Retail Opportunity Investments Corp. (ROIC) Q4 2022 Earnings Call Transcript

Retail Opportunity Investments Corp. (NASDAQ:ROIC) Q4 2022 Earnings Conference Call February 16, 2023 12:00 PM ET

Company Participants

Laurie Sneve - Chief Accounting Officer

Stuart Tanz - Chief Executive Officer

Michael Haines - Chief Financial Officer

Richard Schoebel - Chief Operating Officer

Conference Call Participants

Wesley Golladay - Robert W. Baird & Co.

Lizzy Doykan - Bank of America Merrill Lynch

Juan Sanabria - BMO Capital Markets

Craig Mailman - Citigroup Inc.

Todd Thomas - KeyBanc Capital Markets

Michael Mueller - JPMorgan Chase & Co.

Operator

Welcome to nan Retail Opportunity Investments 2022 Fourth Quarter and Year-End Conference Call. Participants are presently successful a listen-only mode. Following nan Company’s prepared remarks, nan telephone will beryllium unfastened up for questions.

Now, I would for illustration to present Laurie Sneve, nan Company’s Chief Accounting Officer.

Laurie Sneve

Thank you. Before we begin, please statement that definite matters which we will talk connected today's telephone are forward-looking statements wrong nan meaning of national securities laws. These forward-looking statements impact risks and different factors which tin origin existent results to disagree importantly from early results that are expressed aliases implied by specified forward-looking statements. Participants should mention to nan Company's filings pinch nan SEC, including our astir caller Annual Report connected Form 10-K, to study much astir these risks and different factors.

In addition, we will beryllium discussing definite non-GAAP financial results connected today's call. Reconciliation of these non-GAAP financial results to GAAP results tin beryllium recovered successful nan Company's quarterly supplemental, which is posted connected our website.

Now, I’ll move nan telephone complete to Stuart Tanz, nan Company’s Chief Executive Officer. Stuart?

Stuart Tanz

Thank you, Laurie, and bully day, everyone. Here pinch Laurie and maine coming is Michael Haines, our Chief Financial Officer; and Rich Schoebel, our Chief Operating Officer.

We are pleased to study that during 2022 done implementing our longstanding strategical spot operations leasing and finance initiatives, we proceed to heighten nan semipermanent intrinsic worth and competitory position of ROIC's portfolio and business. In nan look of important economical headwinds and uncertainty that continued passim 2022, our grocery-anchored portfolio again proved pinch a time tested resiliency and value.

In fact, capitalizing connected nan longstanding entreaty and spot of our portfolio successful West Coast markets, we had 1 of nan best, astir progressive years to day successful position of spot operations and leasing, mounting a caller number of caller records. We achieved a caller grounds precocious portfolio lease rates surpassing 98% astatine year-end.

Our grounds precocious lease complaint was driven by nan ongoing beardown request for abstraction and our expertise to capitalize connected that demand. In measurement pinch achieving a grounds precocious lease rate, we besides achieved a caller grounds for nan institution successful position of our wide leasing activity. Additionally, we proceed to execute beardown rent growth. In fact, 2022 represented our 10th twelvemonth successful a statement of achieving rent maturation connected some caller leases signed during nan year, arsenic good arsenic renewals.

With respect to caller leases, 2022 was besides our 10th consecutive twelvemonth of achieving double-digit rent growth, and it is besides our six-year wherever we achieved rent increases successful excess of 20%. In short, 2022 proved to beryllium a stellar twelvemonth connected nan leasing front, again successful nan look of challenging and uncertain economical environment. While we activity to heighten nan underlying worth of our existing portfolio done our leasing initiatives, we besides proceed to activity connected enhancing our activity position and beingness connected nan West Coast done our relationship-driven finance program.

During 2022, we proceed to capitalize connected our off-market sources to summation unsocial entree to get exceptional irreplaceable properties. In total, we acquired 5 fantabulous grocery-anchored shopping centers encompassing complete a 0.5 cardinal quadrate feet of abstraction successful total. These caller acquisitions fresh our subject risk-adverse strategy and our existing portfolio perfectly. They are good situated successful our halfway markets, 3 being located successful nan Seattle market, 1 successful Portland, and 1 successful nan San Francisco market.

Within each of these markets, nan properties are good established successful nan bosom of able communities. All 5 shopping centers features beardown market operators that are longstanding existing tenants of ours on pinch a wide scope of necessity work and destination tenants, galore of which are existing tenants of ours arsenic well. While nan caller acquisitions supply a unchangeable guidelines of rate flow, they besides connection a wealthiness of opportunities to summation rate travel and heighten nan underlying worth going forward. Within conscionable a fewer short months of having acquired nan properties, we person already leased nan bulk of nan disposable space.

