ROIC Is Hitting on All Cylinders

TheStreet.com

NEW YORK (TheStreet) -- In two weeks I will be attending the annual International Council of Shopping Centers RECon global conference in Las Vegas. While there, I will be conducting interviews with many leading retail REIT CEOs and other industry executives.

The early indications are that this year's event (May 19-22) will attract more than 30,000 attendees and more than 1,000 exhibitors, making it an unparalleled networking event, or what I call the super bowl for shopping centers. It's also a great time for me, The Intelligent REIT Investor, to compare report cards with some of the "best and brightest" retail minds on the planet.

One of my scheduled interviewees is Stuart Tanz, the CEO of Retail Opportunity Investments Corp. . His company announced first-quarter earnings last week. I couldn't wait to brag about the latest results, so I thought I would go ahead and publish the exceptional report card for this REIT.

Picking an Intelligent Growth and Income Play

Back in November I recommended ROIC shares at $12.43. Since then, they have increased by more than 20%. Add in the dividend (4%), and you get a REIT that has returned more than 24% (since Nov. 28, 2012).

Courtesy of SNL Financial

Back then ROIC had a market cap of a bit less than $650 million; however, in just five months time, the San Diego-based REIT has climbed in value to about $1 billion. In fact, last week (after earnings were released), ROIC shares hit an all-time high of $15.02.


The first-quarter results were exceptional. Here's what CEO Stuart Tanz had to say:

"We are pleased to report that the company is off to a strong start in 2013. We are continuing to successfully execute our business plan of broadening our portfolio through acquiring quality, grocery-anchored shopping centers and quickly enhancing value through our proactive hands on management. Additionally, we are continuing to enhance our strong financial position."

With respect to ROIC's balance sheet, the company recently retired more than 58% of its existing warrants, and that has provided positive news for investors. I view the recent warrant activity as an important endorsement of the company's accomplishments to date as well as its future growth prospects. With the warrants that have been exercised thus far, ROIC has received approximately $157 million of proceeds to invest.

Also for the first quarter, ROIC had $24.4 million in total revenues, as compared to $16.6 million in total revenues for the first quarter of 2012.


Additionally, the company had net income of $2.3 million for the first quarter of 2013 as compared to net income of $1.1 million for the first quarter of 2012. Funds from operations (or FFO) for the first quarter was $11.5 million as compared to $8.4 million in FFO a year ago.

ROIC has also been an outstanding steward of capital as reflected in the company's total market capitalization, including just $300 million of total debt outstanding, or a debt-to-total-market-cap ratio of only 24%. That's an impressive ratio, especially when you consider that the ratio was 35% at the end of 2012.

Also, ROIC has modest secured debt ($82 million) with the balance unsecured ($218 million). These conservative debt ratios -- 4 times interest coverage and 89% of assets unencumbered -- make ROIC an exceptionally disciplined and well-managed REIT.


Nice Dividend Policy

ROIC has a total of 47 shopping centers encompassing more than 5 million square feet diversified across the West Coast. Eighteen of the 47 properties (or 35% of total GLA) is located in Southern California. Twelve shopping centers are located in the Northern California region (representing 25% of our total GLA). Nine properties (representing 18% of total GLA) are located in Portland, Oregon, and 22% of GLA is in the Seattle market where ROIC owns eight shopping centers.

ROIC's occupancy is now 93.4%, up 100 basis points from a year ago. The portfolio is becoming increasingly more diversified as three leading grocery chains -- Safeway , Albertson's, and Kroger -- account for about 18.5% of leased space.

Courtesy of SNL Financial

As ROIC continues to grow and expand its asset pool, the company should also continue to grow its dividend. Since becoming a public company, ROIC has made a splash with regard to its dividend policy. During the first quarter, the company increased its dividend by over 7% and in addition, ROIC grew its dividend by over 36% between 2011 and 2012.

Courtesy of SNL Financial

Here is a snapshot of dividends paid:

Courtesy of SNL Financial

As I head off to the Retail REIT super bowl in a few days, I am especially encouraged by the scouting report from ROIC. The latest earnings are terrific, and I expect to see shares in the REIT continue to climb. Management is doing an exceptional job at executing the focused pure-play model and especially protecting shareholder money at all costs. ROIC's unique value proposition was summed up by Stuart Tanz, CEO, during the latest earnings call:

"Our focus is really acquiring off-market unique opportunities, where we can acquire exceptional shopping centers at more reasonable terms and quickly add value. So we're going to keep to our philosophy and our knitting, in terms of how we've acquired as we've done in the past."

At the time of publication, Thomas had no positions in securities mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

EXCLUSIVE OFFER: See inside Jim Cramer’s multi-million dollar charitable trust portfolio to see the stocks he thinks could be potentially HUGE winners. Click here to see his holdings for FREE.

Rates

View Comments (2)