Retail Opportunity Investments Corp (ROIC) 2017 Q3 法說會逐字稿

Welcome to Retail Opportunity Investments 2017 third-quarter conference call. (Operator Instructions). Please note that certain matters discussed in this call today constitute forward-looking statements within the meaning of the 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 and factors as well as for more information regarding the Company's financial and operational results. The Company's filings can be found on its website.

Now, I would like to introduce Mr. Stuart Tanz, the Company's Chief Executive Officer.

Good morning, everyone. Here with me today is Michael Haines, our Chief Financial Officer; and Rich Schoebel, our Chief Operating Officer. We are pleased to report that the Company had another strong quarter, putting us on track to post another solid year of growth and performance.

Year-to-date we have completed $314 million of acquisitions, adding nine terrific grocery-anchored shopping centers to our portfolio. With these new acquisitions, our portfolio has now surpassed the 10 million square foot mark.

Importantly, we continue to grow our portfolio in a geographically balanced manner. Of the nine centers that we have acquired thus far in 2017, five are located in the Pacific Northwest, with three in Seattle and two Portland; and four are located in California, with two in the San Francisco/Northern California market, one in the Los Angeles market, and one in Orange County.

Along with our acquisitions being geographically diversified, the nine shopping centers are anchored by a diverse mix of grocery operators, ranging from organic grocers like PCC Natural Markets, specialty grocers like Trader Joe's, to value operators such as Grocery Outlet, as well as the industry leaders, Safeway and Kroger.

Included in the nine shopping centers is a property that we just acquired last week, located in Seattle, which according to the latest Census Bureau data, is now the number one top-ranked destination city in the US for people relocating. The property we acquired is a terrific grocery-anchored shopping center located in the heart of an established residential community, and is anchored by a well-established, highly productive Kroger QFC supermarket.

Beyond the $314 million that we have acquired thus far in 2017, we also have another great grocery-anchored shopping center currently under contract for $46 million located in Orange County. As with our Seattle acquisition, this new Orange County center is ideally located in the heart of a densely populated, affluent, residential community with a trade area population base of 318,000 people and a household income of over $122,000.

Additionally, we are funding the pending acquisition in part through the issuance of roughly $5 million of ROIC common equity. The $5 million is not coming from the seller of the Orange County property, but instead from the seller of the two shopping center transactions that we closed on a few weeks ago.

In addition to the two properties, that seller also had a third property that was not located on the West Coast, which we did not acquire. However, the seller wanted to execute a 1031 exchange and take $5 million of ROIC currency in addition to the $51 million of ROIC currency that they took in lieu of cash on the sale of the two properties. The fact that they were keen on taking the total of $56 million of ROIC currency based on a value of $21.25 a share we think speaks to the outlook regarding the strength of our business going forward.

Once we close the pending Orange County transaction, our total acquisition activity for 2017 will reach $360 million, meeting our stated objective for the year. Along with meeting our acquisition goal for 2017, we are also on track to meet, if not surpass, our goals in terms of property operations and leasing. Through the first nine months of 2017, we have maintained our portfolio lease rate at a very strong 97%. As we sit here today, with two months left in the year, we are on track to finish 2017 at 97%, which would be our fourth year in a row finishing at that level.

Along with maintaining our high occupancy, we are also on track to post another very strong year of double-digit rent growth in terms of our re-leasing spreads. Through the first nine months of 2017, we have achieved a 32% same-space increase on new leases, including a 40% increase in the third quarter, putting us on track to post our third consecutive year of achieving an increase above 29% each year. Additionally, in terms of same-center NOI, we are again on track to post another year of growth. Year to date through the first nine months of 2017, we have achieved a 2.8% increase thus far.

As we have discussed previously, we have been anticipating a number of new tenants would take occupancy and commence paying rent towards year-end, such that our same-center NOI growth would accelerate. We are pleased to report that many of these new tenants have recently taken occupancy here in the fourth quarter, whereby we expect our full-year same-center NOI growth could reach 4% for 2017; which, if achieved, would represent our third consecutive year of posting same-center NOI growth at a strong 4% or higher.