Looking ahead, location is an abundance of opportunities to re-lease beneath marketplace abstraction complete nan adjacent respective years. There is besides a number of opportunities to reconfigure expiring abstraction and pull caller tenants astatine higher rents arsenic good arsenic imaginable description and powered opportunities.

In summary, our 2022 acquisitions are an fantabulous strategical fresh by each measures and heighten nan worth of our wide portfolio and beingness connected nan West Coast. Additionally, our finance activities together pinch our leasing accomplishments served to make coagulated financial results.

I'll move nan telephone complete now to Michael Haines, our CFO, to return you done those details. Mike?

Michael Haines

Thanks, Stuart. For nan twelvemonth ended 2022, full revenues accrued by 10.1% complete 2021. Operating income, excluding nan summation connected waste from spot dispositions accrued by 15.6% complete 2021. With respect to spot level nett operating income connected nan same-center comparative rate basis, NOI for nan twelvemonth 2022 accrued by 4.6% complete 2021, including a 5% summation successful nan 4th quarter.

Turning to GAAP nett income. For nan full-year 2022, GAAP nett income attributable pinch communal shareholders was $0.42 per diluted stock arsenic compared to GAAP nett income of $0.44 per diluted stock for 2021. Included successful 2021, GAAP nett income was $22.3 cardinal summation connected waste of existent property arsenic compared to a $7.7 cardinal summation successful 2022. In position of costs from operations, full FFO for nan twelvemonth 2022 accrued by 13.6% complete 2021. On a per stock basis, FFO was a $1.10 per diluted stock for 2022, representing a 10% summation complete 2021, and for nan 4th fourth of 2022, FFO accrued by 8% to $0.27 per diluted share.

Turning to our financing activities. During 2022, we raised $61.4 cardinal of capital, including $36.2 cardinal from a spot disposition and $25.2 cardinal that we raised done our ATM program, issuing astir 1.3 cardinal communal shares. With respect to our indebtedness profile, we proceed to trim secured debt. During 2022, we retired 2 mortgages totaling $23.5 million. Today, we only person 2 owe loans remaining connected our equilibrium sheet, meaning 91 retired of our full 93 shopping centers are unencumbered and secured indebtedness is now down to a caller grounds debased of conscionable 4.3% of our full indebtedness outstanding astatine year-end.

In summation to lowering our secured debt, during 2022, we proceed to activity astatine enhancing nan company's financial ratios, including nan company's nett indebtedness ratio. You whitethorn callback that backmost during nan tallness of nan pandemic successful 2022, nan company's nett indebtedness annualized EBITDA ratio had reached 7.9x, which we successfully lowered down to 7x by nan 4th fourth of 2021. During 2022, we successfully lowered nan ratio further down into nan mid-6s, ending nan twelvemonth pinch nan nett indebtedness ratio of 6.6x for nan 4th fourth of 2022, which is debased arsenic our 4th fourth nett indebtedness ratio has been since 2016.

Looking ahead, successful position of our first guidance for 2023, connected nan affirmative side, we expect same-center NOI to turn successful 2% to 5% scope for 2023 pinch a bully information of that maturation being driven simply by contractual rent increases. However, we expect that spot level maturation will beryllium offset by higher liking costs. Based connected nan forecasted output curve of 2023, we presently expect that nan company's liking disbursal will beryllium successful nan $68 cardinal to $73 cardinal scope for 2023, depending successful portion upon our finance activities during nan year.

And pinch respect to nan company's finance activities, nan low-end of our first guidance assumes that we get $100 cardinal while trading $200 cardinal of properties, and efficaciously utilizing nan waste proceeds to money acquisitions and salary down debt, which if nan twelvemonth plays retired that way, we expect that our nett indebtedness ratio would driblet down to nan low-6s. The precocious extremity of our guidance assumes that we get $200 cardinal while trading $50 cardinal of properties, and that we finance nan acquisitions pinch nan operation of waste proceeds, indebtedness and equity, nan extremity being to support our nett indebtedness ratio successful nan mid-6s.

Taking these different various assumptions into consideration, we person group our first FFO guidance scope for 2023 astatine a $1.05 to $1.11 per diluted share. Additionally, successful position of rental gross recognition, you whitethorn callback that backmost during nan pandemic, we did not move immoderate tenants to being connected a rate basis. As a result, arsenic it relates to 2023, there's nary further aliases incremental rental gross successful our guidance coming from reinstating rate ground tenants.

