Q4 2021 Retail Opportunity Investments Corp Earnings Call

February 17, 2022

Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.

[music].

Okay.

Ladies and gentlemen, and welcome to the retail opportunity investments 2021 fourth quarter and year end conference call.

Participants are currently in a listen only mode.

Following the company's prepared comments the call will be opened for questions.

To ask a question. During this time you may do so by pressing star one on your Touchtone telephone.

Please note that certain matters discussed in this call today constitute forward looking statements within the meaning of federal security laws, Although the company believes that the X.

Spectation 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 may 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 annual report on Form 10-K .

Participants are encouraged to refer to the company's filings with the SEC 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 its website.

Now I'd like to introduce Stuart <unk>, the company's Chief Executive Officer, you may begin.

Thank you and good day everyone.

Here with me today is Michael Haines, our Chief Financial Officer, and Rick <unk>, Our Chief operating officer.

We're pleased to report that during 2021, we successfully achieved a number of strategic objectives capitalizing on the strength and appeal of our grocery anchored portfolio as well as our west coast expertise.

Notwithstanding the second year of uncertainty in the marketplace as Covid cases, ebb and flow our portfolio lease rate remained rock solid.

In fact, we steadily increased our portfolio lease rate as we move through the year, finishing 2021, just shy of the record high lease rate that we achieved prior to the pandemic started.

Additionally, demand for space across our portfolio remained consistently strong throughout the year.

We leased over one 4 million square feet in total, which like our strong portfolio lease rate was close to setting a new record for the company in terms of overall annual leasing activity.

With respect to re leasing rent spreads for the ninth consecutive year, we achieved double digit rent growth on same space, new leases signed during the year, including a 27% increase on new leases signed during the fourth quarter.

With respect to renewal activity. This past year proved to be our most active today setting a new record for the company in terms of the number of renewals executed during the year.

While also achieving rent increases on renewals, which like new leases was the ninth year in a row of achieving rent growth.

Turning to our investment program when the pandemic started in early 2020, we suspended our acquisition and disposition activity as there was considerable uncertainty in the marketplace uncertainty that lingered well into 2021.

During this time, we continue to be actively engaged closely monitoring the market as well as maintaining an open dialogue with key relationships in each of our core markets up and down the west coast.

As a result of sustained engaged and ready once the market began to become active again in the second half of 2021, we were well positioned to move forward and pick up right, where we left off.

Both with completing our exit of the Sacramento market on our last two properties and redeploying the capital into new acquisitions.

Specifically, we acquired four grocery anchored shopping centers totaling $122 million three of which we acquired in the fourth quarter.

Two of the shopping centers, we actually owned and operated during our Pan Pacific days Needless to say, we know the property is extremely well in fact, a number of the necessity based tenants at the center today are those that we brought to the properties back over 15 years ago.

The other two acquisitions, we sourced through long standing relationships one of the properties, we sourced through an existing tenant that we've known for years.

While they hadn't contemplated selling we reached out to them and started a dialogue, which then led us to buy in this center.

Importantly, these new acquisitions are an excellent fit with our existing portfolio. They are situated in our core markets. One one being located in the San Diego market. One in the heart of Silicon Valley and tour located up in the Seattle market.

Within each of these markets the properties are well established in the heart of affluent communities in all four shopping centers featuring strong grocery operators that are long standing existing tenants of ours.

In terms of pricing the overall blended you all on the $122 million of acquisitions is approximately 6% going in.

We already have a number of new tenants lined up to take available space and we also have our sights set on a number of re tenant and opportunities, which we hope to bring to fruition over the next 12 to 24 months that will increase our yields as well.

Additionally, looking out further we expect to drive cash flow higher over time as certain anchor leases roll that are currently well below today's market rents.

While working to advance our investment program. We're also working to enhance our balance sheet.

During 2021, we raised $139 million of capital through a combination of property dispositions and issuing equity equity through our ATM.

We utilize the capital along with cash flow from operations to fund acquisitions and to reduce debt.

Lastly in light of our performance. The board has raised our quarterly cash dividend to 13 cents a share representing an 18% increase over our prior quarterly dividend.

Now I'll turn the call over to Michael Haines, our chief our CFO to take you through our financial results for 2021 as well as our guidance for 2022, Mike.

GAAP net income attributable to common shareholders for the year ended 2021 totaled $53 5 million equating to <unk> 44 per diluted share for the fourth quarter net income totaled $8 $5 million equating to <unk> <unk> per diluted share.

In terms of funds from operations or <unk> in 2021 totaled $127 9 million equating to $1 per diluted share, which was towards the higher end of the guidance range that we established at the outset of 2021.

For the fourth quarter totaled $32 6 million or <unk> 25 per diluted share.

Same center net operating income increased by 3% in 2021 on a cash basis as compared to 2020, which was at the top of our guidance range. Additionally, same center NOI increased by five 6% during the fourth quarter.

With respect to bad debt for the year bad debt totaled $2 8 million equating to about 1% of total rental revenue, which was close to being back down in line with our annual bad debt prior to the pandemic.

Turning to our balance sheet as Stuart touched on during 2021, we raised $139 3 million of capital $69 seven money of that came from property dispositions of $69 6 million came from issuing approximately $3 8 million common shares through our ATM, including issuing approximately one 3 million shares in the fourth quarter.

We used a portion of the proceeds to reduce our debt by roughly $49 million during 2021.

At year end the company had approximately $1 3 billion in total principal debt outstanding all of which was effectively fixed rate. So we have no floating rate exposure as we start 2022.

Additionally, approximately 94% of our debt is unsecured.

Currently have $85 million of secured debt in total outstanding which incomers only four of our 89 shopping centers.

$23 million to $85 million matures. This year, the remaining 62 million secured debt matures in 2024 and 2025.

As respect to our $600 million unsecured revolver at year end, we had nothing outstanding on our credit facility.

In terms of the financial ratios, specifically, the company's net debt to annualized EBITDA ratio a year ago. The ratio was seven five times for the fourth quarter of 2020.

Which we lowered it to seven three times in the first quarter of 2021, and we lowered it again to six nine times in the second quarter, and then down to six six times for the third quarter.

For the fourth quarter of 2021, the ratio of net debt to annualized EBITDA was seven times.

The increase from Q3 was largely attributable to the timing between selling properties in the third quarter and acquiring new properties during the fourth quarter, which temporarily impacted annualized EBITDA.

We currently expect the rates will be back in the six years again, starting here in the first quarter and our goal is to keep it in the mid six range going forward.

Looking ahead, we are starting out 2022, with an <unk> guidance range of $1 two to $1 eight per diluted share.

In terms of the key underlying drivers at the low end of the range assumes that we acquire $100 million of shopping centers during the year and saw 50 million of properties. While the high end of the range assumes that we acquire $300 million and sell $30 million.

Tend to finance acquisitions through a blend of property dispositions additional equity and credit line borrowings our guidance is based on keeping our financial ratios intact.

