NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Business
Retail Opportunity Investments Corp., a Maryland corporation (“ROIC”), is a fully integrated and self-managed real estate investment trust (“REIT”). 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.
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 general partner of, and ROIC conducts substantially all of its business through, its operating partnership subsidiary, Retail Opportunity Investments Partnership, LP, a Delaware limited partnership (the “Operating Partnership”), together with its subsidiaries. Unless otherwise indicated or unless 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.
With the approval of its stockholders, ROIC reincorporated as a Maryland corporation on June 2, 2011. ROIC began operations as a Delaware corporation, known as NRDC Acquisition Corp., which was incorporated on July 10, 2007, for the purpose of acquiring assets or operating businesses through a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination with one or more assets or control of one or more operating businesses. On October 20, 2009, ROIC’s stockholders and warrantholders approved each of the proposals presented at the special meetings of stockholders and warrantholders, respectively, in connection with the transactions contemplated by the Framework Agreement (the “Framework Agreement”) ROIC entered into on August 7, 2009 with NRDC Capital Management, LLC, which, among other things, sets forth the steps to be taken by ROIC to continue its business as a corporation that has elected to qualify as a REIT for U.S. federal income tax purposes.
ROIC’s only material asset is its ownership of 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 issuing equity from time to time. 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 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.
Recent Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-1, “Business Combinations: Clarifying the Definition of a Business.” The pronouncement changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The pronouncement requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company adopted the provisions of ASU 2017-1 effective October 1, 2016. For the period from October 1, 2016 through December 31, 2016, the Company acquired three properties for which it was concluded substantially all of the fair value of the assets acquired with each property acquisition was concentrated in a single identifiable asset and did not meet the definition of a business under ASU 2017-1. Acquisition transaction costs associated with these property acquisitions were capitalized to real estate investments.
In February 2016, the FASB issued ASU No. 2016-2, “Leases.” The pronouncement requires lessees to put most leases on their balance sheets but recognize expenses on their income statements. The guidance also eliminates real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company plans to adopt the provisions of ASU No. 2016-2 effective January 1, 2019 using the modified retrospective approach. The ASU is expected to result in the recognition of a right-to-use asset and related liability to account for future obligations under ground lease agreements for which the Company is the lessee. As of
December 31, 2016
, the remaining contractual payments under ground lease agreements aggregated approximately
$43.0 million
. In addition, the new ASU will require that lessees and lessors capitalize, as initial direct costs, only those costs that are incurred due to the
execution of a lease. Allocated payroll costs and other costs that are incurred regardless of whether the lease is obtained will no longer be capitalized as initial direct costs and instead will be expensed as incurred. The Company continues to evaluate the impact this pronouncement will have on the Company’s consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments.” The pronouncement simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. The pronouncement requires any adjustments to provisional amounts to be applied prospectively. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The Company adopted the provisions of ASU No. 2015-16 effective January 1, 2016 and the adoption did not have a material impact on the consolidated financial statements of the Company.
In April 2015, the FASB issued ASU No. 2015-3, “Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.” The pronouncement requires reporting entities to present debt issuance costs related to a note as a direct deduction from the face amount of that note presented in the balance sheet. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The Company adopted the provisions of ASU No. 2015-3 effective January 1, 2016 and retrospectively applied the guidance to its debt obligations for all periods presented, which resulted in the presentation of debt issuance costs associated with its term loan, unsecured revolving credit facility, Senior Notes Due 2024, Senior Notes Due 2023, and mortgage notes payable as a direct reduction from the carrying amount of the related debt instrument. These amounts were previously included in deferred charges, net on the Company’s consolidated balance sheets. See Note 5.
In February 2015, the FASB issued ASU No. 2015-2, “Amendments to the Consolidation Analysis.” The pronouncement focuses to minimize situations under previously existing guidance in which a reporting entity was required to consolidate another legal entity in which that reporting entity did not have: (1) the ability through contractual rights to act primarily on its own behalf; (2) ownership of the majority of the legal entity’s voting rights; or (3) the exposure to a majority of the legal entity’s economic benefits. ASU 2015-2 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. ASU 2015-2 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The Company adopted the provisions of ASU No. 2015-2 effective January 1, 2016, and there were no changes to the Company’s consolidation conclusions as a result of the adoption of this guidance.
In May 2014, the FASB issued ASU No. 2014-9, “Revenue from Contracts with Customers.” The pronouncement was issued to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and International Financial Reporting Standards. The pronouncement is effective for reporting periods beginning after December 15, 2017. The Company plans to adopt the provisions of ASU No. 2014-9 effective January 1, 2018 using the modified retrospective approach. Leases are specifically excluded from this ASU and will be governed by the applicable lease codification; however, this update may have implications on certain variable payment terms included in lease agreements. The Company continues to evaluate the impact this pronouncement will have on the Company’s consolidated financial statements.
Principles of Consolidation
The accompanying consolidated financial statements are prepared on the accrual basis in accordance with GAAP. In the opinion of management, the consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and the results of operations and cash flows for the periods presented.
The consolidated financial statements include the accounts of the Company and those of its subsidiaries, which are wholly-owned or controlled by the Company. Entities which the Company does not control through its voting interest and entities which are variable interest entities (“VIEs”), but where it is not the primary beneficiary, are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated.
The Company follows the FASB guidance for determining whether an entity is a VIE and requires the performance of a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE. Under this guidance, an entity would be required to consolidate a VIE if it has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. Effective January 1, 2016, the Company adopted the provisions of ASU No 2015-2, and as a result, concluded that the Operating Partnership is a VIE. The Company has concluded that because they have both the power and the rights to control the Operating Partnership, they are the primary beneficiary and are required to continue to consolidate the Operating Partnership.
A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests are required to be presented as a separate component of equity in the consolidated balance sheet and modifies the presentation of net income by requiring earnings and other comprehensive income to be attributed to controlling and non-controlling interests.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the disclosure of contingent assets and liabilities, the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the periods covered by the financial statements. The most significant assumptions and estimates relate to the purchase price allocations, depreciable lives, revenue recognition and the collectability of tenant receivables, other receivables, notes receivables, the valuation of performance-based restricted stock, and derivatives. Actual results could differ from these estimates.
Federal Income Taxes
The Company has elected to qualify as a REIT under Sections 856-860 of the Internal Revenue Code (the “Code”). Under those sections, a REIT that, among other things, distributes at least
90%
of its REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gains) and meets certain other qualifications prescribed by the Code will not be taxed on that portion of its taxable income that is distributed.
Although it may qualify as a REIT for U.S. federal income tax purposes, the Company is subject to state income or franchise taxes in certain states in which some of its properties are located. In addition, taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiary (“TRS”), if any, is fully subject to U.S. federal, state and local income taxes. For all periods from inception through September 26, 2013 the Operating Partnership has been an entity disregarded from its sole owner, ROIC, for U.S. federal income tax purposes and as such has not been subject to federal income taxes. Effective September 27, 2013, the Operating Partnership issued OP Units in connection with the acquisitions of two shopping centers. Accordingly, the Operating Partnership ceased being a disregarded entity and instead is being treated as a partnership for federal income tax purposes.
The Company follows the FASB guidance that defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The FASB also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company records interest and penalties relating to unrecognized tax benefits, if any, as interest expense. As of
December 31, 2016
, the statute of limitations for tax years
2013
through and including
2015
remain open for examination by the Internal Revenue Service (“IRS”) and state taxing authorities.
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, 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.
Real Estate Investments
All costs related to the improvement or replacement of real estate properties are capitalized. Additions, renovations and improvements that enhance and/or extend the useful life of a property are also capitalized. Expenditures for ordinary maintenance, repairs and improvements that do not materially prolong the normal useful life of an asset are charged to operations as incurred. The Company expenses transaction costs associated with business combinations and unsuccessful property asset acquisitions in the period incurred and capitalizes transaction costs associated with successful property asset acquisitions. During the years ended
December 31, 2016
and
2015
, capitalized costs related to the improvements or replacement of real estate properties were approximately
$41.4 million
and
$28.1 million
, respectively.
The Company evaluates each acquisition of real estate to determine if the acquired property meets the definition of a business and needs to be accounted for as a business combination. Under ASU 2017-1, the Company first determines whether substantially all
of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If this threshold is met, the acquired property does not meet the definition of a business and is accounted for as an asset acquisition. The Company expects that acquisitions of real estate properties will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets).
The Company recognizes the acquisition of real estate properties, including acquired tangible (consisting of land, buildings and improvements), and acquired intangible assets and liabilities (consisting of above-market and below-market leases and acquired in-place leases) at their fair value (for acquisitions meeting the definition of a business) and relative fair value (acquisitions not meeting the definition of a business). The relative fair values used to allocate the cost of an asset acquisition are determined using the same methodologies and assumptions the Company utilizes to determine fair value in a business combination.
Acquired lease intangible assets include above-market leases and acquired in-place leases, and acquired lease intangible liabilities represent below-market leases, in the accompanying consolidated balance sheets. The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, which value is then allocated to land, buildings and improvements based on management’s determination of the relative fair values of these assets. In valuing an acquired property’s intangibles, factors considered by management include an estimate of carrying costs during the expected lease-up periods, and estimates of lost rental revenue during the expected lease-up periods based on management’s evaluation of current market demand. Management also estimates costs to execute similar leases, including leasing commissions, tenant improvements, legal and other related costs. Leasing commissions, legal and other related costs (“lease origination costs”) are classified as deferred charges in the accompanying consolidated balance sheets.
