Q2 2022 Retail Opportunity Investments Corp Earnings Call

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Yeah.

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The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

Welcome to retail opportunity investments 2022 second quarter Conference call participants are currently in a listen only mode. Following the company's prepared remarks, the call will be opened up for questions now I would like to introduce sorry, Smedes, the Companys Chief accounting officer.

Thank you before we begin please note that certain matters.

On today's call constitute forward looking statements.

Meaning of Federal Securities Law, Although we believe that these forward looking statements are based on reasonable assumptions. We can give no assurance that these assumptions will be achieved these forward looking statements involve risks and other factors.

Cause actual results to differ significantly from future results expressed or implied by such forward looking statements.

These risks and other factors are described in the company's filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K.

One should refer to the company's filings to learn more about these risks and other factors as well as for more information regarding our financial and operational results now I'll turn the call over to Stuart.

The officer Stuart Thank you Lori and good morning, everyone.

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

Building on the leasing activity and strong momentum that we generated in the first quarter, we continued to actively lease or renew space at a strong pace during the second quarter.

When a new company record in terms of total square footage leased during the first six months of the year.

As we sit here today, we have already leased more space, thus far than what was originally scheduled to expire during the entire year.

Additionally, our strong leasing activity drove our overall portfolio lease rate higher reaching 97, 6% as of June 30, which is essentially on par with a record high portfolio lease rate prior to the pandemic.

Our ongoing.

Success on leasing continues to be driven by the fundamental strong demand for space across our portfolio in the markets.

That continues to come from a growing broad range of necessity service and destination candidates.

Along with leasing at a rapid pace during the first half of the year. We also had good success in growing our portfolio through a relationship driven acquisition program.

Specifically during the second quarter, we acquired three terrific grocery anchored shopping centers for a total of $60 million.

One center is located in the Seattle market, one in Portland, and then one in the San Francisco Bay market.

All three are well situated in densely populated affluent residential communities in all three properties, which are strong grocery operators along with a diverse mix of inline tenants.

The blended going in yield is just north of 6% and we are already pursuing a number of re leasing and repositioning opportunities that should enhance the underlying value going forward.

We have already increased the blended occupancy on the three properties by 130 basis points.

In addition to the $60 million that we acquired in the second quarter. We currently have a transaction under contract with a private developer that we've known for years.

The transaction involves us selling one of our existing properties the developer while acquiring two of their shopping centers.

In terms of the property that we are selling it as a center that we acquired a number of years ago and implemented a value add repositioning initiatives.

We had been contemplating selling the property for a while when the developer approached us.

Developer owns an adjacent parcel and plans to integrate their parcel or property and several other adjacent properties to create a large mixed use development.

Our property is instrumental in the development plan and being able to move forward, which were you able to capitalize on to acquire as part of the transaction two terrific grocery anchored shopping centers, both of which we have had our eye on for some time.

The two shopping centers that we are acquiring both are located in the Seattle market and just like the three centers that we acquired in the second quarter. Both of these new acquisitions are also well situated in the heart of densely populated affluent residential communities.

One of the shopping centers is located just a few blocks from our new commuter train station that is currently under construction along with a number of new multifamily developments.

Julie each shopping centers anchored by a long standing strong performance supermarkets, and pharmacies as well as a great mix of inline tenants.

In terms of the transaction pricing, we are selling our property for $37 million, which equates to a sub five exit cap rate.

We are acquiring two shopping centers for a total purchase price of $60 million, which equates to a mid 6% blended cap rate going in la.

Looking ahead there is the.

The ability for us to quickly enhance value through leasing available space as well as releasing some near term rollover additions.

Additionally, there was a great redevelopment opportunity of a corner.

Freestanding pad in one of the shopping centers.

Once we close on this transaction it will bring our total acquisition activity for the year, thus far that's $120 million.

Adding over half a million square feet of grocery anchored shopping centers to our portfolio.

We are excited about these new acquisitions as they are an excellent strategic fit with our existing portfolio and offer numerous opportunities to enhance value going forward.

<unk> fleet in light of our strong performance year to date.

Our board has increased the company's quarterly dividend raising it to 15 cents a share now I will turn the call over to Michael Haines, Our CFO , Mike. Thanks, Stuart starting with net income for the three months ended June 32022, the company had $11 $5 million and GAAP net income attributable to common shareholders Accordingly.

<unk> per diluted share.

For the first six months of 2020 to GAAP net income was $23 $1 million or <unk> 19 cents per diluted share.

Terms of funds from operations for the second quarter of 2022 episodes totaled $36 7 million equating to <unk> 28 per diluted share.

For the first six months of 2022 episodes of $72 9 million equating to <unk> 55 per diluted share.

With respect to same center net operating income for the second quarter same center NOI on a cash basis increased three 7% to $49 6 million and increased by five 6% for the first six months of 2022.

Turning to the company's financing activities during the first half of the year, we raised approximately $25 million of equity through our ATM.

We utilize the equity raised together with cash flow from operations and borrowings on our credit line to fund a $60 million of acquisitions in the second quarter.

The acquisitions added $60 million of property assets to our balance sheet in the first half of 2022, while just 23 million if that was added which reflects our strategy of working to enhance our financial position and stuff with growing our portfolio.

With respect to the company's debt outstanding specifically mortgage debt during the first half of the year, we retire two mortgage loans such that today, we only have two mortgages remaining on our balance sheet.

Other words out of our entire 92 shopping center portfolio. We only have two properties that are unencumbered. Additionally, with respect to the two properties currently under contract we are acquiring both of them unencumbered.

In terms of the company's overall debt profile at June 30, 97% of our debt was effectively fixed rate with the only floating rate debt being our credit line, which had $46 million outstanding at quarter end.

Looking ahead, the $300 million of swaps that we put in place back in 2017 in 2019 effectively fixing the floating rate on our $300 million unsecured term loan.

That's mature at the end of August however, the actual term loan does not mature for another two and a half years.

Given the recent rise in interest rates and the volatility in that market. We are currently planning to not replace those swaps for the time being with.

With the term loan that maturing until 2025, we have the flexibility in time for the market to settle back down whereby we can make a prudent decision.

The term loan bears interest of 100 basis points over LIBOR, which in today's market. The all in rate is about on par with the swaps notwithstanding.

Notwithstanding having the term loan, Florida again, roughly 75% of our total debt will still be fixed rate and we have no debt maturing for the next year and a half.

Lastly in terms of our <unk> guidance, taking into account, our leasing acquisition and financing activities year to date, we have raised our guidance range for 2022.

Raise the low end of our range to now be $1 eight per diluted share, which just as a point of reference was exited the high end of our initial guidance that we set back at the beginning of the year.

And in terms of the new high end, we've now raised it to $1 12 per share with respect to the underlying acquisition and disposition assumptions. The low end of the range assumes the only acquired two properties currently under contract during the second half of the year, meaning we acquired $120 million in total for the year, while selling 70 million of properties, including the property under contract.

Jack.

I'll handle the range assumes that we acquire another $80 million of properties. In addition to the properties currently under contract, meaning acquiring $200 million four for the year, while selling 100 military properties.

Additionally, we have raised our same center NOI guidance range to 4% to 5% growth for the full year now I will turn the call over shovel or CLO rich. Thanks, Mike as Stuart highlighted the first six months of 2022 had been the most active on record for the company in terms of leasing and.

In total we leased over 714000 square feet of space, surpassing our previous record that we achieved in 2019.

Our record leasing activity helped to drive our portfolio lease rate higher during the second quarter.

At June 30, our portfolio stood at 97, 6% leased which is just shy of the all time high portfolio lease rate that we achieved in 2019.

Breaking our 97, 6% portfolio lease rate down between anchor and non anchor space or.

Our anchor space continues to be 100% leased and during the second quarter, we increased our shop space lease rate to 93, 8%.

Similar to what we experienced in the first quarter, our leasing activity in the second quarter centered around tenant renewals.

The total 298000 square feet that we at least during the second quarter over two thirds of that was renewal activity with many tenants coming to us early.

In fact of the four anchor tenants that we renewed during the quarter three were not scheduled to roll until next year.

Additionally, capitalizing on the strong renewal demand, we continued to make the most of the opportunity to strengthen key lease terms and drive renewal rents higher.

Specifically for the second quarter, we achieved a 10, 5% increase in renewal base rents, which is actually a bit higher than our historical average, which prior to the pandemic was typically in the 8% to 9% range on average.