In terms of our existing portfolio. The low end of the range assumes same center NOI increases by 2% for the year for the high end assumes a 4% increase.

Lastly in terms of bad debt to be conservative low end of the range assumes bad debt of $4 million for the year, while the high end assumes $2 million of bad debt, which is consistent with our historical annual bad debt before the pandemic for prospective our actual bad debt for 2019 was roughly $2 million.

Now I will turn the call over to rich <unk>, our CFO rich thanks, Mike to expand on Stuart's comments regarding the demand for space as we experienced in 2020 during the height of the pandemic uncertainty in 2021 demand for space remained consistently strong across our portfolio in core markets.

The demand continued to be driven by a broad range of daily necessity service and destination type businesses seeking to grow in a multitude of ways, including deepening their presence in key markets expanding into additional west coast markets as well as businesses entering the west coast from other parts of the country.

Capitalizing on the demand during 2021 released over one 4 million square feet, which is more than double the amount of space. Originally scheduled to expire at the outset in 2021 and represents the 11th consecutive year that we have leased approximately two times the amount of space originally scheduled to expire.

Our leasing activity drove our portfolio lease rate higher each quarter as we move through the year as Stuart indicated going from 96, 8% at the beginning of 2021 to finishing the year at 97, 5% very close to matching our record high lease rate of 97, 9% that we achieved at the end of 2000.

19.

Breaking the 97, 5% down between anchor and non anchor space, our anchor space remained at 100% leased throughout 2021.

In fact, we have maintained our anchor space at 100% leased every quarter for the past five years now.

Notwithstanding being 100% leased we continue to be proactively engaged with our anchor tenants.

In terms of anchor leasing activity at the outset of 2021, we had four anchor leases scheduled to expire during the year totaling 104000 square feet.

We actually executed 16 anchor leases totaling 469000 square feet.

14 of the leases were renewals the bulk of which involve renewing long standing strong performing supermarket and pharmacy tenants. Additionally.

Additionally, through our early recapture initiatives, we replaced two anchor tenants, we released one of the anchor spaces to a new destination tenant and the other rig released to an adjacent longstanding grocer.

In both cases, we released the space for 10 years and had a notable increase in rent.

In terms of non anchor space during the year, we increased our non anchor lease rate from 93% at the beginning of 2021 to 94, 6% at year end.

Just as with our anchor tenants, we achieved the increase in our non anchor space by being highly engaged in proactive.

At the outset of 2021, we had 573000 square feet of non anchor space scheduled to expire.

For the year, we leased 959000 square feet of non anchor space, which is a new record for the company.

The activity involved the balance of renewing a number of strong performing tenants will also proactively replacing tenants that struggled as a result of the pandemic with much stronger new tenants.

While we continue to work to make the most of every opportunity to lease space and enhance our tenant base. We also continue to work at getting new tenants open and operating.

During the fourth quarter, new tenants, representing roughly $2 million of annual base rent open.

While the $2 million was the largest most active quarter during the year.

<unk> spread to our leased and build space actually widened by year end, given all of our new leasing activity during the fourth quarter.

At year end, the spread stood at four 7% representing $10 6 million.

In additional incremental annual rent on a cash basis.

Of that $10 6 million, we currently expect new tenants, representing as much as two to possibly $3 million of incremental rent will open here in the first quarter.

In terms of re leasing rent as Stuart indicated for the ninth consecutive year, we achieved rent growth specifically for the year, we achieved a 14, 9% increase on a cash basis with respect to same space new leases signed during the year, including a 27, 1% increase in the fourth quarter.

In terms of renewals, we achieved a four 3% cash increase for the year, including a four 8% increase in the fourth quarter.

Turning to 2022, starting out the year, we had 745000 square feet of space scheduled to expire, including seven anchor leases totaling 272000 square feet.

Five of which are grocers.

We've already renewed three of the grocers and we are currently discussing long term extensions with the other two grocers.

With respect to the other two anchor leases one is already renewed their lease and the last anchor we already have released the space to a grocer.

Lastly, with respect to our patent expansion initiatives during the past year, we completed and delivered 100% leased four projects totaling approximately 25000 square feet for a total cost of $8 7 million with an initial yield of 11%.

Looking ahead, we currently have nine pad and expansion projects in the works totaling approximately 44000 square feet, which we expect to complete later this year and in 2023 now I'll turn the call back over to Stuart.

Thanks Rich.

As 2022 is getting underway leasing activity across our markets continues to be strong and we continue to focus on making the most of it. Additionally, as rich discussed we are making good progress with getting new tenants open.

In terms of acquisitions. We are currently seeing an increase in grocery anchored shopping centers coming to market, which we expect will garner plenty of attention.

While we are closely following the open market. Our primary focus continues to be in seeking out privately owned off market transactions.

To that end, we currently have two grocery anchored shopping centers under contract both located in the Pacific Northwest that together totaled $36 million.

We also have two other acquisitions currently in our pipeline both located in California, which we are currently underwriting and hope to have under contract soon.

Beyond that we continue to proactively pursue a number of additional targeted opportunities across our markets.

While we are excited to be actively acquiring again, we intend to continue as always our longstanding disciplined strategy of carefully seeking out compelling opportunities that will enhance our existing portfolio and provide the company with a balance of long term stable cash flow and good growth opportunities for years to come.

With respect to Densification, we are on track to start construction later this year on our second Densification development at Crossroads, where we will be adding 224 apartments at 14500 square feet of additional retail space to our center.

Additionally, we are in the latter stages of the Densification tolerant process with two other shopping centers both located in the San Francisco market, which we currently expect to finalize this year.

Looking out further we are in discussions with municipalities on three additional densification projects all in the Pacific Northwest.

Each project involves coordinating with neighboring properties, we are working with the municipalities and putting together a comprehensive mixed used development plan.

The municipalities continue to be proactively engaged and are pushing to move forward given the housing shortage in the markets.

Finally, while we currently expect 2022 to be a productive and active year. We are cautious in our outlook given the continued uncertainty regarding COVID-19 and what could lie ahead.

That said given the proven and resiliency of our grocery anchored daily necessity portfolio and strategy in the face of extraordinary challenges over the past two years together with the skill set and expertise of our team expertise earned by our teams singular focus on the same core strategy and the C.

<unk> core markets for over 25 years now we remain confident in our ability to continue building value going forward and we remain as committed as ever in doing so.

Now we will open up the call for your questions.

Operator.

Thank you.

Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

Joel Your question press the pound key.

Again, Thats star one to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of Craig Smith with Bank of America.

Your line is open.

Hey, good morning, Craig.

Good morning.

I guess good afternoon, whatever anyway.

Okay.

What are your expectations regarding leasing volumes I know you picked up in 'twenty, one and you mentioned the $1 4 million.

Over the $1 two in 2020.

Do you think you can hit that $1 4 million or are there certain things that will keep you from getting into that level again.

I mean, we expect that.

Our leasing activity will be consistent with the past I think the thing that changes year to year, Craig as certain opportunities that arise.

