Retail Opportunity Investments (ROIC) - 2021 Q4 - Annual Report

Form 10-K Filing Information Filing Details This document is an Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed by Retail Opportunity Investments Corp. (ROIC) and its Operating Partnership - The report is an Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed by Retail Opportunity Investments Corp. (ROIC) and Retail Opportunity Investments Partnership, LP[2] Registrant Filer Status | Registrant | Filer Status | | :-------------------------------- | :------------- | | Retail Opportunity Investments Corp. | Large accelerated filer | | Retail Opportunity Investments Partnership, LP | Non-accelerated filer | ROIC Common Equity Market Value (June 30, 2021) | Metric | Value | | :------------------------------------ | :------------ | | Aggregate market value (non-affiliates) | $2.1 billion | | Closing sale price per share | $17.66 | | Exchange | NASDAQ | Explanatory Paragraph Company Structure and Reporting This report combines 10-K filings for ROIC, a REIT and general partner, and its Operating Partnership, detailing ROIC's 93.5% interest and reporting differences - The report combines the annual reports of Retail Opportunity Investments Corp. (ROIC) and Retail Opportunity Investments Partnership, LP, as ROIC is the parent company and general partner of the Operating Partnership[15] - As of December 31, 2021, ROIC owned approximately a 93.5% partnership interest in the Operating Partnership[16] - The primary difference between ROIC's and the Operating Partnership's consolidated financial statements is the accounting for non-controlling interests, which are OP Units not owned by ROIC[19] Statements Regarding Forward-Looking Information Forward-Looking Statements and Risks This section identifies forward-looking statements and outlines significant risks, primarily the ongoing impact of the COVID-19 pandemic - Forward-looking statements are identified by words like 'believes,' 'anticipates,' 'projects,' 'may,' 'will,' 'should,' 'estimates,' 'expects,' and similar expressions[23] - The most significant factor causing potential divergence from forward-looking statements is the ongoing adverse effect of the COVID-19 pandemic on the Company's financial condition, operating results, cash flows, tenants, and the real estate market[24] - Additional factors include the Company's ability to acquire suitable retail real estate, achieve rental revenue, manage asset market value, navigate economic conditions, secure new leases, adapt to consumer buying practices, maintain tenant relationships, qualify as a REIT, manage debt, control operating expenses, and respond to legislative and regulatory changes[26] Risk Factor Summary Key Risks Overview Investment in the Company's securities involves high risk, categorized into COVID-19, business, financing, and organizational structure - An investment in the Company's securities involves a high degree of risk, requiring careful consideration of factors summarized in Item 1A[30] - Risks related to COVID-19 include material adverse impacts on tenant businesses, the Company's income, cash flow, and ability to service debt and pay dividends[30] - Key risks related to business and operations include real estate investment volatility, competitive markets, potential changes in company strategy without stockholder consent, and the adverse effects of tenant bankruptcies or economic slowdowns[32] - Financing risks encompass restrictive covenants in debt agreements, potential increases in interest rates, and dependence on dividends from subsidiaries[37] - Organizational risks include the potential failure to qualify as a REIT, which would subject the Company to federal income tax and reduce cash available for distributions[37] PART I Item 1. Business ROIC is a self-managed REIT specializing in necessity-based West Coast shopping centers, with 90 properties and a 97.5% retail lease rate - ROIC is a fully integrated, self-managed REIT specializing in necessity-based community and neighborhood shopping centers on the west coast of the United States, anchored by supermarkets and drugstores[36] Portfolio Snapshot (December 31, 2021) | Metric | Value | | :---------------------- | :------------------- | | Number of properties | 90 (89 retail, 1 office) | | Total GLA | ~10.2 million sq. ft. | | Retail portfolio leased | ~97.5% | - The Company's investment strategy focuses on acquiring shopping centers in densely populated, supply-constrained West Coast markets with income and population growth, and high barriers to entry, leveraging its senior management's extensive local market knowledge[39] - Revenues are primarily derived from rents and reimbursement payments from tenants, with a focus on necessity-based retailers that are more resistant to e-commerce competition[41] - The Company employs prudent leverage, primarily using unsecured debt, including a $300.0 million unsecured term loan and a $600.0 million unsecured revolving credit facility, to fund acquisitions and diversify its portfolio[45][46][47] - The Company was awarded the highest 'Gold' level designation as a 2021 Green Lease Leader and is implementing measures such as leasing roof space to solar companies, installing EV charging stations, and LED lighting[70][76] Overview ROIC, a self-managed REIT since 2009, focuses on West Coast necessity-based shopping centers, holding 93.5% interest in its Operating Partnership - ROIC commenced operations in October 2009 as a fully integrated, self-managed REIT[36] - The Company specializes in the acquisition, ownership, and management of necessity-based community and neighborhood shopping centers on the west coast of the United States, anchored by supermarkets and drugstores[36] Portfolio Summary (December 31, 2021) | Metric | Value | | :---------------------- | :------------------- | | Total properties | 90 (89 retail, 1 office) | | Gross Leasable Area (GLA) | ~10.2 million sq. ft. | | ROIC partnership interest in Operating Partnership | ~93.5% | Investment Strategy Strategy focuses on acquiring necessity-based shopping centers in densely populated West Coast markets for stable cash flows - The Company seeks to acquire shopping centers in densely populated, supply-constrained metropolitan markets on the west coast of the United States, characterized by income and population growth and high barriers to entry[39] - The Company targets high-quality, necessity-based community and neighborhood shopping centers anchored by national and regional supermarkets and drugstores, aiming for stable cash flows and value-enhancement opportunities[40] - Revenues are primarily derived from rents and reimbursement payments from tenants, with a focus on retailers providing necessity-based, non-discretionary goods and services, which are more resistant to e-commerce[41] Financing