In terms of new leasing activity. We also continue to have good success.

Given the strong demand for space, yet limited availability across our portfolio. We continue to be selective with the new tenants that we are signing with the goal being to strategically enhance our tenant diversity and further our necessity and service focused with each new lease.

During the second quarter, we signed 38, new leases all of them being inline tenants.

The bulk of which are in the health and wellness sector.

Historically shop tenants have typically look to sign shorter term leases with five year leases being the norm on average.

However, today, an increasing number of shop tenants are seeking to sign leases with longer terms, some as much as 10 years.

We think this trend is another positive sign of the long term fundamental strength and appeal of our portfolio as well as the strength of the type of tenants that we're focused on.

Additionally, just because we are doing with renewals we are capitalizing on the shop space demand to achieve more advantageous lease terms, while also achieving solid rent growth spin.

Specifically for the second quarter, we achieved a 16, 7% increase in same space cash base rent.

Along with the actively leasing space, we continue to have good success in getting new tenants up and running with.

For the second quarter being the most active quarter on record for the company in terms of getting new tenants open.

Specifically at the start of the second quarter, we had $9 6 million.

Of annualized base rent from new leases with new tenants had not yet taken occupancy and commence paying rent.

During the second quarter, we were successful in getting over $2 7 million of the $9 6 million open and operating which is the largest dollar amount to commence during any quarter on record for the company.

Taking into account new leases that we signed during the second quarter totaling roughly $1 million in incremental rent.

At June 30, we had $7 9 million of annualized base rent that has not yet commenced.

We currently expect the bulk of the $7 9 million will steadily come online as we move through the second half of the year.

Now I will turn the call back over to Stuart.

Thanks Rich.

Given our strong performance year to date, we are well positioned today as we head into the second half of the year.

Demand for space remains strong across our portfolio and we are continuing to make the most of it.

In terms of acquisitions, we continue to be actively engaged in seeking out additional off market opportunities.

That said, while the recent rise in interest rates haven't yet impacted pricing anticipating that it could we intend to be patient cautious going forward, which could mean, possibly slowing down our pace of acquisitions. During the second half of the year as is reflected in our latest guidance.

In terms of dispositions. We are currently in the process of bringing two properties to market, both being redevelopment properties, which we think could generate in total around 30% to $35 million in proceeds.

We are currently considering selling several other properties later this year that could generate another $30 million give or take in proceeds.

Lastly, looking ahead, notwithstanding standing the macro economic environment. The long term fundamentals in our markets remains sound both in terms of demographics in our markets being highly protected supply constrained.

As such we remain confident in our ability to continue building value.

Our confidence is grounded in our decades long singular focus on operating grocery anchored shopping centers on the west coast.

Over the years, we have successfully operated and grown through numerous challenges ranging from economic volatility the online retailing.

Most recently the pandemic.

Timing again of our grocery anchored portfolio and diverse tenant base a proven to be resilient.

Capitalizing on this resiliency in our nearly 30 years of operating experience we.

<unk> been successful in generating consistent results turn at all and expect to continue to do so going forward now.

Now we will open up your call for questions.

Yes.

Okay.

Okay.

Thank you. So at this time participants if you would like to ask a question. Please press star one on your telephone keypad and you will just compiled a questions.

And speakers. Our first question comes from the line of Juan Sanabria. Please go ahead.

Good morning, Hi, good morning.

Just wanted to ask about the guidance it implies.

Basically no growth off of.

The first half in the second quarter run rate.

Yes, the fundamentals sound great.

Got it.

At least but not commenced starting to card steadily coming online in the second half you've done accretive acquisitions I'm, just trying to get a sense of.

Of what's assumed in there if there were any one timers in the second quarter.

Maybe won't repeat typically just give us a little extra color around the guidance and some of the assumptions that would be fantastic.

This is for what are you referring to the same store guidance.

Earnings Sorry, NAREIT Africa.

<unk>.

Yes, sure I don't think Theres anything.

That one time event, that's occurred that will not occur in the second half of the year I think that's what he's asking Mike.

Q3, and four should be tracking along the same line. That's why we raised our guidance a bit.

Strong leasing activity is driving.

Cash base rent and straight line rent for that matter.

It's $1 41, which was in our numbers, which is reflected in the release too so.

I think it should be steady as she goes for the rest of the year.

Okay.

Just to confirm so despite.

The lease, but not commence kind of coming online in the second half.

Accretive acquisitions relative to some of the funding on the dispositions.

Versus the second quarter run rate on an <unk> basis assumed for the second half.

It seems a little conservative I guess.

Well I think we're probably given the current economic environment, we're remaining somewhat cautious and conservative we don't know, we'll find out more today and tomorrow.

Here about GDP of the fed rate rise, but we're just being cautious about the second half of the year given the economic uncertainty out there right now.

Okay that makes sense and then just on the desk.

Position correct, you mentioned a couple of assets.

Kind of on the market in a couple of others potentially coming.

Any sense of how pricing may be changing given the change in capital costs that you mentioned in the prepared remarks, just curious what you guys are thinking that <unk>.

How cap rates may change.

Given the move in rates.

Well certainly in terms of.

The acquisition market I mean, thus far we haven't seen any change in terms of pricing on cap rates for grocery anchored assets.

As it relates to selling these assets.

We are anticipating in the sale of these assets that cap rates are probably going to sustain a pretty tight range.

So even if things change in the macro from a macro side, we still think we're going to get some pretty compelling valuations in terms of selling.

These assets.

Okay.

Five ish cap rates in line with what you've been selling today that sounds fair.

I would expect it to be in that range correct.

Great. Thank you very much.

Thank you Juan.

Thank you so much and your next question comes from the line of Craig Smith from Bank of America. Please go ahead and ask your question.

Good morning, Craig that's correct.

Good morning for you.

Listen.

Given the broader pullback in consumer spending do you see that having any impact on ROIC 22.

Full year results.

No.

And when I say that obviously, we don't you can't determine the depth of that pullback, but certainly what we have seen in the past in terms of operating grocery anchored centers on the west coast is that.

The impact.

Really we haven't seen much impact.

So depending on the severity of the impact right now things continue to be very strong in terms of the momentum.

That we had in the second quarter that is not we haven't seen any impact on the ground leasing continues to be strong.

Renewals continue to be strong.

No impact so far Craig so if something does occur I don't think its going to have much impact from what we can see right now.

And this <unk>.

Lack of impact is it due to your grocery focus essential based tenancy or is it due to the fact that your leases are already done and put to bed and borrowing.

Hi, Randy.

Mario in the second half of the year.

You are still going to see those.

Increased activity in leasing.

Yes, I mean look I think the momentum is still there across the whole sector.

More importantly, it's really owning the that grocery anchored shopping center we've seen.

Traffic pick up on the ground in terms of the number of visits and what we've also seen is that even as we've seen a very high inflation rate. Most of those customers are redeploying the savings back to what we would call necessity retail so we've seen an actual increase.

Sales from the grocers and other tenants as well as.

And as well as foot traffic. So all in all we're pretty confident right now that.

Is this that the grocery anchored center format is going to hold up pretty strong.

Great and then just.

Third quarter leasing volume activity.

Do you think it would be above the 297, you achieved in second quarter.

While the quarter started out very strong.

I will tell you.

And rich I don't know if you want to add.

It's always a bit hard to predict Craig.

Because being highly occupied like we are these opportunities.

In terms of replacing tenants and that sort of thing are not always easy to identify in advance, but we would expect that the leasing activity as Stuart said it started out the quarter started out very strong the leasing team is very busy.

Identifying new tenants to replace tenants that are leaving so we would expect it to be on par with what we've done historically.

Okay. Thank you.

Thanks, Craig.

Thank you so much and your next question comes from the line of Todd Thomas from Keybanc Capital markets. Please go ahead and ask your question.

Good morning, Todd.

Hi, Thanks, good morning.

First question Stuart Rich the portfolios performing well and you talked about.

Leasing activity in the quarter and bad debt expense was also.

At a minimal level during the period as you look out are you starting to see.

Any pushback or response from tenants in the portfolio related to the inflationary pressures that they're seeing.

Maybe I am just curious if you can comment on the local tenants in the portfolio specifically.

Sure.

We're not seeing any pushback from the tenant base I mean, I think obviously, there's concern out there.

Certain users depend.

Depending on the use.

