Shares of Retail Opportunity Investments Corp. (NASDAQ:ROIC) have been little changed since the shopping-center REIT announced third-quarter 2019 results last week. But make no mistake, even though its headline numbers might not look particularly encouraging amid continued strategic divestments, the company continued to solidify its business as it looks to end a concerted pause in acquisitions.

Let's dig deeper, then, to better understand how Retail Opportunity Investments performed over the past few months, as well as what investors should expect in the coming quarters.

 
Metric

Q3 2019

Q3 2018

Change

Revenue

$72.4 million

$73.9 million

(2%)

GAAP net income attributable to retail opportunity investments

$17.9 million

$14.2 million

26.1%

GAAP net income per diluted share

$0.16

$0.12

33.3%

Diluted funds from operations (FFO)

$33.4 million

$35.1 million

(4.8%)

Diluted FFO per share

$0.27

$0.28 (3.6%)

Data source: Retail Opportunity Investments. 

"Positioning the company for future growth"

As for operational metrics, ROIC's base rents climbed 3.3% year over year to just under $51 million, and recoveries from tenants rose 2.6% to $16.3 million. Same-space comparative base rent increased 35.7% on 37 new leases totaling 125,586 square feet, and jumped 8.7% on 58 renewed leases totaling 250,388 square feet. And same-center net operating income (NOI) grew 3% to $48.7 million.

The company ended September with a portfolio lease rate of 97.7%, down 20 basis points from last quarter but making its 21st straight quarter maintaining a portfolio lease rate at or above 97%. 

A painter paints a large yellow fish about to eat a smaller yellow fish on a concrete wall.

Image source: Getty Images.

The company ended September with a portfolio lease rate of 97.7%, down 20 basis points from last quarter but making its 21st straight quarter maintaining a portfolio lease rate at or above 97%. 

Meanwhile, Retail Opportunity Investments made no acquisitions during the quarter. But it did sell California-based Morada Ranch Shopping Center for $30 million, as previously announced in its second-quarter report in July, bringing total divestments this year to three properties for $60.5 million. Another agreement remains in place to sell a fourth property for $13 million. 

Retail Opportunity Investments CEO Stuart Tanz stated:

During the third quarter, we again achieved strong property operations and leasing results. We posted our 31st consecutive quarter of increasing same-center cash NOI and same-space releasing cash rents. Additionally, for the 21st consecutive quarter, we achieved a portfolio lease rate at or above 97%. Along with continuing to post strong portfolio operating metrics, we are also working to strengthen our portfolio and financial position. Year to date, we have raised approximately $86 million of capital through disposing of certain noncore properties and selectively issuing shares through our ATM program. These efforts are aimed at enhancing the long-term intrinsic value of our portfolio and positioning the company for future growth.

"Three interesting off-market opportunities..."

During the subsequent conference call, Tanz reminded investors that the company's efforts to dispose of noncore properties are primarily focused on exiting the Sacramento market -- meaning it will soon pursue the divestments of its remaining two properties in the city, which should together generate roughly $40 million in total proceeds.

On the acquisitions front, Tanz further revealed Retail Opportunity Investments now has "three interesting off-market opportunities" it's pursuing with a total value of roughly $85 million. Two of these properties are in southern California, and the other is in the Pacific Northwest region. In keeping with its current core property portfolio, Tanz said, "All three are grocery-anchored shopping centers that are well situated in excellent locations, and all three have a considerable amount of opportunities for our team to increase cash flow and enhance value going forward."

In the meantime, Retail Opportunity Investments revised its full-year 2019 outlook to call for GAAP net income per share of $0.44 to $0.45 (up from $0.40 to $0.44 previously), and FFO per share of $1.10 to $1.12 (down from $1.11 to $1.15 before).

So where does that leave investors today? With Retail Opportunity Investments' efforts to hone its core portfolio through divestments nearly complete, and its operations as strong as ever, I think the stock is a compelling bargain for any shareholder willing to buy and hold before ROIC's long-standing acquisitive pause comes to an end.