Activities Financing strategy uses unsecured debt, including a $300M term loan and $600M revolving credit facility, and ATM equity offerings - The Company employs prudent amounts of leverage, primarily utilizing unsecured debt to finance property acquisitions and portfolio diversification[45] Debt Facilities Summary (December 31, 2021) | Facility | Capacity | Outstanding | Maturity Date | | :-------------------------- | :------------- | :------------ | :-------------- | | Unsecured Term Loan | $300.0 million | $300.0 million | January 20, 2025 | | Unsecured Revolving Credit Facility | $600.0 million | $0 | February 20, 2024 | - During the year ended December 31, 2021, ROIC sold 3,788,035 shares under its 'at the market' (ATM) sales agreement, generating approximately $69.6 million in gross proceeds[52] Business Segments Company's core business is retail real estate, with all properties aggregated into a single reportable segment - The Company's primary business is the ownership, management, and redevelopment of retail real estate properties[54] - Each property represents an individual operating segment, with financial performance evaluated using property operating income[54] - All properties are aggregated into one reportable segment due to similar long-term economic characteristics, consistent business strategies, major metropolitan locations, and similar tenant mixes[54] Regulation Operations are subject to federal, state, and local laws, including environmental, development, and ADA compliance - Real estate properties are subject to various laws, ordinances, and regulations, including environmental, development, construction, operation, upkeep, safety, and taxation requirements[56] - Compliance with the Americans with Disabilities Act of 1990 (ADA) is required for all places of public accommodation, and noncompliance could result in fines or significant capital expenditures[57] - Property management activities are subject to state real estate brokerage laws and regulations[58] Environmental Matters Subject to environmental laws, the Company conducts assessments, manages properties compliantly, and includes indemnification in leases - Current or previous owners/operators of real property may be required to investigate, remove, and/or remediate hazardous substances or regulated materials, and can be held liable for related damages[59] - The Company conducts environmental assessments prior to acquisition and manages properties in accordance with environmental laws[60] - All leases contain comprehensive environmental provisions requiring tenants to comply with environmental laws and indemnify the owner for non-compliance[60] Competition Operates in a highly competitive retail property market, facing larger competitors for acquisitions and tenants - The Company operates in a highly competitive market for the acquisition, operation, and development of retail properties[61] - Competitors include institutional investors, other REITs, and owner-operators, many of whom are substantially larger and have greater financial and marketing resources[62] - Competition can reduce suitable investment opportunities, increase seller bargaining power, and pressure the Company to offer rental concessions, potentially impacting leasing rates and tenant retention[62] Employees and Human Capital Management Company had 68 employees, emphasizes diversity (70% female), employee development, competitive benefits, and COVID-19 safety protocols - As of December 31, 2021, the Company had 68 employees, including 19 maintenance employees and three executive officers[63] - The Company values diversity and inclusion, with approximately 45% of employees identifying as a racial or ethnic minority and 70% being female as of December 31, 2021; annual diversity and inclusion training is required[65] - Employee wellness and benefits include competitive compensation, comprehensive medical/dental insurance, disability benefits, a 401(K) with matching, paid leave, and flexible work arrangements[67] - In response to COVID-19, the Company transitioned to remote work, implemented safety protocols at properties, and assisted tenants with resources and aid for expanding outdoor operations[69] ESG Highlights Achieved 'Gold' Green Lease Leader, reported under GRESB, SASB, TCFD, and enhanced energy efficiency with solar and EV charging - The Company was awarded the highest 'Gold' level designation as a 2021 Green Lease Leader by the U.S. Department of Energy's Better Buildings Alliance and Institute for Market Transformation[70] - The Company responded to the Global Real Estate Sustainability Benchmark (GRESB) for the first time in 2021 and reported in line with Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD) standards[72] - Energy management initiatives include leasing roof space to solar companies, installing electric vehicle (EV) charging stations (51 as of December 31, 2021, with 32 more planned), and installing LED lighting[76] Available Information SEC filings (10-K, 10-Q, 8-K) are available on www.sec.gov and the Company's website, www.roireit.net - The Company files annual, quarterly, and current reports (Forms 10-K, 10-Q, 8-K) and amendments with the SEC, available on www.sec.gov[75](index=75&type=chunk) - Company reports are also available free of charge on its website, www.roireit.net, promptly after electronic filing[75] Item 1A. Risk Factors Details risks including COVID-19 impact, real estate volatility, competition, financing constraints, and REIT qualification requirements - The COVID-19 pandemic has significantly impacted tenant businesses, leading to rent deferrals, potential lease terminations, and increased uncollectible receivables, which could materially and adversely affect the Company's financial condition[77][78][79] - Real estate investments are subject to various risks, including economic climate changes, local market conditions, competition, and the impact of online retail, which can affect property values and rental income[81] - The Company operates in a highly competitive market, which may limit its ability to acquire desirable assets and attract/retain tenants, potentially leading to reduced rents[82] - The Company's growth depends on external capital sources, and its ability to obtain debt or equity financing on favorable terms is subject to capital market conditions[97] - Failure to qualify as a REIT would subject the Company to U.S. federal income tax, significantly reducing cash available for distribution to stockholders[140][142] Risks Related to COVID-19 Pandemic significantly impacted tenants, leading to decreased traffic, accelerated online shopping, and rent deferrals totaling $11.1 million - The COVID-19 pandemic significantly impacted tenant businesses, leading to decreased customer traffic and an acceleration of