Retail Opportunity Investments Corp (ROIC) Q3 2021 Earnings Call Transcript

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Retail Opportunity Investments Corp (ROIC 1.57%)
Q3 2021 Earnings Call
Oct 27, 2021, 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Retail Opportunity Investments 2021 Third Quarter 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 be found on its website.

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

Stuart A. Tanz -- Chief Executive Officer

Thank you. Good morning, everyone. Here with me today is Michael Haines, our Chief Financial Officer, and Rich Schoebel, our Chief Operating Officer. Building on the strong momentum that we generated during the second quarter as the West Coast fully reopened again we continue to steadily advance our business as we progressed through the third quarter. Capitalizing on the strong demand for space, we increased our portfolio lease rate to over 97% again, where it had been for six consecutive years prior to the pandemic. Additionally, during the third quarter, we again achieved solid rent growth extending our consecutive streak to 39 quarters in a row of achieving positive releasing rent spreads on both new and renewed leases. Worth highlighting is the fact that we successfully achieved rent growth every quarter during the pandemic, which speaks to the strength of our grocery-anchored portfolio and our diverse tenant base as well as the acumen of our team.

Along with continue to achieve solid leasing results, we are also enhancing our portfolio through our investment program. We are again pursuing acquisition opportunities and are pleased to report that we have already lined up, thus far, four terrific grocery-anchored shopping center acquisitions which together total about $123 million. Specifically, during the third quarter, we acquired an excellent grocery-anchored shopping center located in Silicon Valley. The property is ideally situated at the entrance to a highly desirable affluent master-planned residential community with an average household income of over $237,000. The shopping center's anchored by New Seasons supermarket, which is a strong regional operator akin to Whole Foods and is a perfect fit for the surrounding community.

Additionally, at the start of the fourth quarter, we acquired another well-established grocery-anchored shopping center located in Southern California, just north of San Diego. The center is anchored by Albertsons and CVS. Beyond these two acquisitions, we also have two additional grocery-anchored shopping centers currently under contract and separate transactions that together total about $62 million. Both properties are located in the Seattle market and both feature strong national supermarket operators.

What's important to note is that all of these new acquisitions fit and complement our existing portfolio extremely well. All four shopping centers in our core markets where we have a strong well-established presence. Like our existing portfolio, these new acquisitions feature very strong supermarket operators, all of which are long time tenants of ours and all have performed exceptionally well throughout the pandemic. In terms of pricing, the overall blended yield on the $123 million of acquisitions is approximately 6% going in with the opportunity to increase that yield notably during the next 12 to 24 months. Safe to say that we are excited about these new acquisitions as they will undoubtedly enhance our presence within our key core markets as well as provide compelling new growth opportunities going forward.

Lastly, turning to dispositions. We are pleased to report that during the third quarter, we completed our exit of the Sacramento market selling our last two properties for approximately $44 million in total, generating a gain of about $13 million. Taking into account our second quarter disposition, we have sold $70 million of properties in total this year.

Now I'll turn the call over to Michael Haines, our CFO, to take you through the details. Mike?

Michael B. Haines -- Chief Financial Officer

Thanks, Stuart. For the three months ended September 30, 2021, the Company had total revenues of $71.4 million as compared to $69.8 million in total revenues from a year ago. The increase was largely attributable to our rent collection rate returning to being in line with our historical pre-pandemic norms, resulting in lower bad debt, which was less than 1% of total revenues in the third quarter, again, in line with our historical run rate.

With respect to net income for the third quarter of 2021, GAAP net income attributable to common shareholders was $20.1 million equating to $0.17 per diluted share. And for the first nine months of 2021, GAAP net income was $45 million or $0.38 per diluted share. Included in net income is the gain on sale from property dispositions. As Stuart noted, with selling the two of remaining Sacramento properties, the Company recorded a $12.9 million gain in the third quarter. For the first nine months, we reported a total of $22.3 million in gains, which includes the property sale will we completed in the second quarter. In terms of funds from operations, for the third quarter of 2021 FFO increased to $32.6 million equating to $0.25 per diluted share, which brings our FFO for the first nine months to $0.74 per diluted share. Same-center net operating income for the third quarter increased 4% on a cash basis as compared to a year ago. And for the first nine months of 2021, same-center NOI increased by 2.2%.

With respect to capital raising initiatives, in addition to the $70 million raised through property dispositions, thus far in 2021, we have raised just over $46 million of equity through our ATM program, which includes a $11.2 million that we raised beginning of the third quarter. Between the ATM issuance and the property sales, we raised approximately $116 million of equity proceeds in total year-to-date. We are utilizing the majority of these proceeds together with cash flow from operations to fund our shopping center acquisitions.

Turning to our balance sheet. We continue to have nothing outstanding on our $600 million unsecured credit facility. Looking ahead, we expect our credit line balance will remain minimal, if not zero, for the remainder of 2021. With our credit line at zero of the company's outstanding debt today is entirely fixed rate and in terms of debt maturities, nothing has maturing this year. And in 2022, we only have two small mortgages maturing, totaling about $23 million. Our goal is to pay these mortgages off of the cash flow from operations and possibly some additional equity issuance proceeds depending upon market conditions.

With respect to our financial ratios, interest coverage for the third quarter was a solid 3.3 times. Additionally, the Company's net debt to EBITDA ratio was 6.6 times for the third quarter. In terms of FFO guidance, we continue to expect FFO for the full-year 2021 to be between $0.98 and $1.2 per diluted share. The key factors that will drive where we finished the year in that range are the timing of closing the pending acquisitions as well as the timing of new lease commencements, possibly offset by raising additional equity through our ATM, again depending upon market conditions. Our goal is to be well-positioned in terms of our balance sheet as we look toward to 2022.

