 square feet. And we'll have about 15 months on average downtime. And you'll see most of those come back online in late '23, early '24.

Derek Johnston -- Deutsche Bank -- Analyst

Okay. Great. And then Mike, some of your ending commentary in the prepared remarks, could we talk a little more about the private markets and cap rate trends overall certainly compressing? And when you're viewing capital deployment in the current environment, whether it's on balance sheet or your JVs, can you really continue to acquire accretively with the cap rate and the compression that is taking place? And how do you envision doing that?

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

I do, Derek. It's definitely compressed greatly. But what we have here, especially with the RGMZ vehicle, is a very large moat. And that moat allows us to extract enhanced yield for our shareholders. We think this was -- certainly, we never knew that this was going to compress like this. But we think this is actually even a bigger weapon compared to our peer sets, so -- and a lot of examples, we're seeing we could acquire in an accretive manner using the three platforms, like we did previously. We also see other deals, like this deal I talked about in my prepared remarks, where we can go in with long-standing relationships, whether it's grocer or wholesale or home improvement or maybe some off-price tenants, such as TJX, in our back pocket and buy some value-add centers in core MSAs with high-dense, high-income trade areas and replace that vacancy, maybe even in due diligence, and stabilize that 7% or north. So it's going to be a mix. You'll see a mix of a lot of, I think, variety, but variety that will be accretive to earnings, variety that will be accretive to our existing portfolio and a variety that will be at least neutral or accretive to our balance sheet.

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

Yes. And Derek, just a few additional thoughts on the funding side of the core. I mean, like we demonstrated during the quarter, we did have broad access to debt and equity and obviously enhanced the relationship greatly with GIC. But from the debt side, after we repay our last bit of the revolver down, we'll have full use of now, which is about $350 million. And from a long-term debt perspective, we have a strong access to the bank and the private placement and the secured market. Notably, we did raise $130 million of notes during the fourth quarter. We could have raised three times that amount based on the demand from those noteholders. And we'll continue to be opportunistic on the ATM side as well and utilizing that tool. We were able to raise $40 million there. But to Brian's point, you combine these great options and have access to these different sources of capital with our platform, that's what really what sets us apart and allows us to really invest at those higher yields, providing us flexibility to get the right mix of debt and equity, to Brian's point, to really redeploy in an accretive manner, to really check the buy box for us, which is enhancing leverage, portfolio quality and earnings.

Derek Johnston -- Deutsche Bank -- Analyst

Thanks, guys.

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

Thank you.

Operator

Thank you. Our next question is coming from Haendel St. Juste of Mizuho. Please go ahead.

Haendel St. Juste -- Mizuho -- Analyst

Hi, good morning. Thanks for taking my question. So wanted to go back to the GIC JV that you expanded here. I guess, I'm curious why you've picked up -- or thoughts on why GIC is putting more capital into the JV now, certainly understand shopping centers being more in demand, but cap rates have moved, competition is pretty fierce. So I'm curious on what you're picking up in the conversations with them and if you think that JV could be expanded even further. And would you -- or are you considering any new markets?

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

I mean, I think as you see with Blackstone and GIC and our performance with our original JV, there's high conviction by both, us and GIC, in the sector, obviously high conviction with this sizable upsize by GIC with -- to RPT in our platform and our results that we've proved so that we're honored and humbled by their upsizing. This can certainly be enlarged. So this can certainly be looked at as a bucket that we could look at for larger portfolios. This is another growth capital bucket that we have at our disposal with a partner that we extremely value that could look at larger-sized deals. And with that GIC comes a very durable income stream that allows us 50 bps of fee income, which obviously helps with the cap rates as well. So we're excited about the upsize. And it's coming now, we're just -- it was that time of kind of running to our completion of the original JV, so we decided collectively that $500 million was the initial target.

Haendel St. Juste -- Mizuho -- Analyst

Okay. Fair enough. Was there -- is there any contemplation of entering any new markets?

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

Right now, no. We're being very focused, and I think to the benefit of having people in these markets that we've identified. Could there be future markets on a larger strategic deal? Certainly. But right now, we're really focused on the markets we've identified.

