Retail Opportunity Investments Corp.

ladies and gentlemen this is the operator today's conference is scheduled to begin momentarily until that time your line will be placed on music hold until the conference begin again ladies and gentlemen this is the operator today's conference is scheduled to begin momentarily until that time your line will be placed on music hold until the conference begin thank you Thank you. Thank you. Thank you. Thank you. Thank you. Welcome to Retail Opportunity Investments 2022 First Quarter Conference Call. Participants are currently in a listen-only mode. Following the company's prepared remarks, The call will be opened up for questions. Now, I would like to introduce Laurie Schneeb, the company's chief accounting officer.

Thank you. Before we begin, please note that certain matters discussed in this call today constitute forward-looking statements within the meaning of federal securities laws. Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the company can give no assurance that these expectations will be achieved. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements and expectations. Information regarding such risks and factors is described in the company's filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K. Participants are encouraged to refer to the company's filings with the SEC regarding such risks and factors as well as for more information regarding the company's financial and operational results. The company's filings can be found on this website. Now I'll turn the call over to Stuart Tans, the company's chief executive officer.

Stuart? Thanks, Lori, and good morning, everyone. Here with Lori and me today is Michael Haynes, our chief financial officer, and Rick Schoble, our chief operating officer. We are pleased to report that we are off to a terrific start thus far in 2022. Demand for space continues to propel our business forward. Capitalizing on the demand during the first quarter, we leased over 416,000 square feet, which is the second most active quarter on record for the company in terms of first quarter leasing activity. Additionally, we are capitalizing on the tenant demand to drive rents higher. We achieved double-digit rent growth on same-space new leases signed during the first quarter. In terms of renewals, we also achieved solid increases in rent. With respect to acquisitions, we are off to a solid start as well. We recently acquired two grocery-anchored shopping centers, both located in the Pacific Northwest, totaling $36 million. The private seller had debt on the properties that was maturing soon, so they were seeking a buyer who could underwrite and commit quickly with no financing contingencies. Given that we knew both shopping centers extremely well, having owned them back in our pan-Pacific days, we were in a terrific position to respond to the seller's needs and capitalize on a great opportunity to acquire two terrific shopping centers. One of the properties is located in the Portland market. Specifically, the shopping center is well situated in the heart of an affluent, densely populated community. The center is anchored by Walmart Neighborhood Market. Additionally, the seller is in the process of developing a freestanding drive-thru pad at the shopping center. Once completed, we expect to purchase the pad. The second shopping center is located in the Seattle market. It, too, is well situated in an affluent, densely populated community. The shopping center is anchored by Albertsons. In addition to these two acquisitions, we also have another grocery-anchored shopping center currently under contract for $24 million, located in the San Francisco market, specifically in the East Bay Area, in a very densely populated community. The property has been owned by the same family for 30 years. They actually built the center, so it's never been on the market, which is exactly the type of off-market transactions we seek out. Rare opportunities to acquire generational, irreplaceable real estate. Importantly, instrumental in our ability to get this deal, the family is personally close to individuals that we had purchased a number of properties from previously who confirmed our longstanding track record and reputation in the marketplace as a knowledgeable and reliable acquirer. Together, these three acquisitions total $60 million with a blended going-in yield just north of 6%. Looking ahead, there are a number of releasing and repositioning opportunities which we intend to capitalize on that should enhance the underlying value going forward. Importantly, all three of these shopping centers are within strategic proximity to a number of our existing shopping centers in each of these markets, which will enhance our ability and flexibility in terms of maneuvering tenants and continuing to fully capitalize on the strong demand for space. Now I'll turn the call over to Michael Haynes, our CFO. Mike? Thanks, Stuart. For the three months ended March 31st, 2022, the company had $76.5 million in total revenues and $26.7 million in gap operating income, as compared to $69.2 million in total revenues and $22.5 million in gap operating income for the first quarter of 2021. Gap net income attributed with common shareholders for the first quarter of 2022 was $11.6 million, equating to $0.09 per diluted share, as compared to gap net income of $7.4 million, or $0.06 per diluted share, for the first quarter of 2021. Same-centered net operating income on a cash basis for the first quarter of 2022 was $49.5 million, as compared to same-centered NOI of $46 million for the first quarter of 2021, representing a 7.5% increase. In terms of funds from operations, for the first quarter of 2022, FFO totaled $36.2 million, equating to $0.28 per diluted share, as compared to FFO of $31 million, or $0.24 per diluted share, for the first quarter of 2021. There are three items worth noting that helped drive our first quarter results. First, gap-based rent during the first quarter came in about $2 million higher than our budget. Second, other income for the first quarter totaled $1.4 million, the bulk of which being associated with one tenant where we recaptured their space early and released it to a new tenant at a higher rent. And the third item was lower than expected bad debt. We had budgeted bad debt to continue being a bit elevated during the first half of 2022 and then returning back down to around our historical average in the second half of the year. In actuality, for the first quarter, bad debt totaled $628,000, which is fully in line with our bad debt before the pandemic, if not a touch lower than our historical average. Turning to this company's balance sheet and financing activity, during the first quarter, we retired early with no penalty, two mortgages totaling $23.5 million. With paying off the two mortgages, our unencumbered GLA as a percent over total GLA increased to a new record high of 96.5% as of March 31st. Taking into account the three shopping center acquisitions, all of which are debt-free, our unencumbered GLA will increase further. Additionally, today we have just two properties out of the entire portfolio with mortgage debt, totaling less than $62 million, which equated to only 4.6% of our total debt outstanding as of March 31st. In terms of equity, year-to-date, we have raised $23.4 million through