Retail Opportunity Investments Corp. (NASDAQ:ROIC) Q2 2022 Earnings Conference Call July 27, 2022 9:00 AM ET
Company Participants
Laurie Sneve – CAO
Stuart Tanz – CEO
Michael Haines – CFO
Rich Schoebel – COO
Conference Call Participants
Juan Sanabria – BMO Capital Markets
Craig Schmidt – Bank of America
Todd Thomas – KeyBanc Capital Markets
Michael Mueller – JPMorgan
Paulina Rojas Schmidt – Green Street
Linda Tsai – Jefferies
Craig Mailman – Citi
Michael Bilerman – Citi
Christopher Lucas – Capital One
Operator
Welcome to Retail Opportunity Investments 2022 Second Quarter Conference Call. [Operator Instructions]
Now, I would like to introduce Laurie Sneve, the company’s Chief Accounting Officer.
Laurie Sneve
Thank you. Before we begin, please note that certain matters, which will be discussed on today’s call constitute forward-looking statements within the meaning of federal securities laws. Although we believe that these forward-looking statements are based on reasonable assumptions, we can give no assurance that these assumptions will be achieved.
These forward-looking statements involve risks and other factors, which can cause actual results to differ significantly from future results expressed or implied by such forward-looking statements. These risks and other factors are described in the company’s filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.
Participants should refer to the company’s filings to learn more about these risks and other factors as well as for more information regarding our financial and operational results.
Now, I’ll turn the call over to Stuart Tanz, the Company’s Chief Executive Officer. Stuart?
Stuart Tanz
Thank you, Laurie, and good morning everyone. Here with Laurie and me today is Michael Haines, our Chief Financial Officer, and Rich Schoebel, our Chief Operating Officer.
Building on the leasing activity and strong momentum that we generated in the first quarter, we continued to actively lease and renew space at a strong pace during the second quarter, achieving a new company record in terms of total square footage leased during the first six months of the year.
As we sit here today, we’ve already leased more space thus far that what was originally scheduled to expire during the entire year. Additionally, our strong leasing activity drove our overall portfolio lease rate higher, reaching 97.6% as of June 30, which is essentially on par with our record high portfolio lease rate prior to the pandemic.
Our ongoing consistent success in leasing continues to be driven by the fundamental strong demand for space across our portfolio in markets, demand that continues to come from a growing broad range of necessity service and destination tenants.
Along with leasing at a record pace during the first half of the year, we also had good success in growing our portfolio through our relationship driven acquisition program. Specifically, during the second quarter, we acquired three terrific grocery-anchored shopping centers for a total of $60 million; one center is located in the Seattle market, one in Portland, and one in the San Francisco East Bay market. All three are well situated in densely populated affluent residential communities and all three properties, which are strong grocery operators along with a diverse mix of inline tenants.
The blended going in yield is not just north of 6% and we are already pursuing a number of really soon repositioning opportunities that should enhance the underlying value going forward. We have already increased the blended occupancy on the three properties by 130 basis points. In addition to the $60 million that we acquired in the second quarter, we currently have a transaction under contract with a private developer that we’ve known for years.
The transaction involves us selling one of our existing properties to developer while acquiring two of their shopping centers. In terms of the property that we are selling, it’s a center that we acquired a number of years ago and implemented a value add repositioning initiative. We’ve been contemplating selling the property for a while when the developer approached us. Developer owns an adjacent parcel and plans to integrate their parcel, our property, and several other adjacent properties to create a large mixed use development.
Our property is instrumental in development plan being able to move forward, which we’re able to capitalize on to acquire as part of the transaction two terrific grocery-anchored shopping centers, both of which we have had our eye on for some time. The two shopping centers that we are acquiring, both are located in the Seattle market and just like the three centers that we acquired in the second quarter, both of these new acquisitions are also well situated in the heart of densely populated affluent residential communities.
One of the shopping centers is located just a few blocks from a new commuter train station that is currently under construction, along with a number of new multi-family developments. Additionally, each shopping center is anchored by a long-standing, strong performing supermarkets, and pharmacies, as well as a great mix of inline tenants.
In terms of the transaction pricing, we are selling our property for $37 million, which equates to a sub-five extra cap rate. We are acquiring two shopping centers for a total purchase price of $60 million, which equates to a mid-6% blended cap rate going in. Looking ahead, there is the ability for us to quickly enhance value through leasing available space as well as releasing some near term rollover.