There has not been any pushback collections are going well.

I think that.

Coming out of the pandemic the tenants that.

Still in the portfolio are very strong have a very loyal following.

I think being highly occupied like we are.

These tenants are here for the long haul.

And I think the demand for our type of product has has increased so we are still seeing abroad.

<unk> from various types of tenants looking to get into the grocery.

Drug anchored shopping centers.

Okay, and then for tenants that are looking to sign longer term leases.

Rich you mentioned that you are seeing an increase in 10 year deals for shop tenants up from the more typical five year term.

How does that change the.

The discussion.

Around starting rents and escalators.

Yes, I mean typically the typical scenario if some of them will come to us they have a five year option.

Probably at a fixed rate.

But they now want to lock in more term in order to do that we're going to get more rent initially than would have been.

<unk> did they just exercise of their option as is I think this is being driven by tenants understanding that.

Theres been virtually no supply added in these markets.

They have a good business on a great location, they really want a secured for as long as they possibly can but we take advantage of that as is mentioned in the prepared remarks.

By driving the rents higher and also fixing any leakage that might be in the cam numbers or whatever else.

Restrictions that might be in the lease to allow us more flexibility down the road. So it's really been working out well for us.

Okay, and what what percent of tenants renewed in the quarter end.

Tenant retention has been elevated in the near term or do you expect to see that moderate a little bit.

Tenants moving out or do you expect.

To see that remain at higher levels going forward.

Yes, I mean, I think our retention rate is probably a touch higher than it has been historically.

In fact, I think some of our challenge for the leasing team is getting a space back.

The options.

That are out there can sometimes prevent us from bringing in a new tenant so if anyone.

So as any hesitancy to stay we are a few examples that we'll be seeing in the third quarter. We've been able to go out find a replacement tenant ahead of the exploration get them in for permitting so that when the tenant that's demonstrated any hesitancy when their leases up they were able to deliver the space and get them open and reduce debt.

Downtime between the two tenants so.

Again, the demand is there anyone who shows any hesitancy, we've got a list of tenants ready to go.

Sure.

Okay. That's helpful and just last one.

Just a question about the dividend increase.

It's about 10 or $11 million for the <unk>.

For the year going forward.

Which is an insignificant.

Because of the improved outlook in the board, having more confidence today or was it mostly consistent with the increase in taxable net income that youre anticipating for the year.

It's just a combination of the momentum that we're seeing coming out of the Po de.

The pandemic and Mike from a tax viewpoint I think that also played into it it's really based on our projected taxable income we are still trying to preserve as much free cash flow as we can but still satisfying our REIT distribution requirements.

Okay, Great alright, thank you.

Thank you.

Thank you and your next question comes from the line of Michael singer.

From Jpmorgan. Please go ahead.

Good morning, Mike Hi, Mike going back to the quarters disposition and acquisition cap rates. I think you said it was about $5 up by by the disposal mid sixes on the acquisitions just curious the mid sixes is higher than the about five youre talking about for upcoming asset sales.

And I guess.

What was was there anything unique to that transaction I think you may have said it was value add but typically when I think of value add stuff, that's always lower going in yield.

It goes to something higher down the road or was it.

Part of the overall transaction, where the buyer really needed to your projects. So you get a better price on the acquisition because of it.

Well look I think the sales valuation takes into account not just the in place income, but also the fact that our property again was key to the developer.

In terms of Hey, moving forward with as a mixed use development.

And from on the other side.

We've got we got a better deal because there is some near term rollover and repositioning opportunities that was reflected in the pricing which plays into our strength. So.

It was really a combination of finding a transaction that was a win win for everyone.

Got it and I think you said that the go forward disposition cap rates youre, hoping youre still going to be in that roughly five range.

If you end up coming toward the higher end of the acquisition.

Range based on what you are looking at now are the cap rates closer to that five or just.

Higher.

Well, we'll see I think theyre going to stay pretty in that pretty tight range, but remember one of the in a couple of these acquisitions or properties that.

That are valued based on the development opportunity ranked us as densification that we're selling so.

It's hard to sort of quote on exit cap rate.

Because that would be misleading given the fact that this is entitled land.

Got it Okay and just one other quick one for the sequential.

Build occupancy and leasing gains.

Was any of that influenced by the quarters acquisitions or was it 100% kind of organic increase.

Lisa.

Not impacted by the acquisitions.

Got it okay that was it thank you.

Thank you Mike.

Thank you so much and your next question comes from the line of Galena Ross Smith from Green Street. Please go ahead.

Good morning from the West Coast.

Okay.

It's early for you.

Very very early.

The best I can.

Okay.

Okay.

Hi.

Operating expenses.

And then recovery.

Being an issue.

Drag for you this year.

Can you share what you're seeing here what are the specific line items and we've seen operating expenses driving this increase.

And.

What should we expect going forward.

We don't see a big change in the recovery rate in fact.

As we touched on we're getting a little bit better terms on some of these new leases we're doing on the rollover.

We're trying to plug any leakage in the recovery rates I think.

What youre seeing in the numbers. There is just a one time anomaly in the recovery rates it will be consistent going forward, if not a touch better.

Yeah.

Okay.

And then in terms of local and then can you remind us how much of your current <unk>.

Comes from.

And.

With only maybe a handful of store instead of national and regional retailers with large breasts.

Yes, I mean I think.

The local tenant base is still a good.

The component of our tenant base I think the changes in the industry over the years has really moved more to the regional and multi unit operators.

Along with the National tenant basically we're talking about shop spaces here.

Whether an important component of the tenant base.

They've actually become a bit smaller.

As the years have progressed, where we're now seeing multi unit operators really driving that shop space.

Okay and maybe the last question can you talk about the general.

Access your team for the different sources of debt.

Banks life company.

I'm sorry can you say that again you are looking for the sources of that.

How are you.

In terms of <unk>.

Maybe the difference.

Because I know you have.

One note expiring at the end of 2023.

Yes.

You see availability.

Yes.

And life in general.

Yes.

And I think by and large.

Obviously, we have our credit line, but to refinance the bonds coming up the end of next year.

Got the options do.

Public offering our private placement notes.

We've always tried to keep the properties unencumbered. So I love the way, we would do any kind of Cvs or mortgage level that we keep the unencumbered at the corporate level.

Primarily public and private bonds.

Okay.

Thank you.

Thank you. Thanks. Thank you.

So much and your next question comes from the line of Linda Chan from Jefferies. Please go ahead. Thank you. Thank you.

Thank you so much and your next question comes from the line of Linda Chan from Jefferies. Please go ahead.

Good morning, Linda.

Can you discuss small shop leasing strength in terms of the $93 eight.

Shop space occupancy occupancy is your expectations higher by year end.

Yes, yes.

Yeah.

Yes.

Okay.

I mean look the momentum continues to be strong and from all aspects of the spectrum regional national and local.

Obviously, we don't have much space left to lease in the portfolio a lot of what we have is obviously in line space. So all of it's in line. So we are expecting that momentum to continue so.

I don't know if I would tell you it's all coming from a local tenant base of probably what youll see as rich has articulated a number of tenants that operate regionally takes some of the space, but certainly in the momentum in terms of filling that in line space continues to be very strong.

Thanks, and then in terms of small shop looking for longer lease terms, what's the trend like for anchor leases I saw that the four renewals for anchors had a weighted average lease term of four three years this quarter.

Yes, it's the same the same scenario obviously it depends on the operator and the particular lease but we are still working with several of our anchor tenants, who maybe only have one or two options remaining they want to reset the lease.

Maybe instead of having a fair market value option, we're getting fixed option rents, but extending them instead of five years 10 years with four or five year options.

So those discussions are still going on.

Some of our anchor leases are now getting near the end of their term because they've been in place and operating successfully for so long. So that's still an opportunity that we're working on with these anchor tenants.

Okay, and then just last one with some of the debt that you took on this quarter to fund acquisitions, your leverage ticked up a little bit higher.

Level are you comfortable with going forward.

So that six five range.

We're comfortable at and again remember that we're dealing with a portfolio that is close to full occupancy. So we're comfortable where we're at now.

Six five range it may tick up a bit in may tick down a bit depending on growth selling assets, but all in all.

Thats our comfort range.

Thanks.

Okay.

Thank you so much.

And again, if you would like to ask a question. Please press star one on your telephone keypad.

Our next question from the line of Craig Mailman from Citi. Please go ahead.

