Retail Opportunity Investments (ROIC) Q2 2022 Earnings Call Transcript

Retail Opportunity Investments (ROIC -1.16%)
Q2 2022 Earnings Call
Jul 27, 2022, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Retail Opportunities Investments 2022 second-quarter conference call. [Operator instructions] Now I would like to introduce Laurie Sneve, the company's chief accounting officer.

Laurie Sneve -- Chief Accounting Officer

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 -- Chief Executive Officer

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 continue to actively lease the 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 than 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 and markets, demand that continues to come from a growing broad range and necessity, service, and destination tenants. Along with lease 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.

Lung centers located in the Seattle market, one in Portland and one in the San Francisco East Bay market. All three are well situated and densely populated affluent residential communities and all three properties retail grocery operators along with a diverse mix of in-line tenants. The blended going-in yield is just north of 6%, and we are already pursuing a number of releasing and 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 properties instrumental and development plan being able to move forward, which we're able to capitalize on to acquire as part of the transaction to 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 a densely populated affluent residential communities.

One of the shopping centers is located just a few blocks from the new commuter train station that is currently under construction, along with a number of new multifamily developments. Additionally, each shopping center is anchored by a long-standing strong performing supermarkets and pharmacies as well as a great mix of in-line tenants. In terms of the transaction pricing, we are selling our property for $37 million, which equates to a sub-five ex 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's the ability for us to quickly enhance value through leasing available space as well as releasing some near-term rollover. Additionally, there was a great redevelopment opportunity on the corner freestanding 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 fit with our existing portfolio and offer numerous opportunities to enhance value going forward.

Lastly, in light of our strong performance year to date, the 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?

Mike Haines -- Chief Financial Officer

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. And 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. And 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 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, out of our entire 92 shopping center portfolio, we only have two properties that 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, will stop mature at the end of August.

However, the actual term loan does not mature for another two and a half years. Given the recent rise in interest rates and the volatility in 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 interest of 100 basis points over LIBOR, which in today's market the all-in rate is not 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 acquired the two properties currently under contract during the second half of the year, meaning we acquired $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 acquired 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 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 Schoebel, our COO.

Rich?

Rich Schoebel -- Chief Operating Officer

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 base 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 continue 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 the 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 base 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 base 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 -- Chief Executive Officer

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 remains 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 macroeconomic environment, the long-term fundamentals in our markets remain sound, both in terms of demographics and our markets being highly protected and supply constrained.

As such, we remain confident in our ability to continue building value. Our confidence is grounded in our decades-long singular focus and 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 in 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.

Questions & Answers:

Operator

[Operator instructions] First question comes from the line of Juan Sanabria. Please go ahead.

Juan Sanabria -- BMO Capital Markets -- Analyst

Hi. Good morning. Just wanted to ask about the guidance. It implies basically no growth off of the first half and the second quarter run rate.

The fundamentals sound great. You've got some of the lease but not commenced to starting to -- or steadily coming online 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 maybe 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.

Mike Haines -- Chief Financial Officer

Is this for -- what are you referring to like same-store guidance?

Juan Sanabria -- BMO Capital Markets -- Analyst

Sorry, mainly FFO.

Stuart Tanz -- Chief Executive Officer

FFO. The answer, I don't think there's anything that a one-time event that's occurred that will not occur in the second half of the year. I think that's what he's asking, Mike.

Mike Haines -- Chief Financial Officer

I think that Q3 and 4 should track along the same line. That's why we raised our guidance a bit. We've got strong leasing activities driving cash-based rents and true on rent for that matter. And it's [Inaudible], 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 -- BMO Capital Markets -- Analyst

OK. So just to confirm, so despite the lease 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.

Mike Haines -- Chief Financial Officer

Well, I think we're probably -- given the current economic environment, we're remaining somewhat cautious in on service. You don't know we'll sign up 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 -- BMO Capital Markets -- Analyst

OK. 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 in the prepared remarks.

Just curious what you guys are thinking that how cap rates may change given the move-in rates?

Stuart Tanz -- Chief Executive Officer

Certainly, in terms of the acquisition market, I mean, thus far, we haven't seen any terms of pricing on cap rates for those three 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 -- BMO Capital Markets -- Analyst

OK. So sort of five-ish cap rates in line with what you've been selling today, that sounds fair?

Stuart Tanz -- Chief Executive Officer

I would expect it to be in that range.

Juan Sanabria -- BMO Capital Markets -- Analyst

Great. Thank you very much.