Additionally, there is a great redevelopment opportunity of a corner free standing pad in one of the shopping centers. Once we close on this transaction, it will bring our total acquisition activity for the year thus far to $120 million adding over 0.5 million square feet of grocery-anchored shopping centers to our portfolio. We are excited about these new acquisitions as they are an excellent strategic that with our existing portfolio and offer numerous opportunities to enhance value going forward.
Lastly, in light of our strong performance year-to-date, board has increased the company’s quarterly dividend, raising it to $0.15 a share.
Now, I’ll turn the call over to Michael Haines, our CFO, Mike?
Michael Haines
Thanks, Stuart.
Starting with net income for the three months ended June 30, 2022, the company had $11.5 million in GAAP net income attributable to common shareholders equating to $0.09 per diluted share. For the first six months of 2022, GAAP net income was $23.1 million or $0.19 per diluted share.
In terms of funds from operations, for the second quarter of 2022, FFO totaled $36.7 million equating to $0.28 per diluted share. For the first six months of 2022, FFO totaled $72.9 million equating to $0.55 per diluted share. With respect to same-center net operating income, for the second quarter, same-center NOI on a cash basis increased 3.7% to $49.6 million and increased by 5.6% for the first six months of 2022.
Turning to the Company’s financing activities, during the first half of the year, we raised approximately $25 million of equity through our ATM. We utilized the equity raised together with the cash flow from operations and borrowings on our credit line to fund the $60 million of acquisitions in the second quarter. The acquisitions added $60 million of property assets to our balance sheet in the first half of 2022 while just $23 million of debt was added, which reflects our strategy of working to enhance our financial position in step with growing our portfolio.
With respect to the company’s debt outstanding, specifically mortgage debt, during the first half of the year, we retired two mortgage loans such that today we only have two mortgages remaining on our balance sheet.
In other words, at of our entire 92 shopping center portfolio, we only have two properties are encumbered, additionally with respect to the two properties currently under contract, we are acquiring both of them unencumbered. In terms of the company’s overall debt profile, at June 30, 97% of our debt was effectively fixed rate with the only floating rate debt being our credit line, which had $46 million outstanding at quarter end.
Looking ahead, the $300 million of swaps that we put in place back in 2017 and 2019 effectively fixing the floating rate on our $300 million unsecured term loan. The swaps mature at the end of August. However, the actual term loan does not mature for another 2.5 years. Given the recent rise in interest rates and the volatility of the debt market, we are currently planning to not replace the swaps for the time being.
With the term loan not maturing until 2025, we have the flexibility and time for the market to settle back down whereby we can make a prudent decision. The term loan bears an interest of 100 basis points over LIBOR, which in today’s market the all-in rate is that on par with the swaps. Notwithstanding having the term loan float again, roughly 75% of our total debt will still be fixed rate and we have no debt maturing for the next year and a half.
Lastly, in terms of our FFO guidance taking into account our leasing, acquisition, and financing activities year-to-date, we have raised our guidance range for 2022. We’ve raised the low end of our range to now be $1.08 per diluted share, which just as a point of reference was actually the high end of our initial guidance that we set back at the beginning of the year. And in terms of the new high-end, we have now raised it to $1.12 per share.
With respect to the underlying acquisition and disposition assumptions, the low end of the range assumes that we only acquire the two properties currently under contract during the second half of the year, meaning we acquire $120 million in total for the year while selling $70 million of properties, including the property under contract. The high end of the range assumes that we acquire another $80 million of properties in addition to the properties currently under contract, meaning acquiring $200 million in total for the year while selling $100 million of properties. Additionally, we have raised our same-center NOI guidance range to 4% to 5% growth for the full year.
Now, I’ll turn the call over to Rich Schoebel, our COO. Rich?
Rich Schoebel
Thanks, Mike.
As Stuart highlighted, the first six months of 2022 have been the most active on record for the company in terms of leasing. In total, we leased over 714,000 square feet of space, surpassing our previous record that we achieved in 2019. Our record leasing activity helped to drive our portfolio lease rate higher during the second quarter.
At June 30, our portfolio stood at 97.6% leased, which is just shy of the all-time high portfolio lease rate that we achieved in 2019. Breaking our 97.6% portfolio lease rate down between anchor and non-anchor space, our anchor space continues to be 100% leased and during the second quarter, we increased our shop space lease rate to 93.8%.
