UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to         .

 

RETAIL OPPORTUNITY INVESTMENTS CORP.

(Exact name of registrant as specified in its charter)

Commission file number:  001-33749

 

RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP
(Exact name of registrant as specified in its charter)

Commission file number:  333-189057-01

 

Maryland (Retail Opportunity Investments Corp.) Delaware (Retail Opportunity Investments Partnership, LP) (State or other jurisdiction of incorporation or organization) 8905 Towne Centre Drive, Suite 108 San Diego, CA (Address of principal executive offices)

26-0500600 (Retail Opportunity Investments Corp.) 94-2969738 (Retail Opportunity Investments Partnership, LP) (I.R.S. Employer Identification No.) 92122 (Zip code)

 

Registrant’s telephone number, including area code:

(858) 677-0900

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of Each Class		Name of Exchange on Which Registered
Common Stock, $0.0001 par value per share		The NASDAQ Stock Market LLC

 

Securities Registered Pursuant to Section 12(g) of the Act:

 

Retail Opportunity Investments Corp.                                     None

Retail Opportunity Investments Partnership, LP                    None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  

 

Retail Opportunity Investments Corp.	Yes ☒   No ☐
Retail Opportunity Investments Partnership, LP	Yes ☐   No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  

 

Retail Opportunity Investments Corp.	Yes ☐   No ☒
Retail Opportunity Investments Partnership, LP	Yes ☐   No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  

 

Retail Opportunity Investments Corp.	Yes ☒   No ☐
Retail Opportunity Investments Partnership, LP	Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  

 

Retail Opportunity Investments Corp.	Yes ☒   No ☐
Retail Opportunity Investments Partnership, LP	Yes ☒   No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Retail Opportunity Investments Corp.

 

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐ (Do not check if a smaller reporting company)

Smaller reporting company ☐

 

Retail Opportunity Investments Partnership, LP

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒ (Do not check if a smaller reporting company)

Smaller reporting company ☐

   

Indicate by check mark whether the registrant is a Shell Company (as defined in rule 12b-2 of the Exchange Act).  

 

Retail Opportunity Investments Corp.	Yes ☐   No ☒
Retail Opportunity Investments Partnership, LP	Yes ☐   No ☒

 

The aggregate market value of the common equity held by non-affiliates of Retail Opportunity Investments Corp. as of June 30, 2015, the last business day of its most recently completed second fiscal quarter, was $1.4 billion (based on the closing sale price of $15.62 per share of Retail Opportunity Investments Corp. common stock on that date as reported on the NASDAQ Global Select Market).

 

There is no public trading market for the operating partnership units of Retail Opportunity Investments Partnership, LP. As a result the aggregate market value of common equity securities held by non-affiliates of this registrant cannot be determined.

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 99,590,468 shares of common stock, par value $0.0001 per share, of Retail Opportunity Investments Corp. outstanding as of February 19, 2016.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of Retail Opportunity Investments Corp.’s definitive proxy statement for its 2015 Annual Meeting, to be filed within 120 days after its fiscal year, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

EXPLANATORY PARAGRAPH

 

This report combines the annual reports on Form 10-K for the year ended December 31, 2015 of Retail Opportunity Investments Corp., a Maryland corporation (“ROIC”), and Retail Opportunity Investments Partnership, LP, a Delaware limited partnership (the “Operating Partnership”) of which Retail Opportunity Investments Corp. is the parent company and through its wholly owned subsidiary, acts as general partner. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “the Company,” “we,” “us,” “our,” or “our company” refer to ROIC together with its consolidated subsidiaries, including Retail Opportunity Investments Partnership, LP. Unless otherwise indicated or unless the context requires otherwise, all references in this report to the Operating Partnership refer to Retail Opportunity Investments Partnership, LP together with its consolidated subsidiaries.

 

ROIC operates as a real estate investment trust and as of December 31, 2015, ROIC owned an approximate 89.0% partnership interest in the Operating Partnership. Retail Opportunity Investments GP, LLC, ROIC’s wholly-owned subsidiary, is the sole general partner of the Operating Partnership. Through this subsidiary, ROIC has full and complete authority and control over the Operating Partnership’s business.

 

The Company believes that combining the annual reports on Form 10-K of ROIC and the Operating Partnership into a single report will result in the following benefits:

 

• facilitate a better understanding by the investors of ROIC and the Operating Partnership by enabling them to view the business as a whole in the same manner as management views and operates the business;
  
  
• remove duplicative disclosures and provide a more straightforward presentation in light of the fact that a substantial portion of the disclosure applies to both ROIC and the Operating Partnership; and
  
  
• create time and cost efficiencies through the preparation of one combined report instead of two separate reports.

Management operates ROIC and the Operating Partnership as one enterprise. The management of ROIC and the Operating Partnership are the same.

 

There are few differences between ROIC and the Operating Partnership, which are reflected in the disclosures in this report. The Company believes it is important to understand the differences between ROIC and the Operating Partnership in the context of how these entities operate as an interrelated consolidated company. ROIC is a real estate investment trust, whose only material assets are its direct or indirect partnership interests in the Operating Partnership and membership interest in Retail Opportunity Investments GP, LLC, which is the sole general partner of the Operating Partnership. As a result, ROIC does not conduct business itself, other than acting as the parent company and through Retail Opportunity Investments Partnership GP, LLC as the sole general partner of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and directly or indirectly holds the ownership interests in the Company’s real estate ventures. The Company conducts its business through the Operating Partnership, which is structured as a partnership with no publicly traded equity. Except for net proceeds from warrants exercised and equity issuances by ROIC, which are contributed to the Operating Partnership, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness (directly and through subsidiaries) or through the issuance of operating partnership units (“OP Units”) of the Operating Partnership.

 

Non-controlling interests is the primary difference between the Consolidated Financial Statements for ROIC and the Operating Partnership. The OP Units in the Operating Partnership that are not owned by ROIC are accounted for as partners’ capital in the Operating Partnership’s financial statements and as non-controlling interests in ROIC’s financial statements. Accordingly, this report presents the Consolidated Financial Statements for ROIC and the Operating Partnership separately, as required, as well as Earnings Per Share / Earnings Per Unit and Capital of the Partnership.

 

This report also includes separate Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources, Item 9A. Controls and Procedures sections and separate Chief Executive Officer and Chief Financial Officer certifications for each of ROIC and the Operating Partnership as reflected in Exhibits 31 and 32.

 

RETAIL OPPORTUNITY INVESTMENTS CORP.
TABLE OF CONTENTS
		Page
PART I		6
Item 1.	Business	6
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	21
Item 3.	Legal Proceedings	25
Item 4.	Mine Safety Disclosures.	25
PART II		26
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	29
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 8.	Financial Statements and Supplementary Data	46
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	78
Item 9A.	Controls and Procedures	78
Item 9B.	Other Information	79
PART III		79
Item 10.	Directors, Executive Officers and Corporate Governance	79
Item 11.	Executive Compensation	79
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	79
Item 13.	Certain Relationships and Related Transactions, and Director Independence	79
Item 14.	Principal Accounting Fees and Services	79
PART IV		80
Item 15.	Exhibits and Financial Statement Schedules	80
SIGNATURES		83

 

Statements Regarding Forward-Looking Information

 

When used in this discussion and elsewhere in this Annual Report on Form 10-K, the words “believes,” “anticipates,” “projects,” “should,” “estimates,” “expects,” and similar expressions are intended to identify forward-looking statements with 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 and Exchange Act of 1934, as amended (the “Exchange Act”).  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, retail real estate in which it invests;
  
  
• the state of the U.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 for U.S. federal income tax purposes (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 facility 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 that could impact the market price of ROIC’s common stock and the cost of the Company’s borrowings; and
  
  
• 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 Annual Report on Form 10-K.  The Company disclaims 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 Annual Report on Form 10-K.

 

The risks included here are not exhaustive.  Other sections of this Annual Report on Form 10-K may include additional factors that could adversely affect the Company’s business and financial performance.  Moreover, the Company operates 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 the Company’s 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.

 

PART I

 

In this Annual Report on Form 10-K, unless otherwise indicated or the context requires otherwise, all references to “the Company,” “we,” “us,” “our,” or “our company” refer to ROIC together with its consolidated subsidiaries, including the Operating Partnership.

 

Item 1.  Business

 

Overview

 

Retail Opportunity Investments Corp., a Maryland corporation (“ROIC”) commenced operations in October 2009 as a fully integrated, self-managed REIT, and as of December 31, 2015, ROIC owned an approximate 89.0% partnership interest and other limited partners owned the remaining 11.0% partnership interest in the Operating Partnership.  The Company specializes in the acquisition, ownership and management of necessity-based community and neighborhood shopping centers on the west coast of the United States, anchored by supermarkets and drugstores.  

 

From the commencement of its operations through December 31, 2015, the Company has completed approximately $2.2 billion of shopping center investments.  As of December 31, 2015, the Company’s portfolio consisted of 73 retail properties totaling approximately 8.6 million square feet of gross leasable area (“GLA”).

 

ROIC is organized in a traditional umbrella partnership real estate investment trust (“UpREIT”) format pursuant to which Retail Opportunity Investments GP, LLC, its wholly-owned subsidiary, serves as the sole general partner of, and ROIC conducts substantially all of its business through, its operating partnership, Retail Opportunity Investments Partnership, LP, a Delaware limited partnership (the “Operating Partnership”), together with its subsidiaries.

 

ROIC’s only material assets are its direct or indirect partnership interests in the Operating Partnership and membership interest in Retail Opportunity Investments GP, LLC, which is the sole general partner of the Operating Partnership. As a result, ROIC does not conduct business itself, other than acting as the parent company and through this subsidiary, acts as the sole general partner of the Operating Partnership. The Operating Partnership holds substantially all the assets of the Company and directly or indirectly holds the ownership interests in the Company’s real estate ventures. The Operating Partnership conducts the operations of the Company’s business and is structured as a partnership with no publicly traded equity. Except for net proceeds from warrant exercises and equity issuances by ROIC, which are contributed to the Operating Partnership, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness (directly and through subsidiaries) or through the issuance of operating partnership units (“OP Units”) of the Operating Partnership.

 

Investment Strategy

 

The Company seeks to acquire shopping centers located in densely populated, supply-constrained metropolitan markets on the west coast of the United States, which exhibit income and population growth and high barriers to entry.  The Company’s senior management team has operated in the Company’s markets for over 25 years and has established an extensive network of relationships in these markets with key institutional and private property owners, brokers and financial institutions and other real estate operators.  The Company’s in-depth local and regional market knowledge and expertise provides a distinct competitive advantage in identifying and accessing attractive acquisition opportunities, including properties that are not widely marketed.

 

The Company seeks to acquire high quality necessity-based community and neighborhood shopping centers anchored by national and regional supermarkets and drugstores that are well-leased, with stable cash flows.  Additionally, the Company acquires shopping centers which it believes are candidates for attractive near-term re-tenanting or present other value-enhancement opportunities.

 

Upon acquiring a shopping center, the Company normally commences leasing initiatives aimed at enhancing long-term value through re-leasing below market space and improving the tenant mix.  The Company focuses on leasing to retailers that provide necessity-based, non-discretionary goods and services, catering to the basic and daily needs of the surrounding community.  The Company believes necessity-based retailers draw consistent, regular traffic to its shopping centers, which results in stronger sales for its tenants and a more consistent revenue base.  Additionally, the Company seeks to maintain a strong and diverse tenant base with a balance of large, long-term leases to major national and regional retailers, including supermarkets, drugstores and discount stores, with small, shorter-term leases to a broad mix of national, regional and local retailers.  The Company believes the long-term anchor tenants provide a reliable, stable base of rental revenue, while the shorter-term leases afford the Company the opportunity to drive rental growth, as well as the ongoing flexibility to adapt to evolving consumer trends.

 

The Company believes that the current market environment continues to present opportunities for it to further build its portfolio and add additional necessity-based community and neighborhood shopping centers that meet its investment profile.  The Company’s long-term objective is to prudently build and maintain a diverse portfolio of necessity-based community and neighborhood shopping centers aimed at providing stockholders with sustainable, long-term growth and value through all economic cycles.

 

In implementing its investment strategy and selecting an asset for acquisition, the Company analyzes the fundamental qualities of the asset, the inherent strengths and weaknesses of its market, sub-market drivers and trends, and potential risks and risk mitigants facing the property.  The Company believes that its acquisition process and operational expertise provide it with the capability to identify and properly underwrite investment opportunities.

 

The Company’s aim is to seek to provide diversification of assets, tenant exposures, lease terms and locations as its portfolio expands.  In order to capitalize on the changing sets of investment opportunities that may be present in the various points of an economic cycle, the Company may expand or refocus its investment strategy.  The Company’s investment strategy may be amended from time to time, if approved by its board of directors.  The Company is not required to seek stockholder approval when amending its investment strategy.

 

Transactions During 2015

 

Investing Activity

 

Property Acquisitions

 

On January 6, 2015, the Company acquired the property known as Park Oaks Shopping Center located in Thousand Oaks, California, for a purchase price of approximately $47.7 million. Park Oaks Shopping Center is approximately 110,000 square feet and is anchored by Safeway (Vons) Supermarket. The property was acquired with borrowings under the Company’s credit facility.

 

On January 6, 2015, the Company acquired the property known as Ontario Plaza located in Ontario, California, for a purchase price of approximately $31.0 million. Ontario Plaza is approximately 150,000 square feet and is anchored by El Super Supermarket and Rite Aid Pharmacy. The property was acquired with borrowings under the Company’s credit facility.

 

On January 7, 2015, the Company acquired the property known as Winston Manor Shopping Center located in South San Francisco, California, for a purchase price of approximately $20.5 million. Winston Manor Shopping Center is approximately 50,000 square feet and is anchored by Grocery Outlet Supermarket, a west coast based grocer. The property was acquired with borrowings under the Company’s credit facility.

 

On May 6, 2015, the Company acquired key anchor spaces at two of its existing shopping centers for a purchase price of approximately $23.1 million including Lucky Supermarket at its Pinole Vista Shopping Center, located in Pinole, California, and Petco at its Canyon Park Shopping Center, located in Bothell, Washington. These anchor spaces were acquired with borrowings under the Company’s credit facility.

 

On July 1, 2015, the Company acquired the property known as Jackson Square located in Hayward, California, within the San Francisco metropolitan area, for a purchase price of approximately $32.5 million. Jackson Square is approximately 114,000 square feet and is anchored by Safeway Supermarket, CVS Pharmacy and 24 Hour Fitness. The property was acquired with borrowings under the Company’s credit facility.

 

On July 28, 2015, the Company acquired the property known as Sunnyside Village Square located in Happy Valley, Oregon, within the Portland metropolitan area, for a purchase price of approximately $17.5 million. Sunnyside Village Square is approximately 85,000 square feet and is anchored by Haggen Supermarket. The property was acquired with borrowings under the Company’s credit facility.

 

On July 28, 2015, the Company acquired the property known as Tigard Promenade located in Tigard, Oregon, within the Portland metropolitan area, for a purchase price of approximately $21.0 million. Tigard Promenade is approximately 88,000 square feet and is anchored by Safeway Supermarket. The property was acquired with borrowings under the Company’s credit facility.

 

On September 1, 2015, the Company acquired the property known as Gateway Centre located in San Ramon, California, within the San Francisco metropolitan area, for a purchase price of approximately $42.5 million. Gateway Centre is approximately 110,000 square feet and is anchored by SaveMart (Lucky) Supermarket and Walgreens. The property was acquired with borrowings under the Company’s credit facility.

 

On November 9, 2015, the Company acquired the property known as Johnson Creek Center located in Happy Valley, Oregon, within the Portland metropolitan area, for an adjusted purchase price of approximately $31.4 million. Johnson Creek is approximately 109,000 square feet and is anchored by Trader Joe’s and Walgreens. The property was acquired with borrowings under the Company’s credit facility.

 

On December 4, 2015, the Company acquired the property known as Iron Horse Plaza located in Danville, California, within the San Francisco metropolitan area, for an adjusted purchase price of approximately $45.6 million. Iron Horse Plaza is approximately 62,000 square feet and is anchored by Lunardi’s Markets, a San Francisco based grocer. The acquisition was funded through the issuance of 1,232,394 OP Units with a fair value of approximately $22.4 million, the assumption of a $19.0 million mortgage loan on the property and cash on hand. The $19.0 million mortgage loan was defeased in conjunction with the closing of the property, which was funded with borrowings under the Company’s credit facility.

 

On December 10, 2015, the Company acquired the property known as Sternco Shopping Center located in Bellevue, Washington, within the Seattle metropolitan area, for an adjusted purchase price of approximately $49.4 million. Sternco Shopping Center is approximately 114,000 square feet and is anchored by Asian Food Center, a Seattle based grocer. The acquisition was funded through the issuance of 2,823,790 OP Units with a fair value of $49.3 million and cash on hand.

 

On December 21, 2015, the Company acquired the property known as Four Corner Square located in Maple Valley, Washington, within the Seattle metropolitan area, for a purchase price of approximately $41.8 million. Four Corner Square is approximately 120,000 square feet and is anchored by Grocery Outlet Supermarket, a west coast based grocer, and Walgreens. The property was acquired with borrowings under the Company’s credit facility.

 

On December 31, 2015, the Company acquired the property known as Warner Plaza located in Woodland Hills, California, within the Los Angeles metropolitan area, for an adjusted purchase price of approximately $78.9 million. Warner Plaza is approximately 114,000 square feet and is anchored by Sprouts Market. The acquisition was funded through the issuance of 4,393,064 OP Units with a fair value of $78.6 million and cash on hand.

 

Financing Activities

 

The Company employs prudent amounts of leverage and uses debt as a means of providing 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.

 

Term Loan and Credit Facility

 

On September 29, 2015, the Company entered into a term loan agreement (the “Term Loan Agreement”) with KeyBank National Association, as Administrative Agent, and U.S. Bank National Association, as Syndication Agent and the other lenders party thereto, under which the lenders agreed to provide a $300.0 million unsecured term loan facility (the “term loan”). The Term Loan Agreement also provides that the Company 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 for the additional commitments. The initial maturity date of the term loan is January 31, 2019, subject to two one-year extension options, which may be exercised upon satisfaction of certain conditions including the payment of extension fees. Borrowings under the Term Loan Agreement accrue interest on the outstanding principal amount at a rate equal to an applicable rate based on the credit rating level of the Company, plus, as applicable, (i) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the relevant period (the “Eurodollar Rate”), or (ii) a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the rate of interest announced by the Administrative Agent as its “prime rate,” and (c) the Eurodollar Rate plus 1.10%.

 

The Operating Partnership has an unsecured revolving credit facility (the “credit facility”) with several banks which provides for borrowings of up to $500.0 million. Additionally, the credit facility contains an accordion feature, which allows the Operating Partnership to increase the facility amount up to an aggregate of $1.0 billion, subject to lender consents and other conditions. The maturity date of the credit facility has been extended to January 31, 2019, subject to a further one-year extension option, which may be exercised by the Operating Partnership upon satisfaction of certain conditions. Borrowings under the credit facility accrue interest on the outstanding principal amount at a rate equal to an applicable rate based on the credit rating level of the Company, plus, as applicable, (i) the Eurodollar Rate, or (ii) a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the rate of interest announced by KeyBank, National Association as its “prime rate,” and (c) the Eurodollar Rate plus 1.00%. The Company obtained investment grade credit ratings from Moody’s Investors Service (Baa2) and Standard & Poor’s Ratings Services (BBB-) during the second quarter of 2013. Additionally, the Operating Partnership is obligated to pay a facility fee at a rate based on the credit rating level of the Company, currently 0.20%, and a fronting fee at a rate of 0.125% per year with respect to each letter of credit issued under the credit facility.