That we may not.

We have on our radar screen, which gives us the opportunity to.

These are much larger amount of square footage that is scheduled to expire, which I think you've seen in our historic numbers. So I think it's going to be consistent with past years.

Okay and then.

Recognizing the 6% cap rate you paid in the $123 million.

Do you anticipate you'll be able to pay a similar cap rate for acquisitions in 'twenty two.

In terms of guidance, we're assuming a five and three quarter cap rate on average correct.

Okay.

Is that a result of the compression or just the projects you're looking at.

It's a combination of market conditions, and what we see in our pipeline.

In terms of what we've how we've guided.

Yeah.

Great and then just.

Finally are you hearing from your tenants any any chatter on.

Inflation or the fed rate hike COVID-19 or Ukraine.

Possibly slowing their elevated.

Leasing activity.

No it really aren't hearing on any of those things that you mentioned Craig from the tenant base.

Really what tenants are looking for as great opportunities.

We were to get back a restaurant space we have.

Words of 10 people buying for the space. So really people are just focused on their businesses and securing the best locations.

Okay. Thank you.

Thank you Craig.

Thank you. Our next question comes from the line of Katy Mcconnell with Citi. Your line is open.

Good morning, Tim.

Good morning.

Thank you ladies mens pipeline continues to grow can you just discuss what this can mean for total commenced occupancy upside this year and do you think that spread has hit a peak at this point Alright, then more room for that to grow based on that leasing activity.

Yes.

Yeah.

Again, I think it's really dependent as rich dependent on the opportunities that present themselves I think as you see in some of the numbers from last year.

We had.

Replaced an anchor tenant who was paying very very low rent and we were able to get that up to a market Brendan which creates a very large spread.

That will take a little bit of time to refit the space and get that spread in.

It's a little hard to predict but we would say that.

We would expect that we will get most of this $10 million in throughout the year.

But the total number will vary depending on the opportunities that we find throughout the year.

And in terms of occupancy Katie if the demand in the market continues to be as strong as it is we are anticipating.

Hopefully hitting.

Hitting our goal of where we were before the pandemic hit which should be approaching 98% occupancy.

Okay, Great and then.

Can you just provide a little more detail on what drove that.

An uptick in mainland.

And maybe.

Great on your comments earlier about the upcoming lease expirations on the significant mark to market upside we see there.

Sure again, I think it was sort of the same.

Situation I was just commenting on we had in the fourth quarter, we had an anchor tenant who.

Had a very very low rent the lease came up finally with no options remaining and it gave us the opportunity to bring that space up to a market rent, which drove the big spread.

And those opportunities remain throughout the portfolio it's.

It's just always hard to predict the timing of when youre going to be able to capitalize on the opportunity.

Got it and then maybe just one more quick one if I could.

Can you just walk us through how you plan to fund the external growth pipeline. This year some of the different components Youre planning to utilize.

Hi, Ted its Mike I think we'd look to funding the acquisition pipeline through a combination of disposition proceeds debt of ATM and some credit line borrowings kind of a blend of that and operating cash flow and operating cash flow again like I mentioned in the prepared remarks, keeping our ratios intact as well.

Okay alright. Thanks.

Thank you.

Thank you. Our next question comes from the line of Juan Sanabria with BMO capital markets. Your line is open good morning Juan.

Good morning, I was just hoping.

Give a little bit more color on guidance on the assumptions around.

Occupancy trends throughout the year.

And releasing spread expectations.

What youre, assuming and how we should be thinking about that going forward for the next 12 months.

Sure well in terms of.

<unk>.

Our portfolio lease rate, we're assuming that the portfolio lease rate will hold reasonably steady throughout the year and the 97% range.

And assuming that the spread between lease versus build will tighten up as we move throughout the year.

And re leasing spreads Oh in terms of the spreads we would.

Expect that thats going to be in the 15% to 20% range on new leases and around five to 10 on renewals is what we're estimating.

Great and then I was just hoping you could provide a little bit more color about how we should be thinking about the potential capital outlays for some of the entitlements.

You mentioned.

Some apartments and retail expansion at crossroads.

In the late stage for a couple of San Francisco opportunities.

Hoping you could delve a little deeper into what we should be thinking <unk> commitment to those would be <unk> and use of partners.

Sure well certainly on the one project and Crossroads, we don't anticipate much capital because we with this project probably won't start until the fourth quarter of the year.

So we're not anticipating much capital at crossroads.

In terms of the other two projects we're almost at the finish line in terms of entitlements. Those dollars obviously had been spent.

And once we get those entitlements, we are anticipating selling those projects to help fund our acquisition program.

Both those projects have no impact from an NOI perspective.

Those potential dispositions included in your disposition guidance, you laid out or would that be.

Incremental I guess.

Part B of that question would be what.

Yields at fixed rate.

What yield expectations should we have on the disposition guidance.

Well its land entitled land, So theres not much to talk about but we are anticipating probably around $25 million.

In terms of proceeds on those two projects.

And.

<unk>.

On the higher end of the rate as far as dispositions, if we were going to what's the cap rate you apply for.

We are anticipating in terms of cap rates on other assets that we are teed up to sell.

To be.

Sure.

Those transactions will probably be in the mid five or lower five range.

Okay, great, but just to clarify the dispositions and guidance.

Selling the land that's behind entitlements are selling more stabilized assets.

The combination of both it's both.

Okay. Thank you.

Thank you.

Our next question comes from.

Todd Thomas with Keybanc capital market.

Your line is open.

Good morning, Todd.

Hi, good morning.

Stuart I appreciate some of the comments around what youre seeing today for acquisitions.

It sounds like there's a bit of product coming to market more than there has been.

Seems in many years from your comments it sounds like we should expect ROIC to continue with with off market sort of one off deals as opposed to any of the properties and portfolios that are hitting the market is that right and then can you talk about.

The process of sourcing deals off market today in an environment, where sellers are seeing an increasing bid for retail properties.

Sure overall demand in the market very strong.

<unk>.

We are at.

Supporting that a lot of our growth will come from what we would call one offer.

Buying two assets from an owner versus portfolios.

And the overall market continues to be somewhat challenging in terms of the buyer demand.

Buyers are.

Across the board institutional capital $2 31 by both private and institutional.

But the market. The good news is that we've been working very hard over the last six months.

Sourcing a lot of different opportunities.

In the year right now looks pretty good in terms of meeting our goals.

Okay.

6% going in cap rate. So on the 21 acquisitions. The four properties acquired it sounds a little bit higher than what we are hearing and seeing for.

High quality.

Grocery anchored product can you just speak to.

That sort of premium and pricing that youre able to achieve in and sort of the.

The process of again sourcing deals and then environment off market.

When sellers are able to.

Maybe achieve a little bit of a better price just given the increasing bid around retail properties today.

Sure.

Todd there are several reasons I mean first the transactions that we are pursuing again or off market direct to owner deals and again with private owners and these owners are really seeking buyers, who don't require financing contingencies and can close quickly.

