Retail Opportunity Investments Management Discusses Q4 2013 Results - Earnings Call Transcript

| About: Retail Opportunity (ROIC)
This article is now exclusive for PRO subscribers.

Retail Opportunity Investments (NASDAQ:ROIC) Q4 2013 Earnings Call February 25, 2014 12:00 PM ET

Executives

Stuart A. Tanz - Chief Executive Officer, President and Director

Michael B. Haines - Chief Financial Officer, Executive Vice President, Treasurer and Secretary

Richard K. Schoebel - Chief Operating Officer

Analysts

Jason White - Green Street Advisors, Inc., Research Division

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Paul Morgan - MLV & Co LLC, Research Division

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Michael P. Gorman - Janney Montgomery Scott LLC, Research Division

Jeffrey Alan Walkenhorst - Copeland Capital Management, LLC

Operator

Welcome to Retail Opportunity Investments 2013 Fourth Quarter and Year-End Conference Call. [Operator Instructions]

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 also be found on its website.

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

Stuart A. Tanz

Thank you. Here with me today is Michael Haines, our Chief Financial Officer; and Rick Schoebel, our Chief Operating Officer. We are very pleased to report that 2013 was a highly productive and successful year for the company. We achieved record results and created value in every facet of our business.

Starting with acquisitions, 2013 proved to be a great year for the company. Through off-market sources and longstanding relationships, we identified a number of great opportunities to acquire exceptional grocery-anchored shopping centers. We worked very hard to make the most of each opportunity, capitalizing on our market knowledge and strong financial position. As a result, 2013 was our most active and successful year to-date, acquiring a record $437 million of grocery-anchored shopping centers. These acquisitions serve to enhance our overall portfolio, further diversifying our tenant base and strengthen our market presence across each of our core West Coast markets. Additionally, these new acquisitions offer an excellent balance of recurring cash flow derived from well-established anchor retailers, along with a number of great opportunities to enhance value going forward.

In addition to posting a record year in terms of acquisitions, we also had another great year on the leasing front. For the fourth consecutive year, we steadily increased occupancy across our portfolio, reaching a new high of 96.3% as of year end. Additionally, we again achieved a solid increase in same-center net operating income, recording a 6.8% increase for the year, along with a 7.3% increase in same-space re-lease in rents.

In terms of our financial position, during 2013 we achieved a number of key objectives that enhanced our financial strength and elevated our financial profile in the marketplace. First, the vast majority of the company's warrants were retired in 2013, generating over $226 million of equity proceeds to the company. Retiring the warrants also served to simplify our capital structure, as well as reduce the short-term per share dilutive impact as we move forward into 2014. Second, during 2013 we acquired the remaining joint venture interest in Crossroads Shopping Center. Today the company does not have any joint venture interest. Third, during 2013 the company achieved a very important milestone. It was awarded investment grade ratings from Moody's and S&P in recognition of our strong financial profile, high-quality portfolio and prudent business practices. We capitalized on the new ratings to refinance our unsecured debt facilities, lowering our borrowing cost and expanding the capital availability. Additionally, in December we successfully completed the company's first investment grade bond offering, issuing $250 million of 10-year notes. The offering was well-received, generating considerable interest in the marketplace with over 50 institutions participating. Importantly, the bond issuance enhanced our debt profile and maturity schedule.

Finally, we are pleased to report that for the third consecutive year, the company achieved a double-digit total return to shareholders, posting a 19% total return in 2013. Since the company commenced operations as a shopping center REIT in November 2009, the total return to shareholders has been approximately 59%. An important component of our total return is in the form of quarterly cash dividends.

During 2013, along with growing our portfolio and business, cash dividends paid to shareholders increased by 13% over dividends paid in 2012. We are pleased to announce that the Board has increased the dividend again, declaring a cash dividend of $0.16 per share to be paid on March 28. This represents a 6.7% increase over our previous dividend, and the eighth time in the past 3 years that we've increased our quarterly dividend, for a total increase of 167%.

Delivering reliable cash dividends to shareholders that steadily increase as we grow our portfolio in recurring cash flow will continue to be an important part of our business plan. Now I'll turn the call over to Michael Haines, the company's Chief Financial Officer. Mike?

