REIT Offers 'Margin of Safety': ROIC

NEW YORK (TheStreet) -- In a press release on Friday, Retail Opportunity Investment (ROIC) announced that 57.3% of the company's total outstanding warrants have been retired including 12,570,226 warrants exercised, providing ROIC with around $150.8 million of proceeds, 7.75 million warrants repurchased by ROIC for around $10.7 million, and 8 million founders' warrants.

On March 15, ROIC had approximately $12.0 million outstanding on its $250 million unsecured credit facility and a total debt to market capitalization ratio of approximately 25%, based on total debt outstanding of approximately $293.6 million and 66.3 million shares of common stock outstanding.

In a press release, ROIC's President and CEO Stuart A. Tanz, explains:
"We are pleased that the majority of the company's outstanding warrants have been retired and look forward to investing the equity capital received through the warrants that were exercised. To date in 2013, we have secured a total of $87.8 million of grocery-anchored shopping center acquisitions and our pipeline continues to be active. That said, we remain steadfast in our long-standing, prudent strategy of being patient and careful in seeking out only the most attractive opportunities to acquire irreplaceable shopping centers that will provide the company with a balance of long-term stable cash flow and good growth opportunities for years to come...

"Notwithstanding being fully on track with executing our 2013 business plan, and excited to have the additional equity capital to invest, the timing of receiving the capital will undoubtedly impact our near-term earnings and FFO per share results. Accordingly, we expect to adjust our 2013 earnings and FFO per share guidance when we announce our first quarter results, currently scheduled for May 2, 2013."

After the announced warrant transaction, shares in ROIC rose 3.03% to a market close of $13.59.

Just a few weeks ago, ROIC announced its 2013 Funds from Operations (also FFO) estimates in the range of 80 cents a share to 85 cents per diluted share. Also, on Feb. 19th, the company declared a cash dividend of 15 cents a share, which represents a 7.1% increase and is payable on March 29 to shareholders of record on March 15.

Since transforming from a SPAC in late 2008, ROIC has achieved one of the best overall balance sheets in the shopping center sector. Last year (2012), the San Diego-based REIT acquired a total of 14 shopping centers amounting to $276.1 million, including five shopping centers acquired during the fourth quarter for $139.3 million. The company also bought a newly developed pad building at one of its existing shopping centers for $2.1 million during Q4 2012.

Since 2008, ROIC's assets have climbed by over 135% from $403 million to over $1 billion this year. All of the retail assets have been acquired in the company's core markets on the West Coast.

ROIC has continued to build strong institutional support as the experienced management team -led by veteran CEO Stuart Tanz - is gaining broad recognition for delivering shareholder value. Tanz is accustom to growing shareholder trust as his previous company, Pan Pacific Retail Properties, grew from $447 million to over $4 billion while achieving total returns to shareholders of over 500 percent since the IPO. Tanz was former chairman and CEO at PPRP where he was responsible for acquiring around $2 billion of retail assets (18 million square feet) from 1997 - 2006.

ROIC's value proposition is to acquire unique (not widely marketed) opportunities from distressed or under-capitalized shopping center owners. This focused strategy has enabled the company to capitalize on its extensive network of relationships with retailers, brokers, institutional owners, banks, private owners, and other real estate operators.

Cheap Price + High Quality Assets = ROIC

ROIC has built its strategically-balanced portfolio on west coast markets, notably southern and northern California, Portland, and Seattle. It's no fluke that the company has opted to invest in some of the best markets in the nation. ROIC is considered somewhat of a local sharpshooter as the company seeks to acquire shopping centers with lower occupancy rates and then reposition them to provide more overall yield enhancement.

In addition, ROIC's diverse revenue platform includes some of the "best in class" tenant relationships in the retail industry. For example, ROIC leases to Safeway ( SWY), Kroger ( KR), Albertson's, PetSmart ( PETM), and JPMorgan Chase ( JPM).

Over the past three years ROIC has returned 48.48% and the company's common shares have increased by over 33%. The current common shares are trading at $13.59 per share with a 4.42% dividend yield.

There is no doubt that ROIC has been a very consistent and, most importantly, its free cash flow is ramping up very nicely. As the FAST Graph (below) illustrates, ROIC represents an attractive buying opportunity (the black line shows the price, currently at $13.59), well below the intrinsic value based on funds from operations (FFO - the orange line marked F) as well as the normal P/FFO line (in blue).

Also ROIC's dividend history is beginning to show us a consistent trend of growing dividends (the shaded light blue area is the dividend history). Since going public, we can see that the ROIC has steadily paid and increased dividends and the growth rate has been exceptional. In fact, ROIC is possibly one of the best shopping center REITs today, and with a modest P/FFO yield of 13.5, I consider the shares cheap.

Bottom line: ROIC is a diamond in the rough. With the news of the warrants retiring, it's plain to see that the company is focused on a simplified capital model and in one plain and all important thing: Just think ROIC. Target: $13.59

Source: SNL Financial and FAST Graphs

At the time of publication the author had no position in any of the stocks mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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

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