Q3 2021 Retail Opportunity Investments Corp Earnings Call

October 27, 2021

Okay.

[music].

Ladies and gentlemen that basically operator for this conference call will begin shortly until that time your lines will again be placed on hold thank you for your patience.

Again, ladies and gentlemen of HSE operator for this conference call will begin shortly until that time your lines will again be placed on hold thank you for your patience.

[music].

Okay.

Welcome to retail opportunity investments 2021 at third quarter Conference call participants are currently in a listen only mode. Following the company's prepared comments the call will be opened up for questions. Please note that certain matters discussed in this call today constitute forward looking statements.

Within the meaning of Friday about securities loss, although the company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions. The company can give no assurance that these expectations will be achieved.

Such forward looking statements involve known and unknown risks uncertainties and other factors, which may cause actual results to differ materially from future results expressed or implied.

Forward looking statements and expectations.

Information regarding such risks and factors is described in the Companys filings with the Securities and Exchange Commission.

Coding its most recent annual report on Form 10-K participants are encouraged to refer to the company's filings with the S. E C regarding such risks and factors as well as for more information regarding the company's financial and operational results. The company's filings can be found on each job site now I would like to introduce.

These are.

Modulators to return the company's Chief Executive Officer.

Thank you good morning, everyone here with me today is Michael Haines, Our Chief Financial Officer, and Rick <unk>, Our Chief operating Officer Bill.

Building on the strong momentum that we generated during the second quarter as the West coast fully reopened again, we continue to steadily advance our business as we progressed through the third quarter.

Capitalizing on the strong demand for space, we increased our portfolio lease rate to over 97% again, where it had been for six consecutive years prior to the pandemic.

Additionally, during the third quarter, we again achieved solid rent growth extending our consecutive streak of 39 quarters in a row of achieving positive re leasing rent spreads on both new and renewal leases.

Worth highlighting is the fact that we successfully achieved rent growth every quarter during the pandemic, which speaks to the strength of our grocery anchored portfolio and our diverse tenant base as well as the acumen of our team.

Along with continued to achieve solid leasing results. We are also enhancing our portfolio through our investment program.

We are again pursuing acquisition opportunities and are pleased to report that we have already lined up thus far for terrific grocery anchored shopping center acquisitions, which together totaled about $123 million.

Specifically during the third quarter, we acquired an excellent grocery anchored shopping center located in Silicon Valley.

The property is ideally situated at the entrance to our highly desirable affluent master planned residential community with an average household income of over $237000.

The shopping centers anchored by new seasons supermarket, which is a strong regional operator, a kin to whole foods and is a perfect fit for the surrounding community.

Additionally, at the start of the fourth quarter, we acquired another well established grocery anchored shopping center located in Southern California, just north of San Diego. The center is anchored by Albertsons and Cvs.

Beyond these two acquisitions. We also have two additional grocery anchored shopping centers currently under contract and separate transactions that together total about $62 million. Both properties are located in the Seattle market in Bulks feature strong national supermarket operators.

What's important to note is that all of these new acquisitions fit and complement our existing portfolio extremely well all four shopping centers are in our core markets, where we have a strong well established presence.

Like our existing portfolio. These new acquisitions feature very strong supermarket operators all of which are longtime tenants of ours and all had performing exceptionally well throughout the pandemic.

In terms of pricing the overall blended yield on the $123 million of acquisitions is approximately 6% going in with with the opportunity to increase that yield notably during the next 12 to 24 months.

Safe to say that we are excited about these new acquisitions as they will undoubtedly enhance our presence within our key core markets as well as provide compelling new growth opportunities going forward.

Lastly, turning to dispositions. We are pleased to report that during the third quarter, we completed our exit of the Sacramento market selling our last two properties for approximately $44 million in total generating a gain of about $13 million.

Into account, our second quarter disposition, we have sold 70 million of properties in total this year.

Now I'll turn the call over to Michael Haines, our CFO to take you through the details Mike. Thanks Stuart for the three months ended September 32021, the company had total revenues of $71 4 million as COO.

Compared to $69 8 million in total revenues from year ago. The increase was largely attributable to our rent collection rate returning to being in line with our historical pre pandemic norms, resulting in lower bad debt, which was less than 1% of total revenues in the third quarter again in line with our historical run rate.

With respect to net income for the third quarter of 2021, GAAP net income attributable to common shareholders was $21 1 million equating to <unk> 17 per diluted share and for the first nine months of 'twenty 'twenty. One GAAP net income was $45 million or 38 cents per diluted share include.

Included in net income is the gain on sale from property dispositions as Stuart noted with selling the two remaining Sacramento properties. The company recorded a $12 $9 million gain in the third quarter for.

For the first nine months, we reported a total of $22 $3 million in gains which includes the property sale will be completed in the second quarter.

In terms of funds from operations for the third quarter of 2021, <unk> increased to $32 6 million equating to 25 cents per diluted share, which brings our episodes of the first nine months to 74 cents per diluted share.

<unk> net operating income for the third quarter increased 4% on a cash basis as compared to a year ago for the first nine months of 2021 same center NOI increased by two 2%.

With respect to capital raising initiatives. In addition to the $70 million raised through property dispositions. Thus far in 2021, we have raised just over 46 million of equity through our ATM program, which includes $11 $2 million that we raised at the beginning of the third quarter between the ATM issuance in the property sales, we have raised approximately $116 million of equity proceeds in total.

Earlier today, we are utilizing the majority of these proceeds together with cash flow from operations to fund our shopping center acquisitions.

Turning to our balance sheet, we continue to have nothing outstanding on our 600 million unsecured credit facility. Looking ahead, we expect our credit line balance will remain minimal if not zero for the remainder of 2021 with.

With our current lineup zero of the company's outstanding debt today is entirely fixed rate and in terms of debt maturities. Nothing is maturing this year and in 2022 will enter two small mortgages maturing trolling about $23 million. Our goal is to pay these mortgages off with cash flow from operations and possibly some additional equity issuance proceeds depending upon market conditions.

With respect to our financial ratios interest coverage for the third quarter was a solid three three times. Additionally, the company's net debt to EBITDA ratio was six six times for the third quarter.

In terms of the vessel for guidance, we continue to expect that for the full year 2021 to be between 90 and $1 two per diluted share. The key factors that will drive where we finished the year in that range are the timing of closing the pending acquisitions as well as the timing of new lease commencements, possibly offset by raising additional equity through our ATM again, depending upon market conditions.

Our goal is to be well positioned in terms of our balance sheet as we look towards 2022, now I'll turn the call over to <unk> CFO rich.

Thanks, Mike starting with our portfolio lease rate as Stuart highlighted during the third quarter, we increased our portfolio lease rate to over 97% again.

Specifically our portfolio decreased to 97, 4% as of September 30th.

Breaking our lease rate down between anchor and non anchor space. Our anchor space continues to hold firm at 100% leased where it has been through the pandemic.

In fact, our anchor space has been 100% leased for 19 consecutive quarters now approaching five years in a row.

And in terms of non anchor space, our lease rate increased to 94, 3% during the third quarter, which is approaching a record high that we achieved in the fourth quarter of 2019, just before the pandemic began.

Driving our lease rate higher as the demand for space, which continues to be impressively strong cross our portfolio in core markets and this demand is coming from a wide range of necessity based service and destination tenants, especially those seeking inline space.

We're also seeing a growing number of anchor tenants now pursuing new more cost effective smaller prototype formats tailored to focus on their most popular offering and their omni channel initiatives.