Similar to what we experienced in the first quarter, our leasing activity in the second quarter centered around tenant renewals. Of the total 298,000 square feet that we have leased during the second quarter, over two- thirds of that was renewal activity with many tenants coming to us early. In fact, of the four anchor tenants that we renewed during the quarter, three were not scheduled to roll until next year.
Additionally, capitalizing on the strong renewal demand, we continue to make the most of the opportunity to strengthen key lease terms and drive renewal rents higher. Specifically, for the second quarter, we achieved a 10.5% increase in renewal based rents which is actually a bit higher than our historical average, which prior to the pandemic was typically in the 8% to 9% range on average.
In terms of new leasing activity, we also continued to have good success. Given the strong demand for space, yet limited availability across our portfolio, we continue to be selective with the new tenants that we are signing, with the goal being to strategically enhance our tenant diversity and further our necessity and service focus with each new lease.
During the second quarter, we signed 38 new leases, all of them being in-line tenants, the bulk of which are in the Health and Wellness sector. Historically, shop tenants have typically looked to sign shorter-term leases with five-year leases being the norm on average.
However, today an increasing number of shop tenants are seeking to sign leases with longer terms, some as much as 10 years. We think this trend is another positive sign of the long-term fundamental strength and appeal of our portfolio as well as the strength of the type of tenants that we are focused on.
Additionally, just as we are doing with renewals we are capitalizing on the shop space demand to achieve more advantageous lease terms, while also achieving solid rent growth. Specifically, for the second quarter, we achieved a 16.7% increase in same space cash based rent. Along with the actively leasing space, we continue to have good success in getting new tenants up and running with the second quarter being most active quarter on record for the company in terms of getting new tenants open.
Specifically, at the start of the second quarter, we had $9.6 million of annualized based rent from new leases where the new tenants had not yet taken occupancy and commenced paying rent. During the second quarter, we were successful in getting over $2.7 million of the $9.6 million open and operating, which is the largest dollar amount to commence during any quarter on record for the company.
Taking into account new leases that we signed during the second quarter, totaling roughly $1 million in incremental rent, at June 30, we had $7.9 million of annualized based rent that has not yet commenced. We currently expect the bulk of the $7.9 million will steadily come online as we move through the second half of the year.
Now, I’ll turn the call back over to Stuart.
Stuart Tanz
Thanks, Rich.
Given our strong performance year-to-date, we are well positioned today as we head into the second half of the year. Demand for space remained strong across our portfolio and we are continuing to make the most of it. In terms of acquisitions, we continue to be actively engaged in seeking out additional off-market opportunities.
That said, while the recent rise in interest rates haven’t yet impacted pricing, anticipating that it could, we intend to be patient and cautious going forward, which could mean possibly slowing down our pace of acquisitions during the second half of the year as is reflected in our latest guidance.
In terms of dispositions, we are currently in the process of bringing two properties to market both being redevelopment properties, which we think could generate in total around $30 million to $35 million in proceeds. Additionally, we are currently considering selling several other properties later this year that could generate another $30 million give or take in proceeds.
Lastly, looking ahead, notwithstanding the macro-economic environment, the long-term fundamentals in our markets remain sound both in terms of demographics and our markets being highly protected and supply constraint. As such, we remain confident in our ability to continue building value.
Our confidence is grounded in our decades long singular focus in operating grocery-anchored shopping centers on the West Coast. Over the years we have successfully operated and grown through numerous challenges, ranging from economic volatility, to online retailing, to most recently the pandemic.
Time and again, our grocery-anchored portfolio and diverse tenant base have proven to be resilient. Capitalizing on this resiliency and our nearly 30 years of operating experience, we have been successful in generating consistent results through it all and expect to continue to do so going forward.
Now, we will open up your call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Speakers, our first question comes from the line of Juan Sanabria. Please go ahead.
Juan Sanabria
Hi, good morning. Just wanted to ask about the guidance, it implies basically no growth off the first half and the second quarter run rate yet the fundamentals sound great. You’ve got some of the, at least, but not commenced, just starting to, steadily coming along with in the second half and you’ve done accretive acquisitions. I’m just trying to get a sense of what’s assumed in there, if there were any one-timers in the second quarter that may be won’t repeat. So, if you could just give us a little extra color around the guidance and some of the assumptions that would be fantastic?
Stuart Tanz
This is for what you are referring to the like same-store guidance?
Juan Sanabria
Sorry, mainly FFO?
Stuart Tanz
FFO, the answer, I don’t think there’s anything of that one-time event that’s occurred that will not occur in the second half of the year. I think that’s what he is asking, Mike.
