Welcome to Retail Opportunity Investments 2021 Second Quarter Conference Call. . Please note that certain matters discussed in this call today constitute forward-looking statements within the meaning of federal securities laws. Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the company can give no assurance that these expectations will be achieved. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements and expectations. Information regarding such risks and factors is described in the company's earnings 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 for more information regarding the company's financial and operational results. The company's filings can be found on its website.

Thank you. Good morning, everyone. Here with me today is Michael Haines, our Chief Financial Officer; and Rich Schoebel, our Chief Operating Officer. We are very pleased to report that we had a highly productive second quarter, advancing each key aspect of our business. We leased over 338,000 square feet of space, which is a new second quarter record for the company. We also achieved double-digit rent growth on new leases signed during the quarter. In terms of acquisitions, we are pleased to report that we are once again pursuing opportunities. We currently have lined up 2 terrific grocery-anchored shopping centers. One is located in Northern California. The center is located at the entrance of an affluent master-planned community that has an average household income of over $237,000. The shopping center is the only grocery-anchored center serving the community and features a very strong, growing regional grocer akin to Whole Foods in terms of market niche and is an excellent fit for the surrounding community. The grocer is an existing longtime tenant of ours, so we know them well. The second property that we have under contract is a well-established shopping center located in Southern California that is anchored by a national supermarket as well as a national drugstore. The two pending acquisitions together total about $61 million with a blended going-in yield in the low 6% range. Importantly, we are acquiring both properties debt free and without any tenant account receivable issues stemming from the pandemic. Going forward, there are a number of re-leasing and re-merchandising opportunities such that we believe our team can increase the blended yield to potentially over 7% during the next 12 to 24 months. Along with pursuing acquisitions again, we are also making good progress with dispositions. During the second quarter, we sold 1 property for $25.8 million. Additionally, we currently have our last 2 Sacramento properties lined up to sell in separate transactions that together will generate around $45 million in sales proceeds. Once these 2 sales are completed, we will have fully exited the Sacramento market. Lastly, in terms of enhancing our balance sheet, we recently raised approximately $46 million of common equity through our ATM program. We are utilizing the proceeds together with the proceeds from dispositions to pay down debt and to fund new acquisitions.

Thanks, Stuart. With our leasing and investment activity returning at strength, our financial results are notably stepping up as well. For the 3 months ended June 30, 2021, GAAP net income attributable to common stockholders was $16.5 million or $0.14 per diluted share as compared to GAAP net income attributable to common stockholders of $4.6 million or $0.04 per diluted share for the 3 months ended June 30, 2020. Included in GAAP net income for the second quarter of 2021 was a $9.5 million gain on sale from our property disposition in April. Funds from operations for the second quarter of 2021 was $31.7 million or $0.25 per diluted share as compared to $29.2 million in FFO or $0.23 per diluted share for the second quarter of 2020. Same-center net operating income for the second quarter increased 9.6% as compared to a year ago, and for the first 6 months of 2021, same-center NOI increased by 1.5%. As the second quarter progressed, our rent collections steadily increased such that we ended the second quarter having collected approximately 96% of our build base rent. Looking ahead, we are on track to fully return to our historical collection rate as we move through the third quarter. In terms of bad debt, given that, essentially, all of our tenants have reopened, we now have much greater clarity and have reversed a number of prior bad debt reserves accordingly such that for the second quarter, bad debt on a net basis was actually a positive $103,000. Turning to our balance sheet. As Stuart just touched on, we recently utilized our ATM program, raising approximately $46 million of equity. Specifically, during the second quarter, we issued approximately 1.9 million shares of common stock, and we also issued approximately 623,000 shares early in the third quarter. Year-to-date, between the ATM issuance and the property disposition in April, which was unencumbered, we have raised approximately $72 million of equity proceeds. And once we close the final 2 Sacramento property sales, which are both unencumbered, we will have raised, in total, approximately $117 million of equity proceeds. We utilized a portion of the proceeds to pay down the $14 million that was outstanding on our credit line at the end of the first quarter. With the pay-down, we currently have nothing outstanding on our $600 million unsecured credit facility. And the $14 million pay-down, together with the debt pay-down of $34 million in the first quarter, brings our total debt reduction for the year to approximately $48 million. Looking ahead at the second half of the year, we have no debt maturing, and with the current cash on our balance sheet, together with the pending dispositions and cash flow from operations, we expect our credit line balance will remain minimal, if not 0.

