Retail Opportunity Investments Corp (ROIC) 2016 Q2 法說會逐字稿

Welcome to Retail Opportunity Investments 2016 second-quarter conference call. Participants are currently in a listen-only mode. Following the Company's prepared comments, the call will be opened up for questions.

Please note that certain matters discussed in this call today constitute forward-looking statements within the meaning of federal securities laws. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company can give no assurance that these expectations will be achieved. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements and expectations. Information regarding such risks and factors is described in the Company's filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K. Participants are encouraged to refer to the Company's filings with the SEC regarding such risks 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 Tanz, the Company's Chief Executive Officer.

Thank you and good morning everyone. Here with me today is Michael Haines, our Chief Financial Officer, and Rich Schoebel, our Chief Operating Officer.

We are very pleased to report that 2016 is shaping up to be another highly productive and successful year. In fact, we are on track thus far for it to be one of the best years on record for the Company.

Starting with our portfolio growth, at the outset of 2016, we set a target of acquiring $300 million for the year. We are pleased to report that we are fast approaching our goal. To date, we have secured six grocery anchored shopping center acquisitions totaling $289 million, of which we have already closed five of the transactions and expect to close the sixth shopping center later in the third quarter.

More important than simply achieving our goal for the year is the quality of shopping centers that we continue to acquire, shopping centers that are in irreplaceable locations in densely populated, dynamic market, that are extremely protected and supply constrained; shopping centers that are traditional, grocery and drug anchored properties with a very strong stable base of cash flow, yet, because of their stability, some of these acquisitions have not been aggressively managed. And they also have in-place leases that are significantly below market, perfect opportunities for our team to capitalize on and enhance value.

The two shopping centers that we acquired in the second quarter are excellent examples of this. Both properties are located in very strong communities within the greater Los Angeles market. In fact, one of the shopping centers, North Ranch, is located in what is considered to be one of the best affluent submarkets in all of LA, the Westlake Village Thousand Oaks market with a population base of 128,000 people and with an average household income of $142,000. And our shopping center is situated at the right retail epicenter of this dynamic market.

Additionally, both of our shopping centers are pure-play traditional grocery and drug anchored shopping centers featuring a strong mix of retailers that have well-established businesses at the properties catering to the daily needs of their respective trade areas. Importantly, each property offers numerous opportunities to enhance value. In fact, notwithstanding having just recently acquired these properties, as we sit here today, we've already lined up new tenants to take all of the available space, which speaks not only to the skill set of our team, but to the strength of the market and the appeal of our properties.

Looking out further, a number of key leases expire over the next two to four years. These leases are currently as much as three times below-market. We estimate that simply rolling these leases to market could alone increase the overall cash flow by as much as 15% to 20%. Additionally, the vast majority of shop leases are also considerably below market.

One further note regarding these two great acquisitions. We acquired both shopping centers from the same seller. In fact, we've had a relationship with the seller going back many years and have previously purchased property from them. Needless to say, having a good rapport with the seller paved the way to these latest acquisitions, such that we were able to underwrite and close each transaction efficiently and on reasonable terms.

In addition to our second-quarter acquisitions, we just recently acquired another terrific grocery anchored shopping center located in Monterey, California. This represents our second acquisition in the Monterey market, which is considered to be one of the most protected, supply constrained markets on the West Coast. We again had a good, long-standing relationship with the seller who reached out to us and was seeking a quick closing. Having already owned property in Monterey, we know the market very well and we are also very familiar with this new acquisition, so we were able to accommodate the seller and move to a quick closing, and in return achieve very reasonable favorable terms. The new acquisition is in an irreplaceable location in the heart of downtown Monterey.

Lastly, with respect to the pending acquisition of Bridle Trails, it is too a terrific grocery and drug anchored shopping center. It is located in Washington in one of Seattle's best, most vibrant submarkets, in close proximity to several of our existing shopping centers. And this new acquisition has considerable upside potential, both through releasing anchor space that expires within the next year whereby we expect to more than double the rents, and by expanding the center, adding a new 5,000 square foot pad.