Good morning, Craig.

So to circle back to guidance a bit with a few follow ups.

First off.

You guys mentioned the swap burning off here.

From a cost perspective, the drag perspective kind of what's the expectation in back half guidance related I guess, we will see that $100 million term loan.

From a cost perspective.

Well Craig based on the LIBOR forward curve as I look at it every week as a kind of change.

Changes the market changes, but based on that we're currently assuming that theres a slight nominal amount of increase in terms of our overall interest expense relates to the swaps for this year.

Just keep in mind that 75% of our debt is still fixed rate even beyond that so no.

Nonetheless increase this year.

What's the net impact if you just look at the swap rate versus where the LIBOR curve is telling you.

Our slusser just over 3% so if I add 100 basis points of the current LIBOR you are right in that range anyway. That's why I said, it's kind of a nominal impact.

I am sure you keep an eye on LIBOR curves as well they've been coming down over the last weeks.

I think thats probably a.

Reaction to potential fed won't be able to raise rates as quite as high as they anticipated.

Given the potential recessionary factors.

Okay.

And then the second piece.

<unk>.

The $80 million.

So acquisitions versus the third.

And then I know you guys made with over 30 million behind that but from a timing perspective, what are you guys assuming for the dispose versus when you could actually.

<unk>.

Land acquisitions.

Possible.

Well look the pipeline is strong Craig right now in terms of sourcing off market transactions.

I don't think I've seen it.

This active in a little while from our perspective.

So you probably will get some of the acquisitions done a bit earlier than the dispositions because dispositions higher aftermarket properties. So it will.

I think when you look at the acquisition disposition timetable here I think youll see acquisitions come in a touch quicker as we get through the year and just positions following that right after but.

Everything could happen at the same time it just depends on the transaction.

Okay. That's helpful, but just one.

One one more for me and I know Michael has one.

You guys are.

Reiterated that tenant credit is looking very strong year and I'm, just curious, especially some of the kind of non discretionary retailers has just said, it's a real margin probably one just.

Product mix and other things from a coverage perspective revenues there.

Any material impact when you guys look at rent coverage ratios and like how much more.

These retail should we need to be stress, especially as kind of rent.

Yes.

A couple of years.

Occupancy costs continue to trend and hasnt trending in a very good and a.

Good place.

As sales have gone up so when you look at our tenant base necessity based retail.

We're really not seen much deterioration at all or very little right now in fact in a lot of cases, it's been the opposite.

Obviously, we're still a bit early in this game in terms of watching the market Craig but.

We are watching what's going on obviously on the ground and we're not seeing anything right now or any indication right now that we'll see a deterioration in terms of necessity based retailing.

On the other hand.

We are looking at a much broader spectrum of retail and we are starting to see some cracks and other types of retailers, but most of those retailers. We don't have in our portfolio and if we do have our exposure is minimal in terms of any impact to ABR.

Hey.

Stuart Bilerman.

Quick question as you think about some of these projects that you've looked at from a redevelopment and Densification perspective, it sounds like.

Potentially two upcoming sales.

We're projects.

Have that potential.

Your mind shifted a little bit.

In regards to those projects I think back a number of years ago. I think you had somewhat underwrite the entire portfolio and they came out and said okay.

A review of these projects, we could see upside of $4 a share in all of those things.

Is your mind shifted on that today.

It's a great question Mike.

Mike you've known me and this team for decades at this point there is a reason why we're not in the development business.

And that reason is because of some of the experience we've had looking at densification and the process to get to the finish line.

It's because the west coast is so tough to entitle.

Because of the topography, but more importantly, the entitlement process, what we continue to what we've learned over the years and what we continue to see is that the process is long.

Tons of roadblocks when you don't think you have any.

Costs, obviously have gone up in the current environment.

To try to answer your question if I look back at the two projects that we.

Initially looked at and we're still working on a number of those.

Our mind is certainly in the same place and that we're glad we're not in the development business.

That we are.

Right now the focus is to get these projects entitled to and as you've seen sells out except for the crossroads across US is such a unique project and brings us so much value to the shareholders. We're still contemplating building that out and obviously using a third party to operate and manage.

Alright.

The endpoint being able to liquidate these assets or do you believe lower cap rates then.

Where they would sell for is operating assets given that redevelopment densification opportunity and roll that capital into acquisitions that you've had your sight. Tom. Thank you for reminding me, we've known each other for decades.

Yes.

That's a place that <unk> been looking at and if Youre able to grab those Ed.

The average cap rate given the relationship the accretion will show up from a long term perspective on that spread and future growth.

Fair way to think about it.

Exactly right exactly.

Okay, alright, thanks for the time.

Thank you.

Thank you so much and your next question comes from the line of Christopher Lucas from capital. One. Please go ahead.

Good morning, Chris Hey, Good morning, guys. Good morning, a couple of follow up questions I guess, maybe starting with you rich just as it relates to the leasing conditions. It doesn't sound like but I'd like to make sure that I understand youre not seeing anything change in terms of the tenant.

The sales cycle of leasing.

New deals.

No delays youre not really finding that tenants are dragging their feet at all at this point.

Yeah.

The macro environment.

No I think the demand is stronger than it has been I do think it has taken a touch longer on some of the negotiations.

More back and forth.

But beyond that.

There is still multiple tenants vying for the spaces that come available.

And we're capitalizing on that to get the best deal we can.

I think time to execution is probably a touch longer but demand is as strong as ever.

Okay. Thank you and then as it relates to I just want to make sure I understand what youre, saying as it relates to sort of the tenant.

Buying or looking for 10 year deals versus say the typical five year deal or are you, saying that youre willing to give on the fair market value.

<unk> option.

And moved to a fixed.

Option.

In exchange for that tenure.

Lease deal.

Well, obviously every every.

The transaction has to stand on its own but there are certain leases, where it's a potentially a fair market value with an appraisal concept and a cap on how high it can go and if we can change that into whether it's fixed annual increases or a large increase every five years.

With certainty.

We will we will look at that transaction lockup, a tenant for 10 years versus five years gives them a few more options at the backend and get more rent today than we would have if they've just taken down their five year option.

Okay.

Rent for term, we're getting more rent for additional years of control.

Okay appreciate.

Appreciate that and then just.

I don't know if this is for you or for Mike on the signed to build spread that $7 $9 million.

Much of that is expected to sort of begin.

<unk> commenced in <unk>.

Two.

At some point, we expect most of that will come online in 'twenty. Two obviously, we will be adding to it as we go throughout the remainder of the year, but of the seven nine thats sitting there right now we expect that most of the majority of that will be online by the end of the year.

Okay.

And then Stuart last question for you for me, which is.

Just.

Trying to understand how youre thinking about the markets you're in.

<unk> put a lot of capital fresh capital into.

The Pacific Northwest and I guess, I'm, just curious as to whether or not this.

This was driven by opportunity or is this a conscious effort on your part to balance the portfolio with maybe a little bit more specific northwest exposure.

Well historically the Pacific Northwest has been a very hard market to penetrate in terms of.

Gaining market share.

If you go back the last 25 years and operating both companies.

It's only been of times when we.

The only way we have been able to penetrate these markets is really during the height of recession.

The hydro credit crisis, where we've been able to get a hold of a very.

High quality well located assets in these markets. These markets are not like California in terms of size geography topography and other things.

So theyre very difficult markets to penetrate we've done an amazing job over the last 12 years and gaining so much market share in these markets. So it's really.

The answer is if I could buy in or I would love to do that and continue to do that it's very difficult Chris I mean, it really comes in waves and we've had the opportunity more recently to gain a foothold a bigger foothold in these markets.

Which long term is really going to create a lot of value for shareholders. So these are just.

Historically has been really really good markets.

So these acquisition is really a question of balancing what we have is really seeking out the opportunity whenever it arose.

And we'll see how the balance of the rest of the year holds in terms of acquiring other assets but.

We are certainly committed to the Pacific northwest long term.

It continues to deliver some really good value for shareholders.

Great. Thank you that's all I had this morning.

Thank you.

Thank you so much and we don't have any questions I would now like to turn the conference back to Stuart <unk> for closing remarks.

In closing I'd like to thank all of you for joining US today. If you have additional questions. Please contact Lori Mike Rich or me directly also you can find additional information in the company's quarterly supplemental package and 10-Q, which are posted on our website as well as our new <unk>.

C <unk>.