Michael Haines
I think that Q3 and Q4 should be track along the same line, that’s why we raised our guidance a bit. We’ve got strong leasing activity that is driving cash-based rent and straight-line rent for that matter, and this 1.41, which is in our numbers, which is reflected in the release too. So, I think it should be steady as she goes for FFO for the rest of the year.
Juan Sanabria
Okay. So, just, just to confirm, so despite the leased but not commenced kind of coming online in the second half and accretive acquisitions relative to some of the funding on the dispositions, no increase versus the second quarter run rate on an FFO basis assumed for the second half, it seems a little conservative I guess?
Michael Haines
Well, I think we’re probably given the current economic environment, we’re remaining somewhat cautious and conservative. You don’t know what is, we will find out more today and tomorrow and we hear about GDP and the Fed rate rise, but we’re just being cautious about the second half of the year given the economic uncertainty out there right now.
Juan Sanabria
Okay, that makes sense. And then just on the disposition front, you mentioned a couple of assets kind of on the market and a couple of others potentially coming, any sense of how pricing may be changing given the change in capital cost that you mentioned on the prepared remarks, just curious what you guys are thinking that how cap rates may change given the moving rates?
Stuart Tanz
Well, certainly in terms of the acquisition market. I mean, thus far we haven’t seen any change in terms of pricing on cap rates for grocery anchored assets. As it relates to selling these assets, we are anticipating in the sale of these assets that cap rates are probably going to stay in a pretty tight range. So, even if things change in the macro, from the macro side, we still think we’re going to get some pretty compelling valuations in terms of selling these assets.
Juan Sanabria
Okay. So, sort of 5-ish cap rates in line with what you’ve been selling today, does that sound fair?
Stuart Tanz
I would expect it to be in that range, correct.
Operator
Thank you so much. And your next question comes from the line of Craig Schmidt from Bank of America. Please go ahead and ask your question.
Craig Schmidt
Good morning for you. Listen, given the broader pullback in consumer spending, do you see that having any impact on ROICs ’22 full-year result?
Stuart Tanz
Now and when I say that obviously we don’t, we can’t determine the depth of that pullback, but certainly what we have seen in the past in terms of operating grocery anchored centers on the West Coast, is that, that the impact really, we haven’t seen much impact, so depending on the severity of the impact, right now things continue to be very strong in terms of the momentum that we had in the second quarter. That is not, we haven’t seen any impact on the ground, leasing continues to be strong, renewals continue to be strong, no impact so far. Craig. So, it’s something does occur. I don’t think it’s going to have much impact from what we can see right now.
Craig Schmidt
And this lack of impact, is it due to your grocery focus essential based tenancy or is it due to the fact that you’re leases are already done and put to bed and barring horrendous scenario in the second half of the year, you are still going to see those increased activity in leasing?
Stuart Tanz
Yes, I mean, look, I think the momentum is still there across the whole sector, but more importantly, it’s really only that grocery anchored shopping center, we’ve seeing traffic pick up on the ground in terms of the number of visits and what we’ve also seen is that even as we’ve seen a very high inflation rate, most of those customers are redeploying their savings back to what we would call necessity retail.
So, we’ve seen an actual increase in sales from the grocers and other tenants as well as, and as well as foot traffic. So, all in all, we’re pretty confident right now that, this, that the grocery anchored center format is going to hold up pretty strong.
Craig Schmidt
Great. And then just the third, third quarter leasing volume activity, do you think it will be above $297 million you achieved in the second quarter?
Michael Haines
Well, the quarter has started out very strong, I will tell you, and Rich, I don’t know if you want to add to that.
RichSchoebel
Yes, it’s always a bit hard to predict, Craig, because being highly occupied like we are, these opportunities in terms of replacing tenants and that sort of thing are not always easy to identify in advance, but we would expect that the leasing activity as Stuart said has started out, the quarter started out very strong, the leasing team is very busy identifying new tenants to replace tenants that are leaving. So, we would expect it to be on par with what we’ve done historically.
Operator
Thank you so much. And your next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Please go ahead and ask your question.
Todd Thomas
Hi, thanks, good morning. First question, Stuart or Rich, the portfolio is performing well and you talked about leasing activity in the quarter and bad debt expense was also at a minimal level during the period. As you look out, are you starting to see any push back or response from tenants in the portfolio related to the inflationary pressures that they’re seeing and maybe I’m just curious if you can comment on the local tenants in the portfolio specifically?
