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RO

RETAIL OPPORTUNITY INVESTMENTS CORP (ROIC)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 delivered steady operating performance: revenues rose to $0.085B, FFO per diluted share held at $0.27, and same-center cash NOI grew 3.3% YoY, while GAAP diluted EPS was $0.06 .
  • 2024 guidance implies moderated growth: FFO per diluted share $1.03–$1.09, same-center NOI growth 1%–2%, and interest expense $78–$80M, reflecting downtime from backfilling three Rite Aid closures and one anchor recapture, plus refinancing activity .
  • Balance sheet repositioning is a tailwind: 91.0% of principal debt effectively fixed at year-end, net principal debt-to-annualized EBITDA fell to 6.2x (nine-year low), and the credit facility maturity was extended to 2027 .
  • External growth reaccelerating: ROIC acquired a Sprouts-anchored center at a high-6s cap in December and is targeting $100–$300M net acquisitions in 2024, funded with a mix of equity, OP units, and the line—potentially accretive given private-market pricing .
  • Note: Wall Street consensus estimates from S&P Global for Q4 2023 were unavailable, so beat/miss analysis vs. estimates is omitted (we attempted retrieval via S&P Global; mapping not available).

What Went Well and What Went Wrong

What Went Well

  • Record leasing momentum and rent growth: Q4 new leases drove a 25.3% same-space cash rent increase, with renewals +7.2%; 2023 achieved an all-time record 1.7M sq ft leased and double-digit new-lease rent growth for the 11th straight year .
  • Balance sheet strengthening: 91.0% fixed-rate debt, net principal debt-to-annualized EBITDA down to 6.2x, and unsecured facility maturity extended to 2027; agencies reaffirmed investment-grade ratings with stable outlooks .
  • Acquisition pipeline emerging: December acquisition (Sprouts-anchored, LA metro) at attractive pricing/high-6s cap; management sees $100–$300M opportunities in 2024 with potential mid-6s/7%+ cap rates and internal growth from mark-to-market .

Management quotes:

  • “We leased a record amount of space…including a 22.2% increase in cash base rents on same-space new leases signed during 2023.” — CEO Stuart Tanz .
  • “At year-end, just 9% of our total debt outstanding was effectively floating rate…our net debt ratio…lowest…dating back to 2014.” — CFO Michael Haines .

What Went Wrong

  • Higher interest expense compressed GAAP earnings: Q4 interest expense rose to $20.6M (vs. $16.0M LY), driving diluted EPS down to $0.06 (vs. $0.08 LY) despite revenue growth .
  • Same-store NOI growth guided lower (1%–2%) for 2024 due to downtime from three Rite Aid closures and one anchor vacancy backfill timeline; management expects normalization in 2025 (~3%–4%) .
  • Rite Aid bankruptcy created near-term noise: three stores closed in Q4; while demand is strong to re-tenant at higher rents, the process introduces interim downtime and bad-debt uncertainty within a $3–$5M placeholder .

Financial Results

MetricQ2 2023Q3 2023Q4 2023
Revenues ($USD Millions)$82.040 $81.745 $84.651
GAAP Net Income ($USD Millions)$9.929 $8.428 $8.035
GAAP Diluted EPS ($)$0.08 $0.07 $0.06
Operating Income ($USD Millions)$28.151 $26.927 $29.111
Interest Expense ($USD Millions)$17.633 $17.998 $20.600
FFO ($USD Millions, diluted)$35.644 $35.979 $35.458
FFO per diluted share ($)$0.27 $0.27 $0.27
Same-Center Cash NOI Growth (%) YoY3.2% 8.2% 3.3%
Portfolio Leased Rate (%)98.3% 98.2% 97.7%
Note: Estimates vs. actuals omitted; S&P Global consensus data was unavailable for ROIC for Q4 2023.

KPIs and Operating Metrics

KPIQ2 2023Q3 2023Q4 2023
Same-space cash rent increase – New Leases (%)16.8% 36.0% 25.3%
Same-space cash rent increase – Renewals (%)6.6% 7.2% 7.2%
Leases Executed (sq ft)429,687 465,187 255,689
Net Principal Debt / Annualized EBITDA (x)6.5x 6.4x 6.2x
Principal Debt Effectively Fixed-Rate (%)84.5% 96.8% 91.0%
Unencumbered GLA (%)96.6% 96.6% 96.6%
Dividends per Common Share ($)$0.15 $0.15 $0.15

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GAAP Net Income per diluted share ($)FY 2024N/A$0.24–$0.34 New
FFO per diluted share ($)FY 2024N/A$1.03–$1.09 New
Same-Center Cash NOI Growth (%)FY 2024N/A1.0%–2.0% New
Interest Expense & Other Finance ($M)FY 2024N/A$78–$80 New
Bad Debt ($M)FY 2024N/A$3–$5 (low end expected) New
Straight-line Rent ($M)FY 2024N/A$0–$1.5 New
Amortization of Above/Below-Market Rent ($M)FY 2024N/A$14 (≈$4M in Q1) New
Net Acquisitions ($M)FY 2024N/A$100–$300 New
Equity Issuance ($M)FY 2024N/A$60–$180 New
Dividend ($/share)Q1–Q2 2024N/A$0.15 declared and payable schedule provided Reaffirmed cadence

