Q2 2023 Retail Opportunity Investments Corp Earnings Call
Participants
Lauren N. Silveira; VP & CAO; Retail Opportunity Investments Corp.
Michael B. Haines; Executive VP, CFO, Treasurer & Secretary; Retail Opportunity Investments Corp.
Richard K. Schoebel; COO; Retail Opportunity Investments Corp.
Stuart A. Tanz; President, CEO & Director; Retail Opportunity Investments Corp.
Dori Lynn Kesten; Senior Analyst; Wells Fargo Securities, LLC, Research Division
Juan Carlos Sanabria; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research
Linda Tsai; Equity Analyst; Jefferies LLC, Research Division
Michael William Mueller; Senior Analyst; JPMorgan Chase & Co, Research Division
Nicholas Gregory Joseph; Director & Senior Analyst; Citigroup Inc., Research Division
Richard Jon Milligan; Director & Research Analyst; Raymond James & Associates, Inc., Research Division
Todd Michael Thomas; MD & Senior Equity Research Analyst; KeyBanc Capital Markets Inc., Research Division
Unidentified Analyst
Wesley Keith Golladay; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
Presentation
Operator
Welcome to the Retail Opportunity Investments Second Quarter 2023 Conference Call. Participants are currently in a listen-only mode. Following the company's prepared remarks, the call will be open for questions. Now I'd like to introduce Lauren Silveira, the company's Chief Accounting Officer.
Lauren N. Silveira
Thank you. Before we begin, please note that certain matters which we will discuss on today's call are forward-looking statements within the meaning of federal securities laws. These forward-looking statements involve risks and other factors, which can cause actual results to differ significantly from future results that are expressed or implied by such forward-looking statements.
Participants should refer to the company's filings with the SEC, including our most recent annual report on Form 10-K, to learn more about these risks and other factors.
In addition, we will be discussing certain non-GAAP financial results on today's call. Reconciliation of these non-GAAP financial results to GAAP results can be found in the company's quarterly supplemental, which is posted on our website. Now I'll turn the call over to Stuart Tanz, the company's Chief Executive Officer. Stuart?
Stuart A. Tanz
Thank you, Lauren, and good day, everyone. Here with Lauren and me today is Michael Haines, our Chief Financial Officer; and Rich Schoebel, our Chief Operating Officer. We are pleased to report that our grocery-anchored portfolio continues to perform well. Demand for space continues to be strong, coming from a growing broad range of necessity, service and destination tenants, all of which continue to seek out our grocery-anchored shopping centers.
Capitalizing on the demand and building on our record leasing activity in the first quarter, during the second quarter, we again posted a record amount of leasing. In fact, in just the first 6 months alone, we've already leased approximately 1 million square feet of space, which is a new record for the company.
For reference, at the start of the year, we had [859,000] square feet scheduled to mature during all of 2023. The fact that we've already surpassed that amount at midyear speaks to the success of our long-standing hands-on approach and the fundamental appeal of our grocery-anchored shopping centers.
Additionally, not only are we capitalizing on the demand to lease a record amount of space, we are also capitalizing on the demand to drive rents higher and to enhance the tenant mix at each of our centers. Importantly, our overriding objective is to continue enhancing the long-term competitive position of our portfolio and the long-term strength and stability of our portfolio's income stream and bottom line cash flow.
With respect to dispositions, we are currently on track to close in the third quarter, the property sale that we discussed on our last call. We are also currently planning to bring to market for sale in the second half of 2023 our 2 infill undeveloped land parcels in the San Francisco Bay Area that are slated for multifamily development. Altogether, we expect that the 3 dispositions could generate between $30 million and $40 million of proceeds in total.
In terms of acquisitions, during the first half of 2023, the broader market on the West Coast was relatively quiet as the market digested the impact from the increase in interest rates over the past year and the recent banking turmoil.