RichSchoebel
Sure. We’re not seeing any push back from the tenant base, I mean, I think obviously there is concern out there with certain users depending on the use, but there has not been any push back, collections are going well.
I think that coming out of the pandemic, the tenants that are still in the portfolio are very strong, have a very loyal following, I think being highly occupied like we are, these tenants are here for the long haul. And, I think the demand for our type of product has increased. So, we are still seeing a broad demand from various types of tenants looking to get into the grocery drug-anchored shopping centers.
Todd Thomas
Okay. And then for tenants that are looking to sign longer-term leases, Rich, you mentioned that you’re seeing an increase in 10-year deals for shop tenants, up from the more typical five-year term, how does that change the discussion around starting rents and escalators?
RichSchoebel
Yes, I mean, typically, a typical scenario is someone will come to us, they have a five-year option what that’s probably at a fixed rate but they now want to lock in more term and in order to do that we’re going to get more rent initially than would have been achieved if they just exercise their option as is and I think this is being driven by tenants understanding that there’s been virtually no supply added in these markets and they have a good business on a great location, they really want to secure it for as long as they possibly can, but we take advantage of that as mentioned under prepared remarks by driving the rents higher and also fixing any leakage that might be in the can numbers or whatever else you know restrictions that might be in the lease to allow us more flexibility down the road. So, it’s really been working out well for us.
Todd Thomas
Okay. And what, what percent of tenants renewed in the quarter and I know tenant retention has been elevated in the near-term or do you expect to see that moderate a little bit with tenants moving out or do you expect to see that remain at higher levels going forward?
RichSchoebel
Yes, I mean, I think our retention rate is probably a touch higher than it has been historically. In fact, I think some of our challenge for the leasing team is getting a space back, the options that are out there can sometimes prevent us from bringing in a new tenant.
So, if anyone shows any hesitancy to stay, we have a few examples that we’ll be seeing in the third quarter, we’ve been able to go out, find a replacement tenant ahead of the expiration, get them in for permitting, so that when the tenant that’s demonstrated any hesitancy when their lease is up that we’re able to deliver the space and get them open and reduce that downtime between the two tenants. So, again, if the demand is there anyone you shows any hesitancy, we’ve got a list of tenants ready to go.
Todd Thomas
Okay, that’s helpful. And just last one, Stuart, just a question about the dividend increase. It’s about $10 million or $11 million for the year going forward, which isn’t insignificant. Was that because of the improved outlook and the Board having more confidence today or was it mostly consistent with the increase in taxable net income that you’re anticipating for the year?
Stuart Tanz
It’s just a combination of the momentum that we’re seeing coming out of the pandemic and, Mike, from a tax viewpoint, I think that also plays into it.
Michael Haines
Yes, it’s really based on our projected taxable income. We’re still trying to preserve as much free cash flow as we can, but still satisfying our REIT distribution requirements.
Operator
Thank you. And your next question comes from the line of Michael Mueller from JPMorgan. Please go ahead.
Michael Mueller
Going back to the quarter’s disposition and acquisition cap rates, I think you said it was about 5 or sub-five on the dispo, mid-sixes on the acquisitions. I am just curious, the mid-sixes is higher than the about five you’re talking about for upcoming asset sales. And I guess was, what was, what was, was there anything unique to that transaction. I think you may have said it was value add but typically when I think value add stuff, it’s always lower going in yield, then it kind of goes to something higher down the road or was it part of the overall transaction where the buyer really needed your project, so you got a better price on the acquisition because of it?
Stuart Tanz
Well, look, I think the sales valuation takes into account, Mike, not just the in-place income but also the fact that our property again was key to the developer and in terms of him moving forward with his mixed use development and from on the other side, it’s, it’s, we’ve got, we got a better deal because there is some near-term rollover and some repositioning opportunities that was reflected in the pricing, which plays into our strength. So, it was really a combination of finding a transaction that was a win-win for everyone.
Michael Mueller
Got it. And I think you said that the go forward disposition cap rates, you’re hoping you’re still going to be in that roughly five range. If you end up coming toward the higher end of the acquisition range based on what you’re looking at now, are the cap rates closer to that five or just higher?
Stuart Tanz
We’ll see, I think, they’re going to stay pretty in that pretty tight range. But remember, one of the, in a couple of these acquisitions, are properties that you know that are valued based on the development opportunity, right. This is densification that we’re selling. So, it’s hard to sort of quote an exit cap rate because that would be misleading given the fact that this is entitled land.