From our perspective, we continued to capitalize on the demand to enhance our tenant base at every opportunity, including recapturing inline space early proactively replacing shop tenants that have struggled coming out of the pandemic with much stronger new tenants.

Additionally, our strong performance throughout the pandemic, where we work hand in hand, helping existing tenants adapt and thrive is now serving to draw new tenants to our shopping centers away from competing properties that did not have the management acumen, nor the wherewithal to work with tenants during the pandemic.

In fact during the third quarter, we signed several new tenants that were forthcoming and telling us that they were coming to our centers specifically.

Cause of our performance over the past year and their interest in building a long term relationship with ROIC.

In terms of our specific leasing activity during the third quarter. We had another strong active quarter leasing 375000 square feet of space in total, including signing 49, new tenants all of which being in line space.

And we renewed 72 tenants 69 of which were in line space renewals and three that were anchor renewals two of those anchors being longtime supermarket tenants and one being a longtime pharmacy tenants.

With respect to re leasing spreads same space comparative rents on new leases increased by 10, 9% and renewal rents increased by five 2% during the third quarter.

These spreads are on a cash basis, so they don't capture future contractual rent steps during the lease term.

As we've commented before during the past year, a number of tenants have requested keeping their initial rent at the same level as the expiring rent and then having greater rent steps in the future years.

In addition to getting higher rent steps in the future our tenant improvement commitment is notably lower.

Looking ahead at the remainder of 2021, we have no anchor leases scheduled to expire and we only have 154000 square feet of in line space expiring between now and year end.

That would suggest a fairly quiet fourth quarter in terms of leasing we continue to work very hard to capitalize on the demand for space across our portfolio creatively recapturing and relocating existing tenants. Accordingly, we expect to have another active and successful quarter in terms of leasing.

Additionally, we are also highly focused on getting new tenants open as quickly and efficiently as possible.

As you may recall, the economic spread between leased and build space at the beginning of the third quarter. The spread stood at four 5% representing $10 4 million in additional incremental annual rent on a cash basis.

We're pleased to report that during the third quarter tenants, representing $1 $9 million open their stores and started paying rent.

As it stands now we are on track to get opened more than double the amount of incremental rent that we achieved last year.

Taking the $1 9 million into account together with our leasing activity during the third quarter, which totaled $1 $5 million in new incremental rent as of September 30, approximately $10 million of incremental cash base rent has not yet commenced.

As it shaping up so far we currently expect to have a strong first quarter in terms of getting new tenants open and operating now I will turn the call back over to Stuart.

Thanks Rich.

Just to underscore rich's comments regarding leasing our biggest priority coming out of the pandemic is bringing the right best new tenants to our centers tenants that will complement our existing tenancies and will serve to grow customer frequency as well as enhance the appeal and long term value of our properties.

As rich indicated demand for space continues to be strong across our portfolio. There are a number of important fundamental factors that are driving the ongoing demand for space across our portfolio three of which I would like to highlight.

First is the location of our shopping centers our properties are well situated in the heart of densely populated communities communities that are sought after given their demographic profile by a growing and diverse number of necessity based service and destination tenants.

The second driver of the demand for space at our centers is the fact that our properties are anchored by strong well established supermarkets that have a long history of drawing very consistent reliable daily traffic to our shopping centers daily traffic that benefits all of our tenants.

The third driver that is often overlooked is that our shopping centers are located in sought after mature markets that are among the most highly protected markets in the country with significant barriers to entry, which in turn is greatly limited new supply in our core west coast markets over the years.

Looking ahead, given that civic leaders and city planners are very focused today on addressing the growing housing shortage on the west coast prioritizing New housing development, we expect that our shopping centers will continue to be highly protected going forward.

Lastly in terms of acquisitions beyond the properties that we currently have under contract. We are continuing to work hard at sourcing additional acquisitions, focusing primarily on off market relationship driven opportunities to acquire irreplaceable properties.

While these types of opportunities can be a bit unpredictable in terms of deal flow and timing. We are optimistic based on our ongoing discussions and the current level of interest of potentially having an active robust year in 2022 of growing our portfolio again.

In summary, with all of this in mind from potential acquisition opportunities to the strong demand for space in the underlying fundamental drivers. We continue to be excited about ROIC <unk> future prospects and we are confident in our ability to continue building long term value.

Now we will open up the call for your questions.

Operator.

Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your telephone keypad Gander Star then the number one on your telephone keypad.

Please turn Bella compile the Q&A roster.

Your first question comes from the line of Katy Mcconnell from Citi. Your line is now open.

Good morning Katy.

Good morning, everyone.

Alright, thanks for that.

Our leasing pipeline.

Would you expect that call to be quality.

Do you anticipate any meaningful ramp from delays, resulting from supply chain disruption or labor shortages in your market.

It's always hard to predict.

Currently expect that by year end tenants, representing around two or maybe as much as $3 million of the $10 million spread will open their doors and commence paying rent.

But I think as you touch on there could be some impacts from the supply chain, but so far.

We haven't seen a meaningful impact.

But it could going forward temporarily delay some tenants from getting open as they will too weak to get their fixtures.

Inventory.

Just hard to predict.

Okay Donald.

Just with the pricing of the acquisitions that you've secured to date.

And how much of that spread are you seeing generally between Mark David.

Scott.

Okay.

Well deals that are widely marketed in very good locations are trading right now in the five I would say sub five cap rate range on the west coast.

For us it's a matter of.

These relationships that we have and the ability to execute.

<unk>.

With with sellers that know us well and.

We have the ability to execute.

Pretty quickly or probably quicker than most sellers and because of our depth of experience and operating for close to 30 years, we have a pretty good understanding of the issues that others that other potential buyers do not or have trouble getting their hands around.

Okay, great. Thank you.

Thank you. Thank you.

Your next question comes from the line of Wes Golladay from Baird. Your line is now open.

Hey, good morning, Brad.

Hey, Stuart I wanted to go back to that comment about a robust 2022 could you maybe put that in context of what ROIC was doing between 2011 2017 is the pipeline somewhat comparable to that or maybe in between which you've been doing the last few years.

Well of course during the pandemic.

But yeah going back before the pandemic in the earlier years in mid years of the company, we were acquiring close to 2% to $300 million a year in assets.

Klein for 'twenty two is looking as robust as it was back then right now.

Okay Fantastic and then.

I guess you did mentioned on the call.

Planned recaptures is that going to be meaningful or is it will be just mainly shops or would there be any anchors in that.

I think again another one that's hard to predict it's obviously driven by.

Our ability to recapture but there will probably be a mix of combining some shop space to accommodate larger format tenants along with.

Potentially right sizing some anchors as well, which we've done throughout the years.

Okay and was there any meaningful changes to any of the drivers of the guidance I think you reaffirmed it for the <unk> share you mentioned, maybe some ATM issuance may drive their acquisitions, but I guess looking at the the core same store NOI and bad debt is that all tracking what you expected.

Yes.

Excuse me I would say we kept we just reaffirmed our basically the biggest wildcard for it.

The rest of the year is getting the tenants open as rich mentioned, we currently expect to have a strong quarter getting those tenants in the fourth growth I'm, assuming that happens it could be towards the higher end.

But that could potentially be offset or if we were to raise a little bit more equity during the quarter and the timing of events and the amount of equity we raise it.

Great. Thanks, everyone.

Thank you.

Your next question comes from the line of RJ Milligan from Raymond James Your line is now open.

Good morning R J.

Hey, Good morning, I guess my first questions for rich.