For the few transactions that did close involving sought-after stable grocery-anchored properties, pricing was in the high 5, low 6% range, driven in part by being all cash, no leverage transactions, typically with buyers that are passive institutional investors focused on long-term stability.
We're starting to see signs of the market potentially picking back up as there's been a bit of an increase here recently in the number of properties being brought to market, which will hopefully bring greater clarity in terms of pricing shifts. As it relates to off-market opportunities, we continue to be proactively engaged in seeking out transactions.
We currently have several interesting opportunities in the pipeline that we believe have significant long-term embedded growth. However, we're not there yet with the private owners in terms of initial yield pricing. So it's a bit too early to discuss specifics.
Additionally, we continue to get a number of inquiries regarding potential OP unit transactions, which we are exploring as well. Now I'll turn the call over to Michael Haines to take you through our financial results. Mike?
Michael B. Haines
Thanks, Stuart. For the 3 months ended June 30, 2023, the company had $82 million in total revenues and $28 million in operating income. For the first 6 months of 2023, the company had $161 million in total revenues and approximately $54 million in operating income. On a same-center cash basis, net operating income for the second quarter of 2023 increased 3.2% and increased 1.3% for the first 6 months. We continue to be on track to achieve same-center NOI growth for the full year that's within our guidance range.
GAAP net income attributable to common shareholders totaled $9.9 million for the second quarter of 2023, equating to $0.08 per diluted share. For the first 6 months of 2023, GAAP net income was $18.1 million or $0.14 per diluted share. Funds from operations for the second quarter of 2023 totaled $35.6 million, equating to $0.27 per diluted share. For the first 6 months of 2023, FFO totaled $69.4 million or $0.52 per diluted share.
Turning to our balance sheet. As we reported on our last call, during the first half of 2023, we entered into swap agreements, fixing the interest rate on $150 million of our $300 million term loan, locking in the rate of 5.4% through August of 2024.
Taking into account the swaps at June 30, approximately 85% of our debt outstanding was fixed rate. Additionally, today, 96% of our total debt is unsecured and 97% of our total GLA is unencumbered. And in terms of net debt, we continue to focus on steadily lowering our ratio. So the second quarter, the ratio was 6.5x.
With respect to the $250 million of senior notes that mature in December, our objective is to refinance the bonds through a long-term public bond offering, potentially a $400 million offering to also refinance $150 million of our term loan. However, in light of current market conditions, to be prudent, we are also evaluating several other refinancing strategies, including possibly a combination of medium and long-term public bonds or possible via private placement.
We're also considering utilizing some secured debt along with disposition proceeds and possibly some equity market conditions permitting to further lower our net debt ratio down in connection with the refinancing.
Additionally, we're also considering utilizing prepayable, shorter-term unsecured debt in order to provide flexibility for the market conditions to become more settled. Now I'll turn the call over to Rich Schoebel, our COO, to discuss property operations. Rich?
Richard K. Schoebel
Thanks, Mike. As Stuart highlighted, demand for space across our portfolio is strong, coming from a broad range of both existing and prospective tenants. Leading the charge are destination tenants, most notably new health and wellness concepts that continue to expand on the West Coast, along with new children enrichment centers and a continuation of new quick-serve food concepts coming to market.
Additionally, traditional full-service restaurants continue to open multiple stand-alone smaller format to-go concepts, capitalizing on their established brand and following. These to-go concepts are borne out of necessity during the pandemic and since then have been steadily growing in popularity so much so that they could become over time a mainstream in-line tenant.
We're also seeing neighborhood destination service tenants that were among the hardest hit during the pandemic and have been slow to rebound, now coming back strongly, again, seeking space in earnest across our portfolio. While these tenants typically have modest space requirements, they play an integral role as one of our core necessity and service-based tenants that draw daily neighborhood consumers to our centers.
Additionally, they are flexible in terms of their space needs and configuration, so they are ideal for leasing that last bit of available space. From our perspective, we view these service tenants becoming active again, specifically seeking out space at grocery-anchored centers as an important positive trend.