Michael Mueller
Got it, okay. And just one other quick one for the sequential build occupancy and leasing gains, was any of that influenced by the quarter’s acquisitions or was it a 100% kind of organic increase from leasing?
Stuart Tanz
Yes, no, it was not impacted by the acquisitions.
Operator
Thank you so much. And your next question comes from the line of Paulina Rojas Schmidt from Green Street. Please go ahead.
Stuart Tanz
Good morning from the West Coast, it’s early for you.
Paulina Rojas Schmidt
Very, very early, I am doing the best I can. I see operating expenses net of tenant recoveries have been a drag for you this year. So, can you share what you’re seeing here, what are the specific line items, and we have seen operating expenses driving this increase, is it wages and, and what should we expect going forward?
Michael Haines
I mean, we don’t see a big change in the recovery rate, in fact, as we touched on, we’re getting a little bit better terms on some of these new leases we are doing and on the rollover where we’re trying to plug any leakage in the recovery rates. I think what you’re seeing in the numbers there is just a one-time anomaly and the recovery rate will be consistent going forward, if not a touch better.
Paulina Rojas Schmidt
Okay. And then in terms of local tenants, can you remind us how much of your current ABR comes from mom-and-pop tenants which only may be a handful of stores instead of national or regional retailers with a large presence?
RichSchoebel
Yes, I mean I think while the local tenant base is still a good component of our tenant base, I think the changes in the industry over the years has really moved more to the regional and multi-unit operators along with the national tenant base when we’re talking about shop spaces here. So, whether an important component of the tenant base, they have actually become a bit smaller as the years have progressed where we’re now seeing multi-unit operators really driving that shop space.
Paulina Rojas Schmidt
Okay. And maybe the last question, can you talk about the general terms access you’re seeing for the different sources of that CMBS, banks, life companies?
Stuart Tanz
I’m sorry, Paulina, can you say it again, you’re looking for the sources of debt?
Paulina Rojas Schmidt
Yes, how are you seeing terms and availability for the different sources of debt. Because I know you have one note expiring at the end of 2023. So, yes, how do you see availability from CMBS, banks, life companies in general?
Stuart Tanz
Yes, well, I think by enlarge, obviously we have our credit line but to refinance the bonds coming up the end of next year, we’ve got the options to go and do public offering or private placement notes, we, we’ve always tried to keep the properties unencumbered, so, I don’t know the way we were doing the kind of CMBS or mortgage level debt if we keep it unencumbered at the corporate level, primarily public and private bonds.
Operator
Thank you so much. And your next question comes from the line of Linda Tsai from Jefferies. Please go ahead.
Linda Tsai
You discussed small shop leasing strength in terms of the 93.8% shop space occupancy, occupancy, is your expectations higher by year-end?
Stuart Tanz
Yes. I mean look the momentum continues to be strong and from all aspects of the spectrum, regional, national, and local. Obviously, we don’t have much space left to lease in the portfolio. A lot of what we have is, obviously, in-line space, so all of its in line, so we are expecting that momentum to continue. So, I don’t know if I would tell you it’s all coming from the local tenant base, probably will see as Rich has articulated a number of tenants that operate recently take some of the space, but certainly the momentum in terms of filling that in-line space continues to be very strong.
Linda Tsai
Thanks. And then in terms of small shops looking for longer lease terms, what’s the trend like for anchor leases. I saw that before renewals for anchors had a weighted average lease term of 4.3 years this quarter?
Stuart Tanz
Yes, it’s the same, the same scenario. Obviously, it depends on the operator and the particular lease, but we are still working with several of our anchor tenants who may be only have one or two options remaining, they want to reset the lease maybe instead of having a fair market value option, we’re getting fixed option rents but you’re extending them instead of five years, 10 years with four or five-year options.
So those discussions are still going on. Some of our anchor leases are now getting near the end of their term because they been in place in operating successfully for so long. So that’s still an opportunity that we’re working on with these anchor tenants.
Linda Tsai
Thanks. And then just last one with some of the debt that you took out this quarter to fund acquisitions, your leverage ticked up a little bit higher, what level are you comfortable with going forward?
Michael Haines
That is 6.5 range, we’re comfortable at and again remember that we’re dealing with the portfolio that is close to full occupancy. So, we’re comfortable where we’re at 6.5 range, it may tick up a bit, it may tick down a bit depending on selling assets, but all in all, that’s our comfort range.
Operator
[Operator Instructions] We have our next question from the line of Craig Mailman from Citi. Please go ahead.