Turning to property operations, as you will hear from Rich in a minute, we continue on track with posting another stellar year. We continue to maintain our portfolio above 97% leased and we continue to achieve solid growth in same-center NOI and with our releasing spreads.

Finally, as we continue to grow our business, we continue to maintain our strong conservative financial position. With our recent equity and debt raising initiatives, we have lined up the capital to sufficiently fund our growth objectives for the year and for maintaining our core financial metrics.

With that in mind, I'll turn the call over to Michael to take you through the specifics of our balance sheet initiatives as well as our financial results. Mike?

Thanks Stuart. Starting with the Company's financial results, for the three months ended June 30, 2016, the Company had $58.7 million in total revenues and $18.6 million in GAAP operating income as compared to $46.2 million in total revenues and $13.8 million in GAAP operating income for the second quarter of 2015.

In terms of property level net operating income, on a same-center comparative basis, cash NOI increased by 4.9% for the second quarter of 2016 as compared to the second quarter of last year. And with respect to the first six months of 2016, same-center NOI increased by 6.3%.

As we discussed on our last earnings call, the Company had minimal exposure to sporting good stores. In fact, out of our entire portfolio, we only had two sporting good stores closings, which is reflected in our same-center 4.9% increase. Excluding those two closings, same-center NOI increased by 6% for the second quarter. Looking ahead, notwithstanding the sporting goods store closings, in other words taking them into account, we still remain on track to achieve same-center NOI growth for the full year 2016 in the 5% to 6% range, as we previously projected.

Turning back to our financial results, GAAP net income attributable to common shareholders for the second quarter of 2016 was $8.6 million, equating to $0.08 per diluted share, as compared to GAAP net income of $5.4 million, or $0.05 per diluted share, for the second quarter 2015.

In terms of funds from operations, for the second quarter of 2016, FFO totaled $30.5 million as compared to FFO of $22.3 million for the second quarter of 2015. On a per share basis, FFO increased by 17.4% to $0.27 per diluted share for the second quarter of 2016 as compared to the second quarter of last year.

With respect to the Company's balance sheet, at June 30, the Company had a total market cap of approximately $3.7 billion with approximately $1.2 billion of debt outstanding, equating to a debt to total market cap ratio of 32.8%.

In terms of the $1.2 billion of debt, only 6% of that, or $71 million, was secured, meaning the vast majority, 94% of our debt, was unsecured. Similarly, on a square footage basis, 94% of our portfolio was unencumbered at June 30. Additionally, for the second quarter, the Company's interest coverage was a strong 4.1 times.

As Stuart touched on, we have been actively raising both equity and debt capital to fund our growth and maintain our conservative financial profile. Year-to-date, we have raised approximately $424 million in total.

In terms of equity, we have thus far raised $224 million, including raising approximately $45 million through our ATM program, issuing approximately 2.2 million common shares year-to-date. And most recently, just a few weeks ago, we completed an underwritten public offering whereby we issued approximately 6.6 million common shares, raising $133 million in net proceeds. We utilized the proceeds to pay down our credit facility such that, today, we currently have only about $191 million outstanding on our line. Furthermore, our net debt to EBITDA ratio is now down to 6.4 times.

In terms of debt capital, during the second quarter, we reached an agreement to sell, through a direct private placement, $200 million of senior unsecured notes. The pricing on the notes, which was negotiated in the setback in mid-June, had a spread of 230 basis points over the ten years, which was at 1.65% at the time, equates to a fixed rate of 3.95%. The notes will mature in 10 years in 2026. We expect to close the transaction in September and intend to use the proceeds to pay down our line, meaning our $500 million credit facility will be fully reloaded at that point.

Lastly, taking all of our capital raising and acquisitions into account, we are again raising our FFO guidance for the full year to now be between $1.03 and $1.07 per diluted share for 2016. Our original guidance that we set forth back at the beginning of the year, which was based on a range of $1.00 even to $1.04 per diluted share, was based on acquiring $300 million ratably through the year, but it was also based on funding the acquisitions with an equity raise in the latter half of the year. So while we are ahead of pace in terms of acquisitions, we have issued equity earlier in the year than originally planned.