Turning to our specific leasing results. As Stuart highlighted, we again posted a strong quarter. In terms of our overall portfolio lease rate during the second quarter, we maintained our high lease rate of 98.3%. Leading the way was our Portland portfolio, where 16 out of our 18 shopping centers in the Portland market stood at a full 100% leased at June 30, with the remaining 2 properties both at 99% leased.
And portfolio-wide, we also set a new record during the second quarter with 48 of our shopping centers being 100% leased. Additionally, our anchor space continues to be 100% leased. And as of June 30, our shop space stood at 96% leased.
With respect to our leasing activity during the second quarter, we leased 430,000 square feet of space, which is a new second quarter record for the company. Taking in our second quarter leasing activity together with our record leasing volume in the first quarter, for the first 6 months of 2023, we leased 989,000 square feet of space in total, again, setting a new record, and as Stuart highlighted, already surpassing what was originally scheduled to mature during the entire year.
The bulk of our leasing activity continues to center around tenant renewals. In fact, During the second quarter, 79% of the square footage that we leased involved renewing value tenants, which was split roughly equally between anchor and nonanchor renewals.
In terms of anchor renewals, during the second quarter, one of our long-standing national supermarket anchors approached us about wanting to not only extend the lease of theirs that was maturing later this year, but also wanting to explore possibly extending all of their leases in our portfolio.
We capitalized on the opportunity and successfully extended their leases out for another 8 years on average, while also increasing the overall base rent, notwithstanding some of their leases previously having flat renewal options. And we were also successful in removing property leasing restrictions.
In short, the transaction enhances the long-term stability of each of the centers and enhances our flexibility to maneuver and optimize the tenant mix, going forward. Additionally, there were no TIs required on our part.
With respect to our non-anchor renewals, during the second quarter, we renewed 78 valued in-line tenants, achieving a 7% increase in cash base rent and again with essentially no TIs required on our part.
In terms of new leasing activity, during the second quarter, we signed 45 new leases, including 44 new in-line tenants, achieving a 13% increase in same pace base rent on average, and we signed one 18,000 square-foot anchor lease, where we achieved 127% increase in base rent. The new anchor tenant is an established national seasonal tenant that we signed on a short-term interim basis.
We currently have a new long-term lease lined up with a national destination tenant to take the space following the seasonal interim tenant, and the new long-term lease has an initial base ramp that also represents a substantial increase over the maturing lease.
Lastly, we continue to have good success in getting new tenants open and operating. During the second quarter, new tenants representing $1.9 million of incremental base rent on a cash basis, open and commenced paying rent. Together with the new tenants that opened during the first quarter, year-to-date, new tenants representing $4.1 million of incremental rent have opened and commenced paying rent.
In terms of new tenants that haven't yet opened, including those that we signed during the second quarter, as of June 30, the incremental amount stood at $7.2 million, the bulk of which we expect to commence as we move through the second half of the year. Now I'll turn the call back over to Stuart.
Stuart A. Tanz
Thanks, Rich. Based on our results year-to-date and what we see on the horizon for the second half of the year, we continue to be on track in terms of our FFO guidance. Putting aside any acquisition activity, just based on our current leasing pipeline alone, should put us squarely within our guidance range.
Underscoring the consistently strong property operations and leasing results quarter after quarter, year after year is our proactive approach of constantly working to enhance our portfolio and tenant base.
Additionally, while parts of the commercial real estate industry are facing mounting issues, in distinct contrast, the long-term drivers of the grocery-anchored shopping center sector are not only fundamentally sound today, but as more and more diverse tenants and emerging concepts steadily gravitate the grocery-anchored shopping centers, we believe the sector in our portfolio specifically is well positioned to continue generating stable risk-adjusted returns long into the future.