The $10 million gap between economic and leased occupancy can you talk about the cadence of that $10 million coming online when do you expect that to.

Being fully in the numbers.

So again I think we're hopeful during the fourth quarter, we could get as much as 3 million too.

Upwards of $3 million commenced obviously, we'll be also adding to that number during the quarter.

And so we would expect that of the existing $10 million. The majority of that will be done by the second quarter, our online by the second quarter of 2022.

But again, we'll be adding to that number throughout that period of time.

Okay.

Guys in your prepared remarks, you mentioned the back filling some of the Covid fallout with stronger tenants I'm, just curious which types of tenants are still on the watch list.

Given sort of the recovery that we've seen post COVID-19 do you expect fallout to be long or short or less than your long term average over the next say year or two given the fact that you have been successful and back filling the vacancy that you've had.

Yes, I mean, I think the one of the tenants that have.

Really struggled through Covid included the dry cleaner some of the more.

Boutique type of fitness tenants.

And some of the personal services nailed.

Nail salons, threading and things like that.

Most of those tenants are back open and operating and doing quite well at this point.

But there probably will still be some fallout.

Tenants that got overextended during the pandemic.

Okay, and then one last question, which is more bigger picture for Stuart.

Stuart you and a lot of your peers seem to be ramping up acquisitions, we should obviously seem too big mergers in the sector. Do you think we're at the start of an acquisition cycle or do you think this is just a smaller window, where buyers see upside in NOI due to COVID-19 disruption and I guess, maybe you could put that also in the context of record low cap rates for the sector.

Where there is opportunity to increase those going in yields.

Well, obviously, the global picture will drive a lot of this whether it's interest rates or anything that could happen in terms of the cut.

Coming out of the pandemic something were to happen.

But when you look on the ground today the pipeline of deals.

It's extremely strong.

There seem to be a lull there during the pandemic, where sellers pulled back and now that things now that money is available both from a financing and a capital perspective.

It certainly has.

Accelerated in the minds of a number of owners to bring their properties to market.

I think that's going to continue for a while.

And I think back from the sector perspective, I think it will certainly play well into.

Wheat growing their portfolio during the next certainly six months to a year.

Depending on what happens of course with interest rates and other things that we cannot control.

Okay, great. Thanks, guys.

Thank you.

Your next question comes from the line of Hawaii, and I'll be your <unk> from BMO capital markets. Your line is now open.

Hi, good morning for the time.

Good morning.

Just hoping you could going back to I think it was.

<unk> question on guidance for same store NOI.

Color on where you expect could be given the year to date I think it's two two relative to our previously communicated range of Q4 and what the drivers are is it just the lease commencement between between the high and low end of whatever the range is today.

Well I guess, what I would say.

Each quarter bounces around a little bit, but it largely depends on the timing of getting new tenants opened in the fourth quarter as it stands now.

Same center NOI for the year, which is still being 3% range.

Okay.

And then on the rent bumps that you talked about.

Negotiating with tenants.

To have a similar new rate when they on the new lease, but getting bigger bumps can you just describe or quantify how much rent bumps have moved in and what the split is between kind of fixed and floating.

What our callers there may be in place given inflation a bit higher than we all anticipated a year ago.

Sure I mean, I think in terms of renewals some of those flat rents or per the terms of the lease.

Of that particularly you would see with an anchor tenant.

But in terms of the shop tenants they just do.

Don't want to see a big spike in the rent right away upfront, so keeping that rent flat helps them come out of the pandemic and then we're getting higher rent steps on the backend but on average.

First shop lease youre going to see a three maybe a three 5% annual increase for that extended term.

Okay, great. Thank you very much.

Thank you.

Your next question comes from the line of Craig Schmidt from Bank of America. Your line is now open.

Great Good morning, Craig.

Good morning.

I'm wondering if the funding of new acquisitions in 'twenty two will include additional.

Asset sales.

The answer is we are currently finishing up the budgeting process right now it will be done shortly and then we will begin analyzing 'twenty two in terms of asset sales.

The answer to your question is probably yes, depending on obviously market conditions.

But yes, we will continue to look at churning some of our capital and as it relates to growing our portfolio in 'twenty two.

Great.

Are you able to give us a sense of what the disposition cap rates was for the 70 million you sold year to date.

Yes, the blended cap rate Craig was about 7%.

In Sacramento.

Great.

And then you.

You're pretty much approaching your high.

Occupancy you still think you can take it higher.

By the end of the year or.

Given the 97 nine previous peak.

Youre 97, four may not move.

Well look I think if the demand continues to stay at the current levels that we've seen I.

I do think we're going to get back to the pre pandemic occupancy levels a lot quicker than most.

Whether that seat.

The fourth quarter of the first quarter of next year I do think that.

We will get to that number pretty quickly.

And we May go beyond <unk> at this point given how strong the demand is from that we're seeing out there in terms of filling primarily are in line space.

So I am excited looking ahead in terms of.

Where things are going.

The again the demand has been extremely strong but to think that we could pick up 50 basis points in just one quarter alone is quite an achievement.

Not only for our team, but also showing you how strong the market is out west.

Great. Thanks, a lot.

Thank you.

Your next question comes from the line of Todd Thomas from Keybanc Capital. Your line is now open.

Good morning, Todd Hi, good morning.

I wanted to follow up on your comments around the acquisition pipeline moving forward it sounds like youre seeing potential to deploy capital in that $2 million to $300 million range similar to where the company was during much of the last decade is the appetite for investments there would you look to do that.

Volume if there was an opportunity and we continue to hear about cap rate compression and more competition for retail properties do you think that you can still achieve the 6%.

Going in yield as you move forward.

Well.

No.

Yes, it's obviously a tough answer a tough question to answer given that you are asking me to look forward, but in terms of what we see in our pipeline right. Now I think we can certainly be buying around that number may be but probably a bit less given the cap rate compression, but more importantly, what we're buying has juice.

That's what's really important the ABR on these assets are low gives us the ability to do what we've done in the past in terms of getting very strong increases going forward and more importantly, delivering that yield about 100 to 150 basis point spread after buying these assets given the acumen from our manner.

<unk> skills and leasing.

So I'm very positive looking at where we sit right now as we move into 'twenty, two and I do think.

That given our cost of capital today that we'll be able to achieve those results.

Given.

Hopefully given market conditions stay the way they are.

Yeah.

Okay. That's helpful and maybe rich in terms of the <unk>.

ABR for the portfolio today, the AVR for some of the acquisitions.

We've seen retail sales on a national basis sort of pickup and reset at a higher level.

Is there any way to sort of.

Characterize the portfolio's health ratio, our occupancy cost ratio today.

Relative to where it was maybe pre pandemic just given some of the increases in sales that we've seen.

Across across the board.

Yes, well I think as you're touching on we are seeing.

Across the board for the tenants that report sales.

Strong growth in those sales numbers.

We don't.

And our business get sales from all the tenants. So some of those are a bit hard to nail down exactly what the increases but from anecdotal conversations with the tenant base. Many of them have had very strong sales and obviously thats improving there.

Their occupancy cost.

Okay. I know historically, you don't collect a lot of percentage ran our overage rent due.

Do you anticipate seeing an increase in that in the near term.

Yes, I mean, I think again, depending on the use there have been some very strong sales some have pushed tenants into percentage rent and.

Whether that's offset by other tenants that have decreased in their sales what that net is going to be we really won't know until probably the first quarter. Because some of these sales are done on an annual basis calendar year.

But I would expect that it will be a bit stronger than <unk>.