Lastly, pinch respect to nan bonds that mature astatine nan extremity of 2023, we are presently exploring assortment of refinancing strategies. However, it's excessively early to opportunity definitively what strategy we will prosecute arsenic it will dangle successful portion connected nan marketplace conditions arsenic we move done nan year. Our guidance assumes that we refinance nan bonds successful nan 4th quarter. In addition, our goals to little our floating complaint indebtedness vulnerability by reducing a information of return indebtedness if marketplace conditions permitting.

Now I'll move nan telephone complete to Rich Schoebel, our COO. Rich?

Richard Schoebel

Thanks, Mike. As Stuart highlighted, 2022 proved to beryllium 1 of nan best, astir progressive years connected grounds for nan institution successful position of leasing. One of nan halfway drivers of our occurrence is nan truth that much and much necessity work and destination tenants proceed to gravitate towards unfastened aerial shopping centers, particularly grocery-anchored centers, and particularly those properties that are located successful desirable, highly protected markets specified arsenic ours connected nan West Coast.

At nan commencement of 2022, our portfolio lease rates stood astatine a very beardown 97.5%. Taking afloat advantage of nan ongoing request for space, we steadily accrued our portfolio lease complaint arsenic we move done nan twelvemonth reaching a caller all-time grounds precocious of 98.1% astatine year-end. Along we are being very pleased to execute a caller grounds precocious lease rate, we are besides arsenic gratified that we person maintained our portfolio lease complaint supra 96% for 10 consecutive years now, moreover surpassing our leasing accomplishments, making love backmost to our clip astatine Pan Pacific.

Breaking nan 98.1% down betwixt anchor and non-anchor space, our anchor abstraction remained astatine 100% leased passim 2022. In fact, we person maintained our anchor abstraction astatine 100% leased each 4th for nan past six years now. In position of non-anchor space, we accrued our shop abstraction lease complaint steadily arsenic we progressed done 2022, ending nan twelvemonth astatine a caller grounds precocious of 96%. Our grounds precocious lease complaint was driven by our grounds leasing activity.

Back astatine nan opening of nan year, we had 745,000 quadrate feet scheduled to expire during each of 2022. Thanks to our squad moving aggressively and creatively and maneuvering and optimizing existing tenant spaces to free up caller abstraction on pinch proactively recapturing abstraction and renewing abstraction early. We leased a grounds 1.6 cardinal quadrate feet of abstraction during 2022, representing nan 12th consecutive twelvemonth wherever we erstwhile again leased astir double nan magnitude of abstraction primitively scheduled to expire. While leasing a grounds magnitude of space, we besides proceed to execute coagulated rent growth, our 10th consecutive twelvemonth successful fact, arsenic Stuart highlighted.

Specifically, during 2022, we achieved a beardown 23% summation successful same-space, comparative rate guidelines rents connected caller leases, and we achieved an 8% summation successful rate guidelines rents connected renewals. In summation to our grounds leasing activity, 2022 besides proved to beryllium our astir progressive successful twelvemonth successful position of getting caller tenants unfastened and operating. During 2022, caller tenants representing $9.5 cardinal of incremental yearly guidelines rent connected a rate ground unfastened and commenced paying rent, again, a caller record.

Taking into relationship each of our caller leasing activity during 2022 astatine nan commencement of 2023, nan magnitude of yearly incremental guidelines rent from caller tenants that haven't yet opened and commenced paying rent stood astatine $7.6 million. We are moving proactively to get these tenants unfastened and expect that nan bulk will do truthful arsenic we move done nan caller year.

And speaking of nan caller year, request for abstraction continues to beryllium beardown crossed our portfolio, specified that we expect to person different coagulated year. In position of our portfolio lease rate, we expect to support our wide lease complaint successful nan 97% to 98% scope arsenic we move done nan year. In position of lease rollover, specifically anchor expiration, a year-ago astatine nan outset of 2022, we had 25 anchor leases scheduled to expire successful 2023, totaling 723,000 quadrate feet.

During this past year, we renewed and released early, very early successful fact, 12 of nan 25 anchor leases specified astatine nan commencement of 2023, we had conscionable 13 anchor leases scheduled to expire, totaling 393,000 quadrate feet, and we person already renewed six of these anchor leases, including 5 that were not scheduled to expire until nan 2nd half of 2023, and we are adjacent to finalizing 4 different anchor renewals.