Lastly, we recently issued our fourth annual ESG report, which details our accomplishments over the past year. We are continuing to make steady, measurable progress at enhancing the long-term stability of our portfolio, along with continuing to implement long-standing employee advancement and community engagement programs. Now we'll open up the call for your questions. Operator?
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Craig Mailman of Citi.
Nicholas Gregory Joseph
It's Nick Joseph here with Craig. Maybe just starting on the transaction market. Obviously, it was quiet for you. It sounds like it was quiet pretty broadly. Are you starting to see it thaw at all? I don't know if you could maybe touch on where you think bid-ask spreads are and what we would need to see to start to see some deals actually get done.
Stuart A. Tanz
Well, I mean, a function, obviously, first of all, is supply. And again, the market continues to be very tight in terms of looking at new transactions. It's starting to pick up a bit, as I said in my comments, but the bid-ask spread continues to be pretty far in terms of other types of properties that come to the market, not grocery-anchored.
And then the only other thing I could shed some light on, Nick, is that there was a transaction that is currently under escrow in San Diego that has traded in the low 5s. So that's been sort of the most recent comp. But the bid-ask spread has really -- continues to be why, but there's just not enough supply.
Nicholas Gregory Joseph
And then you touched on kind of the potential of public bonds or private placement. Where do you think you could issue today, just kind of where are spreads and what's the all-in cost there?
Michael B. Haines
This is Mike. On a new 10-year deal, I would expect the price to be probably be in the mid- to high 6% range, and private is about that -- probably in that same general neighborhood, maybe a touch higher, mid- to high [6%] range.
Nicholas Gregory Joseph
And then just finally, what drove the higher other income in the quarter?
Michael B. Haines
Those aren't really anything unusual during the second quarter. If we look at other income for the first 6 months, we're pretty much on par with last year.
Operator
Our next question comes from the line of Todd Thomas of KeyBanc.
Todd Michael Thomas
I just wanted to, I guess, stick with the transaction environment a little bit and ask about the dispositions. Stuart, you talked about the 2 undeveloped land parcels. But I think, Mike, you mentioned exploring additional dispositions as a source of capital to repay debt or refinance December maturity and/or the balance of the term loan.
Is there anything on the disposition front being contemplated beyond the $30 million, $40 million discussed? I know you have 1 or 2 larger format centers, including Fallbrook, which in the past, you've sort of characterized as a little bit of a headache over time. It's one of the fewer boxier assets in the portfolio. Is that something that you contemplate selling in the current environment as larger-format products have performed well a little bit more recently?
Stuart A. Tanz
Yes. We really don't have -- outside of the Crossroads in Fallbrook, we really don't have what I would call large-format centers. But it really depends on whether or not the market activity picks up again in the second half, which we're starting to see signs of, but it's just too early at this point to know for certain.
At this point, you're more likely sort of to see potentially more dispositions, but it's, again, going to be sort of the -- towards the fourth quarter of the year. But yes, we are looking at bringing more to the market, Todd, as we get through the balance of the year. But again, it's all relative to the transaction market and how active that gets.
Todd Michael Thomas
Okay. And regarding those 2 assets, I guess, you've spoken a little bit more favorably about Crossroads and the value-creation opportunity there over time, but are either of those assets, assets that you would potentially look to sell and as a source of capital in the future?
Stuart A. Tanz
Well, I mean, I started the 2 assets around the Bay Area, which we are gearing up to put on the market. We are thinking about different things regarding the multifamily at Crossroads. Right now, the capital outlay for the balance of the year is not that much. It's very little left.
So we're still contemplating long term what we do with the multifamily, whether we joint venture it or whether we build it ourselves or potentially selling it. So that's still on the table, but we haven't made any decisions yet because we're still getting through the permitting process.
Todd Michael Thomas
Okay. All right. And then if I -- just last question, I guess. You haven't had to discuss much around watchlist tenants really over the years recently, just given the composition of your portfolio. But Rite Aid has been in the news recently. They are your third largest tenant, a little under 2% of ABR.