 

Both the term loan and credit facility contain customary representations, financial and other covenants. The Operating Partnership’s ability to borrow under the term loan and credit facility are subject to its compliance with financial covenants and other restrictions on an ongoing basis. The Operating Partnership was in compliance with such covenants at December 31, 2015.

 

As of December 31, 2015, $300.0 million and $135.5 million were outstanding under the term loan and credit facility, respectively. The average interest rates on the term loan and the credit facility during the year ended December 31, 2015 were 1.3% and 1.2%, respectively. The Company had no available borrowings under the term loan at December 31, 2015. The Company had $364.5 million available to borrow under the credit facility at December 31, 2015.

 

Mortgage Notes Payable

 

During the year ended December 31, 2015, the Company repaid the outstanding principal balance on the Renaissance Towne Center and Crossroads Shopping Center mortgage notes payable of $16.1 million and $48.3 million, respectively, without penalty, in accordance with the prepayment provisions of the notes.

 

On September 1, 2015, the Company entered into a $35.5 million loan with PNC Bank, National Association. The loan is secured by the Diamond Hills Plaza property and bears interest at 3.55% annually. The loan matures on October 1, 2025, is interest only through September 30, 2021 and amortizes thereafter, on a 30-year amortization.

 

Equity Issuance

 

On August 10, 2015, ROIC issued 5,520,000 shares of common stock in a registered public offering, including shares issued upon the exercise in full of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $87.4 million, after deducting the underwriters’ discounts and commissions and offering expenses. The net proceeds were used to reduce borrowings under the Operating Partnership’s $500.0 million unsecured revolving credit facility.

 

ATM Equity Offering

 

During the year ended December 31, 2014, ROIC entered into four separate Sales Agreements (the “2014 sales agreements”) with Jefferies LLC, KeyBanc Capital Markets Inc., MLV & Co. LLC and Raymond James & Associates, Inc. (each individually, an “Agent” and collectively, the “Agents”) pursuant to which ROIC may sell, from time to time, shares of ROIC’s common stock, par value $0.0001 per share, having an aggregate offering price of up to $100.0 million through the Agents either as agents or principals. During the year ended December 31, 2015, ROIC sold a total of 544,567 shares under one of the 2014 sales agreements, which resulted in gross proceeds of approximately $9.9 million and commissions of approximately $149,000 paid to the agent.

 

The Company plans to finance future acquisitions through a combination of cash, borrowings under its credit facility, the assumption of existing mortgage debt, the issuance of equity securities including OP Units, and equity and debt offerings.

 

Business Segments

 

The Company’s primary business is the ownership, management, and redevelopment of retail real estate properties. The Company reviews operating and financial information for each property on an individual basis and therefore, each property represents an individual operating segment. The Company evaluates financial performance using property operating income, defined as operating revenues (base rent and recoveries from tenants), less property and related expenses (property operating expenses and property taxes). The Company has aggregated the properties into one reportable segment as the properties share similar long-term economic characteristics and have other similarities including the fact that they are operated using consistent business strategies, are typically located in major metropolitan areas, and have similar tenant mixes.

 

Regulation

 

The following discussion describes certain material U.S. federal laws and regulations that may affect the Company’s operations and those of its tenants.  However, the discussion does not address state laws and regulations, except as otherwise indicated.  These state laws and regulations, like the U.S. federal laws and regulations, could affect the Company’s operations and those of its tenants.

 

Generally, real estate properties are subject to various laws, ordinances and regulations.  Changes in any of these laws or regulations, such as the Comprehensive Environmental Response and Compensation, and Liability Act of 1980, as amended, increase the potential liability for environmental conditions or circumstances existing or created by tenants or others on the properties.  In addition, laws affecting development, construction, operation, upkeep, safety and taxation requirements may result in significant unanticipated expenditures, loss of real estate property sites or other impairments, which would adversely affect its cash flows from operating activities.

 

Under the Americans with Disabilities Act of 1990 (the “Americans with Disabilities Act”) all places of public accommodation are required to meet certain U.S. federal requirements related to access and use by disabled persons.  A number of additional U.S. federal, state and local laws also exist that may require modifications to properties, or restrict certain further renovations thereof, with respect to access thereto by disabled persons.  Noncompliance with the Americans with Disabilities Act could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature and in substantial capital expenditures.  To the extent the Company’s properties are not in compliance, the Company may incur additional costs to comply with the Americans with Disabilities Act.

 

Property management activities are often subject to state real estate brokerage laws and regulations as determined by the particular real estate commission for each state.

 

Environmental Matters

 

Pursuant to U.S. federal, state and local environmental laws and regulations, a current or previous owner or operator of real property may be required to investigate, remove and/or remediate a release of hazardous substances or other regulated materials at or emanating from such property.  Further, under certain circumstances, such owners or operators of real property may be held liable for property damage, personal injury and/or natural resource damage resulting from or arising in connection with such releases.  Certain of these laws have been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility.  The failure to properly remediate the property may also adversely affect the owner’s ability to lease, sell or rent the property or to borrow funds using the property as collateral.

 

In connection with the ownership, operation and management of the Company’s current properties and any properties that it may acquire and/or manage in the future, the Company could be legally responsible for environmental liabilities or costs relating to a release of hazardous substances or other regulated materials at or emanating from such property.  In order to assess the potential for such liability, the Company conducts an environmental assessment of each property prior to acquisition and manages its properties in accordance with environmental laws while it owns or operates them.  All of its leases contain a comprehensive environmental provision that requires tenants to conduct all activities in compliance with environmental laws and to indemnify the owner for any harm caused by the failure to do so.  In addition, the Company has engaged qualified, reputable and adequately insured environmental consulting firms to perform environmental site assessments of its properties and is not aware of any environmental issues that are expected to materially impact the financial condition of the Company.

 

Competition

 

The Company believes that competition for the acquisition, operation and development of retail properties is highly fragmented.  The Company competes with numerous owners, operators and developers for acquisitions and development of retail properties, including institutional investors, other REITs and other owner-operators of necessity-based community and neighborhood shopping centers, primarily anchored by supermarkets and drugstores, some of which own or may in the future own properties similar to the Company’s in the same markets in which its properties are located.  The Company also faces competition in leasing available space to prospective tenants at its properties.  The actual competition for tenants varies depending upon the characteristics of each local market (including current economic conditions) in which the Company owns and manages property.  The Company believes that the principal competitive factors in attracting tenants in its market areas are location, demographics, price, the presence of anchor stores and the appearance of properties.

 

Many of the Company’s competitors are substantially larger and have considerably greater financial, marketing and other resources than the Company.  Other entities may raise significant amounts of capital, and may have investment objectives that overlap with those of the Company, which may create additional competition for opportunities to acquire assets.  In the future, competition from these entities may reduce the number of suitable investment opportunities offered to the Company or increase the bargaining power of property owners seeking to sell.  Further, as a result of their greater resources, such entities may have more flexibility than the Company does in their ability to offer rental concessions to attract tenants.  If the Company’s competitors offer space at rental rates below current market rates, or below the rental rates the Company currently charges its tenants, the Company may lose potential tenants and it may be pressured to reduce its rental rates below those it currently charges in order to retain tenants when its tenants’ leases expire.

 

Employees

 

As of December 31, 2015, the Company had 69 employees, including three executive officers, one of whom is also a member of its board of directors.

 

Available Information

 

The Company files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports with the Securities and Exchange Commission (the “SEC”).  You may obtain copies of these documents by visiting the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330.  The SEC also maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The Company’s website is www.roireit.net.  The Company’s reports on Forms 10-K, 10-Q and 8-K, and all amendments to those reports are available free of charge on its Website as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC.  The contents of the Company’s website are not incorporated by reference herein.

 

Item 1A.  Risk Factors

 

Risks Related to the Company’s Business and Operations

 

There are risks relating to investments in real estate.

 

Real property investments are subject to varying degrees of risk.  Real estate values are affected by a number of factors, including:  changes in the general economic climate, local conditions (such as an oversupply of space or a reduction in demand for real estate in an area), the quality and philosophy of management, competition from other available space, the ability of the owner to provide adequate maintenance and insurance and to control variable operating costs.  Shopping centers, in particular, may be affected by changing perceptions of retailers or shoppers regarding the safety, convenience and attractiveness of the shopping center, increasing consumer purchases through online retail websites and catalogs, the ongoing consolidation in the retail sector and by the overall climate for the retail industry generally.  Real estate values are also affected by such factors as government regulations, interest rate levels, the availability of financing and potential liability under, and changes in, environmental, zoning, tax and other laws.  A significant portion of the Company’s income is derived from rental income from real property.  The Company’s income, cash flow, results of operations, financial condition, liquidity and ability to service its debt obligations could be materially and adversely affected if a significant number of its tenants were unable to meet their obligations, or if it were unable to lease on economically favorable terms a significant amount of space in its properties.  In the event of default by a tenant, the Company may experience delays in enforcing, and incur substantial costs to enforce, its rights as a landlord.  In addition, certain significant expenditures associated with each equity investment (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced when circumstances cause a reduction in income from the investment.

 

The Company operates in a highly competitive market and competition may limit its ability to acquire desirable assets and to attract and retain tenants.

 

The Company operates in a highly competitive market.  The Company’s profitability depends, in large part, on its ability to acquire its assets at favorable prices and on trends impacting the retail industry in general, national, regional and local economic conditions, financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends.  Many of the Company’s competitors are substantially larger and have considerably greater financial, marketing and other resources than it does.  Other entities may raise significant amounts of capital, and may have investment objectives that overlap with the Company’s.  In addition, the properties that the Company acquires may face competition from similar properties in the same market, as well as from e-commerce websites.  At the time of the commencement of the Company’s operations, conditions in the capital markets and the credit markets reduced competitors’ ability to finance acquisitions. As access to capital and credit have improved and the number of competitors operating in the Company’s markets have increased, the Company has faced increased competition for opportunities to acquire assets and to attract and retain tenants. The presence of competitive alternatives affects the Company’s ability to lease space and the level of rents it can obtain. New construction, renovations and expansions at competing sites could also negatively affect the Company’s properties.

 

The Company may change any of its strategies, policies or procedures without stockholder consent, which could materially and adversely affect its business.

 

The Company may change any of its strategies, policies or procedures with respect to acquisitions, asset allocation, growth, operations, indebtedness, financing strategy and distributions, including those related to maintaining its REIT qualification, at any time without the consent of its stockholders, which could result in making acquisitions that are different from, and possibly riskier than, the types of acquisitions described in this Annual Report on Form 10-K.  A change in the Company’s strategy may increase its exposure to real estate market fluctuations, financing risk, default risk and interest rate risk.  Furthermore, a change in the Company’s asset allocation could result in the Company making acquisitions in asset categories different from those described in this Annual Report on Form 10-K.  These changes could materially and adversely affect the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

The Company’s directors are subject to potential conflicts of interest.

 

The Company’s executive officers and directors face conflicts of interest.  Except for Messrs. Tanz, Haines and Schoebel, none of the Company’s executive officers or directors are required to commit their full time to its affairs and, accordingly, they may have conflicts of interest in allocating management time among various business activities.  In addition, except for Mr. Tanz, each of the Company’s directors (including the Company’s non-Executive Chairman) is engaged in several other business endeavors.  In the course of their other business activities, the Company’s directors may become aware of investment and business opportunities that may be appropriate for presentation to the Company as well as the other entities with which they are affiliated.  They may have conflicts of interest in determining to which entity a particular business opportunity should be presented.

 

As a result of multiple business affiliations, the Company’s non-management directors may have legal obligations relating to presenting opportunities to acquire one or more properties, portfolios or real estate-related debt investments to other entities.  The Company’s non-management directors (including the Company’s non-executive Chairman) may present such opportunities to the other entities to which they owe pre-existing fiduciary duties before presenting such opportunities to the Company.  In addition, conflicts of interest may arise when the Company’s board of directors evaluates a particular opportunity.

 

Capital markets and economic conditions can materially affect the Company’s financial condition, its results of operations and the value of its assets.

 

There are many factors that can affect the value of the Company’s assets, including the state of the capital markets and economy.  The great recession negatively affected consumer spending and retail sales, which adversely impacted the performance and value of retail properties in most regions in the United States.  In addition, loans backed by real estate were difficult to obtain and that difficulty, together with a tightening of lending policies, resulted in a significant contraction in the amount of debt available to fund retail properties.  Although there has been improvement in the credit and real estate markets, any reduction in available financing may materially and adversely affect the Company’s ability to achieve its financial objectives.  Concern about the stability of the markets generally may limit the Company’s ability and the ability of its tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs.  Although the Company will factor in these conditions in acquiring its assets, its long term success depends in part on general economic conditions and the stability and dependability of the financing market for retail real estate.  If the national economy or the local economies in which the Company operates continue to experience uncertainty, or if general economic conditions were to worsen, the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders could be materially and adversely affected.

 

Bankruptcy or insolvency of tenants may decrease the Company’s revenues and available cash.

 

In the case of many retail properties, the bankruptcy or insolvency of a major tenant could cause the Company to suffer lower revenues and operational difficulties, and could allow other tenants to exercise so-called “kick-out” clauses in their leases and terminate their lease or reduce their rents prior to the normal expiration of their lease terms.  As a result, the bankruptcy or insolvency of major tenants could materially and adversely affect the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

Inflation or deflation may materially and adversely affect the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and distributions to its securityholders.

 

Increased inflation could have a pronounced negative impact on the Company’s property operating expenses and general and administrative expenses, as these costs could increase at a rate higher than the Company’s rents.  Inflation could also have an adverse effect on consumer spending which could impact the Company’s tenants’ sales and, in turn, the Company’s percentage rents, where applicable, and the willingness and ability of tenants to enter into or renew leases and/or honor their obligations under existing leases.  Conversely, deflation could lead to downward pressure on rents and other sources of income.

 

Compliance or failure to comply with safety regulations and requirements could result in substantial costs.

 

The Company’s properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements.  If the Company fails to comply with these requirements, it could incur fines or private damage awards.  The Company does not know whether compliance with the requirements will require significant unanticipated expenditures that could affect its income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

The Company expects to acquire additional properties and this may create risks.

 

The Company expects to acquire additional properties consistent with its investment strategies.  The Company may not, however, succeed in consummating desired acquisitions on time, within budget or at all.  In addition, the Company may face competition in pursuing acquisition opportunities, which could result in increased acquisition costs.  When the Company does pursue a project or acquisition, it may not succeed in leasing newly acquired properties at rents sufficient to cover its costs of acquisition.  Difficulties in integrating acquisitions may prove costly or time-consuming and could result in poorer than anticipated performance.  The Company may also abandon acquisition opportunities that it has begun pursuing and consequently fail to recover expenses already incurred.  Furthermore, acquisitions of new properties will expose the Company to the liabilities of those properties, including, for example, liabilities for clean-up of disclosed or undisclosed environmental contamination, claims by persons in respect of events transpiring or conditions existing before the Company’s acquisition and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of properties.

 

Factors affecting the general retail environment could adversely affect the financial condition of the Company’s retail tenants and the willingness of retailers to lease space in its shopping centers, and in turn, materially and adversely affect the Company.

 

The Company’s properties are focused on the retail real estate market.  This means that the performance of the Company’s properties will be impacted by general retail market conditions, including the level of consumer spending and consumer confidence, the threat of terrorism and increasing competition from online retail websites and catalog companies.  These conditions could adversely affect the financial condition of the Company’s retail tenants and the willingness and ability of retailers to lease space, or renew existing leases, in the Company’s shopping centers and to honor their obligations under existing leases, and in turn, materially and adversely affect the Company.

 

The Company’s growth depends on external sources of capital, which may not be available in the future.

 

In order to maintain its qualification as a REIT, the Company is required under the Internal Revenue Code of 1986, as amended (the “Code”), to annually distribute at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain.  After the Company invests its cash on hand, it expects to depend primarily on its credit facility and other external financing (including debt and equity financings) to fund the growth of its business.  The Company’s access to debt or equity financing depends on the willingness of third parties to lend or make equity investments and on conditions in the capital markets generally.  As a result of changing economic conditions, the Company may be limited in its ability to obtain additional financing or to refinance existing debt maturities on favorable terms or at all and there can be no assurances as to when financing conditions will improve.

 

The Company does not have a formal policy limiting the amount of debt it may incur and its board of directors may change its leverage policy without stockholder consent, which could result in a different risk profile.

 

Although the Company’s Charter and Bylaws do not limit the amount of indebtedness the Company can incur, the Company’s policy is to employ prudent amounts of leverage and use debt as a means of providing additional funds for the acquisition of its assets and the diversification of its portfolio.  The amount of leverage the Company will deploy for particular investments will depend upon its management team’s assessment of a variety of factors, which may include the anticipated liquidity and price volatility of the assets in its portfolio, the potential for losses, the availability and cost of financing the assets, the Company’s opinion of the creditworthiness of its financing counterparties, the health of the U.S. economy and commercial mortgage markets, the Company’s outlook for the level, slope and volatility of interest rates, the credit quality of the tenants occupying space at the Company’s properties, and the need for the Company to comply with financial covenants contained in the Company’s credit facility.  The Company’s board of directors may change its leverage policies at any time without the consent of its stockholders, which could result in an investment portfolio with a different risk profile.

 

The Company could be adversely affected if it or any of its subsidiaries are required to register as an investment company under the Investment Company Act of 1940 as amended (the “1940 Act”).

 

The Company conducts its operations so that neither it, nor the Operating Partnership nor any of the Company’s other subsidiaries, is required to register as investment companies under the 1940 Act.  If the Company, the Operating Partnership or the Company’s other subsidiaries are required to register as an investment company but fail to do so, the unregistered entity would be prohibited from engaging in certain business, and criminal and civil actions could be brought against such entity.  In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.

 

Real estate investments’ value and income fluctuate due to conditions in the general economy and the real estate business, which may materially and adversely affect the Company’s ability to service its debt and expenses.

 

The value of real estate fluctuates depending on conditions in the general and local economy and the real estate business.  These conditions may also limit the Company’s revenues and available cash.  The rents the Company receives and the occupancy levels at its properties may decline as a result of adverse changes in conditions in the general economy and the real estate business.  If rental revenues and/or occupancy levels decline, the Company generally would expect to have less cash available to pay indebtedness and for distribution to its securityholders.  In addition, some of the Company’s major expenses, including mortgage payments, real estate taxes and maintenance costs, generally do not decline when the related rents decline.

 

The lack of liquidity of the Company’s assets could materially and adversely affect the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders, and could materially and adversely affect the Company’s ability to value and sell its assets.

 

Real estate investments are relatively difficult to buy and sell quickly.  As a result, the Company expects many of its investments will be illiquid and if it is required to liquidate all or a portion of its portfolio quickly, it may realize significantly less than the value at which it had previously recorded its investments.

 

The Company depends on leasing space to tenants on economically favorable terms and collecting rent from tenants, some of whom may not be able to pay.

 

The Company’s financial results depend significantly on leasing space in its properties to tenants on economically favorable terms.  In addition, as a substantial majority of the Company’s revenue comes from renting real property, the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders could be materially and adversely affected if a significant number of its tenants cannot pay their rent or if the Company is not able to maintain occupancy levels on favorable terms.  If a tenant does not pay its rent, the Company may not be able to enforce its rights as landlord without delays and may incur substantial legal costs.

 

Some of the Company’s properties depend on anchor stores or major tenants to attract shoppers and could be materially and adversely affected by the loss of or a store closure by one or more of these tenants.