In terms of acquisitions going forward, our new guidance assumes that we will close on the pending acquisition towards the end of the third quarter, which will bring our total to $289 million closed through the first nine months of the year. And then our guidance assumes we will close another $100 million of additional acquisitions by year-end.

Now I'll turn the call over to Rich Schoebel, our COO, to discuss property operations. Rich?

Thanks Mike. As Stuart said, we are pleased to report that the Company had another very strong, solid quarter in terms of property, operations, and leases. For the eighth consecutive quarter, we achieved a portfolio leased rate at or above 97%, finishing the second quarter specifically at 97.2%. Breaking that lease number down between anchor and non-anchor space, at June 30, our anchor space was 99.6% leased and our shop space was 94.4% leased.

With respect to the economic spread between occupied and leased space, during the second quarter, new tenants representing approximately $2 million in annual cash rent took occupancy and started paying rent, of which about $300,000 was reflected in our second-quarter cash flow. And as of the end of the quarter, at June 30, the economic spread between occupied and leased space stood at roughly 3%, representing upwards of $6 million in additional incremental annual base rent on a cash basis, the majority of which we expect will come online as we move through the balance of the year.

In terms of specific leasing activity in the second quarter, we executed 83 leases totaling 151,000 square feet, achieving an 18.9% increase in same space comparative rents on a cash basis. Breaking that down, we executed 46 new leases totaling 76,000 square feet, achieving a same space comparative cash rent increase of 24.7%, and we executed 37 renewals totaling roughly 75,000 square feet, achieving a 15.9% increase in cash rent.

Looking ahead at the second half of 2016, we have roughly 350,000 square feet scheduled to expire, which we are actively pursuing the re-leasing of and expect to achieve same space rent growth consistent with our performance year-to-date. Tied to that, we continue to make good progress with our recapturing below market space initiative. We are close to finalizing several key deals where we are recapturing several large anchor spaces which we are re-leasing to multiple smaller right-sized very strong national anchor retailers whereby we expect increase the cash flow by as much as 150% in some cases.

Additionally, with respect to the Sports Authority store that in the process of closing at our Crossroads Shopping Center in Seattle, we already have LOIs from several great national retailers with rents ranging from 25% to 50% higher than what Sports Authority had been paying. Also, The Sports Authority lease, which had been in place a long time, well before we acquire the property, had some very old, antiquated restrictions regarding potential expansion activity near their store. With them now gone, we are in a much stronger position to move forward with our next expansion phase at Crossroads.

In summary, we continue to take full advantage of the strong demand for space across our portfolio, increasing rents to market levels at every opportunity, along with enhancing the mix of quality daily and necessity retailers at our shopping centers.

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

Thanks Rich. Before opening up the call for questions, I would like to briefly emphasize two very important, distinguishing attributes of our portfolio and strategy. First is the type of shopping centers that we focus on, the pure-play traditional grocery anchored neighborhood centers, which are among the primary daily necessity shopping centers serving their respective communities. This has been our team's focus for the past 25 years. We have purposefully stayed away from other shopping center formats, especially those that include too many big-box specialty retailers that are often impacted by adverse economic and retailing challenges, which in turn can cause a downward spiral effect that is often hard to recover from. Conversely, our portfolio of traditional grocery-anchored shopping centers has served to provide very stable, reliable cash flow for many years.

Additionally, another key attribute that sets us apart is our tenant diversity, which is the hallmark of our business. With every acquisition we make, with every property we operate, maintaining our tenant diversity is a paramount concern, which is important in the retailing industry given that it is always changing and requires us to be proactive and hands-on with our portfolio and tenant base at all times.

Because of our strong tenant diversification, when certain retailers struggle, the impact to our portfolio and cash flow has always been minimal. In fact, we typically find ways to quickly increase cash flow and improve our tenant mix, like we are currently doing with The Sports Authority opportunity at Crossroads.

In short, we firmly believe that our tenant diversity and the type of traditional grocery-anchored shopping centers that we own and operate truly sets us apart, and is at the very core of our ability to generate strong, reliable results consistently year after year.

Now we will open up the call for your questions. Operator?