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 is amortized to rental income, over the terms of the respective leases including option periods, if applicable. 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.
In conjunction with the Company’s pursuit and acquisition of real estate investments, the Company expensed acquisition transaction costs during the years ended
December 31, 2016
,
2015
and
2014
of approximately
$824,000
,
$1.0 million
and
$1.0 million
, respectively.
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, 2016
.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed the federally insured limit by the Federal Deposit Insurance Corporation. The Company has not experienced any losses related to these balances.
Restricted Cash
The terms of several of the Company’s mortgage loans payable require the Company to deposit certain replacement and other reserves with its lenders. Such “restricted cash” is generally available only for property-level requirements for which the reserves have been established and is not available to fund other property-level or Company-level obligations.
Revenue Recognition
Management has determined that all of the Company’s leases with its various tenants are operating leases. Rental income is generally recognized based on the terms of leases entered into with tenants. In those instances in which the Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition and lease incentive amortization when possession or control of the space is turned over to the tenant for tenant work to begin. Minimum rental income from leases with scheduled rent increases is recognized on a straight-line basis over the lease term. Percentage rent is recognized when a specific tenant’s sales breakpoint is achieved. Property operating expense recoveries from tenants of common area maintenance, real estate taxes and other recoverable costs are recognized in the period the related expenses are incurred. Lease incentives are amortized as a reduction of rental revenue over the respective tenant lease terms.
Termination fees (included in other income) are fees that the Company has agreed to accept in consideration for permitting certain tenants to terminate their lease prior to the contractual expiration date. The Company recognizes termination fees in accordance with Securities and Exchange Commission Staff Accounting Bulletin 104, “Revenue Recognition,” when the following conditions are met: (a) the termination agreement is executed; (b) the termination fee is determinable; (c) all landlord services pursuant to the terminated lease have been rendered; and (d) collectability of the termination fee is assured. Interest income is recognized as it is earned. Gains or losses on disposition of properties are recorded when the criteria for recognizing such gains or losses under GAAP have been met.
The Company must make estimates as to the collectability of its accounts receivable related to base rent, straight-line rent, expense reimbursements and other revenues. Management analyzes accounts receivable by considering tenant creditworthiness, current economic trends, and changes in tenants’ payment patterns when evaluating the adequacy of the allowance for doubtful accounts receivable. The Company also provides an allowance for future credit losses of the deferred straight-line rents receivable. The provision for doubtful accounts at
December 31, 2016
and
December 31, 2015
was approximately
$5.2 million
and
$4.5 million
, respectively.
Depreciation and Amortization
The Company uses the straight-line method for depreciation and amortization. Buildings are depreciated over the estimated useful lives which the Company estimates to be
39
-
40
years. Property improvements are depreciated over the estimated useful lives that range from
10
to
20
years. Furniture and fixtures are depreciated over the estimated useful lives that range from
3
to
10
years. Tenant improvements are amortized over the shorter of the life of the related leases or their useful life.
Deferred Leasing and Financing Costs
Costs incurred in obtaining tenant leases (principally leasing commissions and acquired lease origination costs) are amortized ratably over the life of the tenant leases. Costs incurred in obtaining long-term financing are amortized ratably over the related debt agreement. The amortization of deferred leasing and financing costs is included in Depreciation and amortization and Interest expense and other finance expenses, respectively, in the Consolidated Statements of Operations.
The unamortized balances of deferred leasing costs included in deferred charges in the Consolidated Balance Sheet as of
December 31, 2016
that will be charged to future operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Lease Origination Costs
|
|
2017
|
$
|
7,645
|
|
|
2018
|
6,139
|
|
|
2019
|
4,773
|
|
|
2020
|
3,953
|
|
|
2021
|
3,113
|
|
|
Thereafter
|
9,130
|
|
|
|
$
|
34,753
|
|
The unamortized balances of deferred financing costs associated with the Company’s term loan, unsecured revolving credit facility, Senior Notes Due 2026, Senior Notes Due 2024, Senior Notes Due 2023, and mortgage notes payable included as a direct reduction
from the carrying amount of the related debt instrument in the Consolidated Balance Sheet as of
December 31, 2016
that will be charged to future operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Financing Costs
|
|
2017
|
$
|
2,116
|
|
|
2018
|
2,081
|
|
|
2019
|
683
|
|
|
2020
|
556
|
|
|
2021
|
555
|
|
|
Thereafter
|
1,438
|
|
|
|
$
|
7,429
|
|
Internal Capitalized Leasing Costs
The Company capitalizes a portion of payroll-related costs related to its leasing personnel associated with new leases and lease renewals. These costs are amortized over the life of the respective leases. During the years ended
December 31, 2016
,
2015
and
2014
, the Company capitalized approximately
$1.2 million
,
$1.1 million
and
$947,000
, respectively, of such payroll-related costs.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and tenant receivables. The Company places its cash and cash equivalents in excess of insured amounts with high quality financial institutions. The Company performs ongoing credit evaluations of its tenants and requires tenants to provide security deposits.
Earnings Per Share
Basic earnings per share (“EPS”) excludes the impact of dilutive shares and is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue shares of common stock were exercised or converted into shares of common stock and then shared in the earnings of the Company.
During the year ended December 31, 2014 , the effect of approximately
41,400,000
warrants to purchase the Company’s common stock (the “Public Warrants”) issued in connection with the Company’s initial public offering (the “IPO”), and the
8,000,000
warrants (the “Private Placement Warrants”) purchased by NRDC Capital Management, LLC simultaneously with the consummation of the IPO, for the time these were outstanding during these periods, were included in the calculation of diluted EPS since the weighted average share price was greater than the exercise price during these periods.
No
warrants were outstanding during the years ended
December 31, 2016
and
2015
.
For the years ended
December 31, 2016
,
2015
and
2014
, basic EPS was determined by dividing net income allocable to common stockholders for the applicable period by the weighted average number of shares of common stock outstanding during such period. Net income during the applicable period is also allocated to the time-based unvested restricted stock as these grants are entitled to receive dividends and are therefore considered a participating security. Time-based unvested restricted stock is not allocated net losses and/or any excess of dividends declared over net income; such amounts are allocated entirely to the common stockholders other than the holders of time-based unvested restricted stock. The performance-based restricted stock grants awarded under the 2009 Plan described in Note 8 are excluded from the basic EPS calculation, as these units are not participating securities until they vest.
The following table sets forth the reconciliation between basic and diluted EPS for ROIC (in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
36,430
|
|
|
$
|
25,092
|
|
|
$
|
21,050
|
|
|
Less income attributable to non-controlling interests
|
(3,676
|
)
|
|
(1,228
|
)
|
|
(749
|
)
|
|
Less earnings allocated to unvested shares
|
(270
|
)
|
|
(229
|
)
|
|
(160
|
)
|
|
Net income available for common stockholders, basic
|
$
|
32,484
|
|
|
$
|
23,635
|
|
|
$
|
20,141
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
36,430
|
|
|
$
|
25,092
|
|
|
$
|
21,050
|
|
|
Less earnings allocated to unvested shares
|
(270
|
)
|
|
(229
|
)
|
|
(160
|
)
|
|
Net income available for common stockholders, diluted
|
$
|
36,160
|
|
|
$
|
24,863
|
|
|
$
|
20,890
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS – weighted average common equivalent shares
|
104,072,222
|
|
|
95,651,780
|
|
|
83,411,230
|
|
|
Warrants
|
—
|
|
|
—
|
|
|
631,086
|
|
|
OP units
|
11,747,509
|
|
|
4,086,724
|
|
|
3,162,658
|
|
|
Restricted stock awards – performance-based
|
86,996
|
|
|
174,198
|
|
|
162,327
|
|
|
Stock options
|
133,213
|
|
|
105,079
|
|
|
86,108
|
|
|
Denominator for diluted EPS – weighted average common equivalent shares
|
116,039,940
|
|
|
100,017,781
|
|
|
87,453,409
|
|
Earnings Per Unit
The following table sets forth the reconciliation between basic and diluted earnings per unit for the Operating Partnership (in thousands, except unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
36,430
|
|
|
$
|
25,092
|
|
|
$
|
21,050
|
|
|
Less earnings allocated to unvested shares
|
(270
|
)
|
|
(229
|
)
|
|
(160
|
)
|
|
Net income available to unitholders, basic and diluted
|
$
|
36,160
|
|
|
$
|
24,863
|
|
|
$
|
20,890
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per unit – weighted average common equivalent units
|
115,819,731
|
|
|
99,738,504
|
|
|
86,573,888
|
|
|
Warrants
|
—
|
|
|
—
|
|
|
631,086
|
|
|
Restricted stock awards – performance-based
|
86,996
|
|
|
174,198
|
|
|
162,327
|
|
|
Stock options
|
133,213
|
|
|
105,079
|
|
|
86,108
|
|
|
Denominator for diluted earnings per unit – weighted average common equivalent units
|
116,039,940
|
|
|
100,017,781
|
|
|
87,453,409
|
|
Stock-Based Compensation
The Company has a stock-based employee compensation plan, which is more fully described in Note 8.
