Stuart A. Tanz - Chief Executive Officer, President and Director Michael B. Haines - Chief Financial Officer, Executive Vice President, Treasurer and Secretary Richard K. Schoebel - Chief Operating Officer.

Paul E. Adornato - BMO Capital Markets U.S. R.J. Milligan - Raymond James & Associates, Inc., Research Division Jason White - Green Street Advisors, Inc., Research Division Paul Morgan - MLV & Co LLC, Research Division Christy McElroy - Citigroup Inc, Research Division Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division Todd M.

Thomas - KeyBanc Capital Markets Inc., Research Division Michael Bilerman - Citigroup Inc, Research Division.

Good day, ladies and gentlemen, and welcome to Retail Opportunity Investments Third Quarter 2014 Conference Call. [Operator Instructions] Please note that certain matters discussed in this call today constitute forward-looking statements within the meaning of Federal Securities Laws.

Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the company can give no assurance that these expectations will be achieved.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from the 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 introduce Stuart Tanz, the company's Chief Executive Officer..

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 posted another strong quarter. We continue to cultivate opportunities to acquire exceptional shopping centers and deepen our presence across our core West Coast markets.

We currently have 5 grocery-anchored shopping centers under contract, totaling $171 million. Each of these properties fit our acquisition profile and existing portfolio perfectly.

The shopping centers are located in densely populated affluent communities that are anchored by strong grocery operators, well-suited for their respective market demographic profile. Included in the 5 properties, there is an exceptional 3-property portfolio located in the Los Angeles and the Orange County markets.

The portfolio is owned by a private operator that we've known for years and we have had our eye on a number of these assets for some time. We learned recently that they were marketing one of their shopping centers for sale.

We quickly capitalized on the opportunity and we are able to work a favorable transaction, whereby we are acquiring not just the one shopping center, but 2 additional grocery-anchored shopping centers that are not on the market. The portfolio has considerable embedded growth through numerous lease-up and re-tenanting opportunities.

Additionally, the properties are located near existing shopping centers of ours', which will enable us to capitalize on leasing and operating synergies. In addition to the 3-property portfolio, we also have 2 other great shopping centers under contract.

One center is a beautiful property in the Los Angeles market in the Thousand Oaks area and the other properties are terrific grocery-anchored shopping centers up in Portland. The Portland acquisition is located just down the street from a shopping center that we developed in 2012.

With this new acquisition, we will now own 2 of the 3 primary grocery-anchored shopping centers serving the community, enhancing our ability to capitalize on the strong demand for space in the market, particularly, given that our existing shopping center has been essentially fully leased, since we opened the property 2 years ago.

And we have a number of retailers vying for more space. Importantly, the seller of the Portland shopping center has taken its equity in the property, not in cash, but instead, all is common equity in the company in the form of operating partnership units, based on a value of $16 per share.

In addition to our ongoing acquisition activity, during the third quarter, we sold a non-core property for $12.4 million, generating a gain on sale of approximately $1.6 million. On the leasing front, we continue our strong pace reaching a new all-time high occupancy at quarter end.

We also achieved strong growth in terms of same-space re-leasing spreads and same property NOI. Lastly, as we reported last week, the company's warrants have now been fully retired.

In summary, over the past couple of years, as warrants were exercised, we received in total over $297 million in equity proceeds, which served the company well, as we are able to efficiently invest the proceeds in our ongoing acquisition program and maintain our strong balance sheet.

Now I'll turn the call over to Michael to discuss the company's financial results.

Mike?.

Thanks, Stuart. For the third quarter of 2014, the company had $40.9 million in total revenues and operating income of $12.3 million, as compared to $27.1 million in total revenues and operating income of $6.5 million for the third quarter of 2013, representing a 51% increase in total revenues and an 89% increase in operating income.

The sharp increase is largely attributable to our acquisition activity during the past year, most notably, our acquisition of Fallbrook in the second quarter of 2014, and our acquisition of our partners joint venture interest in Crossroads in the third quarter of last year.

Speaking of Crossroads, you may recall that when we acquired our partners 51% JV interest, we recorded a one-time non-cash GAAP gain on consolidation of $20.4 million in the third quarter of 2013.