 

The Company’s shopping centers are primarily anchored by national and regional supermarkets and drug stores.  The value of the retail properties the Company acquires could be materially and adversely affected if these tenants fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations.  Adverse economic conditions may result in the closure of existing stores by tenants which may result in increased vacancies at the Company’s properties.  Any periods of significant vacancies for the Company’s properties could materially and adversely impact the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

Loss of revenues from major tenants could reduce the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

The Company derives significant revenues from anchor tenants such as Albertson’s/Safeway Supermarkets, Kroger Supermarkets and Rite Aid Pharmacy.  As of December 31, 2015, these tenants are the Company’s three largest tenants and accounted for 5.0%, 2.4% and 1.9%, respectively, of its annualized base rent on a pro-rata basis.  The Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders could be materially and adversely affected by the loss of revenues in the event a major tenant becomes bankrupt or insolvent, experiences a downturn in its business, materially defaults on its leases, does not renew its leases as they expire, or renews at lower rental rates.

 

The Company’s Common Area Maintenance (“CAM”) contributions may not allow it to recover the majority of its operating expenses from tenants.

 

CAM costs typically include allocable energy costs, repairs, maintenance and capital improvements to common areas, janitorial services, administrative, property and liability insurance costs and security costs.  The Company may acquire properties with leases with variable CAM provisions that adjust to reflect inflationary increases or leases with a fixed CAM payment methodology which fixes its tenants’ CAM contributions.  With respect to both variable and fixed payment methodologies, the amount of CAM charges the Company bills to its tenants based on the terms of the respective lease agreements may not allow it to recover or pass on all these operating expenses to tenants, which may reduce operating cash flow from its properties.  Such a reduction could result in a material and adverse effect on the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

The Company may incur costs to comply with environmental laws.

 

The Company’s operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment, including air and water quality, hazardous or toxic substances and health and safety.  Under some environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property.  The owner or operator may also be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination.  These laws often impose liability without regard to whether the owner or operator knew of the release of the substances or caused the release.  The presence of contamination or the failure to remediate contamination may impair the Company’s ability to sell or lease real estate or to borrow using the real estate as collateral.  Other laws and regulations govern indoor and outdoor air quality including those that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or remodeling and also govern emissions of and exposure to asbestos fibers in the air.  The maintenance and removal of lead paint and certain electrical equipment containing polychlorinated biphenyls (“PCBs”) and underground storage tanks are also regulated by federal and state laws.  The Company is also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible individuals.  The Company could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to the foregoing regulated substances or tanks or related claims arising out of environmental contamination or human exposure to contamination at or from its properties.  Identification of compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, discovery of additional sites, human exposure to the contamination or changes in cleanup or compliance requirements could result in significant costs to the Company.

 

The Company faces risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of its information technology (“IT”) networks and related systems. 

 

The Company faces risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside the Company or persons with access to systems inside the Company, and other significant disruptions of the Company’s IT networks and related systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. The Company’s IT networks and related systems are essential to the operation of its business and its ability to perform day-to-day operations (including managing its building systems), and, in some cases, may be critical to the operations of certain of its tenants. There can be no assurance that the Company’s efforts to maintain the security and integrity of these types of IT networks and related systems will be effective or that attempted security breaches or disruptions would not be successful or damaging. A security breach or other significant disruption involving the Company’s IT networks and related systems could materially and adversely impact the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

A prolonged economic slowdown, a lengthy or severe recession or declining real estate values could impair the Company’s assets and have a material and adverse effect on its income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

The Company believes the risks associated with its business will be more severe during periods of economic slowdown or recession if these periods are accompanied by declining real estate values.  Declines in real estate values, among other factors, could result in a determination that the Company’s assets have been impaired. If the Company determines that an impairment has occurred, the Company would be required to make an adjustment to the net carrying value of the asset which could have an adverse effect on its results of operations in the period in which the impairment charge is recorded. Although the Company will take current economic conditions into account in acquiring its assets, the Company’s long term success, and the value of its assets, depends in part on general economic conditions and other factors beyond the Company’s control.  If the national economy or the local economies in which the Company operates experience uncertainty, or if general economic conditions were to worsen, the value of the Company’s properties could decline, and the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders, could be materially and adversely affected.

 

Loss of key personnel could harm the Company’s operations.

 

The Company is dependent on the efforts of certain key personnel of its senior management team.  While the Company has employment contracts with each of Messrs. Tanz, Haines and Schoebel, the loss of the services of any of these individuals could harm the Company’s operations and have a material and adverse effect on its income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

Under their employment agreements, certain members of the Company’s senior management team will have certain rights to terminate their employment and receive severance in connection with a change in control of the Company.

 

The Company’s employment agreements with each of Messrs. Tanz, Haines and Schoebel, which provide that, upon termination of his employment (i) by the applicable officer within 12 months following the occurrence of a change in control (as defined in the employment agreement), (ii) by the Company without cause (as defined in the employment agreement), (iii) by the applicable officer for good reason (as defined in the employment agreement), (iv) by non-renewal of the applicable officer’s employment agreement or (v) by reason of the applicable officer’s death or disability (as defined in the employment agreement), such executive officers would be entitled to certain termination or severance payments made by the Company (which may include a lump sum payment equal to defined percentages of annual salary and prior years’ average bonuses, paid in accordance with the terms and conditions of the respective agreement).  In addition, the vesting of all his outstanding unvested equity-based incentives and awards would accelerate.  These provisions make it costly to terminate their employment and could delay or prevent a transaction or a change in control of the Company that might involve a premium paid for shares of its common stock or otherwise be in the best interests of its stockholders.

 

Joint venture investments could be materially and adversely affected by the Company’s lack of sole decision-making authority or reliance on a joint venture partner’s financial condition.

 

The Company may enter into joint venture arrangements in the future.  Investments in joint ventures involve risks that are not otherwise present with properties which the Company owns entirely.  In a joint venture investment, the Company may not have exclusive control or sole decision-making authority over the development, financing, leasing, management and other aspects of these investments.  As a result, the joint venture partner might have economic or business interests or goals that are inconsistent with the Company’s goals or interests, take action contrary to the Company’s interests or otherwise impede the Company’s objectives.  Joint venture investments involve risks and uncertainties, including the risk of the joint venture partner failing to provide capital and fulfill its obligations, which may result in certain liabilities to the Company for guarantees and other commitments, the risk of conflicts arising between the Company and its partners and the difficulty of managing and resolving such conflicts, and the difficulty of managing or otherwise monitoring such business arrangements.  The joint venture partner also might become insolvent or bankrupt, which may result in significant losses to the Company.  Further, although the Company may own a controlling interest in a joint venture and may have authority over major decisions such as the sale or refinancing of investment properties, the Company may have fiduciary duties to the joint venture partners or the joint venture itself that may cause, or require, it to take or refrain from taking actions that it would otherwise take if it owned the investment properties outright.

 

Uninsured losses or a loss in excess of insured limits could materially and adversely affect the Company.

 

The Company carries comprehensive general liability, fire, extended coverage, loss of rent insurance, and environmental liability where applicable on its properties, with policy specifications and insured limits customarily carried for similar properties.  However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, the Company generally does not maintain loss of rent insurance.  In addition, there are certain types of losses, such as losses resulting from wars, terrorism or acts of God that generally are not insured because they are either uninsurable or not economically insurable.  Should an uninsured loss or a loss in excess of insured limits occur, the Company could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property.  Any loss of these types could materially and adversely affect the Company’s income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

The Company could be materially and adversely affected by poor market conditions where its properties are geographically concentrated.

 

The Company’s performance depends on the economic conditions in markets in which its properties are concentrated.  During the year ended December 31, 2015, the Company’s properties in California, Washington and Oregon accounted for 68%, 20% and 12%, respectively, of its consolidated property operating income.  The Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders could be materially and adversely affected by this geographic concentration if market conditions, such as an oversupply of space or a reduction in demand for real estate in an area, deteriorate in California, Oregon and Washington.

 

Should the Company decide at some point in the future to expand into new markets, it may not be successful, which could materially and adversely affect its business, financial condition, liquidity and results of operations.

 

The Company’s properties are concentrated in California, Oregon and Washington. If the opportunity arises, the Company may explore acquisitions of properties in new markets inside or outside of these states. Each of the risks applicable to the Company’s ability to successfully acquire, integrate and operate properties in its current markets may also apply to its ability to successfully acquire, integrate and operate properties in new markets. In addition to these risks, the Company’s management team may not possess the same level of knowledge with respect to market dynamics and conditions of any new market in which the Company may attempt to expand, which could materially and adversely affect its ability to operate in any such markets. The Company may be unable to obtain the desired returns on its investments in these new markets, which could materially and adversely affect the Company’s income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

Risks Related to Financing

 

The Company’s term loan, credit facility and unsecured senior notes contain restrictive covenants relating to its operations, which could limit the Company’s ability to respond to changing market conditions and its ability to pay dividends and other distributions to its securityholders.

 

The Company’s term loan, credit facility and unsecured senior notes contain restrictive covenants which are described in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations-Liquidity and Capital Resources”.  These or other limitations, including those that may apply to future company borrowings, may materially and adversely affect the Company’s flexibility and its ability to achieve its operating plans and could result in the Company being limited in the amount of dividends and distributions it would be permitted to pay to its securityholders.

 

In addition, failure to comply with these covenants could cause a default under the applicable debt instrument, and the Company may then be required to repay such debt with capital from other sources.  Under those circumstances, other sources of capital may not be available to the Company, or may be available only on unattractive terms.

 

Certain of the Company’s mortgage financing arrangements and other indebtedness contain provisions that could limit the Company’s operating flexibility.

 

The Company’s existing mortgage financing contains, and future mortgage financing may in the future contain, customary covenants and provisions that limit the Company’s ability to pre-pay such mortgages before their scheduled maturity date or to transfer the underlying asset. Additionally, the Company’s ability to satisfy prospective mortgage lenders’ insurance requirements may be materially and adversely affected if lenders generally insist upon greater insurance coverage against certain risks than is available to the Company in the marketplace or on commercially reasonable terms.  In addition, because a mortgage is secured by a lien on the underlying real property, mortgage defaults subject the Company to the risk of losing the property through foreclosure.

 

The Company’s access to financing may be limited and thus its ability to potentially enhance its returns may be materially and adversely affected.

 

The Company intends, when appropriate, to employ prudent amounts of leverage and use debt as a means of providing additional funds for the acquisition of its assets and the diversification of its portfolio.  To the extent market conditions improve and markets stabilize over time, the Company expects to increase its borrowing levels.  As of December 31, 2015, the Company’s outstanding mortgage indebtedness was approximately $61.7 million, and the Company may incur significant additional debt to finance future acquisition and development activities.  The Company’s credit facility consists of a $500.0 million unsecured revolving credit facility and the Company has a $300.0 million term loan, of which $135.5 million and $300.0 million, respectively, were outstanding as of December 31, 2015.

 

In addition, the Operating Partnership issued $250.0 million aggregate principal amount of unsecured senior notes in December 2013 (the “Senior Notes Due 2023”) and $250.0 million aggregate principal amount of unsecured senior notes in December 2014 (the “Senior Notes Due 2024”), each of which were fully and unconditionally guaranteed by ROIC.

 

The Company’s access to financing will depend upon a number of factors, over which it has little or no control, including:

 

·

general market conditions;

 

·

the market’s view of the quality of the Company’s assets;

 

·

the market’s perception of the Company’s growth potential;

 

·

the Company’s eligibility to participate in and access capital from programs established by the U.S. government;

 

·

the Company’s current and potential future earnings and cash distributions; and

 

·

the market price of the shares of the Company’s common stock.

 

Although there has been improvement in the credit markets and real estate, any reduction in available financing may materially and adversely affect the Company’s ability to achieve its financial objectives.  Concern about the stability of the markets generally could adversely affect one or more private lenders and could cause one or more private lenders to be unwilling or unable to provide the Company with financing or to increase the costs of that financing.  In addition, if regulatory capital requirements imposed on the Company’s private lenders change, they may be required to limit, or increase the cost of, financing they provide to the Company.  In general, this could potentially increase the Company’s financing costs and reduce its liquidity or require it to sell assets at an inopportune time or price.

 

During times when interest rates on mortgage loans are high or financing is otherwise unavailable on a timely basis, the Company has and may continue to purchase certain properties for cash or equity securities, including OP Units, or a combination thereof.  Consequently, depending on market conditions at the relevant time, the Company may have to rely more heavily on additional equity issuances, which may be dilutive to its stockholders, or on less efficient forms of debt financing that require a larger portion of its cash flow from operations, thereby reducing funds available for its operations, future business opportunities, cash distributions to its securityholders and other purposes.  The Company cannot assure you that it will have access to such equity or debt capital on favorable terms (including, without limitation, cost and term) at the desired times, or at all, which may cause it to curtail its asset acquisition activities and/or dispose of assets, which could materially and adversely affect its income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

Increases in interest rates could increase the amount of the Company’s debt payments and materially and adversely affect its business, financial condition, liquidity and results of operations.

 

Interest the Company pays could reduce cash available for distributions. As of December 31, 2015, the Company had approximately $135.5 million and $300.0 million outstanding under the Company’s $500.0 million unsecured revolving credit facility and $300.0 million term loan, respectively, that bear interest at a variable rate. In addition, the Company may incur variable rate debt in the future, including mortgage debt, borrowings under the unsecured revolving credit facility or new credit facilities. An increase in interest rates would increase the Company’s interest costs, which could adversely affect the Company’s cash flow, results of operations, ability to pay principal and interest on debt and pay dividends and other distributions to its securityholders, and reduce the Company’s access to capital markets. In addition, if the Company needs to repay existing debt during periods of rising interest rates, it may be required to incur additional indebtedness at higher rates. From time to time, the Company may enter into interest rate swap agreements and other interest rate hedging contracts with the intention of lessening the impact of rising interest rates. However, increased interest rates may increase the risk that the counterparties to such agreements may not be able to fulfill their obligations under these agreements, and there can be no assurance that these arrangements will be effective in reducing the Company’s exposure to interest rate changes.   These risks could materially and adversely affect the Company’s cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

Financing arrangements that the Company may use to finance its assets may require it to provide additional collateral or pay down debt.

 

The Company, when appropriate, uses traditional forms of financing including secured debt.  In the event the Company utilizes such financing arrangements, they would involve the risk that the market value of its assets which are secured may decline in value, in which case the lender may, in connection with a refinancing, require it to provide additional collateral, provide additional equity, or to repay all or a portion of the funds advanced.  The Company may not have the funds available to repay its debt or provide additional equity at that time, which would likely result in defaults unless it is able to raise the funds from alternative sources, which it may not be able to achieve on favorable terms or at all.  Providing additional collateral or equity would reduce the Company’s liquidity and limit its ability to leverage its assets.  If the Company cannot meet these requirements, the lender could accelerate the Company’s indebtedness, increase the interest rate on advanced funds and terminate its ability to borrow funds from them, which could materially and adversely affect the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.  The providers of secured debt may also require the Company to maintain a certain amount of cash or set aside assets sufficient to maintain a specified liquidity position.  As a result, the Company may not be able to leverage its assets as fully as it would choose which could reduce its return on assets.  There can be no assurance that the Company will be able to utilize such arrangements on favorable terms, or at all.

 

A downgrade in the Company’s or the Operating Partnership’s credit ratings could materially adversely affect the Company’s business and financial condition. 

 

The credit ratings assigned to the Company’s obligations or to the debt securities of the Operating Partnership could change based upon, among other things, the Company’s and the Operating Partnership’s results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and there can be no assurance that any rating will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, these credit ratings do not apply to the Company’s common stock and are not recommendations to buy, sell or hold any other securities. If any of the credit rating agencies that have rated the obligations of the Company or the debt securities of the Operating Partnership downgrades or lowers its credit ratings, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could have a material adverse effect on the Company’s costs and availability of capital, which could in turn materially and adversely impact the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

Risks Related to the Company’s Organization and Structure

 

The Company depends on dividends and distributions from its direct and indirect subsidiaries.  The creditors and any preferred equity holders of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or distributions to the Company.

 

Substantially all of the Company’s assets are held through the Operating Partnership, which holds substantially all of the Company’s properties and assets through subsidiaries.  The Operating Partnership’s cash flow is dependent on cash distributions to it by its subsidiaries, and in turn, substantially all of the Company’s cash flow is dependent on cash distributions to it by the Operating Partnership.  The creditors and any preferred equity holders of the Company’s direct and indirect subsidiaries are entitled to payment of that subsidiary’s obligations to them, when due and payable, before distributions may be made by that subsidiary to its common equity holders.  Thus, the Operating Partnership’s ability to make distributions to the Company and therefore the Company’s ability to make distributions to its stockholders will depend on its subsidiaries’ ability first to satisfy their obligations to creditors and any preferred equity holders and then to make distributions to the Operating Partnership.

 

In addition, the Company’s participation in any distribution of the assets of any of its direct or indirect subsidiaries upon the liquidation, reorganization or insolvency, is only after the claims of the creditors, including the holders of the unsecured senior notes and trade creditors, and preferred equity holders are satisfied.

 

Certain provisions of Maryland law may limit the ability of a third party to acquire control of the Company.

 

Certain provisions of the Maryland General Corporation Law, or the MGCL, may have the effect of delaying, deferring or preventing a transaction or a change in control of the Company that might involve a premium price for holders of the Company’s common stock or otherwise be in their best interests, including:

 

·

“business combination” provisions that, subject to certain limitations, prohibit certain business combinations between the Company and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of the Company’s shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose special minimum price provisions and special stockholder voting requirements on these combinations; and

 

·

“control share” provisions that provide that “control shares” of the Company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by the Company’s stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

 

However, the provisions of the MGCL relating to business combinations do not apply to business combinations that are approved or exempted by the Company’s board of directors prior to the time that the interested stockholder becomes an interested stockholder.  In addition, the Company’s Bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of the Company’s common stock.  There can be no assurance that such exemption will not be amended or eliminated at any time in the future.

 

Additionally, Title 3, Subtitle 8 of the MGCL permits the Company’s board of directors, without stockholder approval and regardless of what is currently provided in the Company’s charter or bylaws, to take certain actions that may have the effect of delaying, deferring or preventing a transaction or a change in control of the Company that might involve a premium to the market price of its common stock or otherwise be in the stockholders’ best interests.  These provisions of the MGCL permit the Company, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to adopt:

 

·

a classified board;

 

·

a two-thirds vote requirement for removing a director;

 

·

a requirement that the number of directors be fixed only by vote of the board of directors;

 

·

a requirement that a vacancy on the board be filled only by the remaining directors in office and (if the board is classified) for the remainder of the full term of the class of directors in which the vacancy occurred; and

 

·

a majority requirement for the calling of a stockholder-requested special meeting of stockholders.

 

The authorized but unissued shares of preferred stock and the ownership limitations contained in the Company’s Charter may prevent a change in control.

 

The Charter authorizes the Company to issue authorized but unissued shares of preferred stock.  In addition, the Charter provides that the Company’s board of directors has the power, without stockholder approval, to authorize the Company to issue any authorized but unissued shares of stock, to classify any unissued shares of preferred stock and to reclassify any unissued shares of common stock or previously-classified shares of preferred stock into other classes or series of stock.  As a result, the Company’s board of directors may establish a series of shares of preferred stock or use such preferred stock to create a stockholder’s rights plan or so-called “poison pill” that could delay or prevent a transaction or a change in control that might involve a premium price for shares of the Company’s common stock or otherwise be in the best interests of the Company’s stockholders.