The Company accounts for its stock-based compensation plans based on the FASB guidance which requires that compensation expense be recognized based on the fair value of the stock awards less estimated forfeitures. Restricted stock grants vest based upon the completion of a service period (“time-based grants”) and/or the Company meeting certain established market-specific financial performance criteria (“performance-based grants”). Time-based grants are valued according to the market price for the Company’s common stock at the date of grant. For performance-based grants, a Monte Carlo valuation model is used, taking into account the underlying contingency risks associated with the performance criteria. It is the Company’s policy to grant options with an exercise price equal to the quoted closing market price of stock on the grant date. Awards of stock options and time-based
grants of stock are expensed as compensation on a straight-line basis over the vesting period. Depending on the terms of the agreement, certain awards of performance-based grants are expensed as compensation under an accelerated attribution method while certain are expensed as compensation on a straight-line basis over the vesting period. All awards of performance-based grants are recognized in income regardless of the results of the performance criteria.
Non-Controlling Interests – Redeemable OP Units / Redeemable Limited Partners
OP Units are classified as either mezzanine equity or permanent equity. If ROIC could be required to deliver cash in exchange for the OP Units upon redemption, such OP Units are referred to as Redeemable OP Units and presented in the mezzanine section of the balance sheet. If ROIC could, in its sole discretion, deliver cash or shares of ROIC common stock in exchange for the OP Units upon redemption, such OP Units are classified as permanent equity and presented in the equity section of the balance sheet. As of
December 31, 2016
, all outstanding OP Units are classified as permanent equity. See Note 9 for further discussion.
Derivatives
The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. When the Company terminates a derivative for which cash flow hedging was being applied, the balance which was recorded in Other Comprehensive Income is amortized to interest expense over the remaining contractual term of the swap. The Company includes cash payments made to terminate interest rate swaps as an operating activity on the statement of cash flows, given the nature of the underlying cash flows that the derivative was hedging.
Segment Reporting
The Company’s primary business is the ownership, management, and redevelopment of retail real estate properties. The Company reviews operating and financing 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.
Reclassifications
Certain reclassifications have been made to the prior period consolidated financial statements and notes to conform to the current year presentation. See Note 5.
2.
Real Estate Investments
The following real estate investment transactions occurred during the years ended
December 31, 2016
and
2015
.
Property Acquisitions in 2016
Business Combinations
Prior to the adoption of ASU 2017-1 on October 1, 2016, the Company accounted for its real estate property acquisitions as business combinations. In each of the following acquisitions, the Company allocated the total consideration for each acquisition to the individual assets and liabilities acquired based on its fair value. All transaction costs incurred in these acquisitions were expensed.
On March 10, 2016, the Company acquired a
two
-property portfolio for an adjusted purchase price of approximately
$64.3 million
. The first property known as Magnolia Shopping Center, located in Santa Barbara, California, is approximately
116,000
square feet and is anchored by Kroger (Ralph’s) Supermarket. The second property, known as Casitas Plaza Shopping Center, located in
Carpinteria, California, within Santa Barbara County, is approximately
97,000
square feet and is anchored by Albertson’s Supermarket and CVS Pharmacy. The acquisitions were funded through the issuance of
2,434,833
OP Units with a fair value of approximately
$46.1 million
, the assumption of
$9.3 million
and
$7.6 million
in mortgage loans on Magnolia Shopping Center and Casitas Plaza Shopping Center, respectively, and available cash from operations.
On April 28, 2016, the Company acquired the property known as Bouquet Center located in Santa Clarita, California, within the Los Angeles metropolitan area, for a purchase price of approximately
$59.0 million
. Bouquet Center is approximately
149,000
square feet and is anchored by Safeway (Vons) Supermarket, CVS Pharmacy and Ross Dress For Less. The property was acquired with borrowings under the Company’s unsecured revolving credit facility, proceeds from the ATM program and available cash from operations.
On June 1, 2016, the Company acquired the property known as North Ranch Shopping Center located in Westlake Village, California, within the Los Angeles metropolitan area, for a purchase price of approximately
$122.8 million
. North Ranch Shopping Center is approximately
147,000
square feet and is anchored by Kroger (Ralph’s) Supermarket, Trader Joe’s, Rite Aid Pharmacy and Petco. The property was acquired with borrowings under the Company’s unsecured revolving credit facility, proceeds from the ATM program and available cash from operations.
On July 14, 2016, the Company acquired the property known as Monterey Center, located in downtown Monterey, California, for a purchase price of approximately
$12.1 million
. Monterey Center is approximately
26,000
square feet and is anchored by Trader Joe’s and Pharmaca Pharmacy. The property was acquired with available cash from operations.
On September 15, 2016, the Company acquired the property known as Rose City Center located in Portland, Oregon, for a purchase price of approximately
$12.8 million
. Rose City Center is approximately
61,000
square feet and is anchored by Safeway Supermarket. The property was acquired with borrowings under the Company’s unsecured revolving credit facility and available cash from operations.
Asset Acquisitions
Subsequent to the adoption of ASU 2017-1, the Company evaluated its real estate property acquisitions under the new framework for determining whether a real estate property acquisition meets the definition of a business. The Company evaluated each of the following acquisitions and determined that substantially all of the fair value related to each acquisition was concentrated in a single identifiable asset. In each of these acquisitions, the Company allocated the total consideration for each acquisition to the individual assets and liabilities acquired on a relative fair value basis. All transaction costs incurred in these acquisitions were capitalized.
On October 3, 2016, the Company acquired the property known as Trader Joe’s at the Knolls, located in Long Beach, California, within the Los Angeles metropolitan area, for a purchase price of approximately
$29.1 million
. Trader Joe’s at the Knolls is approximately
52,000
square feet and is anchored by Trader Joe’s. The property was acquired with borrowings under the Company’s unsecured revolving credit facility.
On October 17, 2016, the Company acquired the property known as Bridle Trails Shopping Center, located in Kirkland, Washington, within the Seattle metropolitan area, for a purchase price of approximately
$32.8 million
. Bridle Trails Shopping Center is approximately
104,000
square feet and is anchored by Unified (Red Apple) Supermarket and Bartell Drugs. The property was acquired with borrowings under the Company’s unsecured revolving credit facility.
On December 6, 2016, the Company acquired the property known as Torrey Hills Corporate Center, located in San Diego, California, for a purchase price of approximately
$9.9 million
. Torrey Hills Corporate Center is a
24,000
square foot office building and will be the Company’s new corporate headquarters in 2017. The property was acquired with borrowings under the Company’s unsecured revolving credit facility.
Property Acquisitions in
2015
Business Combinations
During the year ended
December 31, 2015
, the Company acquired
12
properties throughout the west coast with a total of approximately
1.3 million
square feet for a net adjusted purchase price of approximately
$483.0 million
Any reference to square footage or occupancy is unaudited and outside the scope of our independent registered public accounting firm’s audit of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.
The financial information set forth below summarizes the Company’s purchase price allocation for the properties acquired during the years ended
December 31, 2016
and
2015
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Assets
|
|
|
|
|
|
|
Land
|
$
|
92,518
|
|
|
$
|
123,176
|
|
|
Building and improvements
|
262,571
|
|
|
362,147
|
|
|
Acquired lease intangible asset
|
19,321
|
|
|
26,507
|
|
|
Deferred charges
|
6,830
|
|
|
8,612
|
|
|
Assets acquired
|
$
|
381,240
|
|
|
$
|
520,442
|
|
|
Liabilities
|
|
|
|
|
|
|
Mortgage notes assumed
|
$
|
17,618
|
|
|
$
|
—
|
|
|
Acquired lease intangible liability
|
32,615
|
|
|
37,480
|
|
|
Liabilities assumed
|
$
|
50,233
|
|
|
$
|
37,480
|
|
Pro Forma Financial Information
The pro forma financial information is based upon the Company’s historical consolidated statements of operations for the years ended
December 31, 2016
and
2015
, adjusted to give effect to the above completed business combination transactions as if they occurred on January 1, 2015. The pro forma financial information set forth below is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transactions occurred as if they occurred on January 1 of each year, nor does it purport to represent the results of future operations. The below pro forma financial information does not include asset acquisitions that occurred during the three months ended
December 31, 2016
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
Statement of operations:
|
|
|
|
|
Revenues
|
$
|
245,116
|
|
|
$
|
235,199
|
|
|
Net income attributable to Retail Opportunity Investments Corp.
|
$
|
33,169
|
|
|
$
|
26,763
|
|
The following table summarizes the operating results included in the Company’s historical consolidated statement of operations for the year ended
December 31, 2016
for the properties acquired during the year ended
December 31, 2016
(in thousands).
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Statement of operations:
|
|
|
|
Revenues
|
$
|
15,230
|
|
|
Net income attributable to Retail Opportunity Investments Corp.
|
$
|
2,513
|
|
The following table summarizes the operating results included in the Company’s historical consolidated statement of operations for the year ended
December 31, 2015
for the properties acquired during the year ended
December 31, 2015
(in thousands).
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
Statement of operations:
|
|
|
|
Revenues
|
$
|
12,706
|
|
|
Net income attributable to Retail Opportunity Investments Corp.
|
$
|
2,849
|
|
Property Dispositions
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
. Accordingly, the Company recorded a gain on sale of approximately
$3.3 million
for the year ended December 31, 2014 related to this property.
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
. Accordingly, the Company recorded a gain on sale of approximately
$1.6 million
for year ended December 31, 2014 related to this property.