Now I will turn the call over to Michael Haines to take you through our financial results. Mike?

Thanks, Stuart. For the three months ended September 30, 2017, the Company had $68 million in total revenues and $23 million in operating income as compared to $59 million in total revenues and $18 million in operating income for the third quarter of 2016. Net income attributable to common shareholders for the third quarter of 2017 was $9.1 million, equating to $0.08 per diluted share, as compared to net income of $7.4 million, or $0.07 per diluted share for the third quarter of 2016.

In terms of funds from operations for the third quarter of 2017, total FFO increased to $34.8 million as compared to $31.3 million of FFO for the third quarter of 2016. On a per-share basis, FFO for the third quarter of 2017 was $0.29 per diluted share, representing an 11.5% increase over the third quarter of 2016.

With respect to our financial performance for the first nine months of 2017, the Company had $201 million in total revenues and $68 million in operating income as compared to $174 million in total revenue and operating income of $55 million for the first nine months of 2016.

Net income for the first nine months of 2017 totaled $27.6 million or $0.25 per diluted share as compared to net income of $23.1 million or $0.22 per diluted share for the first nine months of 2016.

And in terms of FFO, the Company had $102 million in total FFO or $0.84 per diluted share for the first nine months of 2017 as compared to total FFO of $92 million or $0.80 per diluted share for the first nine months of 2016.

Turning to the Company's balance sheet, at September 30, the Company had a total market cap of approximately $3.7 billion, with roughly $1.4 billion of that outstanding, equating to a debt to total market cap ratio of 37.5%.

In terms of financing initiatives, during the third quarter we successfully recast our credit line and term loan. Specifically, we increased the capacity of our credit line from $500 million to $600 million, which, with the accordion feature, could be increased to $1.2 billion. And we extended the maturity date on the credit line to approximately 4 years from now, to 2021.

With respect to our $300 million unsecured term loan, we extended the maturity date to approximately 5 years from now, to 2022. Importantly, we entered into additional interest rate swap agreements totaling $200 million, that, together with our existing $100 million of swaps, we have now effectively fixed the interest rate on our entire $300 million term loan.

Additionally, we are also in the final stages of completing a $250 million private placement of senior, fixed rate, 10-year unsecured notes, the proceeds of which we plan to use to lower our credit line balance. We expect to close the private placement before year-end. Accordingly, taking these fixed rate notes into account, together with the new swaps, we expect that at year-end approximately 90% of our total debt will be fixed rate.

Lastly, in terms of FFO, taking into account all our recent acquisitions, operating, and financing initiatives, we currently expect FFO for the fourth quarter to be between $0.28 and $0.30 per diluted share, which would put us towards the mid- to high end of our previously stated range for the full year.

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

Thanks, Mike. As Stuart highlighted, we are on track to post another very strong year on the leasing front. Year to date, we have already leased close to 1 million square feet of space, putting us on track to once again lease more than double the amount of space that was originally scheduled to expire for the entire year, as well as putting us on track to potentially set a new record for the Company in terms of overall annual leasing volume.

Our ongoing strong leasing activity continues to drive our ability to maintain high occupancy across our portfolio. As Stuart discussed, we are on track to finish 2017 with a portfolio lease rate at a very high 97%, our fourth year in a row at that level. Bear in mind that we have been at that very strong 97% level or higher not just at year end, but very consistently for 13 consecutive quarters now, which is something that work hard at and take pride in.

Breaking our occupancy down between anchor and shop space, at September 30, our anchor space was 100% leased, and our shop space stood at a strong 94% leased. Along with taking pride and working hard at maintaining our high occupancy, we are also always working hard to increase cash flow at every opportunity. As Stuart noted, we are on track to post another strong year of rent growth through our re-leasing initiatives.

Specifically, in the third quarter, we leased 452,000 square feet of space, which included bringing 47 new tenants into our portfolio, totaling 137,000 square feet, achieving a 40% cash increase in base rent on a comparative space basis.