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

Richard K. Schoebel -- Chief Operating Officer

Thanks, Mike. Starting with our portfolio lease rate. As Stuart highlighted, during the third quarter, we increased our portfolio lease rate to over 97% again. Specifically, our portfolio lease increased to 97.4% as of September 30th. Breaking our lease rate down between anchor and non-anchor space, our anchor space continues to hold firm at 100% leased, where it has been throughout the pandemic. In fact, our anchor space has been 100% leased for 19 consecutive quarters now approaching five years in a row. And in terms of non-anchor space, our lease rate increased 94.3% during the third quarter, which is approaching our record high that we achieved in the fourth quarter of 2019, just before the pandemic began.

Driving our lease rate higher is the demand for space, which continues to be impressively strong across our portfolio in core markets and this demand is coming from a wide range of necessity-based service and destination tenants, especially those seeking in-line space. We are also seeing a growing number of anchor tenants now pursuing new more cost-effective, smaller prototype formats tailored to focus on their most popular offering and their omnichannel initiatives. From our perspective, we continue to capitalize on the demand to enhance our tenant base at every opportunity, including recapturing in-line space early, proactively replacing shop tenants that have struggled coming out of the pandemic with much stronger new tenants.

Additionally, our strong performance throughout the pandemic where we worked hand in hand, helping the existing tenants adapt and thrive is now serving to draw new tenants to our shopping centers, away from competing properties that did not have the management acumen nor the wherewithal to work with tenants during the pandemic. In fact, during the third quarter, we signed several new tenants that were forthcoming and telling us that they were coming to our centers specifically because of our performance over the past year and their interest in building a long-term relationship with ROIC.

In terms of our specific leasing activity during the third quarter, we had another strong active quarter leasing 375,000 square feet of space in total, including signing 49 new tenants, all of which being in-line space. And we renewed 72 tenants, 69 of which were in line space renewals and three that were anchor renewals, two of those anchors being longtime supermarket tenants and one being a longtime pharmacy tenant. With respect to releasing spreads, same-space comparative rents on new leases increased by 10.9%, and renewal rents increased by 5.2% during the third quarter. These spreads are on a cash basis, so they don't capture future contractual rent steps during the lease term. As we've commented before, during the past year, a number of tenants have requested keeping their initial rent at the same level as the expiring rent and then having greater rent steps in the future years.

In addition to getting higher rent steps in the future, our tenant improvement commitment is notably lower. Looking ahead at the remainder of 2021, we have no anchor leases scheduled to expire and we only have 154,000 square feet of in-line space expiring between now and year-end. While that would suggest a fairly quiet fourth quarter in terms of leasing, we continue to work very hard to capitalize on the demand for space across our portfolio, creatively recapturing and relocating existing tenants. Accordingly, we expect to have another active, successful quarter in terms of leasing.

Additionally, we are also highly focused on getting new tenants open as quickly and efficiently as possible. As you may recall, the economic spread between leased and billed space at the beginning of the third quarter, the spread stood at 4.5%, representing $10.4 million in additional incremental annual rent on a cash basis. We are pleased to report that during the third quarter, tenants representing $1.9 million opened their stores and started paying rent. As it stands now, we are on track to get open, more than double the amount of incremental rent that we achieved last year. Taking the $1.9 million into account, together with our leasing activity during the third quarter, which totaled $1.5 million in new incremental rent, as of September 30th, approximately $10 million of incremental cash base rent had not yet commenced. As it's shaping up so far, we currently expect to have a strong fourth quarter in terms of getting new tenants open and operating.

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

Stuart A. Tanz -- Chief Executive Officer

Thanks, Rich. Just to underscore Rich's comments regarding leasing, our biggest priority coming out of the pandemic is bringing the right best new tenants to our centers, tenants that will complement our existing tenancies and will serve to grow customer frequency as well as enhance the appeal and long-term value of our properties. As Rich indicated, demand for space continues to be strong across our portfolio. There are a number of important fundamental factors that are driving the ongoing demand for space across our portfolio, three of which I would like to highlight.

First is the location of our shopping centers. Our properties are well situated in the heart of densely populated communities, communities that are sought after given their demographic profile by a growing and diverse number of necessity-based service and destination tenants. The second driver of the demand for space at our centers is the fact that our properties are anchored by strong well-established supermarkets that have a long history of drawing very consistent reliable daily traffic to our shopping centers, daily traffic that benefits all of our tenants. The third driver that is often overlooked is that our shopping centers are located in sought after, mature markets that are among the most highly protected markets in the country with significant barriers to entry, which in turn has greatly limited new supply in our core West Coast markets over the years.

Looking ahead, given that civic leaders and city planners are very focused today in addressing the growing housing shortage on the West Coast prioritizing new housing development, we expect that our shopping centers will continue to be highly protected going forward. Lastly, in terms of acquisitions beyond the properties that we currently have under contract, we are continuing to work hard at sourcing additional acquisitions, focusing primarily on off-market relationship-driven opportunities to acquire irreplaceable properties. While these types of opportunities can be a bit unpredictable in terms of deal flow and timing, we are optimistic based on our ongoing discussions in the current level of interest of potentially having an active robust year in 2022 of growing our portfolio again.

In summary, with all of this in mind, from potential acquisition opportunities the strong demand for space in the underlying fundamental drivers, we continue to be excited about ROIC's future prospects, and we are confident in our ability to continue building long-term value.

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

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Katy McConnell from Citi. Your line is now open.

Stuart A. Tanz -- Chief Executive Officer

Good morning, Katy.

Michael B. Haines -- Chief Financial Officer

Hey, Kate.

