Retail Opportunity Investments Corp. Offers Another Great Quarter

Strip-mall REIT Retail Opportunity Investments Corp. just announced first quarter 2015 results, and the numbers are solid as per usual.

Quarterly revenue climbed 24.1% year over year to $45.1 million, which translated to net income of $4.4 million, or $0.04 per diluted share. But the better metric for gauging ROIC's success is funds from operations, or FFO, which effectively measures the company's cash flow from operations. ROIC's first-quarter FFO climbed 32.5% year over year to $22 million, and on a per-share basis rose a more modest 9.5% to $0.23. As I noted earlier this week, however, the latter figure is being held back by a share issuance two quarters ago that increased ROIC's net share count by 24%.

Even so, Wall Street was anticipating FFO of only $0.22 per share on revenue of $43.95 million. Investors should also keep in mind that FFO on a dollar basis grew 22.1% last quarter but remained flat on a per-share basis relative to the same year-ago period. It's good, then, to see at least some initial upward movement here, as ROIC puts its freshly raised cash to work with new shopping-center acquisitions.

Speaking of which, ROIC has already committed a total of $207.2 million to grocery-anchored shopping-center acquisitions so far in 2015. That includes $99.2 million already acquired in first quarter, and $108 million currently under contract. All three of the acquired properties are based in California, including:

  • Ontario Plaza, a 94.3%-leased, 150,000-square-foot property within the L.A. metropolitan area, for $31 million.
  • Winston Manor, a 100%-leased, 50,000-square-foot property also within the L.A. metro area, purchased for $20.5 million.
  • Park Oaks Shopping Center, a 100%-leased, 110,000-square-foot center in San Francisco, for $47.7 million.

Meanwhile, ROIC's under-contract deals include two centers within the San Francisco metropolitan area:

  • Gateway Centre, a 94%-leased, 110,000-square-foot center for $42.5 million.
  • Iron Horse Plaza, a 100%-leased, 62,000-square-foot center for $42.4 million. This willbe funded in part with the issuance of $16.4 million in ROIC common shares.

Finally, ROIC had binding agreements to acquire key anchor spaces at two of its existing shopping centers for $23.1 million.

In short, ROIC is hard at work gobbling up attractive new spaces with relatively high occupancy rates. As of the end of the quarter, ROIC owned 64 total shopping centers encompassing 7.6 million square feet. It also boasted an impressive 97% portfolio leased rate at the quarter's end, which is down from its company-record 97.6% last quarter, but still up 110 basis points over the same year-ago period.

ROIC also continued to demonstrate its pricing power, achieving a 12.8% increase in same-space comparative cash rent, and a 4% increase in same-center operating income.

Looking forward, ROIC estimates that FFO for all of 2015 will be in the range of $0.90 to $0.94 per diluted share, while net income will be in the range of $0.23 to $0.24 per share. By comparison, that's an increase from ROIC's previous FFO range of $0.88 to $0.93, and a penny decrease from both ends of its original net income range. Still, there were no surprises here, as analysts came in predicting 2015 FFO in the middle of ROIC's new range at $0.92 per share.

In the end, from its solid lease rates, continued pricing power, ambitious acquisitions, and growing funds from operations, I think this was a solid quarter that shows ROIC continuing to deliver on its promise to long-term shareholders. With that in mind, I have no intention of selling my own shares anytime soon.

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Steve Symington owns shares of Retail Opportunity Investments. The Motley Fool recommends Retail Opportunity Investments. The Motley Fool owns shares of Retail Opportunity Investments. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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