Retail Opportunity Investments (ROIC) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q2 2024, the company reported total revenues of $83 million and operating income of $28 million, while for the first six months, total revenues were $169 million and operating income was $58 million [2] - GAAP net income attributable to common shareholders for Q2 2024 was $7.4 million, or $0.06 per diluted share, and for the first six months, it was $18.4 million, or $0.14 per diluted share [4] - Funds from operations (FFO) for Q2 2024 totaled $34.1 million, equating to $0.25 per diluted share, and for the first six months, FFO totaled $72.1 million, or $0.54 per diluted share [5] - Same center cash basis net operating income (NOI) increased by 1.7% in Q2 and 3.7% for the first half of the year, exceeding the full-year guidance range of 1% to 2% [3] Business Line Data and Key Metrics Changes - The company leased 393,000 square feet in Q2, marking the second most active second quarter on record, with 40 new leases totaling 117,000 square feet and a 12% increase in same space base rent [12] - The portfolio lease rate increased to 97% as of June 30, with shop space at 96% leased and anchor space at 98% leased [13] - New leases signed during Q2 added over $2.5 million of incremental annual base rent, bringing the total incremental rent from new leases to approximately $7.3 million as of June 30 [14] Market Data and Key Metrics Changes - Demand for space across the portfolio remains strong, particularly from destination tenants in sectors such as fitness, wellness, and restaurants [8][9] - The company is focusing on expanding in select markets on the West Coast, where it has a strong presence [10] Company Strategy and Development Direction - The company plans to enhance the value and cash flow of its properties by improving tenant mix and releasing below-market spaces [20] - The acquisition market is currently muted due to interest rate uncertainties, but the company anticipates a potential pickup in acquisition activity in 2025 if interest rates decline [26][41] - The company is focusing on growth opportunities within its core portfolio, particularly with upcoming anchor lease maturities that are significantly below market [35] Management's Comments on Operating Environment and Future Outlook - Management noted that the tenant base continues to perform well, with receivables consistent with historical averages, and minimal exposure to tenants in distress [30] - The company expects same-store NOI growth to be stronger in 2025 compared to 2024, driven by the leasing of spaces that have recently become available [50] - Management expressed optimism about the long-term strength of the grocery-anchored, necessity-based portfolio in affluent markets [35][98] Other Important Information - The company retired a $26 million mortgage during Q2, leaving only one remaining mortgage of $34 million, with 94 of 95 shopping centers unencumbered [6] - The company aims to refinance $250 million of senior notes maturing in December through a long-term public bond offering [7] Q&A Session Summary Question: What is the outlook for net investment activity given the uncertainty around interest rates? - Management indicated that timing is a factor, with sellers reluctant to transact due to the current interest rate environment, but they hope for increased acquisition activity in 2025 if rates decline [26] Question: How does the lower level of net investment activity impact guidance? - The company adjusted its guidance downward, noting that for every $100 million of net investment activity, it adds about a penny of FFO, and with no acquisition activity assumed for the remainder of the year, the high end of guidance was pulled down [28] Question: What is the health of the tenant base today compared to three months ago? - The tenant base continues to perform well, with consistent receivables and minimal impact from tenants in distress [30] Question: Any updates on the Kohl's backfill at Fallbrook? - The company signed leases totaling about 45,000 square feet, with ongoing discussions for the largest space of 115,000 square feet [31] Question: What is the status of the anchor leasing opportunities? - Management noted that many maturing anchor tenants do not have renewal options, presenting significant mark-to-market opportunities [35] Question: How does the company view the impact of recent store closures in the industry? - Management stated that they have very little exposure to affected tenants and are actively working on backfilling spaces [61][68]