The Company did not have any property dispositions during the years ended December 31, 2016 and 2015.
3. Acquired Lease Intangibles
Intangible assets and liabilities as of
December 31, 2016
and
2015
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Assets:
|
|
|
|
|
|
|
In-place leases
|
$
|
93,952
|
|
|
$
|
79,996
|
|
|
Accumulated amortization
|
(33,034
|
)
|
|
(28,535
|
)
|
|
Above-market leases
|
30,251
|
|
|
25,575
|
|
|
Accumulated amortization
|
(11,964
|
)
|
|
(10,094
|
)
|
|
Acquired lease intangible assets, net
|
$
|
79,205
|
|
|
$
|
66,942
|
|
|
Liabilities:
|
|
|
|
|
|
|
Below-market leases
|
$
|
190,321
|
|
|
$
|
155,169
|
|
|
Accumulated amortization
|
(35,363
|
)
|
|
(30,308
|
)
|
|
Acquired lease intangible liabilities, net
|
$
|
154,958
|
|
|
$
|
124,861
|
|
For the years ended
December 31, 2016
,
2015
and
2014
, the net amortization of acquired lease intangible assets and acquired lease intangible liabilities for above and below market leases was
$13.8 million
,
$9.9 million
and
$6.9 million
, respectively, which amounts are included in base rents in the accompanying consolidated statements of operations and comprehensive income. For the years ended
December 31, 2016
,
2015
and
2014
, the net amortization of in-place leases was
$15.6 million
,
$13.2 million
and
$12.5 million
, respectively, which amounts are included in depreciation and amortization in the accompanying consolidated statements of operations and comprehensive income.
The scheduled future amortization of acquired lease intangible assets as of
December 31, 2016
is as follows (in thousands):
|
|
|
|
|
|
|
|
Year Ending December 31:
|
|
|
2017
|
$
|
15,068
|
|
|
2018
|
11,406
|
|
|
2019
|
7,557
|
|
|
2020
|
6,083
|
|
|
2021
|
4,988
|
|
|
Thereafter
|
34,103
|
|
|
Total future amortization of acquired lease intangible assets
|
$
|
79,205
|
|
The scheduled future amortization of acquired lease intangible liabilities as of
December 31, 2016
is as follows (in thousands):
|
|
|
|
|
|
|
|
Year Ending December 31:
|
|
|
2017
|
$
|
14,269
|
|
|
2018
|
13,375
|
|
|
2019
|
12,714
|
|
|
2020
|
11,546
|
|
|
2021
|
10,416
|
|
|
Thereafter
|
92,638
|
|
|
Total future amortization of acquired lease intangible liabilities
|
$
|
154,958
|
|
4. Tenant Leases
Space in the Company’s shopping centers is leased to various tenants under operating leases that usually grant tenants renewal options and generally provide for additional rents based on certain operating expenses as well as tenants’ sales volume.
Future minimum rents to be received under non-cancellable leases as of
December 31, 2016
are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
Year Ending December 31:
|
|
|
2017
|
$
|
166,181
|
|
|
2018
|
146,496
|
|
|
2019
|
125,052
|
|
|
2020
|
105,841
|
|
|
2021
|
85,752
|
|
|
Thereafter
|
376,228
|
|
|
Total minimum lease payments
|
$
|
1,005,550
|
|
5. Mortgage Notes Payable, Credit Facility and Senior Notes
ROIC does not hold any indebtedness. All debt is held directly or indirectly by the Operating Partnership; however, ROIC has guaranteed the Operating Partnership’s term loan, unsecured revolving credit facility, carve-out guarantees on property-level debt, the Senior Notes Due 2026, the Senior Notes Due 2024 and the Senior Notes Due 2023.
In April 2015, the FASB issued ASU No. 2015-3, which requires reporting entities to present debt issuance costs related to a note as a direct deduction from the face amount of that note presented in the balance sheet. Effective January 1, 2016, the Company adopted the provisions of ASU 2015-3 and retrospectively applied the guidance to its debt obligations for all periods presented. The unamortized deferred financing costs were previously included in deferred charges, net on the Company’s consolidated Balance Sheets.
Mortgage Notes Payable
On March 10, 2016, in connection with the acquisitions of Magnolia Shopping Center and Casitas Plaza Shopping Center, the Company assumed
two
existing mortgage loans with outstanding principal balances of approximately
$9.3 million
and
$7.6 million
, respectively. On April 1, 2016, the Company repaid in full the Gateway Village III mortgage note related to Gateway Shopping Center for a total of approximately
$7.1 million
, without penalty, in accordance with the prepayment provisions of the note.
The mortgage notes payable collateralized by respective properties and assignment of leases at
December 31, 2016
and
December 31, 2015
, respectively, were as follows (in thousands, except interest rates):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Maturity Date
|
|
Interest Rate
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Gateway Village III
|
|
July 2016
|
|
6.10
|
%
|
|
$
|
—
|
|
|
$
|
7,166
|
|
|
Bernardo Heights Plaza
|
|
July 2017
|
|
5.70
|
%
|
|
8,216
|
|
|
8,404
|
|
|
Santa Teresa Village
|
|
February 2018
|
|
6.20
|
%
|
|
10,383
|
|
|
10,613
|
|
|
Magnolia Shopping Center
|
|
October 2018
|
|
5.50
|
%
|
|
9,135
|
|
|
—
|
|
|
Casitas Plaza Shopping Center
|
|
June 2022
|
|
5.32
|
%
|
|
7,449
|
|
|
—
|
|
|
Diamond Hills Plaza
|
|
October 2025
|
|
3.55
|
%
|
|
35,500
|
|
|
35,500
|
|
|
|
|
|
|
|
|
|
$
|
70,683
|
|
|
$
|
61,683
|
|
|
Mortgage premiums
|
|
|
|
|
|
|
1,037
|
|
|
922
|
|
|
Net unamortized deferred financing costs
|
|
|
|
|
|
|
(417
|
)
|
|
(449
|
)
|
|
Total mortgage notes payable
|
|
|
|
|
|
|
$
|
71,303
|
|
|
$
|
62,156
|
|
The combined aggregate principal maturities of mortgage notes payable during the next five years and thereafter are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Repayments
|
|
Scheduled Amortization
|
|
Mortgage Premium
|
|
Total
|
|
2017
|
$
|
8,099
|
|
|
$
|
689
|
|
|
$
|
592
|
|
|
$
|
9,380
|
|
|
2018
|
18,900
|
|
|
336
|
|
|
204
|
|
|
19,440
|
|
|
2019
|
—
|
|
|
157
|
|
|
70
|
|
|
227
|
|
|
2020
|
—
|
|
|
166
|
|
|
70
|
|
|
236
|
|
|
2021
|
—
|
|
|
282
|
|
|
70
|
|
|
352
|
|
|
Thereafter
|
39,372
|
|
|
2,682
|
|
|
31
|
|
|
42,085
|
|
|
Total
|
$
|
66,371
|
|
|
$
|
4,312
|
|
|
$
|
1,037
|
|
|
$
|
71,720
|
|
Term Loan and Credit Facility
The carrying values of the Company’s term loan (the “term loan”) were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Term loan
|
$
|
300,000
|
|
|
$
|
300,000
|
|
|
Net unamortized deferred financing costs
|
(809
|
)
|
|
(1,198
|
)
|
|
Term loan:
|
$
|
299,191
|
|
|
$
|
298,802
|
|
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 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 carrying values of the Company’s unsecured revolving credit facility were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Credit facility
|
$
|
98,000
|
|
|
$
|
135,500
|
|
|
Net unamortized deferred financing costs
|
(2,346
|
)
|
|
(3,472
|
)
|
|
Credit facility:
|
$
|
95,654
|
|
|
$
|
132,028
|
|
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 is
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%
. 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. The Company has investment grade credit ratings from Moody’s Investors Service (Baa2) and Standard & Poor’s Ratings Services (BBB-).
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, 2016
.
As of
December 31, 2016
,
$300.0 million
and
$98.0 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, 2016
were
1.6%
and
1.5%
, respectively. The Company had no available borrowings under the term loan at
December 31, 2016
. The Company had
$402.0 million
available to borrow under the credit facility at
December 31, 2016
.
Senior Notes Due 2026
The carrying value of the Company’s Senior Notes Due 2026 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Principal amount
|
$
|
200,000
|
|
|
$
|
—
|
|
|
Net unamortized deferred financing costs
|
(273
|
)
|
|
—
|
|
|
Senior Notes Due 2026:
|
$
|
199,727
|
|
|
$
|
—
|
|
On July 26, 2016, the Operating Partnership entered into a Note Purchase Agreement, as amended, which provided for the issuance of
$200.0 million
principal amount of
3.95%
Senior Notes Due 2026 (the “Senior Notes Due 2026”) in a private placement effective September 22, 2016. The Senior Notes Due 2026 pay interest on March 22 and September 22 of each year, commencing on March 22, 2017, and mature on September 22, 2026, unless prepaid earlier by the Operating Partnership. The Operating Partnership’s performance of the obligations under the Note Purchase Agreement, including the payment of any outstanding indebtedness thereunder, are guaranteed, jointly and severally, by ROIC. The net proceeds were used to reduce borrowings under the credit facility. The interest expense recognized on the Senior Notes Due 2026 during the year ended
December 31, 2016
included approximately
$2.2 million
for the contractual coupon interest.