With respect to net income and funds from operations for the third quarter of 2014, the company had net income of $6.7 million and FFO of $20.8 million, as compared to net income of $25.3 million and FFO of $35.4 million for the third quarter of 2013, which again, included the $20.4 million one-time non-cash gain on consolidation for Crossroads.

On a per share basis, the company had net income for the third quarter 2014 of $0.07 per diluted share and FFO of $0.22 per diluted share. In terms of same-center net operating income for the 11th consecutive quarter, same center NOI, again, increased specifically, by 4% for the third quarter on a cash basis. Turning to our balance sheet.

At September 30, the company had a total market capital of approximately $2.1 billion, with $677 million of debt outstanding, equating to a conservative debt to total market capital ratio of 33%. Of the $677 million of debt, approximately 84% of that is unsecured debt, including $123 million outstanding on our unsecured credit facility.

And in terms of unencumbered GLA, at September 30, 52 of our 58 shopping centers were unencumbered, equating to 88% of our total spread footage. And given that the 5 pending acquisitions, as Stuart spoke of, will all be unencumbered that 88% number will increase to about 90%.

Additionally, we continue to maintain solid interest coverage, which was 4.1x for the third quarter. And as Stuart indicated, the warrants are now fully retired, having officially expired on October 23.

To summarize the final tally, of the $49.4 million total warrants that were originally issued, $24.8 million warrants were exercised, generating $297.1 million in proceeds to the company. Additionally, $16.6 million warrants were repurchased by the company for an aggregate purchase price of $32.8 million.

$8 million warrants were exercised on a cashless basis and approximately 64,000 warrants expired unexercised. In terms of our FFO guidance for 2014, we remain fully on track to achieve our previously stated objective for the year. We currently expect FFO per diluted share to be between $0.83 and $0.85 for the full year.

Of the 5 pending acquisitions, we expected to close on 3 of the properties towards the end of the fourth quarter. And we expected close on the other 2 properties in the first quarter. Accordingly, the incremental increased FFO from these acquisitions will likely be minimal in the fourth quarter.

Now I'll turn the call over to Rich Schoebel, our CEO to discuss property operations.

Rich?.

Tigard, Aurora and Fallbrook are now all 100% leased. In terms of Anchor occupancy versus shop space occupancy, we continue to maintain our anchor space at 100% lease. And in terms of shop space, we continue to steadily increase occupancy, increasing it by 150 basis points from the second quarter to 94.4% lease as of September 30.

An indicative of all of our ongoing leasing activity, the economic spread between occupied space and leased space, which includes newly signed tenants that will soon take occupancy and commence paying rents, remained at 5.9%, where we were at the end of the second quarter.

Along with making the most of the strong demand for space across our portfolio to increase occupancy, we continue to drive rental rates higher. Specifically during the third quarter, we executed 66 leases, totaling 217,000 square feet.

Breaking that down between new and renewed leases, we executed 35 new leases, totaling approximately 92,000 square feet, achieving a very strong same-space comparative rent increase of 31.2% on a cash basis. And we executed 31 renewals, totaling 126,000 square feet, achieving a solid same-space cash increase of 6.2%.

What's also important to highlight with our re-leasing activity, is that we are steadily improving CAM recovery.

Many of the leases that are expiring were signed prior to our having acquired the properties and have rather weak or loose recovery structures, which we are now raising to our triple net standard, that over time will enhance our bottom line NOI growth.

Additionally, notwithstanding our anchor space being 100% leased, with very little roll over looking out over the next couple of years, we continue to proactively work with our anchor tenants, well ahead of their lease expirations.

As an example, looking at our expiration schedule as of September 30, we had one anchor lease scheduled to expire in the fourth quarter and 3 set to expire in 2015. We are pleased to report that we have now renewed 3 of those anchor leases ahead of schedule, achieving same-space cash rent increase of 43% on average.

Additionally, with respect to the 4-anchor lease set to expire in 2015, it's a nonretail tenant that we intend to replace. We are already in discussions with a very strong national anchor retailer about taking all of the space and at a higher rent.