And in terms of renewal activity, during the third quarter we renewed 76 tenants totaling 315,000 square feet, achieving an 8.4% cash increase in base rent. Through the first nine months of 2017, we have leased a total of 962,000 square feet thus far, achieving a 32% increase on new leases, on average; and on a blended increase of about 10% on renewals for the year.

With our anchor space 100% fully leased, the bulk of our new leasing activity this year has been predominantly focused on shop space. And given that our shop space is nearly fall as well, most of our activity involves some creative, proactive work on our part. Like, for example, relocating shop tenants in order to combine a variety of small spaces, including those last hard-to-lease elbow spaces, to accommodate new tenants.

These new tenants, often being national and regional retailers looking to expand into our markets, and specifically establish stores in the heart of the affluent communities where our properties are ideally situated. Bear in mind, notwithstanding having to be creative, we are still achieving significant rent increases, which speaks to the underlying strong demand for space across our portfolio.

As it relates to anchor leasing activity, the bulk of it this year has been primarily anchor tenants proactively exercising renewal options. And looking at our current lease expiration schedule, next year in 2018, of the 13 anchor leases scheduled to expire, we have already been contacted by about half of those seeking to exercise their renewal options here in the next month or two, well in advance of their actual expiration dates. Again, we think this speaks volumes as to the strength of our markets and portfolio.

Lastly, given all of our ongoing leasing activity and rent growth, the economic spread between build and lease space continues to be meaningful, and indicative of the embedded cash flow growth in our portfolio.

Specifically, at the start of the third quarter, the spread stood at roughly 4.5%, representing about $8.5 million of additional annual rent on a cash basis. During the third quarter, tenants representing approximately $3.3 million of that incremental $8.5 million started paying rent, of which $664,000 was received in the third quarter. Taking the $3.3 million into account, together with our leasing activity during the third quarter, as of September 30, the spread was 3.6%, representing approximately $7.5 million.

Now I will turn the call back over to Stuart.

Thanks, Rich. Just to quickly summarize what we currently have in the works here in the fourth quarter, we have already closed $112 million of acquisitions and expect to close the pending $46 million acquisition soon, which will bring our total for the year to $360 million.

In terms of leasing, we are on track, at over $3 million in additional cash annual cash flow based on tenants that are taking occupancy here in the fourth quarter, which, in turn, should accelerate our same-center NOI growth for the year. And we also expect to close on $300 million of new debt and equity capital.

In short, we have had a very busy and productive final quarter underway that will complete another solid year for the Company. Additionally, is Mike stated, we expect to achieve FFO for the full year towards the mid- to high end of our range, representing our eighth year in a row, dating back to when we commenced operations as a shopping center REIT, of achieving FFO growth every single year.

Looking ahead at 2018, we intend to continue capitalizing on our core strengths that set us apart, including three important attributes: one, our strong West Coast grocery-anchored shopping center portfolio, which today totals 90 properties encompassing over 10 million square feet, spanning from San Diego to Seattle.

Two, our markets, which are among the best in the country, not only because of their economic and demographic strength, but also because they are among the most highly protected, supply constrained markets in the US. And three, our 25-year track record of successfully acquiring, owning, and operating grocery-anchored shopping centers on the West Coast.

Altogether, we firmly believe that we are well positioned to continue steadily building value and taking the Company to new heights going forward.

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

(Operator Instructions). Collin Mings, Raymond James.

First question for me: just can you expand on the bad debt expense recognized in the quarter?

Collin, it's Mike. Our bad debt expense line was something that fluctuates from one quarter to the next, as it ties directly to specific tenant activity during the quarter, as well as if we see something on the horizon. There was nothing in the third quarter that I would describe as being outside of our normal course of business. And if you look at it on a yearly basis, you'll see more of a consistent pattern.

Okay. So nothing in particular? Just kind of normal activity? Or is there something on the horizon to your point about that you're concerned about?