online purchases[78] - The Company entered into lease concessions deferring approximately $11.1 million of contractual amounts billed since the pandemic's onset[79] COVID-19 Lease Concessions (as of December 31, 2021) | Metric | Amount (approx.) | | :-------------------------------- | :--------------- | | Contractual amounts deferred | $11.1 million | | Amounts rebilled | $5.6 million | | Amounts collected from rebilled | $4.8 million (85.4%) | Risks Related to the Company's Business and Operations Business risks include real estate volatility, intense competition, potential strategy changes, geographic concentration, and cybersecurity threats - Real estate investments are subject to varying degrees of risk, including changes in the general economic climate, local market conditions, and competition from online retail[81] - The Company operates in a highly competitive market, which may limit its ability to acquire desirable assets and attract and retain tenants[82] - The Company may change its strategies, policies, or procedures without stockholder consent, potentially increasing exposure to market fluctuations, financing risk, and default risk[83] - The Company's properties in California, Washington, and Oregon accounted for 67%, 20%, and 13%, respectively, of its consolidated property operating income for the year ended December 31, 2021, creating geographic concentration risk[118] - The Company faces risks from security breaches through cyber attacks, malware, and system failures, which could materially and adversely impact its operations and financial condition[108] Risks Related to Financing Financing risks include restrictive debt covenants, limited capital access, interest rate increases, and LIBOR transition impact - The Company's term loan, credit facility, and unsecured senior notes contain restrictive covenants that could limit its ability to respond to changing market conditions and pay dividends[120] - Access to financing depends on general market conditions, the market's view of the Company's assets and growth potential, and its current/future earnings and cash distributions[126] - Increases in interest rates could raise debt payments, reducing cash available for distributions and access to capital markets[128] - The replacement of LIBOR with alternative reference rates like SOFR may affect the value of financial obligations and could lead to financial market disruptions or increased borrowing costs[129] - A downgrade in the Company's or Operating Partnership's credit ratings could materially adversely affect capital costs and availability[132] Risks Related to Our Organization and Structure Organizational risks include reliance on subsidiary distributions, anti-takeover provisions, and the critical need to maintain REIT qualification - The Company depends on dividends and distributions from its direct and indirect subsidiaries, whose creditors are entitled to payment before distributions to the Company[133] - Certain provisions of Maryland law and the Company's charter (e.g., authorized preferred stock, ownership limitations) may delay, defer, or prevent a change in control[135][138][139] - Failure to qualify as a REIT would subject the Company to U.S. federal income tax, reducing cash available for distribution, and may require borrowing funds under unfavorable conditions to meet distribution requirements[140][142][146] - The Company may be liable for certain tax obligations of limited partners under tax protection agreements, which could limit asset disposal flexibility until 2027 or later[150] Item 1B. Unresolved Staff Comments No unresolved staff comments to report - There are no unresolved staff comments[154] Item 2. Properties Portfolio of 90 properties (10.2M sq. ft. GLA, 97.5% leased), diversified by tenant and lease expirations, with no single tenant exceeding 5.5% ABR Portfolio Summary (December 31, 2021) | Metric | Value | | :---------------------- | :------------------- | | Total properties | 90 (89 retail, 1 office) | | Total GLA | ~10.2 million sq. ft. | | Retail portfolio leased | ~97.5% | | Square feet leased/renewed in 2021 | ~1.4 million sq. ft. | Tenant Improvement and Leasing Commission Commitments (2021) | Category | Tenant Improvements | Leasing Commissions | | :---------------- | :-------------------- | :------------------ | | New Leases | ~$21.5 million ($47.93/sq. ft.) | ~$1.5 million ($3.25/sq. ft.) | | Renewed Leases | ~$766,000 ($0.78/sq. ft.) | Not material | Top 10 Tenants by Annual Base Rent (December 31, 2021) | Tenant | Number of Leases | % of Total Annual Base Rent | | :-------------------------- | :--------------- | :-------------------------- | | Albertsons / Safeway Supermarkets | 19 | 5.5 % | | Kroger Supermarkets | 11 | 3.4 % | | Rite Aid Pharmacy | 14 | 1.5 % | | JP Morgan Chase | 21 | 1.4 % | | Trader Joe's | 9 | 1.4 % | | Grocery Outlet Supermarkets | 10 | 1.4 % | | SaveMart Supermarkets | 4 | 1.3 % | | Marshall's / TJMaxx | 6 | 1.3 % | | Sprouts Markets | 4 | 1.2 % | | H-Mart Supermarkets | 3 | 1.1 % | | Total | 101 | 19.5 % | Annual Lease Expirations (Total Retail Portfolio, December 31, 2021) | Year of Expiration | Number of Leases Expiring | Leased Square Footage | Annual Base Rent ($ thousands) | Percent of Total ABR | | :----------------- | :------------------------ | :-------------------- | :----------------------------- | :------------------- | | 2022 | 284 | 745,044 | 19,325 | 8.8 % | | 2023 | 321 | 1,377,246 | 32,767 | 14.7 % | | 2024 | 293 | 1,146,014 | 28,411 | 12.8 % | | 2025 | 274 | 1,339,770 | 28,780 | 13.0 % | | 2026 | 286 | 1,353,992 | 29,409 | 13.2 % | | 2027 | 167 | 760,831 | 16,101 | 7.3 % | | 2028 | 77 | 802,114 | 17,476 | 7.9 % | | 2029 | 63 | 595,474 | 12,177 | 5.4 % | | 2030 | 46 | 342,936 | 7,898 | 3.5 % | | 2031 | 64 | 461,674 | 10,624 | 4.8 % | | Thereafter | 95 | 979,959 | 18,919 | 8.6 % | | Total | 1,970 | 9,905,054 | 221,887 | 100 % | Item 3. Legal Proceedings Routine legal actions are not expected to materially impact the Company's financial position or operations - The Company is involved in routine legal actions incidental to its business[165] - Management believes that any liabilities from these legal actions are not expected to materially adversely affect the Company's consolidated financial position, results of operations, or liquidity[165] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable[166] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ROIC common stock trades on NASDAQ, with 66 registered holders; Operating Partnership units are not publicly traded - ROIC's common stock trades on the NASDAQ Global Select Market under the symbol 'ROIC'[168] Shareholder Information | Registrant | Holders (as of) | | :-------------------------------- | :-------------------- | | ROIC Common Stock | 66 (February 11, 2022) | | Operating