In terms of capital improvement initiatives, during the third quarter, we completed our repositioning value-enhancement strategy at one of our centers in Orange County, Cyprus West, where we completely transformed the overall appeal of the property, with new facade, signage and landscaping. The Center looks amazing and is now 100% leased.

Up in Portland, at our Division Crossing property, we are in the final stages of completing a repositioning initiative that centered around moving an old underperforming anchor tenant, reconfiguring the large space into 2 distinct new anchor spaces, which were released to 2 strong national retailers.

One of which, is now open and the second will be opening shortly. With those 2 new anchor leases, the property is 96% leased with strong interest in the remaining shop space.

And lastly, at Fallbrook, we are in the midst of completing a number of property enhancement initiatives, which we commenced work on immediately after we acquired the property in June. The initiatives are specifically aimed at significantly enhancing the look and appeal of the primary pedestrian promenades, the signage and the landscaping.

Additionally, several key anchor tenants are nearing completion on major renovation and extensive build out initiatives. And as I mentioned, Fallbrook is now 100% leased. One of the new tenants that we recently signed at Fallbrook is a large highly successful Japanese retailer, Daiso.

That is a terrific operator and has a very strong following on the West Coast. We also recently signed a lease with Daiso at Crossroads. In fact, Daiso just had the grand opening at Crossroads last week. And when their door is opened, there was a large crowd of customers in hundreds, lined up around the building waiting to get in.

In addition to Crossroads and Fallbrook, we are also in discussions with Daiso about opening additional stores at several other properties. With that, I'll turn the call back over to Stuart..

Thanks, Rich. Before opening up the call for your questions, I would like to make a couple of additional comments starting with acquisitions.

With respect to the 5 properties that we currently have under contract, while we are nearing completion with respect to our due diligence and we'll be ready to close soon, the properties currently have secured debt, much of it being CMBS debt, which takes time for the servicer to line things up on their end and order for the loans to be paid off when we buy the properties.

So as Mike indicated, we expect the closings to occur towards year-end and early 2015. That said, as we wait to close, we are taking full advantage of the downside. We are already hard at work lining up potential new tenants for the available space and we already have our sights set on several re-tenanting opportunities.

Relocating certain tenants and reconfiguring spaces to accommodate new larger retailers. So when we do close on each property, we'll be ready to hit the ground running. Beyond these 5 acquisitions, our pipeline continues to be active. As such, we remain confident in our ability to continue broadening our portfolio as we move forward.

With respect to our same property NOI growth, the 4% increase for the third quarter was a touch below our previous projections, simply due to the timing of on rent commencement on new leases.

The 4% is on a cash basis, and as Rich indicated, the economic spread between occupied space and leased space is currently at 5.9%, which is an all-time high for the company. As new tenants commence paying rent, our cash NOI will steadily climb.

Additionally, given all of our ongoing acquisition activity, the pool of properties included in our same property NOI analysis increases each quarter. So the embedded cash flow growth from all of our leasing activity is always going to be fully reflected in our same property NOI analysis.

Finally, we are pleased to report that the company just celebrated its fifth year of shopping center REIT.

When we commenced operations in 2009, our objective was to carefully build a portfolio comprised of irreplaceable shopping centers that would serve as a strong foundation and provide the company with a balance of long-term stable cash flow and good growth opportunities.

Today, our portfolio stands at 58 shopping centers, totaling approximately 7 million square feet, strategically located in the best Metropolitan markets on the West Coast.

Our portfolio today is over 97% leased to a diverse mix of necessity-based retailers, with an average remaining anchor lease turnover of 8 years, providing strong cash flow stability. Additionally, there is a multitude of embedded growth opportunities in our portfolio that we continue to work hard at cultivating.

As we look ahead for the next 5 years, we believe that, with the portfolio and strong franchise on the West Coast that we've built thus far, together with our conservative balance sheet and financial resources, we are well positioned to continue delivering solid growth and increased value as we go forward.

Now we will open up the call for your questions.

Operator?.

[Operator Instructions] Our first question comes from Paul Adornato with BMO Capital Markets..

On the acquisitions, sorry, if I missed this.

Did you talk about a cap rate on those assets?.

Blended going cap rate on the 5 properties, is approximately 5.8%. Looking ahead, we expect to increase that yield by about 100 basis points as we lease-up available space.