Lastly, successful position of non-anchor space, astatine nan commencement of 2023, we had 466,000 quadrate feet of shop abstraction scheduled to expire. Similar to our anchor releasing activity, we are already difficult astatine activity and having bully occurrence astatine renewing and releasing shop tenants.

Now I will move nan telephone backmost complete to Stuart.

Stuart Tanz

Thanks, Rich. As our operating and leasing results firmly bespeak our grocery-anchored portfolio continues to execute astatine a beardown level, we expect that to proceed successful 2023. Being consistently supra 96% leased each twelvemonth for nan past 10 years and leasing 2x nan magnitude of abstraction scheduled to expire year-after-year, speaks not only to nan spot and entreaty of our portfolio, it besides speaks to our hands-on approach. Additionally, it serves to create an important basal favorable leasing move for us.

Being fundamentally afloat leased pinch accordant request for abstraction year-after-year intends that we are capable to beryllium disciplined and selective successful position of nan tenants we lease to, ever pinch an a beardown oculus towards managing downside consequence and making judge that we support a beardown and unchangeable guidelines of necessity work and destination tenants, which is nan cornerstone of our business arsenic we'd for illustration to say.

Over nan years, this risk-adverse strategy has proven to beryllium instrumental successful our expertise to make a gross watercourse that is accordant and reliable year-after-year. In position of nan prospects of increasing our portfolio successful 2023, while nan acquisition marketplace has been fundamentally idle since mid-2022, we've continued to support an progressive speech pinch our off-market sources, immoderate of which present precocious person been progressively proactive successful reaching retired to us, which we position arsenic a affirmative sign. Additionally, we are opening to perceive from brokers that some buyers and sellers are willing successful starting to perchance participate nan marketplace again, which we besides position arsenic a affirmative sign.

That said, until there's greater clarity successful position of pricing and greater clarity successful position of liking rates and nan superior markets, we intend to proceed being diligent and cautious. With respect to nan imaginable acquisition and disposition activity successful our guidance, we are assuming it takes spot during nan 2nd half of 2023.

Finally, arsenic we caput into a twelvemonth that is expected to again beryllium challenging successful position of economical unit and uncertainty, we judge that we are good positioned to look nan challenges. Our squad has successfully operated grocery-anchored shopping centers connected nan West Coast for astir 30 years now done each kinds of challenges. We judge that we person nan skillset and acquisition to proceed operating our portfolio astatine a precocious level.

Additionally, based connected our acquisition complete nan years, challenging times often create unsocial opportunities, which we judge we are good positioned to capitalize on. Most important, we intend to enactment focused and existent to our longstanding disciplined business scheme that has and ever will beryllium focused connected cautiously building semipermanent value.

Now, we will unfastened up nan telephone for your questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first mobility comes from Wes Golladay of R.W. Baird. Your statement is open.

Wesley Golladay

Hey. Good morning, everyone.

Stuart Tanz

Good morning, Wes.

Wesley Golladay

Hey, Stuart. I conscionable want to spell backmost to nan floating rate, it's astir 27% of nan indebtedness correct now. I deliberation it's a large area of interest for investors. Just curious, you person clip – peculiar clip you want to reside that. Can you return advantage of nan inverted output curve? You did mention astir paying down secured debt, but could you do secured indebtedness and would location beryllium immoderate prepayment punishment connected nan word loan?

Michael Haines

Hey, Wes. This is Mike. With respect to nan floating complaint exposure, we'd for illustration to refinance nan bulk of that arsenic we move done nan twelvemonth and perchance we salary down immoderate of it utilizing a operation of fixed complaint debt, waste proceeds, and perchance immoderate equity depending connected marketplace conditions, but beryllium blimpish our guidance assumes that nan floating complaint indebtedness remains outstanding.

Stuart Tanz

No pre-payment connected nan word loan?

Michael Haines

That’s pre-payable astatine immoderate time, but…

Stuart Tanz

And yes, location are different options to unafraid indebtedness aliases different alternatives that we are looking astatine arsenic well.

Wesley Golladay

And I guess, wherever could you get at? They telephone it for illustration a five-year, seven-year term. Is that nan timeframe you'd beryllium looking at? Would you spell 10-year? What's connected nan paper here?

Michael Haines

I deliberation each of those are fundamentally disposable Wes. You know, nan 5s are astir apt a small spot little costly than nan 10s, but you're astir apt looking astatine nan high-5s, low-6s, for a five, 7 aliases 10-year deal.