Katy McConnell -- Citi -- Analyst

Good morning, everyone. So, first for the $10 million leasing pipeline, at what point would you expect that pool to be fully online? And do you anticipate any meaningful rent commencement delays resulting from supply chain disruptions or labor shortages in your market?

Richard K. Schoebel -- Chief Operating Officer

You know, it's always hard to predict. We currently expect that by year-end tenants representing around $2 million or maybe as much as $3 million of the $10 million spread will open our doors and commence paying rent, but I think as you touched on, there could be some impacts from the supply chain. But so far we haven't seen a meaningful impact, but it could going forward temporarily delay some tenants from getting open as they well to -- week to get their fixtures and others inventory. Just hard to predict.

Katy McConnell -- Citi -- Analyst

Okay, got it. And then could you discuss the pricing of the acquisitions that you've secured to date and how much of a spread are you seeing generally between marketed and off-market deals that you're looking at today?

Stuart A. Tanz -- Chief Executive Officer

Well deals that are widely marketed in very good locations are trading right now in the five, I would say sub five cap rate range on the West Coast. For us, it's a matter of -- these relationships that we have and the ability to execute with sellers that know us well and we have the ability to execute pretty quickly or probably quicker than most sellers and because of our depth of experience and operating for close to 30 years, we have a pretty good understanding of the issues that others -- that other potential buyers do not or have trouble getting their hands around.

Katy McConnell -- Citi -- Analyst

Okay, great. Thanks.

Richard K. Schoebel -- Chief Operating Officer

Thank you.

Stuart A. Tanz -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Wes Golladay from Baird. Your line is now open.

Stuart A. Tanz -- Chief Executive Officer

Good morning, Wes.

Wes Golladay -- Baird -- Analyst

Hey, Stuart. I want to go back to that comment about a robust 2022, could you maybe put that in context to what ROIC was doing between 2011 and 2017? Is the pipeline somewhat comparable to that or maybe in between what you've been doing in the last few years?

Stuart A. Tanz -- Chief Executive Officer

Well, of course, during the pandemic, we really didn't do much. But going back before the pandemic in the earlier years, in mid-years of the company, we were acquiring close to $200 million to $300 million a year and assets. The pipeline for 2022 is looking as robust as it was back then right now.

Wes Golladay -- Baird -- Analyst

Okay, fantastic. And then I guess you did mention on the call planned recaptures, is that going to be meaningful or is it -- will be just mainly shops or will there be any anchors in that?

Richard K. Schoebel -- Chief Operating Officer

I think again another one that's hard to predict, it's obviously driven by the -- our ability to recapture, but there will probably be a mix of combining some shop space to accommodate larger format tenants along with potentially rightsizing some anchors as well, which we've done throughout the years.

Wes Golladay -- Baird -- Analyst

Okay. And was there any meaningful changes to the -- any of the drivers of the guidance? I think you reaffirmed it for the FFO share. You mentioned maybe some ATM issuance may drive your acquisitions, but I guess looking at the core, same-store NOI and bad debt, is that all tracking which you expected?

Michael B. Haines -- Chief Financial Officer

Yeah, I would say, excuse me, I would say so yes, we kept, we just reaffirmed that basically the biggest wildcard for the rest of the year is getting the tenants open. as Rich mentioned, we currently expect that the strong quarter getting those tenants in the fourth quarter, and if its something that happens, it could be the toward the higher end but that could potentially be offset, or if we were to raise a bit more equity during the quarter and the timing of that and the amount that I think there is.

Wes Golladay -- Baird -- Analyst

Great. Thanks, everyone.

Stuart A. Tanz -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of RJ Milligan from Raymond James. Your line is now open.

Stuart A. Tanz -- Chief Executive Officer

Good morning, RJ.

RJ Milligan -- Raymond James -- Analyst

Hey, good morning. Just my first question is for, Rich. The $10 million gap between economic and leased occupancy, can you talk about the cadence of that $10 million coming online? When do you expect that to be in -- fully in the numbers?

Richard K. Schoebel -- Chief Operating Officer

So again, I think we're hopeful. During the 4th quarter, we could get as much as $3 million to upwards of $3 million commenced. Obviously, we'll be also adding to that number during the quarter, and so we would expect that of the existing $10 million, the majority of that will be done by the second quarter or online by the second quarter of 2022. But again, we'll be adding to that number throughout that period of time.

RJ Milligan -- Raymond James -- Analyst

Okay. And you guys, in your prepared remarks, you mentioned the backfilling or some of the COVID fallout with stronger tenants, I'm just curious which types of tenants are still on the watch list and given sort of the recovery that we've seen post COVID, do you expect fallout to be long or less than your long-term average over the next say year or two, given the fact that you have been successful in backfilling the vacancy that you've had?

Richard K. Schoebel -- Chief Operating Officer

Yeah, I mean I think the one -- the tenants that have really struggled through COVID included the dry cleaners, some of the more boutique-y type of fitness tenants and some of the personal services, nail salons, threading, and things like that. Most of those tenants are back open and operating and doing quite well at this point, but there probably will still be some fallout of tenants that got over-extended during the pandemic.

RJ Milligan -- Raymond James -- Analyst

Okay. And then one last question, which is more bigger picture for Stuart. Stuart, you and a lot of your peers seem to be ramping up acquisitions which obviously seem too big mergers in the sector, do you think we're at the start of an acquisition cycle or do you think this is just a smaller window where buyers see upside and NOIs due to COVID disruption? And I guess maybe you could put that also in the context of record low cap rates for the sector and where there is opportunity to increase those going in yields.

