Retail Opportunity Investments Corp. (NASDAQ:ROIC) announced third-quarter 2018 results on Tuesday after the market closed, and shares of the shopping-center real estate investment trust (REIT) followed by falling nearly 5% on Wednesday.

But don't take that to mean their results were bad. To the contrary, Retail Opportunity Investments' report highlighted record portfolio occupancy rates, rising same-center net operating income, and an improved balance sheet. 

Let's take a closer look at what drove these results, and what we can expect in the coming quarters.

Outdoor retail shopping center with Seabridge Vons sign in front

Image source: Retail Opportunity Investments.

Retail Opportunity Investments results: The raw numbers


Q3 2018

Q3 2017

Year-Over-Year Growth


$73.9 million

$68.0 million


GAAP net income attributable to Retail Opportunity Investments

$14.2 million

$9.1 million


GAAP net income per diluted share




Funds from operations (FFO)-diluted

$35.1 million

$34.8 million


FFO per share (diluted)


$0.29 (3.4%)

Data source: Retail Opportunity Investments.

What happened with Retail Opportunity Investments this quarter?

  • Top-line growth was primarily driven by a 7% increase in base rents, to $56.6 million, and a 15.8% gain in recoveries from tenants to $16.5 million.
  • Same-space comparative base rent grew 17.1% on 48 new leases totaling 138,733 square feet, and rose 8.6% on 58 renewed leases totaling 303,918 square feet.
  • The portfolio lease rate climbed to a company-record 97.8%.
  • Same-center net operating income increased 2.5% to $45.2 million.
  • ROIC acquired a redevelopment site adjacent to one of ROIC's existing grocery-anchored shopping centers in Pinole, California, for $5 million.
  • ROIC also sold its Round Hill Square Shopping Center near Lake Tahoe for $28 million, recognizing a $5.9 million gain.
  • Roughly 1.25 million shares of common stock were issued through the company's ATM program, raising $24.2 million in gross proceeds.
  • Debt was reduced by $64 million sequentially from last quarter, through a combination of mortgage debt retirement and credit line payments.
  • A dividend of $0.195 per share was paid out, holding steady from last quarter.

What management had to say

Retail Opportunity Investments CEO Stuart Tanz stated:

Demand for space across our portfolio remains robust, and we continue to work hard at making the most of it. During the third quarter we increased our portfolio lease rate to a new record high for the company, and again achieved growth in same-center NOI [net operating income] and same-space releasing spreads. Along with advancing portfolio operations, we also strengthened our financial position, raising equity during the third quarter while retiring mortgage debt and reducing our credit line balance. We look forward to a solid finish to 2018.

During the subsequent conference call on Wednesday morning, Tanz elaborated on his comments last quarter regarding improving sentiment for the acquisitions market:

In terms of acquisitions, market conditions had begun to show signs of becoming favorable again; however, the record jump in interest rates has brought back the uncertainty that we saw in the marketplace during the first half of the year. Therefore, we continue to be cautious and patient.

Finally, Tanz noted that the company's FFO and same-center NOI are near-term-facing headwinds from a combination of unusually slow permitting processes with various municipalities, and, consequently, extended downtime between leases.

Looking forward

After coupling those factors with the dilution from the new shares issued during the quarter, Retail Opportunity Investments now expects full-year 2018 FFO to be in the range of $1.13 to $1.15 per share, a modest reduction from its previous outlook calling for $1.16 to $1.20.

In any case, its short-term challenges notwithstanding, Retail Opportunity Investments' long-term thesis continues to hold. But it's no surprise to see the stock pulling back as the market absorbs this report.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.