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RO

RETAIL OPPORTUNITY INVESTMENTS CORP (ROIC)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 was solid operationally: revenues increased, FFO/share rose to $0.28, and same‑center cash NOI grew 5.7% YoY; management reaffirmed full‑year 2024 FFO/share guidance of $1.03–$1.09 despite near‑term downtime from anchor re‑tenanting .
  • Positive leasing and capital recycling: 383k sf executed with double‑digit rent lifts on new leases; four vacated anchor boxes are “spoken for,” with blended rents expected to more than double; company acquired a dual‑grocery center for $70.1m at a 6.75% cash yield and has ~$68.2m of dispositions under contract .
  • Headwinds: occupancy stepped down (97.7% → 96.4%) as anchors rolled; interest expense remained elevated; a one‑time step‑up in non‑cash rent amortization boosted GAAP revenue in the quarter and will normalize, while management remains cautious on 2024 same‑center growth (1–2%) given re‑leasing downtime .
  • Near‑term stock catalysts: execution/announcement of the remaining anchor leases in Q2, progress on ~$68m dispositions and redeployment, and clarity on timing/cost of the 2024 bond refinancing; rent commencements are expected to skew late 2024/early 2025, setting up 2025 growth inflection .

What Went Well and What Went Wrong

What Went Well

  • Strong leasing momentum and pricing power: 87 leases signed (383k sf) including 207k sf of anchor renewals; same‑space cash base rents up 12.2% on new and 6.7% on renewals; management expects an “even stronger” Q2 pipeline .
  • Anchor backfill de‑risked: four recently vacated anchor spaces have national tenants lined up; on a blended basis, rents are expected to be “more than double” prior levels, with 10‑year initial terms .
  • Accretive external growth and balance sheet progress: acquired Bressi Ranch for $70.1m at a 6.75% cash yield (~>7% GAAP), paired with ~$68.2m of pending dispositions; 91.4% of principal debt effectively fixed and net principal debt/annualized EBITDA at 6.4x .

What Went Wrong

  • Occupancy and billed occupancy declined: portfolio lease rate fell to 96.4% from 97.7% at YE; billed occupancy decreased to 93.9% from 95.2% at YE as anchor downtime weighs near term .
  • Higher interest burden: quarterly interest expense rose to $18.9m vs $17.0m in Q1’23; management cites current unsecured debt costs around 6–6.5% for prospective issuance .
  • Non‑cash revenue tailwind is transitory: above/below‑market rent amortization jumped to $6.7m (vs $2.9m) due to an expiring, below‑market anchor lease, boosting GAAP revenue in Q1; this normalizes ahead .

Financial Results

Sequential trend (oldest → newest)

MetricQ3 2023Q4 2023Q1 2024
Total Revenues ($USD Millions)$81.745 $84.651 $85.330
Diluted EPS ($)$0.07 $0.06 $0.09
FFO per Share - Diluted ($)$0.27 $0.27 $0.28
Same-Center Cash NOI ($USD Millions)$55.450 $55.083 $55.593
Interest Expense ($USD Millions)$18.0 $20.6 $18.9
Portfolio Lease Rate (%)98.2% 97.7% 96.4%

Year-over-year comparison (Q1)

MetricQ1 2023Q1 2024
Total Revenues ($USD Millions)$79.296 $85.330
Diluted EPS ($)$0.06 $0.09
FFO per Share - Diluted ($)$0.25 $0.28
Same-Center Cash NOI ($USD Millions)$52.580 $55.593
Same-Center Cash NOI YoY Growth (%)—5.7%

KPIs

KPIQ3 2023Q4 2023Q1 2024
Leases Executed (sf)465,187 255,689 383,293
New Lease Cash Rent Lift (%)36.0% 25.3% 12.2%
Renewal Cash Rent Lift (%)7.2% 7.2% 6.7%
ABR Signed-Not-Commenced (period end, $USD Millions)$7.289 $6.994 $6.672
Net Principal Debt / Annualized EBITDA (x)6.4x 6.2x 6.4x
Debt Effectively Fixed-Rate (%)96.8% 91.0% 91.4%

Estimates vs Actuals (S&P Global)

MetricQ1 2024 ActualQ1 2024 S&P Global ConsensusSurprise
Total Revenues ($USD Millions)$85.330 NA (S&P Global data unavailable)—
Diluted EPS ($)$0.09 NA (S&P Global data unavailable)—
FFO per Share - Diluted ($)$0.28 NA (S&P Global data unavailable)—