Can you just discuss that space within the portfolio? Where you feel Rite Aid rents are versus market? How you feel about backfilling that space to the extent that you do get some back? And maybe provide just a little bit of color around that exposure in general.
Richard K. Schoebel
Sure, it's Rich. Yes, as you noted, Rite Aid-only accounts were about 1.7% of our total base rent, which comes from 15 leases we have, and that number will drop to 14 with the property we currently have under contract.
And the majority of the Rite Aids we have are the newer prototypes. They -- we meet with Rite Aid on an ongoing basis. They're generating solid sales, and their rents are below market. And this big spread we had on the anchor lease is coming from a Rite Aid lease that we've replaced. So we see a lot of upside in these leases.
Operator
One moment, please. Our next question comes from the line of Lizzie [Doukhan] of Bank of America.
Unidentified Analyst
I wanted to ask about -- I know on the last call, you all mentioned a onetime expense that was incurred from a net seller in the amount of about $300,000. Is there anything onetime in nature to mention this quarter with respect to bad debt? I'm just wondering if you're still on track with that guidance range put out of $3 million to $5 million for the year, does that mean 2Q bad debt came in a bit higher than expected because of that onetime cost last quarter?
Michael B. Haines
Well, we did. You're right, Liz, we did have a onetime off in the first quarter, but bad debt continues to be well below our budgeted amount of 1.5% of total revenue. And bad debt continues to be in line with our guidance for the year. The bulk of our bad debt continues to center on various tenant account adjustments. [Others], the bulk of our debt is not related to tenant vacancies.
Historically, the first 6 months of each year tends to track a little bit higher, and it drops off in the second half of the year. And so on a run rate basis, even though we budget 1.5%, we typically wind up the year about 1% of total revenue or slightly better under.
Unidentified Analyst
Okay. Got it. And I wanted to ask because this kind of seems -- it become more topical lately with just the lack of overall growth we're seeing within strip. But what annual contractual rent bumps are you achieving on tenant now? Is this increasing? And where are you seeing both on the anchor and the nonanchor side? And how important do you think that, that is to overall same-store growth for the year? In terms of how that would affect being the lower to -- seeing the low end to the higher end of that range?
Richard K. Schoebel
So for shops tenants, we typically are still achieving the 3% annual increases on those leases, sometimes a touch higher. And then on anchor leases, it's typically 10% to 12% every 5 years. But that's obviously also offset by tenant who may have an option that's fixed or things like that. But those annual increases are fairly consistent with the historic...
Unidentified Analyst
Okay. Great. And if I could ask one more just on the level of leasing activity, you said what led the way really with the Portland portfolio is -- could you speak more to the absorption you're seeing there? Like is it really a function of such limited supply for different dynamics and demand that you're seeing?
Richard K. Schoebel
Yes. I think as you're touching on, it's really the limited supply. The Pacific Northwest is very difficult to develop new properties, virtually nothing's come online. Portland has always led the way in terms of that, but we're seeing those sort of same trends in the other markets as well.
Stuart A. Tanz
So certainly, supply is having an impact along with the overall demand from the tenant side. It's a combination of both that is really pushing the velocity of leasing more than anything else.
Operator
Our next question comes from the line of Wesley Golladay of Baird.
Wesley Keith Golladay
Stuart, I just want to maybe go back to the debt questions. You have some debt maturities ['23] and ['24], and you kind of outlined last call about addressing over the next 2 years with 2 offerings. What is your appetite to do maybe a little bit more this year and remove the potential overhang for shares as we look into next year?
Michael B. Haines
This is Mike. So as I mentioned in my prepared remarks, we're looking to potentially do a deal upwards of $400 million or up to $400 million, that would take care of the ['23s] and half of the term loan. It's a little bit too early to take up the ['24s] from a cost perspective. So what we're trying to communicate is doing a nice-size deal this year.
