Retail Opportunity Investments' (ROIC) CEO Stuart Tanz on Q2 2016 Results - Earnings Call Transcript

| About: Retail Opportunity (ROIC)

Retail Opportunity Investments Corp. (NASDAQ:ROIC)

Q2 2016 Results Earnings Conference Call

July 28, 2016, 11:00 AM ET

Executives

Stuart Tanz - CEO

Michael Haines - CFO

Rich Schoebel - COO

Analysts

Christy McElroy - Citi

Paul Morgan - Canaccord

Collin Mings - Raymond James

Paul Adornato - BMO Capital Markets

R.J. Milligan - Baird

Vineet Khanna - Capital One

Jay Carlington - Green Street Advisors

Todd Thomas - KeyBanc

Michael Mueller - JPMorgan

Rich Moore - RBC Capital Markets

Craig Schmidt - Bank of America

Operator

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 and factors as well as for more information regarding the company's financial and operational results. The company's filings can be found on its website.

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

Stuart Tanz

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 this 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 and densely populated dynamic markets that are extremely protected in supply constraint. Shopping centers that are traditional grocery and drug anchored properties with a very strong stable base of cash flow yet because of their stabilities some of these acquisitions have not been aggressively managed and they all also have in-place leases that are significantly below market perfect opportunities for our team to capitalize on an enhanced 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 is North Ranch is located in what is considered to be one of the best affluence submarkets in all of L.A. 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 centers situated at the right retail at the center 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 in 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 2 to 4 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 lease 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're 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 a replaceable location in the heart of downtown Monterey .Lastly with respect to the pending acquisition Bridle Trails it is too a terrific grocery and drug anchored shopping center. It is located in Washington and 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 anchored space that expires within the next year whereby we expect to more than double the rent and by expanding the center adding a new 5,000 square foot pad.

Turning to property operations, as you will hear from Rick in a minute, we continue on track to post in other seller year. We continue to maintain our portfolio above 97% leased and we continue to achieve solid growth in same center NOI and with our re-leasing spread. 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 will turn the call over to Michael to take you through the specifics of our balance sheet initiatives as well as our financial results. Mike?

Michael Haines

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 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 goods stores. In fact out of our entire portfolio, we only had two sporting goods for closing 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 2016was 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 of 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 gap 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 that only 6% of that or 71 million was secured, being 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 4.1time.

As Stuart touched on we've 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 of common shares freezing 133 million in that 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 was now down 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 in the notes which was negotiated and setback in mid-June at a spread of 230 basis points over the 10 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 year which is based on a range of $1 even to a $4 per diluted share was based on acquiring 300 million ratably for the year but it was also based on funding the acquisition with an equity raised in the latter half of the year. So while we’re headed – ahead of face 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 acquisitions towards the end of the third quarter which will bring our total to 289 million close through the first nine months of the year. And then our guidance assumes that we will close another hundred million of additional acquisitions by yearend.

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

Rich Schoebel

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 leasing. 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 anchored space was 99.6% leased and our shop space was 94.4% lease.

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 based 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 renewal 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 were actively pursuing the releasing 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're close to finalizing several key deals where we are recapturing several large anchored spaces which we're releasing to multiple smaller right sized, very strong national anchor retailers whereby we expect to increase the cash flow by as much as the 150% in some cases.

Additionally with respect to the Sports Authority store that is in the process of closing at our Crossroads shopping center in Seattle, we already have analyzed in 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 has been in place a long time well before we acquired the property had some very old antiquated restrictions regarding potential expansion activity near their store. With them now gone we're 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 necessity retailers at our shopping centers.

Now I will turn the call back over to Stuart.

Stuart Tanz

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 as the type of shopping centers that we focused 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've purposely stayed away from other shopping center format especially those that include to many big-box specialty retailers that are often impacted by the worst economic and retailing challenges which in turn can cause a downward spiral affect that is often hard to recover from.

Conversely our portfolio of traditional grocery anchored shopping centers that serve 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 the paramount concern which is important in the retailing industry given that it is always changing and required us to be proactive and hands-on with our portfolio in tenant base at all time.

Because of our strong tenant diversification when certain retailers struggle the impact to our portfolio and cash flow is always been minimum. In fact we typically find ways to quickly increase the cash flow and improve our tenant mix, like we are currently doing with the Sport 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 that 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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Christy McElroy with Citi. Your line is open.

Christy McElroy

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?

Stuart Tanz

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 property is under contract. With that said as Mike mentioned our new guidance assumes that we will acquire about another hundred million which we're very comfortable with.