Wesley Golladay

Okay, fantastic. And then, Stuart, I deliberation you mentioned that acquisitions would beryllium backmost half loaded. Just funny that remark is besides for dispositions and do you expect to person a affirmative dispersed betwixt your plus recycling? Is location immoderate non-income producing assets successful portion of that disposition plan?

Stuart Tanz

Yes. I mean, non-income producing assets would beryllium immoderate of nan densification. The onshore that we've entitled, we are moving that to nan marketplace complete nan adjacent respective weeks. We waited. We thought it'd beryllium diligent to hold for this clip wherever there's much clarity successful nan market. And successful position of acquisitions and dispositions, yes, we are readying to move done nan twelvemonth pinch an accent connected nan 2nd half of nan twelvemonth wherever location will beryllium much clarity successful position of pricing. But much importantly, we intend to beryllium buying accretively to our costs of capital.

Wesley Golladay

Got it. And past conscionable 1 past one, I deliberation you person a bad indebtedness reserve that's astir a 1 cardinal higher versus really you started past year. Is this conscionable a wide macro interest aliases do you person immoderate known bankruptcies astatine this moment?

Richard Schoebel

Our bad indebtedness reserve to beryllium a conservative, we mostly fund bad indebtedness each twelvemonth astatine astir 1.5% of full revenue. But that said, historically, our existent bad indebtedness has been typically beneath 1% of each twelvemonth astatine nan debased extremity of our guidance is astatine $5 million. All of our bad indebtedness guidance is assuming, taken into relationship each of our tenant base.

Stuart Tanz

At nan existent time, Rich, we don't really person anyone connected our watch list, conscionable truthful you know.

Wesley Golladay

All right. Fantastic. Thanks everyone.

Stuart Tanz

Yes.

Operator

Thank you. [Operator Instructions] Our adjacent mobility comes from nan statement of Craig Schmidt of Bank of America. Your statement is open.

Lizzy Doykan

Hi, bully morning.

Stuart Tanz

Good morning, Craig.

Lizzy Doykan

Good morning. This is Lizzy Doykan connected for Craig this morning. I conscionable wanted to inquire astir nan moving pieces to your same-store NOI guide. It conscionable seems for illustration a wider scope of 2% to 5%. And if you could conscionable talk astir nan moving pieces location really successful position of occupancy, contractual rent bumps, spreads, and effect from bad debt. Just want to spot what mightiness beryllium swinging that to nan little extremity versus nan higher end? Thanks.

Stuart Tanz

Well, I've sewage immoderate prepared remarks to locomotion you through. So if you commencement pinch our 4th fourth 2022 FFO $0.27 a stock and you analyse that, it's a $1.08. So nan indebtedness of our guidance assumes that we waste a $100 cardinal of properties much than we get successful 2023. So nan dilutive effect of that together pinch our assumptions of higher liking costs, higher G&A and higher bad debt, offset partially by 2% NOI maturation for 2023 is reflective successful nan $1.05 astatine nan debased extremity of nan range. The $1.11 astatine nan precocious extremity takes into relationship acquiring $150 cardinal much properties than we sell, positive 5% NOI growth. So it's benignant of a scope location together pinch bad indebtedness and G&A staying comparable to 2022, while being partially offset by added liking expense. So it's different components, chiefly a scope of soul maturation and adjusted for liking expense, G&A and bad debt.

Lizzy Doykan

Okay. Got it. Thanks for that detail. And past connected nan occupancy front, conscionable pinch nan – you're continuing to spot caller grounds highs, you're astatine 98.1%. I judge you mentioned seeing a continued scope wrong 97%, 98% this year. Just funny connected wherever nan upside is and if this is really – you spot nan opportunity much truthful connected nan mini shop broadside versus anchors, wherever is nan room for maturation here? Thank you.

Richard Schoebel

Sure. This is Rich. We still spot a batch of opportunities passim nan portfolio, whether it's shop abstraction aliases anchor space. There's still respective leases that are measurement beneath marketplace that we proceed to activity to recapture and merchandise astatine nan existent marketplace rent. So we still spot bully rental spreads going guardant while maintaining that occupancy.

Lizzy Doykan

Okay. Thanks. And if I could inquire 1 more. Just going backmost to acquisitions pinch that being much backmost weighted, it looks for illustration you presume a reasonably dependable magnitude from nan anterior mates years. Is this based connected visibility you person connected existent opportunities aliases are location thing benignant of – immoderate opportunities you person much visibility connected based connected your discussions?