(Operator Instructions). Christy McElroy, Citi.

Good morning everyone. Just on the acquisition side increasing it now to about $400 million for the year, what are you seeing in the pipeline that sort of gives you confidence to raise it by another $100 million? And then can you remind me just on cap rates what kind of ranges we should be thinking about?

Well, we are currently pursuing a number of attractive opportunities across our markets. And of course, the pipeline is always evolving and therefore hard to give specifics until the properties are under contract. But that said, as Mike mentioned, our new guidance assumes that we will acquire about another $100 million, which we are very comfortable with.

Cap rates in our markets, in terms of fully leased, fully marketing properties, they continue to trade around the sub-5% cap range with a few even in the sub-4% cap range. And in terms of what we are modeling for the $100 million, about just over a 5%.

Okay, So those cap rates -- the cap rate range you mentioned, is that where you are buying or where you're actually trading?

The blended cap rate in terms of what we've purchased is about 5.3%, but again, a lot of upside in terms of the opportunities that we of course identified in our underwriting process, which should increase that yield going forward.

But the cap rate Stuart quoted for the fully marketed, what yields are trading for in the market (multiple speakers)

Got you. Understood. Okay. And just on equity side, it doesn't appear that you have more equity issuance in guidance. I just want to confirm that. It seems, from your comments, that you've effectively refunded the additional acquisitions that you're expecting.

Yes, that's a correct assumption. We have given the equity raise we just completed and the (inaudible) we had before. We are not modeling any additional at this point. Certainly no need (technical difficulty)

Paul Morgan, Canaccord.

Good morning. Just a quick follow-up there. You had a lot of success over the past few quarters in terms of the OP unit deals. Is there anything in the pipeline looking forward that -- I know not kind of a public follow-on -- but where you could see more OP in this issued?

Again, the answer is, yes, we are working on a series of other types of transactions in terms of OP units. Again, these are transactions that -- and relationships that go back many, many years in terms of looking at doing these type of transaction. So the answer is yes. There are some are more transactions in the pipeline. However, I can't guarantee that these transactions will happen because there's always a lot of moving pieces. But the answer is yes, there are a number of transactions currently on the table that we are pursuing.

Okay, great. And then kind of stepping back a bit on pricing, Stuart, you've kind of talked in the past about some kind of warning signs of froth that you look for in the asset market. And I'm just wondering if your interpretation of the pricing numbers that you gave suggests that maybe we are seeing some of that, or is this just in your view a rational hunt for yield, given where rates are?

A rational hunt for yield. I mean the West market, the West Coast continues to be the most sought after market in the country in terms of the product that we own. And in terms of pricing, I think I told everyone late last year that cap rates in 2016 would continue to drop. We have seen that so far, and my feeling is that cap rates will continue to drop as we look at the second half of 2016.

Okay, great. Lastly, I know you mentioned Crossroads and the opportunity that kind of losing Sports Authority might provide, and also I know you've been working on the next phase of the redevelopment and maybe we are pitching people at ICSC about it. Has there been any firming up of the plan, anything we could expect to see in terms of a timeline for moving forward with identification there?

Sure. The first phase at Crossroads, the upscale senior living community, we expect construction will begin soon. They are finishing up the entitlement process. And additionally at the property, we are in early discussions on another out parcel at Crossroads, which, again, is slated for multifamily and retail.

So -- and then with Sports Authority, that was sort of the Phase III at Crossroads. So with them gone now, we are in a much better position to move forward with that next phase as well. So we expect that will take shape over the course of the next few months in terms of the specific plan and scope with the goal of getting it fully underway in 2017.

Okay, great. Thanks.

Collin Mings, Raymond James.

Recognizing it jumps around a little bit quarter to quarter, could you maybe touch on the increase in TIs in the quarter? And more broadly how you're thinking about the capital you're spending as you look to continue to push rents here?

It's Mike. The CapEx -- we are spending some money on anchor repositioning initiatives that we have been working on. Some of those anchors are embedded in that gap 3.% or so that's not yet been paying. So we are obviously spending money to -- like the example of the Canyon Park property we are putting in PCC and Pico to replace Albertson's, that's the kind of dollars we are spending. So you're going to see that NOI growth going forward because of that CapEx spend.