Operator

And your next question comes from the line of Craig Schmidt from Bank of America. Please go ahead and ask your question.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

Good morning. Listen, given the broader pullback in consumer spending, do you see that having any impact on ROIC '22 or full-year results?

Stuart Tanz -- Chief Executive Officer

No. And when I say that, obviously, we don't -- you 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 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 if something does occur, I don't think it's going to have much impact from what we can see right now.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

And this lack of impact, is it due to your grocery focus, essential-based tenancy? Or is it due to the fact that your leases are already done and put to bed and your barring horrendous scenario in the second half of the year, you're still going to see those increased activities in leasing?

Stuart Tanz -- Chief Executive Officer

Yes. I mean, look, I think the momentum is still there across the whole sector. But more importantly, it's really owning the grocery-anchored shopping center. We've seen 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 foot traffic. So all in all, we're pretty confident right now that these -- that grocery and center format is going to hold up pretty strong.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

Great. And then just third-quarter leasing volume activity, do you think it will be above the $297 million you achieved in the second quarter?

Stuart Tanz -- Chief Executive Officer

Well, the quarter started out very strong. I will tell you. And Rich, I don't know if you want to add anything --

Rich Schoebel -- Chief Operating Officer

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.

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

OK. Thank you.

Operator

And your next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Please go ahead and ask your question.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi. Thanks. Good morning. First question, Stuart, 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 pushback 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.

Rich Schoebel -- Chief Operating Officer

Sure. We're not seeing any pushback from the tenant base. I mean, I think obviously, there's concern out there with certain users depending on the use. But there has not been any pushback.

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 -- KeyBanc Capital Markets -- Analyst

OK. 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?

Rich Schoebel -- Chief Operating Officer

Yes. I mean the 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 exercised their option as is. I think this is being driven by tenants understanding that there's been virtually no supply added in these markets.

And if they have a good business in a great location, they really want to secure it for as long as they possibly can, but we take advantage of that, as mentioned in the prepared remarks, by driving the rents higher and also fixing any leakage that might be in the can numbers or whatever else, 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 -- KeyBanc Capital Markets -- Analyst

OK. And 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?

Rich Schoebel -- Chief Operating Officer

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 challenges for the leasing team is getting the 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, they were able to deliver the space and get them open and reduce that downtime between the two tenants. So again, the demand is there, anyone who shows any hesitancy, we've got a list of tenants ready to go.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. 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 -- Chief Executive Officer

It's just a combination of the momentum that we're seeing coming out of the pandemic. And from a tax viewpoint, I think that also puts into it.

Mike Haines -- Chief Financial Officer

It's really based on our projected taxable income trying to preserve as much free cash flow as we can, but still satisfying our redistribution requirements.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. Great. All right. Thank you.

Operator

And your next question comes from the line of Michael Mueller from J.P. Morgan. Please go ahead.

Michael Mueller -- J.P. Morgan -- Analyst

Going back to the quarter's disposition and acquisition cap rates, I think you said it was about 5% or five in the dispo, mid-sixes on the acquisitions. Just curious, the mid-sixes is higher than the about 5% you're talking about for upcoming asset sales. And I guess what was -- was there anything unique to that transaction? I think you may have said it was value add. But typically, when I think of value-add stuff, that's always lower going in yield than kind of goes to something higher down the road? Or was it part of the overall transaction where the buyer really needed your projects, so you get a better price on the acquisition because of it.

Stuart Tanz -- Chief Executive Officer

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 in terms of him moving forward with this mixed-use development. And from -- on the other side, it's -- we've got a better deal because there's 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 -- J.P. Morgan -- Analyst

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 5% 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 5% or just higher?

Stuart Tanz -- Chief Executive Officer

Well, we'll see -- I think they're going to stay pretty in that pretty tight range. But remember, one of the -- and a couple of these acquisitions are properties 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 missing given the fact that this is entitled land.

Michael Mueller -- J.P. Morgan -- Analyst

Got it. OK. And just one other quick one. For the sequential build occupancy and leasing gains.

What -- was any of that influenced by the quarter's acquisitions? Or was it 100% kind of organic increase from leasing?

Rich Schoebel -- Chief Operating Officer

Yes. No, it was not impacted by the acquisitions.Got it. OK. That was it.

Thank you.

Operator

And your next question comes from the line of Paulina Schmidt from Green Street. Please go ahead.