Last year.

Okay.

And then just back to the acquisitions real quick.

Ed.

How should we think about.

[noise] funding acquisitions, if you if you do get back to sort of the level that youre talking about.

Sort of in the $200 million range or may be more.

<unk> been active on the ATM you continue to be efficient through the ATM at the current level. Our pace would you anticipate needing to raise capital through maybe an offering if you return to that $2 million to $300 million level or more.

Are you comfortable.

With that where the stocks trading today.

Mike on the on that.

Evolution for our funding we would likely utilize our credit line will be initially and we'll also look to raise equity and stuff with closing those transactions. Obviously the goal one of the goals need to keep our current financial ratios attacks as far as the market conditions, it's very subjective to us about where the stock prices, but we'll see how it plays out over the next two years.

Six months.

So it's a combination of <unk>.

Free cash flow, which is very strong right now given our payout ratio. It's a combination of hitting the market. When we think it's the right time to head and its combination of above turning our capital in terms of asset sales. It's those three that will help fund this pipeline going forward Todd.

Okay got it what is free cash flow.

What was free cash flow in the third quarter roughly.

It's probably about $12 5 million Thats about 40 $40 million or so for the year.

It's a big number because of the reset of the dividend.

Okay, Great alright, thank you.

Thanks, John.

Your next question comes from the line of Mike Mueller from Jpmorgan. Your line is now open.

Yes, hi, good morning, Michael.

Hey, good morning.

Just a quick follow up to Craig's question, what's the highest if you look at this portfolio or maybe even back to pan what's the highest physical occupancy level that you generally run at.

If you go all the way back to the Pan Pacific days.

The management team today, which is the same management team.

<unk>.

We ran as high as I believe it was in the low 98 percentage range.

That's where we were during the Pan Pacific is which is basically 100% occupied because youre always going to have a tenant that is going to either through a <unk>.

<unk>, our partnership breakup or other things.

Not extend the term of their lease or not renew so you'll always have some fractional vacancy at that level, you are basically pretty well leased and wet and that helps us drive rents at that point I mean, that's the secret of getting these high rents that we've reported year after year, both at Pnp and ROIC is that occupancy.

<unk>.

And we certainly see us heading in that same direction right now okay.

Okay and at 98% leased that would translate into about what on the physical side on the build side.

So again, it's hard to predict because we don't know when thats going to come online, but it's probably a.

2% to 3% spread in terms of build versus lease at that point I would guess.

Got it Okay R gap right now.

Right now yes.

But because of the pandemic, but the other thing again, Todd and I think you know this not Todd, but Mike I think you know that well is that.

The company leases double what rolls over in the portfolio year. After year. So that's been sort of active very active versus being proactive and I think that continues to look like it's where we're heading right now in terms of the velocity.

Our tenant base and achieving strong re leasing spreads.

Got it I appreciate it thank you.

Definitely.

Your next question comes from the line of Katy Mcconnell from Citi. Your line is now open.

Great Good morning here.

Michael how are you very good steward.

Mike.

So I had a couple of questions.

As you outlined sort of the capital sources free cash flow ATM sales how are you thinking about.

Monetizing any of the entitlements on one side to generate capital in advance those projects, but also thinking about raising institutional capital either JV or fund format or in other ways in terms of a another sort of tool in the toolkit to be able to fund that.

These great acquisitions that you are being able to source given your long term.

Price pressure from the market.

So in terms of entitlements or in terms of our.

Our densification.

That is going well and we are looking at potentially selling off.

Two of the three projects right now and those should be fully entitled Bellevue is already entitled.

<unk> construction drawings for permitting but pinole in novato is very close to being entitled and the goal. There is probably to sell those assets that could generate another $30 million to $40 million of proceeds.

In terms of Jv's I mean, as you probably know.

And I think you've known us now for almost three decades.

Yeah.

And I guess all right.

Go ahead.

And then if you looked at other things and I would assume other people are calling you don't want to get into the market and whether you wanted to use that capital.

Capital or not.

Complicating the story and things like that I know you've been open to it I just didn't know where your current mindset was and whether the institutional investors are more aggressively calling you to.

To deploy that capital.

Yes look they are aggressively calling us.

And we are looking at as we always do we have an open mind.

For everything.

But it's got to be the perfect deal as you would say for us to even consider that but certainly at the present time, we're not considering going off balance sheet. It's just it's just from experience we've always learned.

Decade after decade market after market as markets go turn.

Back and forth that having a clean structure is what investors really want they want a straightforward transparent structure that in the in the end really delivers.

What I would call very transparent results.

Okay, and then Bellevue is supposed to I think originally start.

In the first quarter I assume that's not the case right now she is there sort of an updated timing as.

As we think about the growth potential in these projects.

Yes, I mean look the project's going well just in terms of trying to get to the finish line and getting a permit however.

There is so much activity in Bellevue in the city of Bellevue right now that the city just can't handle the amount of permitting whether it's Amazon or others.

So we anticipate now this project really starting in the third or fourth quarter of next year and it's just because theres. So much demand out there I mean every time, we get on the phone.

With our our construction people at our project manager, although we are moving through the process. We just keep hearing that the city is just keeps getting backlogged and more backlog the more backlog so yes.

Right now it does look like it's going to be the third or fourth quarter of next year before that project could break ground.

Okay, Great and then just last one that we had was just sort of reconciling a little bit on the guidance into <unk> and thinking about the run rate in variables for 'twenty two.

I know right now you've maintained guidance, which would imply 24 to 28 point range for the fourth quarter.

<unk>.

Wide range, especially given the fact you did 25.

Third quarter, which would seem the base I recognize you have the asset sale that happened late in the quarter I recognize the acquisitions could be later it just seems like even if the acquisitions are later, even if they happen to beginning the quarter is probably only a penny if that.

Just given the yield and one quarter contribution were already in November.

Sort of pushed like what gets you to 28.

And what in the world would ever get either 24. It just seems like your guidance really should be more 'twenty five 'twenty six.

Rather than this wider range.

Well I think as rich touched on I mean, a lot of this is getting these tenants open and paying rent and we and we are that is moving along at a pretty good pace, but there's so much uncertainty out there in terms of either supply.

Or the fact that retailers are still having a hard time getting good employees that that.

It's just been.

Conservative, but really erring on the.

The side of being conservative that you still have a pandemic out there and although.

Getting out of this pandemic you just don't know what can happen and we as a management team, we just tend to be more conservative.

No I get that I just didn't know if there was something I mean, you are talking about every Penny Lane III I didn't know if there was something that.

Take care to the high end, which 2000 eighteen's like a pretty big ramp from 25 and by the same token Stuart.

See why you should step back SFO heading into the fourth quarter and I understand all the conservatism, but thats your range right and so I'm just trying to understand if theres variables that we don't know about that would drive it one way or the other because as we think about 2020 to really understanding what the <unk> is in the run rate Youre.

This number currently are at like a buckle, Kevin buckled weight.

627 cents a quarter so.

Where you are coming out of and what the drivers are for next year are very important. So that's what I was trying to get a little bit more meat on the bones to understand that.

Well, the only thing Thats out there Mike that.

That could move the needle a bit as we are litigating with a couple of very large tenants do really do to them shutting down it actually didn't shut down during the pandemic. They just didn't pay rent.

And we've reserved most of that.

And so if that gets resolved during the fourth quarter that could move the needle.

But there.

There's nothing onetime in that's onetime in nature, I'm really thinking correct.