 

In addition, the Company’s Charter contains restrictions limiting the ownership and transfer of shares of the Company’s common stock and other outstanding shares of capital stock.  The relevant sections of the Company’s Charter provide that, subject to certain exceptions, ownership of shares of the Company’s common stock by any person is limited to 9.8% by value or by number of shares, whichever is more restrictive, of the outstanding shares of common stock (the common share ownership limit), and no more than 9.8% by value or number of shares, whichever is more restrictive, of the outstanding capital stock (the aggregate share ownership limit).  The common share ownership limit and the aggregate share ownership limit are collectively referred to herein as the “ownership limits.”  These provisions will restrict the ability of persons to purchase shares in excess of the relevant ownership limits.  The Company’s board of directors has established exemptions from this ownership limit which permit certain institutional investors to hold additional shares of the Company’s common stock.  The Company’s board of directors may in the future, in its sole discretion, establish additional exemptions from this ownership limit.

 

The Company’s failure to qualify as a REIT would subject it to U.S. federal income tax and potentially increased state and local taxes, which would reduce the amount of cash available for distribution to its stockholders.

 

The Company intends to operate in a manner that will enable it to continue to qualify as a REIT for U.S. federal income tax purposes.  The Company has not requested and does not intend to request a ruling from the U.S. Internal Revenue Service that it will continue to qualify as a REIT.  The U.S. federal income tax laws governing REITs are complex.  The complexity of these provisions and of the applicable U.S. Treasury Department regulations that have been promulgated under the Code (“Treasury Regulations”) is greater in the case of a REIT that holds assets through a partnership, such as the Company, and judicial and administrative interpretations of the U.S. federal income tax laws governing REIT qualification are limited.  To qualify as a REIT, the Company must meet, on an ongoing basis, various tests regarding the nature of its assets and its income, the ownership of its outstanding shares, and the amount of its distributions.  Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for the Company to qualify as a REIT.  Thus, while the Company believes that it has operated and intends to continue to operate so that it will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in the Company’s circumstances, no assurance can be given that it has qualified or will continue to so qualify for any particular year.

 

If the Company fails to qualify as a REIT in any taxable year, and does not qualify for certain statutory relief provisions, it would be required to pay U.S. federal income tax on its taxable income, and distributions to its stockholders would not be deductible by it in determining its taxable income.  In such a case, the Company might need to borrow money or sell assets in order to pay its taxes.  The Company’s payment of income tax would decrease the amount of its income available for distribution to its stockholders.  Furthermore, if the Company fails to maintain its qualification as a REIT, it would no longer be required to distribute substantially all of its net taxable income to its stockholders.  In addition, unless the Company were eligible for certain statutory relief provisions, it would not be eligible to re-elect to qualify as a REIT for four taxable years following the year in which it failed to qualify as a REIT.

 

Failure to make required distributions would subject the Company to tax, which would reduce the cash available for distribution to its stockholders.

 

In order to qualify as a REIT, the Company must distribute to its stockholders each calendar year at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain.  To the extent that the Company satisfies the 90% distribution requirement, but distributes less than 100% of its taxable income, it is subject to U.S. federal corporate income tax on its undistributed income.  In addition, the Company will incur a 4% non-deductible excise tax on the amount, if any, by which its distributions in any calendar year are less than a minimum amount specified under U.S. federal income tax laws.  The Company intends to distribute its net income to its stockholders in a manner intended to satisfy the REIT 90% distribution requirement and to avoid the 4% non-deductible excise tax.

 

The Company’s taxable income may exceed its net income as determined by the U.S. generally accepted accounting principles (“GAAP”) because, for example, realized capital losses will be deducted in determining its GAAP net income, but may not be deductible in computing its taxable income.  In addition, the Company may invest in assets that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets.  For example, the Company may be required to accrue interest income on mortgage loans or other types of debt securities or interests in debt securities before it receives any payments of interest or principal on such assets.  Similarly, some of the debt securities that the Company acquires may have been issued with original issue discount.  The Company will be required to include such original issue discount in income based on a constant yield to maturity method. As a result of the foregoing, the Company may generate less cash flow than taxable income in a particular year.  To the extent that the Company generates such non-cash taxable income in a taxable year, it may incur corporate income tax and the 4% non-deductible excise tax on that income if it does not distribute such income to stockholders in that year.  In that event, the Company may be required to use cash reserves, incur debt or liquidate assets at rates or times that it regards as unfavorable or make a taxable distribution of its shares in order to satisfy the REIT 90% distribution requirement and to avoid U.S. federal corporate income tax and the 4% non-deductible excise tax in that year.

 

To maintain its REIT qualification, the Company may be forced to borrow funds during unfavorable market conditions.

 

In order to qualify as a REIT and avoid the payment of income and excise taxes, the Company may need to borrow funds on a short-term basis, or possibly on a long-term basis, to meet the REIT distribution requirements even if the then prevailing market conditions are not favorable for these borrowings.  These borrowing needs could result from, among other things, a difference in timing between the actual receipt of cash and inclusion of income for U.S. federal income tax purposes, the effect of non-deductible capital expenditures, the creation of reserves or required debt amortization payments.

 

Even if the Company qualifies as a REIT, it may be required to pay certain taxes.

 

Even if the Company qualifies for taxation as a REIT, it may be subject to certain U.S. federal, state and local taxes on its income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure and state or local income, franchise, property and transfer taxes, including mortgage recording taxes.  In addition, the Company may hold some of its assets through taxable REIT subsidiary (“TRS”) corporations.  Any TRSs or other taxable corporations in which the Company owns an interest will be subject to U.S. federal, state and local corporate taxes.  Payment of these taxes generally would materially and adversely affect the Company’s income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay dividends and other distributions to its securityholders.

 

Dividends payable by REITs generally do not qualify for the reduced tax rates on dividend income from regular corporations, which could materially and adversely affect the value of the Company’s shares.

 

The maximum U.S. federal income tax rate for certain qualified dividends payable to domestic stockholders that are individuals, trusts and estates is 20%.  Dividends payable by REITs, however, are generally not eligible for the reduced rates and therefore may be subject to a 39.6% maximum U.S. federal income tax rate on ordinary income.  Although the reduced U.S. federal income tax rate applicable to qualified dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could materially and adversely affect the value of the shares of REITs, including the Company’s shares.

 

The Company may be subject to adverse legislative or regulatory tax changes that could reduce the market price of its shares of common stock.

 

At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly with retroactive effect.  The Company cannot predict if or when any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take effect retroactively.  The Company and its stockholders could be materially and adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.

 

In certain circumstances, the Company may be liable for certain tax obligations of certain limited partners.

 

In certain circumstances, the Company may be liable for certain tax obligations of certain limited partners. The Company has entered into tax protection agreements under which it has agreed to minimize the tax consequences to certain limited partners resulting from the sale or other disposition of certain of the Company’s assets. The obligation to indemnify such limited partners against adverse tax consequences is expected to continue until 2025. The Company may enter into additional tax protection agreements in the future. During the period of these obligations, the Company’s flexibility to dispose of the related assets will be limited. In addition, the indemnification obligations may be significant.

 

The Company cannot assure you of its ability to pay distributions in the future.

 

The Company intends to pay quarterly distributions and to make distributions to its stockholders in an amount such that it distributes all or substantially all of its REIT taxable income in each year, subject to certain adjustments.  The Company’s ability to pay distributions may be materially and adversely affected by a number of factors, including the risk factors described in this Annual Report on Form 10-K.  All distributions will be made, subject to Maryland law (or Delaware law, in the case of distributions by the Operating Partnership), at the discretion of the Company’s board of directors and will depend on the Company’s earnings, its financial condition, any debt covenants, maintenance of its REIT qualification and other factors as its board of directors may deem relevant from time to time.  The Company believes that a change in any one of the following factors could materially and adversely affect its income, cash flow, results of operations, financial condition, liquidity, the ability to service its debt obligations, the market price of its common stock and its ability to pay distributions to its securityholders:

 

·

the profitability of the assets acquired;

 

·

the Company’s ability to make profitable acquisitions;

 

·

margin calls or other expenses that reduce the Company’s cash flow;

 

·

defaults in the Company’s asset portfolio or decreases in the value of its portfolio; and

 

·

the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.

 

The Company cannot assure you that it will achieve results that will allow it to make a specified level of cash distributions or year-to-year increases in cash distributions in the future.  In addition, some of the Company’s distributions may include a return of capital.

 

Item 1B.  Unresolved Staff Comments

 

None.

 

Item 2.  Properties

 

The Company maintains its executive office at 8905 Towne Centre Drive, Suite 108, San Diego, CA 92122.

 

As of December 31, 2015, the Company’s portfolio consisted of 73 retail properties totaling approximately 8.6 million square feet of gross leasable area which were approximately 97.2% leased.  During the year ended December 31, 2015, the Company leased or renewed a total of approximately 1.3 million square feet in its portfolio. The Company has committed approximately $20.8 million, or $37.60 per square foot, in tenant improvements, including building improvements, for new leases that occurred during the year ended December 31, 2015. The Company has committed approximately $1.5 million, or $2.66 per square foot, in leasing commissions, for the new leases that occurred during the year ended December 31, 2015. Additionally, the Company has committed approximately $186,000, or $0.27 per square foot, in tenant improvements for renewed leases that occurred during the year ended December 31, 2015. Leasing commission commitments for renewed leases were not material for the year ended December 31, 2015.  

 

The following table provides information regarding the Company’s properties as of December 31, 2015.

 

Property, State		Year Completed/ Renovated		Year Acquired		Gross Leasable Sq. Feet		Number of Tenants		% Leased		Principal Tenants
Southern California
Paramount Plaza, CA		1966/2010		2009		95,062		14		100.0%		Grocery Outlet Supermarket, 99¢ Only Stores, Rite Aid Pharmacy
Santa Ana Downtown Plaza, CA		1987/2010		2010		100,305		28		100.0%		Kroger (Food 4 Less) Supermarket, Marshall’s
Claremont Promenade, CA		1982/2011		2010		91,529		26		100.0%		Super King Supermarket
Sycamore Creek, CA		2008		2010		74,198		17		98.2%		Safeway (Vons) Supermarket, CVS Pharmacy (1)
Gateway Village, CA		2003/2005		2010		96,959		28		96.1%		Sprouts Market
Marketplace Del Rio, CA		1990/ 2004		2011		177,142		41		90.4%		Stater Brothers Supermarket, Walgreens
Desert Springs Marketplace, CA		1993-94 / 2013		2011		105,111		18		100.0%		Kroger (Ralph’s) Supermarket, Rite Aid Pharmacy
Renaissance Towne Centre, CA		1991/2011		2011		53,074		28		98.2%		CVS Pharmacy
Euclid Plaza, CA		1982/2012		2012		77,044		10		100.0%		Vallarta Supermarket, Walgreens
Seabridge Marketplace, CA		2006		2012		93,630		21		100.0%		Safeway (Vons) Supermarket
Glendora Shopping Center, CA		1992/2012		2012		106,535		22		98.4%		Albertson’s Supermarket
Bay Plaza, CA		1986/2013		2012		73,324		30		99.9%		Seafood City Supermarket
Cypress Center West, CA		1970/1978 / 2014		2012		106,451		32		97.3%		Kroger (Ralph’s) Supermarket, Rite Aid Pharmacy
Redondo Beach Plaza, CA		1993/2004		2012		110,509		16		100.0%		Safeway (Von’s) Supermarket, Petco
Harbor Place Center, CA		1994		2012		119,821		10		100.0%		AA Supermarket, Ross Dress For Less
Diamond Bar Town Center, CA		1981		2013		100,342		24		100.0%		Walmart Neighborhood Market, Crunch Fitness
Bernardo Heights Plaza, CA		1983/2006		2013		37,729		5		100.0%		Sprouts Market
Diamond Hills Plaza, CA		1973/2008		2013		139,505		37		98.2%		H-Mart Supermarket, Rite Aid Pharmacy
Hawthorne Crossings, CA		1993/1999		2013		141,288		18		100.0%		Mitsuwa Supermarket, Ross Dress For Less, Staples
Five Points Plaza, CA		1961-62 / 2012 / 2015		2013		160,536		38		99.0%		Trader Joes, Pier 1
Peninsula Marketplace, CA		2000		2013		95,416		15		98.8%		Kroger (Ralph’s) Supermarket, CVS Pharmacy
Plaza de la Canada, CA		1968/2010		2013		100,408		14		100.0%		Gelson’s Supermarket, TJ Maxx, Rite Aid Pharmacy
Creekside Plaza, CA		1993/2005		2014		128,852		27		100.0%		Stater Brothers Supermarket, DigiPlex Theatre
Fallbrook Shopping Center, CA		1966/1986/ 2003/2015		2014		758,074		44		99.8%		Sprouts Market, Trader Joe’s, Kroger (Ralph’s) Supermarket(1), TJ Maxx
Moorpark Town Center, CA		1984/2014		2014		133,538		27		98.4%		Kroger (Ralph’s) Supermarket, CVS Pharmacy
Mission Foothill Marketplace, CA		1996		2014		110,678		20		94.4%		Haggen Supermarket, CVS Pharmacy
Ontario Plaza, CA		1997-1999		2015		149,651		24		99.1%		El Super Supermarket, Rite Aid Pharmacy
Park Oaks Shopping Center, CA		1959/2005		2015		110,092		33		100.0%		Safeway (Vons) Supermarket, Dollar Tree
Warner Plaza, CA		1973-1974		2015		114,242		58		87.9%		Sprouts Market
Northern California
Norwood Shopping Center, CA		1993/1999		2010		88,851		13		87.9%		Viva Supermarket, Rite Aid Pharmacy, Citi Trends
Pleasant Hill Marketplace, CA		1980		2010		69,715		3		100.0%		Buy Buy Baby, Office Depot, Basset Furniture
Pinole Vista Shopping Center, CA		1981/2012		2011		223,502		29		95.9%		SaveMart (Lucky) Supermarket, Kmart
Mills Shopping Center, CA		1959/1996		2011		239,081		29		87.0%		Viva Supermarket, dd’s Discounts, Dollar Tree, Planet Fitness
Morada Ranch, CA		2006		2011		101,842		18		99.4%		Raleys Supermarket
Country Club Gate Center, CA		1974/2012		2011		109,331		25		91.8%		SaveMart (Lucky) Supermarket, Rite Aid Pharmacy
Round Hill Square Shopping Center, NV		1998		2011		115,984		26		99.2%		Safeway Supermarket, Dollar Tree, U.S. Postal Service
Marlin Cove Shopping Center, CA		1972/2001		2012		73,186		24		99.2%		99 Ranch Market
Green Valley Station, CA		2006/2007		2012		52,245		14		87.8%		CVS Pharmacy
The Village at Novato, CA		2006		2012		20,081		4		100.0%		Trader Joe’s
Santa Teresa Village, CA		1974-79 / 2013		2012		125,162		34		91.2%		Raleys (Nob Hill) Supermarket, Dollar Tree
Granada Shopping Center, CA		1962/1994		2013		69,325		15		100.0%		SaveMart (Lucky) Supermarket
Country Club Village, CA		1995		2013		111,093		24		100.0%		Walmart Neighborhood Market, CVS Pharmacy

North Park Plaza, CA		1997		2014		76,697		14		98.2%		SF Supermarket
Winston Manor, CA		1977/1988/ 2011/2015		2015		49,852		14		100.0%		Grocery Outlet Supermarket
Jackson Square, CA		1972/1997		2015		114,220		16		100.0%		Safeway Supermarket, CVS Pharmacy, 24 Hour Fitness
Gateway Centre, CA		1996		2015		110,440		22		95.2%		SaveMart (Lucky) Supermarket, Walgreens
Iron Horse Plaza, CA		1998-1999		2015		61,860		10		100.0%		Lunardi’s Markets
Portland Metropolitan
Vancouver Market Center, WA		1996/2012		2010		118,385		17		79.2%		Skyzone
Happy Valley Town Center, OR		2007		2010		138,696		37		98.4%		New Seasons Supermarket
Wilsonville Old Town Square, OR		2011		2010/2012		49,937		20		100.0%		Kroger (Fred Meyer) Supermarket (1)
Cascade Summit Town Square, OR		2000		2010		95,508		31		100.0%		Safeway Supermarket
Heritage Market Center, WA		2000		2010		107,468		17		94.9%		Safeway Supermarket, Dollar Tree
Division Crossing, OR		1992		2010		103,561		20		100.0%		Rite Aid Pharmacy, Ross Dress For Less, Ace Hardware
Halsey Crossing, OR		1992		2010		99,428		18		100.0%		Safeway Supermarket, Dollar Tree
Hillsboro Market Center, OR		2001-2002		2011		156,021		21		100.0%		Albertson’s Supermarket, Dollar Tree, Marshall’s
Robinwood Shopping Center, OR		1980 / 2012		2013		70,831		15		98.3%		Walmart Neighborhood Market
Tigard Marketplace, OR		1988/2005		2014		136,889		18		99.3%		H-Mart Supermarket, Bi-Mart Pharmacy
Wilsonville Town Center, OR		1991/1996		2014		167,829		38		95.9%		Thriftway Supermarket, Rite Aid Pharmacy, Dollar Tree
Tigard Promenade, OR		1996		2015		88,043		13		94.2%		Safeway Supermarket
Sunnyside Village Square, OR		1996-1997		2015		84,870		12		98.6%		Haggen Supermarket, Ace Hardware
Johnson Creek Center, OR		2003/2009		2015		108,588		13		98.4%		Trader Joe’s, Walgreens, Sportsman’s Warehouse
Seattle Metropolitan
Meridian Valley Plaza, WA		1978/2011		2010		51,597		13		93.0%		Kroger (QFC) Supermarket
The Market at Lake Stevens, WA		2000		2010		74,130		9		100.0%		Haggen Supermarket
Canyon Park Shopping Center, WA		1980/2012		2011		123,627		24		100.0%		PCC Natural Markets, Rite Aid Pharmacy, Petco
Hawks Prairie Shopping Center, WA		1988/2012		2011		154,781		20		84.1%		Safeway Supermarket, Dollar Tree, Big Lots
The Kress Building, WA		1924/2005		2011		74,616		7		100.0%		IGA Supermarket, TJ Maxx
Gateway Shopping Center, WA		2007		2012		106,104		16		97.1%		WinCo Foods (1), Rite Aid Pharmacy, Ross Dress For Less
Aurora Square, WA		1980		2012		38,030		4		100.0%		Central Supermaket
Canyon Crossing, WA		2008-2009		2013		120,510		24		94.3%		Safeway Supermarket
Crossroads Shopping Center, WA		1962/2004/ 2015		2010/2013		463,436		92		100.0%		Kroger (QFC) Supermarket, Bed Bath & Beyond, Sports Authority
Aurora Square II, WA		1987		2014		65,680		11		100.0%		Marshall’s, Pier 1 Imports
Sternco Shopping Center, WA		1971/1982		2015		113,758		19		100.0%		Asian Food Center
Four Corner Square, WA		1983/2015		2015		119,560		26		94.8%		Grocery Outlet Supermarket, Walgreens, Johnsons Home & Garden

_______________

 

(1)

Retailer owns their own space and is not a tenant of the Company.

 

As illustrated by the following tables, the Company’s shopping centers are substantially diversified by both tenant mix and by the staggering of its major tenant lease expirations.  For the year ended December 31, 2015, no single tenant comprised more than 5.0% of the total annual base rent of the Company’s portfolio.

 

The following table sets forth a summary schedule of the Company’s ten largest tenants by percent of total annual base rent, as of December 31, 2015.

