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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Retail Opportunity Investments 2017 Fourth Quarter and Year-End Conference Call. Participants are currently in a listen-only mode. Following the company's prepared remarks, the call will be opened up for your questions.
Please note that certain matters discussed in this call today constitute forward-looking statements within the meaning of the 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 the call over to Stuart Tanz, the company's Chief Executive Officer. Sir, you may begin.
Thank you. Here with me today is Michael Haines, our Chief Financial Officer, and Rich Schoebel, our Chief Operating Officer.
We are pleased to report that the company post another solid year of portfolio growth and performance, where we continue to capitalize on the strong underlying fundamentals across our West Coast markets.
In the face of what was a challenging year for the retailing industry, we stayed focused and true to our core business plan, of carefully growing our portfolio through strategically acquiring well established grocery anchorage shopping centers as well as continuing to enhance long-term intrinsic value of our portfolio for our leasing and operating initiatives.
Specifically, during 2017 we grew our portfolio by over 1 million square feet through acquiring 10 terrific shopping centers for a total investment of $358 million. Our 2017 acquisitions are a superb fit with our portfolio in every respect. In fact, the 10 properties that we added to our portfolio this past year are among the best yearly class of acquisitions so to speak that we have successfully acquired during our nine-year history thus far.
This year's acquisitions feature strong grocery operators with established customer basis as well as a broad range of necessity in service-based retailers. Additionally, our 2017 acquisitions offer numerous opportunities to increase cash flow and enhance the underlying value. Since acquiring the properties we've already leased the bulk of the available space as well as making excellent headway with recapturing and releasing below market space.
Also, after acquiring one of the properties and expansion opportunity came to light that wasn't part of our regional underwriting. We quickly seized on the opportunity and have already completed the expansion which is fully leased.
Looking ahead, there are a number of additional opportunities to continue increasing cash flow through releasing below market space as well as potential significant opportunities down the road involving key anchored tenants that are looking to expand their stores.
Perhaps the most important aspect of our 2017 acquisitions is their location attributes. As omnichannel retailing continues to have an increase and impact on bricks and mortar stores having shopping centers ideally situated in sought after markets is more important today than it's ever been in our industry and it will no doubt be a critical component of our continued success going forward.
Our 2017 acquisitions are well situated in demographically strong markets, markets where tenant demand continues to accelerate. Five of our 10 acquisitions in 2017 are located in the two fastest growing markets in the country being Seattle and Portland.
Additionally, two of our acquisitions are located in the San Francisco Metro area including a terrific shopping center in the heart of the Silicon Valley. We also added several prominent groceries anchored shopping centers located in Orange County's key retail hubs.
In addition to being located in the markets that retailers continue to seek out these are markets that are supply constrained with significant barriers to entry which is an extremely important attribute from our perspective as it's one of the core underlying drivers and our ability to consistently achieve rent growth as well as serving to protect our downside risk.
One additional key aspect of our acquisitions given our already strong presence in these markets is that the new acquisitions served to strategically enhance our ability to work and maneuver tenancies at our various properties and potentially unlock the embedded growth in below market leases.
With our portfolio being virtually full today at over 97% leased with the tenant demand as strong as ever we think that maneuver ability synergies will be an increasingly important part of our leasing initiatives going forward.
And speaking of leasing, we post another very strong year in 2017. While the retailing industry turmoil adversely impacted a broad range of retail properties across the current country that was not the case with our portfolio. As Rich will discuss in a minute in 2017, we continue to remain our high occupancy throughout the year and again achieve solid rent growth.
Additionally, for the sixth consecutive year, we steadily grew same center cash NOI posting a 3.1% growth for 2017. While we are pleased with that number we had expected for it to be a bit higher closer to 4%. The difference was primarily result of new anchor tenant openings that occurred later in the year than originally planned and the effect that had with other tenancies. The good news is that the new anchor tenants are now open and performing well.
In summary by sticking to our core principles and capitalizing on our core strengths, we grew our portfolio in 2017 pursuant to our stated objectives and advanced our strong operating platform across the West Coast.
In light of our growth and performance, we are pleased to announce that the board has increased the company's dividend for the eighth consecutive year raising our dividend by 4%.
Now I'll turn the call over to Michael Haines to take you to the details of our financial results. Mike?
Thanks Stuart.