That is correct is that embedded in the 24 to 28 four that's in addition to that Ratably.

No. It is not that could move the needle.

Again, we're erring on the side of being conservative and.

And we I don't know if theres anything else from a just from a tenant perspective that you see.

Yeah.

Well I'm just wondering like what takes you up to 28. Thank you Youre doing 25 in the third quarter moving up three tenths of a big thing.

And if youre at 28 in the fourth quarter when the numbers are too low for next year. So that's.

It's just an awfully wide range I can understand the conservatism that 'twenty four 'twenty five.

I'm just trying to understand how you get to 27 28.

Well I mean again it could be just the fact that we get a lot more tenants open and paying rent thats really what could drive that number.

And again, we're erring on the conservative side, but that's really what in my view could drive that number up.

It doesn't happen in the fourth quarter as happened in the first quarter. So as we think about one Q you should be getting up to that higher end level pending.

Aggressive dispositions or aggressive equity rates.

Right.

That's correct.

So then that has an upward bias as we think about next year enrolling in that if you. If we only do $25 26 in the fourth quarter you get those tenants open later, while Youre rolling in at 27 28, if we start the year.

Yes.

Alright, thank you so much.

Thank you.

Your next question comes from the line of Linda <unk> from Jefferies. Your line is now open.

Good morning, good morning.

In terms of the dividend is the view that you would continue to maintain the current rate in order to allocate that cash towards acquisitions and de levering.

In terms of the dividend we can.

Tend to continue conserving as much cash flow as possible and Thats really our.

Top priority in terms of the dividend with that in mind, we intend to continue to maintain a dividend that is in line with the minimum amount required for rates.

Got it.

And then just in terms of your longer term growth expectations, you've discussed getting two and a half to three 5% on a blended basis from contractual rent increases across the portfolio. How much do you think external growth.

<unk>.

'twenty two or 'twenty three.

Well again hard to predict in terms of how much we're going to acquire at this point, but if we certainly.

Meet some of the goals that we think we can set for the year I think that will have a positive.

Benefit in terms of earnings growth.

It just depends on how much we acquire and how fast we acquire it.

In terms of that earnings growth, but.

We're looking you know things are looking pretty positive sitting here today as we look into next year.

Thanks.

Your next question comes from the line of Chris Lucas from capital. One your line is now open.

Good morning, Chris.

Good morning, how are you guys doing.

We're doing well how about yourself.

Good.

Just a couple of follow ups that Stuart just.

Maybe if I could.

Mike on your.

On your balance sheet can you remind us with your guide rails are as it relates to leverage from a net debt to EBITDA basis, you're sort of in the mid sixes roughly right now.

You were able to get down to six six.

Obviously, they're mid <unk> mid to low sixes is really kind of a goal.

Okay, and then on the kind of going back to some of the other questions as it relates to just sort of the cadence.

Yes.

Rent commencing.

So rich you mentioned $2 million to $3 million in the fourth quarter were one month and im assuming that Theres a point in December which nothing really gets deliberate. So we've kind of got maybe four or five weeks that we're really looking at that as the variance here is there a single tenant or is it just.

A variety of in a number of tenants that is sort of the delta here.

In terms of open it's a variety of tenants I mean, there are some of the larger tenants in there as well and you know.

That are working through permitting processes, which are a bit more drawn out.

Given how busy the cities are Stuart touched on.

So.

Go ahead.

I was just going to say is permitting the the biggest wildcard for you it's not material, it's not getting the work done.

It's the it's getting the final permits out.

Yes, I would say that's probably the biggest driver is the permitting process I mean, we do have.

A couple of tenants that have experienced some.

Some delays in getting.

Whether they are fixtures or <unk>.

<unk> and installed and we have a couple of tenants that.

Our fully built out, but <unk> had some challenges finding finding employees.

But in some of those cases, the rent is going to commence regardless of their ability to find an employee.

Okay and then.

Of the total signed but not opened.

Bucket the $10 million.

Is there any anchor leases in that bucket or is it all shop space.

There is an anchor lease in that bucket.

Yes, we're working through the permitting process right now.

And you still expect to have everything all of that $10 million essentially in place and paying by the middle of next year.

Yes.

Okay.

Oh the last question I had just had to deal with the mix of sort of tenants that are in your portfolio as it relates to national versus regional versus local.

Has that mix shifted at all.

<unk> away from one bucket to the other.

Pre COVID-19 to now.

I don't think so I mean, I think again it always depends on the space that you have available that would fit a particular user's needs.

I think that.

There may be fewer of the local tenants.

Out there today, but there are still local tenants out there.

And we are seeing very strong demand from the regional operators as well as the nationals.

Okay and then Mike My last question is for you it relates to just the sort of.

So second quarter, you had sort of reversals to bad debt that was it a positive.

GAAP income and then this quarter. The number was negative again was there any positive reversals. So the net number was negative or can you give me a little more detail as to what was in that negative 548 share.

The 548 near vertical during the third quarter as well.

A careful tenant by tenant analysis, we reversed.

932000 of previous bad debt reserves, but then that was offset by approximately $1 5 billion of new bed that booked in the third quarter and Thats what resulted in $5 48.

That equates to <unk> 40.

Less than 1% of our total revenue, which is kind of our historical norm.

Okay. Thank you that's all.

Yeah definitely.

Your next question comes from the line.

Mr. <unk> from Wells Fargo. Your line is now open.

Good morning, Kevin.

Good morning, Thank you for taking my call.

Just wondering it looks like the year to date leases signed have a shorter term versus what you were signing in 2019, I guess I'm just wondering if there were specific reasons that either.

Or the tenants are looking to sign shorter term leases today or if it's just kind of a mix.

It always is a mix.

There have been a few tenants that have.

Wanted to shorter term, which.

Honestly I think works to our advantage.

But because in three years' time.

Three years lease I think we're going to be in a more of a landlord market at that point.

But.

Again, it really depends I mean, some tenants are coming to us looking to lock in 10 years of term.

<unk> had several tenants this quarter who.

Our exercising a five year option, but asking for more committed term right now I think we see it a lot with the restaurant tenants I think they want to secure those locations.

For the long term.

So we don't like to handout options, we'd rather get committed term.

No.

It is a bit of a mixed bag.

Okay. Thanks, and then maybe just one question for you and you spoke about some potential additional pandemic related fallout from some of the smaller shop tenants that are overextended I guess I'm just wondering if that follow up is still greater today than you've seen historically or if you feel like the environment for move outs is fairly normal.

At this point.

I think it's really fairly normal.

There is always a churn as Stuart touched on and.

I don't think were not seeing a lot of distress in the tenant base right now it's a handful of tenants that struggled through the pandemic.

Okay, Great and then maybe just one last one for Stuart a couple of acquisitions you closed on in the third quarter and they have pretty high occupancy in place I guess I'm. Just wondering if you could talk about the specifics of the two assets that you acquired.

That can drive that upside 100, 150 basis points that you referenced and then maybe give us a sense for how long it will take to capture that upside.

Yeah.

Well the upside is really coming through the efficiency of management in terms of on the margin, it's coming through leasing up to.

To our historical norms, which is 100%.

And we are have made some really nice strides since closing the transactions to hit those goals.

And it's really to reposition a couple of the vein.

Some tenants that are coming up for renewal that we know won't renew its a combination of all of those.

And that's progressing very well and.

Im sitting here today, and I'm, probably going to tell you that the yields are going to move pretty quickly in terms of heading.

Getting towards the thresholds that we like to move these yields to after buying these assets. So.

