Simply put, West Coast retail property specialist Retail Opportunity Investment Corp. (NASDAQ:ROIC), which released third-quarter earnings on Oct. 28, had a nice quarter. The real estate investment trust reported strong growth and improvement in several key areas, particularly growth in a key cash-generation measure for REITs: funds from operations.

FFO per share increased more than 18% in the period, a good indication that the $300 million-plus in acquisitions so far are beginning to hit the bottom line. Let's take a closer look at the release. There were a number of improvements that helped drive strong cash generation in the quarter. 

The numbers 

 Q3 2015Q3 2014Change
Revenue $50.1MM $40.8MM 22.5%
Net Income $7.8MM $6.7MM 11.7%
Earnings Per Share $0.08 $0.07 14.3%
Funds From Operations/Share $0.26 $0.22 18.2%
Shares Outstanding 100.8MM 94.8MM 6.2%

For context on ROIC's size, compare it to retail real estate trust Simon Property Group Inc. (NYSE:SPG). Simon is the largest public REIT, with a market cap of more than $68 billion and nearly $100 billion in property assets. It generated $919 million in FFO last quarter, good for $2.54 per share. 

ROIC may never get that large -- especially with the regional focus that CEO Stuart Tanz and his team practice -- but it's a reminder that there's a lot of business out there. After all, in 1993, Simon generated only $150 million in funds from operations, versus $3.2 billion last year. ROIC will only produce about $95 million this year. 

What happened in the quarter 
ROIC had a pretty busy third quarter:

  • Raised $387 million in capital ($87.3 million via 5.5 million-share stock offering, $300 million via unsecured term loan).
  • Completed $113.5 million in property acquisitions in the quarter. With $74.4 million more under contract to close in Q4, that brings total committed acquisitions to $310.2 million so far this year. 
  • 97.1% property leased rate, slightly down from 97.4% last year and 97.3% sequentially. 
  • 5.8% increase in same-center cash operating income, driven in large part by the 53% comp rent increase on new leases. 
  • This was a key -- along with the larger base of properties collecting rents -- with the jump in FFO and FFO per share.  

What management said 
Tanz, on the company's excellent track record of acquiring great cash-generating properties and then keeping them occupied, said:

In just the first nine months, we have already achieved our portfolio growth objective for the year, securing $310 million of grocery-anchored shopping center acquisitions. Additionally, we continue to maintain our high occupancy at over 97% and have already leased more than double the amount of space that was originally scheduled to expire in our portfolio for the entire year.

Tanz again, on management's steady hand at managing the balance sheet, and positioning the company to continue identifying and acquiring the right properties for ROIC:

During the third quarter we raised capital through a balance of equity and debt sources to fund our growth and maintain our strong balance sheet. Looking ahead, we believe that we are well-positioned to continue capitalizing on the opportunities across our core West Coast markets, prudently growing our portfolio and achieving strong results.

Looking ahead 
Tanz and Co. continue to do an excellent of job finding and acquiring high-value properties that meet ROIC's criteria of grocery/pharmacy anchors and high-traffic, desirable locations. They also continue to do a solid job of using both reasonable debt and some shareholder dilution to fund these acquisitions and drive up per-share returns and that all-important dividend that REITs are best known for. 

2015 is well on its way to being the company's best year so far. With a solid team at the reins allocating capital in a business and a market they know incredibly well, the long term looks pretty good. The big risk, of course, would be an economic pullback, especially if it were to hit the West Coast, where ROIC operates. But even that risk seems relatively small today, based on the fundamental strength of the economy.