 

Tenant		Number of Leases				% of Total Annual Base Rent (1)
Albertson’s / Safeway Supermarkets			14				5.0	%
Kroger Supermarkets			7				2.4	%
Rite Aid Pharmacy			12				1.9	%
SaveMart Supermarkets			4				1.7	%
Marshall’s / TJMaxx			6				1.6	%
Sprouts Market			4				1.6	%
JP Morgan Chase			17				1.5	%
Ross Dress For Less / dd’s Discounts			6				1.3	%
Haggen Supermarkets			3				1.2	%
CVS Pharmacy			7				1.1	%
			80				19.3	%

___________________

 

(1)

Annual base rent is equal to the annualized cash rent for all leases in place as of December 31, 2015 (including initial cash rent for new leases).

 

The following table sets forth a summary schedule of the annual lease expirations for leases in place across the Company’s total portfolio at December 31, 2015 (Annual Base Rent in thousands).

 

Year of Expiration		Number of Leases Expiring (1)				Leased Square Footage				Annual Base Rent (2)				Annual Base Rent%
2016			242				601,789			$	13,655				8.6	%
2017			294				893,045				19,001				12.0	%
2018			258				1,048,239				22,905				14.5	%
2019			202				871,986				17,917				11.4	%
2020			225				1,013,794				18,967				12.0	%
2021			108				665,651				11,175				7.0	%
2022			61				522,309				9,157				5.8	%
2023			43				553,196				9,626				6.1	%
2024			56				406,249				7,190				4.6	%
2025			54				469,536				8,457				5.3	%
Thereafter			77				1,315,727				20,404				12.7	%
Total			1,620				8,361,521			$	158,454				100.0	%

___________________

 

(1)

Assumes no tenants exercise renewal options or cancellation options.

(2)

Annual base rent is equal to the annualized cash rent for all leases in place as of December 31, 2015 (including initial cash rent for new leases).

 

The following table sets forth a summary schedule of the annual lease expirations for leases in place with the Company’s anchor tenants at December 31, 2015 (Annual Base Rent in thousands).  Anchor tenants are tenants with leases occupying at least 15,000 square feet or more.

 

Year of Expiration		Number of Leases Expiring (1)				Leased Square Footage				Annual Base Rent (2)				Annual Base Rent %
2016			5				178,469			$	1,967				1.2	%
2017			10				297,698				3,163				2.0	%
2018			18				527,083				8,323				5.3	%
2019			13				409,429				6,262				4.0	%
2020			13				473,930				5,253				3.3	%
2021			11				379,294				4,143				2.6	%
2022			12				348,440				4,676				3.0	%
2023			12				450,562				7,007				4.4	%
2024			5				246,034				3,092				2.0	%
2025			9				309,001				4,417				2.8	%
Thereafter			21				1,024,931				13,397				8.4	%
Total			129				4,644,871			$	61,700				39.0	%

____________________

 

(1)

Assumes no tenants exercise renewal or cancellation options.

(2)

Annual base rent is equal to the annualized cash rent for all leases in place as of December 31, 2015 (including initial cash rent for new leases).

 

Item 3.  Legal Proceedings

 

In the normal course of business, from time to time, the Company is involved in routine legal actions incidental to its business of the ownership and operations of its properties.  In management’s opinion, the liabilities, if any, that ultimately may result from such legal actions are not expected to have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

ROIC Market Information

 

ROIC’s common stock trades on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “ROIC”. The following table sets forth, for the period indicated, the high and low sales price for ROIC’s common stock as reported by the NASDAQ and the per share dividends declared:

 

Period		High				Low				Dividends Declared
2015
First Quarter		$	18.73			$	16.60			$	0.17
Second Quarter		$	18.47			$	15.44			$	0.17
Third Quarter		$	17.42			$	15.30			$	0.17
Fourth Quarter		$	18.68			$	16.39			$	0.17
2014
First Quarter		$	15.18			$	13.85			$	0.16
Second Quarter		$	16.30			$	14.82			$	0.16
Third Quarter		$	16.26			$	14.50			$	0.16
Fourth Quarter		$	17.22			$	14.61			$	0.16

 

On February 19, 2016, the closing price of ROIC’s common stock as reported by the NASDAQ was $18.47.

 

Dividends Declared on Common Stock and Tax Status

 

ROIC intends to make regular quarterly distributions to holders of its common stock.  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 pay U.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 stockholders in an amount not less than its net taxable income, including capital gains, if any, if and to the extent authorized by its board of directors.  Before ROIC pays any dividend, whether for U.S. federal income tax purposes or otherwise, it must first meet both its operating requirements and its debt service on debt.  If ROIC’s cash available for distribution is less than its net taxable income, it could be required to sell assets or borrow funds to make cash distributions or it may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

 

The following table sets forth the dividends declared per share of ROIC’s common stock and the tax status for U.S. federal income tax purposes of such dividends declared during the years ended December 31, 2015 and 2014:

 

Year Ended December 31, 2015

 

Record Date		Payable Date		Total Dividend per Share		Ordinary Income per Share (1)		Return of Capital per Share
3/16/2015		3/30/2015		$0.170000		$0.12951		$0.04049
6/16/2015		6/30/2015		$0.170000		$0.12951		$0.04049
9/15/2015		9/29/2015		$0.170000		$0.12951		$0.04049
12/15/2015		12/29/2015		$0.170000		$0.12951		$0.04049

_________________

 

(1)

Ordinary Income per Share is non-qualified dividend income.

 

Year Ended December 31, 2014

 

Record Date		Payable Date		Total Dividend per Share		Ordinary Income per Share (1)		Return of Capital per Share	Total Capital Gain per Share	Section 1250 Recapture per Share
3/14/2014		3/28/2014		$0.160000		$0.09568		$0.04423	$0.02009	$0.00127
6/13/2014		6/27/2014		$0.160000		$0.09568		$0.04423	$0.02009	$0.00127
9/15/2014		9/29/2014		$0.160000		$0.09568		$0.04423	$0.02009	$0.00127
12/15/2014		12/29/2014		$0.160000		$0.09568		$0.04423	$0.02009	$0.00127

_________________

 

(1)

Ordinary Income per Share is non-qualified dividend income.

 

As of December 31, 2015, 89.0% of the outstanding interests in the Operating Partnership were owned by the Company.

 

Holders

 

As of February 19, 2016, ROIC had 56 registered holders.  Such information was obtained through the registrar and transfer agent.

 

Operating Partnership

 

There is no established trading market for the Operating Partnership's OP Units. The following table sets forth the distributions per OP Unit with respect to the periods indicated:

 

Period		Distributions
2015
First Quarter		$	0.17
Second Quarter		$	0.17
Third Quarter		$	0.17
Fourth Quarter		$	0.17
2014
First Quarter		$	0.16
Second Quarter		$	0.16
Third Quarter		$	0.16
Fourth Quarter		$	0.16

 

The Operating Partnership intends to make regular quarterly distributions to holders of OP Units, to the extent authorized by ROIC's board of directors. As of December 31, 2015, the Operating Partnership had 51 registered holders, including Retail Opportunity Investments GP, LLC.

 

Stockholder Return Performance

 

 

The above graph compares the cumulative total return on the Company’s common stock with that of the Standard and Poor’s 500 Stock Index (“S&P 500”) and the National Association of Real Estate Investment Trusts Equity Index (“FTSE NAREIT Equity REITs”) from December 31, 2010 through December 31, 2015.  The stock price performance graph assumes that an investor invested $100 in each of ROIC and the indices, and the reinvestment of any dividends.  The comparisons in the graph are provided in accordance with the SEC disclosure requirements and are not intended to forecast or be indicative of the future performance of ROIC’s shares of common stock.

 

		Period Ending
Index		12/31/10				12/31/11				12/31/12				12/31/13				12/31/14				12/31/15
Retail Opportunity Investments Corp.			100.00				123.74				140.26				167.85				199.47				221.47
S&P500			100.00				102.11				118.45				156.82				178.28				180.75
FTSE NAREIT Equity REITs			100.00				108.29				127.85				131.01				170.49				175.94

 

Except to the extent that the Company specifically incorporates this information by reference, the foregoing Stockholder Return Performance information shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or under the Exchange Act.  This information shall not otherwise be deemed filed under such Acts.

 

Securities Authorized For Issuance Under Equity Compensation Plans

 

During 2009, ROIC adopted the 2009 Equity Incentive Plan (the “2009 Plan”).  For a description of the 2009 Plan, see Note 9 to the consolidated financial statements in this Annual Report on Form 10-K.

 

The following table presents certain information about the Company’s equity compensation plans as of December 31, 2015:

 

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)				Weighted-average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column of this table)
Equity compensation plans approved by stockholders			282,500			$	10.74				1,864,095
Equity compensation plans not approved by stockholders			—				—				—
Total			282,500			$	10.74				1,864,095

_________________

 

(1)

Includes 1,500 and 5,500 options granted during the years ended December 31, 2014, and 2013, respectively.

 

Item 6.  Selected Financial Data

 

The following tables set forth selected financial and operating information on a historical basis for ROIC and the Operating Partnership, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and the Company’s financial statements, including the notes, included elsewhere herein.

 

RETAIL OPPORTUNITY INVESTMENTS CORP.

CONSOLIDATED HISTORICAL FINANCIAL INFORMATION

(in thousands, except share data)

 

		Year Ended December 31,
Retail Opportunity Investments Corp.		2015				2014				2013				2012				2011
Statement of Operations Data:
Total revenues		$	192,699			$	155,864			$	111,232			$	75,096			$	51,737
Operating expenses			133,364				112,090				83,457				63,542				46,782
Operating income			59,335				43,774				27,775				11,554				4,955
Gain on consolidation of joint venture			—				—				20,382				2,145				—
Gain on bargain purchase			—				—				—				3,864				9,449
Gain on sale of real estate			—				4,869				—				—				—
Interest expense			34,243				27,593				15,855				11,380				6,225
Income from continuing operations			25,092				21,050				34,692				7,893				9,657
Loss from discontinued operations			—				—				(714	)			—				—
Net income			25,092				21,050				33,978				7,893				9,656
Net income attributable to Retail Opportunity Investments Corp.			23,864				20,301				33,813				7,893				9,656
Weighted average shares outstanding – Basic:			95,651,780				83,411,230				67,419,497				51,059,408				42,477,007
Weighted average shares outstanding – Diluted:			100,017,781				87,453,409				71,004,380				52,371,168				42,526,288
Income per share – Basic:
Income from continuing operations		$	0.25			$	0.24			$	0.51			$	0.15			$	0.23
Net income attributable to Retail Opportunity Investments Corp.		$	0.25			$	0.24			$	0.50			$	0.15			$	0.23
Income per share – Diluted:
Income from continuing operations		$	0.25			$	0.24			$	0.49			$	0.15			$	0.23
Net income attributable to Retail Opportunity Investments Corp.		$	0.25			$	0.24			$	0.48			$	0.15			$	0.23
Dividends per common share		$	0.68			$	0.64			$	0.60			$	0.53			$	0.39
Balance Sheet Data:
Real estate investments, net		$	2,162,306			$	1,697,725			$	1,314,934			$	864,624			$	602,624
Cash and cash equivalents		$	8,844			$	10,773			$	7,920			$	4,692			$	34,318
Total assets		$	2,310,635			$	1,851,696			$	1,439,090			$	950,912			$	694,433
Total liabilities		$	1,145,619			$	888,914			$	733,680			$	484,370			$	243,944
Non-controlling interests – redeemable OP Units		$	33,674			$	—			$	—			$	—			$	—
Total equity		$	1,131,342			$	962,782			$	705,410			$	466,542			$	450,489

 

RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP

CONSOLIDATED HISTORICAL FINANCIAL INFORMATION

(in thousands, except share data)

 

		Year Ended December 31,
Retail Opportunity Investments Partnership, LP		2015				2014				2013				2012				2011
Statement of Operations Data:
Total Revenues		$	192,699			$	155,864			$	111,232			$	75,096			$	51,737
Operating expenses			133,364				112,090				83,457				63,542				46,782
Operating income			59,335				43,774				27,775				11,554				4,955
Gain on consolidation of joint venture			—				—				20,382				2,145				—
Gain on bargain purchase			—				—				—				3,864				9,449
Gain on sale of real estate			—				4,869				—				—				—
Interest expense			34,243				27,593				15,855				11,380				6,225
Income from continuing operations			25,092				21,050				34,692				7,893				9,657
Loss from discontinued operations			—				—				(714	)			—				—
Net income			25,092				21,050				33,978				7,893				9,657
Net income attributable to the Operating Partnership			25,092				21,050				33,978				7,893				9,657
Weighted average units outstanding – Basic:			99,738,504				86,573,888				68,258,005				51,059,408				42,477,007
Weighted average units outstanding – Diluted:			100,017,781				87,453,409				71,004,380				52,371,168				42,526,288
Income per unit – Basic:
Income from continuing operations		$	0.25			$	0.24			$	0.51			$	0.15			$	0.23
Net income attributable to the Operating Partnership		$	0.25			$	0.24			$	0.50			$	0.15			$	0.23
Income per unit – Diluted:
Income from continuing operations		$	0.25			$	0.24			$	0.49			$	0.15			$	0.23
Net income attributable to the Operating Partnership		$	0.25			$	0.24			$	0.48			$	0.15			$	0.23
Distributions per unit		$	0.68			$	0.64			$	0.60			$	0.53			$	0.39
Balance Sheet Data:
Real estate investments, net		$	2,162,306			$	1,697,725			$	1,314,934			$	864,624			$	602,624
Cash and cash equivalents		$	8,844			$	10,773			$	7,920			$	4,692			$	34,318
Total assets		$	2,310,635			$	1,851,696			$	1,439,090			$	950,912			$	694,433
Total liabilities		$	1,145,619			$	888,914			$	733,680			$	484,370			$	243,944
Redeemable limited partners		$	33,674			$	—			$	—			$	—			$	—
Total capital		$	1,131,342			$	962,782			$	705,410			$	466,542			$	450,489

 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with the Retail Opportunity Investments Corp. Consolidated Financial Statements and Notes thereto appearing elsewhere in this Annual Report on Form 10-K.  The Company makes statements in this section that are forward-looking statements within the meaning of the federal securities laws.  For a complete discussion of forward-looking statements, see the section in this Annual Report on Form 10-K entitled “Statements Regarding Forward-Looking Information.”  Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion.  For a discussion of such risk factors, see the section in this Annual Report on Form 10-K entitled “Risk Factors.”

 

Overview

 

ROIC is organized in an UpREIT format pursuant to which Retail 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, a Delaware limited partnership, together with its subsidiaries.

 

ROIC commenced operations in October 2009 as a fully integrated and self-managed REIT, and as of December 31, 2015, ROIC owned an approximate 89.0% partnership interest and other limited partners owned the remaining 11.0% partnership interest in the Operating Partnership. ROIC specializes in the acquisition, ownership and management of necessity-based community and neighborhood shopping centers on the west coast of the United States, anchored by supermarkets and drugstores.

 

From the commencement of its operations through December 31, 2015, the Company has completed approximately $2.2 billion of shopping center investments. As of December 31, 2015, the Company’s portfolio consisted of 73 retail properties totaling approximately 8.6 million square feet of GLA.

 

As of December 31, 2015, the Company’s portfolio was approximately 97.2% leased. During the year ended December 31, 2015, the Company leased and renewed approximately 554,000 and 699,000 square feet, respectively, in its portfolio.

 

The table below provides a reconciliation of beginning of year vacant space to end of year vacant space as of December 31, 2015.

 

		Vacant Space Square Footage
Vacant space at December 31, 2014			253,223
Square footage vacated			242,615
Vacant space in acquired properties			60,485
Square footage leased			(317,921	)
Vacant space at December 31, 2015			238,402

 

The Company has committed approximately $20.8 million, or $37.60 per square foot, in tenant improvements, including building improvements, for new leases that occurred during the year ended December 31, 2015. The Company has committed approximately $1.5 million, or $2.66 per square foot, in leasing commissions for the new leases that occurred during the year ended December 31, 2015. Additionally, the Company has committed approximately $186,000, or $0.27 per square foot, in tenant improvements for renewed leases that occurred during the year ended December 31, 2015. Leasing commission commitments for renewed leases were not material for the year ended December 31, 2015.

 

Results of Operations

 

At December 31, 2015, the Company had 73 properties, all of which are consolidated (“consolidated properties”) in the accompanying financial statements. The Company believes, because of the location of the properties in densely populated areas, the nature of its investments provides for relatively stable revenue flows even during difficult economic times. The Company has a strong capital structure with manageable debt as of December 31, 2015. The Company expects to continue to actively explore acquisition opportunities consistent with its business strategy.

 

Property operating income is a non-GAAP financial measure of performance. The Company defines property operating income as operating revenues (base rent, recoveries from tenants and other income), less property and related expenses (property operating expenses and property taxes). Property operating income excludes general and administrative expenses, mortgage interest income, 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, extraordinary items, tenant improvements and leasing commissions. 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 our 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 our ownership of our 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.

 

Results of Operations for the year ended December 31, 2015 compared to the year ended December 31, 2014.

 

Property Operating Income

 

The table below provides a reconciliation of consolidated operating income, in accordance with GAAP, to consolidated property operating income for the years ended December 31, 2015 and 2014.

 

				Year Ended December 31,
				2015				2014
Operating income per GAAP				$	59,335			$	43,774
Plus:		Depreciation and amortization			70,957				58,435
		General and administrative expenses			12,650				11,200
		Acquisition transaction costs			965				961
		Other expenses			627				505
Property operating income				$	144,534			$	114,875

 

The following comparison for the year ended December 31, 2015 compared to the year ended December 31, 2014, makes reference to the effect of the same-center properties. Same-center properties, which totaled 53 of the Company’s 73 properties as of December 31, 2015, 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.

 

The table below provides a reconciliation of consolidated operating income in accordance with GAAP to property operating income for the year ended December 31, 2015 related to the 53 same-center properties owned by the Company during the entirety of both the years ended December 31, 2015 and 2014 and consolidated into the Company’s financial statements during such periods.

 

				Year Ended December 31, 2015
				Same-center				Non Same-Center				Total
Operating income per GAAP				$	58,758			$	577			$	59,335
Plus:		Depreciation and amortization			48,660				22,297				70,957
		General and administrative expenses (1)			—				12,650				12,650
		Acquisition transaction costs			53				912				965
		Other expenses (1)			—				627				627
Property operating income				$	107,471			$	37,063			$	144,534

______________________

 

(1)

For illustration purposes, general and administrative expenses and other expenses are included in non same-center because the Company does not allocate these types of expenses between same-center and non same-center.

 

The table below provides a reconciliation of consolidated operating income in accordance with GAAP to property operating income for the year ended December 31, 2014 related to the 53 same-center properties owned by the Company during the entirety of both the years ended December 31, 2015 and 2014 and consolidated into the Company’s financial statements during such periods.

 

				Year Ended December 31, 2014
				Same-Center				Non Same-Center				Total
Operating income per GAAP				$	51,569			$	(7,795	)		$	43,774
Plus:		Depreciation and amortization			49,967				8,468				58,435
		General and administrative expenses (1)			—				11,200				11,200
		Acquisition transaction costs			94				867				961
		Other expenses (1)			—				505				505
Property operating income				$	101,630			$	13,245			$	114,875

______________________

 

(1)

For illustration purposes, general and administrative expenses and other expenses are included in non same-center because the Company does not allocate these types of expenses between same-center and non same-center.