Haendel St. Juste -- Mizuho -- Analyst

Got it. Thanks for that. And maybe on the triple-net JV, maybe you could talk about the opportunity set or what you're seeing in the market there. I've heard lots of talk of increased competition on that side, new entrants, public and private. So curious if you have any observations on that JV. Thanks.

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

Yes. No, we're again really excited about that platform as well. It's very frothy. Cap rates have compressed as it has in the multi-tenant side. But we still have a significant pipeline, and we're buying wide. And we look at this as four buckets of areas we're focused on for that JV, is really, number one, the arb of a center and peeling off pads, that can be larger grocer, wholesale clubs. There's an example where we have under contract, it's grocery-anchored with a Lowe's, those two tenants make up 95% of the ABR. So once we acquire that, we'll parcel those off and we could be 150 basis points wide, maybe even higher than where they would trade in the private market.

Second bucket we're very focused on is build-to-suits for tenants, building to an eight or even a nine and then seeding accretively to that platform. It's also another spoke for when we sit down with the tenant communities of another area that we could partner with them on. Third bucket is pre-takeout with developers or funding for developers, where we can have some arb on that. And the fourth and final is off-market deals but selective marketed deals. We have what a lot of the public REITs don't have is -- of the net side is in-house leasing and development, where we can even take term risk and renew the tenant or replace the tenant if we have conviction on that real estate. So we have a very rigorous underwriting process and the partners have been very, very value-added to us as well. So we're excited, and you'll be seeing a lot more deal production from that form in the near quarters.

Haendel St. Juste -- Mizuho -- Analyst

Great. That's helpful. And last one on the lease rate, small shop has been steady around 84% of last year. But the spread between leased and physical occupancy has widened here, which I guess we could see as an opportunity. So maybe you could discuss some of the widening, how we should expect that spread to track near term, the leased versus physical. You mentioned, I think, $4 million of signed but not opened ABR. So I'm assuming that, that should help narrow to a degree, but perhaps there's offsetting factors. So how should we think about that spread? And is mid-80s at a high-water mark for small shops? Thanks.

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

Sure. No, I would pay attention more to the dollars versus the spread. But we do expect our total dollars of about $4 million or so of signed not commenced to remain pretty consistent over the next several quarters. As we kind of noted in our prepared remarks, we do expect that $4 million to come online over the next 15 months or so. We'll have about $1 million come online the first quarter -- the fourth quarter of this year, another $1 million in the first and second quarter of next year and then the remaining $800,000 by the end of next year, which is tied to our grocery deal that we did at one of our Michigan assets up in Oakland County, Michigan. As it relates to the small shop space, yes, we continue to see good traction there.

As we head into the end of the year, we do expect occupancy to be up sequentially in the fourth quarter for small shop. And you may have some seasonal fallout in the first quarter of next year, but we expect that to continue to rise over the long term as we march back toward 90%. Because pre COVID, Haendel, we were about 88% leased or so on that space. And we have a much more better portfolio today, given all the acquisitions that we've done over the summer. So I fully expect that number to get back up over time above 90%.

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

And Haendel, $2.1 million of that signed not opened is small shop.

Haendel St. Juste -- Mizuho -- Analyst

Got it. Alright. Well, thank you, guys. Appreciate that.

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

Thank you.

Operator

Thank you. Our next question is coming from Craig Schmidt of Bank of America. Please go ahead.

Craig Schmidt -- Bank of America -- Analyst

Yes, thank you. I just wanted to talk about the target markets. So far, you've had concentrations in Boston, Tampa and Atlanta. I'm just wondering about Austin, Charlotte, Phoenix, Minneapolis. I assume you're still looking in those markets. And do you think they'll be entering the acquisition pipeline soon?

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

Our Tier one, Craig, is really Boston, as you said, Austin, Nashville, Atlanta, Tampa, Jacksonville, Orlando, Miami. Phoenix, Salt Lake, kind of that Tier two, in Denver, where we would only go if we have a path for scale. It'd be very -- we wouldn't go for just a one-off. We would have to go for larger centers like we did in Boston. Boston was not done on a one-off. There is a path for four assets. So if there's a path for certain of those cities, which our data science team and market research team help us identify and all this is -- really, data is the foundation that is driving us to these cities, we'll look there. But it has to be a path for growth.