Cap rates in our market in terms of fully leased, fully marketing properties they continue to trade around the sub five cap range with the two even in the sub four cap range and in terms of what remodeling for the hundred million about just over a five.

Christy McElroy

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

Stuart Tanz

We are the blended cap rate in terms of what we've purchased is about 53 but again a lot of upside in terms of the opportunities that we of course identified in our underwriting process and which should include -- increase our yield going forward.

Michael Haines

But yes, but Christy the cap rates Stuart quoted for the fully marketed were you know what yields are trading for in the market not what we’re buying.

Christy McElroy

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

Stuart Tanz

Yes, that’s the correct assumption. We have given the equity raise as we’ve just completed in the 18 and this needs to be have before or not modeling any additional at this point.

Christy McElroy

Thank you.

Michael Haines

Certainly, no need to panic.

Operator

And your next question is from Paul Morgan with Canaccord. Your line is open.

Paul Morgan

Hi, 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. I mean, is there anything in the pipeline looking forward that -- I know it’s not kind of a public follow-on -- but where you could see more OP in this issue?

Stuart Tanz

Well, again, I mean 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 relationship that go back many, many years in terms of looking at doing these type of transactions. So the answer is yes. There are some more transactions in the pipeline however you know 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 with that we are pursuing.

Paul Morgan

Okay, great. And then I mean, just kind of stepping back a bit on pricing, I mean, 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?

Stuart Tanz

The rational hunt for yield I mean, the west market -- the west coast continues to be the most soft aftermarket in the country in terms of the product that we are. And in terms of pricing I think I have 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.

Paul Morgan

Okay, great. And then just lastly, I know you mentioned Crossroads and the opportunity that kind of losing Sports Authority might provide, and also I know you've been kind of 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, and anything we could expect to see in terms of a timeline for moving forward with identification there?

Stuart Tanz

Sure. You know the first phase at Crossroads the upscale senior living community we expect that construction will begin soon. They are finishing up the entitlement process. And additionally as the property we're in the 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 3 at Crossroads. So that’s with them gone now we’re in a much better position to move forward that next phase as well. So we expect that would take shape over the course of next few months in terms of the specific plan and scope with the goal of getting it fully underway in 2017.

Paul Morgan

Okay, great. Thanks.

Operator

Our next question is from Collin Mings with Raymond James. Your line is open.

Collin Mings

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

Michael Haines

Hi, Collin. It’s Mike. The CapEx we are spending somewhere in the average on the anchored repositioning initiatives that we’ve been working on that those some of those anchors are embedded in that like GAAP 3.0% or so. So we’re obviously spending really to -- like for the example like Canyon Park property we’re putting in pieces the impact of to replace Albertson’s that’s the kind of dollars we’re spending. So you’re going to see that NOI growth going forward because of that CapEx spend.

Stuart Tanz

And then some dollars also on the revenue enhancing pads as we might call it we're 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 Collin.

Collin Mings

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

Stuart Tanz

I don't think we've modeled anything this year Mike in terms of seeing pads. Although we will see some of that l think late in the fourth quarter if I recall.

Michael Haines

But the model would be contemplated into then.

Stuart Tanz

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 if the pads get finished about 3 to $4 million of NOI Mike, if I recall.

Michael Haines

That is for all like nine pads has an issues we’re looking, right.

Stuart Tanz

Right.

Michael Haines

…nine pad in total.

Collin Mings

Okay. But expect that to come on over a period of a couple of years?

Michael Haines

Yes, starting next year.

Collin Mings

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?

Stuart Tanz

We've made a lot of good headway in the assets we've identified the -- which are primarily a couple of assets in Sacramento, the tenants, the anchor and sub-anchored 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’ll begin to see some certainly some sales in that market in terms of what we own. And we’ll also be looking at a couple of potentially other assets that have no internal growth left primarily assets are very well leased in that again may not have much internal growth over the next several years.

Collin Mings

Okay. And 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 included into your guidance at this point or will that be more 2017?

Stuart Tanz

It is in our guidance we've got about, Mike by about 25 million to our guidance that probably will be a bit higher than that.

Collin Mings

Okay, great. Thanks guys.

Operator

Our next question comes from Paul Adornato with BMO Capital Markets. Your line is open.

Paul Adornato

Good morning. Hey, so I appreciate the discussion of the 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 work store, what should we expect in terms of activity beyond the Crossroads site?