For the 12 months ended December 31, 2017, the company had $273.3 million in total revenues and $93.7 million GAAP operating income, as compared to $237.2 million in total revenues and $77.2 million in GAAP operating income for 2016. For the fourth quarter of 2017, the company had $72.8 million in total revenues, and $26 million in GAAP operating income as compared to $63.1 million in total revenues and $22 million in GAAP operating income for the fourth quarter of 2016.
With respect to GAAP net income attributable to common shareholders, for the full year 2017, GAAP net income was $38.5 million or $0.35 per diluted share as compared to GAAP net income of $32.8 million or $0.31 per diluted share for 2016.
For the fourth quarter of 2017, the company had a GAAP net income of $10.8 million equating to $0.10 per diluted share as compared to GAAP net income of $9.6 million or $0.09 per diluted share for the fourth quarter of 2016.
In terms of funds from operations, for the full year 2017, FFO was $138.9 million as compared to FFO of $124.8 million for 2016. On a per share basis, FFO was $1.14 per diluted share for the full year 2017, representing a 5.6% increase over FFO per diluted share for the full year of 2016.
For the fourth quarter of 2017, FFO totaled $37 million, as compared to FFO of $33.2 million for the fourth quarter of 2016. On a per share basis, FFO was $0.30 per diluted share for the fourth quarter of 2017, representing an 11.1% increase over FFO per diluted share for the fourth quarter of 2016.
Turning to our balance sheet and financing initiatives for 2017, as economic growth took hold through the course of the year putting increasing pressure on interest rates. One of our primary objectives in 2017 was to reduce our floating rate debt exposure.
A year ago, at the outset of 2017, approximately 25% of the company's total debt was effectively floating rate. During 2017, specifically in the fourth quarter, the company completed a $250 million private placement of tenure fixed rate unsecured bonds. We utilized the proceeds to pay down our floating rate term line.
Additionally, we entered into two interest rate swap agreements that combined with our existing swaps, our entire $300 million floating rate term loan is now effectively fixed. As a result of these initiatives at year-end 2017, 90.5% of our total debt was effectively fixed rate. Meaning that less than 10% of our debt was floating rate.
Along with reducing our floating rate debt exposure in 2017, another key objective for us was to enhance and extend our debt maturity schedule. During 2017, we recast both our credit line and our term loan extending out the maturities by another three and four years respectively.
As a result, we only have one small loan that matures later this year, and beyond that we have no debt maturing until 2021, 3.5 years from now. And when our credit line comes up for renewal which we have the ability to extend that further.
In terms of equity capital. During the fourth quarter of 2017, in connection with two acquisitions, we issued approximately 2.6 million shares of common stock based on the value of $21.25 a share, equating to approximately $55 million of equity.
Additionally, during the past couple of months, in December and in early January, we issued approximately 109,000 shares through our ATM program, raising approximately $2.2 million in net proceeds.
Going forward, we may look to utilize our ATM program further when market conditions are suitable. Taking into account our capital raising initiatives during 2017, at year-end, the company had a total market cap of approximately $4 billion with $1.5 billion of debt outstanding, equating to a debt-to-total market cap ratio 37.8% at year-end. And as I mentioned, 90.5% of our debt totaling roughly $1.4 billion with fixed rate at year-end with the weighted average remaining maturity of 7.6 years.
In terms of our credit line, we had approximately $144 million outstanding as of December 31st. Importantly, the vast majority of our debt is unsecured. In fact, at year-end, 93% of our total debt was unsecured with only $106 million of mortgage debt outstanding encumbering only six of our properties. In other words, 85 out of 91 shopping centers are unencumbered.
Now, I'll turn the call over to Rich, to discuss property operations. Rich?
Thanks, Mike.
As Stuart indicated, notwithstanding the adverse trends that affected much of the retailing sector this past year, our portfolio continued to perform very well. Demand for space continues to be very strong and the daily necessity, neighborhood shopping center sector, particularly on the West Coast, and specifically as it relates to our protected supply constrained markets and our portfolio.
We continue to make the most of these ongoing demands. Throughout the year, in fact, during every quarter, we achieved a portfolio lease rate above 97%, and in 2017, at a very strong 97.5%, which is now our fourth consecutive year above 97%.