In connection with the issuance of the Senior Notes Due 2026, the Company incurred approximately
$280,000
of deferred financing costs which are being amortized over the term of the Senior Notes Due 2026.
Senior Notes Due 2024
The carrying value of the Company’s Senior Notes Due 2024 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Principal amount
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
Unamortized debt discount
|
(2,891
|
)
|
|
(3,191
|
)
|
|
Net unamortized deferred financing costs
|
(1,755
|
)
|
|
(1,976
|
)
|
|
Senior Notes Due 2024:
|
$
|
245,354
|
|
|
$
|
244,833
|
|
On December 3, 2014, the Operating Partnership completed a registered underwritten public offering of
$250.0 million
aggregate principal amount of
4.000%
Senior Notes due 2024 (the “Senior Notes Due 2024”), fully and unconditionally guaranteed by ROIC. The Senior Notes Due 2024 pay interest semi-annually on June 15 and December 15, commencing on June 15, 2015, and mature on
December 15, 2024
, unless redeemed earlier by the Operating Partnership. The Senior Notes Due 2024 are the Operating Partnership’s senior unsecured obligations that rank equally in right of payment with the Operating Partnership’s other unsecured indebtedness, and effectively junior to (i) all of the indebtedness and other liabilities, whether secured or unsecured, and any preferred equity of the Operating Partnership’s subsidiaries, and (ii) all of the Operating Partnership’s indebtedness that is secured by its assets, to the extent of the value of the collateral securing such indebtedness outstanding. ROIC fully and unconditionally guaranteed the Operating Partnership’s obligations under the Senior Notes Due 2024 on a senior unsecured basis, including the due and punctual payment of principal of, and premium, if any, and interest on, the notes, whether at stated maturity, upon acceleration, notice of redemption or otherwise. The guarantee is a senior unsecured obligation of ROIC and ranks equally in right of payment with all other senior unsecured indebtedness of ROIC. ROIC’s guarantee of the Senior Notes Due 2024 is effectively subordinated in right of payment to all liabilities, whether secured or unsecured, and any preferred equity of its subsidiaries (including the Operating Partnership and any entity ROIC accounts for under the equity method of accounting). The interest expense recognized on the Senior Notes Due 2024 during the year ended
December 31, 2016
includes
$10.0 million
and approximately
$300,000
for the contractual coupon interest and the accretion of the debt discount, respectively. The interest expense recognized on the Senior Notes Due 2024 during the year ended
December 31, 2015
includes
$10.0 million
and approximately
$288,000
for the contractual coupon interest and the accretion of the debt discount, respectively.
In connection with the Senior Notes Due 2024 offering, the Company incurred approximately
$2.2 million
of deferred financing costs which are being amortized over the term of the Senior Notes Due 2024.
Senior Notes Due 2023
The carrying value of the Company’s Senior Notes Due 2023 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Principal amount
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
Unamortized debt discount
|
(3,119
|
)
|
|
(3,482
|
)
|
|
Net unamortized deferred financing costs
|
(1,830
|
)
|
|
(2,092
|
)
|
|
Senior Notes Due 2023:
|
$
|
245,051
|
|
|
$
|
244,426
|
|
On December 9, 2013, the Operating Partnership completed a registered underwritten public offering of
$250.0 million
aggregate principal amount of
5.000%
Senior Notes due 2023 (the “Senior Notes Due 2023”), fully and unconditionally guaranteed by ROIC. The Senior Notes Due 2023 pay interest semi-annually on June 15 and December 15, commencing on June 15, 2014, and mature on
December 15, 2023
, unless redeemed earlier by the Operating Partnership. The Senior Notes Due 2023 are the Operating Partnership’s senior unsecured obligations that rank equally in right of payment with the Operating Partnership’s other unsecured indebtedness, and effectively junior to (i) all of the indebtedness and other liabilities, whether secured or unsecured, and any preferred equity of the Operating Partnership’s subsidiaries, and (ii) all of the Operating Partnership’s indebtedness that is secured by its assets, to the extent of the value of the collateral securing such indebtedness outstanding. ROIC fully and unconditionally guaranteed the Operating Partnership’s obligations under the Senior Notes Due 2023 on a senior unsecured basis, including the due and punctual payment of principal of, and premium, if any, and interest on, the notes, whether at stated maturity, upon acceleration, notice of redemption or otherwise. The guarantee is a senior unsecured obligation of ROIC and will rank equally in right of payment with all other senior unsecured indebtedness of ROIC. ROIC’s guarantee of the Senior Notes Due 2023 is effectively subordinated in right of payment to all liabilities, whether secured or unsecured, and any preferred equity of its subsidiaries (including the Operating Partnership and any entity ROIC accounts for under the equity method of accounting). The interest expense recognized on the Senior Notes Due 2023 during the year ended
December 31, 2016
includes approximately
$12.5 million
and approximately
$363,000
for the contractual coupon interest and the accretion of the debt discount, respectively.
The interest expense recognized on the Senior Notes Due 2023 during the year ended
December 31, 2015
includes approximately
$12.5 million
and approximately
$344,000
for the contractual coupon interest and the accretion of the debt discount, respectively.
In connection with the Senior Notes Due 2023 offering, the Company incurred approximately
$2.6 million
of deferred financing costs which are being amortized over the term of the Senior Notes Due 2023.
6. Preferred Stock of ROIC
The Company is authorized to issue
50,000,000
shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the board of directors. As of
December 31, 2016
and
2015
, there were
no
shares of preferred stock outstanding.
7. Common Stock and Warrants of ROIC
Equity Issuance
On July 12, 2016, ROIC issued
6,555,000
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
$133.0 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.
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
On September 19, 2014, ROIC entered into
four
separate Sales Agreements (the “Original Sales Agreements”) with each of Jefferies LLC, KeyBanc Capital Markets Inc., MLV & Co. LLC and Raymond James & Associates, Inc. (each individually, an “Original Agent” and collectively, the “Original 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 Original Agents either as agents or principals. On May 23, 2016, ROIC entered into two additional sales agreements (the “Additional Sales Agreements”, and together with the Original Sales Agreements, the “Sales Agreements”) with each of Canaccord Genuity Inc. and Robert W. Baird & Co. Incorporated (the “Additional Agents”, and together with the Original Agents, the “Agents”) pursuant to which the Company may sell shares of ROIC’s common stock through the Additional Agents either as agents or principals. In addition, on May 19, 2016, the Company terminated the Original Sales Agreement with MLV & Co. LLC.
During the year ended
December 31, 2016
, ROIC sold a total of
2,202,254
shares of common stock under the Sales Agreements, which resulted in gross proceeds of approximately
$45.6 million
and commissions of approximately
$584,000
paid to the Agents. During the year ended
December 31, 2015
, ROIC sold a total of
544,567
shares under the Sales Agreements, which resulted in gross proceeds of approximately
$9.9 million
and commissions of approximately
$149,000
paid to the Agents.
Warrants
Simultaneously with the consummation of the IPO, NRDC Capital Management, LLC purchased
8,000,000
Private Placement Warrants at a purchase price of
$1.00
per warrant. The Private Placement Warrants were identical to the Public Warrants except that the Private Placement Warrants were exercisable on a cashless basis as long as they were still held by NRDC Capital Management, LLC or its members, members of its members’ immediate family or their controlled affiliates. The purchase price of the Private Placement Warrants approximated the fair value of such warrants at the purchase date.
On February 4, 2013, NRDC exercised the outstanding
8,000,000
Private Placement Warrants on a cashless basis pursuant to which ROIC issued
688,500
shares to NRDC.
ROIC had the right to redeem all of the outstanding warrants it issued in the IPO, at a price of
$0.01
per warrant upon
30
days’ notice while the warrants were exercisable, only in the event that the last sale price of the common stock is at least a specified price. The terms of the warrants were as follows:
|
|
|
|
•
|
The exercise price of the warrants was
$12.00
.
|
|
|
|
|
•
|
The price at which ROIC’s common stock must trade before ROIC was able to redeem the warrants it issued in the IPO was
$18.75
.
|
|
|
|
|
•
|
To provide that a warrantholder’s ability to exercise warrants was limited to ensure that such holder’s “Beneficial Ownership” or “Constructive Ownership,” each as defined in ROIC’s charter, did not exceed the restrictions contained in the charter limiting the ownership of shares of ROIC’s common stock.
|
ROIC had reserved
53,400,000
shares for the exercise of the Public Warrants and the Private Placement Warrants, and issuance of shares under ROIC’s 2009 Equity Incentive Plan (the “2009 Plan”). During the year ended December 31, 2014, the third-party warrant holders exercised a total of
5,878,216
Public Warrants, resulting in approximately
$70.5 million
of proceeds.
On October 23, 2014, ROIC’s remaining outstanding warrants expired and
64,452
warrants expired unexercised.
Stock Repurchase Program
On July 31, 2013, ROIC’s board of directors authorized a stock repurchase program to repurchase up to a maximum of
$50.0 million
of the Company’s common stock. Through the year ended
December 31, 2016
, the Company has not repurchased any shares of common stock under this program.
8. Stock Compensation and Other Benefit Plans for ROIC
The Company follows the FASB guidance related to stock compensation which establishes financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer, or the employer incurs liabilities to employees in amounts based on the price of the employer’s stock. The guidance also defines a fair value-based method of accounting for an employee stock option or similar equity instrument.