Stuart A. Tanz -- Chief Executive Officer

Well, obviously the global picture will drive a lot of this, whether it's interest rates or anything that could happen in terms of the coming out of the pandemic, if something were to happen. But when you look on the ground today, the pipeline of deals is extremely strong, there seem to be a law there during the pandemic where sellers pulled back, and now that things -- now that money is available, both from a financing and a capital perspective, it certainly has accelerated in the minds of a number of owners to bring their properties to market. I think that's going to continue for a while and I think that from the sector's perspective, I think it will certainly play well into REITs growing their portfolio during the next certainly six months to a year depending on what happens, of course, with interest rates and other things that we cannot control.

RJ Milligan -- Raymond James -- Analyst

Okay, great. Thanks, guys.

Stuart A. Tanz -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Juan Sanabria from BMO Capital Markets. Your line is now open.

Stuart A. Tanz -- Chief Executive Officer

Good morning.

Juan Sanabria -- BMO Capital Market -- Analyst

Good morning, just hoping you could, going back to, I think it was Wes's question on guidance for same-store NOI. And any color on where you expect to be given the year-to-date. I think is Q2 relative to the previously communicated range of Q4 and what the drivers are? This is just the lease commencement between the high and low-end of whatever the range is today?

Michael B. Haines -- Chief Financial Officer

Well, I guess what I would say, each quarter bounces around a little bit, but it largely depends on the time in getting new tenants open in the fourth quarter, and as it stands now, we think, same-center NOI for the year, which should still be in the 3% range.

Juan Sanabria -- BMO Capital Market -- Analyst

Okay. And then on the rent bumps that you talked about negotiating with tenants to have a similar new rate when they're on the new lease but getting bigger bumps. Can you just describe or quantify how much rent bumps have moved in and what the split is between kind of fixed and floating and what are callers there may be in place, given inflation is a bit higher than we all anticipated a year ago?

Richard K. Schoebel -- Chief Operating Officer

Sure. I mean I think in terms of renewals. Some of those flat rents are per the terms of the lease, that particularly you would see with an anchor tenant. But in terms of the shop tenants, they just don't want to see a big spike in the rent right away upfront. So keeping that rent flat helps them come out of the pandemic. And then we're getting higher rent steps on the back end, but on average for a shop lease, you're going to see a 3%, maybe a 3.5% annual increase for that extended term.

Juan Sanabria -- BMO Capital Market -- Analyst

Okay, great. Thank you very much.

Richard K. Schoebel -- Chief Operating Officer

You're welcome.

Stuart A. Tanz -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Craig Schmidt from Bank of America. Your line is now open.

Stuart A. Tanz -- Chief Executive Officer

Good morning, Craig.

Craig Schmidt -- Bank of America -- Analyst

Good morning. I'm wondering if the funding of new acquisitions in '22 will include additional asset sales.

Stuart A. Tanz -- Chief Executive Officer

The answer is, we are currently finishing up the budgeting process right now. It will be done shortly, and then we will begin analyzing '22 in terms of asset sales. The answer to your question is probably yes, depending on obviously market conditions, but yes, we will continue to look at churning some of our capital, and as it relates to growing our portfolio in '22.

Craig Schmidt -- Bank of America -- Analyst

Great. And are you able to give us a sense of what the disposition cap rates was for the $70 million you sold year-to-date?

Stuart A. Tanz -- Chief Executive Officer

Yes, the blended cap rate, Craig, was about 7% in Sacramento.

Craig Schmidt -- Bank of America -- Analyst

Great. And then you're pretty much approaching your high occupancy, do you still think you can take it higher by the end of the year or given the 97.9% previous peak, you're 97.4% may not move?

Stuart A. Tanz -- Chief Executive Officer

Well, you know, look, I think if the demand continues to stay at the current levels that we've seen. I do think we're going to get back to the pre-pandemic occupancy levels a lot quicker than most. Whether that's the fourth quarter or the first quarter of next year, I do think that we will get to that number pretty quickly and we may go beyond it at this point, given how strong the demand is from that we're seeing out there in terms of filling primarily our in-line space. So I'm excited looking ahead in terms of where things are going. The -- again, the demand has been extremely strong to think that we could pick up 50 basis points in just one quarter alone is quite an achievement, not only for our team, but also showing you how strong the market is at West.

Craig Schmidt -- Bank of America -- Analyst

Great, thanks a lot.

Stuart A. Tanz -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Todd Thomas from KeyBanc Capital. Your line is now open.

Stuart A. Tanz -- Chief Executive Officer

Good morning, Todd.

Todd Thomas -- KeyBanc Capital Market -- Analyst

Hi, good morning. I wanted to follow up on your comments around the acquisition pipeline moving forward. It sounds like you're seeing potential to deploy capital in that $200 million to $300 million dollar range similar to where the company was during much of the last decade. Is the appetite for investments there? Would you look to do that sort of volume if there was an opportunity? And we continue to hear about cap rate compression and more competition for retail properties. Do you think that you can still achieve the 6% going in yield as you move forward?

Stuart A. Tanz -- Chief Executive Officer

Well, you know, it's obviously a tough answer to -- a tough question to answer, given that you are asking me to look forward. But in terms of what we see in our pipeline right now, I think we can certainly be buying around that number, maybe, probably a bit less given the cap rate compression. But more importantly, what we're buying has juice. That's what's really important. The ABR on these assets are low, gives us the ability to do what we've done in the past in terms of getting very strong increases going forward. And more importantly, delivering that yield, that 100 to 150 basis point spread after buying these assets, given the acumen from our management skills and leasing. So I'm very positive looking at where we sit right now as we move into '22. And I do think that given our cost of capital today that we'll be able to achieve those results given -- hopefully given market conditions stay the way they are.

