- Total Revenues (Q2 2024): $83 million
- Total Revenues (First Six Months 2024): $169 million
- Operating Income (Q2 2024): $28 million
- Operating Income (First Six Months 2024): $58 million
- Same-Center Net Operating Income (Q2 2024): Increased by 1.7%
- Same-Center Net Operating Income (First Six Months 2024): Increased by 3.7%
- GAAP Net Income Attributable to Common Shareholders (Q2 2024): $7.4 million ($0.06 per diluted share)
- GAAP Net Income Attributable to Common Shareholders (First Six Months 2024): $18.4 million ($0.14 per diluted share)
- Funds from Operations (Q2 2024): $34.1 million ($0.25 per diluted share)
- Funds from Operations (First Six Months 2024): $72.1 million ($0.54 per diluted share)
- Leased Space (Year to Date): Over 776,000 square feet
- Re-Leasing Rent Growth (Q2 2024): 12% increase on new leases
- Acquisition (Q2 2024): $70 million for a grocery-anchored shopping center
- Disposition (Q2 2024): Sold a property for approximately $57 million
- Portfolio Lease Rate (June 30, 2024): 97%
- Shop Space Lease Rate (June 30, 2024): 96%
- Anchor Space Lease Rate (June 30, 2024): 98%
- Incremental Annual Base Rent from New Leases (Q2 2024): Over $2.5 million
- Incremental Annual Base Rent from New Leases (June 30, 2024): Approximately $7.3 million
- Mortgage Retired (Q2 2024): $26 million
- Remaining Mortgage Loan: $34 million
- Unencumbered Shopping Centers: 94 out of 95 (99% of total portfolio GLA)
Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Retail Opportunity Investments Corp (ROIC, Financial) achieved a 12% increase in re-leasing rent growth on new leases for the second quarter.
- The company acquired a $70 million grocery-anchored shopping center in a prime San Diego submarket, enhancing its portfolio.
- ROIC's portfolio lease rate increased to 97% as of June 30, with shop space at 96% and anchor space at 98%.
- The company retired a $26 million mortgage, leaving 94 of its 95 shopping centers unencumbered.
- ROIC raised the lower end of its initial FFO guidance based on solid portfolio performance and strong leasing activity.
Negative Points
- The acquisition market remains muted due to high debt financing costs and seller expectations, leading to no additional acquisition activity assumed for the second half of the year.
- There will be some downtime between leases due to ongoing anchor space re-leasing activity, impacting short-term financial performance.
- The uncertain economy continues to weigh on the acquisition market, making future market conditions unclear.
- Tenant credit concerns have slightly increased, although the impact on ROIC has been minimal so far.
- The company faces potential challenges with the Kroger and Albertsons merger, which could affect 32 leases, including eight being sold to C&S Wholesale Grocers.
Q & A Highlights
Q: The deceleration in same-store NOI growth that's implied for the second half of the year, is that evenly spread among Q3 or Q4? Is there anything you'd want to point out as maybe differentiated by quarter?
A: Well, the same-store, 1.7% for the second quarter, is --
Q: No, for second half of the year.
A: Second half of the year. Yeah, we're keeping the same-store guidance of 1% to 2% because the back half, we're expecting it to be not as strong as first half obviously because just the way the numbers work comparing this year to last year's results.
Q: Can you give us an updated view of the situation from your perspective regarding the Albertson-Kroger merger and its impact on your leases?
A: From a lease perspective, we have 32 leases in total with Kroger and Albertsons. Only eight are being sold right now to C&S, six of which are in Oregon, and two are in Washington. None of the 18 leases that we have with Kroger and Albertsons in California are being sold to C&S. We continue to communicate with both Kroger and Albertsons and conduct business as usual, including renewing one of their leases in the second quarter.
Q: Can you discuss the impact to guidance from the lower levels of net investment activity and the capital raising, the equity issuance, which you're now not assuming, relative to your prior expectations?
A: Yes. I think in our last call we talked about how for every $100 million, the net of investment activity, it added about a penny of FFO, which is why we, since we're removing all acquisition activity going forward for the balance of the year, that's why we pulled down the high end of the guidance.
Q: Can you talk a little bit about the health of the tenant base today versus three months ago, especially with some tenant credit concerns and bankruptcies?
A: The tenant base continues to perform well. Receivables are consistent with historic averages. We've been very fortunate; a lot of the tenant names you've heard in the news, we have very little exposure to. Where we've had exposure, either leases have been accepted or purchased through the bankruptcy process, or the tenants have come out of bankruptcy and kept the leases. So there's been very little impact from the tenants in the news.
Q: Any update on the Kohl's Backfill at Fallbrook?
A: During the second quarter, we signed leases totaling about 45,000 available anchor space. That leaves a pending 134,000 square feet remaining. We currently have a signed LOI in the largest space, the Kohl's space, which is 115,000 square feet. We continue to work to finalize the lease with the prospective tenant, who's a long-term national tenant of ours, and the remaining 19,000 square feet we are contemplating splitting into two, and we're in discussions with two prospective tenants on that space.
Q: Can you give us a sense of where rent spreads could be for anchor leasing opportunities?
A: The mark-to-market on the leases that we currently are working on are quite large because the starting rents on these leases were in the mid-single digits. Assuming these leases do get executed, the mark-to-market is extremely strong. Going forward on anchor spaces, as we look into '25, a number of these leases are well below market. On a blended basis, I would tell you that trend is probably going to be higher as we move into '25 on the anchor side.
Q: Can you discuss the potential impact of the Big Lots store closure in Lacey?
A: We only have one Big Lots in the portfolio. We understand that the location in Lacey, Washington is a potential closure. That center has been 100% leased for the past seven years, and we already have offers on the space. The rent is substantially below market, so between any termination fee and the uptick in the rent, we don't see this as a big risk.
Q: Can you provide an update on the Crossroads expansion and potential outparcel sales?
A: At the Crossroads, we've completed all the work in terms of pulling the construction permits. However, we're waiting to do so until the market conditions get a bit more favorable. The city has granted us a two-year window for pulling the permits and has been proactively engaged about increasing the development density at the Crossroads for additional multifamily in the future.
Q: Can you provide some color on the space market, location, or type of tenant for new anchor leases with low ABR per square foot?
A: As it relates to the anchor renewals, in many cases, the anchor tenants are exercising options, and some of those options are flat. Some leases were initially structured as ground leases where the anchor tenant built the space, which gave them very low rent. In terms of new leasing, it depends on the deal structure, including TI and tenant's ability to pay. On average, we're getting more than what we were previously for the spaces.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
