When used in this discussion and elsewhere in this Quarterly Report on Form 10-Q, the words "believes," "anticipates," "projects," "may," "will", "should," "estimates," "expects," and similar expressions are intended to identify forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and in Section 21F of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results or outcomes to differ materially from those contained in the forward-looking statements. Additional factors that could cause actual outcomes or results to differ materially from those indicated in these statements include: - 23 - --------------------------------------------------------------------------------
Actual results may differ materially due to uncertainties including:
•the Company's ability to identify and acquire retail real estate that meet its investment standards in its markets; •the level of rental revenue the Company achieves from its assets; •the market value of the Company's assets and the supply of, and demand for, the retail real estate in which it invests; •the state of theU.S. economy generally, or in specific geographic regions; •the impact of economic conditions on the Company's business; •the conditions in the local markets in which the Company operates and its concentration in those markets, as well as changes in national economic and market conditions; •consumer spending and confidence trends; •the Company's ability to enter into new leases or to renew leases with existing tenants at the properties it owns or acquires at favorable rates; •the Company's ability to anticipate changes in consumer buying practices and the space needs of tenants; •the competitive landscape impacting the properties the Company owns or acquires and their tenants; •the Company's relationships with its tenants and their financial condition and liquidity; •ROIC's ability to continue to qualify as a real estate investment trust forU.S. federal income tax (a "REIT"); •the Company's use of debt as part of its financing strategy and its ability to make payments or to comply with any covenants under its senior unsecured notes, its unsecured credit facilities or other debt facilities it currently has or subsequently obtains; •the Company's level of operating expenses, including amounts it is required to pay to its management team; •changes in interest rates or the Company's credit ratings that could impact the market price of ROIC's common stock and the cost of the Company's borrowings; •legislative and regulatory changes (including changes to laws governing the taxation of REITs). Forward-looking statements are based on estimates as of the date of this report. We disclaim any obligation to publicly release the results of any revisions to these forward-looking statements reflecting new estimates, events or circumstances after the date of this report. We caution that the foregoing list of factors is not all-inclusive. All subsequent written and oral forward-looking statements concerning us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements above. We caution not to place undue reliance upon any forward-looking statements, which speak only as of the date made. We do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. - 24 - --------------------------------------------------------------------------------
Overview
Retail Opportunity Investments Corp. ("ROIC") is organized in an UpREIT format pursuant to whichRetail Opportunity Investments GP, LLC , its wholly-owned subsidiary, serves as the general partner of, and ROIC conducts substantially all of its business through, its operating partnership,Retail Opportunity Investments Partnership, LP , aDelaware limited partnership (the "Operating Partnership"), together with its subsidiaries. ROIC reincorporated as aMaryland corporation onJune 2, 2011 . ROIC has elected to be taxed as a REIT, forU.S. federal income tax purposes, commencing with the year endedDecember 31, 2010 . ROIC commenced operations inOctober 2009 as a fully integrated and self-managed REIT, and as ofMarch 31, 2023 , ROIC owned an approximate 93.6% partnership interest and other limited partners owned the remaining approximate 6.4% partnership interest in theOperating Partnership . ROIC specializes in the acquisition, ownership and management of necessity-based community and neighborhood shopping centers on the west coast ofthe United States , anchored by supermarkets and drugstores. As ofMarch 31, 2023 , the Company's portfolio consisted of 94 properties (93 retail and one office) totaling approximately 10.6 million square feet of gross leasable area ("GLA"). As ofMarch 31, 2023 , the Company's retail portfolio was approximately 98.3% leased. During the three months endedMarch 31, 2023 , the Company leased or renewed a total of approximately 559,000 square feet in its portfolio. The Company has committed approximately$1.8 million , or$38.59 per square foot, in tenant improvements, including building and site improvements, for new leases that occurred during the three months endedMarch 31, 2023 . The Company has committed approximately$156,000 , or$3.30 per square foot, in leasing commissions, for new leases that occurred during the three months endedMarch 31, 2023 . Tenant improvement and leasing commission commitments for renewed leases were not material for the three months endedMarch 31, 2023 .