During 2009, the Company adopted the 2009 Plan. The 2009 Plan provides for grants of restricted common stock and stock option awards up to an aggregate of
7.5%
of the issued and outstanding shares of the Company’s common stock at the time of the award, subject to a ceiling of
4,000,000
shares.
Restricted Stock
During the year ended
December 31, 2016
, ROIC awarded
350,614
shares of restricted common stock under the 2009 Plan, of which
121,150
shares are performance-based grants and the remainder of the shares are time based grants. The performance-based grants vest based on pre-defined market-specific performance criteria with a vesting date on January 1, 2019.
A summary of the status of the Company’s non-vested restricted stock awards as of
December 31, 2016
, and changes during the year ended
December 31, 2016
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date Fair Value
|
|
Non-vested at December 31, 2015
|
627,471
|
|
|
$
|
14.39
|
|
|
Granted
|
350,614
|
|
|
$
|
17.33
|
|
|
Vested
|
(310,295
|
)
|
|
$
|
13.99
|
|
|
Forfeited
|
(7,332
|
)
|
|
$
|
17.62
|
|
|
Non-vested at December 31, 2016
|
660,458
|
|
|
$
|
16.10
|
|
As of
December 31, 2016
, there remained a total of
$5.0 million
of unrecognized restricted stock compensation related to outstanding non-vested restricted stock grants awarded under the 2009 Plan. Restricted stock compensation is expected to be expensed over a remaining weighted average period of
1.7 years
(irrespective of achievement of the performance conditions). The total fair value of restricted stock that vested during the years ended
December 31, 2016
,
2015
and
2014
was
$5.6 million
,
$4.6 million
and
$2.9 million
, respectively.
Stock Based Compensation Expense
For the years ended
December 31, 2016
,
2015
and
2014
, the amounts charged to expense for all stock based compensation totaled approximately
$4.9 million
,
$4.7 million
and
$3.7 million
, respectively.
Profit Sharing and Savings Plan
During 2011, the Company established a profit sharing and savings plan (the “401K Plan”), which permits eligible employees to defer a portion of their compensation in accordance with the Code. Under the 401K Plan, the Company made matching contributions on behalf of eligible employees. The Company made contributions to the 401K Plan of approximately
$76,000
,
$31,000
and
$25,000
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
9. Capital of the Operating Partnership
As of
December 31, 2016
, the Operating Partnership had
120,969,823
OP Units outstanding. ROIC owned an approximate
90.3%
interest in the Operating Partnership at
December 31, 2016
, or
109,301,762
OP Units. The remaining
11,668,061
OP Units are owned by other limited partners. A share of ROIC’s common stock and the OP Units have essentially the same economic characteristics as they share equally in the total net income or loss and distributions of the Operating Partnership.
As of
December 31, 2016
, subject to certain exceptions, holders are able to redeem their OP Units, at the option of ROIC, for cash or for unregistered shares of ROIC common stock on a one-for-one basis. If cash is paid in the redemption, the redemption price is equal to the average closing price on the NASDAQ Stock Market for shares of ROIC’s common stock over the ten consecutive trading days immediately preceding the date a redemption notice is received by ROIC.
During the year ended December 31, 2015, in connection with the acquisition of Bellevue Marketplace, the property formerly known as Sternco Shopping Center, the Operating Partnership issued
1,946,483
OP Units whereby the Operating Partnership was required to deliver cash in exchange for the OP Units upon redemption if such OP Units were redeemed on or before January 31, 2016 (“Redeemable OP Units”). These Redeemable OP Units were previously classified as mezzanine equity as of December 31, 2015 because, as of such date, ROIC could be required to deliver cash upon the redemption of such OP Units. During the year ended
December 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 Third Amendment to the Second Amended and Restated Agreement of Limited Partnership, as amended, of the Operating Partnership, 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 are treated as permanent equity as ROIC now has the option, in its sole discretion, to settle the redemption of the OP Units in cash or unregistered shares of ROIC common stock.
During the year ended
December 31, 2016
, ROIC received notices of redemption for a total of
1,133,550
OP Units (excluding Redeemable OP Units, described above). ROIC elected to redeem
755,762
OP Units for shares of ROIC common stock on a one-for-one basis, and accordingly,
755,762
shares of ROIC common stock were issued. ROIC elected to redeem the remaining
377,788
OP Units in cash.
The redemption value of the OP Units owned by the limited partners as of
December 31, 2016
, not including ROIC, had such units been redeemed at
December 31, 2016
, was approximately
$242.2 million
, calculated based on the average closing price on the NASDAQ Stock Market of ROIC common stock for the ten consecutive trading days immediately preceding
December 31, 2016
, which amounted to
$20.76
per share.
Retail Opportunity Investments GP, LLC, ROIC’s wholly-owned subsidiary, is the sole general partner of the Operating Partnership, and as the parent company, ROIC has the full and complete authority over the Operating Partnership’s day-to-day management and control. As the sole general partner of the Operating Partnership, ROIC effectively controls the ability to issue common stock of ROIC upon redemption of any OP Units. The redemption provisions that permit ROIC to settle the redemption of OP Units in either cash or common stock, in the sole discretion of ROIC, are further evaluated in accordance with applicable accounting guidance to determine whether temporary or permanent equity classification on the balance sheet is appropriate. The Company evaluated this guidance, including the ability, in its sole discretion, to settle in unregistered shares of common stock, and determined that the OP Units meet the requirements to qualify for presentation as permanent equity.
10. Fair Value of Financial Instruments
The Company follows the FASB guidance that defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The guidance applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.
The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The following disclosures of estimated fair value were determined by management, using available market information and appropriate valuation methodologies as discussed in Note 1. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts realizable upon disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.
The carrying values of cash and cash equivalents, restricted cash, tenant and other receivables, deposits, prepaid expenses, other assets, accounts payable and accrued expenses are reasonable estimates of their fair values because of the short-term nature of these instruments. The carrying values of the term loan and revolving credit facility are deemed to be at fair value since the outstanding debt is directly tied to monthly LIBOR contracts. The fair value of the outstanding Senior Notes Due 2026 at
December 31, 2016
is approximately
$191.2 million
, calculated using significant inputs which are not observable in the market. The fair value, based on inputs not quoted on active markets, but corroborated by market data, or Level 2, of the outstanding Senior Notes Due 2024 at
December 31, 2016
is approximately
$238.8 million
. The fair value, based on inputs not quoted on active markets, but corroborated by market data, or Level 2, of the outstanding Senior Notes Due 2023 at
December 31, 2016
is approximately
$255.3 million
. Assumed mortgage notes payable were recorded at their fair value at the time they were assumed and are estimated to have a fair value of approximately
$35.9 million
with an interest rate range of
3.6%
to
4.7%
and a weighted average interest rate of
3.9%
as of
December 31, 2016
. Mortgage notes payable originated by the Company are estimated to have a fair value of approximately
$32.6 million
with an interest rate of
4.7%
as of
December 31, 2016
. These fair value measurements fall within level 3 of the fair value hierarchy.
11. Derivative and Hedging Activities
The Company’s objectives in using interest rate derivatives historically were to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company used interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The following is a summary of the terms of the Company’s interest rate swaps as of
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Swap Counterparty
|
Notional Amount
|
|
Effective Date
|
|
Maturity Date
|
|
Bank of Montreal
|
$
|
50,000
|
|
|
1/29/2016
|
|
1/31/2019
|
|
Regions Bank
|
$
|
50,000
|
|
|
2/29/2016
|
|
1/31/2019
|
The effective portion of changes in the fair value of derivatives that are designated as cash flow hedges are recorded in accumulated other comprehensive income (“AOCI”) and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings.
The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves, and implied volatilities. The fair value of interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
The Company incorporated credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of its derivative contract for the effect of non-performance risk, the Company considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of
December 31, 2016
, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative position and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.
The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Total
|
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
$
|
—
|
|
|
$
|
875
|
|
|
$
|
—
|
|
|
$
|
875
|
|
Amounts paid, or received, to cash settle interest rate derivatives prior to their maturity date are recorded in AOCI at the cash settlement amount, and will be reclassified to interest expense as interest expense is recognized on the hedged debt. During the next twelve months, the Company estimates that
$2.0 million
will be reclassified as an increase to interest expense related to the Company’s two outstanding swap arrangements and it’s previously cash-settled swap arrangements.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet as of
December 31, 2016
and
2015
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designed as hedging instruments
|
Balance sheet location
|
|
December 31, 2016 Fair Value
|
|
December 31, 2015 Fair Value
|
|
Interest rate products
|
Other assets
|
|
$
|
875
|
|
|
$
|
—
|
|
Derivatives in Cash Flow Hedging Relationships
The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the years ended
December 31, 2016
,
2015
, and
2014
, respectively (in thousands). Amounts reclassified from other comprehensive income (“OCI”) due to ineffectiveness are recognized as interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Amount of gain (loss) recognized in OCI on derivatives
|
$
|
541
|
|
|
$
|
—
|
|
|
$
|
(3,132
|
)
|
|
Amount of loss reclassified from accumulated OCI into interest
|
$
|
2,473
|
|
|
$
|
2,139
|
|
|
$
|
3,219
|
|
12. Commitments and Contingencies
In the normal course of business, from time to time, the Company is involved in legal actions relating to 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.