Beyond that, we expect to increase our yield even further as we execute a number of re-tenanting or repositioning initiatives that we've identified during our underwriting process as well as re-leasing below market space..

Any opportunities for redevelopment or adding GLA?.

On the properties that were in escrow and there is a couple of PAD expansion opportunities that we are already pursuing. Yes..

Okay.

And just looking ahead at the lease rollovers over the next, let's say 2 years, should we expect roughly similar, I realize it's going to be lumpy, but should we expect similar mark-to-market going forward that we've experienced over the last 2 years?.

I think it relates to releasing shop space, it's always an evolving process, in terms of which tenants will renew versus replace. So it's pretty hard to forecast the number or even a range. Other than to say that, we would expect that it would continue to be positive..

And the only thing I will add Paul is that typically when you have assets that are 100% occupied, you have the ability to raise rents at a much better increase than if you have properties that aren't..

Sure. Great.

I guess, finally, when you're going into issue new warrants?.

We're certainly glad that we don't have to talk about the warrants going forward because it's certainly been a lot of conversation over the last 5 years. And more importantly, today, our capital structure is very clean..

Our next question comes from R.J. Milligan with Raymond James..

Curious if you can just walk me through the time line on the 590 basis points gap between leased and financial occupancy.

Just curious how you expect to close that over the next year or 2 years in the time line for that?.

Sure. I think you obviously; we will be digging into that as we get into the first and second quarter of 2015. We will be adding some to it as well. But we do expect that gap to continue to close..

So would you anticipate something more like 200 to 300 basis points of a gap towards the end of next year?.

I think that's reasonable..

And then, Stuart, just curious about obviously, portfolio is well occupied, a lot of demand out there on the West Coast for well-located assets.

Are you seeing any signs of new supply coming into the markets?.

No new supply at all. And the demand across all our market today is very, very strong. I hadn't seen it this strong since we started the company 5 years ago..

And is that just a function of people can't find the land or is it still that rents and development financing just aren't there?.

Yes, I think it's a combination of things. I think with the primary markets that we are operating in and the embedded barriers to entry, is making it hard for these developers to make deals depends and get through the entitlement process..

Our next question comes from Jason White of Green Street Advisors..

Just a follow-up on RJ's question. On your same-store NOI, given that big gap, you think 4Q gets you to where you wanted to get for the full year.

I realized there is a pool difference as you shift quarter-over-quarter, so just want what it looks like for the full year?.

Well, for the full year, Jason, we expect the properties in line to be -- there will be 43 properties in the pool, probably in the 3% to 4% range. Bear in mind that the 43 properties include the year-over-year analysis where properties are owned at least 2 years.

So those properties have been fully leased and stabilized for some time and also the 3% to 4% growth, which is a cash flow, reflects that..

Okay, and then moving onto your disposition, it has been, I want to say 4 years, whole trade for you guys.

And can you kind of walk through the round-trip there because it felt like the what cap rates have been over that period, and again, that you guys, had there was not as substantial as we thought would have been, can you kind of walk through that asset and let us know what drove that?.

We talk about what we announced in this quarter, Jason. Yes, sure. I mean, the cap rate on OC point was in the mid-6 range, but it was a very small non-anchored shopping center that was part of a portfolio, the Gramor portfolio that we brought in 2010, in Portland, a few years ago.

When we bought the property, it was 70% occupied and our strategy was to lease up the property as we did, and we did get it to 100%, improving that tenant mix, of course, along the way and then solid to redeploy those proceeds in our grocery-anchored shopping center.

In terms of selling assets, looking forward, there are still a couple of assets that we are looking at selling, and that will probably come in the first quarter of next year..

Okay, you are able to lease 30% of the space back up, the value was fairly similar to what you paid for it.

Was there anything any pieces there that we did receive from the press release?.

We did reported again on the sale. But again, I wouldn't look at this as a comp to anything else we own because this was again an unanchored small strip center, which is part of our portfolio..

I would mention the allocation of the purchase price back in the portfolio is acquired..

Correct. So again, this to me is something that really nearly never belonged in our portfolio. We had to buy it, and again, I wouldn't look at this as it relates to the rest of what we own..

Okay and then final question from me.