No, nothing. Ordinary course of business. I think what makes it look a little bit unusual that [comparative] quarter from last year was on the low end of 83,000.

Okay, that's fair. And then, Stuart, just as we think about moving forward, from a -- clearly feel very active on the acquisition market. But clearly your cost of equity has been key in facilitating your external growth over the last several years. Just given the pressure on the stock price and levered metrics rising over the last year, how has your appetite for deals changed relative to, say, a year ago, or has it?

We continue to look for opportunities, as we have in the past. We are continuing to be as selective as we have. I think we will continue to watch the performance of the stock, and probably accelerate some dispositions as we go into 2018. But right now it's really just being patient and watching the market. And we'll see how things go in terms of issuing equity as it relates to our balance sheet.

Okay. And then just one last one from me. Stuart, just on your comment as far as the planned dispositions and maybe accelerating that into 2018, can you just update us on the transactions you outlined last quarter?

Sure. Those are proceeding forward, and we -- in terms of additional dispositions, we are continuing to look at pruning the portfolio or other assets that we might look at, but nothing to speak of this second.

All right. I'll turn it over. Thanks, guys.

Christy McElroy, Citi.

Stuart, I just wanted to (technical difficulty).

You know what, Christy? We're having problems hearing you.

(technical difficulty)

No, it's all garbled.

Have about that?

That's much better, thank you.

So just regarding your comments about same-store NOI growth and the 4% for the full year, which it sounds like you still think is realistic: I think given your comments last quarter about leases that you had commencing in late Q2 and in Q3, a lot of us were expecting to see more of a ramp in Q3 same-store NOI growth. That 4% bogey now represents a pretty big ramp next quarter.

How confident are you in reaching that number? You said that many tenants have already begun to move in. So what's already baked in? And what sort of lease to commence spread should we be looking for at year end that's inherent in achieving that 4%?

Well, I mean, we've looked at the same-store growth. Some of the tenants that -- I think as we articulated in the call -- that were a bit delayed in getting it opened, are now open in the portfolio. That's sort of what drove some of our same-store NOI, not as robust as it should've been, late in the third quarter. But the good news is we are confident sitting here today that with some of these anchors now opened, we feel pretty good about making that number for the year.

The other thing that we continue to monitor in terms of the fourth quarter are percentage rents. And the good news there is sales continue to be very strong. And we don't see any deterioration in terms of that as it relates to the fourth quarter, as well. So, we're pretty confident sitting here today that we will make that number.

And then, more importantly, as we look at 2018, you get a full run rate and a full benefit of all our hard work. So we're really -- we are not guiding 2018 yet. But 2018, again, looks quite strong in terms of finally reaping the benefits of all this repositioning and leasing we've done over the last year.

So just going back to that lease to commence spread -- I'm sorry if I missed it -- what is that level today? Where do you expect it to be at year-end? And going into 2018, just following up on your comments, what's a realistic narrowing? It seems like your -- that spread for you is a lot wider -- has tended to be a lot wider than many of your peers.

So just wondering if there's something structural inherent in that that will always be wider? Or how should we be thinking about that from a modeling perspective? Because obviously that's a big driver, right, of same-store NOI growth.

Well, we've been playing offense in a very big way in terms of our portfolio. So, that's what's really driven the leasing. And as I think Rich articulated, we're on track to lease double what was rolling over for the year.

Mike, I don't know if you want to add to that just in terms of the spread.

Well, I think the repositioning of, like, anchor spaces -- as that starts to take place, that gap should naturally narrow over time. There will always be some level of gap, and that actually narrowed from a June. And I expect by year-end, it is going to narrow even further. I just don't know where that number is going to be today, though.

To answer your question, though, it sits -- at the end of the quarter, it was at $7.5 million, down from about $8.5 million. So it is coming in, but that also depends on the leases we're signing within the quarter.

Okay. And then just lastly, you talked a lot about the grocery landscape last quarter. But with all the noise around obviously grocery disruption, there are some real competitive pressures in that business. Are you seeing any of those concerns filter at all into the perception of private market buyers of grocery-anchored strips perhaps underwriting a bit more risk into the -- into deals?