Breaking the 97.5% number down between anchor and non-anchor space, a year-end 2017, our anchor space was 100% leased and our shops base was 94.4% leased. With respect to the economic spread between build and leased space, at the beginning of 2017, the spread stood at 4.7% representing just over $8 million of additional incremental annual base rent on a cash basis.
During the course of 2017, the bulk of the new tenants associated with that 4.7% spread to occupancy and commence paying rent, all we had a good portion of those tenants didn't take occupancy into a late in the year, that Stuart touched on.
And large part, due to the lag in municipality permitting process, of the incremental annual $8 million, only $4.5 million of that was reflected in our 2017 cash flow. Taking into account, our leasing activity during the past year, as of December 31, 2017, the economic spreads due to 3.6%, representing $7.8 million in additional incremental annual base rent on a cash basis, which we expect will come online as we move through 2018.
With respect our leasing statistics, during 2017, we continue to achieve, solid rent growth each quarter, which is broad based across all of our markets. Specifically, for the year, we executed 420 leases, totaling approximately 1.4 million square feet of space, which is more than doubled the amount of space that was regionally scheduled to expire back at the beginning of the year.
Breaking down the 1.4 million square feet of leasing between new and renewed, we executed 155 new leases, totaling 397,000 square feet, achieving a strong 26.6% increase in space cash rents and we renewed 265 leases totaling 958,000 square feet, achieving a solid 9.6% increase in cash rents.
During this past year, more and more of our tenants were pro-active and coming to us well in advance of their lease explorations to renew their leases. In some cases, as much of the year in advance. We think this trend is indicative of how well tenants are performing across our portfolio, as well as underscoring the strength of our markets and the patient attributes of our specific shopping centers.
Turning back to our leasing stats, during the fourth quarter, we executed 102 leases, totaling 393,000 square feet, including 38 new leases, totaling 96,000 square feet, achieving a 14.1% increase in same-space cash rents and we renewed 64 leases, totaling approximately 297,000 square feet, achieving a 9% increase in cash rents. One of the key drivers to our strong same-space increases during 2017, was a successive recapturing a combination of below market and underperforming spaces and releasing those spaces to much stronger retailers and considerably higher rents.
During this past year, we successfully recaptured and released over 230,000 square feet, adding approximately $1.8 million in incremental annual cash flow. We've worked very hard over the past three years, aggressively recapturing underperforming space. In total, we've recaptured over 800,000 square feet during that time. As a result of our efforts, today our - is a strong diverse and balanced as it has ever been.
Now, I'll turn the call back over to Stuart.
Thanks, Rich.
Our over running message today, that we want to make clear, is that the core drivers of our business remained sound. In fact, they've never been stronger in our 25-plus year experience. All of the key metrics from the overall economy and job growth to our core market demographics and the fact that continues to be no new supply to speak up, and the barriers to entry among the highest in the country all of these metrics remained favorable.
That said, even with our portfolio being rock solid in the fundamentals being the strongest ever, we are not immune to the current stock market view toward recent general and specifically towards retail rates.
With that in mind as we start out here in 2018, we are taking a cautious approach, as reflected in our initial FFO guidance of $16 to a $20. Our guidance is based on only a minimal amount of acquisition activity in 2018. Specifically, simply incorporates the two shopping center acquisitions that we currently have under contract totaling $35 million.
While the acquisition market across the West Coast continues to be active and we continue to see a number of interests in off market opportunities. We feel the prudent approach in this current environment is to be patient and wait to see how the acquisition market evolves.
In terms of same center cash NOI, our guidance assumes a range of 2.5% to 3.5% growth for the full year 2018. The lower end of the range is primarily based on simply releasing space that is currently scheduled to expire in 2018. A good portion of which could be renewals based on the dynamic that Rich described.
Our guidance also takes into account issuing some additional equity as Mike touched on. Between $25 million and $50 million to the course of the year.
Finally, while it's safe to say that none of us here at ROIC are enjoying the uncertain stock market environment that we currently find ourselves in. Rest assured that we are up to the challenge remain firmly committed and fully focused on continuing to prudently build our business and enhance long-term value.
Now we will open up the call for your questions. Operator?
Thank you. [Operator instructions] Our first question is from Christy McElroy of Citi. Your line is open.
Good morning, Christy.