And then some dollars also on revenue enhancing pads, as we might call it, where we currently have a series of pads under construction, one that's already been delivered, and these tenants will begin to open, but that's the other component as well.

Okay. And then just on the revenue enhancing pads, how should we think about incremental NOI from that?

I don't think we've modeled anything this year, Mike, in terms of being incremental pads, although we will see some of that I think in the fourth quarter if I recall.

The model would contemplate that in.

Right, so this is more of a 2017 event than it is a 2016 event. And right now, I think the numbers are showing about in total the pads get finished about $3 million to $4 million of NOI, Mike, if I recall?

That is for all like nine pad initiatives we are looking at (multiple speakers) in total.

Okay, but expect that to come on over a period of a couple of years?

Yes, starting next year.

Okay. And then Stuart, just going back to the comments about the cap rate compression you continue to see, just any updated thoughts as far as disposition activity? I know we talked about some assets in Sacramento. Just what is your latest thinking there this year, next year? What's the current thoughts?

We've made a lot of good headway in the assets we've identified, which are primarily a couple of assets in Sacramento. The tenants, the anchor and sub-anchor tenants are now open, and over the next 30 to 60 days, I'm going to be very focused on starting to get these assets into the market and sold. So, I think, over the next couple of quarters, you will begin to see some -- certainly some sales in that market in terms of what we own, and we will also be looking at a couple of potentially other assets that have no internal growth left, primarily assets that are very well leased and that, again, may not have much internal growth over the next several years.

Okay. As we think about just modeling the rest of 2016, the beginning part of 2017, should we think about any dispositions hitting before the end of this year that kind of cleared into your guidance or at this point will that be more 2017?

It is in our guidance. We've got about, Mike --?

$25 million.

About $25 million in our guidance. It probably will be a bit higher than that.

Okay, great. Thanks guys.

Paul Adornato, BMO Capital Markets.

Hey, so I appreciate the discussion of Crossroads, lots going on there. I was wondering if we could look beyond that property to other redevelopment opportunities. What else have you got in the works, or what should we expect in terms of activity beyond the Crossroads site?

Sure. In addition to what we have going on at Crossroads, we have approximately 92,000 square feet of additional pad and expansion and potential redevelopment opportunities within our portfolio that we are currently pursuing. Most of that we expect would come to fruition over the course of the next year or so. We would expect the cost to be about $18 million to $20 million with a predicted annual yield in excess of 16% on average.

(multiple speakers) in terms of our assets, there is a number of other assets that we have identified for densification. That's going to take a bit of time, but we have begun to work on that as well. Those assets are, if I'm correct, the ones were identified in Southern California, Southern --

(multiple speakers)

-- and Seattle. That's a bit different than repositioning or building pads of course, but we are excited to see some of that probably is going to begin to take hold as well shortly.

Okay. And I appreciate the discussion on the rent paying versus leased statistics. In the past, you've said that that was at least in part due to a logjam at the permitting authorities. Is that still the case?

It's probably gotten a bit worse other than a bit better in terms of the West Coast, because of the economy getting so much better in the markets that we operate in. But it really is property-specific. Some municipalities are very accommodating and can push things through very quickly, particularly if it's a project that they are excited about, but other municipalities still struggle. They still have not replaced some of that staff that was let go during the recession, so the permitting does take some time.

Okay, great. Thanks very much.

R.J. Milligan, Baird.

Good morning. Stuart, I was wondering if you could spend a couple of minutes and talk about your four major markets, Seattle, Portland, Northern California, Southern California. Where are you seeing the greatest ability to push rents? Where are you seeing the most assets trade, and where are you seeing the lowest cap rate?

In terms of the markets, the fundamentals continue to be strong in all the metro markets that we operate in, which is really seven distinct markets rather than four because we do break down Southern California into three markets versus one.