Thanks, Mike. With our tenant base fully opened again and shopping activity back to prepandemic levels, demand for space accelerated sharply across our portfolio during the second quarter and continues to ramp up here in the third quarter. While much of the demand is coming from businesses that performed exceptionally well during the pandemic and are looking to capitalize on their success by expanding, the demand is now also coming from many of the businesses that were largely shut down during the pandemic, who are now looking to relocate or expand into well-located, grocery-anchored centers, and we are seeing this broad demand consistently in every one of our core markets in San Diego up to Seattle. Capitalizing on the accelerating demand, we achieved a new record for the company in terms of second quarter leasing activity. Specifically, we signed 118 leases totaling 338,000 square feet. Breaking that down between new and renewed activity, we signed 59 new leases totaling 116,000 square feet, all of which involve re-leasing in-line space to a broad range of local, regional and national tenants. Not only were we successful in bringing a number of new, strongly diverse necessity and service-based tenants to our portfolio, we also achieved a double-digit increase in same-space comparative cash base rent. Specifically, we achieved a 15.8% increase, on average, for the second quarter.

Thanks, Rich. Building on our solid performance and the momentum created in the second quarter, looking ahead, we are excited about the prospects of having a strong second half of 2021. As Rich touched on, demand for space is continuing to accelerate as more and more businesses are now moving forward again with expansion plans that essentially had been put on hold for the past year. Additionally, with respect to businesses that had been restricted over the past year, most notably full-service restaurant, fitness and entertainment businesses, given that the customer activity has come back in force for these businesses since the West Coast fully reopened last month, many of these businesses are now looking to expand as well. We think all of this bodes very well for our portfolio and leasing prospects going forward. In terms of acquisitions, in addition to the $61 million that we currently have lined up, we continue to seek out additional opportunities. We are finding that a growing number of private owners are becoming increasingly interested in selling after struggling through a long year of dealing with all of the rent collection and operational challenges brought on by the pandemic, which, in many cases, has created significant cash flow and lender issues for smaller private owners. To our advantage, these private owners are keenly interested in transacting with a seasoned operator that has the market presence, knowledge and wherewithal to execute with certainty and in a timely manner. While it's a bit early to know how this trend will play out ultimately, we are optimistic in our ability to continue sourcing attractive acquisition opportunities and growing our portfolio. Finally, reflecting back on this past year, having to confront, quickly adapt and overcome countless challenges, the likes of which we had never experienced before, through it all, our portfolio performed consistently well, which we attribute to 3 important factors, first and foremost being our grocery-anchored focus, second being our tenant base. With our necessity and service-based focus, the vast majority of our tenants remained open and operating with many of them thriving during this past year. Additionally, our long-standing core strategy of always maintaining a diverse tenant base and always being careful to limit our exposure to big box and discretionary goods retailers proved instrumental during this past year. And the third key factor is our team. Over the past year, under extraordinary circumstances, our team's unwavering commitment and dedication, together with their ability to quickly adapt and collaborate on in new-found ways, truly kept our portfolio operating seamlessly.

. First question comes from the line of Michael Bilerman from Citi.

Yes. Hope you are doing well. I just wanted to go a little bit deeper into sort of the acquisition pipeline. I was wondering if you can just give a little bit more color on sort of just size of opportunities that you're tracking, the 2 deals you announced today going in at 6 and being able to drive that up to a 7 in the next 12 to -- I think 12 to 24 months is pretty attractive. And so I'm just trying to get a sense of how many of those types of opportunities you think you can unlock. And then within that, you've always had a strategy for some of these private owners of being able to offer them units, and in many cases, you've offered those units at your NAV, which has typically been above where the market is trading. So can you just talk a little bit about the dynamics of those sellers willing to accept units in script today and also the size of your pipeline?