our ATM, issuing in total approximately 1.2 million shares, including issuing about 700,000 shares during the first quarter and approximately 500,000 shares early in the second quarter. Going forward, our goal is to continue raising equity, generally in step with our acquisition activity, depending upon market conditions. On March 31st, the company's total market capitalization was approximately $3.9 billion, and with approximately $1.3 billion of debt outstanding, equating to a 34% debt-to-total market cap ratio. Of the $1.3 billion of debt, 95.4% is unsecured, the vast majority being fixed rate, with a well-ladder maturity schedule, including nothing maturing for the next year and a half. In terms of our credit facility, we continue to maintain a limited balance. Specifically, at March 31st, only $10 million was outstanding on our $600 million unsecured line. Lastly, our financial ratios continue to move steadily towards returning to our historical pre-pandemic levels. For the first quarter, interest coverage was 3.6 times, up from 3.2 times a year ago. Additionally, net debt to annualized EBITDA was 6.4 times for the first quarter, as compared to 7.3 times a year ago. Now I'll turn the call over to Rich Shovel, our COO. Rich? Thanks, Mike. Echoing Stuart's and Mike's comments, leasing activity during the first quarter exceeded our expectations. While leasing during the first quarter, following the holiday season, traditionally takes a bit of time to ramp up, that was not the case this year. As Stuart indicated, our leasing activity in the first quarter proved to be the second most active on record for the company. In fact, We were just shy of surpassing the record that we achieved four years ago in the first quarter of 2018. The demand for space across our portfolio continues to be broad-based, ranging from supermarkets and other necessity-based and off-price anchor tenants looking to expand and increasingly becoming more and more proactive in seeking out prime locations, many of which are tenants that already have a considerable presence in the market and are now seeking to enhance their dominance. In terms of inline space, healthcare, wellness, boutique fitness, and restaurant tenants, especially quick-serve restaurants, continue to lead the charge. Additionally, among national tenants, we're seeing a growing trend of long-time traditional brick-and-mortar tenants that in recent years had reduced their number of stores, now returning with completely new, more tailored merchandising strategies and looking to expand their presence in key markets as they roll out their new concepts. We continue to work hard to make the most of the strong demand to enhance the competitive strength and underlying value of our portfolio. To take you through our first quarter results, as of March 31st, our portfolio lease rate stood at a very strong 97.2% lease, up from 96.9% a year ago. Breaking that down between anchor and non-anchor space, we continue to maintain our anchor space at 100% lease, and in terms of non-anchor space, we ended the first quarter at a solid 93.9% lease. As Stuart noted, during the first quarter, we leased a total of 416,000 square feet. The bulk of our activity centered around tenant renewals, specifically renewing anchor tenants. At the start of the year, we had seven anchor leases scheduled to expire during all of 2022. During the first quarter, utilizing our longstanding proactive hands-on approach, we successfully renewed five of the seven anchor leases. With respect to the remaining two, one has indicated that they intend to renew, and the other anchor space that was scheduled to expire later this year, we've already released at a higher rent to the adjacent longtime grocer who is seeking to expand their store. In terms of non-anchor space renewals, we also had an active, successful first quarter, renewing 61 non-anchor leases in total. An interesting and positive trend that is starting to take shape with a growing number of existing tenants is that they're looking to extend their leases with longer terms beyond what their renewal options typically call for and longer than what tenants have typically sought historically. This is especially the case with our key grocer tenants. We're capitalizing on this to drive renewal rents higher and to achieve stronger, more advantageous lease terms overall. During the pandemic, the uncertainty in the marketplace temporarily translated into renewal rent increases that were below our historical average. Today, with the pandemic uncertainty now largely behind us, we are quickly returning to achieving renewal rent increases in line with our historical rent growth. In fact, for the first quarter, renewal rents increased by over 7% on average. In terms of new leases, we also had a solid first quarter, leasing over 94,000 square feet of space, achieving a 15.8% increase in same-space base rent. Lastly, with respect to leased versus billed, at the start of the year, the spread stood at 4.7%, according to $10.6 million of rent from new leases where the new tenants had not yet taken occupancy and commenced paying rent. During the first quarter, we were successful in getting over $2 million of the 10.6 open and operating, which is the largest dollar amount to commence during any quarter dating back to 2019. We view this as another important and positive trend that we hope to build on. Taking into account new leases signed during the first quarter, at March 31st, the spread stood at 4.6%, representing $9.6 million of rent that has not yet commenced. We currently expect the bulk of the $9.6 million will steadily come online as we move through the year. Looking ahead, based on our first quarter leasing activity, and the favorable trends that are taking shape, all being driven by the ongoing demand for space, we believe that 2022 has the potential to be a strong year in terms of leasing. Now I'll turn the call back over to Stuart. Thanks, Rich. Just to briefly expand on Rich's comment regarding looking ahead, in addition to continuing to capitalize on the strong leasing trends to drive our business going forward, we're also working hard to grow our portfolio. capitalizing on our long-standing relationships. While the acquisition market is highly competitive today, perhaps more so now than ever before in our nearly 30 years' experience, as more and more investors continue to aggressively pursue grocery-anchored shopping centers on the open market, our pipeline of potential off-market acquisitions continues to steadily build. We currently have several compelling deals in the works, to acquire truly irreplaceable grocery anchored real estate that have a wealth of opportunities to enhance value going forward. We have had our eye on these properties and have been patiently yet persistently pursuing the sellers for a long time and we are now hopefully moving towards finally bringing them to fruition. In short, We are excited about the various ongoing opportunities and look forward to making the most of them in the coming months and continue to build value. Finally, in light of our first quarter performance, together with what we have in the works on the leasing and acquisition fronts, we have raised our FFO guidance range for 2022 to between $1.04 and $1.10 per share. Now we will open up your call for questions. Operator?