The Company has signed several ground leases for certain properties. For financial reporting purposes, rent expense is recognized on a straight-line basis over the term of the lease. Accordingly, rent expense recognized in excess of rent paid is reflected as a liability in the accompanying consolidated balance sheets. Rent expense, for both ground leases and corporate office storage space, was approximately
$831,000
,
$1.2 million
, and
$1.2 million
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
The following table represents the Company’s future minimum annual lease payments under operating leases as of
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
2017
|
$
|
1,222
|
|
|
2018
|
1,260
|
|
|
2019
|
1,265
|
|
|
2020
|
1,273
|
|
|
2021
|
1,282
|
|
|
Thereafter
|
36,651
|
|
|
Total minimum lease payments
|
$
|
42,953
|
|
Tax Protection Agreements
In connection with the acquisition of the remaining
51%
of the partnership interests in the Terranomics Crossroads Associates, LP and the acquisition of
100%
of the equity interest in SARM Five Points Plaza LLC in September 2013, the Company entered into Tax Protection Agreements with certain limited partners of the Operating Partnership. The Tax Protection Agreements require the Company, subject to certain exceptions, for a period of
12
years, to indemnify the respective sellers receiving OP Units against certain tax liabilities incurred by them, as calculated pursuant to the respective Tax Protection Agreements. If the Company were to trigger the tax protection provisions under these agreements, the Company would be required to pay damages in the amount of the taxes owed by these limited partners (plus additional damages in the amount of the taxes incurred as a result of such payment).
In connection with the acquisition of Wilsonville Town Center in December 2014, Iron Horse Plaza, Bellevue Marketplace and Warner Plaza in December 2015, and Magnolia Shopping Center and Casitas Plaza Shopping Center in March 2016 (more fully discussed in Footnote 2), the Company entered into Tax Protection Agreements with certain limited partners of the Operating Partnership. The Tax Protection Agreements require the Company, subject to certain exceptions, for a period of
10
years, to indemnify the respective sellers receiving OP Units against certain tax liabilities incurred by them, as calculated pursuant to the respective Tax Protection Agreements. If the Company were to trigger the tax protection provisions under these agreements, the Company would be required to pay damages in the amount of the taxes owed by these limited partners (plus additional damages in the amount of the taxes incurred as a result of such payment).
13. Related Party Transactions
The Company has entered into several lease agreements with an officer of the Company, whereby pursuant to the lease agreements, the Company is provided the use of storage space. For the years ended
December 31, 2016
,
2015
, and
2014
, the Company incurred approximately
$46,000
,
$42,000
and
$37,000
, respectively, of expenses relating to the agreements which were included in general and administrative expenses in the accompanying consolidated statements of operations and other comprehensive income.
14. Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations for the years ended
December 31, 2016
and
2015
for ROIC are as follows (in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Total revenues
|
$
|
56,094
|
|
|
$
|
58,671
|
|
|
$
|
59,354
|
|
|
$
|
63,070
|
|
|
Net income
|
$
|
8,925
|
|
|
$
|
8,638
|
|
|
$
|
8,215
|
|
|
$
|
10,652
|
|
|
Net income attributable to ROIC
|
$
|
8,027
|
|
|
$
|
7,704
|
|
|
$
|
7,402
|
|
|
$
|
9,621
|
|
|
Basic and diluted income per share
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Total revenues
|
$
|
45,122
|
|
|
$
|
46,215
|
|
|
$
|
50,077
|
|
|
$
|
51,285
|
|
|
Net income
|
$
|
4,376
|
|
|
$
|
5,411
|
|
|
$
|
7,837
|
|
|
$
|
7,468
|
|
|
Net income attributable to ROIC
|
$
|
4,200
|
|
|
$
|
5,201
|
|
|
$
|
7,542
|
|
|
$
|
6,921
|
|
|
Basic and diluted income per share
|
$
|
0.04
|
|
|
$
|
0.05
|
|
|
$
|
0.08
|
|
|
$
|
0.07
|
|
The unaudited quarterly results of operations for the years ended
December 31, 2016
and
2015
for the Operating Partnership are as follows (in thousands, except unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Total revenues
|
$
|
56,094
|
|
|
$
|
58,671
|
|
|
$
|
59,354
|
|
|
$
|
63,070
|
|
|
Net income attributable to the Operating Partnership
|
$
|
8,925
|
|
|
$
|
8,638
|
|
|
$
|
8,215
|
|
|
$
|
10,652
|
|
|
Basic and diluted income per unit
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Total revenues
|
$
|
45,122
|
|
|
$
|
46,215
|
|
|
$
|
50,077
|
|
|
$
|
51,285
|
|
|
Net income attributable to the Operating Partnership
|
$
|
4,376
|
|
|
$
|
5,411
|
|
|
$
|
7,837
|
|
|
$
|
7,468
|
|
|
Basic and diluted income per unit
|
$
|
0.04
|
|
|
$
|
0.05
|
|
|
$
|
0.08
|
|
|
$
|
0.07
|
|
15. Subsequent Events
During the month ended January 31, 2017, the Company received notices of redemption for a total of
105,000
OP Units. ROIC elected to redeem the OP Units for shares of ROIC common stock on a
1
-for-one basis, and accordingly,
105,000
shares of ROIC common stock were issued.
On January 25, 2017, the Company acquired the property known as PCC Natural Markets Plaza in Edmonds, Washington within the Seattle metropolitan area, for a purchase price of approximately
$8.6 million
. PCC Natural Markets Plaza is approximately
34,000
square feet and is anchored by PCC Natural Markets. The property was acquired with available cash from operations.
On February 22, 2017, the Company’s board of directors declared a cash dividend on its common stock of
$0.1875
per share, payable on March 30, 2017 to holders of record on March 16, 2017.
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2016
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost to Company
|
|
Cost Capitalized Subsequent to Acquisition
|
|
Amount at Which Carried at Close of Period
|
|
|
|
|
|
|
|
Description and Location
|
Encumbrances
|
|
Land
|
|
Building &
Improvements
|
|
Land
|
|
Building &
Improvements
|
|
Land
|
|
Building &
Improvements
|
|
Total
(a)
|
|
Accumulated Depreciation
(b) (1)
|
|
Date of Acquisition
|
|
Paramount Plaza, CA
|
$
|
—
|
|
|
$
|
6,347
|
|
|
$
|
10,274
