Retail Opportunity Investments Corp. (NASDAQ:ROIC), a leading owner and operator of grocery-anchored shopping centers on the West Coast, reported its financial results for the second quarter ended June 30, 2024. The company delivered strong operational performance, with continued leasing momentum and increased same-store net operating income (NOI).

Financial Results

For the second quarter of 2024, ROIC generated total revenues of $83.32 million, up from $82.04 million in the prior-year period. Net income attributable to common shareholders was $7.4 million, or $0.06 per diluted share, compared to $9.9 million, or $0.08 per diluted share, in Q2 2023. Funds from operations (FFO) for the quarter totaled $34.1 million, or $0.25 per diluted share, versus $35.6 million, or $0.27 per diluted share, in the year-ago quarter.

For the first six months of 2024, ROIC reported total revenues of $168.65 million, up from $161.34 million in the same period of 2023. Net income attributable to common shareholders was $18.4 million, or $0.14 per diluted share, compared to $18.1 million, or $0.14 per diluted share, in the first half of 2023. FFO for the six-month period totaled $72.1 million, or $0.54 per diluted share, versus $69.4 million, or $0.52 per diluted share, in the prior-year period.

Business Overview

ROIC is a fully integrated and self-managed real estate investment trust (REIT) that specializes in the acquisition, ownership, and management of necessity-based community and neighborhood shopping centers on the West Coast of the United States. The company's portfolio consists of 96 properties (95 retail and one office) totaling approximately 10.8 million square feet of gross leasable area (GLA) as of June 30, 2024.

ROIC's portfolio is primarily anchored by supermarkets and drugstores, providing a stable and defensive tenant base. The company's properties are strategically located in major metropolitan areas, with a focus on high-growth, densely populated markets on the West Coast. This geographic concentration allows ROIC to leverage its local market expertise and relationships to source attractive acquisition opportunities and effectively manage its portfolio.

Financial Strength and Liquidity

ROIC maintains a strong balance sheet and ample liquidity to support its growth initiatives. As of June 30, 2024, the company had $2.1 million in cash and cash equivalents, and $600.0 million of available borrowing capacity under its unsecured revolving credit facility.

During the second quarter, ROIC retired a $26.0 million mortgage, leaving the company with only one remaining mortgage loan of $34.0 million. This means that 94 of ROIC's 95 shopping centers are now unencumbered, representing approximately 99% of the company's total portfolio GLA.

Looking ahead, ROIC plans to refinance the $250.0 million of senior notes maturing in December 2024 through a long-term public bond offering, potentially a 10-year deal. The company may also look to refinance its $200.0 million term loan, depending on market conditions. Assuming these refinancing activities are completed, ROIC would have no debt maturing for the next two-plus years, other than the $34.0 million mortgage.

Operational Highlights

ROIC's portfolio performance remained strong during the second quarter of 2024. The company's same-center cash NOI increased by 1.7% compared to the prior-year period, driven by an increase in base rents and a decrease in estimated uncollectible revenue, partially offset by a decline in early lease termination fee income.

For the first six months of 2024, same-center cash NOI grew by 3.7%, exceeding the company's full-year guidance range of 1% to 2% growth. This outperformance was primarily due to the accelerated recognition of a below-market lease intangible liability, an increase in base rents, and a decrease in property tax expenses, partially offset by a decline in straight-line rental income and early lease termination fee income.

ROIC's portfolio lease rate increased to 97% as of June 30, 2024, with the company's shop space at 96% leased and anchor space at 98% leased. During the second quarter, the company leased 393,000 square feet, including 40 new leases totaling 117,000 square feet and 276,000 square feet of renewals.

Acquisition and Disposition Activity

In the second quarter, ROIC acquired the Bressi Ranch Village Center, a 116,000-square-foot grocery-anchored shopping center in Carlsbad, California, for $71.0 million. The property is anchored by Trader Joe's and Stater Brothers Supermarket and is situated in a highly desirable, affluent submarket.

Subsequent to the end of the quarter, ROIC sold the Marketplace Del Rio shopping center in Oceanside, California, for $56.6 million. The company had acquired this property in the early days of ROIC and had successfully repositioned and increased the cash flow over the years.

Looking ahead, ROIC has a couple of additional properties under contract for potential sale during the second half of 2024, totaling approximately $25.0 million in expected proceeds. The company plans to use the proceeds from these dispositions to pay down debt on its balance sheet.

Guidance and Outlook

Based on the company's solid performance in the first half of 2024, ROIC has raised the lower end of its initial full-year FFO guidance range. The company now expects FFO per diluted share to be in the range of $1.04 to $1.06, up from the previous range of $1.03 to $1.06.

However, ROIC has lowered the high end of its initial FFO guidance due to the company's assumption of no additional acquisition activity for the remainder of the year. The company had previously anticipated more acquisition opportunities, but the current market environment, with higher interest rates and seller expectations, has resulted in a largely idle acquisition market.

Conclusion

Retail Opportunity Investments delivered a solid performance in the second quarter of 2024, demonstrating the strength and resilience of its grocery-anchored shopping center portfolio. The company's continued leasing momentum, increased same-store NOI, and strategic acquisition and disposition activities position ROIC well for future growth.

Despite the challenges in the current acquisition market, ROIC remains focused on maximizing the value of its existing portfolio, particularly through the upcoming anchor lease maturities that present significant mark-to-market opportunities. With a strong balance sheet, ample liquidity, and a disciplined approach to capital allocation, ROIC is well-equipped to navigate the evolving retail landscape and create long-term value for its shareholders.