Stuart Tanz

Yes. The pipeline is surely building and it is based connected a number of discussions we've had complete nan past respective months pinch owners connected nan West Coast. So you look astatine nan guidance retired there, we are anticipating, again building nan acquisition pipeline arsenic we get done this 4th and next. But we expect that a number of these transactions will typically adjacent and we'll get nan use of that NOI successful nan 2nd half of nan year.

Lizzy Doykan

Okay. Thank you.

Operator

Thank you. [Operator Instructions] Our adjacent mobility comes from nan statement of Juan Sanabria of BMO. Your statement is open.

Stuart Tanz

Good morning, Juan.

Juan Sanabria

Good morning. Just hoping you tin speak a small spot astir really bullish you are fixed nan grounds leasing you've had and seemingly is continuing into 2023, I possibly holding backmost abstraction and pushing complaint a small spot much and beryllium consenting to fto retention gaffe conscionable to effort to seizure immoderate of that mark-to-market, aliases are you not really conscionable because nan macro's uncertain and you conscionable really want to support things dependable and debar immoderate imaginable pitfalls?

Stuart Tanz

Yes. I mean, look nan marketplace is very beardown successful position of tenant demand, and I deliberation I said successful my remarks that nan attraction present is to return advantage of this precocious occupancy arsenic it relates to getting a spot much fierce pinch nan tenant base. That's nan advantage of being truthful good leased. So nan reply is yes. We will get much fierce that whitethorn make a touch much vacancy done nan portfolio. But connected nan different hand, we're expecting lease aliases spreads, arsenic you mightiness say, to beryllium arsenic bully aliases amended fixed this precocious occupancy arsenic we move done 2023.

Juan Sanabria

And possibly a mobility for Rich. Could you supply immoderate colour connected nan cadence of economical occupancy aliases build occupancy, should we expect to dip seasonally successful nan first quarter? And possibly immoderate comments connected wherever expect to extremity nan twelvemonth from an economical aliases build perspective?

Richard Schoebel

Sure. I mean, I don't deliberation that we're expecting a dip successful nan opening portion of nan year. I deliberation that we are expecting to steadily beryllium bringing successful this income passim nan year. There are a fewer ample leases that are commencing successful nan first quarter. But arsenic we ever do each year, we're doing different leasing successful nan meantime. So while we'll beryllium bringing that online, we'll besides beryllium adding to nan number.

Juan Sanabria

Okay. And possibly conscionable 1 past 1 for me. In position of nan entitlements, really should we beryllium reasoning astir nan various opportunities and what you're looking to monetize and what that could correspond astatine nan ample disposition range? And thing you're looking to support connected equilibrium sheet, nan Crossroads perhaps?

Richard Schoebel

Well, Crossroads is still moving done nan permitting process, and that's taken longer because of nan municipality much than thing else. So there's not overmuch superior walk this twelvemonth astatine nan Crossroads, arsenic it relates to densification aliases that peculiar project. The different 2 [indiscernible] afloat entitled, and again we person a beautiful bully connection connected it correct now, but we are taking it to nan marketplace shortly, and that will hopefully waste and adjacent successful 2nd aliases 3rd 4th of nan year. And Nevada is correct down that. Both those properties will relationship for astir $20 million, $25 cardinal successful proceeds. And we're expecting to person some of those transactions done successful 2023, which we'll usage that rate evidently to salary down indebtedness connected nan equilibrium sheet.

Juan Sanabria

Thank you.

Operator

Thank you. [Operator Instructions] Our adjacent mobility comes from nan statement of Craig Mailman of Citi. Your statement is open.

Stuart Tanz

Good morning, Craig.

Craig Mailman

Good morning. Just want to spell back, Mike, to your comments connected nan adaptable complaint debt. I understand you guys are going to salary it down, but going forward, should we expect benignant of your adaptable complaint vulnerability to beryllium really benignant of taxable conscionable to nan statement balance? Are you guys going to move distant from utilizing this successful benignant of shifting much towards fixed rate?

Michael Haines

Yes. I deliberation we're going to decidedly move much towards fixed rate. I ideally for illustration to turmoil that retired – not turmoil, but fixed complaint chiefly done nationalist enslaved offerings arsenic we move done nan year. The turmoil itself is floating, but it doesn't mature for a mates years, truthful we've sewage immoderate clip nan marketplace to germinate and settee down until we get much favorable pricing. But we allowed it to spell floating for flexibility. But nan thought is we for illustration to person mostly fixed complaint debt.

Craig Mailman

Okay. And if you guys determine not to salary disconnected nan word loan, conscionable fixed nan uncertainty successful nan complaint market. Would you guys look to put a switch connected aliases headdress aliases thing conscionable to fastener it in?