Results of Operations
Property operating income is a non-GAAP financial measure of performance. The Company defines property operating income as operating revenues (rental revenue and other income), less property and related expenses (property operating expenses and property taxes). Property operating income excludes general and administrative expenses, depreciation and amortization, acquisition transaction costs, other expense, interest expense, gains and losses from property acquisitions and dispositions, equity in earnings from unconsolidated joint ventures, and extraordinary items. Other REITs may use different methodologies for calculating property operating income, and accordingly, the Company's property operating income may not be comparable to other REITs. Property operating income is used by management to evaluate and compare the operating performance of the Company's properties, to determine trends in earnings and to compute the fair value of the Company's properties as this measure is not affected by the cost of the Company's funding, the impact of depreciation and amortization expenses, gains or losses from the acquisition and sale of operating real estate assets, general and administrative expenses or other gains and losses that relate to the ownership of its properties. The Company believes the exclusion of these items from net income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating the Company's properties as well as trends in occupancy rates, rental rates and operating costs. Property operating income is a measure of the operating performance of the Company's properties but does not measure the Company's performance as a whole. Property operating income is therefore not a substitute for net income or operating income as computed in accordance with GAAP. - 25 - --------------------------------------------------------------------------------
Results of Operations for the three months ended
Property Operating Income
The table below provides a reconciliation of consolidated operating income, in accordance with GAAP, to consolidated property operating income for the three months endedMarch 31, 2023 and 2022 (in thousands):
Three Months Ended
2023 2022 Operating income per GAAP$ 25,654 $ 26,681 Plus: Depreciation and amortization 25,104 23,762 General and administrative expenses 5,320 5,240 Other expense 172 179 Property operating income$ 56,250 $ 55,862 The following comparison for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 , makes reference to the effect of the same-center properties. Same-center properties, which totaled 87 of the Company's 94 properties as ofMarch 31, 2023 , represent all operating properties owned by the Company during the entirety of both periods presented and consolidated into the Company's financial statements during such periods, except for the Company's corporate office headquarters and one property that is currently planned for redevelopment and is no longer being managed as a retail asset. The table below provides a reconciliation of consolidated operating income, in accordance with GAAP, to property operating income for the three months endedMarch 31, 2023 related to the 87 same-center properties owned by the Company during the entirety of both the three months endedMarch 31, 2023 and 2022 and consolidated into the Company's financial statements during such periods (in thousands):
Three Months Ended
Same-Center Non Same-Center Total Operating income (loss) per GAAP$ 29,844 $ (4,190)$ 25,654 Plus: Depreciation and amortization 23,528 1,576 25,104 General and administrative expenses (1) - 5,320 5,320 Other expense (1) - 172 172 Property operating income$ 53,372 $ 2,878$ 56,250
______________________
(1)For illustration purposes, general and administrative expenses and other expense are included in non same-center because the Company does not allocate these types of expenses between same-center and non same-center properties.
The table below provides a reconciliation of consolidated operating income, in accordance with GAAP, to property operating income for the three months endedMarch 31, 2022 related to the 87 same-center properties owned by the Company during the entirety of both the three months endedMarch 31, 2023 and 2022 and consolidated into the Company's financial statements during such periods (in thousands):
Three Months Ended
Same-Center Non Same-Center Total Operating income (loss) per GAAP$ 31,452 $ (4,771)$ 26,681 Plus: Depreciation and amortization 23,080 682 23,762 General and administrative expenses (1) - 5,240 5,240 Other expense (1) - 179 179 Property operating income$ 54,532 $ 1,330$ 55,862
______________________
(1)For illustration purposes, general and administrative expenses and other expense are included in non same-center because the Company does not allocate these types of expenses between same-center and non same-center properties.
- 26 - -------------------------------------------------------------------------------- During the three months endedMarch 31, 2023 , the Company generated property operating income of approximately$56.3 million compared to property operating income of approximately$55.9 million generated during the three months endedMarch 31, 2022 , an increase of approximately$388,000 . The property operating income for the 87 same-center properties decreased approximately$1.2 million primarily due to early lease termination income received during the three months endedMarch 31, 2022 for which there was none received during the three months endedMarch 31, 2023 , and an increase in property operating expenses. These amounts were slightly offset by an increase in base rents as a result of an increase in occupancy in the three months endedMarch 31, 2023 . The property operating income for the non same-center properties increased approximately$1.5 million primarily due to the net increase in the number of properties the Company owned as ofMarch 31, 2023 compared toMarch 31, 2022 .
Depreciation and amortization
The Company incurred depreciation and amortization expenses during the three months endedMarch 31, 2023 of approximately$25.1 million compared to approximately$23.8 million incurred during the three months endedMarch 31, 2022 .
General and administrative expenses
The Company incurred general and administrative expenses of approximately$5.3 million during the three months endedMarch 31, 2023 compared to approximately$5.2 million during the three months endedMarch 31, 2022 .
Interest expense and other finance expenses
The Company incurred interest expense during the three months endedMarch 31, 2023 of approximately$17.0 million compared to approximately$14.2 million during the three months endedMarch 31, 2022 . Interest expense increased approximately$2.7 million primarily due to the increase in interest rates during the three months endedMarch 31, 2023 . TheU.S. Federal Reserve raised the federal funds rate during the three months endedMarch 31, 2023 and market interest rates have increased significantly compared to the three months endedMarch 31, 2022 . It is expected that theU.S. Federal Reserve may continue to increase the federal funds rate during 2023. Should theU.S. Federal Reserve continue to raise rates in the future, this will likely result in further increases in market interest rates.