And then the other half of the term loan, which has been swapped through August of next year, becomes freely prepayable at that point, along with the ['24]. So kind of a back-to-back kind of strategy there.
But if we go to market, the appetite is there for our paper, then we could do maybe a potentially large deal and have a little bit more of the term loan or take whatever balance we have on the revolver and then pay that up as well. So there's some flexibility there.
Wesley Keith Golladay
Got it. And then you have mentioned you have a lot of options to pay off the debt. You did mention one of them being secured debt. You made a point over the last few years to remove a lot of secured debt. So is there a, I guess, a pricing differential that you would need to see in order to take on more secured debt?
Michael B. Haines
Well, secured debt, assuming it's about a 50% property leverage level and the [7-year] maturity, the rate would be probably in the low 6% range, low to mid-6%, so it's not that much different from where we think we could do a public deal. So I think there would have to be really a lighter gap where it makes sense because, as you know, we like to keep our properties unencumbered for maximum flexibility of the assets.
Operator
Our next question comes from the line of Juan Sanabria of BMO Capital Markets.
Juan Carlos Sanabria
Just a question on guidance, and how comfortable are you guys with same-store NOI and I guess, FFO on the high end, given the year-to-date results? And I guess, with regard to specific to same-store NOI, what has to happen, I guess, to hit the mid- to high end of that range there in terms of occupancy, given the occupied pipeline?
Michael B. Haines
Well, our internal budget has same-center NOI growth ramping up as we move through the year because we track them on a quarterly basis. And at this point, we're on track to be within that guidance range of 2% to 5%. But where we end up in the range will largely be a function of how many new tenants open their stores and commence paying rent between now and year-end.
As Rich discussed, as of June 30, we had just over $7 million of incremental rent from new tenants that are currently working towards opening. So that's going to drive that up, based on occupancy.
Stuart A. Tanz
And tenant retention is high, very high. And so that will continue to help as well. It's just that if fundamentals continue to be as strong as they are, then we feel pretty comfortable getting into that range.
Juan Carlos Sanabria
Is that 5% still in place for this same-store NOI or more comfort at the midpoint?
Michael B. Haines
It's hard to say. There's a lot of moving parts that are working their way into the same-store NOI, but we're sticking to that guidance range for now and see how the second half of the year plays out.
Juan Carlos Sanabria
Okay. And then one other question. You guys had a couple of buybuy BABY locations. What's the latest in terms of what's going to happen with those? And if there's any risk the rent falls out there with some of the proceedings that have happened?
Richard K. Schoebel
Sure. Yes. We have 2 buybuy BABYs in the portfolio. One of the leases was acquired by a private investor. That lease actually expires next year, but it does have several renewal options remaining. So on that one, we should be made whole.
On the other buybuy BABY lease, half the space is leased to world markets. And so we're in discussion with world markets about putting a new long-term lease in directly with them. And then for the remainder of that space, we've been out marketing it for quite some time now, and we have good preliminary interest from a number of prospective tenants. So we feel pretty confident we'll have that filled.
Operator
Our next question comes from the line of Michael Mueller of JPMorgan.
Michael William Mueller
I apologize if I missed this, but did you say with the volume of the potential acquisitions that you're working on adds up to?
Stuart A. Tanz
Well, we've guided the Street $200 million. We -- as we look through the balance of the year, given where the market is today, we're probably expecting to maybe lower that guidance a bit as we move towards -- depending on how the market changes, of course.
But right now, we're certainly comfortable with about $75 million as we sit here today. And then we'll see how the rest of the year shapes up in terms of what we would call deal flow and access to capital in terms of growing the company.
Operator
Our next question comes from the line of Dori Kesten of Wells Fargo.
Dori Lynn Kesten
When you think through potential acquisitions, CapEx projects or share repurchases, where do you think your greatest return lies today?
Stuart A. Tanz
Well, the CapEx side is certainly continuing to fall because of how highly leased we are. And I think, as Rich touched on, not much is being given to these tenants, both in terms of renewals and new leases.
As it relates to buying stock back, we, at the present time, want to continue to monitor the market and make that decision as we move -- continue to move through the year. But more importantly, acquisitions is where we're focused in terms of growing the company.
So if you were to prioritize those 3, I would tell you, acquisitions is at the top and buying stock back is probably the third choice, as you would say.
Operator
Our next question comes from the line of Linda Tsai of Jefferies.
Linda Tsai
Just a clarification. You said you normally have more bad debt in the first half of the year and less in the second half. Is this year consistent with prior years?
Michael B. Haines
Yes, I would say so. Yes, it seems to be kind of a trend. First to second quarter is usually higher and the back half is lower, but you get to that blended actual bad debt above 1% or less on an annual basis.
Linda Tsai
Got it. And then you have $7 million in incremental rent coming online this year. Do you have a sense of how much is coming online next year?
Michael B. Haines
[Advantage] perspective, of the $7.2 million, I believe, about 60% is supposed to start paying by the end of this year, another 25% or so by March, the balance and the rest of ['24].
Linda Tsai
Got it. And then just one last one. In terms of your ESG report, are there any highlights to consider in terms of the progress you've made this year versus last year?
Stuart A. Tanz
Yes. I mean we've made some very good progress. But I don't have the reports an right in front of me, but it certainly gives you the details in terms of the great progress this company has made. The good news is that we are certainly trending above the goals that we had set initially. In fact, we're -- and so from that perspective, things are going better than what we had anticipated.
And I think you'll continue to see that progress as we move through '23 right now as it relates to ESG. It's been a big focus of management's time. And again, the progress is -- if you pick up the report and read it, I think you will see that the progress has been quite strong.
Operator
Our next question comes from the line of R.J. Milligan of Raymond James.
Richard Jon Milligan
Stuart, you mentioned that CapEx is coming down for ROIC, but we are still seeing elevated TI CapEx spend for your peers. I'm curious, is that just a function of your high occupancy? Is it because it's more grocery-focused versus power centers? And I guess maybe if you could just give some comments on where you see the negotiating power in terms of between landlords and retailers as they're looking for new stores?
Richard K. Schoebel
Yes, I think that it is a function of the high occupancy. I mean, it makes -- we have multiple offers on these spaces. So we're able to go with the ones that were the strongest operators and the best overall terms. So that is, I think, what's the primary driver of that.
Richard Jon Milligan
And then maybe, I don't know if you could just expand on sort of where the pricing power is sort of in the market, maybe not necessarily for ROIC, given your high occupancy, but for the retailers, the key retailers that are looking to open new stores. How much pricing power do they have, maybe not necessarily for rents, but from a TI CapEx spend perspective?
Stuart A. Tanz
Well, costs have gone up. So I mean, the other thing you've really got to look at here as it relates to CapEx is two things. Number one, as Rich articulated, the overall demand/supply aspects as it relates to being grocery-anchored or other types of retail. But the other thing are the costs. I mean to retrofit the space today compared to pre-COVID, you're spending at least a good, let's call it, 30%, 40% higher.
So that had some impact in terms of CapEx. But the good news is that -- and I think, again, Rich touched on it, is that when you're this highly occupied, the pendulum, R.J., certainly swings to the landlord as it relates to spending those dollars. And that's what we're continuing to see as we move through '23. The AFFO, as you might say, aspect of our cash flow is continuing to get stronger.
Operator
Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Stuart Tanz for any closing remarks.
Stuart A. Tanz
In closing, thanks to all of you for joining us today. As always, we appreciate your interest in ROIC. If you have any additional questions, please contact Lauren, Mike, Rich or me directly. Also, you can find additional information in the company's quarterly supplemental package and 10-Q, which are posted on our website as well as our latest ESG annual report. Thanks again, and have a great day, everyone. .
Operator
Ladies and gentlemen, this does conclude today's conference. You may now disconnect. Have a great day.