In terms of rents, in terms of tenant demand and absorption continues to be very, very strong. Rent growth continues to be led primarily out of Portland and Southern California, and in terms of assets being traded, primarily it does move around. Obviously, given the fact that the Pacific Northwest is a lot smaller than California or Northern and Southern California, you do see maybe one to two widely marketed deals a year in the Pacific Northwest. That pace continues. I don't see that yet slowing down.

And in Northern and Southern California, a bit slower pace we've seen in Northern California just because there's so much pent-up demand for our product but not a lot on the market or not a lot that we are dealing with off market right now. But Southern California, there's a lot of opportunity for us. And again, that's where the two markets that continue to show very, very strong fundamentals or in the earlier stages in terms of the cycle continue to be Portland and Southern California.

And would those markets be where you are seeing the lowest cap rates?

Cap rates really have trended down across the entire West Coast at this point. I mean there's a deal in Portland that just traded now into what I would call the high 4s% and low 5s%, a widely marketed deal that is yet to be announced. Seattle is certainly traded now into the 4s% for our product type, and Northern and Southern California have traded well into the 4s% at this point. So there's not much differentiation -- you can't really -- I don't think there's really any real difference anymore in terms of these markets. Everything is really trading at what I would call very good or high valuations and low cap rates from a historic perspective.

And one last question, out of those seven markets, is there any one where you are seeing any new supply?

No, nothing at all. Nothing at all. In fact, we have found, given that there's been some dislocation or in the debt markets, we have found the construction side of the business to basically have been shut down, and that is really keeping supply in check across all our markets.

Great. Thanks Stuart.

Vineet Khanna, Capital One.

Good morning. I know you guys touched on this, but as we understand it, North Ranch Shopping Center was a marketed deal, so maybe you can provide a little bit of color on that and dive little deeper into what was attractive about this property that made you want to bid on this marketing deal.

Sure. As I said in my comments, it is one of the highest quality assets in the LA Basin. It's the owner and us have had a relationship that went back many, many, many years. And basically what I ended up doing was not -- I ended up, because of the relationship, not really getting involved in the process in terms of the end of the marketing process. I waited until things settled down in terms of the buyer profile, and then I used our relationship as to getting what I would call a very good price at the end of the process. So it really came down to the relationship more than anything else in terms of getting to the asset and actually getting better pricing than what people were actually willing to pay for the asset.

In terms of the embedded growth, I think, again, we articulated this in my script. But there are a number of leases in the center that are well under market. The average asking rate in the market today is about $79, $80, triple net. The average across the board lease rate at North Park is about $43, $44, half of where the market is. So there's a lot of embedded growth. And as we are sitting here today, as you heard in my comments, we are aggressively pursuing that growth very quickly.

Okay, great. Thanks for that. And then on the remaining $200 million of term loans that haven't been swapped, are there any plans for that?

We've had internal discussions about doing additional swaps to fix that up, but given where the interest rate environment is, we are comfortable just kind of sitting tight using the current all-in interest rate on the term loan.

Okay, great. Thanks for the time.

Jay Carlington, Green Street Advisors.

Good morning guys. So, just to follow back up on North Ranch, local brokers have kind of suggested the cap rate was in the low 4% for that North Ranch. So could you maybe provide a little color on what type of unlevered IRR you are looking at doing for that deal? 98.7% leased, just what are -- are there big anchors coming up in the near term or is it just small shops that are shuffling around?

Both. There is a big anchor coming up, and there is a number of smaller tenants that are paying -- a couple that are actually paying $12 or $13 a square foot that are coming up. So there is a lot of embedded growth.

I don't want to sort of get into the cap rate discussion, but more importantly, the blended cap rate on all the deals we bought this year have been about 5.3%. So the good news is and as we articulated during our remarks, one thing I really like about what we've done this year and we've done this over the last many years is we have continued to acquire the highest quality assets in the market, primarily off market, through our relationships, but more importantly, the embedded growth in these assets have been really really strong. And that's what's important to us, given where cap rates have gone in the market.

Okay, thanks. And maybe switching to dispositions, I guess we've been talking about $50 million or so since 2014, and we didn't see anything last year and now it sounds like you're talking about another couple of quarters to get those done. So what's the delay in kind of selling some of those assets, just given how favorable the environment is?