Fuel report.

Thanks, again and have a great day everyone.

Yeah.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Welcome to retail opportunity investments 2022 second quarter Conference call participants are currently in a listen only mode. Following the company's prepared remarks, the call will be opened up for questions now I would like to introduce floris needs the Companys Chief accounting officer.

Thank you before we begin please note that certain matters, which will be discussed on today's call constitute forward looking statements within the meaning of federal securities laws. Although we believe that these forward looking statements are based on reasonable assumptions. We can give no assurance that these assumptions will be achieved these forward looking statements involve risks and other factors.

Which can cause actual results to differ significantly from future results expressed or implied by such forward looking statements. These.

These risks and other factors are described in the company's filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K participants should refer to the company's filings to learn more about these risks and other factors as well as for more information regarding our financial and operational results now I'll turn the call over to Stuart can the company's Chief Executive Officer.

Sure.

Thank you Lori and good morning, everyone.

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

Building on the leasing activity and strong momentum that we generated in the first quarter. We continued to actively lease revenue space at a strong pace during the second quarter, achieving a new company record in terms of total square footage leased during the first six months of the year.

As we sit here today, we have already leased more space, thus far than what was originally scheduled to expire during the entire year.

Additionally, our strong leasing activity drove our overall portfolio lease rate higher reaching 97, 6% as of June 30, which is essentially on par with a record high portfolio lease rate prior to the pandemic.

Our ongoing success.

Success on leasing continues to be driven by the fundamental strong demand for space across our portfolio and markets.

And that continues to come from a growing broad range of necessity service and destination with cabinets.

Along with leasing at a rapid pace during the first half of the year. We also had good success in growing our portfolio through a relationship driven acquisition program.

Specifically during the second quarter, we acquired three terrific grocery anchored shopping centers for a total of $60 million.

One center is located in the Seattle market, one in Portland, and then one in the San Francisco East screening market.

All three are well situated in densely populated affluent residential communities and all three properties, which are strong grocery operators along with a diverse mix of inline tenants.

The blended going in yield is just north of 6% and we are already pursuing a number of releasing and repositioning opportunities that should enhance the underlying value going forward.

We have already increased the blended occupancy on the three properties by 130 basis points.

In addition to the $60 million that we acquired in the second quarter. We currently have a transaction under contract with a private developer that we've known for years.

The transaction involves us selling one of our existing properties the developer while acquiring two of their shopping centers.

In terms of the property that we are selling it as a center that we acquired a number of years ago and implemented our value add repositioning initiatives.

We've been contemplating selling the property for a while when the developer approached us.

Developer owns an adjacent parcel and plans to integrate their parcel or property and several other adjacent properties to create a large mixed use development.

Our property is instrumental in the development plan being able to move forward with jewelry and able to capitalize on to acquire as part of the transaction two terrific grocery anchored shopping centers, both of which we have had our eye on for some time.

The two shopping centers that we are acquiring both are located in the Seattle market and just like the three centers that we acquired in the second quarter. Both of these new acquisitions are also well situated in the heart of densely populated affluent residential communities.

One of the shopping centers is located just a few blocks from our new commuter train station that is currently under construction along with a number of new multifamily developments.

Additionally, each shopping center is anchored by a longstanding strong performance supermarkets and pharmacies as well as a great mix of inline tenants.

In terms of the transaction pricing, we are selling our property for $37 million, which equates to a sub five exit cap rate.

We are acquiring two shopping centers for a total purchase price of $60 million, which equates to a mid 6% blended cap rate going in.

Looking ahead, there is the ability for us to quickly enhance value through leasing available space as well as releasing some near term rollover.

Additionally, there was a great redevelopment opportunity of a corner.

The freestanding pad in one of the shopping centers.

Once we close on this transaction it will bring our total acquisition activity for the year, thus far to to $120 million, adding over half a million square feet of grocery anchored shopping centers to our portfolio.

We are excited about these new acquisitions as they are an excellent strategic fit with our existing portfolio and offer numerous opportunities to enhance value going forward.

Lastly in light of our strong performance year to date.

Our board has increased the company's quarterly dividend raising it to <unk> 15, a share now I will turn the call over to Michael Haines, Our CFO , Mike. Thanks, Stuart starting with net income for the three months ended June 32022, the company had $11 5 million in GAAP net income attributable to common shareholders equating to <unk>.

<unk> per diluted share.

For the first six months of 2022.

GAAP net income was $23 1 million or 19% of the chair.

In terms of funds from operations for the second quarter of 2022 episodes totaled $36 7 million equating to 28 per diluted share.

For the first six months of 2022.

<unk> $72 9 million equating to <unk> 55 per diluted share.

With respect to same center net operating income for the second quarter same center NOI on a cash basis increased three 7% to $49 6 million and increased by five 6% for the first six months of 2022.

Turning to the company's financing activities during the first half of the year, we raised approximately $25 million of equity through our ATM.

We utilize the equity raised together with cash flow from operations and borrowings on our credit line to fund the $60 million of acquisitions in the second quarter.

The acquisitions added $60 million of property assets to our balance sheet in the first half of 2022, while just 23 months if that was added which reflects our strategy of working to enhance our financial position and stuff with growing our portfolio.

With respect to the company's debt outstanding specifically mortgage debt during the first half of the year, we retire two mortgage loans such that today, we only have two mortgages remaining on our balance sheet.

In other words and of our entire 92 shopping center portfolio. We only have two properties that are encumbered. Additionally, with respect to the two properties currently under contract we are acquiring both of them unencumbered.

In terms of the company's overall debt profile at June 30, 97% of our debt was effectively fixed rate with the only floating rate debt being our credit line, which had $46 million outstanding at quarter end.

<unk> ahead, the $300 million of swaps that we put in place back in 2017 in 2019 effectively fixing the floating rate on our $300 million unsecured term loan with swaps mature at the end of August however, the actual term loan does not mature for another two and a half years.

Given the recent rise in interest rates and the volatility in that market. We are currently planning to not replace those swaps for the time being with.

With the term loan debt maturing until 2025, we have the flexibility in time for the market to settle back down whereby we can make a prudent decision.

The term loan bears interest at a 100 basis points over LIBOR, which in today's market. The all in rate is about on par with the swaps notwithstanding.

Notwithstanding having the term loan, Florida again, roughly 75% of our total debt will still be fixed rate and we have no debt maturing for the next year and a half.

Lastly in terms of our <unk> guidance, taking into account, our leasing acquisition and financing activities year to date, we have raised our guidance range for 2022.

As the low end of our range to now be $1 eight per diluted share, which just as a point of reference was exited the high end of our initial guidance that we set back at the beginning of the year.

And in terms of the new high end, we have now raised it to $1 12 per share with respect to the underlying acquisition and disposition assumptions. The low end of the range assumes that we only acquired two properties currently under contract during the second half of the year.

We acquired $120 million in total for the year, while selling $70 million of properties, including the property under contract.

The Haynesville range assumes that we acquire another $80 million of properties. In addition to the properties currently under contract, meaning acquiring $200 million floor for the year, while selling 100 military properties. Additionally, we've raised our same center NOI guidance range to 4% to 5% growth for the full year now I will turn the call over to shovel or CLO rich. Thanks.

As Stuart highlighted the first six months of 2022 have been the most active on record for the company in terms of leasing.

In total we leased over 714000 square feet of space, surpassing our previous record that we achieved in 2019.

Our record leasing activity helped to drive our portfolio lease rate higher during the second quarter.

At June 30, our portfolio stood at 97, 6% leased which is just shy of the all time high portfolio lease rate that we achieved in 2019.

Breaking our 97, 6% portfolio lease rate down between anchor and non anchor space or.

Our anchor space continues to be 100% leased and during the second quarter, we increased our shop space lease rate to 93, 8%.

Similar to what we experienced in the first quarter, our leasing activity in the second quarter centered around tenant renewals.

Of the total 298000 square feet that we at least during the second quarter over two thirds of that with renewal activity with many tenants coming to us early.

In fact of the four anchor tenants that we renewed during the quarter three were not scheduled to roll until next year.

Additionally, capitalizing on the strong renewal demand, we continued to make the most of the opportunity to strengthen key lease terms and drive renewal rents higher.

Specifically for the second quarter, we achieved a 10, 5% increase in renewal base rents, which is actually a bit higher than our historical average which.

Prior to the pandemic was typically in the 8% to 9% range on average.