Stuart Tanz -- Chief Executive Officer

Good morning from the West Coast. It's early for you

Paulina Schmidt -- Green Street Advisors -- Analyst

Very, very early. I'm 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've seen operating expenses driving this increase? Is it wages? And what should we expect going forward?

Rich Schoebel -- Chief Operating Officer

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're doing and 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 Schmidt -- Green Street Advisors -- Analyst

OK. And then in terms of local tenants, can you remind us how much of your current ABR comes from mom-and-pop tenants with only maybe a handful of stores instead of national or regional retailers with a large presence?

Rich Schoebel -- Chief Operating Officer

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 have really moved more to the regional and multiunit operators along with the national tenant base when we're talking about shop spaces here. So while they're an important component of the tenant base, they've actually become a bit smaller as the years have progressed, where we're now seeing multiunit operators really driving that shop space.

Paulina Schmidt -- Green Street Advisors -- Analyst

OK. And maybe the last question. Can you talk about the general terms, access you're seeing for the different sources of debt, CMBS, banks, life companies.

Mike Haines -- Chief Financial Officer

I'm sorry. Pau, can you say that again, you're looking for the sources of that?

Paulina Schmidt -- Green Street Advisors -- Analyst

Yes, how are you seeing terms and availability for the different sources of that? Because I know you have one note expiring at the end of 2023. So how do you see availability from CMBS, banks, life companies in general?

Mike Haines -- Chief Financial Officer

Yes. Well, I think by and large, obviously, we have a credit line, but to refinance the bonds coming up at the end of next year, we've got the options to do a public offering or private placement notes. We've always tried to keep the properties unencumbered. So I don't know the way we would do any kind of CBS or mortgage level debt.

We keep it unencumbered at the corporate level, primarily public and private bonds.

Paulina Schmidt -- Green Street Advisors -- Analyst

OK. Well, thank you.

Operator

And your next question comes from the line of Linda Tsai from Jefferies. Please go ahead.

Linda Tsai -- Jefferies -- Analyst

You discussed small shop leasing strength in terms of the $93.8 million shop space occupancy. Is your expectations higher by year end?

Rich Schoebel -- Chief Operating Officer

Yes.

Stuart Tanz -- Chief Executive Officer

Yes. I mean, look, the momentum continues to be strong from all aspects of 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 or all of it's 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, it probably will -- you'll see, as Rich has articulated, a number of tenants that operate regionally take some of the space, but certainly, the momentum in terms of filling that in-line space continues to be very strong.

Linda Tsai -- Jefferies -- Analyst

And then in terms of small shops looking for longer lease terms, what's the trend like for anchor leases? I saw that the four renewals for anchors had a weighted average lease term of 4.3 years this quarter.

Rich Schoebel -- Chief Operating Officer

Yes, it's 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 maybe only have one or two options remaining. They want to reset the lease maybe instead of having a fair market value option where we're getting fixed option rents. But extending them instead of five years, 10 years with four-, 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've been in place and operating successfully for so long. So that's still an opportunity that we're working on. with these anchor tenants.

Linda Tsai -- Jefferies -- Analyst

And then just last one, with some of the debt that you took on this quarter to fund acquisitions, your leverage ticked up a little bit higher. What level are you comfortable with going forward?

Stuart Tanz -- Chief Executive Officer

That 6.5% range, we're comfortable at. And again, remember that we're dealing with a portfolio that is close to full occupancy. So we're comfortable where at that 6.5% range it may tick up a bit, it may take down a bit depending on growth selling assets. But all in all, that's our comfort range.

Operator

[Operator instructions] Our next question is from the line of Craig Mailman from Citi. Please go ahead.

Craig Mailman -- Citi -- Analyst

To circle back to guidance a bit with a few follow-ups. First off, you guys mentioned the swap burning off here. 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?

Mike Haines -- Chief Financial Officer

Well, Craig, based on the LIBOR forward curve, I look at it every week kind of as you know, changes as the market changes. But based on that, we're currently assuming that there's a slight nominal amount of increase in terms of our overall interest expense relates to the swaps for this year. But just keep in mind that 75% of our debt is still fixed rate even beyond that. So not a whole amount of increase this year.

Craig Mailman -- Citi -- Analyst

What's the net impact if you just look at the swap rate versus where the LIBOR curve is telling you?

Mike Haines -- Chief Financial Officer

Well, our slots are just over 3%. So if I had 100 basis points of the current LIBOR, you're right in that range anyway, that's why. So that's kind of a nominal impact. I'm sure you keep an eye on the LIBOR curves as well.