If you look back at '10, '11, '12, it looks that deals that you are acquiring and the cap rates you are requiring at and the amount of upside whether you're buying at a 6.5 and could take into an 8 or 7.5, if you contrast that with today and what you're seeing in the market and you are going-in cap rate versus where you can think -- where you think you can stabilize that yield? Is that narrowed substantially just because of the competition in a stronger market or similar spreads, just trying to figure out how much upside is on the acquisition front now versus call it a couple of years ago?.

Well, times have changed. Cap rates today on the West Coast in the markets that we operate in are now at 5 or less. And the -- in terms of spreads, certainly, those spreads have contracted.

But I think, as we have articulated, we now probably have to pay in the high 5s and low 6s, but more importantly, we still have the ability with what we're buying to increase that yield 100 to 150 basis points. That the same as it was when we acquired these other assets back in the '09 to '11 period..

Okay, so similar upside potential even though cap rates have compressed?.

The upside potential may even be a touch more today because the demand is so much greater. So and the re-leasing spreads have gotten a lot better.

So if you look at comparing the 2 time periods, I will tell you today, you may have as much as upside because the markets out West are just so in such better condition and the overall demand for space is really incredible right now in terms of what we're seeing..

Our next question comes from Paul Morgan with MLV..

So the 590 basis points, so that puts your quarter-end occupancy at 91.5, I guess, if I'm doing the math right? Do you have the sequential change from the last quarter?.

The sequential change in terms of where we have started the occupancy that we don't have that..

We certainly can follow-up with you after the call with that data point..

Okay. I'm just trying to get it, going from leased to your same-store NOI is tough and it's really kind of the occupancy that's driving that and if the spread is wider, I guess, that might imply something about occupancy and certainly that would be great if you could follow up on that.

And then kind of on sticking with kind of that theme, so that, you said, 43% spreads, the number you put it on a few deals for kind of proactive anchor space.

Is that part of the 31% number that you reported for the quarter for your new leased space?.

No those were subsequent to the end of the quarter..

And so were they show up next quarter or is it going to be the over the course of a few quarters..

They'll be recognized in the fourth quarter, correct..

And is there a meaningful amount of kind of short-term downtime that we should expect as we try to go from that number to like a cash same-store NOI impact..

Our note reveals that we have no downtime..

And those stores open next year?.

Those are renewals. So they are kind of remain in place. They are just renewed ahead of the scheduled expiration of next year..

Okay, so the 42% spread is actually a renewal spread for those deals..

Correct..

Okay, and then what do you think of probably assets in prior quarters. What do you think of a sort of a frictional maximum occupancy on the shop space? I mean, how much further can you get given that you're going to have fall out each year and you got to replace some people and taking a little bit of time.

How much higher can we get the leased rate and then the occupied rate?.

Well, I mean....

We will not rest until it's 103% occupied. Good question. Clearly, there is, but I think getting it up to 97% occupancy is not out of the question..

In fact, if you stretch out the mills in Green Valley, where we have most of our fractional occupancy, our actual occupancy today is 98%, even a bit higher..

Okay, great. And then just lastly, how are you thinking about the debt side of the balance sheet right now.

You talked the possibility of a kind of a follow-on note offering, given the pipeline in terms of acquisitions, what are you thinking about doing there over the next 3 quarters?.

We continue to look closely at the bond market. And if the right market conditions or opportunity arises, we look to turnout a portion of our short-term folding rate that with fixed-rate bonds..

Our next question comes from Christy McElroy with Citi..

Just to follow up on the 5.9%, really on RJ's question.

Do you have a sense for sort of what the narrowing of that lease to occupy spread means for incremental NOI contribution in Q4 and then moving into first half of '15, and what's the split in that space between small shopping anchor?.

I think the split is probably, it's mostly -- it's primarily 2 anchor spaces and the rest is shop space that in that number.

And then in terms of how it's going to contribute to the NOI, I don't know we have, Mike do you have a thought on that?.

We have the numbers. We just don't have them right in front of out..

What does it contribute oneself paying correct?.

Correct. Let's get back to on that. Without giving you, we've got the analysis just not right in front of us, Christy..