And there are also to be a bit more reasonable on price in return for that Additionally, the property is typically have some near term tenant rollover and capex that the private owners don't want to contend with.

Some perceived risks that we again are willing to be more reasonable and which makes them more reasonable in terms of price.

So it's a combination of all of that and of course after 30 years of doing this day in and day out on the West coast. Our relationships are very very deep in terms of sourcing these transactions.

Okay.

That's helpful and then I appreciate the color rich around the 22 anchor expirations.

It sounds like tenant demand is quite healthy. So if we look ahead to 2003, where you have 25 anchor expirations.

Little bit of a higher year for anchor expirations I know, it's a little further out but you've been proactive in.

Prior year's in recapturing space executing.

Executing renewals ahead of exploration and sort of unlocking.

Value and below market leases are you expecting in this environment today to be able to get at those leases maybe this year and can you just give us.

Our sense around how much of the 23 anchor expirations do not have options.

Well I'll turn to the last part of your question I don't have that right in front of me in terms of who has and has not options. There's probably a handful in there that do not have any options remaining.

But I think similar to our past history, we are already fully engaged with our anchor tenant base we.

As you know almost all of these are going to end up being grocers are drugstores and.

I think coming out of the pandemic.

Grocers have realized that they want to secure these spaces for as long as possible. So.

Our national grocery tenant base has been and we've been working with them for the last.

Three to four months on full portfolio reviews, I would expect that much of this will be.

Of the 23 expirations will be handled this year through those discussions.

Okay, and just one for Mike real quick.

I think you may have said this.

Sorry, if I missed it but.

You talked about a little bit of the balance around capital raising throughout the year and investments I realize there is a little bit of a range there but.

But what are you expecting leverage to look like at year end.

The net debt to EBITDA per sector will keep it in the with a six handle for sure.

Yes.

Okay.

Alright, thank you.

Thank you.

Our next question comes from the line of Paulino Rojas Smith with Green Street. Your line is open.

Morning Molina.

Good morning.

My question is about your answer thanks, Brett so.

You mentioned that this spread to date at four seven which is the widest.

Peers by local margin, if I remember well.

Could be.

Of course, it can be a good sign right.

We'll have more physical occupancy gains around the corner.

It also suggests that it's taking long.

To get to that.

Yeah.

So I'm intrigued by how much.

And these credits are.

Are you seeing any delay in the opening.

<unk> or what can you share in general your thoughts about that.

Sure.

Sure I mean I think.

What youre seeing in those numbers.

Some delays that occurred last year due to the pandemic and the city's permitting process.

We spend a significant amount of time focused on getting these tenants open and operating as quickly as possible.

I feel very optimistic about.

How the year has started out in the openings that we see on the horizon I think we try to be conservative in our estimation of what's coming on.

But we think that those delay issues that occurred during the pandemic are primarily behind us and that we will make very good progress throughout this year and bring in that $10 million.

Okay.

Hum.

In regards to operating expenses.

So.

Recovery we're in.

Congrats.

Q1 same property NOI growth.

What are you expecting for next year.

The expected impact.

Nevertheless, and.

Plus it is due to higher occupancy and higher recoveries or neutral.

I don't think Theres rich I don't think we see.

A big change in the expense recovery, obviously as these tenants come online that you.

There's a bit of a lag in that that $10 million as well the $10 million is base rent, but those tenants are also not paying us recoveries. So as that $10 million comes on the recovery rate will increase as well, yes margins are going to go up as these tenants open.

Okay.

Okay. So net of all.

<unk> expenses.

And recovery, we Shouldnt expect a negative impact.

Correct.

You should not expect a negative impact.

Great.

One more and I'm intrigued by your acquisition of <unk> West.

Sure.

If I'm correct.

Corporate <unk>.

We're keen interest.

So I would assume that can go hog wild.

The rights.

Christopher.

So one right am I correct in thinking what.

Could you.

Property specifically.

You.

That's a good investment.

So Olympia West is a property that we owned back at Pan Pacific We knew the property very very well I think as you're touching on.

At Kimco didn't have an interest in the property, but it was a minority interest.

And.

What attracted us to the property as you know how well we know it we know the marketplace I think as we've touched on in the prepared remarks, some of those tenants we put in there.

10 years ago 15 years ago. So.

It was a great opportunity to acquire a grocery anchored center in the Seattle Metro market.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from the line of Michael Gorman with BT I D.

<unk> is open.

Good morning. Good afternoon. Good morning, guys how are you.

Stuart.

I was wondering if you could talk a little bit more about the market dynamics that youre seeing and maybe join together the densification side of our IC and what Youre seeing in the marketplace right.

Obviously, you are focused on the off market deals, but in the marketplace are you seeing more competition in these markets from non retail buyers people that are looking to come in and do something else with the asset entirely we've seen.

Handful of trades, where the folks taking these out are not looking at the retail economics at all and I'm just wondering how prevalent that is in your markets right now.

The answer is yes, we have seen.

The buyer profile change as the market opened up six months ago.

Where the number of buyers increased considerably but the profile of <unk>.

Buyers that really had invested more heavily in other sectors, where they were paying cap rates that were a lot lower.

And I think a lot of these virus felt that in order to find better yields they could turn to retail and get those better yields with less risk.

That's the key point is less risk I think before the pandemic.

Those buyers really werent focused in the retail sector, but today.

That that depth of and that profile has changed quite dramatically.

I don't see that changing until we see a shift in the other sectors right now.

And that's what we're seeing right now on the ground.

Okay, and then I guess the follow up there is are there any when you went through the Densification kind of review a couple of years ago are there any assets in your portfolio that you think would.

Whether they are stabilized on your end or whatever the case may be would be a potential target for somebody that would look to do something completely different with it.

Other than other than retail even with some density on it.

The answer is yes, however, Todd you've got to remember that the average square footage of our portfolio because we normally we own let's call. It primarily just grocery drug anchored assets. These assets on average are about 120000 square feet. So we're not dealing with.

Properties that have a lot of land.

So.

The.

So the answer to your question is there is probably some inherited value in some of the properties we own in terms of full densification.

However, it's complicated takes time.

And more importantly.

Theres not a lot to work with from a land perspective in terms of creating that huge difference in value.

Okay, Great. That's helpful. And then just one last one for Mike or rich and I apologize if I missed it with the discussion of the leased versus occupied spread.

How much of a compression is baked into that that 3% same store NOI guidance for the year.

Compression on which.

So how much.

I'll just come online.

Probably the bulk of it is in the guidance, it's going to assume that the bulk of that is coming online by the end of the year. During this year, yes, correct. It's about.

85% almost 90% Todd.

Okay, great. Thank you.

Thank you.

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

Yes, hi, good morning.

Hey, good morning bit of a follow up here.

You build occupancy of 92, 8% what do you what do you see as the ceiling on that and then how close could you get to let's say by the end of 'twenty three.

Okay.