Partnership | 46 (December 31, 2021) | Cumulative Total Return ($100 invested on 12/31/2016) | Index | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | | :--------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Retail Opportunity Investments Corp. | $100.00 | $97.99 | $81.39 | $94.70 | $72.94 | $109.87 | | S&P500 | $100.00 | $121.83 | $116.49 | $153.17 | $181.35 | $233.41 | | FTSE NAREIT Equity REITs | $100.00 | $108.67 | $104.28 | $134.17 | $127.30 | $179.87 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial condition and operations, including COVID-19 impact, portfolio performance, key financial metrics, and liquidity - The Company's portfolio consisted of 90 properties (89 retail and one office) totaling approximately 10.2 million square feet of GLA as of December 31, 2021, with the retail portfolio 97.5% leased[177] - Property operating income decreased by approximately $3.8 million from $209.8 million in 2020 to $206.0 million in 2021, primarily due to accelerated recognition of below-market lease intangible liabilities in 2020, offset by a decrease in estimated uncollectible rental revenue in 2021[191] - Same-center cash NOI increased by 3.0% from approximately $183.8 million in 2020 to $189.4 million in 2021, driven by a decrease in projected uncollectible rental revenue, offset by an increase in operating expenses[204] - Net cash provided by operating activities increased by approximately $29.7 million, from $106.7 million in 2020 to $136.3 million in 2021, mainly due to a decrease in accounts receivable and timing of collections[242] - The Company plans to satisfy short-term liquidity requirements through operating cash flows and credit facility borrowings, and long-term requirements through operating cash flows, debt refinancings, new debt, equity offerings, and asset dispositions[247][248] Overview ROIC operates as an UpREIT, specializing in West Coast necessity-based shopping centers, with 90 properties and 97.5% retail lease rate - ROIC operates in an UpREIT format, with its wholly-owned subsidiary serving as the general partner of the Operating Partnership, in which ROIC held approximately a 93.5% interest as of December 31, 2021[175][176] - The Company specializes in necessity-based community and neighborhood shopping centers on the west coast of the United States, anchored by supermarkets and drugstores[176] Portfolio and Leasing Activity (December 31, 2021) | Metric | Value | | :---------------------- | :------------------- | | Total properties | 90 (89 retail, 1 office) | | Total GLA | ~10.2 million sq. ft. | | Retail portfolio leased | ~97.5% | | Square feet leased in 2021 | ~448,000 sq. ft. | | Square feet renewed in 2021 | ~979,000 sq. ft. | Impact of COVID-19 COVID-19 significantly impacted tenant operations, accelerated online shopping, and led to $11.1 million in rent deferrals - The COVID-19 pandemic significantly impacted the global and U.S. economies, local markets, and financial markets, affecting tenant operations[179] - The trend toward online shopping accelerated during the pandemic and may continue, potentially causing a permanent decrease in spending at brick-and-mortar establishments[181] COVID-19 Rent Deferrals (as of December 31, 2021) | Metric | Amount (approx.) | | :-------------------------------- | :--------------- | | Contractual amounts deferred | $11.1 million | | Amounts rebilled | $5.6 million | | Amounts collected from rebilled | $4.8 million (85.4%) | Results of Operations 2021 saw decreased Property Operating Income but increased Same-Center Cash NOI, with a significant gain from real estate sales Property Operating Income (2021 vs. 2020) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | Change ($ thousands) | | :---------------------- | :----------------- | :----------------- | :------------------- | | Operating income per GAAP | $114,895 | $94,447 | +$20,448 | | Property operating income | $205,998 | $209,776 | -$3,778 | Key Expense Changes (2021 vs. 2020) | Expense Category | 2021 ($ thousands) | 2020 ($ thousands) | Change ($ thousands) | | :-------------------------------- | :----------------- | :----------------- | :------------------- | | Depreciation and amortization | $92,929 | $97,731 | -$4,802 | | General and administrative expenses | $19,654 | $16,755 | +$2,899 | | Interest expense and other finance expenses | $57,535 | $59,726 | -$2,191 | Gain on Sale of Real Estate (2021 vs. 2020) | Year | Gain on Sale of Real Estate ($ thousands) | | :--- | :---------------------------------------- | | 2021 | $22,340 | | 2020 | $0 | Funds From Operations (FFO) (2021 vs. 2020) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | | :----------------------- | :----------------- | :----------------- | | FFO – basic | $124,097 | $129,745 | | FFO – diluted | $127,949 | $132,452 | Same-Center Cash NOI (2021 vs. 2020) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | Change (%) | | :----------------- | :----------------- | :----------------- | :--------- | | Same-center cash NOI | $189,387 | $183,823 | +3.0% | Critical Accounting Estimates Key estimates include revenue recognition, allowance for doubtful accounts, real estate investments, asset impairment, and REIT qualification - Critical accounting estimates include revenue recognition (straight-line base rents, tenant reimbursements), allowance for doubtful accounts (tenant creditworthiness, economic trends, COVID-19 impact), and real estate investments (fair value allocation, depreciable lives)[206][207][210] - The Company reviews long-lived assets for impairment when events indicate non-recoverability, but management did not believe any real estate investments were impaired at December 31, 2021[214] - Maintaining REIT qualification requires meeting ongoing operational and organizational requirements; failure would result in substantial U.S. federal, state, and local income taxes[215][216] Liquidity and Capital Resources of the Company ROIC's liquidity depends on Operating Partnership distributions, with primary cash needs for dividends, funded by distributions and ATM equity sales - ROIC's liquidity is dependent on distributions from the Operating Partnership, as ROIC itself does not generate capital or hold indebtedness (except guarantees)[219][223] - ROIC's principal funding requirement is the payment of dividends on its common stock[219] - During 2021, ROIC sold 3,788,035 shares under its ATM sales agreement, generating approximately $69.6 million in gross proceeds[227] Cash Flow and Dividends (2021 vs. 2020) | Metric | 2021 ($ millions) | 2020 ($ millions) | | :------------------------------------ | :---------------- | :---------------- | | Dividends paid to stockholders | $61.8 | $23.4 | | Distributions to non-controlling interests | $4.4 | $2.2 | | Consolidated cash flows from operations | $136.3 | $106.7 | Liquidity and Capital Resources of the Operating Partnership Operating Partnership liquidity from operations, asset sales, and ROIC contributions, with $300M term loan, $600M credit facility, and $950M senior notes - The Operating Partnership's primary cash sources in 2021 were cash flow from operations, proceeds from real estate sales, and cash contributed by ROIC from common stock issuance[231] Operating Partnership Debt Summary (December 31, 2021) | Facility | Outstanding | Maturity Date | Available Borrowings | | :-------------------------------- | :------------ | :-------------- | :------------------- | | Unsecured Term Loan | $300.0 million | January 20, 2025 | $0 | | Unsecured Revolving Credit Facility | $0 | February 20, 2024 | $600.0 million | - The Operating Partnership has $950.0 million in aggregate principal amount of unsecured senior notes with maturities ranging from 2023 to 2027[235][236] - The Company holds investment grade credit ratings from Moody's (Baa2), S&P Global Ratings (BBB-), and Fitch Ratings (upgraded to BBB in January 2022)[239] Cash Flows Consolidated cash flows in 2021 showed increased operating activities, increased investing activities, and decreased financing activities Consolidated Statements of Cash Flows Summary (2021 vs. 2020) | Cash Flow Category | 2021 ($ thousands) | 2020 ($ thousands) | Change ($ thousands) | | :-------------------------- | :----------------- | :----------------- | :------------------- | | Operating activities | $136,332 | $106,660 | +$29,672 | | Investing activities | $(103,645) | $(28,474) | -$(75,171) | | Financing activities | $(23,960) | $(77,008) | +$53,048 | - Increase in cash flows from operating activities was primarily due to a decrease in accounts receivable and related timing of collections and payments of working capital accounts[242] - Increase in cash flows used in investing activities was primarily due to a $125.5 million increase in real estate investments and a $9.7 million increase in payments for property improvements, partially offset by a $68.0 million increase in proceeds from real estate sales[243] - Decrease in cash flows used in financing activities was primarily due to a $69.6 million increase in proceeds from common stock sales and an $8.8 million decrease in common stock repurchases, offset by a $17.0 million increase in dividend/distribution payments and a $12.0 million net increase in credit facility payments[244] Material Cash Requirements Total material cash requirements of $1.54 billion, with short-term needs met by operating cash and credit facility, long-term by various financing Material Cash Requirements (as of December 31, 2021, in thousands) | Obligation | Short-Term | Long-Term | Total | | :-------------------------- | :--------- | :---------- | :---------- | | Mortgage Notes Payable Principal | $24,133 | $60,731 | $84,864 | | Mortgage Notes Payable Interest | $3,170 | $5,100 | $8,270 | | Term loan | $0 | $300,000 | $300,000 | | Senior Notes Due 2027 | $10,475 | $302,375 | $312,850 | | Senior Notes Due 2026 | $7,900 | $231,600 | $239,500 | | Senior Notes Due 2024 | $10,000 | $270,000 | $280,000 | | Senior Notes Due 2023 | $12,500 | $262,500 | $275,000 | | Operating lease obligations | $1,320 | $35,704 | $37,024 | | Total | $69,498 | $1,468,010 | $1,537,508 | - Short-term liquidity requirements will be met through operating cash flows and borrowings under the credit facility[247] - Long-term liquidity requirements are financed through operating cash flows, credit facility/term loan borrowings, debt refinancings, new debt, equity offerings, and asset dispositions[248] - The Company committed approximately $22.3 million in tenant improvements and $1.5 million in leasing commissions for new leases and renewals in 2021[249] Real Estate Taxes Leases generally require tenants to pay a pro-rata portion of real estate taxes - The Company's leases generally require tenants to pay a pro-rata portion of real estate taxes[250] Inflation Leases include provisions like scheduled rent increases, percentage rents, and tenant-covered operating expenses to mitigate inflation - Long-term leases contain provisions to mitigate inflation, including scheduled base rent increases and percentage rents based on tenants' gross sales[251] - Many non-anchor leases have terms under ten years, allowing for rent increases at current market rates upon renewal[251] - Most leases require tenants to pay a share of operating expenses (CAM, real estate taxes, insurance, utilities), reducing the Company's exposure to cost increases from inflation[253] Leverage Policies Company uses prudent unsecured debt for acquisitions, including term loan, credit facility, and senior notes, with future financing from diverse sources - The Company employs prudent leverage, primarily using unsecured debt to fund acquisitions and diversify its portfolio, aiming for liquidity and flexibility[254] - Debt facilities include a $300.0 million unsecured term loan (maturity January 2025) and a $600.0 million unsecured revolving credit facility (maturity February 2024, with a $1.2 billion accordion feature)[255] - The Operating Partnership has issued $950.0 million in unsecured senior notes, fully guaranteed by ROIC[256] - Future acquisitions will be financed through a combination of operating cash flow, credit facility borrowings, existing mortgage debt assumption, equity/debt offerings, asset sales, and joint ventures[259] Distributions ROIC and Operating Partnership intend regular quarterly distributions, with ROIC required to distribute 90% of REIT taxable income - The Operating Partnership and ROIC intend to make regular quarterly distributions to holders of their OP Units and common stock, respectively[260] - U.S. federal income tax law generally requires a REIT to distribute annually at least 90% of its REIT taxable income to avoid federal income tax[260] - If cash available for distribution is less than net taxable income, ROIC may need to sell assets, borrow funds, or make taxable stock/debt distributions to satisfy REIT distribution requirements[260] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate exposure on variable debt, managed with fixed-rate debt and interest rate swaps as cash flow hedges - The Company's primary market risk exposure is to changes in interest rates related to its debt[261] - As of December 31, 2021, the Company had $300.0 million of variable rate debt outstanding[262] - The Company primarily uses fixed-rate debt and interest rate swaps to manage its interest rate risk, with swaps designated as cash flow hedges[262][264] Sensitivity Analysis of Interest Rate Derivatives (December 31, 2021, in thousands) | Swap Notional | Less 100 basis points | Less 50 basis points | Value | Increase 50 basis points | Increase 100 basis points | | :-------------- | :-------------------- | :------------------- | :---- | :----------------------- | :------------------------ | | $100,000 | $(1,557) | $(1,258) | $(961) | $(667) | $(373) | | $100,000 | $(1,557) | $(1,258) | $(961) | $(667) | $(373) | | $50,000 | $(1,062) | $(912) | $(763) | $(615) | $(468) | | $50,000 | $(1,063) | $(913) | $(764) | $(616) | $(469) | Item 8. Financial Statements and Supplementary Data Presents audited consolidated financial statements for ROIC and Operating Partnership, including auditor reports, notes, and supplementary schedules - The section includes audited consolidated financial statements for Retail Opportunity Investments Corp. and Retail Opportunity Investments Partnership, LP, covering balance sheets, statements of operations and comprehensive income, equity/partners' capital, and cash flows for 2021, 2020, and 2019[267][308][310][312][314][316][318][320][323] - Critical audit matters identified include the impairment of real estate investments and property asset acquisitions, both involving significant subjective judgment in valuation and allocation[274][275][277][280][281][297][298][300][303][304] - Notes to the consolidated financial statements provide detailed information on accounting policies, real estate investments, acquired lease intangibles, tenant leases, debt, equity, stock compensation, fair value measurements, derivative and hedging activities, commitments, and related party transactions[325] Reports of Independent Registered Public Accounting Firm (ROIC) Ernst & Young LLP issued unqualified opinions on ROIC's financial statements and internal controls, highlighting real estate impairment and acquisitions as critical audit matters - Ernst & Young LLP issued an unqualified opinion on ROIC's consolidated financial statements for the periods ended December 31, 2021 and 2020, in conformity with U.S. GAAP[270] - An unqualified opinion was also issued on the effectiveness of ROIC's internal control over financial reporting as of December 31, 2021[271] - Critical audit matters included the impairment of real estate investments and property asset acquisitions, both involving challenging, subjective, or complex judgments in valuation and allocation[274][275][280] Reports of Independent Registered Public Accounting Firm (Operating Partnership) Ernst & Young LLP issued an unqualified opinion on the Operating Partnership's financial statements, with similar critical audit matters as ROIC - Ernst & Young LLP issued an unqualified opinion on the Operating Partnership's consolidated financial statements for the periods ended December 31, 2021 and 2020, in conformity with U.S. GAAP[293] - The audit did not include an opinion on the effectiveness of the Operating Partnership's internal control over financial reporting[295] - Critical audit matters included the impairment of real estate investments and property asset acquisitions, requiring significant subjective judgment in evaluating management's assessments and fair value allocations[297][298][303] Consolidated Financial Statements of Retail Opportunity Investments Corp. Presents ROIC's consolidated balance sheets, statements of operations, equity, and cash flows, with key financial highlights for 2021 Consolidated Balance Sheet Highlights (as of December 31, in thousands) | Metric | 2021 | 2020 | | :------------------------------------ | :--------- | :--------- | | Total assets | $2,928,844 | $2,864,610 | | Total liabilities | $1,562,491 | $1,573,451 | | Total ROIC stockholders' equity | $1,276,894 | $1,199,553 | | Non-controlling interests | $89,459 | $91,606 | Consolidated Statements of Operations Highlights (Year Ended December 31, in thousands, except per share data) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :--------- | :--------- | :--------- | | Total revenues | $284,100 | $284,114 | $295,040 | | Operating income | $114,895 | $94,447 | $115,370 | | Net Income Attributable to ROIC | $53,508 | $32,014 | $48,844 | | Earnings per share – basic and diluted | $0.44 | $0.27 | $0.42 | | Dividends per common share | $0.5100 | $0.2000 | $0.7880 | Consolidated Statements of Cash Flows Highlights (Year Ended December 31, in thousands) | Cash Flow Category | 2021 | 2020 | 2019 | | :-------------------------- | :--------- | :--------- | :--------- | | Net Cash Provided by Operating activities | $136,332 | $106,660 | $132,039 | | Net Cash Used in Investing activities | $(103,645) | $(28,474) | $12,402 | | Net Cash Used in Financing activities | $(23,960) | $(77,008) | $(146,432) | Consolidated Financial Statements of Retail Opportunity Investments Partnership, LP Presents the Operating Partnership's consolidated balance sheets, statements of operations, partners' capital, and cash flows, with key financial highlights for 2021 Consolidated Balance Sheet Highlights (as of December 31, in thousands) | Metric | 2021 | 2020 | | :-------------------------- | :--------- | :--------- | | Total assets | $2,928,844 | $2,864,610 | | Total liabilities | $1,562,491 | $1,573,451 | | Total capital | $1,366,353 | $1,291,159 | | ROIC capital | $1,280,048 | $1,208,365 | | Limited partners' capital | $89,680 | $92,279 | Consolidated Statements of Operations Highlights (Year Ended December 31, in thousands, except per unit data) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :--------- | :--------- | :--------- | | Total revenues | $284,100 | $284,114 | $295,040 | | Operating income | $114,895 | $94,447 | $115,370 | | Net Income Attributable to Operating Partnership | $57,360 | $34,721 | $53,683 | | Earnings per unit - basic and diluted | $0.44 | $0.27 | $0.42 | | Distributions per unit | $0.5100 | $0.2000 | $0.7880 | Consolidated Statements of Cash Flows Highlights (Year Ended December 31, in thousands) | Cash Flow Category | 2021 | 2020 | 2019 | | :-------------------------- | :--------- | :--------- | :--------- | | Net Cash Provided by Operating activities | $136,332 | $106,660 | $132,039 | | Net Cash Used in Investing activities | $(103,645) | $(28,474) | $12,402 | | Net Cash Used in Financing activities | $(23,960) | $(77,008) | $(146,432) | Notes to Consolidated Financial Statements Provides comprehensive details on organization, accounting policies, financial instruments, and commitments, including COVID-19 impact and REIT structure - The Company operates as an UpREIT, with ROIC as the general partner of the Operating Partnership, which holds substantially all assets and conducts business operations[327][328] - The COVID-19 pandemic led to lease concessions deferring approximately $11.1 million in contractual amounts, with $4.8 million collected from rebilled amounts as of December 31, 2021[329][359] - The Company acquired five properties in 2021 for approximately $125.5 million and disposed of three properties for total net proceeds of approximately $68.0 