 

During the year ended December 31, 2015, the Company generated property operating income of approximately $144.5 million compared to property operating income of $114.9 million generated during the year ended December 31, 2014. Property operating income increased by $29.7 million during the year ended December 31, 2015 primarily as a result of an increase in the number of properties owned by the Company in 2015 compared to 2014 and an increase in same-center properties’ operating income.  As of December 31, 2015, the Company owned 73 consolidated properties as compared to 61 properties at December 31, 2014. The properties acquired during 2015 and 2014 increased property operating income in 2015 by approximately $23.8 million. The 53 same-center properties increased property operating income by approximately $5.8 million. This increase is primarily due to an increase in base rents and other property income.

 

Depreciation and amortization

 

The Company incurred depreciation and amortization expenses during the year ended December 31, 2015 of approximately $71.0 million compared to $58.4 million incurred during the year ended December 31, 2014. Depreciation and amortization expenses were higher in 2015 as a result of an increase in the number of properties owned by the Company in 2015 compared to 2014.

 

General and administrative expenses

 

The Company incurred general and administrative expenses during the year ended December 31, 2015 of approximately $12.7 million compared to $11.2 million incurred during the year ended December 31, 2014. General and administrative expenses increased approximately $1.5 million primarily as a result of an increase in compensation-related expenses.

 

Acquisition transaction costs

 

The Company incurred property acquisition costs during the year ended December 31, 2015 of approximately $965,000, which is consistent with the $961,000 incurred during the year ended December 31, 2014.

 

Interest expense and other finance expenses

 

During the year ended December 31, 2015, the Company incurred approximately $34.2 million of interest expense compared to approximately $27.6 million during the year ended December 31, 2014. Interest expense increased approximately $6.7 million primarily due to a higher debt level as a result of acquisitions, interest incurred related to the Senior Notes Due 2024 issued in December 2014, slightly offset by a decrease in interest related to the Company’s interest rate swaps, as the Company’s remaining swaps were cash settled in 2014.

 

Gain on sale of property

 

On June 5, 2014, the Company sold Phillips Village Shopping Center, a non-core shopping center located in Pomona, California with an occupancy rate of approximately 10.4% as of May 31, 2014. The sales price of this property of approximately $16.0 million, less costs to sell, resulted in net proceeds to the Company of approximately $15.6 million. The Company recorded a gain on sale of approximately $3.3 million for the year ended December 31, 2014. Additionally, on August 25, 2014, the Company sold the Oregon City Point Shopping Center, a non-core shopping center located in Oregon City, Oregon. The sales price of this property of approximately $12.4 million, less costs to sell, resulted in net proceeds of approximately $12.0 million. The Company recorded a gain on sale of approximately $1.6 million for the year ended December 31, 2014. There were no comparable gains recorded during the year ended December 31, 2015.

 

Results of Operations for the year ended December 31, 2014 compared to the year ended December 31, 2013.

 

Property Operating Income

 

The table below provides a reconciliation of consolidated operating income, in accordance with GAAP, to consolidated property operating income for the years ended December 31, 2014 and 2013.

 

				Year Ended December 31,
				2014				2013
Operating income per GAAP				$	43,774			$	27,775
Plus:		Depreciation and amortization			58,435				40,398
		General and administrative expenses			11,200				10,059
		Acquisition transaction costs			961				1,688
		Other expenses			505				315
Less:		Mortgage interest income			—				(624	)
Property operating income				$	114,875			$	79,611

 

The following comparison for the year ended December 31, 2014 compared to the year ended December 31, 2013, makes reference to the effect of the same-center properties. Same-center properties, which totaled 41 of the Company’s 61 properties as of December 31, 2014, 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.

 

The table below provides a reconciliation of consolidated operating income in accordance with GAAP to property operating income for the year ended December 31, 2014 related to the 41 same-center properties owned by the Company during the entirety of both the years ended December 31, 2014 and 2013 and consolidated into the Company’s financial statements during such periods (in thousands).

 

				Year Ended December 31, 2014
				Same-Center				Non Same-Center				Total
Operating income per GAAP				$	36,474			$	7,300			$	43,774
Plus:		Depreciation and amortization			32,105				26,330				58,435
		General and administrative expenses (1)			—				11,200				11,200
		Acquisition transaction costs			6				955				961
		Other expenses (1)			—				505				505
Property operating income				$	68,585			$	46,290			$	114,875

______________________

 

(1)

For illustration purposes, general and administrative expenses and other expenses are included in non same-center because the Company does not allocate these types of expenses between same-center and non same-center.

 

The table below provides a reconciliation of consolidated operating income in accordance with GAAP to property operating income for the year ended December 31, 2013 related to the 41 same-center properties owned by the Company during the entirety of both the years ended December 31, 2014 and 2013 and consolidated into the Company’s financial statements during such periods (in thousands).

 

				Year Ended December 31, 2013
				Same-Center				Non Same-Center				Total
Operating income per GAAP				$	35,757			$	(7,982	)		$	27,775
Plus:		Depreciation and amortization			31,487				8,911				40,398
		General and administrative expenses (1)			—				10,059				10,059
		Acquisition transaction costs			229				1,459				1,688
		Other expenses (1)			—				315				315
Less:		Mortgage interest income			—				(624	)			(624	)
Property operating income				$	67,473			$	12,138			$	79,611

______________________

 

(1)

For illustration purposes, general and administrative expenses and other expenses are included in non same-center because the Company does not allocate these types of expenses between same-center and non same-center.

 

During the year ended December 31, 2014, the Company generated property operating income of approximately $114.9 million compared to property operating income of $79.6 million generated during the year ended December 31, 2013. Property operating income increased by $35.3 million during the year ended December 31, 2014 primarily as a result of an increase in the number of properties owned by the Company in 2014 compared to 2013 and an increase in same-center properties’ operating income.  As of December 31, 2014, the Company owned 61 consolidated properties as compared to 55 properties at December 31, 2013. The properties acquired during 2014 and 2013 increased property operating income in 2014 by approximately $34.2 million. The 41 same-center properties increased property operating income by approximately $1.1 million.

 

Mortgage interest income

 

The Company generated interest income from mortgage notes receivable during the year ended December 31, 2013 of approximately $624,000 and no comparable income was recorded during the year ended December 31, 2014. This decrease was a result of the cancellation of the Company’s loan to the Crossroads joint venture in connection with the Company’s acquisition of the remaining partnership interests in the Crossroads Shopping Center from its joint venture partner in September 2013. As of December 31, 2014, the Company has no remaining investments in mortgage loans on real estate.

 

Depreciation and amortization

 

The Company incurred depreciation and amortization expenses during the year ended December 31, 2014 of approximately $58.4 million compared to $40.4 million incurred during the year ended December 31, 2013. Depreciation and amortization expenses were higher in 2014 as a result of an increase in the number of properties owned by the Company in 2014 compared to 2013.

 

General and administrative expenses

 

The Company incurred general and administrative expenses during the year ended December 31, 2014 of approximately $11.2 million compared to $10.1 million incurred during the year ended December 31, 2013. General and administrative expenses increased approximately $1.1 million primarily as a result of an increase in compensation-related expenses.

 

Acquisition transaction costs

 

The Company incurred property acquisition costs during the year ended December 31, 2014 of approximately $961,000 compared to $1.7 million incurred during the year ended December 31, 2013. Property acquisition costs were lower in 2014 primarily due to decreased legal and other professional fees incurred related to acquisition activity in 2014 compared to 2013, as well as a reduction in the number of assets acquired period over period.

 

Interest expense and other finance expenses

 

During the year ended December 31, 2014, the Company incurred approximately $27.6 million of interest expense compared to approximately $15.9 million during the year ended December 31, 2013. Interest expense increased approximately $11.7 million primarily due to a higher debt level as a result of acquisitions, interest incurred related to the Senior Notes Due 2023 issued in December 2013 and the Senior Notes Due 2024 issued in December 2014, slightly offset by a decrease in interest related to the Company’s interest rate swaps, as the Company’s remaining swaps were cash settled in 2014.

 

Gain on consolidation of joint venture

 

During the year ended December 31, 2013, the Company acquired the remaining partnership interests in Terranomics Crossroads Associates from its joint venture partner. Prior to the acquisition date, the Company accounted for its 49% interest in the Terranomics Crossroads Associates, LP as an equity method investment.  In accordance with the authoritative accounting guidance for business combinations, as the Company obtained control of the Crossroads joint venture, the Company determined that it should re-measure the fair value of its previously held equity interest. The Company, with the assistance of a third party valuation firm, calculated the fair value of its historical ownership interest in the Crossroads joint venture to be $36.0 million based on the $13.79 value per OP Unit issued as of the date the Company obtained control of Crossroads on September 27, 2013. In accordance with the accounting guidance for business combinations, the Company then compared the fair value of the equity of $36.0 million to the carrying value of its investment in Crossroads of $15.6 million, which resulted in a gain of $20.4 million that was included in earnings on the date the acquisition closed.   There was no comparable gain recorded during the year ended December 31, 2014.

 

Equity in earnings from unconsolidated joint venture

 

During the year ended December 31, 2013, the Company recorded equity in earnings from unconsolidated joint venture of approximately $2.4 million and no comparable income was recorded during the year ended December 31, 2014. This decrease was a result of the consolidation of Crossroads Shopping Center in September 2013. As of December 31, 2014, the Company has no remaining unconsolidated joint ventures.

 

Gain on sale of property

 

On June 5, 2014, the Company sold Phillips Village Shopping Center, a non-core shopping center located in Pomona, California with an occupancy rate of approximately 10.4% as of May 31, 2014. The sales price of this property of approximately $16.0 million, less costs to sell, resulted in net proceeds to the Company of approximately $15.6 million. The Company recorded a gain on sale of approximately $3.3 million for the year ended December 31, 2014. Additionally, on August 25, 2014, the Company sold the Oregon City Point Shopping Center, a non-core shopping center located in Oregon City, Oregon. The sales price of this property of approximately $12.4 million, less costs to sell, resulted in net proceeds of approximately $12.0 million. The Company recorded a gain on sale of approximately $1.6 million for the year ended December 31, 2014. There were no comparable gains recorded during the year ended December 31, 2013.

 

Loss from discontinued operations

 

In June 2013, the Company sold the Nimbus Village Shopping Center, a non-grocery anchored, non-core shopping center located in Rancho Cordova, California. The sales price of this property of approximately $6.3 million, less costs to sell, resulted in proceeds to the Company of approximately $5.6 million. Accordingly, the Company recorded a loss on sale of property of approximately $714,000 for the year ended December 31, 2013, which has been included in discontinued operations. There was no comparable loss recorded during the year ended December 31, 2014.

 

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 the National 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 our 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.

 

The Financial Accounting Standards Board (“FASB”) guidance relating to business combinations requires, among other things, an acquirer of a business (or investment property) to expense all acquisition costs related to the acquisition, the amount of which will vary based on each specific acquisition and the volume of acquisitions. Accordingly, the costs of acquisitions will reduce our FFO. For the years ended December 31, 2015, 2014 and 2013, the Company expensed $1.0 million, $1.0 million and $1.7 million, respectively, relating to real estate acquisitions.

 

While the Company does not have any joint ventures as of December 31, 2015, in the future, the Company may acquire the remaining interests from its joint venture partners it does not already own. At that time, a gain or loss may be recorded, in accordance with GAAP, based on the Company’s determination of the fair value of the properties at the time of any such purchase of the remaining interests in the properties. Accordingly, the amount of the gain or loss will increase or decrease, respectively, our FFO. During the year ended December 31, 2013, the Company acquired the remaining interests in its joint venture from certain of its joint venture partners. The gain recorded upon consolidation of joint ventures for the year ended December 31, 2013 was approximately $20.4 million. The Company did not record any such gain or loss during the years ended December 31, 2015 or 2014.

 

The table below provides a reconciliation of net income applicable to stockholders in accordance with GAAP to FFO for the years ended December 31, 2015, 2014 and 2013 (in thousands).

 

		Year Ended December 31,
		2015				2014				2013
Net income attributable to ROIC		$	23,864			$	20,301			$	33,813
Plus:  Depreciation and amortization			70,957				58,435				40,398
Depreciation and amortization attributable to unconsolidated joint ventures			—				—				1,060
Gain on sale of real estate			—				(4,869	)			—
Loss from discontinued operations			—				—				714
Funds from operations – basic			94,821				73,867				75,985
Net income attributable to non-controlling interests			1,228				749				165
Funds from operations – diluted		$	96,049			$	74,616			$	76,150

 

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 (base rent and recoveries from tenants), 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, extraordinary items, tenant improvements and leasing commissions. 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.

 

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 years ended December 31, 2015 and 2014. The table makes reference to the effect of the same-center properties. Same-center properties, which totaled 53 of the Company’s 73 properties as of December 31, 2015, 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.

 

		Year Ended December 31,
		2015				2014
Same-center cash NOI		$	95,058			$	90,786
Non same-center cash NOI			33,253				12,516
Total Company cash NOI			128,311				103,302
Adjustments
Depreciation and amortization			(70,957	)			(58,435	)
General and administrative expenses			(12,650	)			(11,200	)
Acquisition transaction costs			(965	)			(961	)
Other expense			(627	)			(505	)
Property revenues and expenses (1)			16,223				11,573
Operating income		$	59,335			$	43,774

______________________

 

(1) Includes straight-line rents, amortization of above and below-market lease intangibles, anchor lease termination fees, net of contractual amounts, and expense and recovery adjustments related to prior periods.

 

During the year ended December 31, 2015, the Company generated same-center cash NOI of approximately $95.1 million compared to same-center cash NOI of approximately $90.8 million generated during the year ended December 31, 2014, representing a 4.7% increase. This increase is primarily due to an increase in base rents and other property income, and a decrease in bad debt expense.

 

The table below provides a reconciliation of same-center cash NOI to consolidated operating income in accordance with GAAP for the years ended December 31, 2014 and 2013. The table makes reference to the effect of the same-center properties. Same-center properties, which totaled 41 of the Company’s 61 properties as of December 31, 2014, 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.

 

		Year Ended December 31,
		2014				2013
Same-center cash NOI		$	62,542			$	60,355
Non same-center cash NOI			41,149				11,971
Total Company cash NOI			103,691				72,326
Adjustments
Depreciation and amortization			(58,435	)			(40,398	)
General and administrative expenses			(11,200	)			(10,059	)
Acquisition transaction costs			(961	)			(1,688	)
Other expense			(505	)			(315	)
Property revenues and expenses (1)			11,184				7,909
Operating income		$	43,774			$	27,775

______________________

 

(1) Includes straight-line rents, amortization of above and below-market lease intangibles, anchor lease termination fees, net of contractual amounts, and expense and recovery adjustments related to prior periods.

 

During the year ended December 31, 2014, the Company generated same-center cash NOI of approximately $62.5 million compared to same-center cash NOI of approximately $60.4 million generated during the year ended December 31, 2013, representing a 3.6% increase. This increase is primarily due to an increase in same-center occupancy and base rents.

 

Critical Accounting Estimates

 

Critical accounting estimates 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 estimates 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 on 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.  In addition, the Company also provides an allowance for future credit losses in connection with the deferred straight-line rent receivable.

 

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, the payment history of the tenants or other debtors, the financial 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 is subject to revision as these factors change and is 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 their estimated useful lives.

 

Upon the acquisition of real estate properties, the fair value of the real estate purchased is allocated to the 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).  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 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. The value of in-place leases are 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 may record a bargain purchase gain if it determines that the purchase price for the acquired assets was less than the fair value.  The Company will record a liability in situations where any part of the cash consideration is deferred.  The amounts payable in the future are discounted to their present value.  The liability is subsequently re-measured to fair value with changes in fair value recognized in the consolidated statements of operations.  If, up to one year from the acquisition date, information regarding fair value of assets acquired and liabilities assumed as of the acquisition date is received and estimates are refined, appropriate property adjustments are made to the purchase price allocation on a retrospective basis.

 

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 its 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	39-40 years
Property Improvements	10-20 years
Furniture/Fixtures	3-10 years
Tenant Improvements	Shorter of lease term or their useful life

 

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. 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 at December 31, 2015.

 

REIT Qualification Requirements

 

The Company elected 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 to U.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 resulting adverse effects on the Company’s results of operations, liquidity and amounts distributable to stockholders would be material.

 

Recent U.S. Federal Income Tax Legislation

On December 18, 2015, President Obama signed into law the Consolidated Appropriations Act, 2016, an omnibus spending bill, with a division referred to as the Protecting Americans From Tax Hikes Act of 2015 (the “PATH Act”). The PATH Act changes certain of the rules affecting REIT qualification and taxation of REITs and REIT shareholders, which are briefly summarized below.

·

For taxable years beginning after 2017, the percentage of a REIT's total assets that may be represented by securities of one or more TRSs is reduced from 25% to 20%.

·

“Publicly offered REITs” (which generally include any REIT required to file annual and periodic reports with the SEC, including us) are no longer subject to the preferential dividend rules for taxable years beginning after 2014.

·

For taxable years beginning after 2015, debt instruments issued by publicly offered REITs are qualifying assets for purposes of the 75% REIT asset test. However, no more than 25% of the value of a REIT's assets may consist of debt instruments that are issued by publicly offered REITs that are not otherwise treated as real estate assets, and interest on debt of a publicly offered REIT will not be qualifying income under the 75% REIT gross income test unless the debt is secured by real property.

·

For taxable years beginning after 2015, to the extent rent attributable to personal property is treated as rents from real property (because rent attributable to the personal property for the taxable year does not exceed 15% of the total rent for the taxable year for such real and personal property), the personal property will be treated as a real estate asset for purposes of the 75% REIT asset test. Similarly, a debt obligation secured by a mortgage on both real and personal property will be treated as a real estate asset for purposes of the 75% asset test, and interest thereon will be treated as interest on an obligation secured by real property, if the fair market value of the personal property does not exceed 15% of the fair market value of all property securing the debt.

·

For taxable years beginning after 2014, the period during which dispositions of properties with net built-in gains from C corporations in carry-over basis transactions will trigger the built-in gains tax is reduced from ten years to five years.

·

For taxable years beginning after 2015, a 100% excise tax will apply to “redetermined services income,” i.e., non-arm’s-length income of a REIT’s TRS attributable to services provided to, or on behalf of, the REIT (other than services provided to REIT tenants, which are potentially taxed as redetermined rents).

·

The rate of withholding tax applicable under FIRPTA to certain sales and other dispositions of U.S. real property interests (“USRPIs”) by non-U.S. persons, and certain distributions from corporations whose stock may constitute a USRPI, is increased from 10% to 15% for dispositions and distributions occurring after February 16, 2016.

·

For dispositions and distributions on or after December 18, 2015, the stock ownership thresholds for exemption from FIRPTA taxation on sale of stock of a publicly traded REIT and for recharacterizing capital gain dividends received from a publicly traded REIT as ordinary dividends is increased from not more than 5% to not more than 10%.

·

Effective December 18, 2015, certain look-through, presumption, and other rules will apply for purposes of determining if we qualify as domestically controlled.

·

For dispositions and distributions after December 18, 2015, certain “qualified foreign pension funds” satisfying certain requirements, as well as entities that are wholly owned by a qualified foreign pension fund, are exempt from income and withholding taxes applicable under FIRPTA. In addition, new FIRPTA rules apply to ownership of REIT shares by “qualified shareholders,” which generally include publicly traded non-U.S. stockholders meeting certain requirements.

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 Operating Partnership” section, the term “the Company” refers to Retail Opportunity Investments Corp. on an unconsolidated basis, excluding the Operating Partnership.

 

The Company’s business is operated primarily through the Operating 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 the Operating Partnership, the section entitled “Liquidity and Capital Resources of the Operating 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 the Operating Partnership, and its only material assets are its ownership of direct or indirect partnership interests in the Operating Partnership and membership interest in Retail Opportunity Investments GP, LLC, the sole general partner of the Operating Partnership. Therefore, the consolidated assets and liabilities and the consolidated revenues and expenses of the Company and the Operating Partnership are the same on their respective financial statements. However, all debt is held directly or indirectly by the Operating 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 the Operating Partnership.