That would be really helpful just in terms -- it's a pretty big spread just in terms of getting a sense for the trajectory of how that spread should be.

Did you say what it should be at year-end '14?.

It will probably coming in 3 -- I would think about 300 as Rich touched on between 3 and probably 400 basis points next year. So it will have a nice contribution in terms of our NOI growth..

2015..

In 2015..

In terms of lower same-store NOI growth projection, I think you talked about 3% to 4% now in 2014 versus the original 5%.

Would you have expected that lease to occupancy spread to be narrower, did that play into the lower same-store NOI guidance?.

Well, it's just a function of the delivery and the tenants paying rent. And one of the issues I will tell you on the West Coast given that how highly constrained our markets are is the processing or permitting. It's been frustrating that I will tell you that.

We have been working diligently with our tenants to get them open and start paying rent, but the cities, because of the cutbacks and the recession, don't have the manpower given to process the permitting. So that's been one of the frustrations in terms of delivering on that number. The good news is that we are making very good progress on that front.

And I think you'll see that, as we will move into next year as it relates to closing that gap, but it's primly due to the permitting process. It's been very frustrating..

Okay, got you. And then, earlier this year, you issued the equity, obviously, with the acquisition of Fallbrook. And you have a history of maintaining a conservative balance sheet.

What are your funding plans for the equity on the deals under contract?.

No need for equity at this point. As Michael touched on, our balance sheet is in unbelievable shape. We are at 31%, 32% leveraged after we acquired all these fills; it goes up to 34%, 35%..

[indiscernible] as well, so it's not only cash..

And we are funding..

And the proceeds from the sale [indiscernible] is sitting with an exchange accommodator, that's not evident on the balance sheet because it's unrestricted cash, but that's the funding source for that one acquisition alone..

So with the sale of a couple more assets, and with our program looking into '15, which we'll talk about in our next call, we see no need for equity at the present time..

Okay, and then just lastly, where Wilsonville and Park off market as well?.

Yes..

Our next question comes from Jeff Donnelly with Wells Fargo Securities..

Just to build on Christy's question, do you have a rough sense of how you're thinking about same-store NOI growth potential for 2015, I guess, I'm wondering you think it will mirror the pace we see in '14 or that leased occupied gap is going to help it accelerate next year?.

Right now, from what our models are showing that number will actually move higher. But again, we can't determine sitting here today, because we're still ramping up the budgeting process. But the number is looking quite strong in terms of what we have modeled. Again, it's just always a function of permitting and the tenants getting in and paying rent..

Leasing assumption of the budgeting process, which we are about halfway throughout this plan..

And maybe my recollection is off, but I thought the earlier part of 2014, you guys are originally thinking that NOI growth this year would be closer to 5%, so maybe, I'm off on that, I guess, what caused the Delta, I guess year-to-date is to why you are not looking something lower than that?.

Well, again, I think, as we just mentioned, it's really being caused by a couple of anchor spaces that have taken a bit longer in terms of permitting spaces. And that's been primarily along with the permitting for some smaller tenants. We had some leases done that have taken, believe it or not, a year to permit. We are talking small spaces here.

And that's been one of the underlying issues. Rich, I don't know if you want to add to that..

I think that's exactly..

And then -- and Stuart, I have seen reports that Safeway is marketing sort of like a big development portfolio out there, our own portfolio. Do you have any details on that or is that something that you guys have considered..

Generally speaking, Jeff, I think, as you know, we look at all opportunities to acquire great shopping centers, be it through a portfolio dealer one-off transactions. We are aware of the Safeway deal, but it wasn't the right deal for us at this time. Again, widening marketed deals are just not our focus.

In terms of off-market opportunities, each deal that we source, we're always looking to see if there are additional properties to acquire from the same seller.

But as it relates to Safeway, there has been some news recently that the transaction is under contract, and the cap rate on that transaction from what we've heard is 4%, which certainly would make the NAV of this company higher than were most analysts have us today in terms of the Street..

That's true.

I'm curious on that Safeway, I mean you have maybe -- what you know are these sort of single tenant Safeway boxes or these sort of centers anchored by the Safeway?.

I'm under confidentiality, so I can't get into the details of the transaction. And that's all really I can talk about the deal as it relates to the -- what you've heard in the marketplace..