Hi, good morning guys. Just clarifying upon some of the assumptions in the guidance, just given the timing of those lease commencement that you mentioned in Q4 just to lead our commencement and got. Does that mean that give that there was a coming online, should we see outside same-store NOI growth and sort of Q1, Q2 versus the full year range of 2.5% to 3.5%? Can you talk about sort of the trajectory that we should expect?
We'll probably start the year out on this lower end of the guidance and as we move to the year what our models are showing as of the pretty large increase, but on average that's 2.5% to 3.5%.
Okay. Does it seem like the and maybe there is some other factors that pay here but it seems like the growth was expected to be pretty high in fourth quarter. Should the commandments have occurred I would though that it as those of come online it would have been higher earlier in the year but maybe there was a timing issue there?
Yeah, I think as Rich touched on I mean there is still a number of tenants that are under construction and we're waiting to get occupancy on. We did see a lot of that sort of towards the tail end of the fourth quarter but to be conservative we've loved that modeling same-store a bit on the lower side as we move to the first couple of quarters.
Okay. And then how should we think about as your acquisition piece is flowing back. How should we think about the GAAP rent versus the cash rents if some of the FAS 141 presumably starts to burn off? Is there inherent guidance, is there a decrease in non-cash rents that you are expecting?
We didn't get granular in the budgeting and the noncash rents, but I don't know that we'll have a significant trail off over the noncash rents in 2018 based on the current tenant base.
And again, part of that will be with the velocity of leasing that we currently are experiencing as we get through 2018, as Rich articulated we're leasing double what's rolling over.
Okay. And then just lastly on the $25 million to $50 million of equity issuance that you mentioned, can you give us what the average price that you are assuming inherent guidance and sort of the timing of that?
Well, it's going to be kind of spread across based on the market conditions, but our goal is to be about $20 and like the shares that we issued in December, early January so that set our guidance ranges based on the varying additions to price assumption, both slight above and below that. So, 20 or above is what we were looking for.
Okay, thanks so much.
Thank you.
Thank you. Our next question comes from Collin Mings of Raymond James. Your line is open.
Good morning, Collin.
Hey good morning Stewart. Just going back to guidance, can you just update us on the status of the assets you previously discussed is being lined up for sale and then just any sort of additional thoughts around dispositions that you might be contemplating at this point?
Well, the dispositions I think that we announce late last year, really two properties that are being redeveloped, so those are still moving forward going through the entitlement process and we do expect those to close a bit later on in the year. So that sort of we think set in terms of what we have announced. We are currently looking at possibly some other dispositions but nothing to announce at the present time.
Okay, and then just given your aggregate exposures Stuart, just how are you viewing the Albertsons Rite Aid [ph] deal and just thoughts around kind of concentration?
Sure, I'll let Rich address that.
From our perspective we think the merger is a positive and we think the combined companies, our credit profile be stronger, as it relates to our portfolio specifically, we have 21 shopping centers that have Albertson's Safeway or barns or the grocery anchor, that together account for 6% of our total base rent. And we have 14 shopping centers with Rite Aid [ph] as a tenant that account for about 1.6% of our total base rent.
Of the 21 shopping centers only of eight of those currently have drug stores as well, so there is a potential for Albertson's to bring Rite Aid [ph] to the additional shopping centers in our portfolio, either within those for existing footprint or possibly taking additional space. But either way we think it wouldn't enhance foot traffic at our centers and it's safe to say we are looking forward to discussing it in more detail with Albertson's and Rite Aid [ph] as they move forward.
Okay. And then one last one for me and I'll turn it over. Just Stuart can you maybe just expand upon the two acquisitions under contract, just in terms of timing as far as closing and just given that, I believe they are 100% leased, where is that the upside again that's I know that you typically tie to target while these acquisitions just kind of embedded upside that you have visibility on, so can you maybe just talk a little bit more about that?
Sure. Well, I'll start off with the one that we're closing sooner which is Seattle. Stadium is actually reporting tomorrow morning. And this is a very strong asset located in a very, in an area of Tacoma that has been gentrified and urbanized.
Also, this is going to be, this particular shopping center is going to have a major stop on a monorail system that is currently under construction, so this will be at the door step of downtown Tacoma from a transportation perspective.
Grocery is doing extremely well, it's a pretty new center from the standpoint that the shopping center has been renovated, but the good news here is there is some very nice lifts and rents. And we bought it pretty, at a pretty good unlevered return.