Very very high quality assets with.

With very good tenants and we're excited about these acquisitions.

A couple of these deals happen before that we came out of the pandemic in terms of those relationships and getting them tied up and.

And we have the advantage of obviously striking because of buying at the right price.

To really really drive some nice value for shareholders.

In a very short period of time.

Okay, great. Thank you for your time.

Thank you.

Yeah.

I am showing no further questions at this time I would now like to turn the conference Matt Constancia work teams.

Okay.

In closing I'd like to thank all of you for joining us today as always we appreciate your interest in ROIC.

Any additional questions. Please contact Mike Rich or me directly also you can find additional information in the company's quarterly supplemental package, which is posted on our website as well as our 10-Q lastly for those of you that are planning to participate in NAREIT Virtual conference in a few weeks from now we look forward to connecting.

With you then.

Thanks, again and have a great day.

This concludes today's conference call. Thank you all for your participation you may now disconnect.

[music].

Welcome to retail opportunity investments 2021 or third quarter conference call participants are currently in a listen only mode. Following the company's prepared comments the call will be opened up for questions. Please note that certain matters discussed in this call today constitute forward.

We're looking statements within the meaning of federal Securities laws, Although the company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions. The company can give no assurance that these expectations will be achieved.

Such forward looking statements involve known and unknown risks uncertainties and other factors, which may cause actual results to differ materially from future results expressed or implied by such forward looking statements and expectations.

Information regarding such risks and factors is described in the company's filings with the Securities and Exchange Commission.

Including its most recent annual report on Form 10-K.

They supply some car age to refer to the company's filings with the S. E C regarding such risks and factors as well as for more information regarding the company's financial and operational results. The company's filings can be found on each fab site.

Now I would like to introduce our <unk>.

Modulators to return the company's Chief Executive Officer.

Thank you good morning, everyone with me today is Michael Haines, Our Chief Financial Officer, and Rick <unk>, Our Chief operating Officer building.

Building on the strong momentum that we generated during the second quarter as the west coast fully reopened again.

Can you just definitely advanced our business as we progressed through the third quarter.

Capitalizing on the strong demand for space, we increased our portfolio lease rate to over 97% again, where it had been for six consecutive years prior to the pandemic.

Along with continuing to achieve solid leasing results. We are also enhancing our portfolio through our investment program.

Specifically during the third quarter, we acquired an excellent grocery anchored shopping center located in Silicon Valley.

The property is ideally situated at the entrance to our highly desirable affluent master planned residential community with an average household income of over $237000.

The shopping centers anchored by new seasons supermarket, which is a strong regional operator akin to whole foods and is a perfect fit for the surrounding community.

Beyond these two acquisitions. We also have two additional grocery anchored shopping centers currently under contract and separate transactions that together total about $62 million. Both properties are located in the Seattle market in both feature strong national supermarket operators.

Like our existing portfolio. These new acquisitions feature very strong supermarket operators all of which are long time tenants of ours and all have performed exceptionally well throughout the pandemic.

In terms of pricing the overall blended yield on the $123 million of acquisitions is approximately 6% going in with the opportunity to increase that youll, notably during the next 12 to 24 months.

Taking into account our second quarter disposition, we have sold $70 million of properties in total this year.

Now I'll turn the call over to Michael Haines, our CFO to take you through the details Mike. Thanks Stuart for the three months ended September 32021. The company had total revenues of $71 4 million as compared to $69 8 million in total revenues from year ago. The increase was largely attributable to our rent collection rate returning to being.

In line with our historical pre dependent norms, resulting in lower bad debt, which was less than 1% of total revenues in the third quarter again in line with our historical run rate.

With respect to net income for the third quarter of 2021, GAAP net income attributable to common shareholders was $21 1 million equating to <unk> 17 per diluted share and for the first nine months of 2021, GAAP net income was $45 million or <unk> 38 cents per diluted share.

Included in net income is the gain on sales from property dispositions as Stuart noted with selling the remaining Sacramento properties. The company recorded a $12 $9 million gain in the third quarter.

For the first nine months, we reported a total of $22 $3 million in gains which includes the property sale that we completed in the second quarter.

In terms of funds from operations for the third quarter of 2021, <unk> increased to $32 6 million equating to 25 per diluted share, which brings our <unk> for the first nine months to 74 per diluted share.

Same center net operating income for the third quarter increased 4% on a cash basis as compared to a year ago for the first nine months of 2021 same center NOI increased by two 2%.

The ATM issuance in the property sales, we have raised approximately $116 million of equity proceeds in total year to date, we have utilized the majority of these proceeds together with cash flow from operations to fund our shopping center acquisitions.

Turning to our balance sheet, we continue to have nothing outstanding on our $600 million unsecured credit facility.

<unk> ahead, we expect our credit line balance will remain minimal if not zero for the remainder of 2021.

With our credit line is zero of the Companys outstanding debt today is entirely fixed rate and in terms of debt maturities nothing is maturing this year and in 2022, we'll have two small mortgages maturing totaling about $23 million. Our goal is to pay these mortgages off with cash flow from operations and possibly some additional equity issuance proceeds depending upon market conditions.

In terms of the vessel.

Continue to expect <unk> for the full year 2021 to be between 98 and $1 two per diluted share. The key factors that will drive where we finished the year in that range are the timing of closing the pending acquisitions as well as the timing of new lease commencements, possibly offset by raising additional equity through our ATM again, depending upon market conditions, our goal is to be well positioned.

In terms of our balance sheet as we look towards 2022, now I will turn the call over to <unk> COO rich thanks, Mike starting with our portfolio lease rate as Stuart highlighted during the third quarter, we increased our portfolio lease rate to over 97% again.

Specifically our portfolio increased to 97, 4% as of September 30.

Breaking our lease rate down between anchor and non anchor space. Our anchor space continues to hold firm at 100% leased where it has been throughout the pandemic.

In fact, our anchor space has been 100% leased for 19 consecutive quarters now approaching five years in a row.

Driving our lease rate higher as the demand for space, which continues to be impressively strong across our portfolio in core markets and this demand is coming from a wide range of necessity based service and destination tenants, especially those seeking inline space.

In fact during the third quarter, we signed several new tenants that were forthcoming and telling us that they were coming to our centers specifically.

Cause of our performance over the past year and their interest in building a long term relationship with ROIC team.

We renewed 72 tenants 69 of which were in line space renewals and three that were anchor renewals two of those anchors being longtime supermarket tenants and one being a longtime pharmacy tenant.

With respect to releasing spreads same space comparative rents on new leases increased by 10, 9% and renewal rents increased by five 2% during the third quarter.

These spreads are on a cash basis, so they don't capture future contractual rent steps during the lease term.

In addition to getting higher rent steps in the future our tenant improvement commitment is notably lower.

Looking ahead at the remainder of 2021, we have no anchor leases scheduled to expire and we only have 154000 square feet of in line space expiring between now and year end.

While that would suggest a fairly quiet fourth quarter in terms of leasing we continue to work very hard to capitalize on the demand for space across our portfolio creatively recapturing and relocating existing tenants. Accordingly, we expect to have another active and successful quarter in terms of leasing.

Additionally, we are also highly focused on getting new tenants open as quickly and efficiently as possible.

As you may recall, the economic spread between leased and build space at the beginning of the third quarter the spread stood at four 5% representing $10 $4 million in additional incremental annual rent on a cash basis.

We're pleased to report that during the third quarter tenants, representing $1 9 million open their stores and started paying rent.

