Release Date: October 23, 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) maintained a high portfolio lease rate of 97.1%, showcasing strong demand for their grocery-anchored shopping centers.
- The company achieved significant leasing activity, with over 1.2 million square feet leased in the first nine months of 2024, including 450,000 square feet in the third quarter.
- ROIC is on track to achieve its 12th consecutive year of solid rent growth on both new and renewed leases.
- The company successfully sold two properties for $69 million, achieving a blended exit cap rate in the low 6% range, and acquired a dual grocery-anchored shopping center at a high 6% cap rate.
- ROIC's anchor re-leasing initiative is expected to add over $2 million of additional incremental long-term annual revenue, with a goal to bring the overall portfolio lease rate to around 98%.
Negative Points
- Same-center net operating income (NOI) for the third quarter was down by about 2% compared to the same period last year, due to higher lease recapture income in the previous year.
- Funds from operations (FFO) were impacted by higher interest expenses and property sales, with a full-year FFO per diluted share expected to be in the $1.03 to $1.05 range.
- The company faces challenges with refinancing $250 million of senior notes maturing in December, amidst fluctuating market conditions.
- ROIC's ongoing anchor re-leasing activity has muted same-center NOI growth for the year, with expectations for improvement in 2025.
- The company anticipates a considerable pickup in bad debt for the fourth quarter, despite a healthy tenant base, reflecting cautious financial guidance.
Q & A Highlights
Q: You mentioned refinancing your bonds in the next few weeks. Do you still expect to include the term loan with that? And then just on pricing, is the high 5s still appropriate?
A: Yes, we expect to include the term loan as part of the refinancing initiative on the bonds. The tenure is fluctuating, but we anticipate pricing in the mid 5.5% range. - Michael Haines, CFO
Q: You talked about your same-store NOI returning to a 3% to 4% growth rate. Would you call that a '26 expectation?
A: I would expect '25 to be notably higher than this year as some anchors will be paying earlier. '25 should be returning to normal compared to '24. - Michael Haines, CFO
Q: What drove the higher G&A expected outlays for the year?
A: It's mainly comp related, specifically performance-based shares adjustments based on expected achievements. - Michael Haines, CFO
Q: Can you give us a sense of where the assets you may sell and buy in the fourth quarter or early '25 are being valued?
A: On the West Coast, high-quality grocery-anchored assets are trading in the high 5s to low 6s cap rate range. We aim to sell assets in this range and buy off-market transactions at 6% or higher. - Stuart Tanz, CEO
Q: Is there any update on when the Fallbrook lease could be signed?
A: We are finalizing the lease with a national tenant and aim to have it executed before year-end. - Stuart Tanz, CEO
Q: What percentage of your assets fit the description of stable properties with limited growth that you would recycle?
A: We've identified about five or six assets that fit this profile and are considering moving them to market sooner. - Stuart Tanz, CEO
Q: Can you share what retailers have taken the space formerly occupied by Rite Aid?
A: The spaces have been taken by Dollar Tree, a swim school, salon suites tenant, a grocer, and an auto parts store. - Richard Schoebel, COO
Q: With the long term yields starting to rise, would you consider pivoting to a term loan?
A: We've considered it and would need to discuss with our banking group about the appetite for term loans. It's always a consideration. - Michael Haines, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