Well I think again by the time, we get through 'twenty. Three we will have added to the pool, we would expect that we could narrow that gap.

Because I think there'll be probably.

More of a lot of it.

<unk> built up $10 million will come online.

We don't expect that it will get back up to that level again, so there will be a bit of compression.

But there'll always be somebody waiting to open and pay rent.

Right and in terms of being proactive rather than reactive as you know we tend to stay ahead of the tenant base. So as we leases expire with no options.

And leases come up for renewal will continue what we've done in the past in terms of trying to.

Get better spreads.

And that could have some impact not much in terms of that number.

Long term Mike.

Okay. Okay that was it thank you.

Yes.

Thank you.

Our next question comes from the line of Linda Tsai with Jefferies. Your line is open.

Hi, good morning, Linda.

Good morning.

The midpoint of guidance for bad debt to $3 million about in line with 2021, I'm guessing that reflects conservatism because it seems like the watch list for most is pretty limited so or are there some tenants where you could see more fallout.

No it is conservative.

Okay.

Okay. Thanks, and then.

And then any thoughts on the Donohue Schreiber deal just wondering what your thought on the pricing, it's purportedly selling for sub 5% cap rate and its geographic footprint is similar tie ROIC.

Well, it's hard to say I mean, either the buyer or seller has commented so what we have.

Heard in the marketplace that are traded in the sub five cap rate.

And both portfolios are similar in many respects, although there is some key differences when you look at each property individually.

In terms of specific shopping center type market characteristics and tenants.

Okay.

No kind of qualitative view on the sub five.

No again.

Right now this is what we've heard in the marketplace nothing thats been formally announced.

Okay. Thanks.

Sure.

Thank you.

I am showing no further questions in the queue I would now like to turn the call back over to Stuart for closing remark.

In closing I'd like to thank all of you for joining US today, we greatly appreciate your interest in ROIC.

If you have additional questions. Please contact Mike Rich or me directly you can also find additional information in the company's quarterly supplemental package, which is posted on our website. Thanks again and have a great day everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Ladies and gentlemen, and welcome to the retail opportunity investments 2021 fourth quarter and year end conference call.

Participants are currently in a listen only mode.

Following the company's prepared comments the call will be opened for questions.

Ask a question. During this time you may do so by pressing star one on your touched on telephone.

Please note that certain matters discussed in this call today constitute forward looking statements within the meaning of federal security 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 may involve known and unknown risks uncertainties and other factors, which may cause actual results to differ materially.

Materially from future results expressed or implied by such forward looking statements and expectations.

Information regarding such risks and factors as described in the company's filings with the Securities and Exchange Commission, including its most annual report on Form 10-K .

Participants are encouraged to refer to the company's filings with the SEC 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 its website.

Now I would like to introduce Stuart pants, the company's Chief Executive Officer, you may begin.

Thank you and good day everyone.

Here with me today is Michael Haines, our Chief Financial Officer, and Rick <unk>, Our Chief operating officer.

We are pleased to report that during 2021, we successfully achieved a number of strategic objectives capitalizing on the strength and appeal of our grocery anchored portfolio as well as our west coast expertise.

Notwithstanding the second Europe uncertainty in the marketplace as Covid cases, ebb and flow our portfolio lease rate remained rock solid.

In fact, we steadily increased our portfolio lease rate as we move through the year, finishing 2021, just shy of the record high lease rate that we achieved prior to the pandemic started.

Additionally, demand for space across our portfolio remained consistently strong throughout the year.

We leased over one 4 million square feet in total, which like our strong portfolio lease rate was close to setting a new record for the company in terms of overall annual leasing activity.

With respect to re leasing rent spreads for the ninth consecutive year, we achieved double digit rent growth on a same space new leases signed during the year, including a 27% increase on new leases signed during the fourth quarter.

With respect to renewal activity. This past year proved to be our most active today setting a new record for the company in terms of the number of renewals executed during the year, while also achieving rent increases on renewals, which like new leases with the ninth year in a row of achieving rent growth.

As a result of sustained engaged and ready once the market began to become active again in the second half of 2021, we were well positioned to move forward and pick up right, where we left off both with completing our exit of the Sacramento market. So on our last two properties and redeploying the capital into new acquisitions.

Specifically, we acquired four grocery anchored shopping centers totaling $122 million three of which we acquired in the fourth quarter.

Two of the shopping centers, we actually owned and operated during our Pan Pacific days.

<unk> to say, we know the property is extremely well in fact, a number of the necessity based tenants at the center today are those that we brought to the properties back over 15 years ago.

The other two acquisitions, we sourced through long standing relationships one of the properties, we source to an existing tenant that we've known for years, while they hadn't contemplated selling we reached out to them and started a dialogue, which then led us to buying this center.

Within each of these markets the properties are well established in the heart of affluent communities in all four shopping centers featuring strong grocery operators that our longstanding existing tenants of ours.

In terms of pricing the overall blended you all on the $122 million of acquisitions is approximately 6% going in.

Additionally, looking out further we expect to drive cash flow higher over time as certain anchor leases roll that are currently well below today's market rents.

While working to advance our investment program. We're also working to enhance our balance sheet.

During 2021, we raised $139 million of capital through a combination of property dispositions and issuing equity equity through our ATM.

We utilize the capital along with cash flow from operations to fund acquisitions and to reduce debt.

Lastly in light of our performance. The board has raised our quarterly cash dividends of 13 cents a share representing an 18% increase over our prior quarterly dividend.

Now I will turn the call over to Michael Haines, our chief our CFO to take you through our financial results for 2021 as well as our guidance for 2022, Mike.

Thanks, Stuart GAAP net income attributable to common shareholders for the year ended 2021 totaled $53 5 million equating to <unk> 44 per diluted share.

Fourth quarter net income totaled $8 $5 million equating to <unk> <unk> per diluted share.

In terms of funds from operations <unk> in 2021 totaled $127 9 million equating to $1 per diluted share, which was towards the higher end of the guidance range that we established at the outset of 2021.

For the fourth quarter totaled $32 6 million or <unk> 25 per diluted share.

Turning to our balance sheet as Stuart touched on during 2021, we raised $139 3 million of capital $69 7 million of that came from property dispositions of $69 6 million came from issuing approximately $3 8 million common shares through our ATM, including issuing approximately one 3 million shares in the fourth quarter.

We used a portion of the proceeds to reduce our debt by roughly $49 million during 2021.

At year end the company had approximately $1 3 billion in total principal debt outstanding all of which was effectively fixed rate. So we have no floating rate exposure as we start 2022.

Additionally, approximately 94% of our debt is unsecured we currently have $85 million of secured debt in total outstanding which income is only four of our 89 shopping centers and about 23 million to $85 million matures. This year. The remaining 62 million secured debt matures in 2024 and 2025.

With respect to our $600 million unsecured revolver at year end, we had nothing outstanding on our credit facility.