 

As the parent company of the Operating Partnership, the Company, indirectly, has the full, exclusive and complete responsibility for the Operating Partnership’s day-to-day management and control. The Company causes the Operating Partnership to distribute such portion of its available cash as the Company may in its discretion determine, in the manner provided in the Operating Partnership’s partnership agreement.

 

The Company is a well-known seasoned issuer with an effective shelf registration statement filed in June 2013 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 the Operating 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 the Operating Partnership’s ability to make sufficient distributions to the Company. The primary cash requirement of the Company is its payment of dividends to its stockholders.

 

During the year ended December 31, 2015, the Company’s primary source of cash was proceeds from the issuance of common stock and distributions from the Operating Partnership. As of December 31, 2015, the Company has determined that it has adequate working capital to meet its dividend funding obligations for the next twelve months.

 

On August 10, 2015, ROIC issued 5,520,000 shares of common stock in a registered public offering, including shares issued upon the exercise in full of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $87.4 million, after deducting the underwriters’ discounts and commissions and offering expenses.

 

During the year ended December 31, 2014, ROIC entered into four separate Sales Agreements (the “2014 sales agreements”) with Jefferies LLC, KeyBanc Capital Markets Inc., MLV & Co. LLC and Raymond James & Associates, Inc. (each individually, an “Agent” and collectively, the “Agents”) pursuant to which ROIC may sell, from time to time, shares of ROIC’s common stock, par value $0.0001 per share, having an aggregate offering price of up to $100.0 million through the Agents either as agents or principals. During the year ended December 31, 2015, ROIC sold a total of 544,567 shares under one of the 2014 sales agreements, which resulted in gross proceeds of approximately $9.9 million and commissions of approximately $149,000 paid to the agent.

 

For the year ended December 31, 2015, dividends paid to stockholders totaled approximately $65.8 million. Additionally, for the year ended December 31, 2015, the Operating Partnership made distributions of approximately $2.8 million to the non-controlling interest OP Unitholders. On a consolidated basis, cash flows from operations for the same period totaled approximately $86.9 million.  For the year ended December 31, 2014, dividends paid to stockholders totaled approximately $53.6 million. Additionally, for the year ended December 31, 2014, the Operating Partnership made distributions of approximately $2.0 million to the non-controlling interest OP Unitholders. On a consolidated basis, cash flows from operations for the same period totaled approximately $65.2 million. In the future, it is expected that the cash flows from stabilized properties will be sufficient to cover the dividends paid to stockholders.

 

Potential future sources of capital include equity issuances and distributions from the Operating Partnership.

 

Liquidity and Capital Resources of the Operating Partnership

 

In this “Liquidity and Capital Resources of the Operating Partnership” section, the terms the “Operating Partnership,” “we”, “our” and “us” refer to the Operating Partnership together with its consolidated subsidiaries or the Operating Partnership and the Company together with their respective consolidated subsidiaries, as the context requires.

 

During the year ended December 31, 2015, the Operating Partnership’s primary sources of cash were (i) proceeds from bank borrowings on its term loan and revolving credit facility, (ii) proceeds from the sale of common stock that were contributed to the Operating Partnership, (iii) proceeds from a property level secured financing, and (iv) cash flow from operations. As of December 31, 2015, the Operating Partnership has determined that it has adequate working capital to meet its debt obligations and operating expenses for the next twelve months.

 

On September 29, 2015, the Company entered into a term loan agreement with KeyBank National Association, as Administrative Agent, and U.S. Bank National Association, as Syndication Agent and the other lenders party thereto, under which the lenders agreed to provide a $300.0 million unsecured term loan facility. The term loan agreement also provides that the Company 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 for the additional commitments. The initial maturity date of the term loan is January 31, 2019, subject to two one-year extension options, which may be exercised upon satisfaction of certain conditions including the payment of extension fees. Borrowings under the term loan agreement bear interest on the outstanding principal amount at a rate equal to an applicable rate based on the credit rating level of the Company, plus, as applicable, (i) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the relevant period (the “Eurodollar Rate”), or (ii) a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the rate of interest announced by the Administrative Agent as its "prime rate," and (c) the Eurodollar Rate plus 1.10%.

 

The Operating Partnership has an unsecured revolving credit facility with several banks which provides for borrowings of up to $500.0 million. Additionally, the credit facility contains an accordion feature, which allows the Operating Partnership to increase the facility amount up to an aggregate of $1.0 billion, subject to lender consents and other conditions. The maturity date of the credit facility has been extended to January 31, 2019, subject to a further one-year extension option, which may be exercised by the Operating Partnership upon satisfaction of certain conditions. The Company obtained investment grade credit ratings from Moody’s Investors Service (Baa2) and Standard & Poor’s Ratings Services (BBB-) during the second quarter of 2013. Borrowings under the credit facility accrue interest on the outstanding principal amount at a rate equal to an applicable rate based on the credit rating level of the Company, plus, as applicable, (i) the Eurodollar Rate, or (ii) a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the rate of interest announced by KeyBank, National Association at its “prime rate,” and (c) the Eurodollar Rate plus 1.00%. Additionally, the Operating Partnership is obligated to pay a facility fee at a rate based on the credit rating level of the Company, currently 0.20%, and a fronting fee at a rate of 0.125% per year with respect to each letter of credit issued under the credit facility.

 

Both the term loan and credit facility contain customary representations, financial and other covenants. The Operating Partnership’s ability to borrow under the credit facility and term loan is subject to its compliance with financial covenants and other restrictions on an ongoing basis. The Operating Partnership was in compliance with such covenants at December 31, 2015.

 

As of December 31, 2015, $300.0 million and $135.5 million were outstanding under the term loan and credit facility, respectively. The average interest rates on the term loan and the credit facility during the year ended December 31, 2015 were 1.3% and 1.2%, respectively. The Company had $364.5 million available to borrow under the credit facility at December 31, 2015. The Company had no available borrowings under the term loan at December 31, 2015.

 

On September 1, 2015, the Company entered into a $35.5 million loan with PNC Bank, National Association. The loan is secured by the Diamond Hills Plaza property and bears interest at 3.55% annually. The loan matures on October 1, 2025, is interest only through September 30, 2021 and amortizes thereafter, on a 30-year amortization.

 

The Operating Partnership issued $250.0 million aggregate principal amount of unsecured senior notes in December 2014 and $250.0 million aggregate principal amount of unsecured senior notes in December 2013, each of which were fully and unconditionally guaranteed by the Company.

 

While the Operating Partnership generally intends to hold its assets as long term investments, certain of its investments may be sold in order to manage the Operating 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.

 

Cash Flows

 

The following table summarizes, for the periods indicated, selected items in our consolidated statements of cash flows (in thousands):

 

		Year ended December 31,
		2015				2014				2013
Net Cash Provided by (Used in):
Operating activities		$	86,917			$	65,207			$	37,753
Investing activities		$	(337,115	)		$	(399,856	)		$	(344,977	)
Financing activities		$	248,269			$	337,502			$	310,452

 

Net Cash Flows from:

 

Operating Activities

 

Increase in cash flows provided by operating activities from 2014 to 2015:

 

Net cash flows provided by operating activities amounted to $86.9 million during the year ended December 31, 2015, compared to $65.2 million during the year ended December 31, 2014. During the year ended December 31, 2015, cash flows provided by operating activities increased by approximately $21.7 million primarily due to an increase in property operating income of approximately $29.7 million, offset by an increase in interest expense of approximately $6.7 million due to higher borrowing amounts in 2015 as compared to 2014.

 

Increase in cash flows provided by operating activities from 2013 to 2014:

 

Net cash flows provided by operating activities amounted to $65.2 million during the year ended December 31, 2014, compared to $37.8 million during the year ended December 31, 2013. During the year ended December 31, 2014, cash flows provided by operating activities increased by approximately $27.5 million primarily due to an increase in property operating income of approximately $35.3 million, the decrease of approximately $5.5 million related to the settlement of the Company’s interest rate swaps year over year, offset by an increase in interest expense of approximately $11.7 million due to higher borrowing amounts in 2014 as compared to 2013.

 

Investing Activities

 

Decrease in cash flows used in investing activities from 2014 to 2015:

 

Net cash flows used by investing activities amounted to $337.1 million during the year ended December 31, 2015, compared to $399.9 million during the year ended December 31, 2014. During the year ended December 31, 2015, cash flows used in investing activities decreased approximately $62.7 million, primarily due to the decrease in investments in real estate of approximately $84.6 million, and a decrease in deposits on real estate acquisitions of approximately $7.7 million, offset by a decrease in proceeds from the sale of real estate of approximately $27.6 million.

 

Increase in cash flows used in investing activities from 2013 to 2014:

 

Net cash flows used by investing activities amounted to $399.9 million during the year ended December 31, 2014, compared to $345.0 million during the year ended December 31, 2013. During the year ended December 31, 2014, cash flows used in investing activities increased approximately $54.9 million, primarily due to the increase in investments in real estate of approximately $65.4 million, an increase in improvements to properties of approximately $7.1 million, and an increase in deposits on real estate acquisitions of approximately $5.0 million, offset by an increase in proceeds from the sale of real estate of approximately $22.0 million.

 

Financing Activities

 

Decrease in cash flows provided by financing activities from 2014 to 2015:

 

Net cash flows provided by financing activities amounted to $248.3 million during the year ended December 31, 2015, compared to $337.5 million during the year ended December 31, 2014. During the year ended December 31, 2015, cash flows provided by financing activities decreased approximately $89.2 million, primarily due to a decrease of $246.5 million of net proceeds from the issuance of senior notes with no issuance in 2015, the decrease of approximately $70.7 million in proceeds from the exercise of warrants in 2014, the decrease of approximately $113.6 million in proceeds from the sale of common stock, an increase of approximately $62.3 million in principal repayments on mortgages, a net decrease of approximately $119.3 million in proceeds from draws on the credit facility, and an increase of approximately $13.0 million in distributions paid to common shareholders and OP unit holders. These decreases were offset by a $500.0 million increase related to the term loan for $300.0 million in proceeds received during the year ended December 31, 2015 and $200.0 million in payments made during the year ended December 31, 2014, and an increase of $35.5 million in proceeds from a new mortgage loan received during the year ended December 31, 2015.

 

Increase in cash flows provided by financing activities from 2013 to 2014:

 

Net cash flows provided by financing activities amounted to $337.5 million during the year ended December 31, 2014, compared to $310.5 million during the year ended December 31, 2013. During the year ended December 31, 2014, cash flows provided by financing activities increased approximately $27.0 million, primarily due to the receipt of $205.5 million of net proceeds from the issuance of common stock and a reduction in payments made to acquire warrants of approximately $32.8 million. These increases were offset by a decrease in proceeds from the exercise of warrants of approximately $155.8 million, an increase in net payments on the credit facility and term loan of approximately $38.4 million, an increase in dividends paid to shareholders of approximately $11.1 million, and a $7.1 million increase in the principal repayment on mortgages primarily due to the principal repayments on two mortgage notes.

 

Contractual Obligations

 

The following table presents the Company’s operating lease obligations and the principal and interest amounts of the Company’s long-term debt maturing each year, including amortization of principal based on debt outstanding, at December 31, 2015 (in thousands):

 

		2016				2017				2018				2019				2020				Thereafter				Total
Contractual obligations:
Mortgage Notes Payable Principal (1)		$	7,586			$	8,460			$	10,137			$	—			$	—			$	35,500			$	61,683
Mortgage Notes Payable Interest			2,636				2,189				1,382				1,278				1,281				5,988				14,754
Term loan (2)			—				—				—				300,000				—				—				300,000
Credit facility (3)			—				—				—				135,500				—				—				135,500
Senior Notes Due 2024 (4)			10,000				10,000				10,000				10,000				10,000				290,000				340,000
Senior Notes Due 2023 (4)			12,500				12,500				12,500				12,500				12,500				287,500				350,000
Operating lease obligations			981				1,049				1,054				1,059				1,067				36,204				41,414
Total		$	33,703			$	34,198			$	35,073			$	460,337			$	24,848			$	655,192			$	1,243,351

__________________

 

(1)

Does not include unamortized mortgage premium of approximately $0.9 million as of December 31, 2015.

 

(2)

For the purpose of the above table, the Company has assumed that borrowings under the term loan accrue interest at the average interest rate on the term loan during the year ended December 31, 2015 which was 1.3%. Borrowings under the term loan accrue interest at a rate equal to an applicable rate based on the credit rating level of the Company, plus, as applicable (i) the Eurodollar Rate, or (ii) a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the rate of interest announced by the Administrative Agent as its “prime rate,” and (c) the Eurodollar Rate plus 1.10%.

 

(3)

For the purpose of the above table, the Company has assumed that borrowings under the credit facility accrue interest at the average interest rate on the credit facility during the year ended December 31, 2015 which was 1.2%. Borrowings under the credit facility accrue interest at a rate equal to an applicable rate based on the credit rating level of the Company, plus, as applicable (i) the Eurodollar Rate, or (ii) a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the rate of interest announced by KeyBank, National Association as its “prime rate,” and (c) the Eurodollar Rate plus 1.00%.

 

(4)

Represents payments of interest only in years 2016 through 2020 and payments of both principal and interest thereafter.

 

The Company has committed approximately $21.0 million and $1.5 million in tenant improvements (including building and improvements) and leasing commissions, respectively, for the new leases and renewals that occurred during the year ended December 31, 2015. As of December 31, 2015, the Company did not have any capital lease obligations.

 

The Company has entered into several lease agreements with an officer of the Company. Pursuant to the lease agreements, the Company is provided the use of storage space.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2015, the Company does not have any off-balance sheet arrangements.

 

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 mitigate 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 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.

 

On September 29, 2015, the Company entered into the Term Loan Agreement with KeyBank National Association, as Administrative Agent, and U.S. Bank National Association, as Syndication Agent and the other lenders party thereto, under which the lenders agreed to provide a $300.0 million unsecured term loan facility. The Term Loan Agreement also provides that the Company 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 for the additional commitments. The initial maturity date of the term loan is January 31, 2019, subject to two one-year extension options, which may be exercised upon satisfaction of certain conditions including the payment of extension fees. The Operating Partnership has an unsecured revolving credit facility with several banks which provides for borrowings of up to $500.0 million. Additionally, the credit facility contains an accordion feature, which allows the Operating Partnership to increase the facility amount up to an aggregate of $1.0 billion, subject to lender consents and other conditions. The maturity date of the credit facility has been extended to January 31, 2019, subject to a further one-year extension option, which may be exercised by the Operating Partnership upon satisfaction of certain conditions.

 

In addition, the Operating Partnership issued $250.0 million aggregate principal amount of unsecured senior notes in December 2014 and $250.0 million aggregate principal amount of unsecured senior notes in December 2013, each of which were fully and unconditionally guaranteed by ROIC.

 

The Company may borrow on a non-recourse basis or at the corporate level or Operating 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, borrowings under its credit facility, the assumption of existing mortgage debt, the issuance of OP Units, and equity and debt offerings. 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 the Operating Partnership, and indirectly to ROIC through distributions to Retail 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 pay U.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 the Company may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

 

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

 

The Company’s primary market risk exposure is to changes in interest rates related to its debt.  There is inherent rollover risk for borrowings as they mature and are renewed at current market rates.  The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company’s future financing requirements.

 

As of December 31, 2015, the Company had $435.5 million of variable rate debt outstanding.  The Company has primarily used fixed-rate debt and forward starting interest rate swaps to manage its interest rate risk.  See the discussion under Note 12, “Derivative and Hedging Activities,” to the accompanying consolidated financial statements for certain quantitative details related to the interest rate swaps.

 

The Company previously entered into five interest rate swaps in order to economically hedge against the risk of rising interest rates that would affect the Company’s interest expense related to its future anticipated debt issuances as part of its overall borrowing program.  During the years ended December 31, 2014 and 2013, the Company settled three and two of its interest rate swaps in accordance with their settlement dates, respectively, and there are no interest rate swaps outstanding as of December 31, 2015.

 

See Note 12 of the accompanying consolidated financial statements for a discussion on how the Company values derivative financial instruments.  The Company calculates the value of its interest rate swaps based upon the present value of the future cash flows expected to be paid and received on each leg of the swap.  The cash flows on the fixed leg of the swap are agreed to at inception and the cash flows on the floating leg of a swap change over time as interest rates change.  To estimate the floating cash flows at each valuation date, the Company utilizes a forward curve which is constructed using LIBOR fixings, Eurodollar futures, and swap rates, which are observable in the market.  Both the fixed and floating legs’ cash flows are discounted at market discount factors.  For purposes of adjusting its derivative valuations, the Company incorporates the nonperformance risk for both itself and its counterparties to these contracts based upon management’s estimates of credit spreads, credit default swap spreads (if available) or Moody’s KMV ratings in order to derive a curve that considers the term structure of credit.

 

As a corporation that has elected to qualify as a REIT for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2010, ROIC’s future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates.  Market risk refers to the risk of loss from adverse changes in market prices and interest rates.  The Company will be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties.  The Company’s interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs.  To achieve these objectives, the Company expects to borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to convert variable rates to fixed rates.  In addition, the Company can use derivative financial instruments to manage interest rate risk.  The Company will not use derivatives for trading or speculative purposes and will only enter into contracts with major financial institutions based on their credit rating and other factors.  Currently the Company has no interest rate swaps outstanding. See Note 12 of the accompanying consolidated financial statements.

 

Item 8.  Financial Statements and Supplementary Data

 

Index to Consolidated Financial Statements and Financial Statement Schedules

 

	Page
Reports of Independent Registered Public Accounting Firm	47
Consolidated Financial Statements of Retail Opportunity Investments Corp.:
Consolidated Balance Sheets at December 31, 2015 and 2014	50
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2015, 2014 and 2013	51
Consolidated Statements of Equity for the years ended December 31, 2015, 2014 and 2013	52
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013	53
Consolidated Financial Statements of Retail Opportunity Investments Partnership, LP:
Consolidated Balance Sheets at December 31, 2015 and 2014	54
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2015, 2014 and 2013	55
Consolidated Statements of Partners’ Capital for the years ended December 31, 2015, 2014 and 2013	56
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013	57
Notes to Consolidated Financial Statements	58
Schedules
III   Real Estate and Accumulated Depreciation – December 31, 2015	76
IV   Mortgage Loans on Real Estate – December 31, 2015	77

 

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders of

 

Retail Opportunity Investments Corp.

 

We have audited the accompanying consolidated balance sheets of Retail Opportunity Investments Corp. (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2015.  Our audits also included the financial statement schedules listed in the Index at Item 8.  These financial statements and schedules are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Retail Opportunity Investments Corp. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

 

As discussed in Note 1 to the consolidated financial statements, the Company changed its reporting of discontinued operations as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Retail Opportunity Investments Corp.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 24, 2016 expressed an unqualified opinion thereon.

 

/s/ Ernst & Young LLP

 

San Diego, California

February 24, 2016

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders of

 

Retail Opportunity Investments Corp.

 

We have audited Retail Opportunity Investments Corp.’s (the “Company”) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria).  Retail Opportunity Investments Corp.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, Retail Opportunity Investments Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Retail Opportunity Investments Corp. as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2015 of Retail Opportunity Investments Corp. and our report dated February 24, 2016 expressed an unqualified opinion thereon.