No, not at all.

Interesting. Okay. That's it for me. Thank you.

Todd Thomas, KeyBanc Capital Markets.

Just sticking with acquisitions, I was just wondering if you could just shed some light on the pipeline going forward here, heading into 2018. And just in terms of the -- in terms of Christy's question on grocery, I was just wondering if you were seeing any change in sellers bringing grocery product to the market, just given some of the recent news and headlines surrounding the industry.

Well, it's a bit early to set forth obviously a target for 2018. And, as always, we're going to provide guidance on our next conference call. But in general, the pipeline continues to be very strong.

Okay. There's (multiple speakers) I was wondering -- sorry, go ahead.

And the second part of your question again was --?

If you've just seen any change in sellers bringing grocery product to the market.

No. I mean, the deal flow continues to be quite strong, primarily more off-market than on-market. But we haven't seen an acceleration in the market in terms of grocery-anchored centers, given the noise that we hear out there as it relates to the overall grocery store sector.

Okay. And then, Stuart, you mentioned that you have now crossed the 10 million square foot mark, that the portfolio is over that size here. Just curious what that means for ROIC. Do you feel that the portfolio is reaching size where the Company needs to expand the platform in some way? Or is this still manageable for you and the team to handle with the same level of attention?

It's still a very manageable. I mean, at Pan Pacific, when we sold the company, we had 22 million square feet and 141 shopping centers, primarily all grocery-anchored. So we are feeling good about certainly the portfolio. And again, when you are 97% leased, it's really -- it's the blocking and tackling every day that really drives value. And that -- with the portfolio being so well leased, we have the ability to continue to play offense.

Okay. And then a question for Mike on the balance sheet. You talked about some of the activity in the quarter. Just curious about the strategy here to reduce leverage, permanently finance the line balance, and reload for acquisitions heading into 2018.

Yes, so obviously the financing initiatives pushed out the revolver and term loan to further stagger our maturity schedule. And I mentioned that we're in the finalizations of the private placement that's going to relieve the revolver and put the nice [slug] out to 2027. And we just issued $51 million of equity through the OP unit we closed. And we are currently evaluating other various opportunities for raising equity to -- we're very mindful of our leverage level as well, but nothing definitive to discuss right now today.

Okay. Did you comment on the expected size or range around that private placement?

The private placement is a $250 million transaction.

Okay, great. All right, thank you.

Wes Golladay, RBC Capital Markets.

Looking at the building blocks for next year, you mentioned that the tailwind you're going to get from the work from 4Q leases commencing. But I'm just wondering on the recovery ratio should been a little bit lower, about 100 basis points drag on NOI growth year to date. And there was a bit of a delay commentary last quarter. And just wondering when you're going to see a pickup regarding those tenants' [paying] recoveries.

Well, I think recoveries, in my view, will vary quarter to quarter, and I think some of that is new acquisitions.

[Certainly related] to property taxes and the [supplemental bills] that eventually work their way through the billing process.

That, too.

So I guess with that all -- the 100 basis point drag, should we expect that to be a lift next year for NOI growth? Or is there going to be still a little bit of a lag?

In terms a lift, it's hard to -- I mean, our recovery rates really haven't fluctuated that much, and 100 basis points is not unusual when you look at the short periods of time of every 90 days.

In terms of next year, I'm assuming that our recovery rates are going to probably stay where they are or maybe get a bit better, as we continue to roll leases that either give us an opportunity to recover more recoveries; or leases that are gross that -- which we don't have many of these -- that will roll, that we can turn into triple net.

Okay. Yes, sorry, I misspoke. The recovery ratio is actually down 300 basis points year to date, but the NOI drag was down 100 basis points -- the impact was 100 basis points, based on my calculations. So I was just thinking maybe if you get that more towards the 90%, you would get a little bit of a lift, and just trying to get the timing on that.