And just 2 last questions. One is just, I'd miss that you'd said on the 5 assets you have under contract.

What was the timeframe you gave over which you expect to be able to boost the yield by about 100 basis points?.

12. It's usually -- we can usually get that yield boosted within 12 to 18 months after closing. A lot of cases it's done a lot quicker, but we always like to leave that much room in terms of getting the yield up, that 100 or 150 basis points..

Is that predominantly new leasing or is that just you have a lot of explorations coming to you and you are able to get it spaced that way?.

It's a combination. There are opportunities to advance some existing tenants even the right size, smaller anchor boxes, similar to what we've done up in Bopple, Washington and then leasing up the vacancy as well..

And just one last nit-picky question is, Santa Teresa and San Jose, I just noticed that it had a pretty sharp drop in occupancy in the quarter. I don't think you mentioned in your remarks. In the space that was vacated, I think, sort of implies that was paying a big price per foot.

Was that just a series of smaller tenants vacating or was there one large tenant, I'm just kind of curious what happened there and what's your thinking about re-leasing?.

There were a couple of tenants that moved out of the end of the term. The good news is that one of the tenants was on a PAD and the rents that we are looking at in terms of replacing that are going to be much greater access of what we were getting from the last tenet with some really great tenants. So we are not concerned about Santa Teresa.

We did do a facade and enhancement program up there, which completed this year and the property, looks terrific and there is a lot of demand..

Our next question comes from R.J. Milligan with Raymond James..

My follow-up question was answered..

Our next question comes from Todd Thomas with KeyBanc Capital Markets..

Just in terms of the comments on the improving recovery rate. If I look at your consolidated statements and also the same-store, they are both around 81%.

Just where do you think that, that recovery ratio can trend over time and sort of what's the timeframe to see that upside?.

I would think that we could get it up in the mid-80s or over high 80%, but it's a function of primarily, rolling over the non-anchor space. And that's going to take a period of time as those 3 to 5-year leases roll..

And we're leasing vacancies well in combination of above..

We put our standard lease language into place for recovery, that's going to just trend up over time..

Where there any changes with regard to the leases on the 4 anchors that you renewed -- that you were able to implement and sort of is that mid-80s, is that by year-end '15? Or is it further out than that..

I think probably, it's maybe a bit out from that because Mike was saying that we can only get to some of these leases when they roll.

In terms of the 4 anchors there with no increase CAM recovery anticipated from those leases, but we have repositioned several spaces that were either on gross leases or paying, well below market whereby, in some cases that tenants weren't covering the triple net in these leases that we acquired.

And now we've got them on full triple net market rent leases. So there are going to be some big pops in terms of individual deals, but as Mike said, in terms of the blend, I think you're going to -- you'll stabilize around 85..

Okay. Got it. And then, just in terms of acquisitions, I guess the Safeway portfolio side, quite a bit of activity this year. What's the pipeline look like from here? It sounds like there are some properties on the market, even portfolios that are on the market of size.

What's the company's appetite like today going forward?.

Pipeline is strong. I think as I commented, we don't chase widely marketed deals, but looking into '15 at this point, our pipeline is as strong as it's ever been..

Okay. And then I guess, in terms of the balance sheet today, you commented that you are in good shape to take down what's under contract. But thinking forward, Stuart, you highlighted that the proceeds from the warrant over the last several years were important that mechanism has gone.

I mean how does equity sort of figure into the equation as we think about 2015?.

Well equity is the most precious resource company has, and I think, as I mentioned, there is no need today for equity. We'll see what 2015 looks like in terms of external growth. But right now, there's really nothing to talk about in terms of equity. And Mike commented on the balance sheet side in terms of debt..

Our next question comes from Christy McElroy with Citi..

It's Michael Bilerman here with Christy. So you made a comment, I think, you're referencing sort of the leasing environment being the best since 2009, which coming out of recession, clearly, we were hoping for that since 2009.

And then in a response to Jeff's question, you talked about 4 cap deals that your NAV would be held a lot higher than where the Street is at currently, which is at 15.