 

/s/ Ernst & Young LLP

 

San Diego, California

February 24, 2016

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Partners of Retail Opportunity Investments Partnership, LP

 

We have audited the accompanying consolidated balance sheets of Retail Opportunity Investments Partnership, LP (the “Operating Partnership”) as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive income, Partners’ capital, and cash flows for each of the three years in the period ended December 31, 2015.  Our audits also included the financial statement schedules listed in the Index at Item 8.  These financial statements and schedules are the responsibility of the Operating Partnership’s management.  Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Retail Opportunity Investments Partnership, LP at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

 

As discussed in Note 1 to the consolidated financial statements, the Operating Partnership changed its reporting of discontinued operations as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”.

 

/s/ Ernst & Young LLP

 

San Diego, California

February 24, 2016

 

RETAIL OPPORTUNITY INVESTMENTS CORP.

Consolidated Balance Sheets

(In thousands, except share data)

 

 

See accompanying notes to consolidated financial statements.

 

RETAIL OPPORTUNITY INVESTMENTS CORP.

Consolidated Statements of Operations and Comprehensive Income

(In thousands, except per share data)

 

 

See accompanying notes to consolidated financial statements.

 

RETAIL OPPORTUNITY INVESTMENTS CORP.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

 

 

See accompanying notes to consolidated financial statements.

 

RETAIL OPPORTUNITY INVESTMENTS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

See accompanying notes to consolidated financial statements.

 

RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP

Consolidated Balance Sheets

(In thousands)

 

 

See accompanying notes to consolidated financial statements.

 

RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP

Consolidated Statements of Operations and Comprehensive Income

(In thousands)

 

 

See accompanying notes to consolidated financial statements.

 

RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP

CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(In thousands, except unit data)

 

 

(1)

Consists of limited partnership interests held by third parties.

(2)

Consists of general and limited partnership interests held by ROIC.

 

See accompanying notes to consolidated financial statements. 

 

RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

See accompanying notes to consolidated financial statements.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

16.  Subsequent Events

 

Prior to January 31, 2016, the Company received notices of redemption for 1,828,825 Redeemable OP Units. The Company redeemed the OP Units in cash at a price of $17.30, in accordance with the Contribution Agreement for the closing of the property known as Sternco Shopping Center, and accordingly, a total of approximately $31.6 million was paid to the holders of the respective Redeemable OP Units. The remaining 117,658 Redeemable OP Units converted to OP Units on January 31, 2016 and are treated as permanent equity as ROIC now has the sole election to settle the OP Units in cash or unregistered shares of ROIC common stock.

 

On January 15, 2016, the Company entered into a $50.0 million interest rate swap with Bank of Montreal. The swap has an effective date of January 29, 2016 and a termination date of January 31, 2019. Further, on February 2, 2016, the Company entered into a $50.0 million interest rate swap with Regions Bank. The swap has an effective date of February 29, 2016 and a termination date of January 31, 2019. These swaps are being used to hedge the anticipated variable cash flows associated with the Company’s variable rate debt that is outstanding as of December 31, 2015.

 

On February 23, 2016, the Company’s board of directors declared a cash dividend on its common stock of $0.18 per share, payable on March 30, 2016 to holders of record on March 16, 2016.

 

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2015

(in thousands)

 

 

(a)

RECONCILIATION OF REAL ESTATE – OWNED SUBJECT TO OPERATING LEASES (in thousands)

 

 

(b)

RECONCILIATION OF ACCUMULATED DEPRECIATION (in thousands)

 

 

(1)

Depreciation and investments in building and improvements reflected in the consolidated statement of operations is calculated over the estimated useful life of the assets as follows:

 

Building:  39-40 years

Property Improvements:  10-20 years

 

(2)

Property is subject to a ground lease.

 

(3)

The aggregate cost for Federal Income Tax Purposes for real estate was approximately $2.1 billion at December 31, 2015.

 

SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE

December 31, 2015

(in thousands)

 

The Company has no remaining mortgage loans on real estate as of December 31, 2015 and 2014, respectively.

 

(a)

RECONCILIATION OF MORTGAGE LOANS ON REAL ESTATE

 

 

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None

 

Item 9A.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures (Retail Opportunity Investments Corp.)

 

ROIC maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, ROIC's management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and its management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

ROIC's Chief Executive Officer and Chief Financial Officer, based on their evaluation of ROIC's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, have concluded that as of the end of the period covered by this report, ROIC's disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to ROIC that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder.

 

During the year ended December 31, 2015, there was no change in ROIC's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, ROIC's internal control over financial reporting.

 

Evaluation of Disclosure Controls and Procedures (Retail Opportunity Investments Partnership, LP)

 

The Operating Partnership maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Operating Partnership's management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and its management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

The Company's Chief Executive Officer and Chief Financial Officer, based on their evaluation of the Operating Partnership's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, have concluded that as of the end of the period covered by this report, the Operating Partnership's disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Operating Partnership that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder.

 

During the year ended December 31, 2015, there was no change in the Operating Partnership's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Operating Partnership's internal control over financial reporting.

 

Management’s Report on Internal Control over Financial Reporting (Retail Opportunity Investments Corp.)

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).  Under the supervision and with the participation of ROIC’s management, including the Chief Executive Officer and Chief Financial Officer, ROIC conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2015 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework).  Based on that evaluation, Management concluded that its internal control over financial reporting was effective as of December 31, 2015.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

The effectiveness of internal control over financial reporting as of December 31, 2015, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which appears on page 48 of this Annual Report on Form 10-K.

 

Management’s Report on Internal Control over Financial Reporting (Retail Opportunity Investments Partnership, LP)

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).  Under the supervision and with the participation of the Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of ROIC, the Operating Partnership conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2015 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework).  Based on that evaluation, Management concluded that its internal control over financial reporting was effective as of December 31, 2015.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

There was no change in ROIC’s or the Operating Partnership’s internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during its most recent quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

 

Item 9B.  Other Information

 

None.

 

PART III

 

Item 10.  Directors, Executive Officers and Corporate Governance

 

Information required by this Item is hereby incorporated by reference to the material appearing in the Proxy Statement for the Company’s 2015 Annual Meeting of Stockholders to be filed within 120 days after December 31, 2015.

 

Item 11.  Executive Compensation

 

Information required by this Item is hereby incorporated by reference to the material appearing in the Proxy Statement for the Company’s 2015 Annual Meeting of Stockholders to be filed within 120 days after December 31, 2015.

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Information required by this Item is hereby incorporated by reference to the material appearing in the Proxy Statement for the Company’s 2015 Annual Meeting of Stockholders to be filed within 120 days after December 31, 2015.

 

Item 13.  Certain Relationships and Related Transactions, and Director Independence

 

Information required by this Item is hereby incorporated by reference to the material appearing in the Proxy Statement for the Company’s 2015 Annual Meeting of Stockholders to be filed within 120 days after December 31, 2015.

 

Item 14.  Principal Accounting Fees and Services

 

Information required by this Item is hereby incorporated by reference to the material appearing in the Proxy Statement for the Company’s 2015 Annual Meeting of Stockholders to be filed within 120 days after December 31, 2015.

 

PART IV

 

Item 15.  Exhibits and Financial Statement Schedules

 

(a)(1) and (2) Financial Statements and Schedules

 

Please refer to the Index to Consolidated Financial Statements included under Part II, Item 8. Financial Statements and Supplementary Data.

 

(a)(3) Exhibits

 

2.1

Articles of Merger, by and between Retail Opportunity Investments Corp., a Delaware corporation, and Retail Opportunity Investments Corp., a Maryland corporation, as survivor, dated as of June 1, 2011 (3)

 

3.1

Articles of Amendment and Restatement (3)

 

3.2

Bylaws (3)

 

3.3

Second Amended and Restated Limited Partnership Agreement of Retail Opportunity Investments Partnership, LP, by and among Retail Opportunity Investments GP, LLC as general partner, Retail Opportunity Investments Corp. and the other limited partners thereto, dated as of September 27, 2013 (9)

 

3.4*

Second Amendment to the Second Amended and Restated Limited Partnership Agreement of Retail Opportunity Investments Partnership, LP, dated as of December 4, 2015

 

3.5*

Third Amendment to the Second Amended and Restated Limited Partnership Agreement of Retail Opportunity Investments Partnership, LP, dated as of December 10, 2015

 

3.6*

Fourth Amendment to the Second Amended and Restated Limited Partnership Agreement of Retail Opportunity Investments Partnership, LP, dated as of December 31, 2015

 

4.1

Specimen Unit Certificate (1)

 

4.2

Specimen Common Stock Certificate (1)

 

4.3

Indenture, by and among Retail Opportunity Investments Corp., Retail Opportunity Investments Partnership, LP and Wells Fargo Bank, National Association, dated as of December 9, 2013 (10)

 

4.4

First Supplemental Indenture, by and among Retail Opportunity Investments Partnership, LP, Retail Opportunity Investments Corp. and Wells Fargo Bank, National Association, dated as of December 9, 2013 (10)

 

4.5

5.000% Senior Notes due 2023 of Retail Opportunity Investments Partnership, LP, guaranteed by Retail Opportunity Investments Corp., dated as of December 9, 2013 (11)

 

4.6

Second Supplemental Indenture, by and among Retail Opportunity Investments Partnership, LP, Retail Opportunity Investments Corp. and Wells Fargo Bank, National Association (including Form of 4.000% Senior Notes due 2024 of Retail Opportunity Investments Partnership, LP, guaranteed by Retail Opportunity Investments Corp.), dated as of December 3, 2014 (13)

 

10.1

Employment Agreement, by and between NRDC Acquisition Corp. and Stuart Tanz, dated as of October 20, 2009 (1)

 

10.2

2009 Equity Incentive Plan (1)

 

10.3

Form of Restricted Stock Award Agreement under 2009 Equity Incentive Plan (1)

 

10.4

Form of Option Award Agreement under 2009 Equity Incentive Plan (1)

 

10.5

Employment Agreement, by and between Retail Opportunity Investments Corp. and Richard K. Schoebel, dated as of December 9, 2009 (2)

 

10.6

Letter Agreement, by and between Retail Opportunity Investments Corp. and Richard A. Baker, dated as of April 2, 2012 (5)

 

10.7

First Amended and Restated Credit Agreement, by and among Retail Opportunity Investments Partnership, LP, as the Borrower, Retail Opportunity Investments Corp., as the Parent Guarantor, certain subsidiaries of the Parent Guarantor identified therein, as the Subsidiary Guarantors, KeyBank National Association, as Administrative Agent, Swing Line Lender and L/C Issuer, Bank of America, N.A., as the Syndication Agent, PNC Bank, National Association and U.S. Bank National Association, as Co-Documentation Agents, and the other lenders party thereto, dated as of August 29, 2012 (6)

 

10.8

Employment Contract, by and between Retail Opportunity Investments Corp. and Michael B. Haines, dated as of November 19, 2012 (7)

 

10.9

Letter Agreement, by and between Retail Opportunity Investments Corp. and Laurie Sneve, dated as of October 24, 2012 (8)

 

10.10

Third Amendment to the Amended and Restated Credit Agreement, by and among Retail Opportunity Investments Partnership, LP, as the Borrower, Retail Opportunity Investments Corp., as the Parent Guarantor, certain subsidiaries of the Parent Guarantor identified therein, as the Subsidiary Guarantors, KeyBank National Association, as Administrative Agent and the other lenders party thereto, dated as of September 26, 2013 (9)

 

10.11

Tax Protection Agreement, by and among Retail Opportunity Investments Corp., Retail Opportunity Investments Partnership, LP and the protected partners identified therein, dated as of September 27, 2013 (9)

 

10.12

Tax Protection Agreement, by and among Retail Opportunity Investments Corp., Retail Opportunity Investments Partnership, LP and the protected partners identified therein, dated as of September 27, 2013 (9)

 

10.13

Registration Rights Agreement, by and among Retail Opportunity Investments Corp. and the holders named therein, dated as of September 27, 2013 (9)

 

10.14

Registration Rights Agreement, by and among Retail Opportunity Investments Corp. and the holders named therein, dated as of September 27, 2013 (9)

 

10.15

Sales Agreements, by and among Retail Opportunity Investments Corp., Retail Opportunity Investments Partnership, LP and each of Jefferies LLC, KeyBanc Capital Markets, Inc., MLV & Co. and Raymond James & Associates, Inc., each dated as of September 19, 2014 (12)

 

10.16

Fourth Amendment to the First Amended and Restated Credit Agreement, by and among Retail Opportunity Investments Partnership, LP, as the Borrower, Retail Opportunity Investments Corp., as the Parent Guarantor, KeyBank National Association, as Administrative Agent and the other lenders party thereto, dated as of December 12, 2014 (14)

 

10.17

Tax Protection Agreement, by and among Retail Opportunity Investments Corp., Retail Opportunity Investments Partnership, LP and the protected partners identified therein, dated as of December 11, 2014 (15)

 

10.18

Registration Rights Agreement, by and among Retail Opportunity Investments Corp. and the holder named therein, dated as of December 11, 2014 (15)

 

10.19

Term Loan Agreement, dated as of September 29, 2015, by and among Retail Opportunity Investments Partnership, LP, as the Borrower, Retail Opportunity Investments Corp., as the Parent Guarantor, certain subsidiaries of the Parent Guarantor identified therein, as the Subsidiary Guarantors, KeyBank National Association, as Administrative Agent, U.S. Bank National Association, as the Syndication Agent and the other lenders party thereto (16)

 

10.20*

Tax Protection Agreement, by and among Retail Opportunity Investments Corp., Retail Opportunity Investments Partnership, LP and the protected partners identified therein, dated as of December 4, 2015

 

10.21*

Registration Rights Agreement, by and among Retail Opportunity Investments Corp. and the holders named therein, dated as of December 4, 2015

 

10.22*

Tax Protection Agreement, by and among Retail Opportunity Investments Corp., Retail Opportunity Investments Partnership, LP and the protected partners identified therein, dated as of December 10, 2015

 

10.23*

Registration Rights Agreement, by and among Retail Opportunity Investments Corp. and the holders named therein, dated as of December 10, 2015

 

10.24*

Tax Protection Agreement, by and among Retail Opportunity Investments Corp., Retail Opportunity Investments Partnership, LP and the protected partner identified therein, dated as of December 31, 2015

 

10.25*

Registration Rights Agreement, by and among Retail Opportunity Investments Corp. and the holder named therein, dated as of December 31, 2015

 

21.1

List of Subsidiaries of Retail Opportunity Investments Corp.

 

23.1

Consent of Ernst & Young LLP for Retail Opportunity Investments Corp.

 

23.2

Consent of Ernst & Young LLP for Retail Opportunity Investments Partnership, LP

 

31.1

Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

 

31.2

Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

 

32.1

Certifications pursuant to Section 1350

 

101 INS

XBRL Instance Document

 

101 SCH

XBRL Taxonomy Extension Schema

 

101 CAL

XBRL Taxonomy Extension Calculation Database

 

101 DEF

Taxonomy Extension Definition Linkbase

 

101 LAB

XBRL Taxonomy Extension Label Linkbase

 

101 PRE

XBRL Taxonomy Extension Presentation Linkbase

 

________________________

 

(1)	Incorporated by reference to the Company’s current report on Form 8-K filed on October 26, 2009 (File No. 001-33479)
(2)	Incorporated by reference to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2009, filed on March 12, 2010 (File No. 001-33749)
(3)	Incorporated by reference to the Company’s current report on Form 8-K filed on June 2, 2011
(4)	Incorporated by reference to the Company’s current report on Form 8-K, filed on June 23, 2011
(5)	Incorporated by reference to the Company’s current report on Form 8-K filed on April 5, 2012
(6)	Incorporated by reference to the Company’s current report on Form 8-K filed on September 5, 2012
(7)	Incorporated by reference to the Company’s current report on Form 8-K filed on November 30, 2012
(8)	Incorporated by reference to the Company’s current report on Form 8-K filed on January 2, 2013
(9)	Incorporated by reference to the Company’s current report on Form 8-K filed on October 2, 2013
(10)	Incorporated by reference to the Company’s current report on Form 8-K filed on December 9, 2013
(11)	Incorporated by reference to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2013, filed on February 25, 2014
(12)	Incorporated by reference to the Company’s current report on Form 8-K filed on September 24, 2014
(13)	Incorporated by reference to the Company’s current report on Form 8-K filed on December 3, 2014
(14)	Incorporated by reference to the Company’s current report on Form 8-K filed on December 17, 2014
(15)	Incorporated by reference to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2014, filed on February 24, 2015
(16)	Incorporated by reference to the Company’s annual report on Form 10-Q for the fiscal quarter ended September 30, 2015, filed on October 29, 2015
*	Filed herewith

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	RETAIL OPPORTUNITY INVESTMENTS CORP. Registrant
Date:  February 24, 2016	By:  /s/ Stuart A. Tanz
	Stuart A. Tanz
	President and Chief Executive Officer
	(Principal Executive Officer)

 

 

 

 

 

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stuart A. Tanz and Michael B. Haines, and each of them, with full power to act without the other, such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Form 10-K and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Date:  February 24, 2016	/s/ Richard A. Baker
	Richard A. Baker
	Non-Executive Chairman of the Board

 

Date:  February 24, 2016	/s/ Stuart A. Tanz
	Stuart A. Tanz
	President, Chief Executive Officer and Director
	(Principal Executive Officer)

 

Date:  February 24, 2016	/s/ Michael B. Haines
	Michael B. Haines
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)
Date:  February 24, 2016	/s/ Laurie  A. Sneve
	Laurie A.  Sneve
	Chief Accounting Officer
Date:  February 24, 2016	/s/ Michael J. Indiveri
	Michael J. Indiveri
	Director
Date:  February 24, 2016	/s/ Edward H. Meyer
	Edward H. Meyer
	Director

 

Date:  February 24, 2016	/s/ Lee S. Neibart
	Lee S. Neibart
	Director

 

Date:  February 24, 2016	/s/ Charles J. Persico
	Charles J. Persico
	Director

 

Date:  February 24, 2016	/s/ Laura H. Pomerantz
	Laura H. Pomerantz
	Director

 

Date:  February 24, 2016	/s/ Eric S. Zorn
	Eric S. Zorn
	Director

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP, by Retail Opportunity Investments GP, LLC, its sole general partner Registrant
Date:  February 24, 2016	By:  /s/ Stuart A. Tanz
	Stuart A. Tanz
	President and Chief Executive Officer
	(Principal Executive Officer)

 

 

 

 

 

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stuart A. Tanz and Michael B. Haines, and each of them, with full power to act without the other, such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Form 10-K and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Date:  February 24, 2016	/s/ Richard A. Baker
	Richard A. Baker
	Non-Executive Chairman of the Board

 

Date:  February 24, 2016	/s/ Stuart A. Tanz
	Stuart A. Tanz
	President, Chief Executive Officer and Director
	(Principal Executive Officer)

 

Date:  February 24, 2016	/s/ Michael B. Haines
	Michael B. Haines
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)
Date:  February 24, 2016	/s/ Laurie  A. Sneve
	Laurie A.  Sneve
	Chief Accounting Officer
Date:  February 24, 2016	/s/ Michael J. Indiveri
	Michael J. Indiveri
	Director
Date:  February 24, 2016	/s/ Edward H. Meyer
	Edward H. Meyer
	Director

 

Date:  February 24, 2016	/s/ Lee S. Neibart
	Lee S. Neibart
	Director

 

Date:  February 24, 2016	/s/ Charles J. Persico
	Charles J. Persico
	Director

 

Date:  February 24, 2016	/s/ Laura H. Pomerantz
	Laura H. Pomerantz
	Director

 

Date:  February 24, 2016	/s/ Eric S. Zorn
	Eric S. Zorn
	Director

 

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