Craig Schmidt -- Bank of America -- Analyst

Okay. And was Boston a result of your targeted analysis pushing harder there? Or did this opportunity open up in Boston and made them more...

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

No, it's our targeted analysis and really hitting in May of 2020 in Boston and really looking at a center like we did bought in Bedford with a 15-year new Whole Foods doing over $1,100 a square foot and buying that at, call it, a 5.6% cap for $350 a square foot and comparing that to, let's say, Charlotte at $900 a square foot with similar cash flow. I look at Boston with the life science, biotech, education and really tech as one of the top gateway cities in the world. So yes, our data science led to that and got us a jump-start, where now obviously it's extremely frothy. But we really -- while others were shifting to the Southeast, we took that time to go to Boston and buy at great size.

Craig Schmidt -- Bank of America -- Analyst

Great. And then just on the $96 million disposition, can we expect the cap rate similar to Chicago or it might be somewhat elevated from that?

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

I think -- I mean, it's too early to tell. This will be -- I mean, maybe a little bit elevated on somewhere around the edges. But again, this is not going to be a dilutive process. This is going to be programmatic and what we hope to be again earnings accretive. We sold all the bad. We sold $200 million in 2018 of assets that were -- 98% of them were all tertiary with an average IRR of 3.5%. So there's no urgency to sell. This could be opportunistic, where we can move cash flow from certain geographic exposures to new geographic exposures like those seven markets I've identified.

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

Yes. Craig, the $96 million of dispositions that we referenced in the prepared remarks, that is done at a cap rate of about 6%. That's all the triple-net stuff that we seeded to the RGMZ net lease platform.

Craig Schmidt -- Bank of America -- Analyst

Okay. Thank you.

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

You're welcome, Craig.

Operator

Thank you. Our next question is coming from Tayo Okusanya of Credit Suisse. Please go ahead.

Tayo Okusanya -- Credit Suisse -- Analyst

Yes. Good morning, everyone. So just a quick question on overall leverage and moving toward your target leverage from where you are today. As we start to think about 2022 and hopefully a more normalized retail backdrop, kind of improving occupancy and things of that sort, I mean, do you envision being able to get back to that target leverage in a 12-month time frame? Or do you kind of think it's going to take a longer period than that?

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

Look, Tayo. Good morning. It's great to hear from you. One, we're very focused on leverage and getting back to that midpoint of our range of about six times. We ended the quarter at 6.8 times. And when you layer in that signed not commenced ABR, about $4 million, you're touching the top end of our range. So we're getting there. And I think organically, could we get there by the end of the year? '22 perhaps. But what I think what can accelerate us there is really just the power of the platform to where we can ultimately be in position to over-equitize an acquisition to get the leverage down, similar to kind of what we did this past quarter with the equity raise. But we're very, very focused on it. And we'll use all the tools in our chest internally and externally to get down to that midpoint as quickly as possible.

Tayo Okusanya -- Credit Suisse -- Analyst

Got you. That's helpful. And then the second question, again you gained about $0.01 this quarter from just the reversal of some of the uncollectible rent. Could you talk a little bit about just how we kind of think about that heading into '22 as well, whether there are probably some more opportunities to kind of see some of the written-off rent come back as the health of some retailers begin to improve?

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

Not at this point, I don't think so. I think we took a very, very -- I think, a conservative but realistic approach with our bad debt reserves in '20 and '21. And we really have only experienced about $0.02 to date of favorable bad debt reversal. So we don't, at this point in time, expect any favorable adjustments as we move into the fourth quarter or even into next year.

Tayo Okusanya -- Credit Suisse -- Analyst

Okay. Thank you very much.

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

You're welcome.

Operator

Thank you. Our next question is coming from Mike Mueller of JPMorgan. Please go ahead.