Todd Thomas -- KeyBanc Capital Market -- Analyst

Okay, that's helpful. And yeah, maybe, Rich, in terms of the ABR for the portfolio today, the ABR for some of the acquisitions, we've seen retail sales on a national basis sort of pick up and reset at a higher level. Is there any way to sort of characterize the portfolio's health ratio or occupancy cost ratio today relative to where it was maybe pre-pandemic just given some of the increases in sales that we've seen across the board?

Richard K. Schoebel -- Chief Operating Officer

Yeah, well, I think as you're touching on, we are seeing across the board for the tenants that report sales. Strong growth in those sales numbers. We don't, in our business, get sales from all the tenants. So some of those are a bit hard to nail down exactly what the increase is but from anecdotal conversations with the tenant base, many of them have had very strong sales and obviously, that's improving there their occupancy costs.

Todd Thomas -- KeyBanc Capital Market -- Analyst

Okay. I know historically you don't collect a lot of percentage rent or overage rent, do you anticipate seeing an increase in that in the near term?

Richard K. Schoebel -- Chief Operating Officer

Yes, I mean, I think again depending on the use, there have been some very strong sales, some have pushed tenants into percentage rent and whether that's offset by other tenants that have decreased in their sales, what that net is going to be, we really won't know until probably the first quarter because some of these sales are done on an annual basis, calendar year. But I would expect that it will be a bit stronger than last year.

Todd Thomas -- KeyBanc Capital Market -- Analyst

Okay and then just back to the acquisitions real quick. How should we think about funding acquisitions if you do get back to sort of the level that you're talking about in the $200 million range or maybe more? You've been active on the ATM. You continue to be efficient through the ATM at the current level or pace. Would you anticipate needing to raise capital through maybe an offering if you return to that $200 million to $300 million level or more and on our -- and are you comfortable with that where the stocks trading today?

Michael B. Haines -- Chief Financial Officer

Mike. On the acquisition front, we would likely utilize our credit line, lease commercially and we will also look to raise equity in step of closing those transactions. Obviously the goal, one of the goals is to keep our current financial ratios intact. As far as the market conditions is very kind of subjective to us about where the stock price is, but we'll see how it plays out over the next three to six months. We've --

Stuart A. Tanz -- Chief Executive Officer

I mean it's a combination of free cash flow, which is very strong right now, given our payout ratio. It's a combination of hitting the market when we think it's the right time to hit, and it's a combination of turning our capital in terms of asset sales. It's those three, that will help fund this pipeline going forward, Todd.

Todd Thomas -- KeyBanc Capital Market -- Analyst

Okay, got it. What's free cash flow -- what was free cash flow in the third quarter, roughly?

Michael B. Haines -- Chief Financial Officer

It's probably about $12.5 million. It's about $40 million or so for the year.

Stuart A. Tanz -- Chief Executive Officer

It's a big number.

Michael B. Haines -- Chief Financial Officer

Into the reset of the dividend, yeah.

Todd Thomas -- KeyBanc Capital Market -- Analyst

Okay, great. All right, thank you.

Stuart A. Tanz -- Chief Executive Officer

Thanks, Tom.

Operator

Your next question comes from the line of Mike Mueller from JP Morgan. Your line is now open.

Michael Mueller -- JP Morgan -- Analyst

Yeah, hi.

Stuart A. Tanz -- Chief Executive Officer

Good morning, Michael.

Michael Mueller -- JP Morgan -- Analyst

Hey, good morning. Just a quick follow-up to Craig's question, what's the highest -- if you look at this portfolio or maybe even back to PAN what's the highest physical occupancy level that you've generally run at?

Stuart A. Tanz -- Chief Executive Officer

If you go all the way back to the Pan Pacific days, the management team today, which is the same management team I have had seen, we ran as high as I believe it was in the low 98% range. That's where we were during the Pan Pacific is, which is basically 100% occupied, because you're always going to have a tenant that is going to either through a divorce or partnership break up or other things, not extend the term of their lease or not renew. So you always have some fractional vacancy. At that level, you're basically pretty well leased and well then that helps us drive rents at that point. I mean, that's the secret of getting these high rents that we've reported year-after-year, both the P&P and at ROIC. Its that occupancy, and we certainly see us heading in that same direction right now.

Michael Mueller -- JP Morgan -- Analyst

Okay. And at 98% leased, that would translate into about what on the physical side, on the build side?

Richard K. Schoebel -- Chief Operating Officer

I mean it's hard again, it's hard to predict because we don't know when that's going to come online, but it's probably a 2% to 3% spread in terms of build versus leased at that point, I would guess.

Michael Mueller -- JP Morgan -- Analyst

Got it. Okay.

Michael B. Haines -- Chief Financial Officer

And our GAAP price right now, little on 5 right now.

Stuart A. Tanz -- Chief Executive Officer

Yeah. What, because of the pandemic.

Michael B. Haines -- Chief Financial Officer

Right.

Stuart A. Tanz -- Chief Executive Officer

But the other thing again, Todd, and I think you know this, not Todd, but Mike, I think you know that well is that the company leases double what rolls over in the portfolio year after year. So that's being sort of active, very active versus being proactive and I think that continues to look like it's where we're heading right now in terms of the velocity of our tenant base and achieving strong releasing spreads.

Michael Mueller -- JP Morgan -- Analyst

Got it. I appreciate it. Thank you.

Stuart A. Tanz -- Chief Executive Officer

Yeah.

Michael B. Haines -- Chief Financial Officer

Thank you, Mike.

Operator

Your next question comes from the line of Katy McConnell from Citi. Your line is now open.

Michael B. Haines -- Chief Financial Officer

Great. It's Michael Gorman here.

Stuart A. Tanz -- Chief Executive Officer

Good morning. Hey, Michael, how are you?