Yes. Again, this is really more of a timing issue quarter-to-quarter versus an overall recovery issue. And again, every shopping center you buy has different recoveries is it relates to the NOI. So, that's why this fluctuates with the amount of acquisitions that we're doing.

Okay. And then looking at the other thing that could drive outsized results, do you have any below-market leases that will be noticeable next year?

No, not to our -- Mike. I don't think so.

Well, I think across the portfolio, generally speaking, as lease terms roll there's a -- what the -- what we expect is normal lift in re-leasing spreads to be consistent with the square footage that's rolling.

Right.

Because across the portfolio, we've got a lot of below-market leases that are going to turn.

Okay. Thank you.

Craig Schmidt, Bank of America.

Currently, your Pacific Northwest exposure looks to be about 33% of your ABR. I wonder where you think this is going, if this could be growing. And then maybe just some description on the transaction market in the Pacific Northwest versus California.

Sure. Again, depending on looking at acquisitions into the future, we are focused on growing our portfolio in the Pacific Northwest, but more importantly geographically, keeping the portfolio diversified. In terms of the Pacific Northwest, it is really -- the one thing that has sort of changed from last quarter is that the acquisition market and cap rates or valuations have continued to -- cap rates have continued to head down, and valuations continue to head up in that part of the West Coast.

In fact, for the first time really since operating on the West Coast, we have never seen cap rates in the Pacific Northwest approach California in terms of dominant grocery/drug-anchored shopping centers in affluent areas. So, the one interesting thing that we are seeing is that the Pacific Northwest is actually gaining more traction in terms of valuation, and today is almost on par with some of the most -- with some of the best locations in California.

So that's really what's changed as it relates to the Pacific Northwest. It is still one of the most dynamic parts of the US as it relates to both demographic growth and income growth. We don't see that changing right now.

Are you seeing faster revenue growth or rental spreads in the Northwest versus California, or would you say they are similar?

I think they are fairly similar. Again, it really depends on the lease that's expiring and when that rent was set. But in terms of the market rent, that varies from property to property, region to region.

Okay, thank you.

Vince Tibone, Green Street Capital Advisors.

Can you provide any more details on the densification opportunity at Crossroads in Seattle? Are you able to give a general sense, at this point, of the entitlement process, general cost, rough timeline, anything along those lines?

Sure. So, both -- we have what we call phase 1 and phase 2 continuing to move along up at the Crossroads. In terms of phase 1, that's the senior housing project. The senior housing developer is on track to break ground within the next 30 to 60 days, and he has an estimated 15- to 18-month construction timeline. And then when regards to phase 2, we have just recently submitted our pre-application paperwork to the city. And we expect to begin -- have that begin taking shape in 2018. So, progress is occurring.

Great. And just to clarify, are you going to be having ownership in the senior housing portfolio? Is that -- no, it's third-party owned?

No, it's third-party owned. We're essentially leasing the ground to him to build the development. And we'll actually end up getting back a few thousand square feet of retail on the ground floor.

Okay, great. That's helpful. One more for me. Can you talk about the financing market for grocery-anchored centers? It seems the equity bid there is still pretty strong. But have private lenders become any more cautious following the Amazon/Whole Foods deal?

Well -- Mike, you can probably answer the question. I mean, we haven't seen from our perspective really much in terms of lending. I mean --

(multiple speakers) typically work on more on the unsecured side. But I, know --

No. Sorry, excuse me. Maybe I -- I meant on the private side. People are maybe be -- people are competing against other properties, private market buyers; their ability to get financing.

Not for the assets that we're looking at buying. I think when you're looking at -- when you're stepping out of the primary markets, I think that's a different conversation. But we don't spend time looking for those type of shopping centers in those markets.

Right. So the private markets (multiple speakers) primary markets is likely still going to get financing because of the demand for the products.

But I mean, it is interesting in terms of fix -- where bonds are trading and where equities are trading. And that bifurcation has gotten so large, it's quite interesting from that perspective, Vince.

Okay. Yes, that's helpful. No, thank you. That's all I got.

Chris Lucas, Capital One Securities.