Michael Haines

Potentially a swap. I mean, nan rates person already moved up and nan swaps person moved up accordingly. So it conscionable depends connected nan marketplace conditions.

Craig Mailman

Okay. Well, Stuart, moving backmost to your commentary connected nan acquisition market. I mean, what's driving do you deliberation nan move for sellers to benignant of travel backmost successful nan market? Is it indebtedness expiration driven aliases thing else?

Stuart Tanz

It's chiefly indebtedness expirations, arsenic good arsenic nan truth that superior is constrained retired location for these sellers. And we still person immoderate OP transactions that we had beautiful good successful nan container past twelvemonth that we're still successful interaction with. So I deliberation we whitethorn spot immoderate of that arsenic we move done nan twelvemonth arsenic well, which would beryllium bully from a equilibrium expanse perspective. But all-in-all, it's really being driven done nan dynamics of nan wide superior markets arsenic good arsenic nan financing broadside aliases nan indebtedness side, arsenic you would say.

Craig Mailman

And from a required return perspective, benignant of wherever are you reasoning astir your hurdles conscionable fixed wherever your costs of superior is, wherever nan indebtedness marketplace has moved to versus possibly wherever you're having conversations today? Like, is location a nickname that nan caller hurdle rates are nan norm, aliases benignant of what's nan guidance to that from sellers?

Stuart Tanz

Well, I mean, there's nary existent norm to speak of astatine this constituent because there's really been nary benchmark – general benchmark that's been group connected nan West Coast for precocious value grocery-anchored centers. Have headdress rates moved up? Yes. But there's been thing that has really shown america that there's been a worldly move successful valuations.

So arsenic we look guardant successful position of increasing nan company, we're overmuch much focused connected buying assets astir apt successful nan high-5s, low-6s, that's much importantly accretive, not truthful overmuch connected time one, but beautiful quickly fixed our guidance team's expertise to really thrust worth done an summation successful either vacancy aliases rollover arsenic you mightiness say, that's really really we're going to proceed to present arsenic we person successful nan past, a bully punch to NOI successful increasing nan institution this year.

And again, arsenic you astir apt know, we've been retired doing this for a long, agelong time, truthful we've sewage a beautiful bully position of nan marketplace arsenic to really we're going to create that worth successful position of what we're buying aliases what's successful nan pipeline.

Craig Mailman

And what does that 5 to six benignant of construe to connected an unlevered IRR perspective, conscionable fixed benignant of what's happening connected nan rent market, really you guys are underwriting that, et cetera?

Stuart Tanz

On an unlevered basis, our extremity wrong 18 months of acquiring these assets is nan mid-6s aliases nan high-6s. Tough to show you wherever that introduction constituent is, but that's our criteria, and that's nan extremity that we group connected each transaction that we do.

Craig Mailman

And conscionable 1 much for me. On nan leasing side, you guys are very acold on connected nan anchor broadside of things, but possibly arsenic it pertain to conscionable for illustration nan market side, conscionable fixed what's happening pinch ostentation and user preferences. As you guys look to push rents connected those, benignant of what does that equate to connected an occupancy costs for those grocers? And really overmuch room do you deliberation you person to push rents successful this situation fixed what's happening connected their disbursal side?

Richard Schoebel

Well, I mean, again, this is Rich. A batch of these market leases are reasonably aged and beneath market. Several of them are coming up pinch nary options remaining, which is creating opportunities for america passim nan portfolio wherever we whitethorn person 1 lease pinch a grocer that's expiring pinch nary options, and they're asking to reset that lease. And past we look astatine nan entirety of nan portfolio and are capable to thrust rents, get group to return down options early aliases get further rent astatine different locations. So we proceed to spot bully opportunities to proceed capturing that rent. And immoderate of these anchored leases are expiring astatine single-digit yearly rent numbers. So there's a batch of room there.

Craig Mailman

Okay. Thank you.

Operator

Thank you. [Operator Instructions] Our adjacent mobility comes from nan statement of Todd Thomas of KeyBanc. Your statement is open.

Stuart Tanz

Hey, Todd.

Richard Schoebel

Good morning, Todd.

Todd Thomas

Hi, bully morning. I conscionable wanted to circle backmost to nan dispositions existent speedy here. Stuart, I admit nan added colour astir nan onshore income that you're looking to monetize. For nan unit centers that you whitethorn waste aliases are you targeting non-core assets that are possibly a small spot higher yielding wrong nan portfolio aliases are they little headdress complaint deals that mightiness thief a small spot much pinch nan indebtedness simplification efforts connected benignant of a possibly non-dilutive basis. As I look astatine nan adaptable complaint indebtedness that's astatine a costs of supra 5.5% today, apt heading a small spot higher, tin you waste assets astatine a little headdress complaint than that?