So, the delay has been really leasing up the assets. They are in Sacramento, where the market has been a bit slower and has gotten better over the last six to eight months. We have made a great headway on these assets, and the anchor, sub-anchor leases and a number of other smaller leases that have been done are now online paying rent, or will be paying rent shortly. That to me is the trigger for getting this stuff to the market and going because, like any smart buyer, we don't want to leave any upside on the table in terms of selling these assets. We want to recognize that upside now and be patient in getting there, which is why it's taken a bit longer. But now that we are there, these assets will move.

Okay, thank you.

Todd Thomas, KeyBanc.

Good morning. Just a couple of follow-ups on acquisitions. Are there any portfolios you're looking at today, or is it mostly single asset deals?

Look, generally speaking, we look at all opportunities to acquire portfolio deals. And one-offs, whether they are one-offs or not, the answer is yes. We are looking at a series of portfolios. We've looked at them; we've passed on them. There are more that are in front of us right now, but there's nothing I can comment on this second. But the answer is yes, there are a number of portfolios in front of us right now.

Okay. And then I know you generally like to look at a lot of off-market deals and work closely with sellers, but for some of the more widely marketed deals, how would you characterize the buyer pool today? Has the competition thinned out a little bit more over the last few months?

It has. It's been down some REITs, a lot of institutional capital, the 1031 money a bit more that, is still around. But the profile itself has been down considerably, which has given us a bit of an advantage in the market in terms of seeking widely -- not wide off-market transactions. So we will continue to watch the market, but yes, the good news is the buyer profile has dropped down. It's puts (multiple speakers)

(multiple speakers) competitive advantage.

Sure. So just help me understand that dynamic a little bit then, because you mentioned that cap rates continue to compress, but there are I guess less buyers out there and the competition has thinned out a little bit. So, can you just kind of help me understand that dynamic a little bit?

Well, I would tell you that the buyers today in the market are very well capitalized, typically are going to have capital that is very passive and IRR thresholds that are very low. So your levered buyer is really who has left the market. And so that's really what we are seeing today. Profile has shrunk, the number of buyers has shrunk, and the expectations for yields have also come down considerably. So, that's really what's driving this pathway compression.

Okay. And then just lastly, you mentioned -- you touched on the notion that there's little differentiation between pricing in your four or I guess seven major markets that you look at. Does that feel right to you? Are any of these markets that you are in today mispriced, in your view?

No. I think that people have now recognized that even markets like Portland and some other markets that historically you could buy at cap rates to bid wider are now generating the types of returns with the overall increasing kind of demand that is certainly driving the cap rates down to where they are. So, it's just a combination of no supply, a lot of tenant demand, and fundamentals that are really, really strong across all markets.

Okay. And just a last quick question for Rich. On the Sports Authority box at Crossroads, it sounds like your plan is to break that up. How much capital do you think you'll need to re-tenant that space?

And we may not break it up. We have a lot of offers for the entire space --

As is.

-- as is. And we have offers for no capital, and we have offers for some capital, all at higher rents. So we are still evaluating all of those offers to pick the best opportunity for the center.

Okay, great. Thank you.

Michael Mueller, JPMorgan.

Stuart, I guess earlier on, you were talking about some of the acquisitions and mentioning how some aren't well managed and you can go in and kind of work the magic, etc. When you talk about stuff being not well-managed, and specifically looking at the acquisitions you closed and what's in the pipeline, is it more there is leasing that could be done? Is it more that prior owners didn't but the capital into properties so it's capital starved? What exactly -- what aspects were under managed?

Every situation is going to be a bit different, but it's primarily -- some of it is vacancy. Some of it is the fact that the sellers were capital constrained. So rather than raising rents, they needed cash flow. This is what we are finding in a number of deals that we've bought. And these are owners the typically have owned these assets for a long period of time. So they are capital constrained. They need the cash flow and that means there's a lot of rent growth that we can get our hands on after closing. And more importantly, it's operating margins. It's the fact that a team like ROIC can come in and with this approach to operating can really bring up what we call the operating margins of the property.

And Rich, I don't know if you want to add any of that.