Funds From Operations
Funds from operations ("FFO"), is a widely-recognized non-GAAP financial measure for REITs that the Company believes when considered with financial statements presented in accordance with GAAP, provides additional and useful means to assess its financial performance. FFO is frequently used by securities analysts, investors and other interested parties to evaluate the performance of REITs, most of which present FFO along with net income as calculated in accordance with GAAP. The Company computes FFO in accordance with the "White Paper" on FFO published by theNational Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income attributable to common stockholders (determined in accordance with GAAP) excluding gains or losses from debt restructuring, sales of depreciable property, and impairments, plus real estate related depreciation and amortization, and after adjustments for partnerships and unconsolidated joint ventures.
However, FFO:
•does not represent cash flows from operating activities in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income); and
•should not be considered an alternative to net income as an indication of the Company's performance.
FFO as defined by the Company may not be comparable to similarly titled items reported by other REITs due to possible differences in the application of the NAREIT definition used by such REITs. - 27 - -------------------------------------------------------------------------------- The table below provides a reconciliation of net income applicable to stockholders in accordance with GAAP to FFO for the three months endedMarch 31, 2023 and 2022 (in thousands): Three Months Ended March 31, 2023 2022 Net income attributable to ROIC$ 8,142 $ 11,641 Plus: Depreciation and amortization 25,104 23,762 Funds from operations - basic 33,246 35,403 Net income attributable to non-controlling interests 554 825 Funds from operations - diluted
Cash Net Operating Income ("NOI")
Cash NOI is a non-GAAP financial measure of the Company's performance. The most directly comparable GAAP financial measure is operating income. The Company defines cash NOI as operating revenues (rental revenue and other income), less property and related expenses (property operating expenses and property taxes), adjusted for non-cash revenue and operating expense items such as straight-line rent and amortization of lease intangibles, debt-related expenses, and other adjustments. Cash NOI also excludes general and administrative expenses, depreciation and amortization, acquisition transaction costs, other expense, interest expense, gains and losses from property acquisitions and dispositions, equity in earnings from unconsolidated joint ventures, and extraordinary items. Other REITs may use different methodologies for calculating cash NOI, and accordingly, the Company's cash NOI may not be comparable to other REITs. Cash NOI is used by management internally to evaluate and compare the operating performance of the Company's properties. The Company believes cash NOI provides useful information to investors regarding the Company's financial condition and results of operations because it reflects only those cash income and expense items that are incurred at the property level, and when compared across periods, can be used to determine trends in earnings of the Company's properties as this measure is not affected by non-cash revenue and expense recognition items, the cost of the Company's funding, the impact of depreciation and amortization expenses, gains or losses from the acquisition and sale of operating real estate assets, general and administrative expenses or other gains and losses that relate to the Company's ownership of properties. The Company believes the exclusion of these items from operating income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating the Company's properties as well as trends in occupancy rates, rental rates and operating costs. Cash NOI is a measure of the operating performance of the Company's properties but does not measure the Company's performance as a whole and is therefore not a substitute for net income or operating income as computed in accordance with GAAP. - 28 - --------------------------------------------------------------------------------
Same-Center Cash NOI
The table below provides a reconciliation of same-center cash NOI to consolidated operating income in accordance with GAAP for the three months endedMarch 31, 2023 and 2022. The table makes reference to the effect of the same-center properties. Same-center properties, which totaled 87 of the Company's 94 properties for the three months endedMarch 31, 2023 , represent all operating properties owned by the Company during the entirety of both periods presented and consolidated into the Company's financial statements during such periods, except for the Company's corporate office headquarters and one property that is currently planned for redevelopment and is no longer being managed as a retail asset (in thousands): Three Months Ended March 31, 2023 2022 GAAP operating income$ 25,654 $ 26,681 Depreciation and amortization 25,104 23,762 General and administrative expenses 5,320 5,240 Other expense 172 179 Straight-line rent (347) (451) Amortization of above- and below-market rent (2,864) (3,057) Property revenues and other expenses (1) 5 (96)Total Company cash NOI 53,044 52,258 Non same-center cash NOI (2,426) (1,291) Same-center cash NOI$ 50,618 $ 50,967 ______________________
(1)Includes anchor lease termination fees, net of contractual amounts, if any, expense and recovery adjustments related to prior periods and other miscellaneous adjustments.
During the three months endedMarch 31, 2023 , the Company generated same-center cash NOI of approximately$50.6 million compared to same-center cash NOI of approximately$51.0 million generated during the three months endedMarch 31, 2022 , representing a 0.7% decrease. This decrease is primarily due to early lease termination income received during the three months endedMarch 31, 2022 for which there was none received during the three months endedMarch 31, 2023 , and an increase in property operating expenses. These amounts were slightly offset by an increase in base rents as a result of an increase in occupancy in the three months endedMarch 31, 2023 .
Critical Accounting Policies
Critical accounting policies are those that are both important to the presentation of the Company's financial condition and results of operations and require management's most difficult, complex or subjective judgments. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. This summary should be read in conjunction with the more complete discussion of the Company's accounting policies included in Note 1 to the Company's consolidated financial statements. Revenue Recognition The Company records base rents on a straight-line basis over the term of each lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in Tenant and other receivables in the accompanying consolidated balance sheets. Most leases contain provisions that require tenants to reimburse a pro-rata share of real estate taxes and certain common area expenses. Adjustments are also made throughout the year to tenant and other receivables and the related cost recovery income based upon the Company's best estimate of the final amounts to be billed and collected.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is established based on a quarterly analysis of the risk of loss on specific accounts. The analysis places particular emphasis on past-due accounts and considers information such as the nature and age of the receivables, tenant creditworthiness, current economic trends, the payment history of the tenants or other debtors, the financial - 29 - --------------------------------------------------------------------------------
condition of the tenants and any guarantors and management's assessment of their ability to meet their lease obligations, the basis for any disputes and the status of related negotiations, among other things.
Management's estimates of the required allowance are subject to revision as these factors change and are sensitive to the effects of economic and market conditions on tenants, particularly those at retail properties. Estimates are used to establish reimbursements from tenants for common area maintenance, real estate tax and insurance costs. The Company analyzes the balance of its estimated accounts receivable for real estate taxes, common area maintenance and insurance for each of its properties by comparing actual recoveries versus actual expenses and any actual write-offs. Based on its analysis, the Company may record an additional amount in its allowance for doubtful accounts related to these items. In addition, the Company also provides an allowance for future credit losses in connection with the deferred straight-line rent receivable.
Real Estate Investments
Land, buildings, property improvements, furniture/fixtures and tenant improvements are recorded at cost. Expenditures for maintenance and repairs are charged to operations as incurred. Renovations and/or replacements, which improve or extend the life of the asset, are capitalized and depreciated over its estimated useful lives. The Company recognizes the acquisition of real estate properties, including acquired tangible assets (consisting of land, buildings and improvements) and acquired intangible assets and liabilities (consisting of above-market and below-market leases and acquired in-place leases) at their fair value (for acquisitions meeting the definition of a business) and relative fair value (for acquisitions not meeting the definition of a business). The relative fair values used to allocate the cost of an asset acquisition are determined using the same methodologies and assumptions the Company utilizes to determine fair values in a business combination. Acquired lease intangible assets include above-market leases and acquired in-place leases, and Acquired lease intangible liabilities represent below-market leases in the accompanying consolidated balance sheets. The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, which value is then allocated to land, buildings and improvements based on management's determination of the relative fair values of these assets. In valuing an acquired property's intangibles, factors considered by management include an estimate of carrying costs during the expected lease-up periods, and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand. Management also estimates costs to execute similar leases, including leasing commissions, tenant improvements, legal and other related costs. The value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates, over (ii) the estimated fair value of the property as if it were vacant. Above-market and below-market lease values are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be received and management's estimate of market lease rates, measured over the terms of the respective leases that management deemed appropriate at the time of acquisition. Such valuations include a consideration of the non-cancellable terms of the respective leases as well as any applicable renewal periods. The fair values associated with below-market rental renewal options are determined based on the Company's experience and the relevant facts and circumstances that existed at the time of the acquisitions. The value of the above-market and below-market leases associated with the original lease term is amortized to rental income, over the terms of the respective leases including option periods, if applicable. The value of in-place leases is amortized to expense over the remaining non-cancellable terms of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recognized in operations at that time. The Company is required to make subjective assessments as to the useful life of its properties for purposes of determining the amount of depreciation. These assessments have a direct impact on the Company's net income.
Properties are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
Buildings (years) 39 - 40 Building Improvements (years) 10 - 20 Furniture/Fixtures (years) 3 - 10 Tenant Improvements
Shorter of lease term or its useful life
- 30 - --------------------------------------------------------------------------------
Asset Impairment
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to aggregate future net cash flows (undiscounted and without interest) expected to be generated by the asset. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal and environmental concerns, the Company's intent and ability to hold the related asset, as well as any significant cost overruns on development properties. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value. Management does not believe that the value of any of the Company's real estate investments was impaired atMarch 31, 2023 orDecember 31, 2022 .
REIT Qualification Requirements
The Company has elected and qualified to be taxed as a REIT under the Code, and believes that it has been organized and has operated in a manner that will allow it to continue to qualify for taxation as a REIT under the Code. The Company is subject to a number of operational and organizational requirements to qualify and then maintain qualification as a REIT. If the Company does not qualify as a REIT, its income would become subject toU.S. federal, state and local income taxes at regular corporate rates that would be substantial and the Company may not be permitted to re-elect to qualify as a REIT for four taxable years following the year that it failed to qualify as a REIT. The Company's results of operations, liquidity and amounts distributable to stockholders would be significantly reduced if it failed to qualify as a REIT.
Liquidity and Capital Resources of the Company
In this "Liquidity and Capital Resources of the Company" section and in the
"Liquidity and Capital Resources of the
The Company's business is operated primarily through theOperating Partnership , of which the Company is the parent company and which it consolidates for financial reporting purposes. Because the Company operates on a consolidated basis with theOperating Partnership , the section entitled "Liquidity and Capital Resources of theOperating Partnership " should be read in conjunction with this section to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as a whole. The Company issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company. The Company itself does not hold any indebtedness other than guarantees of indebtedness of theOperating Partnership , and its only material assets are its ownership of direct or indirect partnership interests in theOperating Partnership and membership interest inRetail Opportunity Investments GP, LLC , the sole general partner of theOperating Partnership . Therefore, the consolidated assets and liabilities and the consolidated revenues and expenses of the Company and theOperating Partnership are the same on their respective financial statements. However, all debt is held directly or indirectly by theOperating Partnership . The Company's principal funding requirement is the payment of dividends on its common stock. The Company's principal source of funding for its dividend payments is distributions it receives from theOperating Partnership . As the parent company of theOperating Partnership , the Company, indirectly, has the full, exclusive and complete responsibility for theOperating Partnership's day-to-day management and control. The Company causes theOperating Partnership to distribute such portion of its available cash as the Company may in its discretion determine, in the manner provided in theOperating Partnership's partnership agreement. The Company is a well-known seasoned issuer with an effective shelf registration statement filed inApril 2022 that allows the Company to register unspecified various classes of debt and equity securities. As circumstances warrant, the Company may issue equity from time to time on an opportunistic basis, dependent upon market conditions and available pricing. Any proceeds from such equity issuances would be contributed to theOperating Partnership .The Operating Partnership may use the proceeds to acquire additional properties, pay down debt, and for general working capital purposes. Liquidity is a measure of the Company's ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain its assets and operations, make distributions to its stockholders and meet other general business needs. The liquidity of the Company is dependent on theOperating Partnership's ability to make sufficient distributions to the Company. - 31 - -------------------------------------------------------------------------------- During the three months endedMarch 31, 2023 , the Company's primary source of cash was distributions from theOperating Partnership . As ofMarch 31, 2023 , the Company has determined that it has adequate working capital to meet its dividend funding obligations for the next twelve months. OnFebruary 20, 2020 , ROIC entered into an "at the market" sales agreement, as amended onApril 27, 2022 (the "Sales Agreement"), with each of (i)KeyBanc Capital Markets Inc. ,BTIG, LLC ,BMO Capital Markets Corp. ,BofA Securities, Inc. ,Capital One Securities, Inc. ,Citigroup Global Markets Inc. ,Jefferies LLC, J.P. Morgan Securities LLC, Raymond James & Associates, Inc. ,Regions Securities LLC ,Robert W. Baird & Co. Incorporated andWells Fargo Securities, LLC (collectively, the "Agents") and (ii) the Forward Purchasers (as defined below), pursuant to which ROIC may sell, from time to time, shares (any such shares, the "Primary Shares") of ROIC's common stock, par value$0.0001 per share ("Common Stock"), to or through the Agents and instruct certain of the Agents, acting as forward sellers (the "Forward Sellers"), to offer and sell borrowed shares (any such shares, "Forward Hedge Shares," and collectively with the Primary Shares, the "Shares") with the Shares to be sold under the Sales Agreement having an aggregate offering price of up to$500.0 million . The Sales Agreement contemplates that, in addition to the issuance and sale of Primary Shares to or through the Agents as principal or its sales agents, ROIC may enter into separate forward sale agreements with any ofKeyBanc Capital Markets Inc. ,BMO Capital Markets Corp. ,BofA Securities, Inc. ,Citigroup Global Markets Inc. ,Jefferies LLC, J.P. Morgan Securities LLC, Raymond James & Associates, Inc. andWells Fargo Securities, LLC or their respective affiliates (in such capacity, the "Forward Purchasers"). If ROIC enters into a forward sale agreement with any Forward Purchaser, ROIC expects that such Forward Purchaser or its affiliate will borrow from third parties and, through the relevant Forward Seller, sell a number of Forward Hedge Shares equal to the number of shares of Common Stock underlying the particular forward sale agreement, in accordance with the mutually accepted instructions related to such forward sale agreement. ROIC will not initially receive any proceeds from any sale of Forward Hedge Shares through a Forward Seller. ROIC expects to fully physically settle each particular forward sale agreement with the relevant Forward Purchaser on one or more dates specified by ROIC on or prior to the maturity date of that particular forward sale agreement by issuing shares of Common Stock (the "Confirmation Shares"), in which case ROIC expects to receive aggregate net cash proceeds at settlement equal to the number of shares of Common Stock underlying the particular forward sale agreement multiplied by the relevant forward sale price. However, ROIC may also elect to cash settle or net share settle a particular forward sale agreement, in which case ROIC may not receive any proceeds from the issuance of shares of Common Stock, and ROIC will instead receive or pay cash (in the case of cash settlement) or receive or deliver shares of Common Stock (in the case of net share settlement).
During the three months ended
For the three months endedMarch 31, 2023 , dividends paid and payable to stockholders totaled approximately$19.7 million . Additionally, for the three months endedMarch 31, 2023 , distributions paid and payable from theOperating Partnership to the non-controlling interest holders of OP Units ("OP Unitholders") totaled approximately$1.3 million . On a consolidated basis, cash flows from operations for the same period totaled approximately$44.4 million . For the three months endedMarch 31, 2022 , dividends paid to stockholders totaled approximately$22.1 million . Additionally, for the three months endedMarch 31, 2022 , the distributions paid from theOperating Partnership to the OP Unitholders totaled approximately$1.8 million . On a consolidated basis, cash flows from operations for the same period totaled approximately$47.8 million .
Potential future sources of capital include equity issuances and distributions
from the
Liquidity and Capital Resources of the
In this "Liquidity and Capital Resources of the
During the three months ended
The Operating Partnership has an unsecured term loan (the "term loan") with several banks acting as lenders. EffectiveMarch 2, 2023 , theOperating Partnership entered into a Third Amendment to the First Amended and Restated Term Loan Agreement, dated as ofSeptember 8, 2017 , as amended (the "Term Loan Agreement"). Under the Term Loan Agreement, the lenders agreed to provide$300.0 million of unsecured borrowings. The maturity date of the term loan isJanuary 20, 2025 , without further options for extension. The Term Loan Agreement also provides that theOperating Partnership may from time to time - 32 - -------------------------------------------------------------------------------- request increased aggregate commitments of$200.0 million if certain conditions are met, including the consent of the lenders to the additional commitments. Additionally theOperating Partnership has an unsecured revolving credit facility (the "credit facility") with several banks. EffectiveMarch 2, 2023 , theOperating Partnership entered into a Third Amendment to the Second Amended and Restated Credit Agreement, dated as ofSeptember 8, 2017 , (as amended, the "Credit Facility Agreement"). Under the Credit Facility Agreement, theOperating Partnership has borrowing capacity of up to$600.0 million . The maturity date under the Credit Facility Agreement isMarch 2, 2027 , with two six-month extension options, which may be exercised by theOperating Partnership upon satisfaction of certain conditions including the payment of extension fees. Additionally, the Credit Facility Agreement maintains an accordion feature, which allows theOperating Partnership to increase the borrowing capacity under the Credit Facility Agreement up to an aggregate of$1.2 billion , subject to lender consents and other conditions. Refer to Note 3 of the accompanying financial statements for certain quantitative details related to the interest accrual calculations on outstanding principal amounts for both the Term Loan Agreement and Credit Facility Agreement. As ofMarch 31, 2023 ,$300.0 million and$67.0 million were outstanding under the term loan and credit facility, respectively. The weighted average interest rate on the term loan during the three months endedMarch 31, 2023 was 5.6%. As discussed in Note 8 of the accompanying financial statements, the Company uses interest rate swaps to manage its interest rate risk. EffectiveMarch 31, 2023 ,$150.0 million of the Company's$300.0 million term loan was swapped at a blended interest rate of 5.4%. The weighted average interest rate on the credit facility during the three months endedMarch 31, 2023 was 5.4%. The Company had no amounts available to borrow under the term loan atMarch 31, 2023 . The Company had$533.0 million available to borrow under the credit facility atMarch 31, 2023 . Further, theOperating Partnership issued$250.0 million aggregate principal amount of unsecured senior notes in each ofDecember 2017 ,December 2014 andDecember 2013 and$200.0 million aggregate principal amount of unsecured senior notes inSeptember 2016 , (collectively, the "Senior Notes") each of which were fully and unconditionally guaranteed by the Company.
The key terms of the
Aggregate Issue Date and Principal Amount Interest Accrual Contractual Senior Notes (in thousands) Date Maturity Date Interest Rate First
Interest Payment Interest Payments Due
June 15 and December Senior Notes Due 2027$ 250,000 December 15, 2017 December 15, 2027 4.19 %
March 22 and Senior Notes Due 2026$ 200,000 September 22, 2016 September 22, 2026 3.95 %
June 15 and December Senior Notes Due 2024$ 250,000 December 3, 2014 December 15, 2024 4.00 %
June 15 and December Senior Notes Due 2023$ 250,000 December 9, 2013 December 15, 2023 5.00 %
The Operating Partnership's debt agreements contain customary representations, financial and other covenants, and its ability to borrow under these agreements is subject to its compliance with financial covenants and other restrictions on an ongoing basis.The Operating Partnership was in compliance with such covenants atMarch 31, 2023 . While theOperating Partnership generally intends to hold its assets as long term investments, certain of its investments may be sold in order to manage theOperating Partnership's interest rate risk and liquidity needs, meet other operating objectives and adapt to market conditions. The timing and impact of future sales of its investments, if any, cannot be predicted with any certainty.
The Company has investment grade credit ratings from
- 33 - --------------------------------------------------------------------------------
Cash Flows
The following table summarizes, for the periods indicated, selected items in the Company's consolidated statements of cash flows (in thousands):
Three Months Ended March 31, 2023 2022 Net Cash Provided by (Used in): Operating Activities$ 44,447 $ 47,771 Investing Activities$ (8,004) $ (17,009) Financing Activities$ (30,234) $ (25,772) Net Cash Flows from: Operating Activities Net cash flows provided by operating activities amounted to approximately$44.4 million in the three months endedMarch 31, 2023 , compared to approximately$47.8 million in the comparable period in 2022. This decrease of approximately$3.3 million during the three months endedMarch 31, 2023 is primarily related to the timing of collections and payments of working capital accounts.
Investing Activities
Net cash flows used in investing activities amounted to approximately$8.0 million in the three months endedMarch 31, 2023 , compared to approximately$17.0 million in the comparable period in 2022. This decrease of approximately$9.0 million for the three months endedMarch 31, 2023 is primarily due to a decrease in payments for improvements to properties of approximately$8.0 million and a decrease in deposits on real estate acquisitions of approximately$1.0 million . Financing Activities Net cash flows used in financing activities amounted to approximately$30.2 million in the three months endedMarch 31, 2023 , compared to approximately$25.8 million in the comparable period in 2022. This increase of approximately$4.5 million for the three months endedMarch 31, 2023 is primarily due to the net increase in paydowns on the credit facility of$31.0 million , the decrease in proceeds from the sale of common stock of approximately$14.2 million and the increase in deferred financing costs of approximately$5.6 million related to the Credit Facility Agreement. These fluctuations were offset by the decrease in dividends and distributions paid to common stockholders and OP Unitholders of approximately$23.6 million and the decrease in principal repayments on mortgages of approximately$23.5 million . - 34 - --------------------------------------------------------------------------------
Material Cash Requirements
The following table represents the Company's known contractual and other
short-term (i.e., the next twelve months) and long-term (i.e., beyond the next
twelve months) obligations as of
Short-Term Long-Term
Total
Material cash requirements: Mortgage Notes Payable Principal (1)$ 689 $ 59,868 $
60,557
Mortgage Notes Payable Interest 2,479 2,009 4,488 Term loan (2) - 300,000 300,000 Credit facility (3) - 67,000 67,000 Senior Notes Due 2027 (4) 10,475 291,900 302,375 Senior Notes Due 2026 (4) 7,900 219,750 227,650 Senior Notes Due 2024 (4) 10,000 260,000 270,000 Senior Notes Due 2023 (5) 262,500 - 262,500 Operating lease obligations 1,359 34,240 35,599 Total$ 295,402 $ 1,234,767 $ 1,530,169 __________________ (1)Does not include unamortized mortgage premium of approximately$234,000 as ofMarch 31, 2023 . (2)For the purpose of the above table, the Company has assumed that borrowings under the term loan accrue interest at the interest rate on the term loan as ofMarch 31, 2023 , which was 5.6%, inclusive of the$150.0 million swap agreements the Company entered into effectiveMarch 31, 2023 . (3)For the purpose of the above table, the Company has assumed that borrowings under the credit facility accrue interest at the interest rate on the credit facility as ofMarch 31, 2023 , which was 5.6%. (4)Represents payments of interest only in the short-term and payments of both principal and interest in the long-term. (5)Represents payments of both principal and interest in the short-term. The short-term and long-term liquidity requirements of the Company, including theOperating Partnership and its subsidiaries, consist primarily of the material cash requirements set forth above, dividends expected to be paid to the Company's stockholders, capital expenditures and capital required for acquisitions. The Company, including theOperating Partnership and its subsidiaries, plans to satisfy its short-term liquidity requirements, including its material cash requirements, through operating cash flows, debt refinancings, potential asset sales and/or borrowings under the credit facility. Historically, the Company, including theOperating Partnership and its subsidiaries, has financed its long-term liquidity requirements through operating cash flows, borrowings under the credit facility and term loan, debt refinancings, new debt, equity offerings and other capital market transactions, and/or the disposition of assets. The Company expects to continue doing so in the future. However, there can be no assurance that these sources will always be available to the Company when needed, or on terms the Company desires or that the future requirements of the Company will not be materially higher than the Company currently expects. The Company has committed approximately$1.9 million and$160,000 in tenant improvements (including building and site improvements) and leasing commissions, respectively, for the new leases and renewals that occurred during the three months endedMarch 31, 2023 . Real Estate Taxes
The Company's leases generally require the tenants to be responsible for a pro-rata portion of the real estate taxes.
Inflation
The Company's long-term leases contain provisions to help manage the adverse impact of inflation on its operating results. Such provisions include clauses entitling the Company to receive (a) scheduled base rent increases and (b) percentage rents based upon tenants' gross sales which generally increase as prices rise. In addition, many of the Company's non-anchor - 35 - -------------------------------------------------------------------------------- leases are for terms of less than ten years, which permits the Company to seek increases in rents upon renewal at then-current market rates if rents provided in the expiring leases are below then-existing market rates. Most of the Company's leases require tenants to pay a share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Leverage Policies
The Company employs prudent amounts of leverage and uses debt as a means of providing additional funds for the acquisition of its properties and the diversification of its portfolio. The Company seeks to primarily utilize unsecured debt in order to maintain liquidity and flexibility in its capital structure.
Under the Term Loan Agreement, several banks acting as lenders agreed to provide$300.0 million of unsecured borrowings. The maturity date of the term loan isJanuary 20, 2025 , without further options for extension. The Term Loan Agreement also provides that theOperating Partnership may from time to time request increased aggregate commitments of$200.0 million under certain conditions set forth in the Term Loan Agreement, including the consent of the lenders to the additional commitments. Under the Credit Facility Agreement, theOperating Partnership has borrowing capacity on the credit facility of up to$600.0 million . The maturity date under the Credit Facility Agreement isMarch 2, 2027 , with two six-month extension options, which may be exercised by theOperating Partnership upon satisfaction of certain conditions including the payment of extension fees. Additionally, the Credit Facility Agreement maintains an accordion feature, which allows theOperating Partnership to increase the borrowing capacity under the Credit Facility Agreement up to an aggregate of$1.2 billion , subject to lender consents and other conditions. Further, theOperating Partnership issued$250.0 million aggregate principal amount of unsecured senior notes in each ofDecember 2017 ,December 2014 andDecember 2013 and$200.0 million aggregate principal amount of unsecured senior notes inSeptember 2016 , each of which were fully and unconditionally guaranteed by the Company. The Company may borrow on a non-recourse basis at the corporate level orOperating Partnership level. Non-recourse indebtedness means the indebtedness of the borrower or its subsidiaries is secured only by specific assets without recourse to other assets of the borrower or any of its subsidiaries. Even with non-recourse indebtedness, however, a borrower or its subsidiaries will likely be required to guarantee against certain breaches of representations and warranties such as those relating to the absence of fraud, misappropriation, misapplication of funds, environmental conditions and material misrepresentations. Because non-recourse financing generally restricts the lender's claim on the assets of the borrower, the lender generally may only proceed against the asset securing the debt. This may protect the Company's other assets. The Company plans to evaluate each investment opportunity and determine the appropriate leverage on a case-by-case basis and also on a Company-wide basis. The Company may seek to refinance indebtedness, such as when a decline in interest rates makes it beneficial to prepay an existing mortgage, when an existing mortgage matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase the investment. The Company plans to finance future acquisitions through a combination of cash from operations, borrowings under the credit facility, the assumption of existing mortgage debt, the issuance of OP Units, equity and debt offerings, and the potential sale of existing assets. In addition, the Company may acquire retail properties indirectly through joint ventures with third parties as a means of increasing the funds available for the acquisition of properties.
Distributions
The Operating Partnership and ROIC intend to make regular quarterly distributions to holders of their OP Units and common stock, respectively.The Operating Partnership pays distributions to ROIC directly as a holder of units of theOperating Partnership , and indirectly to ROIC through distributions toRetail Opportunity Investments GP, LLC , a wholly owned subsidiary of ROIC.U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it payU.S. federal income tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. ROIC intends to pay regular quarterly dividends to its stockholders in an amount not less than its net taxable income, if and to the extent authorized by its board of directors. If ROIC's cash available for distribution is less than its net taxable income, ROIC could be required to sell assets or borrow funds to make cash distributions or ROIC may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. - 36 -
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