Retail Opportunity Investments (US:ROIC)2019-10-29 17:30Financial Data and Key Metrics Changes - For Q3 2019, the company reported total revenues of $72.4 million and operating income of $35 million, with year-to-date revenues of $221.4 million and operating income of $89.2 million [17] - GAAP net income for Q3 2019 was $17.9 million, or $0.16 per diluted share, while year-to-date GAAP net income was $38.7 million, or $0.34 per diluted share [18] - Funds from operations (FFO) for Q3 2019 totaled $33.4 million, equating to $0.27 per diluted share, bringing the year-to-date FFO to $0.82 per share [18][22] - The net debt to EBITDA ratio was reduced to 7.0, with a total market cap of approximately $3.7 billion and $1.4 billion of debt outstanding, resulting in a debt to total market cap ratio of 38% [20] Business Line Data and Key Metrics Changes - The company maintained a portfolio lease rate of over 97%, finishing Q3 at 97.7%, with anchored space at 100% leased and shop space at 95% leased [24] - During Q3, the company executed 96 leases, with 91 for in-line space, leasing a total of 376,000 square feet, achieving a 35.7% cash increase on same-space new leases and an 8.7% increase on renewals [29] - Year-to-date, the company has leased 1 million square feet, achieving a blended 32% increase in same-space new leases and an 11% blended increase in renewal activity [29] Market Data and Key Metrics Changes - Demand for retail space continues to outpace supply, particularly in highly sought-after locations, driven by traditional retailers expanding their presence and e-commerce retailers introducing physical stores [26] - The company is experiencing strong demand for in-line space, with emerging factors contributing to this trend [25] Company Strategy and Development Direction - The company is focused on disposing of non-core properties, particularly in the Sacramento market, with a year-to-date total of $60.5 million in property sales [9] - Densification initiatives are underway, with plans to develop apartments and retail space at various shopping centers, including a project in Bellevue and others in the San Francisco Bay area [10][12][14] - The company is pursuing three off-market acquisition opportunities totaling around $85 million, with a focus on grocery-anchored shopping centers [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong performance of the portfolio, anticipating one of the best years on record for leasing activity [7] - The company is optimistic about the future, with a disciplined strategy and strong market knowledge expected to drive continued growth [34] - Management noted that while asset sales have been slower than anticipated, they remain focused on maintaining a strong balance sheet and preparing for growth in 2020 [39][87] Other Important Information - The company has no debt maturing for the next two years, with 94% of its debt being fixed rate [21] - The company is adjusting its FFO guidance range for the full year 2019 to $1.10 to $1.12 per share, reflecting changes in asset sales and equity issuance [22] Q&A Session Summary Question: Can you elaborate on the changes in guidance? - The change in guidance is driven by slower asset sales and earlier-than-expected equity issuance [39] Question: How are you thinking about funding the $85 million in off-market opportunities? - Funding will be a combination of proceeds from asset sales and equity issuance, with a focus on keeping leverage in check [51] Question: What is the expectation for occupancy rates? - Occupancy rates are expected to remain consistent, with some variability due to timing and proactive releasing initiatives [53][55] Question: What is the outlook for densification projects? - Densification projects are expected to start in 2021 and 2022, with some projects potentially beginning in 2020 [88] Question: What is the current cap rate environment? - Cap rates for grocery-anchored shopping centers are compressing due to limited supply and strong demand [75] Question: How many densification projects could be developed at one time? - The company could potentially have two or three densification projects underway simultaneously, typically in partnership with other firms [120]