King City is probably going to close which is the deal in Poland will close in the next several months. We have given that a bit more time for the seller to find a 10-31 exchange. This one is a bit different, this one has been one owner approximately 25, 30 years of ownership, a family run, with extreme - with a lot of upside in terms of rollover on the leases.
It's also located very close to two other centers we owned and in a very strong part of the market and with the acquisition of this asset we will actually control this sub-market in terms of only in all the grocery acreage centers which will give us a lot of power in terms of raising rents in this sub-market itself.
We are very excited about this one, and there is a lot juice as we say and that's really the quick overview of both acquisitions.
Okay, I'll turn it over. Thanks Stuart.
Thank you.
Thank you. Our next question comes from Wes Golladay, of RBC Capital Markets. Your line is open.
Hey, good morning, everyone. Stuart in your prepared remarks you mentioned that the Anchor is opening late in the year, I think you said impact to the other tenants, can you elaborate on this, does it convert a percent rent to full paying rent, does it improve recoveries. I just want to give additional color on that comment.
Sure. This is Rich. It's all the things you've mentioned, with the delay there of one tenant, the Cross roads, fell into co-tenancy but now that the anchor tenants open they're back out, but that had an impact and as you mentioned it also trickles down to the recoveries as well in many circumstances. So, I think you've hit on the high point.
Okay and looking at the guidance for the year the same-store of 2.5 to 3.5 it looks like the base trends will be picking up throughout the year is there anything we need to look at as far as bad debt or the recovery ratio that maybe pulling it down?
I don't think so, our bad debt it's, we budget about 1% I've forgot that in our guidance which is terribly a little bit on the concerns like as our actual bad debt expenses is around a little bit less than that actually, so it wouldn't mean impacting our same-store.
Okay. And then what about the recoveries in fact they were down about 3% for recoverable expenses about 90% to 87% this year for 2017 is it which just happened on normal run rate now and that's abnormally high in 2016 or should that pick up?
No that will pick up because as Rich said that really came in the fourth quarter which as we talked about had a bit of an impact on our same-store NOI from the leakage as you would say from the co-tenancy up in crossroads and the lateness of picking up the rent on the anchorage space, both at the crossroads and that's all Brook.
Okay and then can you give us how do you see your tenant's seasonality given what's with and how does that compare versus last year?
We still keep a pretty close eye on the portfolio but given our product type many of the tenants that have announced store closing in 2017 are not in our shopping centers we have virtually no exposure to those tenants, but we do keep an active watch on all of our tenants on an ongoing basis but there's no one specific that we're currently worried about.
Okay, thanks a lot.
Thank you.
Thank you. Our next question comes from George Hoglund of Jefferies. Your line is open.
Good morning George.
Hey good morning guys. Just a question can you give a little color on cap rates on some of the acquisitions and then also on some of the upside potential from releasing and marking these rents to market what kind of timeframe would there be on that?
Well, cap rates on the $35 million that we have under contract are around 5.75 and Rich do you want to talk about the mark-to-market in terms of the portfolio going forward?
Yeah, I mean we still see a lot of good rent growth in the portfolio there's certain initiatives we're currently working on as leases roll over and we're also proactively working on tenants that maybe underperforming in terms of our ability to recapture and release that to much better tenants at much higher rents.
Okay, thanks.
Thank you. Our next question comes from Todd Thomas of KeyBanc Capital Market. Your line is open.
Good morning Todd.
Hi, good morning. Just a question around the guidance if we look at the fourth quarter FFO of $0.30 a share you're forecasting 2.5% to 3.5% same-store NOI growth some acquisitions are time weighted accretion from the second half of '17 acquisitions primarily what causes the quarterly run rate to decrease what's the offset FFO in 2018?
Well, part of that is going to be the increased debt cost in terms of doing the private placement. That's going to have an impact but the good news there is Mike articulated is that we termed out that floating rate debt. So, it's primarily that Mike.
Hopefully, the biggest driver in 2017 the bulk of our acquisitions outside of the European that were acquire through relative low-cost debt capital.
Okay. And then following up on Kristy's question around the delays that you referenced around some of the commencements in the quarter can you just provide a little more detail there it sounds like it's two anchors in particular one on crossroads, one on Fall Brooke what was the timing in the fourth quarter of those commencements and how much annualized base rent does that represent versus what was collected in the quarter?