And I'm just wondering if you can go back in your time machine a little bit 2 days at Pan Pacific and talk about the similarities or differences because ultimately -- you ultimately sold the company to Kimco in the summer of '06. Cap rates were low. You wanted to take advantage of that, it wasn't being reflected in your stock.

So you sold, and you talked about environment from a leasing perspective.

How similar or different are we sitting here today to that time and, how will you know when the right time is to pull that trigger or not?.

Well, I'm not going to comment on the company in terms of whether it's for sale or not. But what I will tell you is this. That things are a bit different today in terms of valuation. The valuations that we see in the market today are actually higher than they were in the '05-'06 period.

We saw cap rates get to the 5s, but we did not see them that much lower. Today, we are seeing assets that are trading lower than 5 cap. In terms of why this is happening, I think, it's a combination of no supply in the market for the last 5 years.

The world has a wash in capital and the West Coast has become the most sought-after markets in the country in terms of deploying that capital. So I think these low cap rates are here to stay for a little while, I think, we are going to do, as we've always been very focused on acquiring shopping centers that we can build value with.

So but continued to how the discipline we have always had in terms of growing the company, but what's different today is the market and pricing. The valuations are actually higher than they were in the '05-'06 period.

And there is a lot more capital out there chasing the most sought-after product type in my opinion, which is grocery/drug anchored assets..

But you ultimately made the decision back in '06 to sell. I guess, what drove in your mindset the need to get out at that point, and why? If you have a similar set of circumstances today, it actually is even greater where cap rates are lower, prices are higher from a value perspective and your stock in your view.

You just said it is not reflective of sort of where you believe value is.

Why wouldn't you come down to the same conclusion you did in '06? What was your different mindset back then?.

Mike, a number of reasons. Number one, we talked about our spread over the next year or year and a half, in terms of building that NOI. We definitely want to capture that spread. That has a meaningful impact in terms of valuation of the company. Number two, is that the pipeline of the company has never looked stronger.

And back in '05, '06, that pipeline at Pan Pacific was nonexistent. We didn't have the amount of properties in the market turning over. And the wider profile is what the touch different to back then.

But today, in terms of ROIC, this company has a great runway ahead from what I can see both in terms of building value for shareholders and in terms of continuing to do what we have done in the past. As long as we can keep doing that, then we'll continue to build lots of value for shareholders.

Back in '05, '06, there was not much value you can build at that point in terms of our shareholder base and that's the difference..

Our next question comes from Jason White with Green Street Advisors..

Just a couple of follow-ups. First follow-up was when you commented on the Safeway portfolio a little bit, you mentioned a 4% cap rate. Do you have a sense -- my understanding there is almost half of the portfolio is undeveloped or in-process development land.

Can you comment if you have it, what do you think the cap rate is on the operating properties only?.

Well, I can only comment as to what's been reported in the news. So I can't comment on anything else. And what I've read is that in terms of the existing portfolio, the going in NOI, this is what I've read, that cap rate is 4%..

Okay, and then last question, I think this is the first time I've heard you kind of deviate from the ROIC as always-for-sale language.

Talk through kind of what's changed because this is kind of a very different tone than we've heard over the last 16 earnings calls?.

Look, I think, Jason, that any -- my goal and management's goal is to create value for shareholders. That is being number 1 goal that we focus on day in and day out. And so and having that as one of our top goals, our job is again, always to find ways of creating value and the most value we can at any given moment in time.

That's why, in my view, smart CEOs and Management team should always have an open mind in terms of looking at companies and what you can do with the companies that you want to operate, whether that's buying, selling, merging anything else. The reason why the tone is a bit different is because we have still a lot of value to build around here.

I would tell you, looking at our same-store spreads, looking at the demand in the marketplace, looking at what we're getting in terms of rollover and looking at the pipeline, the future looks very strong.

And so again, that's why, we believe continuing to do what we're doing; we'll be able to build a lot of value for shareholders over the next several years..

This ends the Q&A session for today. I'll turn it back over to Management for closing remarks..

In closing, I would like to thank all of you for joining us today. If you have any additional questions, please contact Mike, Rich or me directly. And for those who are attending NAREIT's Annual Convention in Atlanta next week, we hope to see you there. Thanks, again, and have a great day, everyone..

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect..