Stuart A. Tanz - Chief Executive Officer, President and Director John B.

Roche - Chief Financial Officer, Principal Accounting Officer and Senior Vice President Richard K. Schoebel - Chief Operating Officer

Paul E. Adornato - BMO Capital Markets U.S.

Jason White - Green Street Advisors, Inc., Research Division R.J. Milligan - Raymond James & Associates, Inc., Research Division Jeffrey Lau - Sidoti & Company, LLC

Thank you. Here with me today is John Roche, our Chief Financial Officer; and Rich Schoebel, our Chief Operating Officer.

We are pleased to report that the company posted another strong quarter, as we continued on track with achieving our stated objectives for the year including growing our portfolio on the West Coast, enhancing value through our management and leasing initiatives, achieving targeted financial results and enhancing our strong balance sheet. Beginning with acquisitions.

We continued to cultivate an active pipeline of attractive opportunities to acquire exceptional grocery-anchored shopping centers and desirable high vary pantry markets. Importantly, we continue to have good success in building our pipeline, primarily through off-market direct-to-owner transactions.

Specifically, thus far in 2012, we have secured approximately $214 million of grocery or drugstore-anchored shopping centers, including $156 million that we've completed year-to-date plus another $58 million of grocery-anchored shopping centers that we currently have under contract and expect to close soon. Beyond that, we have upwards of another $60 million of off-market acquisitions currently in the works, of which we expect to have at least $30 million of that under contract before year end, which should bring our total acquisition activity to approximately $250 million for the year, matching our goal.

We continue to focus on acquiring exceptional grocery-anchored shopping centers in each of our core West Coast markets. Of the $214 million that we secured thus far, $83 million is located in our Southern California region, $68 million in Northern California and $63 million is located in our Pacific Northwest region.

Within each of these regions, we continue to secure acquisitions in key demographically strong markets. As an example, in our Northern California region, we have secured our first shopping center acquisition in the San Jose market, which is considered to be one of the toughest retail markets to get into and one of the best, most protected markets on the West Coast.

In terms of Southern California, all 4 of our shopping centers that we have acquired year-to-date are located in affluent, highly-developed, densely-populated submarkets, with 2 specifically located in the heart of San Diego market and 2 in the Los Angeles market. And in the Pacific Northwest, our acquisition activity continues to be focused in the Seattle and Portland markets.

The shopping centers that we're acquiring are generally well-leased properties, with the going-in occupancy typically over 90%. That said, the properties have lacked proactive management for some time, as previous owners were capital-constrained, many of which were developers by background and not focused on the day-to-day managing and leasing.

So notwithstanding being well-established, stable centers, the properties offer a broad mix of opportunities to enhance the underlying value, including expanding key tenants that are performing well and are seeking to lease additional space, many of which are currently paying below market rents. We are currently working to capitalize on this through reconfiguring and re-tenanting adjacent in-line spaces.

We're also maximizing development opportunities at newly-acquired shopping centers through a combination of renovating underutilized in-line spaces and pads, as well as pursuing ground-up expansion opportunities. And we are aggressively leasing available space, along with working diligently on improving the overall tenant mix at newly-acquired centers.

Looking at the 10 shopping centers we've acquired thus far in 2012, we've already increased occupancy by 370 basis points. We are also nearing completion of a 10,000-square foot expansion and have another 55,000 square feet of expansion space currently on the board, as well as several pad opportunities.

In terms of our overall portfolio, occupancy increased for the third consecutive quarter, in fact, reaching a new 2-year high. And we again achieved positive spreads on our re-leasing rates, as Rich will discuss in a minute.

Our management and leasing initiatives continue to generate strong same-center NOI numbers, which together with acquisitions, continues to drive solid financial results. We are also continuing to enhance our strong balance sheet and financial wherewithal to continue growing.

Lastly, with respect to relocating our corporate headquarters from New York to San Diego, which we announced in our last earnings call, we're on track as planned and expect to complete the move by year end. Additionally, in terms of John's transition from CFO, we are also on track to have a new CFO on board by year end.

In the meantime, John continues to serve as CFO. I'll now turn the call over to John to discuss the company's financial results.

John?

Thanks, Stuart. Starting with our income statement, for the third quarter of 2012, the company had $18.9 million in total revenues and operating income of $3.1 million, as compared to $13.6 million in total revenues and operating income of $436,000 for the third quarter of 2011.

The significant increase in revenues and operating income reflects the growth in our portfolio from acquisitions during the past year, as well as our strong leasing activity. Of note, the significant increase in operating income is notwithstanding having incurred $1 million in additional G&A expense during the third quarter related to relocating the corporate headquarters to the West Coast.

In terms of same-center net operating income, for the third consecutive quarter, same-center NOI increased specifically by a strong 9% on a cash basis for the third quarter. The 9% increase is based on the 23 shopping centers that we owned as of the third quarter of 2011.

With respect to net income and funds from operations, during the third quarter, the company had net income of $2.6 million equating to $0.05 per diluted share, as compared to $0.06 per diluted share for the third quarter of 2011. FFO was $10.2 million or $0.19 per diluted share, as compared to $9 million or $0.21 per diluted share for the third quarter of 2011.

The slight drop in net income and FFO per share is attributable to 3 things. First, during the third quarter 2011, the company recorded a bargain purchase gain of $3.7 million, as compared to a $2.1 million gain recorded in the third quarter of 2012.

Second, as I mentioned, third quarter 2012 G&A expense includes an additional $1 million in relocation cost. And third, the weighted average shares outstanding for the third quarter 2012 was approximately 53.4 million shares, as compared to 42 million shares a year ago.

During the third quarter, the company distributed $0.14 per share in cash dividends, equating to a 71% FFO payout ratio. For the first 9 months of 2012, net income was $8.2 million, equating to $0.16 per diluted share, and FFO for the first 9 months was $30.6 million or $0.60 per diluted share.

In terms of FFO guidance, having achieved $0.60 through the first 9 months of 2012, and with 1 quarter remaining, we are tightening our guidance range for the full year to now be between $0.70 and $0.75 per diluted share. In other words, we expect FFO in the fourth quarter to be between $0.10 and $0.15 per diluted share.

This takes into account anticipated costs of approximately $2 million to $2.3 million expected in the fourth quarter in connection with completing the relocation of our corporate offices to the West Coast. We will establish guidance for 2013 on our year-end conference call.

Turning to our balance sheet. During the third quarter, we competed several important transactions that will provide the company with additional financial flexibility and capacity to continue growing our portfolio.

First, we expanded our unsecured credit facility from $175 million to $200 million. We also extended the maturity by an additional 2 years to August 2016, and lowered the borrowing cost by 40 basis points.

In conjunction with this, we expanded our existing unsecured term loan from $110 million to $200 million, extended its maturity to August 2017 and lowered the borrowing cost by 40 basis points as well. Additionally, both the credit facility and the term loan have accordion features, providing the company with the flexibility to increase both facilities to $300 million each.

Additionally, during the third quarter, we continued to prudently raise equity through our ATM program to help fund our growth and maintain our conservative financial position. During the third quarter, we raised approximately $23.5 million through the program, at an average net profit for the company of approximately $12.30 a share.

Year-to-date, we have raised upwards of $40 million through our ATM program. As a result of our balance sheet initiatives, at September 30, the company had a total market cap of approximately $988 million, with $260 million of debt outstanding, equating to a conservative debt-to-total market cap ratio of approximately 26%.

At September 30, we had no borrowings outstanding on our unsecured credit facility. In terms of debt maturities, we do not have any debt maturing through the end of 2013.

And lastly, we continue to maintain a large unencumbered pool of assets. At September 30, approximately 91% of our portfolio is unencumbered.

Now, Rich Schoebel, our COO, will discuss property operations. Rich?

Thanks, John. At September 30, our portfolio totaled 40 shopping centers, encompassing approximately 4.3 million square feet of gross leasable area, geographically diversified across the West Coast.

Specifically, 12 of our shopping centers are located in Southern California, representing 28% of our total GLA; 11 properties or 26% of our total GLA is located in our Northern California region; 8 properties, representing 25% of our GLA, are located in the Seattle market; and 21% of our total GLA is in the Portland, Oregon market, where we currently own 9 shopping centers. We continue to take full advantage of the strong demand for space across our portfolio.

As a result, for the third conservative quarter, occupancy steadily increased, reaching 93.1% as of September 30, our highest level since 2010. In terms of leasing activity, thus far in 2012, we have executed 147 leases totaling 581,000 square feet, including executing 38 leases during the third quarter, totaling 124,000 square feet.

Breaking down our third quarter leasing activity between new and renewed leases, during the third quarter, we executed 27 new leases totaling 72,000 square feet, and renewed 11 leases totaling 52,000 square feet. In terms of same-space comparative numbers, cash rents increased by approximately 19% on average for the quarter.

To touch on a couple of other highlights across our portfolio, at our Division Crossing shopping center in Portland, we just secured a new national anchor retailer that we're very excited about, which will take the occupancy of the property to over 85%. And with this new anchor tenant in hand, we are now seeing an increase in retailer interest for the remaining available space.

Additionally, at our Euclid Plaza shopping center here in San Diego, as Stuart mentioned, we are nearing completion on our 10,000-square foot ground-up shop space expansion. We acquired the shopping center earlier this year in the first quarter, at which time we immediately went to work pursuing the expansion opportunity.

We expect to deliver the space during the fourth quarter on time and budget. Now I'll turn the call back over to Stuart.

Thanks, Rich. With our accomplishments thus far in 2012, we are set to finish the year strong and head into 2013 with good momentum.

Our pipeline of off-market acquisition opportunities continues to be active. We're on track to secure $250 million for the year as planned and already have our sights on a number of exceptional opportunities beyond that.

We are continuing to capitalize on the demand for space across our portfolio. Our overall occupancy is trending up.

We're achieving strong same-store numbers, both in terms of NOI and re-leasing spreads. And while focusing on growing and managing our portfolio, we are also continuing to enhance our balance sheet.

As we look to finish the year strong and head into 2013, we remain committed to building our business by adhering to our long-standing core principles which include: First, capitalizing on our relationships and market knowledge on the West Coast where we have successfully operated for over 25 years. Second, carefully seeking out only the most attractive opportunities to acquire exceptional shopping centers that offer a balance of long-term stable cash flow and good growth opportunities.

To date, since commencing operations 3 years ago, we have acquired upwards of $800 million in exceptional shopping centers. Third, maintaining a strong and reliable revenue stream, backed by a diverse tenant base.

Today, our portfolio is leased to over 700 tenants, of which the vast majority account for less than 1% of our total base trend individually. And fourth, maintaining a flexible and conservative balance sheet.

Our leverage ratio today is only 26%, and 91% of our portfolio is unencumbered. In summary, we firmly believe that we are well-positioned to continue prudently growing our portfolio, enhancing the underlying value and taking our business to new heights.

Now we'll open up the call for your questions. Operator?

Stuart, you've been pretty consistent recently in acquiring grocery-anchored centers. I was wondering if you might cast a wider net at this point, perhaps to take advantage of some higher risk, higher reward opportunities or perhaps some debt for equity type of opportunities?

No. When I say no, we certainly look at all opportunities out there.

But as I said in my script, we are very focused on a very prudent philosophy that we've had, both over the last 3 years and back at Pan Pacific, and that's to stick with the basic necessities from a retailing perspective. So we will continue to acquire grocery/drug-anchored centers.

If an opportunity comes up in a portfolio or somewhere else, we'll look at it. But we're going to stick to what we know best.

Okay, great. And looking at the use of the ATM recently.

I was wondering if you could comment on future use of the ATM as you continue to acquire -- no, how does the valuation of the stock play into that decision-making?

Well, Paul, it's John Roche. We continue to look at the ATM as an efficient way for the company to raise equity.

And to the extent that we can do so while finding good opportunities, we will continue to utilize it prudently.

Okay. And finally, could you comment on 2013 lease expirations, especially at the anchors?

We have no anchors expiring in '13.

I have a couple of questions for you. First one is when you look at your New York team, obviously John isn't going to be joining you out in San Diego.

But could you kind of describe who is in that office, and if you're planning on bringing them all out, or what that looks like in the transition?

Outside of John, we've got some very talented people here of which I have reached out to them and asked them whether they would be interested to come to San Diego as part of the transition. To date, it looks like our Controller, Joe Laprino, is not going to make the move.

However, a couple of other people in the office are considering it. Either way, we have a very strong lineup of individuals back in San Diego, and Joe will be here, as well as everyone else.

Except for John may leave a bit earlier once the CFO comes on, in terms of making the transition as seamless as possible. And again, we're very excited about this.

Everyone here in the office is very supportive of the move, and we look forward to wrapping this up by year end.

Okay. And then another question, as far as you look at your leverage ratio, it's kind of creeping up again, is there anything in the works to try to take those warrants out and maybe utilize that potential equity source?

Nothing to talk about in terms of the warrants right now. Our leverage -- we're comfortable with actually getting the leverage higher.

Although I do like to operate with lower leverage. But right now, we're in my view still have one of the strongest balance sheets in the sector in terms of leverage.

And going forward, we will continue to increase that leverage, but conservatively and prudently.

Okay. That's helpful.

And then, one last question, in terms of your grocery anchors. A lot of those anchors have been kind of under attack from the Walmarts and Targets and Costcos.

How do you think about trying to secure your shopper base to keep those assets strong as you move forward, versus losing them to some of these superstores that are entering the grocery market?

Most of our grocery stores have very strong sales, and we've seen increases in the market over the last several years for these stores. It always comes down, Jason, to where your real estate is located demographically.

And given the fact that most of our grocers are in very supply-constrained markets, I don't see the Walmart threat as being that great right now in terms of where our real estate is located. We think about it, we watch it very closely, but we see no impact to date.

My first question is for John. John, is the $2.1 million gain in the quarter included in guidance?

It is, actually. Yes, it is part of our guidance.

Yes.

Okay. So with the narrowing of guidance, the midpoint goes down about -- it goes down $0.005.

But effectively compared to last quarter, it's going down $0.045. Am I thinking about that correctly?

Well, I think what's actually also occurring here is as we pointed out, the warrants with the stock at over $12, during the quarter, we had a dilution to the tune of about 1.8 million shares. And again, that was not something that we have previously included.

With the equity raised, again, lower leverage pushes out our fully-levered operations. And again, all of those things combined, we also pushed out I'm going to say probably about $30 million of our acquisition guidance to year end.

Meaning, 12/31 as opposed to earlier in the year. So it's a combination of those things.

So effectively, it is a $0.045 decrease in the guidance range. But that's partially due to the dilution, the acquisitions' timing and the ATM use?

Yes.

Okay. Stuart, can you talk about Bernardo Heights?

It's a small center, I think it's 100% leased, what the philosophy is there. I mean, it seems a little bit different than what's -- what you guys have been acquiring.

Sure. Great asset in a great location, Rancho Bernardo is one of the demographically very high income, a lot of density and more importantly, extremely supply-constrained.

Sprouts is the operator. I look at them as a Whole Foods in terms of the way they operate.

It's 100% occupied. But what's in the underwriting is the average lease rate in the market is about $26, $28.

We have a tenant in there of 7,000 square feet that's only paying $1.25 gross on a month-to-month basis. We currently have a deal on the table substantially higher, good tenant, which will drive that yield up 100, probably 75 to 100 basis points very quickly.

The going-in yield on the transaction is in the high 6s. It's the ability to acquire a very strong asset in a very -- in an irreplaceable relative strong market.

But more importantly, as we talk about quarter after quarter, we're able with our team to really generate some very strong yields or increasing yields very quickly. We're very -- we like the real estate a lot.

We're very proud to own this type of asset, and the grocer again is one of the strongest grocers to have in any portfolio.

Is there any possibility for expanding that property?

The answer is yes. There is some adjacent space that we would love to get our hands on as part of the shopping center that we are currently and aggressively pursuing that would really make, really bring the whole project together with more square footage.

And so we are aggressively pursuing that. We think over the next 3 to 6 months, we'll be able to achieve that objective.

Okay. And for the -- just a follow-up on Paul's question about the ATM, how much more do you guys have available on the current program?

We have about $11 million remaining. But as you know, that's a program that we can renew, and we do see it as a core part of our, again, equity-raising alternatives.

Okay. And as Stuart mentioned, the way you guys think about leverage, you guys are very lowly levered.

And so was the issuance which was pretty sizable in the quarter, purely a function of opportunistically taking advantage of the stock price, or you just want to keep leverage low? I'm just trying to think of how you thought about it in the quarter because it was pretty sizable.

It was opportunistic. Again, $12.30 net to the company, was a -- we thought an attractive opportunity.

And we continue to identify uses of that capital.

So if we continue to see the stock price where it is, you would anticipate continuing to opportunistically sell the equity in the market?

It depends on the pipeline. Right now our pipeline is more active than it's ever been.

We -- so it will just depend on what we see coming down the pipeline and match funding depending on the price.

Okay. My last question is regarding the pipeline, Stuart.

Any thoughts about -- are you seeing more activity as sellers are thinking about getting out before the end of the year? And then just sort of on a macro basis, do you think that you guys can do, given the activity level that you're seeing now, do more than $250 million next year, or would you say that it would be in line or possibly less?

How are you thinking about next year?

While it's tough to go out and predict obviously the future, but right now, I'm very comfortable where we sit in terms of our guidance. And I do believe, given what we've seen in the market which as you've touched on, a lot of it is tax planning, I certainly believe as we look into '13, we'll be as active as we are this year or even more active, given the fact that our pipeline is as robust as it is.

I was curious what you guys are seeing from the small -- I guess, not necessarily smaller but more regional grocers compared to I guess the larger, say Krogers, in terms of sales growth. What are you seeing from those more regional ones in terms of growth opportunity there?

Those regional grocers that we have in our portfolio are also seeing some good increases in their sales, and they're also very active on the leasing front trying to secure more locations in the markets.

Okay. In terms of more specifically, I guess Trader Joe's, I guess from where I come from, the Trader Joe's are always pretty popular.

Do you see additions of those I guess centers anchored by them coming into the portfolio? Or is this -- I don't know if that's the only one, or can we expect any more from them?

The answer is yes. We will continue to look for those types of opportunities.

We like Trader Joe's a lot. Average sales at a Trader Joe's is typically $1,300, $1,400 a square foot, they're a great tenant to have.

So if we can continue to source acquisitions with them as a tenant, we will look to them as a great anchor tenant to have.

And then last, just regarding the G&A. I don't know if you mentioned this.

In terms of like a full year figure, what should we be looking at I guess for that -- that which includes the remaining expenses for the relocation?

Well, I think John has done a good job laying out what those costs are going to be between now and year-end. We'll be giving guidance in our next call as it relates to our run rate on G&A.

But certainly, looking at our -- where we're at today and where we've guided the Street, I believe our G&A will be certainly less than that next year.

Thank you. In closing, I would like to thank all of you for joining us today.

If you have additional questions, please contact John, Rich or me directly, and for those who are attending NAREIT's Annual Convention in San Diego in a couple of weeks, we hope to see you there. Thanks again, and have a great day, everyone.