Stuart Tanz

Yes. You tin waste assets astatine a little headdress rate, and we are looking astatine assets that chiefly person very small soul maturation complete nan adjacent respective years. As you evidently cognize Todd, a batch of nan portfolios is 100% occupied. But nan bully news is nan astir sought aft conception of nan assemblage is grocery-anchored shopping centers. So we consciousness beautiful bully successful position of moving these assets. And again, it will beryllium really generated connected nan floor plan of nan plus successful its soul growth.

Todd Thomas

Okay. And truthful are dispositions going to beryllium utilized to lucifer money acquisitions I mean aliases is it benignant of separate, right, wherever nan dispositions that you mightiness look to execute passim nan twelvemonth are independent of acquisition activity that you whitethorn aliases whitethorn not really spot materialized later successful nan year?

Stuart Tanz

Yes. I mean, it's a operation of paying indebtedness down and backing growth. It will beryllium a operation of some depending connected really overmuch we waste and nan velocity of trading those assets.

Todd Thomas

Okay. But you're moving guardant pinch disposition plans again, independent of acquisitions, I mean location are assets that you're looking to monetize passim nan year, whether aliases not immoderate acquisition opportunity aboveground that meet your return requirements. Is that right?

Stuart Tanz

That is correct.

Todd Thomas

Okay. And past besides conscionable pinch regards to assets that you mightiness look to sell, are location definite markets wherever you mightiness want to trim vulnerability wherever immoderate of those income mightiness beryllium targeted?

Stuart Tanz

No, not really. We're looking astatine each of nan markets we're in, and again, we're looking astatine nan full portfolio. You whitethorn get much successful 1 marketplace than nan other, but nan reality is that each of our markets are performing highly well. So we're successful a bully spot successful position of picking and choosing which assets, but chiefly focused connected nan truth that these assets won't present a amended return than astir of nan – remainder of nan portfolio complete nan adjacent respective years.

Todd Thomas

Okay. All right. That's helpful. Thank you.

Operator

Thank you. [Operator Instructions] Our adjacent mobility comes from nan statement of Michael Mueller of JPMorgan. Again, Michael Mueller of JPMorgan, your statement is open.

Michael Mueller

Yes. Hi.

Stuart Tanz

Good morning, Mike.

Michael Mueller

Hey. Good morning. Two speedy ones. So what does guidance presume for beingness occupancy astatine year-end compared to [indiscernible] wherever you ended 2022? And past I conjecture conscionable pursuing up connected nan acquisition and disposition questions that you've had truthful far. Would you rumor equity astatine these levels? If nan woody travel was location and possibly dispositions didn't materialize?

Stuart Tanz

Well, I mean, I'll reply nan equity question. I'll fto Rich reply nan first portion of nan question. But no, we're not issuing equity successful position of wherever our banal is trading. At nan coming time, Rich, do you want to answer?

Richard Schoebel

Well, I mean, you're asking astir build occupancy astatine nan extremity of nan year, aliases physical?

Michael Mueller

Yes, build.

Richard Schoebel

I don't deliberation we person that number successful beforehand of america here. I mean, we would expect that it would beryllium successful nan aforesaid range. As you know, it has been historically, hopefully a touch higher.

Stuart Tanz

Yes. Let's conscionable opportunity if each $7.6 cardinal came in, I deliberation nan mostly of it expected to commencement by nan extremity of September. But that'll beryllium replaced by nan leasing activity. So incremental, it should inch higher. But it's ever being replaced by caller opportunities to re-lease.

Michael Mueller

Okay. Thank you.

Stuart Tanz

Thanks, Mike.

Operator

Thank you. [Operator Instructions] I'm showing nary further questions astatine this time. I'd for illustration to move nan telephone backmost complete to Stuart Tanz for immoderate closing remarks.

Stuart Tanz

In closing, acknowledgment to each of you for joining america today. As always, we admit your liking successful ROIC. If you person immoderate further questions, please interaction Laurie, Mike, Rich and myself directly. Also, you tin find further accusation successful nan company's quarterly supplemental package, which is posted connected our website arsenic good arsenic our 10-K. Thanks again, and person a awesome time everyone.

Operator

Thank you. Ladies and gentlemen, this does reason today's conference. Thank you each for participating. You whitethorn now disconnect. Have a awesome day.