Mike Mueller -- JPMorgan -- Analyst

Yes. Hi. I have a quick clarification question. When you're talking about taking the four leases back next year, I thought I heard about $0.03 of rent. And I wasn't sure if that was going to be the near-term impact. In which case, we need to take that $0.24 run rate and kind of tweak it a little bit for that or if that was a comment about future upside from repositioning the boxes. Just wondering if you can run over...

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

Yes. Sure. Thanks for the question, Mike. Yes. No, that $0.03 is related to the upside that we expect once we have the four spaces released to those tenants that Brian described in his answer.

Mike Mueller -- JPMorgan -- Analyst

Okay. So in that pro forma run rate, you were talking about that short-term fallout essentially baked in there?

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

It's not baked in there. We do expect to take back the four spaces in the first half of 2022 and then release them back up within about 12 to 15 months or so into '23, early '24. So from a quarter perspective, Mike, it's about $625,000 or so.

Mike Mueller -- JPMorgan -- Analyst

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

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

You're welcome. Thanks, Mike.

Operator

Thank you. Our next question is coming from Linda Tsai of Jefferies. Please go ahead.

Linda Tsai -- Jefferies -- Analyst

Hi, good morning. You sort of touched on this with the Whole Foods anchored center in Boston. How has data analytics shifted your analysis of how you're evaluating the quality of a grocery-anchored center?

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

I think more than anything, especially with the froth of today, data analytics is more important than ever. I mean, I say often, data is the new oil here. And while real estate is finance and, in some way, data is the foundation of every decision we make as it relates to our capital allocation. So really, Linda, this is just another tool that we have at our disposal to make sound business decisions. So we looked at comparing, for example, that asset in Boston versus an asset in Charlotte with similar cash flow. And the scoring model was significantly higher in Boston for a number of reasons: the three-mile demographics; the future growth population; the adjacency to employment, such as life science, education levels; the higher barrier to entry of grocery stores, the existing grocery stores, are you the number one or number two grocery store in the market. We go through a very rigorous, continual retooling of that scoring model. And that is something that will always be refined but is extremely critical, especially in a very competitive environment, where we don't want to be seen or we don't ever want to be making a bad investment, certainly buying investments, that don't achieve the IRR which we're looking for.

Linda Tsai -- Jefferies -- Analyst

Thanks. And then for my second question, with high cap rate compression in grocery-anchored centers, are you seeing any of that demand spill over to power centers? Or is the key variable having a grocery anchor in terms of value?

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

No, I think we're seeing -- I mean, it's across the sector. We're seeing significant compression in cap rates on power in certain areas. I think you're seeing a more -- and thankfully, we have top 40 MSAs, you're not seeing them as much in secondary or tertiary as you are with the higher MSAs. But again, you look at the credit mix and profile of maybe 60% of the cash flows, TJX and Burlington or Nordstrom Rack or -- and have a few pads, that's a pretty good business. And what I like about that business is, I mean, they're almost -- the credit of those tenants, it's -- you're almost playing in the triple-net space. And what we've been doing a lot of is putting grocers in some of these power centers. So that's even further cap rate compression, which heightens the IRR. But absolutely, we're seeing cap rate compression across the board.

Linda Tsai -- Jefferies -- Analyst

Thank you.

Operator

[Operator Instructions] There are no additional questions in queue at this time. I'd like to turn the floor back over to Mr. Harper for closing comments.

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

Thank you, operator. 2021 has been a year of refreshment for RPT. We are refreshing our portfolio through our acquisition program, and we are refreshing our cash flows through our strong leasing activity. This is resulting in better market diversification, a higher-quality portfolio, higher credit tenancy, and most importantly, more durable cash flows. We also refreshed our liquidity by assessing joint venture, disposition, debt and equity capital to allow us to continue to reshape our portfolio in 2022 and beyond. Thank you all for joining our call this morning. Have a wonderful day.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Vin 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

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Derek Johnston -- Deutsche Bank -- Analyst

Haendel St. Juste -- Mizuho -- Analyst

Craig Schmidt -- Bank of America -- Analyst

Tayo Okusanya -- Credit Suisse -- Analyst

Mike Mueller -- JPMorgan -- Analyst

Linda Tsai -- Jefferies -- Analyst

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