million, recording a gain on sale of $22.3 million[380][381][382][383][384][385][386][387] - As of December 31, 2021, the Company had $300.0 million in variable rate debt and used interest rate swaps to manage interest rate risk, with a fair value of derivative financial instruments of $(3.4) million[400][439] - The Company is subject to tax protection agreements with certain limited partners, requiring indemnification against tax liabilities for periods up to 12 years, which limits flexibility in asset disposal[444] 1. Organization, Basis of Presentation and Summary of Significant Accounting Policies Details the UpREIT structure, COVID-19 rent concession accounting, and key policies for revenue, doubtful accounts, and real estate investments - ROIC is a fully integrated, self-managed REIT specializing in necessity-based community and neighborhood shopping centers on the west coast, operating through its UpREIT structure with the Operating Partnership[326][327][328] - The COVID-19 pandemic significantly impacted tenant operations and rent collections; the Company elected not to account for COVID-19 related rent concessions as lease modifications[329][359] - The Company records base rents on a straight-line basis, provides an allowance for doubtful accounts based on tenant creditworthiness and economic trends, and allocates acquisition costs of real estate to tangible and intangible assets/liabilities at fair value[206][207][210][346][347][358] - The Company has elected and qualified to be taxed as a REIT, requiring annual distribution of at least 90% of its REIT taxable income to avoid federal income tax[337][340] - Stock-based compensation (restricted stock, LTIP Units) is expensed based on fair value over the service period, with performance-based awards subject to market-indexed criteria expensed under the accelerated attribution method[369][371][372] 2. Real Estate Investments Details 2021 acquisitions of five properties for $125.5 million and dispositions of three properties for $68.0 million net proceeds Property Asset Acquisitions in 2021 | Property Name | Location | Purchase Price (approx.) | Anchor Tenants | | :---------------------- | :-------------------------------- | :----------------------- | :------------------------------------ | | Canyon Creek Plaza | San Jose, CA | $28.1 million | New Seasons Market | | Palomar Village | Temecula, CA (San Diego metro) | $32.6 million | Albertsons Supermarket, CVS Pharmacy | | South Point Plaza | Everett, WA (Seattle metro) | $37.6 million | Grocery Outlet, Rite Aid, Hobby Lobby, Pep Boys | | Olympia West Center | Olympia, WA (Seattle metro) | $24.9 million | Trader Joe's, Petco | | Single tenant parcel | Pinole, CA (San Francisco metro) | $2.3 million | N/A | Operating Results of Acquired Properties (Year Ended December 31, 2021, in thousands) | Metric | Value | | :------------------------------------ | :------ | | Revenues | $2,211 | | Net income attributable to ROIC | $587 | Property Dispositions in 2021 | Property Name | Location | Sales Price (approx.) | Net Proceeds (approx.) | Gain on Sale (approx.) | | :---------------------- | :-------------------- | :-------------------- | :--------------------- | :--------------------- | | Euclid Shopping Center | San Diego, CA | $25.8 million | $25.3 million | $9.5 million | | Green Valley Station | Sacramento, CA | $15.1 million | $14.4 million | $5.5 million | | Mills Shopping Center | Sacramento, CA | $28.8 million | $28.4 million | $7.4 million | 3. Acquired Lease Intangibles Net acquired lease intangible assets were $50.1 million and liabilities $136.6 million, with scheduled amortization through 2026 and beyond Acquired Lease Intangibles (as of December 31, in thousands) | Category | 2021 | 2020 | | :-------------------------------- | :--------- | :--------- | | Acquired lease intangible assets, net | $50,139 | $50,110 | | Acquired lease intangible liabilities, net | $136,608 | $125,796 | Amortization of Acquired Lease Intangibles (Year Ended December 31, in thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :----- | :----- | :----- | | Net amortization of above/below market leases | $8,800 | $17,700 | $15,600 | | Amortization of in-place leases | $4,800 | $7,700 | $8,100 | Scheduled Future Amortization of Acquired Lease Intangible Assets (as of December 31, 2021, in thousands) | Year Ending December 31 | Amount | | :---------------------- | :----- | | 2022 | $6,370 | | 2023 | $5,690 | | 2024 | $5,019 | | 2025 | $4,384 | | 2026 | $3,502 | | Thereafter | $25,174 | | Total | $50,139 | Scheduled Future Amortization of Acquired Lease Intangible Liabilities (as of December 31, 2021, in thousands) | Year Ending December 31 | Amount | | :---------------------- | :----- | | 2022 | $10,624 | | 2023 | $9,767 | | 2024 | $9,557 | | 2025 | $9,199 | | 2026 | $8,887 | | Thereafter | $88,574 | | Total | $136,608 | 4. Tenant Leases Tenant leases are operating leases with renewal options and additional rents, totaling $1.08 billion in future minimum rents - Tenant leases are operating leases, typically granting renewal options and providing for additional rents based on operating expenses and tenant sales volume[393] Future Minimum Rents Under Non-Cancellable Leases (as of December 31, 2021, in thousands) | Year Ending December 31 | Amount | | :---------------------- | :--------- | | 2022 | $204,564 | | 2023 | $180,874 | | 2024 | $149,456 | | 2025 | $121,954 | | 2026 | $94,297 | | Thereafter | $332,281 | | Total minimum lease payments | $1,083,426 | 5. Mortgage Notes Payable, Credit Facilities and Senior Notes Details Operating Partnership's debt: $85.4M mortgage notes, $300M term loan, $600M credit facility, and $950M senior notes - All debt is held directly or indirectly by the Operating Partnership, with ROIC guaranteeing its term loan, unsecured revolving credit facility, and Senior Notes[395] Mortgage Notes Payable (as of December 31, in thousands) | Property | Maturity Date | Interest Rate | 2021 | 2020 | | :-------------------------- | :------------ | :------------ | :--------- | :--------- | | Casitas Plaza Shopping Center | June 2022 | 5.320 % | $6,660 | $6,835 | | Riverstone Marketplace | July 2022 | 4.960 % | $16,811 | $17,245 | | Fullerton Crossroads | April 2024 | 4.728 % | $26,000 | $26,000 | | Diamond Hills Plaza | October 2025 | 3.550 % | $35,393 | $35,500 | | Total mortgage notes payable | | | $84,864 | $85,580 | Term Loan and Credit Facility (as of December 31, in thousands) | Facility | 2021 Outstanding | 2020 Outstanding | Maturity Date | | :-------------------------------- | :--------------- | :--------------- | :-------------- | | Term loan | $300,000 | $300,000 | January 20, 2025 | | Credit facility | $0 | $48,000 | February 20, 2024 | Senior Notes Summary (as of December 31, 2021, in thousands) | Senior Notes | Principal Amount | Maturity Date | Interest Rate | | :------------------ | :--------------- | :------------ | :------------ | | Senior Notes Due 2027 | $250,000 | December 15, 2027 | 4.19 % | | Senior Notes Due 2026 | $200,000 | September 22, 2026 | 3.95 % | | Senior Notes Due 2024 | $250,000 | December 15, 2024 | 4.00 % | | Senior Notes Due 2023 | $250,000 | December 15, 2023 | 5.00 % | | Total | $950,000 | | | Scheduled Amortization of Deferred Financing Costs (as of December 31, 2021, in thousands) | Year | Financing Costs | | :--- | :-------------- | | 2022 | $2,022 | | 2023 | $2,008 | | 2024 | $983 | | 2025 | $300 | | 2026 | $234 | | Thereafter | $170 | | Total | $5,717 | 6. Preferred Stock of ROIC ROIC is authorized to issue 50 million preferred shares, with none issued or outstanding as of December 31, 2021 - ROIC is authorized to issue 50,000,000 shares of preferred stock[408] - As of December 31, 2021 and 2020, no shares of preferred stock were issued and outstanding[408] 7. Common Stock of ROIC ROIC sold 3.79 million shares for $69.6 million gross proceeds under its ATM program in 2021, with no share repurchases - ROIC has an 'at the market' (ATM) sales agreement to sell up to $500.0 million of common stock[409] - During the year ended December 31, 2021, ROIC sold 3,788,035 shares under the ATM agreement, resulting in gross proceeds of approximately $69.6 million[412] - The Company did not repurchase any shares of common stock under its $50.0 million stock repurchase program during the year ended December 31, 2021[413] 8. Stock Compensation and Other Benefit Plans for ROIC Details equity incentive plan awards, including restricted stock and LTIP Units, with $11.0 million in stock-based compensation expense in 2021 - ROIC's Equity Incentive Plan allows for various equity-based awards, including stock options, restricted shares, and LTIP Units[415][416] Non-Vested Restricted Stock Awards (as of December 31, 2021) | Metric | Shares | Weighted Average Grant Date Fair Value | | :-------------------------- | :------- | :------------------------------------- | | Non-vested as of Dec 31, 2020 | 1,048,770 | $16.39 | | Granted in 2021 | 638,728 | $16.38 | | Vested in 2021 | (407,912) | $17.68 | | Forfeited in 2021 | (126,115) | $8.68 | | Non-vested as of Dec 31, 2021 | 1,153,471 | $16.77 | - As of December 31, 2021, there was approximately $10.9 million of unrecognized restricted stock compensation expense, expected to be expensed over a remaining weighted average period of 1.7 years[418] Stock-Based Compensation Expense (in thousands) | Year | Amount | | :--- | :------- | | 2021 | $11,030 | | 2020 | $8,914 | | 2019 | $8,567 | 9. Capital of the Operating Partnership Operating Partnership had 131.2 million OP Units outstanding, with ROIC owning 93.5%, and units redeemable for cash or ROIC common stock Operating Partnership Units (as of December 31, 2021) | Category | Units Outstanding | | :-------------------------- | :---------------- | | Total OP Units | 131,227,363 | | ROIC ownership | 122,685,266 (93.5%) | | Other limited partners | 8,542,097 | - OP Units have essentially the same economic characteristics as ROIC's common stock and are redeemable for cash or unregistered ROIC common stock at ROIC's option[422][423] - In 2021, 423,986 OP Units were redeemed for an equal number of ROIC common shares[424] - The redemption value of limited partners' OP Units was approximately $162.0 million as of December 31, 2021[425] 10. Fair Value of Financial Instruments Financial instruments measured at fair value using a hierarchy, with debt instruments valued across Level 2 and Level 3 - Fair value measurements are based on a hierarchy (Levels 1, 2, 3) distinguishing between observable and unobservable market participant assumptions[428][429] - The carrying values of cash, cash equivalents, restricted cash, and various receivables/payables are reasonable estimates of their fair values due to their short-term nature[431] Fair Value of Debt Instruments (as of December 31, 2021, in thousands) | Debt Instrument | Fair Value (approx.) | Fair Value Hierarchy Level | | :-------------------------- | :------------------- | :------------------------- | | Senior Notes Due 2027 | $251,800 | Level 3 | | Senior Notes Due 2026 | $199,200 | Level 3 | | Senior Notes Due 2024 | $261,300 | Level 2 | | Senior Notes Due 2023 | $265,200 | Level 2 | | Mortgage notes payable | $85,600 | Level 3 | 11. Derivative and Hedging Activities Company uses $300 million in interest rate swaps as cash flow hedges, maturing August 2022, with a $216,000 gain in OCI for 2021 - The Company uses interest rate swaps as cash flow hedges to manage interest rate risk and stabilize interest expense[432][433] Current Interest Rate Swaps (as of December 31, 2021, in thousands) | Swap Counterparty | Notional Amount | Effective Date | Maturity Date | | :---------------- | :-------------- | :------------- | :------------ | | Bank of Montreal | $100,000 | 12/29/2017 | 8/31/2022 | | U.S. Bank | $100,000 | 12/29/2017 | 8/31/2022 | | Regions Bank | $50,000 | 1/31/2019 | 8/31/2022 | | Royal Bank of Canada | $50,000 | 1/31/2019 | 8/31/2022 | Derivative Financial Instruments Fair Value (as of December 31, in thousands) | Balance Sheet Location | 2021 Fair Value | 2020 Fair Value | | :--------------------- | :-------------- | :-------------- | | Other liabilities | $(3,447) | $(9,511) | Gain/Loss on Derivatives in Cash Flow Hedging Relationships (Year Ended December 31, in thousands) | Metric | 2021 | 2020 | 2019 | | :---------------------------------------------------- | :----- | :------- | :------- | | Amount of gain (loss) recognized in OCI | $216 | $(9,925) | $(7,348) | | Amount of loss (gain) reclassified from AOCI into interest | $5,894 | $4,572 | $(345) | 12. Commitments and Contingencies Routine legal actions are not material, and the Company has ground lease liabilities and tax protection agreements - The Company is involved in routine legal actions, but management does not expect them to have a material adverse effect on its financial position, results of operations, or liquidity[441] Operating Lease Liabilities (as of December 31, 2021, in thousands) | Metric | Amount | | :------------------------------------ | :--------- | | Lease liability, net | $17,165 | | Right-to-use asset, net | $15,700 | | Weighted average remaining lease term | 36.4 years | | Weighted average discount rate | 5.2% | | Rent expense (2021) | $1,600 | - The Company entered into Tax Protection Agreements (2013-2017) requiring indemnification of certain limited partners against tax liabilities for 10-12 years, which could result in significant damage payments if triggered[444] 13. Related Party Transactions Company has lease agreements with an officer for storage space, incurring $85,000 in expenses in 2021 - The C