They've been coming down over the last weeks. I think there's probably a reaction to the potential that the Fed won't be able to raise rates quite as high as the interest given the potential recessionary factors.

Craig Mailman -- Citi -- Analyst

OK. And then the second piece, the $80 million of potential acquisitions versus the $30 million to $35 million disposal. And I know you guys may even not $30 million behind that. But from a timing perspective, what are you guys assuming for the disposed versus when you could actually land acquisitions, if possible.

Stuart Tanz -- Chief Executive Officer

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 of dispositions at the market properties. So it will -- I think when you look at the acquisition to 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 -- Citi -- Analyst

OK. That's helpful. But just one more for me, and I know Michael has one. But you guys reiterated that tenant credit is looking very strong here.

But 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 has there been any material impact when you guys look at rent coverage ratios and like how much more these retailers need to be stressed, especially kind of rents have risen in the last couple of years.

Stuart Tanz -- Chief Executive Officer

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're really not seeing 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 -- Citi -- Analyst

Stuart, it's Bilerman. A quick question. As 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 regards 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 -- Chief Executive Officer

It's a great question, Mike. Mike, you've known me and this team for decades at this point. There is a reason why we're not in a 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 is because the West Coast is so tough to entitle because of the topography but more importantly, the entitlement process, what we continue to -- what we've learned over the years and what we continue to see is that the process is long, 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 at 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 and 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 seen, sell them except for the Crossroads. The Crossroads is such a unique project and brings 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 -- Citi -- Analyst

Right. 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 and roll that capital into acquisitions 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 on 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 -- Chief Executive Officer

Exactly.

Michael Bilerman -- Citi -- Analyst

OK. Thanks for the time. Thank you.

Operator

And your next question comes from the line of Christopher Lucas from Capital One. Please go ahead.

Christopher Lucas -- Capital One Securities -- Analyst

Hey. Good morning, guys. A 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, sort of the sales cycle of leasing new deals. There's no delays. You're not really finding that tenants are dragging their feet at all at this point in the macro environment.

Rich Schoebel -- Chief Operating Officer

No, I think the demand is stronger than it has been. I do -- I think it has taken a touch longer on some of the negotiations a little bit more back and forth. But beyond that, there's still multiple tenants buying 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 -- Capital One Securities -- Analyst

OK. 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?

Rich Schoebel -- Chief Operating Officer

Well, obviously, every transaction has to stand on its own, but there are certain leases where it's potentially a fair market value is 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 look at that transaction, lock up a tenant for 10 years versus five years, give them a few more options at the back end and get more rent today than we would have if they've just taken down their five-year option. We're basically creating rent for term. We're getting more rent for additional years of control.

Christopher Lucas -- Capital One Securities -- Analyst

Appreciate that. And then just -- and I don't know if this is for you or for Mike, but on the sign to build spread that's $7.9 million. How much of that is expected to sort of begin or commence in '22 -- or at some point?

Rich Schoebel -- Chief Operating Officer

We expect most of that will come online in '22. Obviously, we'll be adding to it as we go throughout the remainder of the year. But of the $7.9 million that's sitting there right now, we expect that most -- the majority of that will be online by the end of the year.

Christopher Lucas -- Capital One Securities -- Analyst

OK. And then Stuart, last question for you from me, which is just trying to understand how you're thinking about the markets you're in. 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 specific Northwest exposure?

Stuart Tanz -- Chief Executive Officer

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 times -- the only way we've been able to penetrate these markets is really during the height of a recession, the high of the credit crisis, where we've been able to get a hold of 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, 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 when in the rows.

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.

Christopher Lucas -- Capital One Securities -- Analyst

Great. Thank you. That's all I had this morning.

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 -- Chief Executive Officer

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.

Duration: 0 minutes

Call participants:

Laurie Sneve -- Chief Accounting Officer

Stuart Tanz -- Chief Executive Officer

Mike Haines -- Chief Financial Officer

Rich Schoebel -- Chief Operating Officer

Juan Sanabria -- BMO Capital Markets -- Analyst

Craig Schmidt -- Bank of America Merrill Lynch -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Michael Mueller -- J.P. Morgan -- Analyst

Paulina Schmidt -- Green Street Advisors -- Analyst

Linda Tsai -- Jefferies -- Analyst

Craig Mailman -- Citi -- Analyst

Michael Bilerman -- Citi -- Analyst

Christopher Lucas -- Capital One Securities -- Analyst

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