Michael B. Haines

Thanks, Stuart. For the 3 months ended December 31, 2013, the company had $33.6 million in total revenues and $8.8 million in net operating income as compared to $21.4 million in total revenues and $2.7 million in net operating income for the fourth quarter of 2012. The significant increase in revenues and net operating income reflects the growth in the company's portfolio from acquisitions during the past year, as well as the company's leasing activity.

With respect to net income, for the fourth quarter 2013, the company had net income of $4 million, equating to $0.05 per diluted share as compared to a net loss of $278,000 or $0.01 per diluted share for the fourth quarter of 2012.

In terms of funds from operations, for the fourth quarter 2013, FFO totaled $16.4 million as compared to FFO of $8.5 million for the fourth quarter 2012. FFO on a per-share basis also increased substantially, notwithstanding a sizable increase in the shares outstanding over the past year due to nearly 19 million warrants being exercised in 2013. Specifically, FFO per diluted share for the fourth quarter of 2013 increased by 40% to $0.21 per diluted share.

For the year ended December 31, 2013, the company had $111 million in total revenues and operating income of $28 million as compared to $75 million in total revenues and operating income of $12 million for 2012.

With respect to net income, for the year ended 2013, the company had net income of $34 million, equating to $0.48 per diluted share as compared to $8 million or $0.15 per diluted share for 2012. FFO for 2013 was $76 million or $1.07 per diluted share as compared to $39 million or $0.75 per diluted share for 2012. Full year 2013 results increased substantially over 2012, not only because of the $437 million of acquisitions, but also as a result of the one-time, noncash gain on consolidation of $20.4 million that the company recorded in the third quarter of 2013 in connection with acquiring the remaining joint venture interest in Crossroads Shopping Center.

In terms of same-center net operating income, for the fourth quarter, same-center NOI increased by 6.7% on a cash basis, and for the full year, same-center cash NOI increased by 6.8%.

Turning to the company's balance sheet. At December 31, 2013, the company had a total market cap of approximately $1.7 billion with $622 million of total debt outstanding, equating to a total debt-to-market cap of 36.5%.

With respect to the $622 million of debt, approximately $115 million is secured debt and $507 million is unsecured, of which $250 million is the bond deal. At year end, we had approximately $57 million outstanding on our unsecured credit facility.

On a square-footage basis, 83% of our portfolio was unencumbered at year end, and for the fourth quarter of 2013, the company's interest coverage was a strong 4.3x. As Stuart noted, the bond offering that we completed in the fourth quarter helped to solidify our debt maturity schedule. In 2014 we only have 1 small loan that comes due, and over the next 3 years, only 15% of our total debt matures. Additionally, with the bond deal, 71% of our total debt outstanding is now fixed rate.

In terms of our guidance for 2014, we currently expect FFO to be between $0.80 and $0.85 per diluted share for the year. Our guidance takes into account the $250 million of bonds that the company issued at the end of 2013 and the impact to FFO from replacing short-term floating rate credit line debt with 10-year fixed-rate debt. Additionally, in terms of property operations and leasing, our guidance is based on achieving same-property NOI growth in the 5% range, largely being driven by expected leasing activity in 2014, as Rich will discuss in a moment.

In terms of external growth, our guidance assumes that we will acquire approximately $250 million of shopping centers in 2014. We intend to finance the acquisitions with mix of debt and equity, maintaining our current ratios. In terms of the warrants, we are assuming the remaining warrants will be exercised later this year when they are scheduled to expire.