The only thing I would add is sometimes these sellers, they would rather maintain their tenants and push the rent. And they are just not getting aggressive with their tenant base, and maybe don't understand the market as well as our team would in terms of what we can achieve.

Okay. And one quick follow-up here. The $25 million in dispositions in the back half of the year, should we expect a similar amount in 2017?

That number could be higher, get higher. So, I think, in 2017, in terms of modeling, I would model a bit -- I would say yes.

[25 to 50] (multiple speakers) as well.

Correct.

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

Rich Moore, RBC Capital Markets.

Good morning. So, I'm curious. Why did you guys do a private placement bond on this last round, the one that you just mentioned that you did for a couple hundred million?

It's Mike. As I mentioned in my prepared remarks, we negotiated and priced that private placement back in June, and that's the time when the public market was pricing us in like a high 4% range. So we had prudently decided to choose the private route and achieve that 3.95% coupon, which is a record low for the Company. And given the uncertainty involved in the market back in June, we felt it was very important to lock in $200 million at that rate, 10-year money at that price. So, I understand the environment has changed a little bit today. We had been patiently waiting for our spreads to contract, and they didn't. And we had a great opportunity on the table and we decided to lock it in.

And more importantly, it was best for all the shareholders of the Company (technical difficulty) doing the transaction.

It's important to us to make sure that we took our floating rate down. We wanted to make sure we got that exposure down. So the opportunity arised, it was great.

Okay, I got you. So going forward, is that a market you would tap I guess based on pricing differentials between the typical bond market and that?

We continue to look at it but --

That's hard to say. I think the reason it was compelling was because there was a significant difference in the pricing between public and private. I think that's changed a little bit to today. I don't think they are on par with each other, but we are always going to look at that as a potential source of capital.

But we haven't left the bond market either. We will be back in the bond market as well.

Right.

So really it was a moment in time that provided a great opportunity for all shareholders of the Company.

Okay, good. Thank you. Are there any tenants right now that are giving you guys concern? I mean I always like to bring up guys like Kmart, that kind of thing, but it sounds like Kmart is hanging in (technical difficulty) you guys think. But is there anybody bothering you at the moment in terms of -- obviously Sports Authority, but anybody else?

No, not really. We do have one Kmart, but that's a potential opportunity for us, very below market rent on that Kmart. But other than that Kmart, there's really nothing else on our radar screen that we are concerned about.

In our portfolio.

Got you. Okay, great. Thank you guys.

Craig Schmidt, Bank of America.

Good morning. With a small shop at 94.4%, where do you think you can finally raise this level to?

100%. They won't let us rest until we are 105% leased. But no, I think we can easily get that into the high 90s%. We've been maintaining the anchor space at virtually full and there's always going to be -- with tenants coming and going, there's always going to be a little bit of --

(multiple speakers) vacancy.

(multiple speakers) vacancy. But we believe it can get into the higher 90s%.

And these last upcoming lease increases, do you think you can push rents because of the scarcity value, or is that being sort of mitigated by maybe their weaker positions in your strip centers?

No, there is still a lot of good upside. The reality is that the anchor tenants are vying for space on the West Coast because there just is nothing available. What we're seeing is some of the bigger grocery chains taking over the smaller locations from smaller operators just for market share, and the reality is that they know they can't get these positions otherwise. So, we are seeing more and more of that.

Okay. And you talked about increasing the occupancy at Sacramento. I'm assuming that hasn't flowed through to your supplemental yet?

No, a number of these tenants that are now opening or have opened two or three weeks ago, that income is now beginning to flow in if I'm correct Mike.

Yes (multiple speakers) because not all are paying rent yet, but they are opening.

Okay, thanks.

I'm not showing any further questions. I'll now turn the call back over to Mr. Tanz for closing remarks.

Great. In closing, I would like to thank all of you for joining us today. If you have any additional questions, please contact Mike, Rich or me directly. Also, you can find additional information in the Company's quarterly supplemental package which is posted on our website. Thanks again everyone, and have a great day.

Ladies and gentlemen, this does conclude the program and you may now disconnect. Everyone have a great day.