In terms of the financial ratios, specifically, the company's net debt to annualized EBITDA ratio a year ago. The ratio was seven five times for the fourth quarter of 2020, which we lowered it to seven three times in the first quarter of 2021, and we lowered it again to six nine times in the second quarter, and then down to six six times for the third quarter.

For the fourth quarter of 2021, the ratio of net debt to annualized EBITDA was seven times.

We currently expect the ratio to be back in the sixes again, starting here in the first quarter and our goal is to keep it in the mid six range going forward.

Looking ahead, we are starting out 2022, with an <unk> guidance range of $1 two to $1 eight per diluted share.

In terms of the key underlying drivers the low end of the range assumes that we acquire $100 million of shopping centers during the year and saw $50 million properties, while the high end of the range assumes that we acquire $300 million and saw $30 million.

We intend to finance the acquisition through a blend of property dispositions additional equity and credit line borrowings our guidance is based on keeping our financial ratios intact.

In terms of our existing portfolio. The low end of the range assumes that the same center NOI increased by 2% for the year, while the high end assumes a 4% increase.

Capitalizing on the demand during 2021 released over one 4 million square feet, which is more than double the amount of space. Originally scheduled to expire at the outset of 2021 and represents the 11th consecutive year that we have leased approximately two times the amount of space originally scheduled to expire.

19.

Breaking the 97, 5% down between anchor and non anchor space, our anchor space remained at 100% leased throughout 2021.

In fact, we have maintained our anchor space at 100% leased every quarter for the past five years now.

Notwithstanding maybe 100% leased we continue to be proactively engaged with our anchor tenants.

In terms of anchor leasing activity at the outset of 2021, we had four anchor leases scheduled to expire during the year totaling 104000 square feet.

We actually executed 16 anchor leases totaling 469000 square feet.

14 of the leases were renewals the bulk of which involve renewing long standing strong performing supermarket and pharmacy tenants. Additionally.

Additionally, through our early recapture initiatives, we replace two anchor tenants, we released one of the anchor spaces to a new destination tenant and the other we released to an adjacent longstanding grocer.

In both cases, we released the spaces for 10 years and had a notable increase in rent.

In terms of non anchor space during the year, we increased our non anchor lease rate from 93% at the beginning of 2021 to 94, 6% at year end.

Just as with our anchor tenant we achieved the increase in our non anchor space by being highly engaged in proactive.

At the outset of 2021, we had 573000 square feet of non anchor space scheduled to expire.

For the year, we leased 959000 square feet of non anchor space, which is a new record for the company.

The activity involved the balance of renewing a number of strong performing tenants will also proactively replacing tenants that struggled as a result of the pandemic with much stronger new tenants.

While we continue to work to make the most of every opportunity to lease space and enhance our tenant base. We also continue to work at getting new tenants open and operating.

During the fourth quarter, new tenants, representing roughly $2 million of annual base rent opened.

While the $2 million was the largest most active quarter during the year, the economic spread to lease them build space actually widened by year end, given all of our new leasing activity during the fourth quarter.

At year end, the spread stood at four 7% representing $10 6 million in.

In additional incremental annual rent on a cash basis.

Of that $10 6 million, we currently expect new tenants, representing as much as two to possibly $3 million of incremental rent will open here in the first quarter.

In terms of releasing rents as Stuart indicated for the ninth consecutive year, we achieved rent growth specifically for the year, we achieved a 14, 9% increase on a cash basis with respect to same space new leases signed during the year, including a 27, 1% increase in the fourth quarter.

In terms of renewals, we achieved a four 3% cash increase for the year, including a four 8% increase in the fourth quarter.

Turning to 2022, starting out the year, we had 745000 square feet of space scheduled to expire, including seven anchor leases totaling 272000 square feet five of which are grocers.

We've already renewed three of the grocers and we are currently discussing long term extensions with the other two grocers.

With respect to the other two anchor leases one is already renewed their lease and the last anchor we already have released the space to a grocer.

Looking ahead, we currently have nine pad and expansion projects in the work totally approximately 44000 square feet, which we expect to complete later this year and into 2023 now I will turn the call back over to Stuart.

Thanks Rich.

In terms of acquisitions. We are currently seeing an increase in grocery anchored shopping centers coming to market, which we expect will garner plenty of attention.

While we are closely following the open market. Our primary focus continues to be in seeking out privately owned off market transactions.

To that end, we currently have two grocery anchored shopping centers under contract both located in the Pacific Northwest that together totaled $36 million.

We also have two other acquisitions currently in our pipeline both located in California, which we are currently underwriting and hope to have under contract soon.

Beyond that we continue to proactively pursue a number of additional targeted opportunities across our markets.

Additionally, we are in the later stages of the Densification tolerant process with two other shopping centers both located in the San Francisco market, which we currently expect to finalize this year.

Looking out further we are in discussions with municipalities on three additional densification projects all in the Pacific Northwest.

Each project involves coordinating with neighboring properties, we are working with the municipalities and putting together a comprehensive mixed use development plan.

The municipalities continue to be proactively engaged and are pushing to move forward given the housing shortage in the markets.

Finally, while we currently expect 2022 to be a productive and active year. We are cautious in our outlook given the continued uncertainty regarding COVID-19 and what could lie ahead that said given the proven and resiliency of our grocery anchored daily necessity portfolio and strategy.

In the face of extraordinary challenges over the past two years together with the skill set and expertise of our team.

Expertise earned by our teams singular focus on the same core strategy and the same core markets for over 25 years now we remain confident in our ability to continue building value going forward and we remain as committed as ever in doing so.

Now we will open up the call for your questions.

Operator.

Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

To withdraw your question Keith.

Again, Thats star one to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of Craig Smith with Bank of America. Your line is open.

Hey, good morning, Craig.

Good morning.

Yes, good afternoon, whatever anyway.

Okay.

What are your expectations regarding leasing volumes I know you picked up in 'twenty, one and you mentioned the $1 4 million.

Over the $1 two in 2020.

Do you think you can hit that $1 4 million or are there certain things that we will keep you from getting into that level again.

I mean, we expect that.

Our leasing activity will be consistent with the past I think the thing that changes year to year, Craig as certain opportunities that arise.

That we may not have.

On our radar screen, which gives us the opportunity to.

These are much larger amount of square footage that is scheduled to expire, which I think you've seen in our historic numbers. So I think it's going to be consistent with past years.

Okay and then.

Recognizing the 6% cap rate you paid in the $123 million.

Do you anticipate you'll be able to pay a similar cap rate for acquisitions in 'twenty two.

In terms of guidance, we're assuming a five and three quarter cap rate on average correct.

Okay.

Is that a result of the compression or just.

Projects, you're looking at.

It's a combination of market conditions, and what we see in our pipeline.

In terms of what we've how we've guided.

Great and then just finally are you hearing from your tenants.

Any.

Ron.

Inflation or the fed rate hike COVID-19 or Ukraine.

Possibly slowing their elevated.

Leasing activity.

No it really aren't hearing on any of those things that you mentioned Craig from the tenant base.