In terms of new leasing activity. We also continue to have good success.

Given the strong demand for space, yet limited availability across our portfolio. We continue to be selective with the new tenants that we are signing with the goal being to strategically enhance our tenant diversity and further our necessity and service focused with each new lease.

During the second quarter, we signed 38, new leases all of them being inline tenants the bulk of which are in the health and wellness sector.

Historically shop tenants have typically look to sign shorter term leases with five year leases being the norm on average.

Today, an increasing number of shop tenants are seeking to sign leases with longer terms, some as much as 10 years.

We think this trend is another positive sign for the long term fundamental strength and appeal of our portfolio as well as the strength of the type of tenants that we're focused on.

Additionally, just as we're doing with the renewals we are capitalizing on the shop space demand to achieve more advantageous lease terms, while also achieving solid rent growth.

Specifically for the second quarter, we achieved a 16, 7% increase in same space cash base rent.

Along with the actively leasing space, we continue to have good success in getting new tenants up and running.

But the second quarter being the most active quarter on record for the company in terms of getting new tenants open.

Specifically at the start of the second quarter, we had $9 6 million.

Of annualized base rent from new leases with new tenants had not yet taken occupancy and commence paying rent.

During the second quarter, we were successful in getting over $2 $7 million of the $9 6 million open and operating which is the largest dollar amount to commence during any quarter on record for the company.

Taking into account new leases that we signed during the second quarter totaling roughly $1 million in incremental rent.

At June 30, we had $7 9 million of annualized base rent that has not yet commenced.

We currently expect the bulk of the $7 9 million will steadily come online as we move through the second half of the year.

Now I'll turn the call back over to Stuart.

Thanks Rich.

Given our strong performance year to date, we are well positioned today as we head into the second half of the year.

Demand for space remains strong across our portfolio and we are continuing to make the most of it.

In terms of acquisitions, we continue to be actively engaged in seeking out additional off market opportunities.

That said, while the recent rise in interest rates haven't yet impacted pricing anticipating that it could we intend to be patient and cautious going forward, which could mean, possibly slowing down our pace of acquisitions. During the second half of the year as is reflected in our latest guidance.

In terms of dispositions. We are currently in the process of bringing two properties to market, both being redevelopment properties, which we think could generate in total around 30% to $35 million of proceeds. Additionally, we are currently considering selling several other properties later this year that could generate another $30 million give or take in proceeds.

Lastly, looking ahead, notwithstanding standing the macroeconomic environment. The long term fundamentals in our markets remains sound both in terms of demographics in our markets being highly protected and supply constrained.

As such we remain confident in our ability to continue building value.

Our confidence is grounded in our decades long singular focus and operating grocery anchored shopping centers on the west coast.

Over the years, we have successfully operated and grown through numerous challenges ranging from economic volatility to online retailing to most recently the pandemic.

Time, and again of our grocery anchored portfolio and diverse tenant base a proven to be resilient.

Capitalizing on this resiliency in our nearly 30 years of operating experience. We have been successful in generating consistent results turn at all and expect to continue to do so going forward now.

Now we will open up your call for questions.

Yeah.

Thank you. So at this time participants if you would like to ask question. Please press star one on your telephone keypad and you will just compiled a question.

And speakers. Our first question comes from the line of Juan Sanabria. Please.

Go ahead.

Good morning.

Morning.

I just wanted to ask about the guidance it implies.

Basically no growth off of the first half in the second quarter run rate.

The fundamentals are sound great Scott.

At least not commenced and starting to card steadily coming online in the second half.

You've done accretive acquisitions, I'm, just trying to get a sense of.

What's assumed in there if there were any one timers in the second quarter.

Maybe won't repeat typically just give us a little extra color around the guidance and some of the assumptions that would be fantastic.

This is for what are you referring to the same store guidance.

Earning almost sorry NAREIT Africa.

<unk>.

Yes, sure I don't think Theres anything.

That one time event that occurred that will not occur in the second half of the year I think that's what he's asking Mike.

I think that Q3 and four should be track along the same line. That's why we raised our guidance a bit we've got strong leasing activity is driving.

Cash base rent and straight line rent for that matter.

It's $1 41, which was in our numbers, which is reflected in the release too so.

I think it should be steady as she goes for the rest of the year.

Okay.

The confirms that despite.

The lease, but not commence kind of coming online in the second half.

And accretive acquisitions relative to some of the funding on the dispositions.

The increase versus the second quarter run rate on an <unk> basis assumed for the second half.

Seems a little conservative I guess.

Yeah.

Well I think we're probably given the current economic environment. We are remaining somewhat cautious and conservative we don't know, we'll find out more today and tomorrow and we hear about GDP of the fed rate rise, but we're just being cautious about the second half of the year given the economic uncertainty out there right now.

Okay that makes sense.

Then just on the disposition front you mentioned a couple of assets.

Kind of on the market in a couple of others potentially coming.

Any sense of how pricing may be changing given the change in capital costs that you mentioned in the prepared remarks, just curious what you guys are thinking that.

Cap rates may change.

Given the move in rates.

Well certainly in terms of.

The acquisition market I mean, thus far we haven't seen any change in terms of pricing on cap rates for grocery anchored assets.

As it relates to selling these assets.

We are anticipating the sale of these assets that cap rates are probably going to sustain a pretty tight range. So even if things change in the macro from a macro side, we still think we're going to get some pretty compelling valuations in terms of selling.

These assets.

Okay.

Five ish cap rates in line with what you've been selling today that sounds fair.

I would expect it to be in that range correct.

Great. Thank you very much.

Thank you.

Thank you so much and your next question comes from the line of Craig Smith with Bank of America. Please go ahead and ask your question.

Good morning, Craig Thanks, Greg.

Good morning for you.

Listen.

Given the broader pullback in consumer spending.

See that having any impact on ROIC is 22.

Full year results.

No.

And when I say that obviously, we don't you can't determine the depth of that pullback, but certainly what we have seen in the past in terms of operating grocery anchored centers on the west coast is that.

That the impact.

Really we haven't seen much impact.

So depending on the severity of the impact right now things continue to be very strong in terms of the momentum that we had in the second quarter that is not we haven't seen any impact on the ground leasing continues to be strong.

<unk>.

Renewals continue to be strong.

No impact so far Craig so if something does occur I don't think it's going to have much impact from what we can see right now.

And this <unk>.

Lack of impact is it due to your grocery focus essential based tenancy or is it due to the fact that your leases are already done and put to bed and borrowing.

And is that a scenario in the second half of the year.

Youre still going to see those.

Increased activity in leasing.

Yes, I mean look I think the momentum is still there across the whole sector.

More importantly, it's really owning the that grocery anchored shopping center we've seen.

Traffic pick up on the ground in terms of the number of visits and what we've also seen is that even as we've seen a very high inflation rate most of those customers are redeploying the savings back to what we would call necessity retail.

So we've seen an actual increase in sales from the groceries and other tenants as well as.

And as well as foot traffic. So all in all we're pretty confident right now that.

These this that the grocery anchored center format is going to hold up pretty strong.

Great and then just.

Third quarter leasing volume activity.

It will be above 297, you achieved in second quarter.

While the quarter started out very strong I will tell you.

And rich I don't know if you want to add.

It's always a bit hard to predict Craig.

Being highly occupied like we are these opportunities.

In terms of replacing tenants and that sort of thing are not always easy to identify in advance, but we would expect that the leasing activity as Stuart said it started out the quarter started out very strong the leasing team is very busy.

Identifying new tenants to replace tenants that are leaving so we would expect it to be on par with what we've done historically.

Okay. Thank you.

Thank you Sir.

Thank you so much and your next question comes from the line of Todd Thomas from Keybanc Capital markets. Please go ahead and ask your question.

Good morning, Todd.

Hi, Thanks, good morning.

First question Stuart Rich the portfolios performing well and you talked about.

Leasing activity in the quarter and bad debt expense was also minimum at a minimal level. During the period as you look out are you starting to see.

Any pushback or response from tenants in the portfolio related to the inflationary pressures that they are seeing and.

Maybe I'm just curious if you can comment on on the local tenants in the portfolio specifically.

Sure.

We're not seeing any pushback from the tenant base I mean, I think obviously there is concern out there with.

Certain users depending.

Depending on the use.

There has not been any pushback collections are going well.

And I think that.

Coming out of the pandemic the tenants that.