Just two quick follow-ups: Mike, on the 10-year financing, the unsecured notes that you're looking at privately placing, is the pricing set on that? Or are you still susceptible to the vagaries of the market on pricing at this point?

We're actually right in the middle of finalizing the terms. We're unable to comment on the specific (technical difficulty). But as soon as we finalize that we're going to issue a press release with the details.

Okay, thank you. And then on the disposition, Stuart: I think the last quarter you had said you had lined up two asset sales for $43.5 million. I'm just wondering if you can give maybe more specifics about where that sales process really is. Are we still at an LOI stage? Or you at -- do you have closing dates set? Where does that sit, and when do you expect the deals to finalize?

They are both moving ahead very nicely. We will -- I think as we mentioned last quarter, both properties are being sold to be redeveloped as residential properties, and they are both going through the entitlement process, which we're helping to expedite. So, both are moving forward at a pretty good pace, and we're expecting 2018 to get these deals closed, in late 2018 because of the entitlement process.

Got you. Okay, thank you. That's very helpful. That's all I have, thanks.

George Hoglund, Jefferies.

Just going back to the bad debt expense -- I know it can fluctuate quarter to quarter -- but can you comment a little bit more on just maybe how many tenants it had to deal with, and what type of categories it was?

It's really across all of the property portfolios. And there was -- I skimmed through and I didn't see any one tenant necessarily drove that. It's just some small variances across all properties, so there's nothing that really stood out.

I mean, we got 2,000 tenants, so it does --

Yes, and our process is we look at every single tenant in terms of what they owe and the collectability. It's a high-level deep dive into that. But there's no -- as Mike is saying, there's no trend that we're seeing or a specific category that in trouble over something else.

(multiple speakers) on the watch list necessarily on the portfolio.

Okay, yes, then guess my next question was going to be -- and then has there been any sort of change in the watch list, or anything notable in terms of tenants you are monitoring?

No.

No.

Okay. And then one just last one. In terms of the same-store NOI growth, you guys had alluded to some -- a couple rent commencements that maybe started a little bit later than expected. Was there anything else in the quarter that would have weighed a little bit on same-store NOI growth?

No, it's really a couple of anchor spaces that ended up -- they are now open; or one of them opened up yesterday, and the other one should be shortly. But nothing that is of any particular --.

Okay. All right, thanks for the color.

It's really the anchor spaces, with a combination of some other obviously spaces that have been delivered late in the third quarter that we're not getting the full benefit of in the fourth quarter.

Okay, thanks.

Jeff Donnelly, Wells Fargo.

Just a couple of questions. I was wondering how you think about small shop re-leasing spreads, and whether or not they could accelerate next year versus this year? Because as I look at your year-to-date rents achieved on renewals versus the expiring rents for 2018, that gap is much wider than it's been in the past year. And I'm wondering if that's implying that market rents are effectively growing faster than your expiration schedule. Is that, I guess, a fair characterization? And do you agree with maybe the thinking that your leasing spreads for shop space could accelerate next year?

Yes. Again, I think as we've mentioned in the past, it is sometimes hard to predict a run rate on something like that, given that you don't have control over which specific leases are rolling in a given year, and what that rent is at and when it was last reset. But yes, in general, we see that number continuing to grow. We have some good (technical difficulty) leases that are coming up that we expect to have some significant lifts in.

And how do you feel just generally about the negotiating leverage for landlords today? I'm just curious if the, if you will, the uncertainty or the rhetoric you hear at the national level and in the press -- does that translate into your discussions day to day, either local level or with major tenants? Or is it really sort of two worlds in your view?

It's really two worlds, in our view. Given the strength of the markets, our high occupancy, the tenant demand that's out there -- while throughout our years of experience here, everyone may take a shot at getting a rent reduction on a renewal. But it's very short conversation when we have such strong properties and such strong markets. So, no, it really is a tale of two worlds.