Yeah, you're right it's both basically crossroads where we put in Dick Sporting Goods to replace Sports Authority, we also put in Cost Plus World Market to replace the Barnes & Noble. Both of those tenants have opened in December and are both paying rent now. And then down in Fall Brooke it was the replacement for Sport Shelly Bobs Furniture, which just had their grand opening on last weekend. But they started to paying rent first of the year. So those were the three leases in question.
Okay.
And because Dick has opened a bit later than what they have anticipated a co-tenancy kicked in which had an impact which was almost unforeseeable because of the lateness of the opening time. the good news is that co-tenancy opened up and then closed very quickly once they opened. So that was really the other impact that occurred that we didn't see. And the good news is everyone is paying rent and KEM and they're all doing very well. So, we don't see any fallout from that going forward.
Okay, that's helpful. And just last question Stuart or Mike also. In terms of leverage here, which is approaching the mid-7 times range on the debt-to-EBITDA basis. Can you just talk a little bit more about the financing strategy with interest rates moving higher here? What plans you have to delever from current levels?$25 million to $50 million of equity gets you somewhat lower slightly I guess. But what's in the model for year-end leverage, and how are you thinking about leverage overall today?
Well, the total leverage, I'm not that considering that the net debt-to-EBITDA calculation that this is little bit elevated, and that's where we're planning on working through the market conditions to issue some equity through the ATM to continue to knock that down.
We didn't issue any equity in 2017, we kind a have pattern of doing that year-over-year, but because of that primarily because of the European transaction we had kind of pending 20 or 25 a share, and then the stock price was below that we didn't think was prudent to execution of equity in advance of the limited partner coming in.
So, we held off during 2017 and that were just waiting from market conditions to become more suitable to issue equity through the ATM but to not that net debt-to-EBITDA down.
Yeah, I mean Todd, we have a rock, I mean the balance sheet is rock solid. I mean as Michael just articulated it's really that's the item that we're focused on which is the net debt-to-EBITDA. But all the other elements of the balance sheet are in great shape. The maturities unencumbered pool I mean it is go down the list. So, we're watching the market closely as Mike articulated. And we'll see how things go, but certainly that's the one element of the balance sheet we're focused on.
Sure, understood. But what if market conditions don't improve as much as you're anticipating. I guess what happens then is your debt-to-EBITDA at this elevated level still concern. I mean do you look at asset sales or is there some other way that you'll look to delever?
Yeah. We keep our mind open in terms of looking at everything. But there we can nothing we can articulate to you at this moment.
I think Stuart mentioned earlier that we're taking very cautious approach to 2018. And we're waiting to see if this is like a temporary issue in the market or if it's a longer term becoming more normalized if that's the case then we'll have to take a different approach. But for now, it's going to taking it very cautiously.
Okay, thank you.
Thank you. Our next question comes from Craig Schmidt of Bank of America. Your line is open.
Good morning, Craig.
Hey good morning Stuart. This is Justin [ph] on for Craig. I was wondering if you could talk about any changes you've noticed with respect to small shop demand so far this year. And whether this is the more or less from this time last year. Or just categorically speaking whether you've seen an uptick in demand from certain types of tenant?
Well the first quarter, I'll let Rick to get you into the particulars. But I will tell you the first quarter of the year, which is typically the toughest quarter in our business has turned out from our perspective to be one the strongest quarter we've seen. To date from a small shop leasing perspective, but maybe you wanted to drive into.
I think that's over here and back from our leasing directors is that they've seen more activity in the first quarter than they've been seeing in past years. They're very optimistic about the future. In terms of small shop space leasing, being a 100% leased in our anchor space that's primarily where we're doing all of our leasing right now.
And the demand still is very strong, it's from the same type of usages that we've been leasing to historically which are medical and fitness and services much further away from the retailers the past and more internet resistant tenants coming out with new concepts that are eager to fill the space as we get them available.
Okay, thanks. And then on future acquisitions, I appreciate the color you gave in your guidance assumptions, but, can you talk about what the signs that you're looking for, that you need to see the step back as buyer, and how does this differ depending on locations, that are in California versus Portland or Seattle?
