Retail Opportunity Investments (ROIC) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the year ended December 31, 2019, GAAP operating income increased to $115 million compared to $109 million in 2018 [14] - GAAP net income attributable to common shareholders for 2019 was $48.8 million or $0.42 per diluted share, up from $42.7 million or $0.38 per diluted share in 2018 [15] - Funds from operations (FFO) for 2019 was $138 million or $1.10 per diluted share, down from $142 million or $1.14 per diluted share in 2018 [16] Business Line Data and Key Metrics Changes - The company maintained a portfolio lease rate above 97% for the sixth consecutive year, achieving a year-end lease rate of 97.9% [8] - New leases signed in 2019 saw a 32.8% increase in rent, the second highest on record [8] - Renewal rent growth averaged 9.7% in 2019, consistent with the 9% to 10% range since 2015 [9] Market Data and Key Metrics Changes - The company reported a solid 3.6% increase in same-center net operating income (NOI) for 2019 [9] - The economic spread between build and lease space increased to 3.4%, representing $6.5 million in additional incremental annual base rent [27] Company Strategy and Development Direction - The company aims to enhance long-term competitive strength by disposing of non-core properties, surpassing its goal by selling $74 million in 2019 [10] - The densification program includes projects that will add multifamily units and retail space, with significant demand driven by local workforce increases [12][13] - The company plans to continue reducing debt and enhancing its financial position through equity issuance and property sales [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of the portfolio and tenant base, highlighting strong demand across the West Coast [36] - The company anticipates a transitional year in 2020 for FFO, with guidance suggesting a slowdown in leasing activity but continued efforts to recapture space [34][35] Other Important Information - The company has no meaningful debt maturing for approximately the next four years, with a well-laddered debt maturity schedule [20] - FFO guidance for 2020 is expected to be between $1.09 and $1.13 per diluted share, with same-center NOI growth projected at 2% to 3% [21] Q&A Session Summary Question: Follow-up on guidance regarding same store growth and FFO - Management explained that the guidance reflects a drop in FFO due to G&A costs and a reduction in non-cash revenue, alongside dilution from equity issuance [38][40] Question: Impact of de-leveraging on densification - Management acknowledged the need to reduce net debt to EBITDA and indicated that financing for densification projects would not be needed until late 2020 or early 2021 [47][48] Question: Update on tenant watch list and leasing strength - Management reported low exposure to troubled retailers and noted strong demand in the Pacific Northwest, particularly in Portland and Seattle [51][52] Question: Attributes of the acquisition in Southern California - The acquisition is anchored by strong grocery tenants, with expectations for significant growth as leases roll over [54][55] Question: Exposure to potential repeal of Prop 13 - Management indicated that most properties are assessed at current values and could benefit from a level playing field if the proposition passes [67][68] Question: Modeling for Pier 1 locations - Management is proactively marketing spaces and expects potential upside in rents despite some uncertainty [70] Question: Desired leverage metrics - Management aims to achieve a net debt to EBITDA ratio in the six range and is focused on reducing overall leverage [72]