Still in the portfolio are very strong have a very loyal following.

I think being highly occupied like we are.

These tenants are here for the long haul.

And I think the demand for our type of product has has increased so we are still seeing abroad.

<unk> from various types of tenants looking to get into the grocery.

Drug anchored shopping centers.

Okay, and then for tenants that are looking to sign longer term leases.

Rich you mentioned that you are seeing an increase in 10 year deals for shop tenants up from the more typical five year term.

How does that change.

The discussion.

Around starting rents and escalators.

Yes, I mean typically the typical scenario is someone will come to us they have a five year option.

Probably at a fixed rate.

But they now want to lock in more term and in order to do that we're going to get more rent initially than would've been.

<unk> they just exercise of their option as is and I think this is being driven by tenants understanding that.

Theres been virtually no supply added in these markets and.

If they have a good business on a great location, they really want a secured for as long as they possibly can but we take advantage of that as is mentioned in the prepared remarks.

By driving the rents higher and also fixing any leakage that might be in the cam numbers or whatever else.

Restrictions that might be in the lease to allow us more flexibility down the road. So it's really been working out well for us.

Okay, and what what percent of tenants renewed in the quarter and.

Tenant retention has been elevated in the near term or do you expect to see that moderate a little bit.

With tenants moving out or do you expect.

To see that remain at higher levels going forward.

Yes, I mean, I think our retention rate is probably a touch higher than it has been historically.

In fact, I think some of our challenge for the leasing team is getting a space back the <unk>.

Options.

That are out there can sometimes prevent us from bringing in a new tenant so if anyone.

There was any hesitancy to stay we are a few examples that we'll be seeing in the third quarter.

We've been able to go out find a replacement tenant ahead of the exploration get them in for permitting so that when the tenant that's demonstrated any hesitancy when their leases up they were able to deliver the space and get them open and reduce that downtime between the two tenants. So.

Again, the demand is there anyone who shows any hesitancy, we've got a list of tenants ready to go.

Okay. That's helpful and just a last one Stuart just a question about the dividend increase.

Its about 10 or $11 million for the for the year going forward.

Which is an insignificant was that because of the improved outlook in the board, having more confidence today or was it mostly consistent with the increase in taxable net income that youre anticipating for the year.

It's just a combination of the momentum that we're seeing coming out of the Po.

The pandemic and Mike from a tax viewpoints I think that also played into it it's really based on our projected taxable income we are still trying to preserve as much free cash flow as we can but still satisfying our REIT distribution requirements.

Okay, Great alright, thank you.

Thank you and your next question comes from the line of Michael <unk>.

From Jpmorgan. Please go ahead.

Good morning, Mike Hi, Mike coming back to the quarters disposition and acquisition cap rates. I think you said it was about 5% or sub five on the disposal mid sixes on the acquisitions just curious the mid sixes is higher than the about five youre talking about for upcoming asset sales.

And I guess.

What was was there anything unique to that transaction I think you may have said it was value add but typically when I think of value add stuff. That's always lower going in yield then it kind of goes to something higher down the road or was it.

Part of the overall transaction, where the buyer really needed your projects. So you get a better price on the acquisition because of it.

Well look I think the sales valuation takes into account not just the in place income, but also the fact that our property again was key to the developer.

In terms of Hey, I'm moving forward with as mixed used development.

And from on the other side. It's we've got we've got a better deal because there is some near term rollover and repositioning opportunities that was reflected in the pricing which plays into our strength. So.

It was really a combination.

Finding a transaction that was a win win for everyone.

Got it.

He said that the go forward disposition cap rates Youre, hoping you are still going to be in that roughly five range.

If you end up coming toward the higher end the acquisition range based on what you are looking at now are the cap rates closer to that five or just.

Higher.

Well, we'll see I think theyre going to stay pretty in that pretty tight range, but remember one of the in a couple of these acquisitions or properties that.

That are valued based on the development opportunity ranked us as densification that we're selling so.

It's hard to sort of quote on exit cap rate.

Because that would be misleading given the fact that this is entitled land.

Got it Okay and just one other quick one for the sequential.

Build occupancy and leasing gains.

Was any of that influenced by the quarters acquisitions or was it a 100% kind of organic increase.

Lisa.

Not impacted by the acquisitions.

Got it okay that was it thank you.

Thank you.

Thank you so much and your next question comes from the line of Galena Ross Smith from Green Street. Please go ahead.

Good morning from the West Coast.

Yeah.

It's early for you.

Very very early.

The best I can.

Yeah.

Hi.

Operating expenses.

Ed Tilly recovery.

Being an issue.

For you this year.

Can you share what you're seeing.

Here what are the specific line items within operating expenses driving this increase wages and.

And what should we expect going forward.

And we don't see a big change in the recovery rate in fact.

As we touched on we're getting a little bit better terms on some of these new leases we're doing it on a rollover.

We're trying to plug any leakage in the recovery rates I think.

What youre seeing in the numbers there is just a one.

A one time anomaly in the recovery rate it will be consistent going forward, if not a touch better.

Okay and.

And then in terms of local can you remind.

How much of your current <unk> it comes from.

Crop.

And then with only maybe a handful of store instead of national and regional retailers with large print.

Yes, I mean I think.

While the local tenant base is still a good.

The component of our tenant base I think the changes in the industry over the years has really moved more to the regional and multi unit operators.

Along with the National tenant basically we're talking about shop spaces here.

So whether an important component of the tenant base.

Actually become a bit smaller.

Sure.

The years of progress, where we're now seeing multi unit operators really.

Driving that shop space.

Okay, maybe the last question can you talk about the general.

Access your team for the different sources of debt.

Bank Life company.

I'm, sorry can you say.

Again, you are looking for new sources of debt.

Yes.

Understood.

Let me maybe for Nick.

Because I know you have one.

I did note expiring at the end of 2023, so yes.

How do you see availability.

Yes.

Light control in general.

Yes.

I think by and large.

Obviously, we have our credit lines with to refinance the bonds coming up the end of next year, we've got the options do public offering of our private placement notes.

We've always tried to keep the properties unencumbered. So I don't know the way, we would do any kind of Cvs or mortgage level that we keep the unencumbered at the corporate level.

Primarily public and private bonds.

Okay well.

Thank you.

Thank you. Thank you thank.

Thank you so much and your next question comes from the line of Linda Chan from Jefferies. Please go ahead. Thank you. Thanks. Thank you.

Thank you so much and your next question comes from the line of Linda Chan from Jefferies. Please go ahead.

Good morning, Linda.

Can you discuss small shop leasing strength in terms of the $93 eight shops.

Occupancy occupancy is your expectations higher by year end.

Yes, yes.

Yeah.

Yes.

Okay.

Look the momentum continues to be strong and from all aspects of the spectrum regional national and local.

Obviously, we don't have much space left to lease in the portfolio a lot of what we have is obviously in line space or all of it is in line. So we are expecting that momentum to continue so.

I don't know if I would tell you it's all coming from the local tenant base of probably what Youll see as rich has articulated a number of tenants that operate regionally takes some of the space, but certainly in the momentum in terms of filling that inline space continues to be very strong.

Thanks, and then in terms of small shops looking for longer lease terms, what's the trend like for anchor leases I saw that the four renewals for anchors.

Had a weighted average lease term of four three years this quarter.

Yes, it's the same the same scenario obviously it depends on the operator and the particular lease but we are still working with several of our anchor tenants, who maybe only have one or two options remaining they want to reset the lease.

Maybe instead of having a fair market value option, we're getting fixed option rents, but extending them instead of five years 10 years with four or five year options.

So those discussions are still going on.

Some of our anchor leases are now getting near the end of their term because they have been in place and operating successfully for so long. So that's still an opportunity that we're working on with.

With these anchor tenants.

Okay, and then just last one with some of the debt that you took on this quarter to fund acquisitions, your leverage ticked up a little bit higher.

Level are you comfortable with going forward.

So that six five range.

We're comfortable at and again remember that we're dealing with a portfolio that is close to full occupancy. So we're comfortable where we're at in that six five range. It may tick up a bit and maintain download a bit depending on growth selling assets, but all in all that's our comfort range.

Okay.

Okay.

Thank you so much.

And again, if you would like to ask a question. Please press star one on your telephone keypad.

Next question from the line of Craig Mailman from Citi. Please go ahead.

Good morning, Craig.

So I'll just circle back to guidance.