Michael Gorman -- BTIG -- Analyst

Very good, Stuart, and hey, Mike. So I just had a couple of questions. As you outlined sort of the capital sources, free cash flow, ATM, asset sales, how are you thinking about monetizing any of the entitlements on one side to generate capital and advance those projects, but also thinking about raising institutional capital either in a JV or fund format or in other ways in terms of another sort of tool in the toolkit to be able to fund these great acquisitions that you're being able to source, given your long-term presence in the market?

Stuart A. Tanz -- Chief Executive Officer

So in terms of entitlements or in terms of our, our densification, that is going well and we are looking at potentially selling off two of the three projects right now and those should be fully entitled, Bellevue is already entitled, and it's construction drawings for permitting, but Pinole, and Novato, it's very close to being entitled and the goal there is probably to sell those assets that could generate another $30 million to $40 million of proceeds. In terms of JVs, as you probably know --

Michael Gorman -- BTIG -- Analyst

Yeah.

Stuart A. Tanz -- Chief Executive Officer

And I think you've known us now for almost three decades --

Michael Gorman -- BTIG -- Analyst

Pool, floor, and I get all that.

Stuart A. Tanz -- Chief Executive Officer

Right.

Michael Gorman -- BTIG -- Analyst

I know going through the pandemic you looked at other things, and I would assume, other people are calling you, they want to get into the market and whether you want to --

Stuart A. Tanz -- Chief Executive Officer

Right.

Michael Gorman -- BTIG -- Analyst

That capital or not at the risk of complicating the story and things like that. I know you've been open to it. I just didn't know where your current mindset was and whether the institutional investors are more aggressively calling you to deploy that capital.

Stuart A. Tanz -- Chief Executive Officer

Yeah, look, they are aggressively calling us and we are looking at, as we always do, we have an open mind for everything, but it's got to be a -- the perfect deal as you would say for us to even consider that. But certainly at the present time we're not considering going off balance sheet. It's just from experience, we've always learned decade after decade, market after market as markets go -- turn back and forth that having a clean structure is what investors really want. They want a straightforward transparent structure that in the end, really delivers what I would call very transparent results.

Michael Gorman -- BTIG -- Analyst

Okay and then Bellevue was supposed to, I think, originally start in the first quarter, I assume, if that's not the case right now. So is there sort of an updated timing as we think about the growth potential in these projects?

Stuart A. Tanz -- Chief Executive Officer

Yeah, I mean look the project is going well, just in terms of trying to get to the finish line and getting a permit. However, there is so much activity in Belgium, the city of Bellevue right now that the city just can't handle the amount of permitting whether it's Amazon or others. So we anticipate now, this project really starting in the third or fourth quarter of next year. And it's just because there's so much demand out there. I mean, every time we get on the phone with our construction people, and our project manager, although we are moving through the process, we just keep hearing that the city is -- it just keeps getting backlogged and more backlogged, and more backlogged. So --

Michael Gorman -- BTIG -- Analyst

Yeah.

Stuart A. Tanz -- Chief Executive Officer

So right now, it does look like it's going to be the third or fourth quarter of next year before that project could break ground.

Michael Gorman -- BTIG -- Analyst

Okay, great. And then just last one that we had was just sort of reconciling a little bit on the guidance into 4Q and thinking about the run rate and variables for '22. I know right now you've maintained guidance, which would imply $0.24 to $0.28 range for the fourth quarter, $0.04 is a pretty wide range, especially given the fact you gave $0.25 in the third quarter, which we've seen the base. I recognize you have the asset sale that happened late in the quarter. I recognize the acquisitions could be later. It just seems like -- even if the acquisitions are later, even if they happen in the beginning of the quarters, probably only a penny. If that, just given the yield and one quarter contribution we're already in November. So just help us sort of push -- like what gets you to $0.28 and what in the world would ever get you to $0.24? It just seems like your guidance really should be more $0.25 to $0.26 rather than this wider range.

Stuart A. Tanz -- Chief Executive Officer

Well, I think as Rich touched on, I mean a lot of this is getting these tenants open and paying rent and we -- and we are -- that is moving along at a pretty good pace, but there is so much uncertainty out there in terms of either supply or the fact that retailers are still having a hard time getting good employees that that -- it's just being somewhat conservative, but really erring on the side of being conservative that you still have the pandemic out there. And although it's -- we're getting out of this pandemic, you just don't know what can happen and we, as a management team, we just tend to be more conservative.

Michael Gorman -- BTIG -- Analyst

No, I get that. I just didn't know if there was something -- I mean you're talking about every penny is a $1,000,003. I didn't know if there were something that takes you to the high-end which $0.28 seems like a pretty big ramp from $0.25 and by the same token, Stuart, I don't see why you should step back in FFO heading into the fourth quarter. And I understand all the conservatism, but that's your range, right? And so I'm just trying to understand if there is variables that we don't know about that would drive it one way or the other because as we think about 2022, really understanding what the 4Q is in the run rate, your consensus numbers are currently are at like a buck or seven bucks away, $0.26, $0.27 cents a quarter. So where you're coming out of and what the drivers are for next year are very important. So that's why I was trying to get a little bit more sort of meat on the bones to understand that.

Stuart A. Tanz -- Chief Executive Officer

Well, the only thing that's out there, Mike, that could move the needle a bit is we are litigating with a couple of very large tenants due to them shutting down, it actually didn't shut down during the pandemic, they just didn't pay rent and we've reserved most of that. And so if that gets resolved during the fourth quarter, that could move the needle. --

Michael Gorman -- BTIG -- Analyst

That's one time in nature. I'm really thinking about --

Stuart A. Tanz -- Chief Executive Officer

That is correct.

Michael Gorman -- BTIG -- Analyst

Is that embedded in the $0.24 to $0.28 or that's in addition to that --

Stuart A. Tanz -- Chief Executive Officer

No, it is not. That could move the needle. But again, we're erring on the side of being conservative, and Rich, I don't know if there's anything else from a -- just from a tenant perspective that you see. Yeah.