Sure. And thanks for asking the question, Mike. Starting out with size. Typically, we are looking for centers that are pure grocery, drug anchored. There's a third anchor, we prefer that to be a low-valued retailer, either like a T.J. Maxx or Ross. But the primary focus is just drug, grocery, some in-line and pads. So the approximate size would be 100,000 to 125,000 square feet, and that's exactly what we have under right now.

Right. I was thinking more so of the size of the pipeline, not necessarily the assets that you're targeting. I think you have a pretty discerning note of what you're after.

Yes. The pipeline is very strong right now, and it's building quite dramatically. I think as you know, we've announced $61 million under contract. We probably have about another $50 million behind that, and those are one-off transactions. In terms of portfolios, we're also focused back on that side of the business, and we are aggressively pursuing a number of those with private owners. Will those come to fruition over the next 12 months? Maybe. And then in terms of OP units, we continue to work that side of the business in a very big way as we always have. We do have a number of families that we're continuing to deal with. And what we really need right now is for our stock to settle in at where it's been so that these owners are comfortable taking -- doing these deals at or above where our stock has been trading. So we're excited about what we see ahead of us. We're excited to be back in the market, and more importantly, we're excited to be buying assets where we can build value over a pretty short period of time. And to answer the last part of your question in terms of building that value, it's really done 3 ways. It's done through re-merchandising the current tenant base. It's done through lifting the efficiency or the operating margin at the property level, given the organization and the professionalism that we bring as an organization. And the last thing is really filling vacancy, bringing the centers from 92%, 93% to 100% very quickly. We're confident looking ahead with what we've purchased that we can achieve those goals and those objectives.

And then just following up just on funding. You obviously have capital commitments on the densification projects but also some opportunities to sell off pads or part of the mixed-use components that could be a source of capital. You have your common equity, which you started to issue during the quarter In and around consensus NAV, and then you can sell assets, which you also have done. Where are you in terms of -- now that you know this acquisition pipeline is building, where are you in the process of being able to pull the levers to fund it, right? So what is your appetite to issue more common equity on the ATM? What's your appetite to bring more assets to market to sell, where you've gotten some pretty attractive cap rates relative to what you're buying at? And what's your sort of desire to start to hopefully monetize some of the densification to fund and not increase leverage from here?

Primary funding will be through dispositions and potentially looking at selling off some densification. Equity will be a -- really a function of the market in terms of where our stock is trading. If our stock trades back over NAV, then we'll look at doing more under the ATM, or depending on the pipeline, we may even go out to the market. But the primary funding will come through potentially joint venturing or selling off densification and continuing to sell off more assets, assets that don't have much internal growth going forward.

Next one on the queue is Juan Sanabria from BMO Capital Market.

I just wanted to follow up on Michael's question about the acquisition. The stuff you have lined up with $61 million, with that, do you see an expected 6% going-in yield? Could you just give a little bit more background as to why you think you -- that yield is pretty robust? Is there anything unusual with the circumstances, either with a lender that provided that opportunity? And what are you looking to do to get to that 7%?

Sure. Well, I will articulate the -- answer the question in terms of sourcing the transaction, and then I'll let Rich jump in and talk about what we're doing in terms of the yield. But the circumstances were a bit unusual in that the owner of the asset in Northern California left the state and moved to Florida, and in doing that, he certainly was under a lot of pressure in terms of the pandemic and felt the need, given it was the only asset he owned in this part of the world, that he needed to get out quickly. We tracked this asset since the beginning of the pandemic, and the good news is we executed this deal before things got a lot better, and that's why we were able to get a much better pricing. This asset probably, before the pandemic, would have gone in the $34 million to $35 million range. So we're getting a very nice price and good discount. The new asset in Southern California is something we're very familiar with, actually. It's an asset that we owned at one time at an old company named Pan Pacific. So no one knows this asset, I think better than Rich and I and the team here at the company, and we're very excited to get an asset -- a Pan Pacific asset back into the fold. Rich, do you want to comment in terms of the yields?