Stuart Tanz

Sure. So you know in addition what we've going on the Crossroads while we’ve about approximately 92,000 square feet of additional pad and expansion and potential redevelopment opportunities within our portfolio that we're 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 to $20 million with a predicted annual yield in the excess of 16% on average.

Then you know in terms of our assets growth there is a number of other assets that we've 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 that we’ve identified in Southern California and in Seattle. That’s a bit different than repositioning our building pads of course. But we’re excited to see some of that probably is going to begin to take hold as well shortly.

Paul Adornato

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?

Stuart Tanz

It’s probably gotten a bit worse other than it have been a bit better in terms of the west coast because of the economy getting so much better in the market that we operate in. But yes, I mean, they really is property specific Paul I mean some municipalities are very accommodating and can push things through very quickly particularly if it’s a project that they're excited about. And but other municipalities still struggle, you know, they’ve still -- have not replaced some of that staff that we’ve let go during the recession. So the permitting does take some time.

Paul Adornato

Okay, great. Thanks very much.

Operator

Our next question is from R.J. Milligan with Baird. Your line is open.

R.J. Milligan

Hi, 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 visibility to push rents, where are you seeing the most assets trade, and where are you seeing the lowest cap rate?

Stuart Tanz

Well, in terms of the market, the fundamentals seem to be strong in all the macro markets that we operate in which we – which is really seven thing market rather than four because we do breakdown Southern California as a free market 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, we don’t see maybe 1 to 2 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 case we've seen in Northern California it’s just because there’s so much pent up demand for a product but not a lot on the market or not a lot that we're dealing with off market right now. But Southern California there's a lot of opportunity for us. And then 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.

R.J. Milligan

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

Stuart Tanz

Cap rates really have trended down across the entire west coast at this point. I mean, there is a deal in Portland that just traded now into what I would call the high 4s and low 5sa widely marketed deal that that is yet to be announced. Seattle is certainly traded now into the four for our produce pipe.

And Northern and Southern California have traded well into fours at this point. So there's not much different 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.

R.J. Milligan

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

Stuart Tanz

No nothing at all. Nothing at all.

R.J. Milligan

Okay.

Stuart Tanz

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 that basically have been shut down. And that is really keeping supply in check across all our markets.

R.J. Milligan

Great. Thanks Stuart.

Operator

And our next question is from Vineet Khanna with Capital One. Your line is open.

Q –Vineet Khanna

Good morning. I know you guys touched on this, but you know, 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 a little deeper into what was attractive about this property that made you want to bid on this marketing deal?

Stuart Tanz

Sure. Well as I’ve said in my comments it is one of the highest quality assets in the LA basin. It’s the owner and us had a relationship that have 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 settle down in terms of the buyer profile and then I used our relationship as to getting what I would call 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 ask for 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 were 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’re sitting here today as you heard in my comments we are aggressively pursuing that growth very quickly.

Q – Vineet Khanna

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

Michael Haines

We’ve had internal discussions about doing additional swaps to fix that up. But given some of the interest rate environment is we’re comfortable just kind of sitting tight using the current stratum of term loan?

Q – Vineet Khanna

Okay, great. Thanks for the time.

Operator

Our next question is from Jay Carlington with Green Street Advisors. Your line is open.

Jay Carlington

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 and 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?

Stuart Tanz

Both. There is a big anchor coming up and there is number of smaller tenants that are paying I mean a couple of that are actually paying 12 or $13 square foot that are coming up. So there is a lot of embedded growth. I don't want us to get into the cap rate discussion but more importantly the blended cap rate on all the deals we bought this year been about 5, 3.

So the good news is that as we've 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 as we've continued to acquire the highest quality assets in the market primarily off market through our relationship. But more importantly the embedded growth in these have been really, really strong. And that what’s important to us given where the cap rates have gone in the market.

Jay Carlington

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?

Stuart Tanz

So the delay has been really leasing up the assets there in Sacramento where the market has been a bit slower and has gotten better over the last 6 to 8 months. We have made a great headway on these assets and the anchors sub-anchor leases and a number of other small leases that has 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 marketing 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're there these assets will move.

Jay Carlington

Okay. Thank you.

Operator

And our next question is from Todd Thomas with KeyBanc. Your line is open.

Todd Thomas

Hi, 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?

Stuart Tanz

Well, generally speaking, we looked at all opportunities to acquire you know portfolio deals and one-offs, you know, whether the one-offs or not the answer is yes. We are looking at a series of portfolios. We've looked at them, we 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.

Todd Thomas

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?