A few follow ups.

First off.

You guys mentioned the swap burning off here.

From a.

Our cost perspective drag perspective kind of what's the expectation in back half guidance related I guess, we'll see that $100 million term loan.

From a cost perspective.

Well Craig based on the LIBOR forward curve as I look at it every week as a kind of as you know.

Changes as the market changes, but based on that we are currently assuming that theres a slight nominal amount of increase in terms of our overall interest expense related to the swaps for this year.

Just keep in mind that 75% of our debt is still fixed rate even beyond that so nominal nominal amount of increase this year.

What's the net impact if you just look at the swap rate versus where the LIBOR curve is telling you.

Our swaps are just over 3%. So if I add 100 basis points of the current LIBOR you are right in that range anyway, that's what I said.

Kind of a nominal impact.

I am sure you keep an eye on the LIBOR curves as well they've been coming down over the last weeks.

I think thats probably a.

Our reaction to the central the fed will be able to raise rates as quite as high as the interest.

Given the potential recessionary factors.

Alright.

And then the second piece.

Sure.

The $80 million of potential acquisitions versus the <unk>.

Can you comment at this point.

Maybe with over 30 years behind that but from a timing perspective, what are you guys assuming.

Or the dispose versus when you could actually.

<unk>.

Land acquisitions.

Possible.

Well look the pipeline is strong Craig right now in terms of sourcing off market transactions.

I don't think I've seen it.

This active in a little while from our perspective.

So you probably will get some of the acquisitions done a bit earlier than the dispositions because dispositions higher aftermarket properties. So.

It will.

I think when you look at the acquisition disposition timetable here I think youll see acquisitions come in a touch quicker as we get through the year and dispositions following that right after but everything could happen at the same time it just depends on the transaction.

Okay. That's helpful, but just one.

One more for me and I know Michael has one.

<unk>.

You guys are.

Reiterated that tenant credit is looking very strong year.

Curious, especially so.

Some of the kind of non discretionary retailers as a real margin probably one just.

Product mix and other things from a coverage perspective, I mean is there.

Has there been any material impact.

Guys look at rent coverage ratios and like how much more.

These retailers will need to be stress, especially as kind of rents.

<unk>.

A couple of years.

Occupancy costs continue to trend and have been trending in a very good in a good place.

As sales have gone up so when you look at our tenant base necessity based retail.

We're really not seen much deterioration at all or very little right now in fact in a lot of cases, it's been the opposite.

Obviously, we're still a bit early in this game in terms of watching the market Craig but.

We are watching what's going on obviously on the ground and we're not seeing anything right now or any indication right now that we'll see a deterioration in terms of necessity based retailing.

On the other hand, we are looking at a much broader spectrum of retail and we are starting to see some cracks and other types of retailers, but most of those retailers. We don't have in our portfolio and if we do have our exposure is minimal in terms of any impact to ABR.

Hey.

Stuart It's bilerman.

Quick question as you think about some of these projects that you've looked at from a redevelopment and Densification perspective, it sounds like.

Potentially two upcoming sale.

We're projects.

Have that potential.

Mind shifted a little bit.

In regards to those projects I think back a number of years ago. I think you had somewhat underwrite the entire portfolio and they came out and said okay.

On a review of these projects, we could see upside of $4 a share in all of those things.

Your mind shifted on that today.

It's a great question Mike.

Mike you've known me and this team for decades at this point there is a reason why we're not in the development business.

And that reason is because of some of the experience we've had looking at densification and the process to get to the finish line.

It's because the west coast is so tough to entitle.

Because of the topography, but more importantly, the entitlement process.

We continue to what we've learned over the years and what we continue to see is that the process is long.

Tons of roadblocks when you don't think you have any.

Costs, obviously have gone up in the current environment.

To try to answer your question if I look back at the two projects that we.

Actually looked at and we're still working on a number of those.

Our mind has certainly in the same place and that we're glad we're not in the development business.

That we are.

Right now the focus is to get these projects entitled to and as you've seen sell them.

After the crossroads the crossover is such a unique project and brings us so much value to the shareholders we're still contemplating.

Building that out and obviously using a third party to operate and manage.

Right.

Youre standpoint, being able to liquidate these assets or do you believe lower cap rates then.

Where they would sell for is operating assets given that redevelopment densification opportunity and roll that capital into acquisitions that you've had your sight. Tom. Thank you for reminding that we've known each other for decades.

Thank you Mark.

It's a place that <unk> been looking at and if youre able to grab those.

The average cap rate given our relationship.

The accretion will show up from a long term perspective on that spread and future growth.

Fair way to think about it.

Exactly exactly.

Okay, alright, thanks for the time.

Thank you.

Thank you so much and your next question comes from the line of Christopher Lucas from capital. One. Please go ahead.

Good morning, Chris Hey, Good morning, guys. Good morning, a couple of follow up questions I guess, maybe starting with you rich just as it relates to the leasing conditions. It doesn't sound like but I'd like to make sure that I understand youre not seeing anything change in terms of the tenant.

The sales cycle of leasing.

Deals Theres no delays youre not really finding that tenants are dragging their feet at all at this point.

The macro environment.

No I think the demand is stronger than it has been I do think it has taken me a touch longer on some of the negotiations a.

A little bit more back and forth.

But beyond that.

There is still multiple tenants vying for the spaces that come available.

And we're capitalizing on that to get the best deal we can.

So I think time to execution is probably a touch longer but demand is as strong as ever.

Okay. Thank you and then as it relates to I just want to make sure I understand what you were saying as it relates to sort of the tenants.

We're looking for 10 year deals versus say the typical five year deal or are you, saying that youre willing to give on the fair market value extension option.

And moved to a fixed.

Option.

In exchange for that 10 year.

Lease deal.

Well, obviously every every.

The transaction has to stand on its own but there are certain leases where.

Potentially a fair market value with an appraisal concept and a cap on how high it can go and if we can change that into whether it's fixed annual increases or a large increase every five years with certainty.

We will we will.

We'll look at that transaction lockup, a tenant for 10 years versus five years gives them a few more options at the backend.

Get more rent today than we would have if they've just taken down their five year option.

Okay. You are basically trading rent for term, we're getting more rent for additional years of control.

Okay.

And then just.

I don't know if this is for you or for Mike.

Signed to build spread.

$9 million.

Much of that is expected to sort of begin.

<unk> commenced in <unk>.

Two.

We expect most of that will come online in 'twenty. Two obviously, we will be adding to it as we go throughout the remainder of the year, but of the seven nine thats sitting there right now we expect that most of the majority of that will be online by the end of the year.

Okay.

And then Stuart last question for you for me, which is.

Just.

Trying to understand how youre thinking about the markets you're in.

<unk> put a lot of capital fresh capital into.

The Pacific Northwest and I guess, I'm, just curious as to whether or not this.

This was driven by opportunity or is this a conscious effort on your part to balanced portfolio with maybe a little bit more specific northwest exposure.

Well historically the Pacific Northwest has been a very hard market to penetrate in terms of.

Gaining market share.

If you go back the last 25 years and operating both companies.

It's only been times when the only way we have been able to penetrate these markets is really during the height of a recession.

The hydro credit crisis, where we've been able to get a hold of a very high quality well located assets. In these markets. These markets are not like California in terms of size geography topography and other things.

So theyre very difficult markets to penetrate we've done an amazing job over the last 12 years and gaining so much market share in these markets. So it's really.

The answer is if I could buy in or I would love to do that and continue to do that it's very difficult Chris I mean, it really comes in waves and we've had the opportunity more recently to gain a foothold a bigger foothold in these markets.

Which long term is really going to create a lot of value for shareholders. So these are just.

Historically has been really really good markets.

So these acquisitions really.

<unk> of balancing what we have is really seeking out the opportunity whenever it arose.

And we'll see how the balance of the rest of the year holds in terms of acquiring other assets but.

We are certainly committed to the Pacific northwest long term.

It continues to deliver some really good value for shareholders.

Great. Thank you that's all I had this morning.

Thank you.

Thank you so much and we don't have any questions I would now like to turn the conference back to Stuart <unk> for closing remarks.

In closing I'd like to thank all of you for joining US today. If you have additional questions. Please contact Lori Mike Rich or me directly also you can find additional information in the company's quarterly supplemental package and 10-Q, which are posted on our website as well as our new <unk>.

<unk> annual report.

Thanks, again and have a great day everyone.