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2023, Q3 2023)Current Period (Q4 2023)Trend
Interest rates and earnings impactRising rates increasing interest expense; repositioning debt (Q2/Q3) 2024 interest expense guided to $78–$80M; planning refi of 2024 notes, potential term loan/line refi Continued headwind; actively managed
Rite Aid bankruptcyPreparing for potential fallout; limited closures identified (Q3) Three closures in Q4; downtime moderates 2024 NOI; strong re-tenant demand and mark-to-market opportunity Near-term drag; medium-term tailwind
Acquisition marketMostly idle; building off-market pipeline (Q3) $100–$300M targeted; high-quality assets in high-6s caps; funding via equity/OP units/line Improving activity; opportunistic
Balance sheet positioningIncreased fixed-rate mix; net debt ratio improving (Q2/Q3) 91% fixed-rate; net principal debt/EBITDA 6.2x (nine-year low); credit facility extended Strengthening
Tenant demand & leasingRecord leasing volume; strong renewal and new lease rent growth (Q2/Q3) Solid Q4 spreads; expectation to keep 97%–98% leased through 2024 Durable demand
Kroger–Albertsons merger riskMonitoring; minimal expected impact (Q3) Ongoing dialogue; strong grocer demand; expect limited impact Stable risk assessment
Development/entitlementsProgress on entitlements; potential monetization in better market (Q3) Fully entitled in Nevada; timing dependent on multifamily market; potential sale/JV when cap rates compress Optionality preserved

Management Commentary

  • “With our…grocery-anchored portfolio…we believe that we are poised to continue driving solid operating results and building longterm value well into the future.” — CEO Stuart Tanz .
  • “We raised ~$363M of capital…retire $250M notes, early retire $100M floating-rate debt, and fixed $150M via swaps…at year-end, just 9% of debt effectively floating.” — CFO Michael Haines .
  • “Demand for space…continues to be consistently strong…diverse businesses in wellness, self-care, restaurants, service and entertainment.” — COO Rich Schoebel .
  • “Same-center NOI growth will be moderated…due to Rite Aid stores that closed…and one other anchor…once new tenants are in place…we expect 2025 growth in the 3%–4% range, if not better.” — CEO Stuart Tanz .

Q&A Highlights

  • Acquisitions and funding: Pipeline ~$100–$300M, with accretion of ~$0.01–$0.03 to FFO depending on volume; funding via equity/OP units/line, sensitive to stock price and cap rates .
  • Interest expense and free cash flow: 2024 interest $78–$80M and free cash flow $20–$30M to support debt paydown or acquisitions; debt portion of acquisitions assumed funded on the line .
  • Occupancy and backfill timing: Portfolio expected to hold 97%–98% lease rate; build occupancy likely inflecting later in 2024 as new commencements catch up .
  • Amortization step-up: ~$14M above/below-market rent amortization in 2024, with ~$4M in Q1 due to an anchor option assumption change (non-cash) .
  • Kroger–Albertsons: Ongoing discussions; management expects limited medium-term impact; grocer appetite for space remains very strong .

Estimates Context

  • We attempted to retrieve Wall Street consensus estimates (EPS, revenue, EBITDA) via S&P Global for ROIC for Q4 2023, but the company mapping was unavailable; therefore, comparisons versus consensus are omitted. Values would have been retrieved from S&P Global if available.

Key Takeaways for Investors

  • Leasing engine intact: strong spreads and high occupancy should underpin NOI even as 2024 growth moderates during backfill; expect normalization in 2025 as re-tenanting completes .
  • Balance sheet resilience: high fixed-rate mix, extended maturities, and improving leverage provide flexibility for acquisitions and refinancing through the rate cycle .
  • External growth potential: off-market pipeline in high-6s caps with mark-to-market opportunities suggests accretive deals are achievable with balanced funding (equity/OP/line) .
  • Near-term headwinds priced in: higher interest expense and downtime from Rite Aid and one anchor vacancy weigh on 2024 results, but backfills at higher rents create medium-term upside .
  • Dividends supported: FFO payout ratio ~56% in Q4 and 2023 suggests continued capacity to sustain the $0.15/share quarterly dividend amid moderated growth .
  • Watch catalysts: acquisition announcements, backfill commencements, and refinancing terms on 2024 notes will be key to sentiment; track guidance updates on same-center NOI and interest expense .
  • Macro sensitivity: rate path and transaction market dynamics remain critical; ROIC’s West Coast grocery-anchored focus and tenant mix mitigate retail cyclicality risks .

Appendix: Additional Q4 Disclosures

  • Consolidated Balance Sheet and detailed Same-Center Cash NOI analysis are provided in EX-99.1/EX-99.2 (including portfolio leased 97.7%, top tenants ABR contribution, and unencumbered asset metrics) .
  • Dividend actions: $0.15 distributed Jan 5, 2024; $0.15 declared Feb 13, 2024 payable Apr 5, 2024 .
  • Conference call replay and supplemental package available via ROIC IR site links provided in the filing .