Really what tenants are looking for as great opportunities.

We were to get back a restaurant space we have.

Words of 10 people buying for the space. So really people are just focused on their businesses.

And securing the best locations.

Okay. Thank you.

Thank you Craig.

Okay.

Thank you. Our next question comes from the line of Katy Mcconnell with Citi. Your line is open.

Good morning, Katie Thank you Tim.

And since your late stage pipeline continues to grow can you just discuss what this can mean for total commenced occupancy upside this year and do you think that spread.

You had a peak at this point Alright, then more room for that to grow based on that leasing activity exchange that.

Again, I think it's really dependent as rich dependent on the opportunities that present themselves I think as you see in some of the numbers from last year, where we had replay.

We replaced an anchor tenant who was paying very very low rent and we were able to get that up to a market Brendan which creates a very large spread.

That will take a little bit of time to refit the space and get that spread in.

It's a little hard to predict but we would say that.

We would expect that.

We will get most of this $10 million in throughout the year.

But the total number will vary depending on the opportunities that we find throughout the year.

And in terms of occupancy Katie if the demand in the market continues to be as strong as it is we are anticipating.

Hopefully.

Hitting our goal of where we were before the pandemic hit which should be approaching 98% occupancy.

Okay, Great and then.

Can you just provide a little more detail on what drove that.

An uptick in mainland China.

Quarter.

And maybe elaborate on your comments earlier about the upcoming lease expirations on the significant mark to market upside we see there.

Sure again, I think it was sort of the same.

Situation I was just commenting on we had for the fourth quarter, we had an anchor tenant who.

Had a very very low rent the lease came up finally with no options remaining and it gave us the opportunity to bring that space up to a market rent, which drove the big spread.

And those opportunities remain throughout the portfolio. It's just always hard to predict the timing of when youre going to be able to capitalize on the opportunity.

Got it and then maybe just one more quick one if I could.

Can you just walk us through how you plan to fund the external growth pipeline. This year some of the different components Youre planning to utilize.

Hi, Ted its Mike I think we'd look to fund the acquisition through a combination of disposition proceeds bit of ATM and some credit line borrowings kind of a blend of that and operating cash flow operating cash flow again like I mentioned in the prepared remarks, keeping our ratios intact as well.

Okay alright. Thanks.

Thank you.

Thank you. Our next question comes from the line of Juan Sanabria with BMO capital markets. Your line is open good morning Juan.

Good morning.

<unk>.

Give a little bit more color on guidance on the assumptions around occupancy trends throughout the year.

And releasing spread expectations.

Youre, assuming and how we should be thinking about that going forward for the next 12 months.

Sure well in terms of.

Our portfolio lease rate, we're assuming that our portfolio lease rate will hold reasonably steady throughout the year and the 97% range.

And assuming that the spread between lease versus build will tighten up as we move throughout the year.

And re leasing spreads Oh in terms of the spreads.

We would.

Expect that thats going to begin to 15% to 20% range on new leases and around five to 10 on renewals is what we're estimating.

Great and then I was just hoping you could provide a little bit more color about how we should be thinking about the potential capital outlays for some of the entitlements.

You mentioned.

Some apartments and retail expansion at crossroads.

Late stage for a couple of San Francisco opportunities. So just hoping you could delve a little deeper into what we should be thinking <unk> commitment to those would be <unk> and use of partners.

Sure well certainly on the one project when crossroads, we don't anticipate much capital because we with this project probably won't start until the fourth quarter of the year. So we're not anticipating much capital at a crossroads.

In terms of the other two projects, we're almost at the finish line in terms of entitlements.

Dollars, obviously had been spent.

And once we get those entitlements, we are anticipating selling those projects to help fund our acquisition program.

Again, both those projects have no impact from an NOI perspective.

Those potential dispositions included in your disposition guidance, you laid out or would that be.

Incremental I guess.

Our part B of that question would be what.

Yields at what yield.

Expectations should we have on the disposition guidance.

Well its land entitled land, So theres not much to talk about but we are anticipating probably around $25 million.

In terms of proceeds on those two projects.

And.

<unk>.

On the higher end as far as dispositions, if we were going to have what's the cap rate to apply for.

We are anticipating in terms of cap rates on other assets that we are teed up to sell.

To be.

<unk>.

Those transactions will probably be in the mid five or lower five range.

Okay, great, but just to clarify the dispositions and guidance.

Selling the land thats behind entitlements are selling more stabilized assets.

The combination of both.

Okay. Thank you.

Thank you.

Our next question comes from the line of Todd Thomas with Keybanc capital market.

Line is open.

Good morning, Scott Hi, good morning.

Stuart I appreciate some of the comments around what youre seeing today for acquisitions.

It sounds like there's a bit of product coming to market more than there has been.

And many years from your comments it sounds like we should expect ROIC to continue with with off market sort of one off deals as opposed to any of the properties and portfolios that are hitting the market is that right and then can you talk about.

The process of sourcing deals off market today in an environment, where where sellers are seeing an increasing bid for retail properties.

Sure overall demand in the market is very strong.

<unk>.

We are anticipating that a lot of our growth will come from what we would call one offer.

Buying two assets from an owner versus portfolios.

And the overall market continues to be somewhat challenging in terms of the buyer demand.

Buyers are.

Cross the board institutional capital $2 31 by both private and institutional.

But the market. The good news is that we've been working very hard over the last six months.

Sourcing a lot of different opportunities.

In the year right now looks pretty good in terms of meeting our goals.

Okay.

6% going in cap rate. So on the 21 acquisitions. The four properties acquired it sounds a little bit higher than what we are hearing and seeing for.

High quality.

Grocery anchored product can you just speak to.

That sort of premium and pricing that youre able to achieve in and sort of.

The process of again sourcing deals and then environment off market.

When sellers are able to.

Maybe achieve a little bit of a better price just given the increasing bid around retail properties today.

Sure.

And some perceived risks that we again are willing to be more reasonable and which makes them more reasonable in terms of price.

It's a combination of all of that and of course after 30 years doing this day in and day out on the West Coast. Our relationships are very very deep in terms of sourcing these transactions.

Okay.

Helpful. And then I appreciate the color rich around the 22 anchor expirations.

It sounds like tenant demand is quite healthy if we look ahead to 2003, where you have 25 anchor expirations.

Little bit of a higher year for anchor expirations I know, it's a little further out but <unk> been proactive in.

Prior year's in recapturing space executing renewals ahead of exploration and sort of unlocking.

Value and below market leases are you expecting in this environment today to be able to get at those leases maybe this year and can you just give us.

Our sense around how much of the 23 anchor expirations do not have options.

Well I'll turn to the last part of your question I don't have that right in front of me in terms of who has and has not options are probably a handful in there that do not have any options remaining.

But I think similar to our past history, we are already fully engaged with our anchor tenant base.

As you know almost all of these are going to end up being grocers are drugstores and.

I think coming out of the pandemic, what these grocers have realized that they want to secure these spaces for as long as possible. So.