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

Richard K. Schoebel

Thanks, Mike. As Stuart indicated, 2013 proved to be an outstanding year for the company in terms of property operations. Capitalizing on the platform that we have built over the past 4 years, during 2013 we continue to expand our portfolio and deepen our presence in the best-performing markets across the West Coast. We continue to steadily increase occupancy throughout the year, thanks to another strong year of leasing, and we achieved solid rent growth. Specifically, during 2013 we added 12 shopping centers to our portfolio. As a result, at year end, our portfolio stood at 54 shopping centers, totaling approximately 5.8 million square feet of gross leasable area. Importantly, these 12 additional shopping centers serve to enhance our market presence across each of our core West Coast markets. Of the 54 shopping centers, 19 are located in the Pacific Northwest, representing 38% of our total GLA, with 10 properties in the Portland, Oregon market representing 17% and 9 properties in the Seattle market representing 21% of our total GLA. Additionally, we own 13 properties in our Northern California region, representing 23% of our total GLA. These shopping centers are primarily in the San Francisco and Sacramento markets. And in Southern California, where we added 7 properties in 2013, we now own 22 shopping centers representing 39% of our total GLA, diversified across the Los Angeles, Orange County and San Diego markets.

During 2013, we continue to take full advantage of the strong demand for space across our portfolio. As a result, occupancy steadily increased each quarter throughout the year, reaching a new record high for the company of 96.3% as of year end. Breaking that down between anchor and non-anchor occupancy, at year end, anchor occupancy was 100%, up from 99.1% as of the third quarter; and non-anchored occupancy increased as well, from 91.3% as of the third quarter up to 92.4% at year end.

In terms of specific leasing activity, during 2013 we executed 190 leases, totaling 624,000 square feet. Breaking that down between new and renewed leases, we executed 111 new leases, totaling 391,000 square feet and renewed 79 leases, totaling 233,000 square feet.

In terms of same-space comparative numbers, cash rents increased by 7.3% on average for the year.

With respect to leasing activity in the fourth quarter, we executed 52 leases totaling 207,000 square feet, including 32 new leases totaling 134,000 square feet and 20 renewals totaling 73,000 square feet. Same-space comparative cash rents increased by 10.4% for the fourth quarter.

Just to recap a few leasing highlights from the fourth quarter. At our Division Crossing shopping center, earlier the year we reconfigured the primary anchor space at the center and brought in a new very strong national retailer to take a large portion of this space at a higher rent. And during the fourth quarter, we signed an additional very strong national retailer to take the balance of the space, again at a higher rent. And by reconfiguring the space, we created the ability to expand the center by another 6,000 square feet, which we just completed construction on and currently have several strong retailers vying for the space. With the new anchor tenants and the 6,000 square feet of additional space lease, we expect that our cash yield on the property will surpass 8% in 2014.

Additionally, at our Happy Valley shopping center, during the fourth quarter we completed a 6,000 square-foot pad, which is 100% leased, bringing our cash yield on the property to approximately the mid-7% range.

Looking ahead at 2014, we currently have 178 leases scheduled to expire, representing about 7% of our total portfolio. Breaking that down between anchor and non-anchor, we only have 1 anchor lease scheduled to expire that is 19,000 square feet. At this point, we expect that the tenant will renew their lease. We did have another anchor lease that was scheduled to expire in March, but in the fourth quarter we signed a new tenant to take over the space with no downtime and with a significant increase in rent.

In terms of non-anchor space, we currently have 177 leases scheduled to expire in 2014, totaling 356,000 square feet. Given the demand for space that we continue to see across our portfolio, we anticipate that we will re-lease the space, achieving positive rent growth of 10% to 15% on average during the year.

Overall we expect to have another strong year in 2014. Now I'll turn the call back over to Stuart.

Stuart A. Tanz

Thanks, Rich. Looking ahead at 2014, we intend to be focused on continuing to advance our strong West Coast shopping center franchise. We are pleased to report that we are already off and running. We recently acquired a terrific grocery-anchored shopping center in Portland, where our portfolio now totals over 1 million square feet. Additionally, we have another irreplaceable shopping center under contract here in San Diego.

Beyond those 2 acquisitions, our pipeline of off-market opportunities continues to be active across all our core markets, so we are confident that we will acquire $250 million in 2014. As always, we intend to continue our longstanding strategy of carefully seeking out only the most attractive opportunities to acquire irreplaceable shopping centers that will enhance our market presence and provide the company with a balance of long-term stable cash flow and good growth opportunities for years to come.