Sure. I think both properties have a slightly different profile, as Stuart just touched on. I think the one that is more of a local owner, single-asset-type of property, there's been a long history of ownership where the owner has great relationships with the tenants but probably hasn't pushed rents as much as they could have over the years, and we will come in with a much more aggressive management style as it relates to renewing those leases and filling the vacancy out there. And then the property in Southern California, as Stuart touched on, again, we have intimate familiarity with the marketplace and the specific property, and we know through our leasing team and hands-on management how we're going to be able to increase that yield going forward.

Great. And then just on the actual results and guidance. Could you give us a sense of what any sort of COVID-related onetimes may have been in terms of repayment of previous period amounts due or positive in terms of previous bad debt that was written off that is now being reversed?

Well, I think, Juan, the one thing that did occur because, as you know, we didn't move any one to a cash basis. So it's purely a function of the bad debt analysis that we do each quarter end. And yes, during the second quarter, based on the careful tenant-by-tenant analysis, we reversed approximately $1.5 million of previous bad net reserves, but then we also booked about $1.4 million of new reserves based on the tenant-by-tenant analysis. So the net resulted in about $103,000. So that was the one thing that helped this quarter for the results.

And is there anything else assumed in guidance for the remainder of the year of future reserves? Or is it steady state from where you are at the end of June 30?

Well, I think I mentioned in my prepared remarks about the high and the low end of the range. If we get our bad debt reserve levels back to our historical norm, which is below 1%, that's going to go towards the high end of the range. But there's still a little bit of uncertainty out there, so we're being cautious. In the second half of the year, we could see some -- still a little bit of bad debt. We don't know yet.

Next one on the line is Todd Thomas from KeyBanc Capital Market.

Just first question, just sticking with acquisitions, maybe asking about sort of the pipeline or your appetite a little bit differently here. It's been a little while since the company has been active on the acquisition front. There's been more discussion around asset sales and deleveraging in recent years even leading up to the pandemic. And I'm just wondering if you feel that the company is at an inflection point of sorts where you exit Sacramento later this year and whether we might start to sort of revisit or see investment volumes like ROIC was accustomed to completing in prior years, sort of $200 million to $300 million or more of acquisitions. Is that sort of what you're targeting and looking at a bit?

Yes.

Okay. And then the assets that you've lined up at the 6% initial yield, again, it seems like sort of higher yields than what we've been hearing for grocery-anchored products and good locations. What are the right cap rates to be thinking about for future investments?

Well, it's tough to predict, obviously, cap rates and where we're going to be buying. Obviously, there's a lot that goes into buying an asset as it relates to the NOI, and more importantly, as you know, Todd, our expertise over the years is really buying high-quality assets in great markets and really driving those yields to our management style. The current environment, there's not much product on the market in terms of high-quality, grocery drug-anchored assets. The ones that have traded have been in the sub-5 range. But it's -- again, it's hard to predict right now where exactly those cap rates are going to roll. Some are going to be probably in the 5 area, the low 5s, mid-5s. Some will -- maybe will be in the low 6s. But it's all about the characteristics of both the market and the asset as it relates to the yield that we're willing to pay going in. Again, the key there is really driving that yield, and that's what this management team does so well.

Okay. And then with regard to dispositions, so you completed the San Diego asset sale earlier in the year, and you're looking to exit Sacramento. Is that it in terms of asset sales and calling the portfolio? Or do you see a little bit more work to do on that front?

No. I mean when I say no, I mean the answer is we will continue to look at those opportunities and potentially turn more capital on the disposition side. The key there is going to be internal growth as it relates to how much upside the asset has left over the next several years. And the good news is that the market out there seems to be very active right now in terms of 10 31 buyers, institutional capital that are willing to step in and pay pricing that we have not seen in the last several years. I think that's just a function of the marketplace and how tight the market is in terms of product.

Next one on the queue is Craig Schmidt from Bank of America.

I'm wondering how long will demand continue to result in the elevated leasing volumes that you're experiencing. How long can that run before you think it returns to a more normalized level?

I mean it's always -- Craig, it's Rich. It's always hard to predict what's coming. But right now, what we see in terms of the leasing team is that this demand is going to -- is here for a while. I think that it's coming from -- as we touched on in the prepared remarks, a lot of people that saw how well the grocery-anchored portfolio performed and are trying to stake their claim in that product type.