As it stands now we are on track to get opened more than double the amount of incremental rent that we achieved last year.

Taking the $1 9 million into account together with our leasing activity during the third quarter, which totaled $1 5 million in new incremental rent as of September 30, approximately $10 million of incremental cash base rent has not yet commenced.

As it's shaping up so far we currently expect to have a strong first quarter in terms of getting new tenants open and operating now I will turn the call back over to Stuart.

Thanks Rich.

The second driver of the demand for space at our centers. The fact that our properties are anchored by strong well established supermarkets that have a long history of drawing very consistent reliable daily traffic to our shopping centers daily traffic that benefits all of our tenants.

Now we will open up the call for your questions.

Operator.

Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your telephone keypad again Star then the number one on your telephone keypad.

Please standby will compile the Q&A roster.

Your first question comes from the line of Katy Mcconnell from Citi. Your line is now open.

Good morning, Ken good.

Good morning, everyone.

So first for the leasing pipeline at what point would you expect that call to be fully online.

Do you anticipate any meaningful rent commencement delays, resulting from supply chain disruptions or labor shortages in your market.

It's always hard to predict.

We currently expect that by year end tenants, representing around two or maybe as much as $3 million of the $10 million spread will open our doors and commence paying rent.

But I think as you touch on there could be some impacts from the supply chain, but so far we haven't seen a meaningful impact.

But it could going forward temporarily delayed some tenants from getting open as they will too weak to get their fixtures.

Others inventory.

Just hard to predict.

Okay Donald.

Can you just what's the pricing of the acquisitions that you've secured to date.

And how much of the spread are you seeing generally between mark to market.

The P&L today.

Well deals that are widely marketed.

Very good locations are trading right now in the five I would say sub five cap rate range on the west coast.

For us it's a matter of these.

These relationships that we have and the ability to execute.

With with sellers that know us well and.

<unk>.

We have the ability to execute.

Pretty quickly or probably quicker than most sellers and because of our depth of experience and operating for close to 30 years, we have a pretty good understanding of the issues that other that other potential buyers do not have trouble getting their hands around.

Okay.

Okay, great. Thank you.

Thank you. Thank you.

Your next question comes from the line of last call day from Baird. Your line is now open.

Hey, good morning.

Hey, Stuart I wanted to go back to that comment about a robust 2022 could you maybe put that in context, what ROIC was doing between 2011 2017 is the pipeline somewhat comparable to that or maybe in between what you've been doing the last few years.

Well of course during the pandemic really isn't too much but going back before the pandemic in the earlier years in mid years of the company, we were acquiring close to $2 million to $300 million a year in assets the.

The pipeline for 'twenty two is looking as robust as it was back then right now.

Okay Fantastic and then.

I guess you did mentioned on the call.

Planned recaptures is that going to be meaningful or is it just mainly shops or will there be any anchors in that.

I think again another one that's hard to predict it's obviously driven by.

Our ability to recapture but there will probably be a mix of <unk>.

Binding some shop space to accommodate larger format tenants along with.

Potentially right sizing some anchors as well, which we've done throughout the years.

Okay and was there any meaningful changes to any of the drivers of the guidance I think you reaffirmed it for the <unk> share or you mentioned, maybe some ATM issuance may drive their acquisitions, but I guess looking at the the core same store NOI and bad debt is that all tracking what you expected.

Yes, I would say.

Excuse me I would say so yeah, we kept we just reaffirmed or basically the biggest wildcard for it.

The rest of the year is getting the tenants open as rich mentioned, we currently expect to have a strong quarter getting those turns from the fourth growth I'm, assuming that happens it could be towards the higher end.

But that could potentially be offset or if we were to raise more equity during the quarter, the timing event and the amount of that equity raise it.

Great. Thanks, everyone.

Thank you.

Your next question comes from the line of RJ Milligan from Raymond James Your line is now open.

Good morning R J.

Hey, Good morning, I guess my first questions for rich.

The 10 million gap between economic and leased occupancy can you talk about the cadence of that $10 million coming online when do you expect that to be in fully in the numbers.

So again I think we're hopeful during the fourth quarter, we could get as much as $3 million.

Upwards of $3 million commenced obviously, we'll be also adding to that number during the quarter.

And so we would expect that of the existing $10 million. The majority of that will be done by the second quarter, our online by the second quarter of 2022.

But again, we will be adding to that number throughout that period of time.

Okay.

As in your prepared remarks mentioned the back billing of some of the Covid fallout with stronger tenants I'm, just curious which types of tenants are still on the watch list.

Yes, I mean, I think the one of the tenants that have really struggled through COVID-19 included the dry cleaners some of the more.

Boutique type of fitness tenants.

And some of the personal services <unk>.

Nail salons, threading and things like that.

Most of those tenants are back open and operating and doing quite well at this point.

But there probably will still be some fallout.

Tenants that got overextended.

During the pandemic.

Okay, and then one last question, which is more bigger picture for Stuart.

You and a lot of your peers seem to be ramping up acquisitions, we should obviously seen two big mergers in the sector. Do you think we're at the start of an acquisition cycle or do you think this is just a smaller window, where buyers see upside in NOI due to COVID-19 disruption and I guess, maybe you could put that also in the context of record low cap rates for the sector.

Where there is opportunity to increase those going in yields.

Well, obviously, the global picture will drive a lot of this whether it's interest rates or anything that could happen in terms of the coming out of the pandemic something were to happen.

But when you look on the ground today.

Pipeline of deals.

Extremely strong.

There seem to be a lull there during the pandemic, where sellers pulled back and now that things now that money is available both from a financing and a capital perspective.

Certainly has.

Accelerated in the minds of a number of owners to bring their properties to market.

I think that's going to continue for a while.

And I think that from the sector perspective, I think it will certainly play well into.

Weeks growing their portfolio during the next certainly six months to a year.

On what happens of course with interest rates and other things that we cannot control.

Okay, great. Thanks, guys.

Thank you.

Your next question comes from the line of <unk> <unk> from BMO capital markets. Your line is now open.

Hi, Good morning, Tom Good morning.

Just hoping you could going back to I think it was.

<unk> question on guidance for same store NOI.

Color on where you expect could be given the year to date I think it's too too relative to the previously communicated range of Q4 and what the drivers are is it just the lease commencement between between the high and low end of whatever the range is today.

Well I guess, what I would say.

Each quarter bounces around a little bit, but it largely depends on the timing of getting new tenants opened in the fourth quarter as it stands now.

Same center NOI for the year, which should still be in the 3% range.

Okay.

And then on the rent bumps that you talked about.

Negotiating with tenants.

To have a similar new rate when they are on the new lease, but getting bigger bumps can you just describe or quantify how much rent bumps have moved in and what the split is between kind of fixed and floating and what our callers there may be in place given inflation a bit higher than we all anticipated a year ago.

Sure I mean, I think in terms of renewals some of those flat rents or per the terms of the lease.

<unk>, you would see with an anchor tenant.

But in terms of the shop tenants.

Don't want to see a big spike in the rent right away upfront, so keeping that rent flat helps them come out of the pandemic and then we're getting higher rent steps on the backend but on average.

First shop lease youre going to see a three maybe a three 5% annual increase for that.

Stemmed the term.

Okay, great. Thank you very much.

Well thank you.

Your next question comes from the line of Craig Schmidt from Bank of America. Your line is now open.

Great Good morning, Craig.

I'm wondering if the funding of new acquisitions in 'twenty two.

Food additional assay.

Asset sales.