As we continue to expand our portfolio in 2014, we will also be very focused on maximizing property operations, capitalize on our opportunities to improve the quality of our shopping centers and to increase rents prior to scheduled expectations. Additionally, our goal in 2014 will be to continue diversifying our tenant base. During 2013 we expanded our tenant base by nearly 40%, and our top 10 tenants now only account for 21% of our total base rent. As always, tenant diversification, with a focus on strong retailers that provide basic consumer goods and services, will remain as one of our core strategies.

In summary, we look forward to 2014 with enthusiasm. While our accomplishments in 2013 have set the bar high for our team to surpass, we look forward to the challenge and are confident that we have the portfolio, the financial strength and strategy to continue building shareholder value.

Now we'll open up the call for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Jason White from Green Street Advisors.

Jason White - Green Street Advisors, Inc., Research Division

First question is -- your early acquisitions for the company seem to have a lot of low-hanging fruit and a lot of lease-up opportunity and seems like a lot of the more recent acquisitions have been more stabilized in occupancy. Is there something with new acquisitions that there's just not as much opportunity on the acquisition front these days, so you buy more stabilized properties? Or is there still a lot of upside potential on the recent deals?

Stuart A. Tanz

No, we continue to look for opportunities where the assets are high-quality, well-located and stabilized. However, like Tigard, we do find opportunities that do have some upside, either contractually through the rents that are rolling or the tenants that are rolling or through leasing up the vacancy. So it's not our philosophy, Jason, to be buying 100% occupied assets. It will vary from deal to deal.

Jason White - Green Street Advisors, Inc., Research Division

Okay, that's fair. And then I guess sticking with acquisitions, you acquired almost $440 million last year and your guidance is for $250 million this year. Is that indication that there's just not as much out there or is that just kind of conservative guidance and you hope to eclipse that market?

Stuart A. Tanz

No. Looking at 2014, we are very excited in terms of what we see from the pipeline perspective, but we've started the year very positively. So depending on what we see in terms of the pipeline, I do think the $250 million will be met.

Jason White - Green Street Advisors, Inc., Research Division

Okay. And then another question on leasing environment. Some of your peers have expressed some sentiment and it seems like this is really kind of the peak of the leasing environment, and while they hope it's better down the road, they get the feeling that this might be one of the best times for leasing that they'll have for a while. Do you get the feeling that there's still momentum or that this really is kind of the data leasing can shine in the sun?

Richard K. Schoebel

Jason, it's Rich. We're still seeing a lot of demand for space. I mean, we've come into 2014 and our leasing team has never been busier. So I think that as you look at our portfolio, we typically have 1 or 2 small shop spaces at a property here and there. And just given the overall occupancy, the demand remains very strong.

Jason White - Green Street Advisors, Inc., Research Division

Okay. And then I don't know if you have the stat handy, but do you have commenced occupancy?

Richard K. Schoebel

Yes. In terms of [indiscernible]. The spread between leased and build is about 4.7%.

Operator

And our next question comes from the line of Todd Thomas from KeyBanc Capital Markets.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Just first question, a couple on guidance, I guess. In terms of the $250 million of investment that's embedded in guidance, I just want to clarify that the assumption includes the $69 million under contract already, so essentially $181 million of incremental acquisitions. Is that right?

Michael B. Haines

That is correct.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Okay. And then as far as your forecast goes, is there any debt in place for anything that you're looking at buying?

Michael B. Haines

Not at the present time.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Okay. And maybe a question for Rich. In the same-store pool, it looked like the recovery ratio year-over-year was up almost 800 basis points, and I guess higher operating expenses account for some of that and occupancy was up just about 100 basis points in the same-store pool. So I was just curious, is there something else that led to that sharp spike in recoveries in the quarter? Any true-ups or anything else like that, that hit in the quarter?

Richard K. Schoebel

No, nothing significant. I think you probably identified 2 of the big drivers.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Okay. So what should we expect going forward for recovery ratio in '14?

Richard K. Schoebel

To be fairly consistent with what you're seeing here in '13 for the year.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Okay. And then in terms of funding the acquisitions, I hear you that it'll be a mix of debt and equity. But I guess just more broadly thinking here, you have a lot of capacity under the line and the accordion feature can be exercised, but leverage is starting to rise and will rise further as the line's used. I guess what's the view toward issuing equity here? And if you source an excess of $250 million of deals again in 2014, is equity part of the financing strategy as you see it?

Michael B. Haines

Yes, [indiscernible] we're almost all the way through the warrant issue, [indiscernible] another $70 million or so of proceeds during 2014. So the extent -- keeping our balance sheet metrics in line, we're going to be probably going back to using our ATM to supplement debt issuance on the line to fund the acquisitions.

Operator

And our next question comes from the line of Josh Hennigan [ph] from BMO Capital Markets.

Unknown Analyst

I see that the bonds you issued last quarter are trading well inside of the curves. And what's the philosophy going forward in terms of the length of paper you might issue and how do you perceive that going forward in terms of your capital structure?

Stuart A. Tanz

Well, we will [indiscernible] back to the bond market at some point this year [indiscernible] where interest rates currently are, with the 10-years trading, we'll probably look at doing a mix of 7 and 10s, but it will depend of the marketplace and where the market is at the time that we decide to issue more bonds.

Unknown Analyst

Okay. And then the portfolio has grown quite a bit over the last year, and looks like you're going to continue acquiring. So G&A came down a bit this quarter, I'm wondering if you're going to require anymore G&A going forward. And what's a good run rate to assume?

Michael B. Haines

Josh, I would use an estimate of about $11 million for G&A going forward in 2014. One thing that changed this quarter was we had some things that were classified as "G&A" that we didn't really think were G&A, but they weren't large enough to pull out. So now we've got this other expense line item which captures things like franchise tax expense and the cost associated with Moody's and S&P. So that actually got pulled out of our fourth quarter and we did all prior competitive periods as well. But G&A as a total should be roughly $11 million for the year.

Unknown Analyst

Okay. And you've got everything in place to continue acquiring from here? You don't need to add too much to that?

Michael B. Haines

From a staffing standpoint, very incremental based on the pace of acquisitions.

Stuart A. Tanz

That's the beauty of operating with a very focused strategy in primary markets in terms of efficiencies you get with building a real estate [indiscernible].

Operator

And our next question comes from the line of Paul Morgan from MLV.

Paul Morgan - MLV & Co LLC, Research Division

You mentioned upside to your shop space and the leasing momentum there. You said ended at 92.4%. I didn't hear guidance for the year, so where you might end up. But obviously that must be fueling a fair amount of your same-store 5% number. But do have any color on the shop space momentum and whether maybe there's been any acceleration across any of your markets? And if you have the number, where you think you'll end, if you have that.

Stuart A. Tanz

Well, I'll let Rich answer the shop space. But in terms of guidance, we assume that leasing that occupancy will remain flat in terms of our guidance, in terms of shop space.

Richard K. Schoebel

Yes, I think that we're [indiscernible] occupancy will remain pretty level throughout the year. We're [indiscernible] 96% occupancy level for the end of the year.

Paul Morgan - MLV & Co LLC, Research Division

I'm sorry. Can you say that one more time?

Richard K. Schoebel

96% by year end.

Stuart A. Tanz

[indiscernible] small space.

Michael B. Haines

We don't have the break out between anchor and small space, but I can certainly follow up with that.

Paul Morgan - MLV & Co LLC, Research Division

Okay, great. I mean, do you have any update on the redevelopments either at Crossroads or Nevada? I haven't seen any -- you talk about the plans there, whether there's any capital spend for 2014 or whether really that's looking beyond that. Is there anything new?

Stuart A. Tanz

Yes. Well, Nevada, we're up in high gear in terms of out master planning that expansion. We're up to -- we have under option a bit more land adjacent to the land that we have. So we're now looking at about 180,000 square feet in total. And we are focused right now on moving that project forward, but nothing will happen there in '14. In terms of Crossroads, a lot going on there. I can't really give you specifics. But over time we're looking at building more retail office and multifamily. And more importantly, that we believe that as we move through '14, some of that will begin to take shape. But again, there will be no impact in '14. That's more like a '15 or '16 event.

Paul Morgan - MLV & Co LLC, Research Division

Okay, great. And then just lastly. Obviously Safeway has been in the news this month discussing a potential sale. As your #1 tenant, any thoughts, either implications for the kind of markets that you've concentrating in given the uncertainty there or anything potentially shaking loose or not shaking loose and how that may play out for you guys?

Richard K. Schoebel

Sure. We're not really overly concerned with what's happening with Safeway. Safeway is the dominant, best-known supermarket chain on the West Coast. And it's really been one of their primary focuses. They continue to do very well out here. We've see some very strong sales numbers coming in from last year. We value them as a tenant in our portfolio. The good news, as it relates to the Safeways that are in our portfolio, it's only about 9 and they only represent about 5% of our base rent, and most of these leases, they're substantially below market in terms of the rents they are paying.

Operator

And our next question comes from the line of Craig Schmidt from Bank of America Merrill Lynch.

Craig R. Schmidt - BofA Merrill Lynch, Research Division

I guess continuing with Paul's question on Safeway. There's some speculation that Cerberus might be looking at them. And if that were to be the case, perhaps some antitrust concerns might arise and that would lead to divestiture. How does that impact you if one of your stores were ones to be divested?

Stuart A. Tanz

Well, it's hard to predict what stores would be affected, but I think it always comes down to performance and sales, and more importantly, the overlap that may occur in these markets. We don't see -- I think the concern for overlap would be more if 2 entities or 2 supermarkets were merging versus someone just buying a single chain of supermarkets. So I don't really think there'll be much to talk about in terms of overlap if this transaction were to core. And again, as Rich articulated, our Safeways are in pretty good shape in terms of where they're located, what rent they're paying, and more importantly, what we've seen in terms of sales.

Richard K. Schoebel

And I think, just to add to that, I would also say that our portfolio, given its size, we really don't have multi-anchor centers where cotenancy becomes an issue. If they were to close 1 store, from an economic basis they would still be obligated to the rent.

Craig R. Schmidt - BofA Merrill Lynch, Research Division

And then absent Tigard, it seems like the acquisition cost per foot is increasing. Is that a reflection of where cap rates are heading? And maybe could you give us some color on cap rates in your West Coast markets?

Stuart A. Tanz

Sure. Well, cap rates continue to -- cap rates in our markets out west, depending on which market you're looking at, but primarily what we've seen today is that the fully leased properties are trading in the 5 cap range. In some cases, we're even seeing a bit less than that. With a number of public and private buyers lining up for those deals, of course, chasing those type of deals is not our focus. We focus on off-market unique opportunities where we can acquire exceptional shopping centers on more reasonable terms and quickly add value. Often, the situation is, Craig, where the seller is either facing financial challenges or seeking a quick transaction, which we can accommodate given our knowledge of the markets. In terms of buying assets on a price per square foot, I think every transaction has got to be looked at in terms of its merit. We do look at that as one metric in terms of buying the assets, but our primary metrics are the stability of the cash flow and the credit associated with the tenants. And then as it relates to the cash flow, the contractual increases and what we can do as a team to build value by either repositioning or re-merchandising the space.

Operator

And our next question comes from the line of Michael Gorman from Janney Capital.

Michael P. Gorman - Janney Montgomery Scott LLC, Research Division

A couple of quick questions on the guidance, the $250 million in acquisitions and then also kind of the source of funding. Should we think of about $250 million as a net number? I.e., you've you talked in the past about potential dispositions of some more stabilized properties. Is there anything like that on tap for 2014?

Stuart A. Tanz

You should look at it as a net number. In terms of dispositions, we are continuing to look at what we've got in our portfolio to prune this year, but nothing to speak up at the present moment.

Michael B. Haines

I don't have any dispositions in my guidance for that.

Michael P. Gorman - Janney Montgomery Scott LLC, Research Division

Okay, got you. And then on the 2 deals so far in 2014, the one closed and then the one under contract, did either of those include a portion of OP units or were those all cash?

Michael B. Haines

Those were cash.

Michael P. Gorman - Janney Montgomery Scott LLC, Research Division

Those were cash. Okay, great. And then just a little bit more thematically on the tenant front. Walmart came out a week or so ago and talked about aggressively expanding its smaller footprint. And just kind of curious if you could talk about the locations you do have in the portfolio, how they're performing. And then also maybe situations where you have tenants competing against the smaller format Walmarts. I mean, do they have an outsized impact as opposed to a traditional grocer or just how they affect the competitive landscape as they're looking to expand more aggressively?

Richard K. Schoebel

So the Walmart that we currently have in our portfolio are performing very well. I think that, to the latter part of your question, relative to where Walmarts have come into the marketplace where we have another competing grocer, typically you'll see a small dip in the sales, but in most cases those rebound and in most cases go above where they were trending before. So I think that people are curious, want to see what the Walmart Neighborhood Market experience is like, but they typically will come back to their hometown grocery store.

Operator

And our next question comes from the line of Jeff Walkenhorst from Copeland Capital.

Jeffrey Alan Walkenhorst - Copeland Capital Management, LLC

Stuart, we appreciate your commitment to dividend growth and the dividend growth that we've seen to date. The raise this year, the 7% raise, is a bit slower than the 13% last year and the pace of growth in earlier years. Now clearly the company absorbed a large number of new shares from the warrant conversion. With these shares and a somewhat more mature business today, as well as the payout ratio near 80%, do you think a mid-single-digit pace of div growth is a reasonable expectation going forward?

Stuart A. Tanz

Well, first of all, as you know, Jeff, we started out with no assets. So obviously as we ramped up the company, we ramped up the dividend along with it. The dividend policies are obviously governed by the Board of Directors. So it's tough for me to comment on dividend policy. Again, that's governed by the board. On the other hand, we will continue to grow the company and smartly. And I think as the company continues to grow, certainly, as I said in my script, the focus will be continue to rate, hopefully keep that dividend growing. At what pace? I can't really tell you at this point. But the good news is that when you look at dividend growth, we really like to look at that as growth of really taking into consideration our FFO growth. Typically half of the FFO growth or a bit more.

Jeffrey Alan Walkenhorst - Copeland Capital Management, LLC

That's helpful. I suppose when thinking about the huge share increase last year, I think that was potentially one reason. But I suppose there could be -- again, up to the Board as you point out. But it seems that there could be potential for a higher pace of growth going forward on a more "normal" change in the share count. Is that fair?

Stuart A. Tanz

Yes, I mean, look, we're winding on those -- as you heard in the script, we're winding out of the warrant situation, which we're all looking forward to around here. But you're right, as the warrants go away, which, again, is not that long from where we are sitting here today, things will be then shifting to a very normalized pace in terms of dividend policies. So we do look at the warrants and the impact in terms of dividend very closely. But again, going forward, the good news is by the end of '14, our capital structure will be very clean and very easy to get your hands around in terms of looking at dividend and the growth that comes with it.

Jeffrey Alan Walkenhorst - Copeland Capital Management, LLC

That's great, very helpful, Stu. One housekeeping related question. And maybe you said this, I missed the early part of the call. But remind us again what the leverage ratios are in terms of where -- how much room you think you have to maybe put on more leverage.

Michael B. Haines

Well, we've got plenty of capacity obviously to the current facilities, but we only maintain our leverage ratio in the 40% range. Keeping our balance sheet metrics in check as well.

Jeffrey Alan Walkenhorst - Copeland Capital Management, LLC

Right, got it, okay. And that pertains to -- you may use the ATM as necessary to raise equity capital to fund acquisition?

Michael B. Haines

Right. Once the warrant issues kind of resolve itself.

Stuart A. Tanz

Yes. And, again, we will look at -- as it relates to equity, taking into consideration dispositions and other things that, again, may -- in terms of raising equity. I mean, equity is the most precious resource this company has, and we treat it with nice gloves in terms of looking at raising equity, where I am not a big fan of raising equity. So we'll see how the year goes. But to me, the focus is to certainly get the warrants resolved, get that cash into the balance sheet and continue to grow the company as we have in the past.

Operator

And this concludes our question-and-answer session for today. I would like to turn the conference back over to Stuart Tanz for any concluding remarks.

Stuart A. Tanz

Thank you. In closing, we'd 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 on the company's quarterly supplemental packet, which is posted on our website. Thanks again, and have a great day, everyone.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!