Yes. And then the other thing, of course, is supply. The key here as well in terms of demand is there's been very little supply on the West Coast, and in fact, virtually nothing has been built as it relates to the product type that we are -- that we buy. So I think that's also driving demand because there's very little space available in the dominant high-income areas, dense and high-income areas on the West Coast. So that's driving demand as well. There's just nothing out there for tenants to go to. And the last thing in that is the health of the tenant base. I think the pandemic has really strengthened the health of the tenants that have gone through the pandemic, and I think that's also driving -- their balance sheets are in good shape, and I think that's really driving also demand in a pretty big way, Craig. So it's a combination of all of that, that we believe will continue to really drive demand in the next several years.

Okay. And then I know you just recently opened in California on June 15. Has that already impacted demand? Or is that something that needs to lag as retailers see the greater activity in people eating, dining out and all the rest?

Well, I think as we've talked in prior calls, I think we're fortunate in terms of the markets that we're at, and most of the tenant base had already pivoted to being able to offer either curbside or dining outside of the rest. So the demand has been there leading up to the lifting of the restrictions, and really, once those restrictions were lifted, it was just sort of an overwhelming demand from the customers' perspective.

Okay. And then just how much do you think you might raise in the ATM in the second half of the year?

Well, that will depend on pricing more than anything else. We can't estimate right now what we'll raise through the ATM, but we're going to continue to watch the market and continue to watch our stock price, and if the opportunity arises, we'll raise more equity. But again, we're going to be -- we're going to focus on stock price.

Yes. I think our guidance kind of indicates on the high end, if we do $100 million, that's already basically funded with asset sale proceeds and the ATM activity we've already completed.

Okay. So fair enough. I mean watching the stock price.

Next one on the line is Wes Golladay from Baird.

Just a quick question on the commencement of the $10.4 million of ABR. It looks like you got about $2 million this quarter. How should we look about -- look at the second half of the year?

It's always hard to predict because there's a lot of factors that go into that. We're obviously always adding to the number as well as commencing the -- as well. So we think that it will probably stay in our historic range in terms of commencements, but as I say, we're always putting more things into the bucket.

Yes. No, I get that. Okay. So also on the Sacramento asset disposition, did you guys give a cap rate on that?

No, we didn't. The cap rate on the asset we sold in San Diego was in the low 5s, and the cap rate for the Sacramento assets are in the low 7 range.

Okay. And then I guess maybe in the future dispositions, it sounds like they may be more opportunistic. Where do you think you could transact that?

Probably more like the range that we got in San Diego because Sacramento is just the weakest of all 5 markets that we're in or 7 markets that we're in. So we have nothing left there, and as we turn to the primary markets in terms of sales, you're certainly going to get what you got here in San Diego.

Next one on the line is Mike Mueller from JPMorgan.

Just a quick one on acquisition disposition timing. Can you give us a rough sense as to when the transactions you've talked about are expected to close?

We're expecting to close both transactions in August, and we're expecting to sell both assets in August as well, so in the next 30 to 60 days. That may take a touch longer because of the on the sell side, but over the -- I would tell you at some point in late August, all of this should transact.

Next one on the line is Chris Lucas from Capital One Securities.

Maybe changing a little bit -- talk a little bit about the shop space demand. Can you maybe provide some color on sort of where you're seeing it relative to local shop tenant demand versus the national chains? And then are there new or lines of business that maybe were not big parts of your portfolio prepandemic that are gaining share as it relates to the share of ABR that you're leasing because of some of the changes that have occurred because of the pandemic?

Sure. In terms of the profile, it is coming from all sectors, local, regional and national. I think probably the strongest demand is more from the regional and national operators a bit stronger than the local, but local guys are still out there looking for good opportunities for space. In terms of the uses, it's still that same broad category of uses that we were seeing heading into the pandemic. Still significant interest from restaurants for any second-generation restaurant space. We're -- still a lot of demand from boutique-y type of fitness and medical and pets and veterinary and things like that. So a lot of services, but it's broad based. And I think our biggest challenge is having space to lease to them. There's a lot of demand out there.