Well, really none of the markets were in have deteriorated at all, they've only gotten better. So, we're still looking, and we'll look continue to look across all our markets. Obviously, the one thing that we have seen more recently the up taken the 10 years or so, we're watching what impact that might have in terms of a side out there.
But Justin I think as you know, we've been doing this for close to three decades, and we've seen a lot of cycles. So, what the past has put us is patience is a great virtue, although, not a lot of people our business heads, it is a great virtue to have. So, really, it's the signs of interest we're looking at any other fall out, that could come forward that may bring potentially pricing up a bit.
But right now, in terms of the West Coast, grocery anchored widely marketed grocery anchored deals, cap rates have not moved. So, it's still the most sought-after product in the market. Again, we're looking at various signs on the ground, but nothing specific that we can point to at this point.
Understood. Appreciate your time. Thanks.
Thank you. Our next question comes from Vince Tibone, of Green Street Advisor. Your line is open.
Good morning Vince.
Good morning. On previous calls, you guys discussed pad developments being one driver of growth. Can you comment on what's the expected impact of pad development is on '18, same-store NOI guidance?
Pad development is in our same-store, - correct?
Yeah, it's not there in our guidance, we still have about the half dozen or so, different pad development opportunities that we're working on, they're all in various stages. But the majority of that, we would expect wouldn't come online to a later in the year. But as Stuart said, it's not in our guidance, these would be an add-on.
Okay, just want to clarify that. So, any redevelopments pad development rollout, and that would be all be excluded from same property guidance?
Yes, correct.
And is there any like rough ABR you can peg for as in terms of what you expect to roll out in the back half for the year?
It's hard to say, just because of the entitlement process and other instances that we need to build these pads, but I don't have a specific number in front of us. We obviously are tracking a number, but I don't have it with me.
Okay. All right, thanks. And then are you still considering any dispositions in Sacramento or any other portion in your portfolio, in the near-term?
Yes.
Okay, I'm going to leave at that.
Thank you. Our next question comes from Michael Mueller of JP Morgan, your line is open.
Good morning Mike.
Hey, good morning. Just curious, could you give a sense to what level of cap or interest rate would have to move through, before you'll start to see cap rates, in your markets, start to move?
Tough question to answer. We've seen the tenure move certainly from a year ago, probably 50-60 basis points, with no impact to pricing. So, it's hard to really determine what impact it will have. The buyer profiles have shrunk with the raise of the interest rates. That we've seen, but I would probably tell you Mike, you've got to see at least 25 to 50 basis points increase in the 10 years, before you see anything. It's still the most sought after products, all in the market, referring to dominant grocery anchored shopping center and the West Coast in my view is the most sought-after market in the country. So, it's a tough question to answer.
Got it. Okay, that was it. Thank you.
Thank you, Mike.
Thank you. Our next question comes from Chris Lucas of Capital One. Your line is open.
Good morning, Chris.
Hi guys. How are you doing? Just a couple of follow-ups, Stuart just on the dispositions question. I guess the question I would have is, are you building any dispositions into guidance for 2018? Recognizing that you're waiting for some entitlements for them to move forward on?
No, it's not in our guidance. Although, we are the two entitled properties get close in 2017 there's no NOI associated with those it's just all those paydown on our balance sheet. So, there's no NOI but right now in our guidance there's nothing that we're modeling that in terms of selling.
Okay. And then I don't know if I missed this, but do you have the base minimum around for the lease to commence spread what that dollar value represents at the end of fourth quarter?
The amount still to be received?
Yeah, but the book between what's been leased and what's commenced what's that variance?
We have about $7.8 million that is not commenced that representing about 3.6%. that's the spread as we said at the end of the year is that what you looking for?
Yeah, yeah, I just missed that. I'm sorry.
No problem.
That's all I have. I appreciate it. Thank you.
Great. Thanks, Chris.
Great. Thank you, Chris.
Thank you. I am showing no further questions at this time. I'd like to turn the conference back over to Mr. Tanz for any closing remarks.
In closing I'd like to thank all of you for joining us today. We greatly appreciate your interest in ROIC. If you have any additional questions please contact Mike, Rich or me directly. Also, you can find additional information of the company's quarterly supplemental package, which is posted on our website. Thanks again and have a great day everyone.
Thank you. Ladies and gentlemen this does conclude today's conference. Thank you for your participation. Have a wonderful day. You may all disconnect.