Our national Grocer tenant base has been and we've been working with them for the last.

Three to four months on full portfolio reviews, I would expect that much of this will be.

Of the 23 expirations will be handled this year through those discussions.

Okay, and just one for Mike real quick.

I think you may have said this.

Sorry, if I missed it but.

You talked about a little bit of the balance around capital raising throughout the year and investments I realize there is a little bit of a range there.

But what are you expecting leverage to look like at year end.

From a net debt to EBITDA per sector or keep it in the with a six handle for sure.

Yes.

Okay.

Alright, thank you.

Thank you.

Our next question comes from the line of Paulino Rojas Smith with Green Street.

Your line is open.

Good morning Molina.

Good morning.

And my question is about your two ultra price Brett so.

Sure.

You mentioned that this spread well to date at four seven.

Is that right.

Peers by local margin.

Well.

Of course, it can be a good sign right.

We'll have more physical occupancy gains around the corner.

It also suggests that it's taking.

To get tenants open.

So I'm intrigued by how much.

Michael.

These credits.

Are you seeing any delay in the opening openings or what can you share in general your thoughts.

Sure I mean I think.

What youre seeing in those numbers.

Some delays that occurred last year due to the pandemic and the city's permitting process.

We spend.

The amount of time focused on getting these tenants open and operating as quickly as possible.

I feel very optimistic about.

How the year has started out in the openings that we see on the horizon I think we we try to be conservative in.

Our estimation of what's coming on.

But we think that those delay issues that occurred during the pandemic are primarily behind us and that we will make very good progress throughout this year and bring in that $10 million.

Okay.

He will go through.

Operating expense.

Sure.

Recovery we're in.

Congrats.

Hello.

One thing profit formula.

What are you expecting for next year.

The expected impact.

<unk>.

Negative and positive due to higher occupancy and higher recoveries on ultra.

I don't think there is rich I don't think we see.

A big change in the expense recovery, obviously as these tenants come online that.

There is a bit of a lag in that that $10 million as well the $10 million is base rent, but those tenants are also not paying us recoveries. So as that $10 million comes on the recovery rate will increase as well, yes margins are going to go up as these tenants open.

Okay.

Okay. So net of.

<unk> expenses.

And recovery, we Shouldnt expect a negative impact.

Thanks.

Correct.

You should not expect a negative impact.

Great and then.

I'll squeeze one more and I'm intrigued by your acquisition of funding.

Sure.

Correct.

Corporate <unk>.

<unk>.

Can you talk kind of a low interest.

I would assume that can go hog wild.

Sure.

Right.

Christopher.

Right.

Am I correct in thinking what.

Could you I about the property specifically.

That's a good investment.

So Olympia West is a property that we owned back at Pan Pacific, We knew the property very very well.

As you're touching on.

At Kimco did have an interest in the property, but it was a minority interest.

And.

What attracted us to the property is how well we know it we know the marketplace I think as we've touched on in the prepared remarks, some of those tenants we put in there.

10 years ago 15 years ago. So.

It was a great opportunity to acquire a grocery anchored center in the Seattle Metro market.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from the line of Michael Gorman with BT I D.

<unk> is open.

Good morning. Good afternoon. Good morning, guys how are you.

Stuart.

Handful of trades, where the folks taking these out are not looking at the retail economics at all and I'm just wondering how prevalent that is in your markets right now.

The answer is yes, we have seen.

The buyer profile change as the market opened up six months ago.

Where the number of buyers increased considerably, but the profile where buyers that really had invested more heavily in other sectors, where they were paying cap rates that were a lot lower.

And I think a lot of these buyers felt that in order to fine battery yields they could turn to retail and get those better yields with less risk.

That's the key point is less risk I think before the pandemic.

Those buyers really werent focused in the retail sector, but today.

That that depth of and that profile has changed quite dramatically.

I don't see that changing until we see a shift in the other sectors right now.

And that's what we're seeing right now on the ground.

Okay, and then I guess the follow up there is are there any when you went through the Densification kind of review a couple of years ago are there any assets in your portfolio that you think would.

Whether they are stabilized on your end or whatever the case may be would be a potential target for somebody that would look to do something completely different with it.

Other than other than retail even with some density on it.

Properties that have a lot of land.

So.

The.

So the answer to your question is there is probably some inherited value in some of the properties we own in terms of full densification.

However, it's complicated takes time.

And more importantly.

Theres not a lot to work with from a land perspective in terms of creating that huge difference in value.

Okay, Great. That's helpful. And then just one last one for Mike or rich and I apologize if I missed it with the discussion of the leased versus occupied spread.

How much of a compression is baked into that that 3% same store NOI guidance for the year.

Compression on which.

So how much.

I'll just come online.

Although the bulk of it is yes.

Yes, the guidance its going to assume that the bulk of that is coming online by the end of the year. During this year yet correct.

It's about 85% almost 90% Todd.

Okay, great. Thank you.

Thank you.

Next question comes from the line of Mike Mueller with Jpmorgan. Your line is open.

Yes, hi, good morning.

Hey, good morning bit of a follow up here on your build occupancy of 92, 8% what do you what do you see as the ceiling on that and then how close could you get to let's say by the end of 'twenty three.

Okay.

Well I think again by the time, we get through 'twenty. Three we will have added to the pool, we would expect that we could narrow that gap.

<unk>.

Because I think there'll be probably.

More of a lot of built up $10 million will have come online.

We don't expect that it will get back up to that level again, so there will be a bit of compression, but there'll always be somebody waiting to open and pay Ram.

Right and in terms of being proactive rather than reactive as you know we tend to stay ahead of the tenant base. So as we leases expire with no options.

And leases come up for renewal will continue what we've done in the past in terms of trying to.

Get better spreads.

And that could have some impact not much in terms of that number.

Long term Mike.

Okay. Okay that was it thank you.

Yes.

Thank you.

Our next question comes from the line of Linda Tsai with Jefferies. Your line is open.

Hi, good morning, Linda.

Good morning.

No it is conservative.

Okay.

Okay. Thanks, and then.

And then any thoughts on the Donohue Schreiber deal just wondering what your thought on the pricing, it's purportedly selling for sub 5% cap rate and its geographic footprint is similar to high ROIC.

Well, it's hard to say I mean, either the buyer or seller as commented so.

Heard in the marketplace that are traded in the sub five cap rate.

And both.

Both portfolios are similar in many respects, although there is some key differences when you look at each property individually.

In terms of specific shopping center type market characteristics and tenants.

Okay.

No kind of qualitative view on the sub five.

No again.

Right now this is what we've heard in the marketplace nothing thats been formally announced.

Okay. Thanks.

Sure.

Thank you.

I am showing no further questions in the queue I would now like to turn the call back over to Stuart for closing remarks.

In closing I'd like to thank all of you for joining US today, we greatly appreciate your interest in ROIC.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Q4 2021 Retail Opportunity Investments Corp Earnings Call

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