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After Another Solid Quarter, Retail Opportunity Investments Narrows FFO Guidance

Retail Opportunity Investments Corp. (NASDAQ: ROIC) released third-quarter 2017 earnings on Tuesday after the market closed, highlighting the continued steady expansion of its shopping center portfolio and, as usual, solid operating results.

With shares of the specialty real estate investment trust (REIT) down slightly in today's trading as of this writing, let's have a closer look at how Retail Opportunity Investments kicked off the second half of the year.

IMAGE SOURCE: RETAIL OPPORTUNITY INVESTMENTS.

Retail Opportunity Investments Results: The Raw Numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Growth

Revenue

.0 million

$59.4 million

14.5%

GAAP net income attributable to Retail Opportunity Investments

$9.1 million

$7.4 million

23%

GAAP net income per share (diluted)

$0.08

$0.07

14.3%

Funds from operations (FFO)

$34.8 million

$31.3 million

11.2%

FFO per share

$0.29

$0.26 11.5%

What happened with Retail Opportunity Investments this quarter?

  • Revenue growth was comprised of a 16.4% increase in base rents to $52.9 million, and a 7.1% increase in recoveries from tenants to $14.2 million.
  • The company maintained a 97.3% portfolio lease rate as of September 30, 2017, that was consistent with last quarter.
  • Same-center net operating income increased 2.1% year over year to $41.2 million.
  • Same-space comparative base rents grew 39.9% year over year on 47 new leases totaling 137,411 square feet, and they rose 8.4% on 76 renewed leases totaling 314,698 square feet.
  • The company completed $91.5 million in new shopping center acquisitions this quarter, including:
    • Monta Loma Plaza, a 100%-leased, 48,000 square foot property located in Mountain View, California, for $30 million.
    • North Lynnwood Shopping center, a 91.3%-leased, 64,000 square foot property in North Lynnwood, Washington, for $13.3 million.
    • A two-property deal for $96.5 million, including Riverstone Marketplace, a 96.2%-leased, 108,000 square foot property located in Vancouver, Washington, and Fullerton Crossroads, a 100%-leased, 222,000 square foot property in Fullerton, California. This purchase will be funded by a combination of the issuance of $51.1 million of ROIC common stock (based on a value of $21.25 per share) and the assumption of $44.5 million of debt.
  • Retail Opportunity Investments also has contracted to acquire The Village at Nellie Gail Ranch, a 96.9%-leased, 88,000 square foot property in Laguna Hills, California, for $46 million. This acquisition will be partly funded with the issuance of $5 million of ROIC common stock based on a value of $21.25 per share.

What management had to say

Retail Opportunity Investments CEO Stuart Tanz stated:

2017 is shaping up to be another solid year of growth and performance for ROIC. Through our disciplined acquisition program, we continue to enhance our strong presence across the West Coast. Year to date, we have acquired $314 million of shopping centers and our portfolio now totals over 10 million square feet. Along with growing our portfolio, we continue to achieve strong property operating results, including being on track to post our third consecutive year with a portfolio lease rate above 97%. ... The fundamentals of our portfolio, markets and business all continue to be strong.  Accordingly, we are excited about the company's prospects as we work to complete 2017 and begin to look toward 2018.

Looking forward

Retail Opportunity Investments now expects full-year 2017 FFO per diluted share to be between $1.12 to $1.14, marking a two-cent increase from the bottom end of their previous guidance range. For perspective, this fulfills CFO Michael Haines' promise last quarter that the company would aim to narrow its FFO guidance range as the timing of the close of pending acquisitions and ongoing leasing activity became more clear.

In any case, there were no big surprises in Retail Opportunity Investments' latest results. Rather, the REIT has kept making astute shopping center acquisitions, while simultaneously maintaining high portfolio occupancy and increasing rents on both new and renewed leases. As the positive financial impact of those moves trickles to the bottom line, I suspect long-term investors will be more than happy with the end result.

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Steve Symington owns shares of Retail Opportunity Investments. The Motley Fool owns shares of and recommends Retail Opportunity Investments. The Motley Fool has a disclosure policy.