Values retrieved from S&P Global for consensus were unavailable via our tool mapping for ROIC at this time.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
FFO per Share (Diluted)FY 2024$1.03–$1.09 Reaffirmed $1.03–$1.09 Maintained
Same-Center Cash NOI GrowthFY 20241%–2% Cautious stance reiterated (reflecting anchor downtime) Maintained
Interest Expense & Finance Exp.FY 2024$78–$80m No changes indicated Maintained
Bad DebtFY 2024$3–$5m No changes indicated Maintained
Amort. Above/Below-Mkt RentFY 2024~$14m Q1 onetime spike disclosed; full‑year framework intact Maintained
Net Acquisitions (Net of Dispositions)FY 2024$100–$300m Range reaffirmed Maintained
Equity Issuance AssumptionFY 2024$60–$180m in guidance Unlikely at current price; favor dispositions to fund Funding approach updated (qualitative)
DividendQuarterly$0.15/share (paid Jan; declared Feb) $0.15/share declared for July 10 payment Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3’23, Q4’23)Current Period (Q1’24)Trend
Anchor re‑tenanting and rent mark‑to‑marketProactive recapture; strong rent lifts; one anchor vacate expected; Rite Aid closures addressed Four vacated anchors “spoken for,” 10‑year terms; blended rents >2x prior; capex ~$75–$100/sf; rent commencement mostly early 2025 Positive medium‑term; near‑term downtime
Acquisition market, cap ratesMarket idle in ’23; eyeing mid‑6% cap opportunities; re‑entered bond market Acquired $70.1m at 6.75% cash yield; sellers back to sidelines on rate pop; off‑market pipeline advantage Opportunistic execution
Rates, refinancing strategyIssued $350m 6.75% notes (Oct’28); 2024 notes to refi later in ’24 Plan for 10‑year issuance later in year; all‑in unsecured cost ~6–6.5% today Extend duration; watch costs
Same‑center NOI+8.2% YoY in Q3; +3.3% in Q4; 2024 guide 1–2% +5.7% YoY in Q1; above plan but tempered by downtime ahead Moderating vs 2023
Tenant health (Rite Aid; grocers; Kroger/Albertsons)Rite Aid closures manageable; grocer performance solid Rite Aid extensions agreed (pending process); strong demand for any returned space; merger watch, biz as usual Managed risk

Management Commentary

  • CEO Stuart Tanz: “We currently have all of our available anchor space spoken for with new national tenants lined up to lease the space.” . On acquisitions: “We acquired a…shopping center…for $70 million, equating to a 6.75% cash yield, which is north of 7% on a GAAP basis.” . On market tone: rate‑driven pause could create off‑market opportunities as private owners face maturities .
  • CFO Michael Haines: Revenues benefited from higher amortization of above/below‑market rent tied to a below‑market anchor lease expiration; same‑center NOI +5.7% was above plan but guidance remains cautious due to downtime; net debt/EBITDA 6.4x; retired a $26m mortgage in April; monitoring market for 2024 bond refi .
  • COO Rich Schoebel: 87 leases signed (383k sf); anchor renewals (207k sf) including early renewals; new/renewal rent lifts of 12%/7%; expects potentially stronger Q2; ~$6.7m ABR signed-not‑commenced at Q1‑end .

Q&A Highlights

  • External growth: Net acquisitions guidance ($100–$300m) reaffirmed; equity issuance not attractive at current share price—dispositions preferred to fund near‑term deals .
  • Anchor capex and timing: For backfilled anchors, capex ~$75–$100/sf; net rent expected to double; deliveries ~9 months; rent commencement largely early 2025 (some late 2024) .
  • Refinancing approach: 2024 maturity likely addressed in back half; targeting 10‑year tenor; current unsecured market ~6–6.5% all‑in .
  • Same‑center drivers: Q1 outperformance reflected lower bad debt, lower opex, higher base rent; full‑year still modeled at 1–2% given re‑leasing downtime .
  • Rite Aid and grocery dynamics: Agreements in place on remaining Rite Aid locations; if closures occur, demand is strong and re‑tenanting expected to be swift; business as usual with Kroger/Albertsons pending outcomes .

Estimates Context

  • S&P Global consensus estimates for Q1 2024 (revenues, EPS, FFO/share) were unavailable via our data connector for ROIC at this time; as a result, we cannot quantify beats/misses to Wall Street estimates in this recap. Values retrieved from S&P Global.

Where estimates may need to adjust:

  • Given Q1’s one‑time non‑cash rent amortization uplift and management’s reiterated caution on same‑center NOI (1–2%) due to anchor downtime, models should reflect normalization of non‑cash revenue items, modest occupancy headwinds in 2024, and step‑ups from backfills largely in early 2025 .

Key Takeaways for Investors

  • 2024 set‑up is a “bridge year”: leasing/FFO resilient with reaffirmed guidance, but anchor downtime and normalization of non‑cash rent amortization temper near‑term growth; 2025 should benefit from backfill commencements .
  • Leasing power intact: double‑digit new‑lease spreads and early anchor renewals underscore pricing power in West Coast grocery‑anchored centers, supporting medium‑term NOI durability .
  • External growth remains accretive: $70.1m acquisition at 6.75% cash yield paired with ~$68.2m dispositions under contract reflects disciplined capital recycling and potential NAV accretion .
  • Balance sheet manageable: 91.4% effectively fixed‑rate debt and net debt/EBITDA of 6.4x provide cushion into the 2024 bond refi; watch pricing (6–6.5% today) and timing in 2H24 .
  • Watchlist catalysts (trading): signed anchor leases becoming executed/announced in Q2; disclosure on disposition closings and redeployment; any update on 2024 refi sizing/tenor/pricing; Kroger/Albertsons path .
  • Risk checks: occupancy could drift as re‑tenanting proceeds; interest costs stay elevated; Rite Aid process outcomes; estimate models should exclude transitory non‑cash rent benefits seen in Q1 .