Craig Mailman
So to circle back to guidance with a few follow-ups. First off, you guys mentioned the swap burning off year, from a cost perspective and drag perspective, kind of what’s the expectation in back half guidance related I guess mostly that $100 million term loan from a cost and impact perspective?
Michael Haines
Craig, based on the LIBOR forward curve, as I look at it every week, kind of, as you know, it changes, the market changes, but based on that we’re currently assuming that there is a slight nominal amount of increase in terms of our overall interest expense related to the swaps for this year. But just keep in mind that 75% of our debt is still fixed rate even beyond that, so, nominal increase this year.
Craig Mailman
What’s the net impact if you just look at the swap rate versus were the LIBOR curve that is telling you?
Michael Haines
Swaps are just over 3%. So, if I add 100 basis points of the current LIBOR, you’re right in that range anyway. That’s why I said, it’s kind of a nominal impact. I think, I am sure you keep an eye on LIBOR curves as well, they have been coming down over the like, last weeks. I think this probably reaction to the potential that the Fed won’t be able to raise rates quite as high as the interest rate they could given the potential recessionary factors.
Craig Mailman
All right. And then the second piece on the $80 million of potential acquisitions versus the $30 million to $35 million in the dispos and then I know you guys may have over $30 million behind that, but from a timing perspective, what do you guys assuming for the dispos versus when you could actually land acquisitions if possible?
Stuart Tanz
Well, look, the pipeline is strong, Craig, right now in terms of sourcing off market transactions. I don’t think I’ve seen it this active in a little while from our perspective. So, you probably will get some of the acquisitions done a bit earlier than the dispositions because dispositions have, you have the market properties to sell, it will, I think when you look at the acquisition disposition timetable here, I think you’ll see acquisitions come in a touch quicker as we get through the year and dispositions following that right after, but everything could happen at the same time, it just depends on the transaction.
Craig Mailman
Okay, that’s helpful. Just one, one more from me and then I know Michael has one, but you guys reiterated the tenant credit is looking very strong year. I’m just curious especially some of the kind of the non-discretionary retailers have just had some real margin problems on just product mix and other things. From a coverage perspective, I mean, is there, is there been any material impact when you guys look at rent coverage ratios, like how much more these retailers you need to be stressed especially as kind of rents have risen here the last couple of years?
Stuart Tanz
Occupancy costs continue to trend and have been trending in a very good, in a good place as sales have gone up. So, when you look at our tenant base, necessity based retail, we’ve really not seen much deterioration at all or very little right now. In fact, in a lot of cases, it’s been the opposite.
Obviously, we’re still a bit early in this game in terms of watching the market, Craig, but we are watching what’s going on obviously on the ground and we’re not seeing anything right now or any indication right now that we’ll see a deterioration in terms of necessity based retailing. On the other hand, we are looking at a much broader spectrum of retail and we are starting to see some cracks in other types of retailers, but most of those retailers, we don’t have in our portfolio and if we do have them, our exposure is minimal in terms of any impact to ABR.
Michael Bilerman
Stuart, it is Bilerman. Quick question if you think about some of these projects that you’ve looked at from a redevelopment intensification perspective, it sounds like potentially two upcoming sales were projects that you have that potential. Has your mind shifted a little bit in regard to those projects, I think back a number of years ago, I think you had someone underwrite the entire portfolio and they came out and said, based on the review of these projects, we could see upside of $4 a share and all of those things, is your mind shifted on that today?
Stuart Tanz
It’s a great question, Mike. Mike, you’ve known me in this team for decades at this point, there is a reason why we’re not in the development business and that reason is because of some of the experience we’ve had looking at densification and the process to get to the finish line. It is because the West Coast is so tough to entitle because of the topography, more importantly the entitlement process.
What we continued to look, what we’ve learned over the years and what we continue to see is that the process is long, the tons of roadblocks when you don’t think you have any, costs obviously have gone up in the current environment. To try to answer your question, if I look back, the 20 projects that we initially looked at and we’re still working on a number of those, our mind is certainly in the same place in that we’re glad we’re not in the development business.
That we are, right now the focus is to get these projects entitled and as you’ve seeing seldom, except for the Crossroads, the Crossroads is such a unique project and brings us so much value to the shareholders. We’re still contemplating building that out and obviously using a third party to operate and manage.