Okay. And then I guess one of the more interesting, at least for me, issues that landlords and tenants and municipalities are going to be facing is what do you do about the outdoor dining that's been sort of -- the permitting has been broadened or very loosened. You've got restaurants that are on end caps that have been able to essentially expand their capacity beyond what they're paying for in rent. What are you guys seeing? How do you think that plays out over the next year or 2?

Well, it's certainly been a big asset to a lot of our operators, and as you were touching on, people have taken over sort of ad hoc type of space. But we are currently working with a lot of our restaurants to make that more permanent and, as part of that process, getting more rent out of the tenant and making these a little less construction barriers and a little bit more attractive than what you saw during the height of the pandemic.

And the municipalities are going along with that?

They are. In fact, a number of the municipalities on the West Coast have extended a year out now the ability to continue to use those -- that additional space or common area space. I think it's going to be more permanent in nature because I think what people realize and what cities realize is it attracts more of a tourist space and a more bigger customer base and then, more importantly, from an operator perspective, a lot more profitability because they get a lot more space to deal with in terms of volume. And customers and where we are at, where it's sunny most of the year, do enjoy having the outdoor space in terms of the environment.

Next one on the queue is Michael Gorman from BTIG.

Stuart, I just wanted to follow up in terms of now as things are reopening, just saw it come across that it looks like President Biden is going to ask to extend the residential eviction more time. Have you seen anything in your core markets, whether it's how the courts are behaving or from local governments, about extending any of these eviction moratoriums?

The good news is that across the West Coast, most of those moratoriums have not been extended. And so from that perspective, that has helped accelerate collections and certainly has -- it certainly has put us in a very strong position in terms of resolving the last minor or small set of tenants that are still in business doing well and has not paid us rent. The only market on the West Coast that is still shut down is Los Angeles, they did extend their moratorium, and a couple of other very small municipalities in Northern California. But in general, things have opened up. Now the bigger issue, Mike, is really the time as it relates to getting through the system because the system was closed down for so long. Now that it's open, there's a backlog of cases. So we certainly are getting UDs processed as quick as we would like, but that's changing quickly, and more importantly, it's really getting the tenant to the table and getting this resolved very quickly. At the end of the day, that's really the objective here is to keep the tenant in business because they're a good tenant and resolve the outstanding issues that go back to the time where the pandemic was at. It's fast when the markets were closed down.

That's helpful. And then on the acquisition market, I know there's been a lot of discussion on this. But I think one of your peers mentioned this morning that fewer and fewer people are willing to sell vacancy, just given the amount of bounce back we've seen in the markets, and you mentioned how you got a much better deal on the Northern California asset. Can you just talk a minute about, not only the assets that you're seeing, but how folks -- how buyers are underwriting them right now in terms of what kind of growth they're willing to project if there's vacancy in the asset? What kind of time lines they're looking at for filling those up? And basically, just what kind of assumptions are being baked into some of the acquisitions market right now?

Well, I mean, remember, what we're buying is high-quality, grocery drug-anchored assets. So from a vacancy perspective, you really aren't getting what you've seen in other segments of retail. So that's sort of where you start in terms of answering your question where there is some fractional vacancy due to the pandemic, but you're not seeing the higher vacancy that you would see in other segments of retail. So that -- so from a vacancy perspective, that's really when you're looking at buying today, again, there is additional vacancy, but it's just not that dramatic. Rich, do you want to comment on the growth side?

Well, yes. And I think just continuing on with the vacancy, when we're underwriting these properties, we're looking at in-place rents, and obviously, we're putting some value on that in our own minds about what we can do with the vacancy that is there. We always want to be comfortable with what's in place the day we close. And as Stuart touched on, these grocery-anchored centers really don't have a significant amount of vacancy that we would have to put any value on.