And have there been any, I guess, notable changes? And I don't mean broad-based, but just notable changes that you've -- kind of caught your attention in leases that maybe major tenants have sought, such as maybe how percentage rents are treated, or handling of maybe store-based distribution? I'm just curious if leases are evolving a little bit, given maybe the focus on omni-channel.

Yes, I think we have been contacted by some of our grocery tenants about redoing some of their internal footprints to add the click-and-pick-up type of scenarios, so we are seeing that getting rolled out. Primarily it has very little impact on the center as a whole. They want to change a couple parking stalls or something like that, but it's really having a bigger impact on the store layout. And I think that the retailers are always going to be trying to innovate to meet the consumers' needs.

Do you think that's going to increase the prototypical footprint of a lot of these grocery stores? Because I'm assuming they are not going to want to eat into floorspace area to handle that aspect of it. Or is it not going to be that significant? But someone's footprint goes from 50,000 square feet to 57,000 square feet, or something like that.

Primarily, what we've been approached with to date has been reconfiguring the existing footprint. I think it really depends on the grocer and the size of the store in question. But when you are 50,000 square feet you've got a little flexibility to take 2,000 feet and put in the click-and-go. But we have not been approached across the board in terms of expansion.

Just maybe last one, I guess, for Stuart. There's a couple of large retail portfolios, either in the market now or potentially coming back to the market next year. I know you've been asked about acquisitions earlier. But how do you think about some of those -- I guess I'll call them like elephant hunting type portfolios? Where they are a little more strategic, and some of these are 1.2 billion or even much larger. I know one of them, you had pursued a year ago. It's just how does that fall in your spectrum? How do you think about those?

Well, look, generally speaking, we look at all opportunities to acquire great shopping centers, be it through portfolio deals or one-off transactions. So we continue to look at them. But we certainly are applying the same discipline we've always had in the past, in terms of what these -- what the real estate looks like and the mark-to-market in terms of the real estate, and many other things. So, we will continue to look at opportunities; but, again, we're going to be as selective as we've always been.

More importantly, it's not about getting bigger; it's about doing smart things in terms of building value and NOI growth in terms of -- or NAV growth, as we say, in terms of our shareholders.

Great. Thank you.

Michael Mueller, JPMorgan.

I was just wondering if you could talk a little bit about CapEx trends. And I guess break it up in a couple levels, just thinking about what you're seeing in terms of TIs, any notable change there this year, recent quarters compared to prior years. And then also thinking more about maintenance CapEx and what you are spending on acquisitions: are you seeing less of a burden or similar burden as you are going out and acquiring the properties?

Well, I'll talk about acquisitions and then I'll let Rich address the question in terms of trends [in without] the portfolio. But just in terms of acquisitions, every deal is going to be a bit different in terms of CapEx. For example, the one in Orange County needs zero CapEx. The seller just spent several millions of dollars making the center look just beautiful.

So, it's tough to tell you what that trend looks like, because every single deal is going to be a bit different in terms of capital cost, or CapEx, as you might say. The more important thing as it relates to that is to always make sure that you are maintaining our properties so that, from a leasing perspective, we are one of the best-looking assets in the submarket that we operate in.

In terms of the trends you are seeing inside the portfolio, Rich, on CapEx?

Yes. I think, again, in terms of the leases, the bigger capital spends are when you're converting a retail use to a restaurant or something along those lines, or you are splitting an anchor box to accommodate two tenants. Those can be obviously some significant capital dollar outlays. But the good news on that is once it is done, you will reap the benefits of that going forward, regardless of what tenant is going in that space.

And then just to add on to what Stuart was just saying, I think that we've worked through our portfolio now and don't see, in terms of our existing portfolio, any significant capital spends on the properties we currently have in the portfolio.

Got it. Okay, that's helpful. Thank you.

Thank you. And that does conclude our Q&A session for today. I'd like to turn the call back over to Mr. Stuart Tanz for any further remarks.

In closing, I'd like to thank all of you for joining us today. If you have 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. And for those who are attending NAREIT annual convention in Dallas in a few weeks, we hope to see you there. Thanks again and have a great day, everyone.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a great day.