Michael Bilerman
And I guess from your standpoint, being able to liquidate these assets that arguably lower cap rates than where they would sell for as operating assets given that redevelopment or densification opportunity enroll that capital into acquisition that you’ve had your sites on. Thank you for reminding me, we’ve known each other for decades. But assets in the marketplace that you’ve been looking at and if you’re able to grab those at above average cap rate given the relationship, the accretion will show up from a long-term perspective on that spread and future growth, is that a fair way to think about it?
Stuart Tanz
Exactly.
Michael Bilerman
All right.
Stuart Tanz
Exactly.
Operator
Thank you so much. And your next question comes from the line of Christopher Lucas from Capital One. Please go ahead.
Christopher Lucas
Good morning, guys. Good morning. Hi, couple of follow-up questions, I guess, maybe starting with you, Rich, just as it relates to the leasing conditions, it doesn’t sound like, but I’d like to make sure that I understand. You’re not seeing anything change in terms of the tenant, but sort of the sales cycle of leasing new deals, there are no delays, you’re not really finding that tenants are dragging their feet at all at this point in the macro environment?
RichSchoebel
No, I think the demand is stronger than it has been, I do. I think it has taken be a touch longer on some of the negotiations, a little bit more back and forth, but beyond that, there are still multiple tenants vying for the spaces that come available and we’re capitalizing on that to get the best deal we can. So, I think time to execution is probably a touch longer, but demand is as strong as ever.
Christopher Lucas
Okay, thank you. And, then as it relates to, I just want to make sure I understand what you were saying, as it relates to sort of the tenant buying or looking for 10-year deals versus say the typical five-year deal. Are you saying that you’re willing to give on the fair market value extension option and move to a fixed option in exchange for that 10-year lease deal?
RichSchoebel
Well, obviously every transaction has to stand on its own. But there are certain leases where it’s a, potentially a fair market value with an appraisal concept and a cap on how high it can go and if we can change that into whether it’s fixed annual increases or a large increase every five years with certainty, we will, we will look at that transaction, lock up a tenant for 10 years versus five years, give a few more options at the back end and get more rent today than we would have if they just taken down their five-year option.
Christopher Lucas
Okay. That’s helpful.
RichSchoebel
We’re basically trading rent for term. We’re getting more rent for additional years of control.
Christopher Lucas
Appreciate that. And then just, is it and I don’t know if this is for you or for Mike but on the signed to build spread that’s $7.9 million, how much of that is expected to sort of begin or commence in 2022 or that’s something —?
RichSchoebel
We expect most of that will come online in 2022. Obviously, we’ll be adding to it as we go throughout the remainder of the year. But of the $7.9 million that is sitting there right now. We expect that most, the majority of that will be online by the end of the year.
Christopher Lucas
Okay. And then, Stuart. Last question for you from me, which is just trying to understand how you’re thinking about the market share and you put a lot of capital, fresh capital into the Pacific Northwest. And, I guess, I’m just curious as to whether or not this was driven by opportunity or is this a conscious effort on your part to balance the portfolio with maybe a little bit more Pacific Northwest exposure?
Stuart Tanz
Well, historically the Pacific Northwest has been a very hard market to penetrate in terms of gaining market share. If you go back the last 25 years in operating both companies, it’s only been of times when we, the only way we’ve been able to penetrate these markets is really during the height of recession, the height of the credit crisis where we have been able to hold off a very high quality, well located assets in these markets. These markets are not like California in terms of size, geography, topography and other things. So, they’re very difficult markets to penetrate. We’ve done an amazing job over the last 12 years in gaining so much market share in these markets.
So, it’s really, the answer is if I could buy and own more and I would love to do that and continue to do that. It’s very difficult, Chris, I mean, it really comes in waves and we’ve had the opportunity more recently to gain a foothold, a bigger foothold in these markets which long term is really going to create a lot of value for shareholders. So, these are just, historically have been really, really good markets.
So, these acquisitions really weren’t a question of balancing what we have is really seeking out the opportunity went it arose and that we’ll see how the balance, the rest of the year holds in terms of acquiring other assets, but we are certainly committed to the Pacific Northwest long term and it continues to deliver some really good value for shareholders.
Operator
Thank you so much. And we don’t have any questions. I would now like to turn the conference back to Stuart Tanz for closing remarks.
Stuart Tanz
In closing, I’d like to thank all of you for joining us today. If you have additional questions, please contact Laurie, Mike, Rich, or me directly. Also, you can find additional information in the company’s quarterly supplemental package, and 10-Q, which are posted on our website as well as our new ESG Annual Report. Thanks again and have a great day everyone.
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