Michael Gorman -- BTIG -- Analyst

I'm just wondering like what takes you up to $0.28. Like you're doing $0.25 in the third quarter, moving up $0.03 is a big thing and if you're at $0.28 in the fourth quarter then the numbers are too low for next year. So that's I -- it's just an awfully wide range. I can understand the conservatism at $0.24, $0.25. I'm just trying to understand how you get the $0.27, $0.28.

Stuart A. Tanz -- Chief Executive Officer

Well, I mean, again, it could be just the fact that we get a lot more tenants open and paying rent. That's really what could drive that number. And again we're erring a bit on the conservative side, but that's really what in my view could drive that number up.

Michael Gorman -- BTIG -- Analyst

And so if it doesn't happen the 4th quarter, it should happen the first quarter, since we think about 1Q, you should be getting up to that higher-end level pending any aggressive dispositions are aggressive equity raise, right?

Stuart A. Tanz -- Chief Executive Officer

That is correct.

Michael Gorman -- BTIG -- Analyst

Right. So then that has an upward bias as we think about next year enrolling in that if you only do $0.25, $0.26 in the fourth quarter, you get those tenants open later, you're rolling in it at $0.27, $0.28 as we start the year.

Stuart A. Tanz -- Chief Executive Officer

Yeah.

Michael Gorman -- BTIG -- Analyst

Okay, all right, thank you so much.

Stuart A. Tanz -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Linda Tsai from Jefferies. Your line is now open.

Stuart A. Tanz -- Chief Executive Officer

Good morning.

Linda Tsai -- Jefferies -- Analyst

Good morning. In terms of the dividend is the view that you would continue to maintain the current rate in order to allocate that cash toward acquisitions and delivering?

Stuart A. Tanz -- Chief Executive Officer

In terms of the dividend, we can -- we intend to continue conserving as much cash flow as possible. That's really our top priority in terms of the dividend. With that in mind, we intend to continue to maintain a dividend that's in line with the minimum amount required for REITs.

Linda Tsai -- Jefferies -- Analyst

Got it. And then just in terms of your longer-term growth expectations, you've discussed getting 2.5% to 3.5% on a blended basis from contractual rent increases across the portfolio, how much do you think external growth contributes in '22 or '23?

Stuart A. Tanz -- Chief Executive Officer

Well, again, hard to predict, in terms of how much we're going to acquire at this point. But if we certainly meet some of the goals that we think we can set for the year. I think that will have a positive benefit in terms of earnings growth. It just depends on how much we acquire and how fast we acquire it in terms of that earnings growth, but we're looking -- things are looking pretty positive, sitting here today, as we look into next year.

Linda Tsai -- Jefferies -- Analyst

Thanks.

Operator

Your next question comes from the line of Chris Lucas from Capital One. Your line is now open.

Stuart A. Tanz -- Chief Executive Officer

Good morning, Chris.

Chris Lucas -- Capital One Securities -- Analyst

Good morning, how are you guys doing?

Stuart A. Tanz -- Chief Executive Officer

We're doing well. How about yourself?

Chris Lucas -- Capital One Securities -- Analyst

Good. Hey, just a couple of follow-ups, Stuart, maybe if I could, for Mike, on your balance sheet, can you remind us what your guide rails are it relates to leverage from a net debt to EBITDA basis? You are sort of in them, I think, in the mid-sixes roughly right now.

Michael B. Haines -- Chief Financial Officer

You really get down to six six, that -- obviously, mid-sixes, mid to low sixes is really kind of the goal.

Chris Lucas -- Capital One Securities -- Analyst

Okay. And then on the -- kind of going back to some of the other questions as it relates to just sort of the cadence of rent commencing. So Rich, you mentioned $2 million to $3 million in the fourth quarter. We're one month in. I'm assuming that there is a point in December, which nothing really gets delivered. So we kind of got maybe four, five weeks we're really looking at that is the variance here. Is there a single tenant, or is it just a variety of, a number of tenants that is sort of the delta here in terms of openings?

Richard K. Schoebel -- Chief Operating Officer

It's a variety of tenants. I mean there are some of the larger tenants in there as well. And you know that are working through permitting processes, which are a bit more drawn out given how busy the cities are, as Stuart touched on. So -- go ahead.

Chris Lucas -- Capital One Securities -- Analyst

I was just going to say is permitting the biggest wildcard for you? It's not the materials, its not getting the work done, it's getting the final permits out?

Richard K. Schoebel -- Chief Operating Officer

Yeah, I would say that's probably the biggest driver is the permitting process. I mean we do have a couple of tenants that have experienced some delays in getting whether the fixtures, their FF&E in and installed, and we have a couple of tenants that are fully built out that have had some challenges finding employees. But in some of those cases their rent is going to commence regardless of their ability to find an employee.

Chris Lucas -- Capital One Securities -- Analyst

Okay. And then sort of, of the total signed, but not opened bucket, the $10 million, is there any anchor leases in that bucket or is it all shop space?

Richard K. Schoebel -- Chief Operating Officer

There is an anchor lease in that bucket. Yeah, we're working through the permitting process right now.

Chris Lucas -- Capital One Securities -- Analyst

And you still expect to have everything, all of that $10 million, essentially in place, and paying by the middle of next year.

Richard K. Schoebel -- Chief Operating Officer

Yes.

Chris Lucas -- Capital One Securities -- Analyst

Okay. The last question I had just had to do with the mix of sort of tenants that are in your portfolio as it relates to national versus regional versus the local. Has that, is that mix shifted at all in any meaningful way from one bucket to the other pre-COVID to now?