Okay. Great. And then maybe just last one for me, also on the acquisitions market. You've been talking for a while now about a lot of the embedded value in the portfolio and in the markets about densification and higher and best use, especially as some of the municipalities become more favorable to some of these developments. Has it gotten to the point where when you're out in the acquisitions market that you're starting to bump into more mixed-use developers or people that are underwriting development potential when you're competing against them on assets even if you're not necessarily underwriting that yourself?

Yes. And then, of course, the other thing is there is a slew of buyers out there that are looking at, what I would call, owned pads and the upside in terms of selling those off, which we don't do. I mean the good news about our portfolio is we own most of the real estate. So you are getting a slew of buyers that are looking at because of where the triple net market has gone that there's some nice embedded value in stripping out some of the outlined pads in our centers as it relates to paying low cap rates. That's one way of cushioning, paying that type of pricing.

We do have a follow-up question from Wes Golladay from Baird.

Just a quick one for you on the Crossroads residential development. Do you have a time would you expect to break ground? And do you know the size of the project at this moment?

The answer is yes and yes. Size of the project is 226 units, 15,000 square feet of retail, and the breaking ground, of course, subject to getting through the permitting process, is probably going to be, let's call it, first quarter of '22, maybe the second quarter. And that's conservative, but that's when we're expecting that project to break ground.

Okay. And maybe what about the cost and incremental yield on investment? I know you have the land bases already for free, but...

Cost is about $80 million. Unlevered yield is -- even with the increase in construction costs is now trending about 6.5 to 7.

Next one on the line is Linda Tsai from Jefferies.

I just had one question. Can you remind us what contractual rent increases look like in your portfolio? And is this changing much in the leases you're signing today?

Yes. I mean, typically, for a shop tenants, you're going to see around 3% annually, and an anchor tenant, it's probably more -- you're probably getting 10% every 5 years to 2% annually. That would be sort of the range.

Yes. On a blended basis, 2.5% to 3.5%, Linda.

Is this changing at all?

No. It really hasn't changed. I think as we touched on last quarter, there have been some renewals where we've kept the rent flat from the expiring to the initial, but we're still getting the increases going forward, and we expect that to get better as we continue to move throughout the year and back to more of our historic -- getting a better lift out of the gate.

Next one on the line is Tammi Fique from Wells Fargo.

Just wondering -- good. You saw in the second quarter some fall-off in build occupancy. I know you still have some tenants that aren't paying rent. So I guess I'm just wondering if you think there's additional fallout. Or is that 2Q kind of the bottom -- the trough in terms of build occupancy?

I think as Stuart touched on, there's really a very small set of tenants that are still playing the moratorium game with us and holding out on some rent, but those are very, very few at this point. And I think as you say, we see this getting better going forward and as these markets continue to open up and these tenants have to come to the table and resolve their open balances with us.

Okay. Great. And then I'm sorry if I missed this, but did you discuss the breakdown in occupancy between small shop and anchor occupancy this quarter?

Sure. Yes. The -- our anchor space remains at 100%, and our shop space was 93.1.

Great. And then Stuart, you mentioned potentially getting back to historical levels in terms of acquisitions at some point. I guess is your plan, as you think about doing that, to prefund those acquisitions with permanent capital? Or do you intend to use the credit facility to fund that activity initially?

Credit facility and cash on hand.

Okay. Great. And then just maybe one last question on the leverage, but obviously ticked down in the quarter to 6.9x Can you just remind us of what your, like, longer-term objective is in terms of leverage? And is there any intention to kind of continue to pay down some of the secured debt, which I know is limited that's coming due next year or maybe the term loan just to kind of get that down to a lower level?

Well, the term loan is swapped through August of next year, so that's kind of off the table in the near term. We have 2 property mortgages, one that we can pay off on March 1 and another one on April 1, and the plan is to take those out and pay them off. And as far as the net debt-to-EBITDA, very happy that it's below 7. The goal is to have it to mid- to low 6s.

There are no further questions at this time. I will now turn the call over back to the presenters.

In closing, I would like to thank all of you for joining us today. As always, we appreciate your interest in ROIC. If you have any additional questions, please contact Mike, Rich or me directly. Also, you can find additional information in the company's quarterly supplemental package, which is posted on our website as well as our 10-Q. Thanks again, and have a great day, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.