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Retail Opportunity Investments Corp. Raises the Bar

By Steve Symington - Apr 27, 2016 at 7:40PM

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The shopping-center REIT increased full-year FFO guidance after another solid quarter.

One of Retail Opportunity Investments' 75 grocery-anchored shopping centers. IMAGE SOURCE: RETAIL OPPORTUNITY INVESTMENTS CORP.

Retail Opportunity Investments Corp. (ROIC 2.89%) just kicked off 2016 on a high note, delivering strong first-quarter 2016 results and increasing its full-year FFO guidance. 

More specifically, the grocery-anchored shopping center REIT grew quarterly revenue 24.3% year over year, to $56.1 million, while net income attributable to the company nearly doubled over the same period to just over $8 million, or $0.08 per share. But as a REIT, a more important metric for gauging Retail Opportunity Investments' success is funds from operations (FFO), which essentially measures its cash flow from operations. First-quarter FFO climbed 35.7% year over year, to $29.9 million, and increased 17.4% on a per-share basis, to $0.27, as the fruits of the company's ongoing shopping-center acquisitions continue to fall to the bottom line. 

For reference -- and with the caveat that we don't lend much credence to Wall Street's near-term demands -- analysts' consensus estimates predicted revenue of just $52.8 million and lower FFO of $0.25 per share.

On acquisitions
Retail Opportunity Investments has already committed a total of $155.2 million in grocery-anchored shopping center acquisitions so far in 2016, including a two-property portfolio acquired for $64 million last month, as well as two additional properties under contract for a total of $91.2 million.

Included in the former ($64 million) transaction was:

  • Magnolia Shopping Center, a 97.7% leased, 116,000-square-foot property located in Santa Barbara, Calif.
  • Casitas Plaza Shopping Center, a 100%-leased, 97,000-square-foot property located in Carpinteria, Calif., within Santa Barbara County.

Retail Opportunity Investments' under-contract properties include:

  • Bouquet Center, a 95% leased, 149,000-square-foot property located in Santa Clarita, Calif., for $59 million.
  • Bridle Trails Shopping Center, a 97% leased, 106,000-square-foot property located in Kirkland, Wash., within the Seattle metropolitan area, for $32.2 million.

All told at the end of the quarter, Retail Opportunity Investments owned 75 shopping centers encompassing roughly 8.8 million square feet. That's up from 64 total shopping centers encompassing 7.6 million square feet at this time one year ago.

ROIC also maintained an impressively high 97.2% leased rate as of the end of the quarter, flat on a sequential basis and extending what last quarter became a two-year streak of keeping lease rates above 97%.

As for Retail Opportunity Investments' pricing power, same-space comparative base rent climbed 12.7% year over year. Of the 101 leases executed in the first quarter, Retail Opportunity Investments achieved a 15.4% increase in same-space comparative cash rent from 32 new leases totaling 111,869 square feet, and an 11.8% increase in base rent from 69 renewed leases totaling 186,094 square feet. Meanwhile, same-center net operating income increased 7.6% year over year, to $31.4 million.

Finally, Retail Opportunity Investments' board today held steady the company's quarterly cash dividend of $0.18 per share. Keep in mind that dividend was increased last quarter by a penny per share, or 5.6%, to its current level.

On guidance
Looking forward, Retail Opportunity Investments increased its full-year per-share FFO guidance to a range of $1.02 to $1.06, while net income is now expected to be $0.33 to $0.34 per share. Previously, ROIC's guidance called for 2016 FFO per share of $1.00 to $1.04, and net income per share of $0.34 to $0.36. Regarding the latter reduction, keep in mind the company issued $46.1 million of ROIC common equity during the quarter in the form of operating partnership units (at $18.85 per unit) to help fund its acquisitions.

That's not to say these solid results were surprising. If anything, they should serve as a pleasant reminder that Retail Opportunity Investments continues to implement its astute quest to buy and revitalize promising properties in densely populated metropolitan markets across the West Coast. As long as that strategy continues to play out and Retail Opportunity Investments' reach grows ever longer, I think investors should be more than pleased with where it stands.

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