Richard K. Schoebel -- Chief Operating Officer

I don't think so. I mean, I think again it always depends on the space that you have available that would fit a particular user's needs. I think that there may be a fewer of the local tenants out there today. But there are still local tenants out there and we are seeing very strong demand from the regional operators as well as the Nationals.

Chris Lucas -- Capital One Securities -- Analyst

Okay and then, Michael, my last question is for you. It relates to just the sort of -- so second quarter you had sort of reversals to bad debt. It was a positive for GAAP income and then this quarter the number was negative again. Was there any positive reversals that sort of a net number was negative, or can you give me a lot more detail as to what was in that five -- negative $548,000.

Michael B. Haines -- Chief Financial Officer

Sure. Yeah, so the $548,000 you're referring to -- during the third quarter, as we always, a careful tenant by tenant analysis we reversed $932,000 of previous bad debt reserves, but then that was offset by approximately $1.5 million of new bad debt booked in the third quarter and that's what resulted in $548,000. Now, that equates to the $548,000 is less than 1% of our total revenue. Its kind of our in-line historical norm.

Chris Lucas -- Capital One Securities -- Analyst

Okay, thank you. That's all I had.

Michael B. Haines -- Chief Financial Officer

Yeah.

Richard K. Schoebel -- Chief Operating Officer

Thanks.

Operator

This like your next question comes from the line of Tammi Fique from Wells Fargo. Your line is now open.

Stuart A. Tanz -- Chief Executive Officer

Good morning, Tammi.

Tammi Fique -- Wells Fargo -- Analyst

Good morning. Thank you for taking my call. Just wondering, it looks like the year-to-date leases signed have a shorter-term versus what you were signing in 2019. I guess I'm just wondering if there are specific reasons that either ROIC or the tenants are looking to sign shorter-term leases today or if it's just kind of a mix?

Richard K. Schoebel -- Chief Operating Officer

It always is a mix. There have been a few tenants that have wanted shorter term which, to be hon9est, I think works to our advantage. But because in three years' time, if we have to sign the 3 years' lease, I think we're going to be in more of a landlord market at that point. But again, it really depends. I mean some tenants are coming to us and looking to lock in 10 years of term. We've had several tenants this quarter, who are exercising a 5-year option but asking for more committed term. Right now, I think we see a lot with the restaurant tenants. I think they want to secure those locations for the long term. So we don't like to hand out options, we'd rather get committed term. So it is a bit of a mixed bag.

Tammi Fique -- Wells Fargo -- Analyst

Okay, thanks. And then, Rich, maybe just one more question for you. You spoke about some potential additional pandemic-related fallout from some of the smaller shop tenants that are over extended. I guess I'm just wondering if that fallout is still greater today than you've seen historically or if you feel like the environment for move-outs is fairly normal at this point.

Richard K. Schoebel -- Chief Operating Officer

I think it's really fairly normal. There's always a churn, as Stuart touched on, and I don't think -- we're not seeing a lot of distress in the tenant base right now. It's a handful of tenants that struggled through the pandemic.

Tammi Fique -- Wells Fargo -- Analyst

Okay, great. And then maybe just one last one for Stuart. The couple of acquisitions and you closed on in the third quarter, they have pretty high occupancy in place. I guess I'm just wondering if you can talk about the specifics of the 2 assets that you acquired that can drive sort of that upside 100, 150 basis points that you referenced, and then maybe give us a sense for how long it will take to capture that upside. Thank you.

Stuart A. Tanz -- Chief Executive Officer

Well, the upside is really coming through the efficiency of management in terms of on the margin, it's coming through leasing up to our historical norms, which is 100% and we are -- have made some really nice strides since closing the transactions to hit those goals and it's really to reposition a couple of the way -- of some tenants that are coming up for renewal, that we know won't renew. It's a combination of all of those and that's progressing very well and you know I'm sitting here today and I'm probably going to tell you that the yields are going to move pretty quickly in terms of heading -- getting toward the thresholds that we like to move these yields to after buying these assets. So very, very high-quality assets with very good tenants and we're excited about these acquisitions. A couple of these deals happen before that we came out of the pandemic, in terms of the relationships and getting them tied up and we have the advantage of obviously striking because of buying at the right price to really, really drive some nice value for shareholders in a very short period of time.

Tammi Fique -- Wells Fargo -- Analyst

Okay, great. Thank you for your time.

Stuart A. Tanz -- Chief Executive Officer

Thank you.

Operator

I am showing no further questions at this time, I would now like to turn the conference back to Mr. Stuart Tanz.

Stuart A. Tanz -- Chief Executive Officer

In closing, I'd to thank all of you for joining us today. As always, we appreciate your interest in ROIC. 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 as well as our 10-Q. Lastly, for those of you that are planning to participate in NAREIT's Virtual Conference in a few weeks from now, we look forward to connecting with you then. Thanks again and have a great day.

Operator

[Operator Closing Remarks].

Duration: 57 minutes

Call participants:

Stuart A. Tanz -- Chief Executive Officer

Michael B. Haines -- Chief Financial Officer

Richard K. Schoebel -- Chief Operating Officer

Katy McConnell -- Citi -- Analyst

Wes Golladay -- Baird -- Analyst

RJ Milligan -- Raymond James -- Analyst

Juan Sanabria -- BMO Capital Market -- Analyst

Craig Schmidt -- Bank of America -- Analyst

Todd Thomas -- KeyBanc Capital Market -- Analyst

Michael Mueller -- JP Morgan -- Analyst

Michael Gorman -- BTIG -- Analyst

Linda Tsai -- Jefferies -- Analyst

Chris Lucas -- Capital One Securities -- Analyst

Tammi Fique -- Wells Fargo -- Analyst

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