Stuart Tanz

It has been down some REITs to a lot of institutional capital and the 1031 money bit more that is still around but the profiles has been down considerably which has given us a bit of an advantage in the market in terms of seeking widely you know not wide off the market transactions. So we’ll continue to watch the market but yes, the good news is the buyer profile as dropped down. It put us in a little more competitive advantage.

Todd Thomas

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?

Stuart Tanz

Well, I would tell you that that the buyers today in the market are very well-capitalized typically are going to have capital that is very passive and IRR threshold that are very low. So your leverage buyer is really who has left the market and so that's really what we’re seeing today. Profile is strong, the number of buyers are strong and the expectations for yield have also come down considerably. So that that's really what's driving this rate cap rate compression.

Todd Thomas

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

Stuart Tanz

No, I think that people have now recognized that even markets like Portland and some other markets have historically you could buy a cap rates a bit wider are now generating these types of returns with the overall increase in tenant 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.

Todd Thomas

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?

Rich Schoebel

Well -- and we may not break it up. We have a lot of offers for the entire space as if and we have offers for right, we have offers for no capital and we have offers for some capital but all the higher rent. So we’re still evaluating all those offers to pick the best opportunity for the center.

Todd Thomas

Okay, great. Thank you.

Operator

And our next question is from Michael Mueller with JPMorgan. Your line is open.

Michael Mueller

Yes, hi. 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, etcetera. I mean, 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, I mean, like what exactly -- what aspects were under managed?

Stuart Tanz

So I mean, 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 better than raising rents they needed the cash flow. This is what we're planning a number of yields that we bought and these are owners that typically have owned these assets for a long period of time.

So the capital constrained they need to 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 which is 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 to any of that?

Rich Schoebel

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

Michael Mueller

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?

Stuart Tanz

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

Michael Haines

Like 25 to 15, 17.

Stuart Tanz

Correct.

Michael Mueller

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

Operator

Our next question is from Rich Moore with RBC Capital Markets. Your line is open.

Rich Moore

Hi, good morning, guys. Yes, hi. Good morning Stuart. 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?

Michael Haines

Hi, Rich it’s Mike. As I mentioned in my prepared remarks, we’ve negotiated the price in our 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 currently decided to choose the private route and achieve that 3.95% coupon which is a record low for the company.

Given the uncertainty also in the market back in June we felt that it was very important to lock in 200 million at that rate 10 year money at that price. So I understand that the environment has changed a little bit today. We've been patiently waiting for our spreads to contract and they didn't and we had great opportunity on the table and we decided to lock it in.

Stuart Tanz

And more importantly it was best for all the shareholders of the company for doing the transaction. It’s important to us to make sure that we took our floating rate down but we wanted to make sure we’ve got that exposure down. So the opportunity arise that was great.

Rich Moore

Yes, 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?

Stuart Tanz

We will continue to look at it but…

Michael Haines

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

Stuart Tanz

But we haven’t left the bond market either. And we will be back in the bond market as well. So really it was a moment in time that provided a great opportunity for all shareholders of the company.

Rich Moore

Okay, all right, good. Thank you. And then 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 things, but it sounds like Kmart is hanging in for that motion you guys think. But is there anybody bothering you at the moment in terms of -- obviously Sports Authority, but anybody else?

Stuart Tanz

No, not really Rich. I mean we do have one Kmart but that’s a potential opportunity for us all, a very below-market rent on that Kmart. And but other than that Kmart is really nothing else on the radar screen that we’re concerned about in our portfolio.

Rich Moore

Yes, right. Got you. Okay, great. Thank you, guys.

Operator

Thank you. And our next question is from Craig Schmidt with Bank of America. Your line is open.

Craig Schmidt

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

Stuart Tanz

100%.

Michael Haines

You won’t let us let until we’re 100 – you know 105% leased. But I mean I think we can easily get that into the high 90s you know we've been maintaining the anchored space at virtually full. And you know there's always going to be with tenants coming and going, there’s always going to be a little bit of virtual vacancy. But we believe we can get into the higher 90s.

Craig Schmidt

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?

Stuart Tanz

No I mean there's still a lot of good upside. I mean the reality is that the anchor tenants are buying for space on the west coast because there just is nothing available. I mean what we’re seeing is you know some of the bigger grocery chains taking over the smaller locations from smaller operators just for market share. And the reality that they know they can’t get these positions otherwise. So we're seeing more and more of that.

Craig Schmidt

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

Stuart Tanz

No. 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.

Michael Haines

Yes, some of the things – because not all are paying rent yet but they’re opening.

Operator

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

Stuart Tanz

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.

Operator

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

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