The answer is we are currently finishing up the budgeting process right now and will be done shortly and then we will begin analyzing 'twenty two in terms of asset sales.

The answer to your question is probably yes, depending on obviously market conditions.

But yes, we will continue to look at churning some of our capital and as it relates to growing our portfolio in 2002.

Great and.

Are you able to give us a sense of what the disposition cap rates was for the $70 million you sold year to date.

Yes, the blended cap rate Craig was about 7%.

In Sacramento.

Great.

And then you.

You pretty much approaching your high.

Our occupancy you still think you can take it higher by the end of the year or.

Given the 97 nine previous peak.

Youre 97, four Meanwhile, move.

Well look I think if the demand continues to stay at the current levels that we've seen.

Do think we're going to get back to the pre pandemic occupancy levels a lot quicker than most.

Whether thats.

The fourth quarter or the first quarter of next year.

Do think that we will get to that number pretty quickly and we may go beyond and at this point given how strong the demand is from that we're seeing out there in terms of filling primarily are in line space.

So I am excited looking ahead in terms of.

Where things are going.

Again, the demand has been extremely strong but to think that we could pick up 50 basis points in just one quarter alone is quite an achievement.

Not only for our team, but also showing you how strong the market is out west.

Great. Thanks, a lot.

Thank you.

Your next question comes from the line of Todd Thomas from Keybanc Capital. Your line is now open.

Good morning, Todd Hi, good morning.

I wanted to follow up on your comments around the acquisition pipeline moving forward. It sounds like you are seeing potential to deploy capital in that $2 million to $300 million range similar to where the company was doing much of the last decade is the appetite for investments there would you look to do that.

Volume if there was an opportunity and we continue to hear about cap rate compression and more competition for retail properties do you think that you can still achieve the 6%.

Going in yield as you move forward.

Well.

No.

Yes.

Obviously, a tough answer.

Question to answer given that you are asking me to look forward, but in terms of what we see in our pipeline right. Now I think we can certainly be buying around that number maybe but probably a bit less given the cap rate compression, but more importantly, what we're buying has juice. That's what's really important the ABR on these.

Assets are low gives us the ability to do what we've done in the past in terms of getting very strong increases going forward and more importantly, delivering that yield 100 to 150 basis point spread after buying these assets given the acumen from our management skills and leasing.

I'm very positive looking at where we sit right now as we move into 'twenty, two and I do think.

That given our cost of capital today that we'll be able to achieve those results.

Given.

Hopefully given market conditions stay the way they are.

Okay. That's helpful and maybe rich in terms of the <unk>.

We are for the portfolio today, the AVR for some of the acquisitions.

We've seen retail sales on a national basis.

Pick up and reset at a higher level.

Is there any way to sort of characterize the portfolio's health ratio our occupancy cost ratio today.

Relative to where it was maybe pre pandemic just given some of the.

The increases in sales that we've seen.

Across across the board.

Yes, well I think as Youre touching on we are seeing.

Across the board for the tenants that report sales.

Strong growth in those sales numbers.

We don't.

And our business get sales from all the tenants. So some of those are a bit hard to.

Nailed down exactly what the increases but from anecdotal conversations with the tenant base. Many of them have had very strong sales and obviously thats improving there.

Occupancy costs.

Okay. I know historically, you don't collect a lot of percentage rent our overage rent do you anticipate seeing an increase in that in the near term.

Yes, I mean, I think again, depending on the use there have been some very strong sales some have pushed tenants into percentage rent and.

But I would expect that it will be a bit stronger than.

Last year.

Okay.

And then just back to the acquisitions real quick.

How should we think about.

Funding acquisitions, if you if you do get back to sort of the level that youre talking about.

Sort of in the $200 million range or maybe more.

<unk> been active on the ATM you continue to be efficient through the ATM at the current <unk>.

Level, our pace would you anticipate needing to raise capital through maybe an offering if you return to that $2 million to $300 million level or more.

And are you comfortable.

With that where the stocks trading today.

Mike.

The acquisition of <unk>, we would likely utilize our credit line will be initially and we'll also look to raise equity and stuff with closing those transactions. Obviously the goal one of the goals need to keep our current financial ratios intact.

The market conditions was very kind of subjective thus about where the stock prices, but we'll see how it plays out over the next three to six months.

So it's a combination of.

Free cash flow, which is very strong right now given our payout ratio. It's a combination of hitting the market. When we think it's the right time to hit and it's a combination of turning our capital in terms of asset sales. It's those three that will help fund this pipeline going forward Todd.

Okay got it what's free cash flow.

What was free cash flow in the third quarter.

<unk>.

It's probably about $12 5 million Thats about 40 $40 million or so for the year.

So big number because of the reset of the dividend.

Okay, Great alright, thank you.

Thanks, John.

Your next question comes from the line of Mike Mueller from Jpmorgan. Your line is now open.

Yes.

Morning, Michael.

Hey, good morning.

Just a quick follow up to Craig's question, what's the highest if you look at this portfolio or maybe even back to pan what's the highest physical occupancy level that you've generally run at.

If you go all the way back to the Pan Pacific days.

The management team today, which is the same management team.

Uh huh.

We ran as high as I believe it was in the low 98 percentage range.

That's where we were during the Pan Pacific is which is basically 100% occupied because youre always going to have a tenant that is going to either through a <unk>.

<unk>, our partnership breakup or other things.

Not extend the term of their lease or not renew so you'll always have some fractional vacancy at that level youre basically pretty well leased and that helps us drive rents at that point I mean, that's the secret of getting these high rents that we've reported year after year, both the <unk> ROIC.

Is that occupancy.

And we certainly see us heading in that same direction right now okay.

Okay and at 98% leased that would translate into about what on the physical side on the build side.

Again, it's hard to predict because we don't know when thats going to come online, but it's probably a.

2% to 3% spread in terms of build versus lease at that point I would guess.

Got it okay.

Looks like right now.

Well, it's because of the pandemic, but the other thing again, Todd and I think not.

Todd, but Mike I think you know that well is that.

Our tenant base and achieving strong re leasing spreads.

Got it I appreciate it thank you.

No definitely.

Your next question comes from the line of Katy Mcconnell from Citi. Your line is now open.

Great Good morning.

Hey, Mike.

How are you.

Very good Steward Hey, Mike.

You can touch on a couple of questions.

You outlined sort of the capital sources free cash flow ATM asset sales how are you thinking about monetizing any of the entitlements on one side to generate capital in advance those projects, but also thinking about raising institutional capital either in a JV or fund format or in other ways.

In terms of another sort.

As a tool in the toolkit to be able to fund.

These great acquisitions that you are being able to source given your long term.

Sure.

Crestwood from the market.

So in terms of entitlements or in terms of our.

Our densification.

That is going well and we are looking at potentially selling off.

Two of the three projects right now and those should be fully entitled Bellevue is already entitled and into construction drawings for permitting but <unk> in novato is very close to being entitled and the goal. There is probably to sell those assets that could generate another $30 million to $40 million of proceeds.

In terms of Jv's I mean, as you probably know.

And I think you've known us now for almost three decades.

And I get all right.

No go ahead.

Then if you looked at the things that I would assume other people are calling you don't want to get into the market and whether you wanted to use that capital.

Capital or not.

To deploy that capital.

Yes look they are aggressively calling us.

And we are looking at as we always do we have an open mind.

For everything.

But it's got to be the perfect deal as you would say for us to even consider that but certainly at the present time, we're not considering going off balance sheet. It's just just from experience.

<unk>, we have always learned deck.

Decades.

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