Retail Opportunity Investments (US:ROIC) Seeking Alphaยท2024-06-19 13:08Company Overview - Retail Opportunity Investments (ROIC) operates grocery-anchored open-air shopping centers primarily on the West Coast, with a portfolio of 93 shopping centers across California (59%), Oregon (18%), and Washington (23%) [11] - The company has underperformed the Vanguard Real Estate Index Fund ETF (VNQ) in 2024, with a low-double-digit decline compared to a 5% drop for the benchmark ETF, creating a potential buying opportunity [10] Operational Overview - The company reported a Funds From Operations (FFO) of $0.28 per share in Q1 2024, reflecting a 12% year-over-year increase, driven by higher revenues from an acquisition in Q4 2023 and strong growth in new leases (+12.2%) and renewals (+6.7%) [5] - The portfolio was 96.4% leased in Q1 2024, down 1.9% year-over-year, but the company expects to re-let vacated spaces soon at higher rents, with four national tenants lined up [13] Financial Overview - Retail Opportunity Investments ended Q1 2024 with a net debt of approximately $1.38 billion, representing 45% of enterprise value, with an average cost of debt at 5.08% [7] - The company anticipates generating about $210 million in net operating income (NOI) in 2024, which corresponds to a market cap rate of approximately 6.9% against an enterprise value of $3 billion [18] Market Outlook - The company reaffirmed its 2024 FFO outlook of $1.03-$1.09 per share, indicating confidence in the temporary nature of elevated vacancy rates and potential for further acquisitions [6] - The defensive nature of the retail portfolio, particularly grocery-anchored centers, is expected to benefit as the Federal Reserve may start cutting rates, enhancing demand for such assets [10][20]