|
|
|
$
|
268
|
|
|
$
|
1,396
|
|
|
$
|
6,615
|
|
|
$
|
11,670
|
|
|
$
|
18,285
|
|
|
$
|
2,497
|
|
|
12/22/2009
|
|
Santa Ana Downtown Plaza, CA
|
—
|
|
|
7,895
|
|
|
9,890
|
|
|
—
|
|
|
2,019
|
|
|
7,895
|
|
|
11,909
|
|
|
19,804
|
|
|
2,392
|
|
|
1/26/2010
|
|
Meridian Valley Plaza, WA
|
—
|
|
|
1,881
|
|
|
4,795
|
|
|
—
|
|
|
1,416
|
|
|
1,881
|
|
|
6,211
|
|
|
8,092
|
|
|
1,081
|
|
|
2/1/2010
|
|
The Market at Lake Stevens, WA
|
—
|
|
|
3,087
|
|
|
12,397
|
|
|
—
|
|
|
361
|
|
|
3,087
|
|
|
12,758
|
|
|
15,845
|
|
|
2,592
|
|
|
3/16/2010
|
|
Norwood Shopping Center, CA
|
—
|
|
|
3,031
|
|
|
11,534
|
|
|
122
|
|
|
1,560
|
|
|
3,153
|
|
|
13,094
|
|
|
16,247
|
|
|
2,574
|
|
|
4/5/2010
|
|
Pleasant Hill Marketplace, CA
|
—
|
|
|
6,359
|
|
|
6,927
|
|
|
—
|
|
|
638
|
|
|
6,359
|
|
|
7,565
|
|
|
13,924
|
|
|
1,676
|
|
|
4/8/2010
|
|
Vancouver Market Center, WA
|
—
|
|
|
4,080
|
|
|
6,912
|
|
|
—
|
|
|
1,852
|
|
|
4,080
|
|
|
8,764
|
|
|
12,844
|
|
|
1,486
|
|
|
6/17/2010
|
|
Happy Valley Town Center, OR
|
—
|
|
|
11,678
|
|
|
27,011
|
|
|
—
|
|
|
1,906
|
|
|
11,678
|
|
|
28,917
|
|
|
40,595
|
|
|
5,850
|
|
|
7/14/2010
|
|
Cascade Summit, OR
|
—
|
|
|
8,853
|
|
|
7,732
|
|
|
—
|
|
|
311
|
|
|
8,853
|
|
|
8,043
|
|
|
16,896
|
|
|
1,953
|
|
|
8/20/2010
|
|
Heritage Market Center, WA
|
—
|
|
|
6,595
|
|
|
17,399
|
|
|
—
|
|
|
349
|
|
|
6,595
|
|
|
17,748
|
|
|
24,343
|
|
|
3,345
|
|
|
9/23/2010
|
|
Claremont Center, CA
|
—
|
|
|
5,975
|
|
|
1,019
|
|
|
183
|
|
|
4,604
|
|
|
6,158
|
|
|
5,623
|
|
|
11,781
|
|
|
2,025
|
|
|
9/23/2010
|
|
Shops At Sycamore Creek, CA
|
—
|
|
|
3,747
|
|
|
11,584
|
|
|
—
|
|
|
630
|
|
|
3,747
|
|
|
12,214
|
|
|
15,961
|
|
|
2,732
|
|
|
9/30/2010
|
|
Gateway Village, CA
|
—
|
|
|
5,917
|
|
|
27,298
|
|
|
—
|
|
|
654
|
|
|
5,917
|
|
|
27,952
|
|
|
33,869
|
|
|
4,885
|
|
|
12/16/2010
|
|
Division Crossing, OR
|
—
|
|
|
3,706
|
|
|
8,327
|
|
|
—
|
|
|
5,780
|
|
|
3,706
|
|
|
14,107
|
|
|
17,813
|
|
|
2,662
|
|
|
12/22/2010
|
|
Halsey Crossing, OR
(2)
|
—
|
|
|
—
|
|
|
7,773
|
|
|
—
|
|
|
3,069
|
|
|
—
|
|
|
10,842
|
|
|
10,842
|
|
|
1,681
|
|
|
12/22/2010
|
|
Marketplace Del Rio,CA
|
—
|
|
|
13,420
|
|
|
22,251
|
|
|
9
|
|
|
2,027
|
|
|
13,429
|
|
|
24,278
|
|
|
37,707
|
|
|
4,658
|
|
|
1/3/2011
|
|
Pinole Vista, CA
|
—
|
|
|
12,894
|
|
|
30,670
|
|
|
—
|
|
|
1,770
|
|
|
12,894
|
|
|
32,440
|
|
|
45,334
|
|
|
4,301
|
|
|
1/6/2011
|
|
Desert Spring Marketplace, CA
|
—
|
|
|
8,517
|
|
|
18,761
|
|
|
443
|
|
|
5,047
|
|
|
8,960
|
|
|
23,808
|
|
|
32,768
|
|
|
4,004
|
|
|
2/17/2011
|
|
Mills Shopping Center, CA
|
—
|
|
|
4,084
|
|
|
16,833
|
|
|
—
|
|
|
10,297
|
|
|
4,084
|
|
|
27,130
|
|
|
31,214
|
|
|
4,945
|
|
|
2/17/2011
|
|
Morada Ranch, CA
|
—
|
|
|
2,504
|
|
|
19,547
|
|
|
—
|
|
|
512
|
|
|
2,504
|
|
|
20,059
|
|
|
22,563
|
|
|
3,709
|
|
|
5/20/2011
|
|
Renaissance, CA
|
—
|
|
|
8,640
|
|
|
13,848
|
|
|
—
|
|
|
685
|
|
|
8,640
|
|
|
14,533
|
|
|
23,173
|
|
|
2,385
|
|
|
8/3/2011
|
|
Country Club Gate, CA
|
—
|
|
|
6,487
|
|
|
17,341
|
|
|
—
|
|
|
1,065
|
|
|
6,487
|
|
|
18,406
|
|
|
24,893
|
|
|
3,135
|
|
|
7/8/2011
|
|
Canyon Park, WA
|
—
|
|
|
9,352
|
|
|
15,916
|
|
|
—
|
|
|
8,784
|
|
|
9,352
|
|
|
24,700
|
|
|
34,052
|
|
|
3,160
|
|
|
7/29/2011
|
|
Hawks Prairie, WA
|
—
|
|
|
5,334
|
|
|
20,694
|
|
|
—
|
|
|
1,613
|
|
|
5,334
|
|
|
22,307
|
|
|
27,641
|
|
|
3,311
|
|
|
9/8/2011
|
|
Kress Building, WA
|
—
|
|
|
5,693
|
|
|
20,866
|
|
|
—
|
|
|
4,679
|
|
|
5,693
|
|
|
25,545
|
|
|
31,238
|
|
|
4,311
|
|
|
9/30/2011
|
|
Round Hill Square, CA
|
—
|
|
|
6,358
|
|
|
17,734
|
|
|
—
|
|
|
903
|
|
|
6,358
|
|
|
18,637
|
|
|
24,995
|
|
|
3,226
|
|
|
8/23/2011
|
|
Hillsboro, OR
(2)
|
—
|
|
|
—
|
|
|
17,553
|
|
|
—
|
|
|
778
|
|
|
—
|
|
|
18,331
|
|
|
18,331
|
|
|
3,097
|
|
|
11/23/2011
|
|
Gateway Shopping Center, WA
(2)
|
—
|
|
|
6,242
|
|
|
23,462
|
|
|
—
|
|
|
(11
|
)
|
|
6,242
|
|
|
23,451
|
|
|
29,693
|
|
|
3,341
|
|
|
2/16/2012
|
|
Euclid Plaza, CA
|
—
|
|
|
7,407
|
|
|
7,753
|
|
|
—
|
|
|
2,938
|
|
|
7,407
|
|
|
10,691
|
|
|
18,098
|
|
|
2,034
|
|
|
3/28/2012
|
|
Green Valley, CA
|
—
|
|
|
1,685
|
|
|
8,999
|
|
|
—
|
|
|
703
|
|
|
1,685
|
|
|
9,702
|
|
|
11,387
|
|
|
1,646
|
|
|
4/2/2012
|
|
Aurora Square, WA
|
—
|
|
|
3,002
|
|
|
1,693
|
|
|
—
|
|
|
(34
|
)
|
|
3,002
|
|
|
1,659
|
|
|
4,661
|
|
|
385
|
|
|
5/3/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marlin Cove, CA
|
—
|
|
|
8,815
|
|
|
6,797
|
|
|
—
|
|
|
1,663
|
|
|
8,815
|
|
|
8,460
|
|
|
17,275
|
|
|
1,525
|
|
|
5/4/2012
|
|
Seabridge, CA
|
—
|
|
|
5,098
|
|
|
17,164
|
|
|
—
|
|
|
1,290
|
|
|
5,098
|
|
|
18,454
|
|
|
23,552
|
|
|
2,995
|
|
|
5/31/2012
|
|
Novato, CA
|
—
|
|
|
5,329
|
|
|
4,412
|
|
|
—
|
|
|
1,102
|
|
|
5,329
|
|
|
5,514
|
|
|
10,843
|
|
|
708
|
|
|
7/24/2012
|
|
Glendora, CA
|
—
|
|
|
5,847
|
|
|
8,758
|
|
|
—
|
|
|
131
|
|
|
5,847
|
|
|
8,889
|
|
|
14,736
|
|
|
1,445
|
|
|
8/1/2012
|
|
Wilsonville, WA
|
—
|
|
|
4,181
|
|
|
15,394
|
|
|
—
|
|
|
408
|
|
|
4,181
|
|
|
15,802
|
|
|
19,983
|
|
|
2,159
|
|
|
8/1/2012
|
|
Bay Plaza, CA
|
—
|
|
|
5,454
|
|
|
14,857
|
|
|
—
|
|
|
1,230
|
|
|
5,454
|
|
|
16,087
|
|
|
21,541
|
|
|
2,288
|
|
|
10/5/2012
|
|
Santa Theresa, CA
|
10,383
|
|
|
14,965
|
|
|
17,162
|
|
|
—
|
|
|
4,267
|
|
|
14,965
|
|
|
21,429
|
|
|
36,394
|
|
|
2,882
|
|
|
11/8/2012
|
|
Cypress West, CA
|
—
|
|
|
15,480
|
|
|
11,819
|
|
|
20
|
|
|
1,993
|
|
|
15,500
|
|
|
13,812
|
|
|
29,312
|
|
|
2,064
|
|
|
12/7/2012
|
|
Redondo Beach, CA
|
—
|
|
|
16,242
|
|
|
13,625
|
|
|
20
|
|
|
11
|
|
|
16,262
|
|
|
13,636
|
|
|
29,898
|
|
|
1,762
|
|
|
12/28/2012
|
|
Harbor Place, CA
|
—
|
|
|
16,506
|
|
|
10,527
|
|
|
—
|
|
|
342
|
|
|
16,506
|
|
|
10,869
|
|
|
27,375
|
|
|
1,314
|
|
|
12/28/2012
|
|
Diamond Bar Town Center, CA
|
—
|
|
|
9,540
|
|
|
16,795
|
|
|
—
|
|
|
3,546
|
|
|
9,540
|
|
|
20,341
|
|
|
29,881
|
|
|
2,870
|
|
|
2/1/2013
|
|
Bernardo Heights, CA
|
8,217
|
|
|
3,192
|
|
|
8,940
|
|
|
—
|
|
|
726
|
|
|
3,192
|
|
|
9,666
|
|
|
12,858
|
|
|
1,198
|
|
|
2/6/2013
|
|
Canyon Crossing, WA
|
—
|
|
|
7,941
|
|
|
24,659
|
|
|
—
|
|
|
2,756
|
|
|
7,941
|
|
|
27,415
|
|
|
35,356
|
|
|
3,575
|
|
|
4/15/2013
|
|
Diamond Hills, CA
|
35,500
|
|
|
15,458
|
|
|
29,353
|
|
|
—
|
|
|
384
|
|
|
15,458
|
|
|
29,737
|
|
|
45,195
|
|
|
3,676
|
|
|
4/22/2013
|
|
Granada Shopping Center, CA
|
—
|
|
|
3,673
|
|
|
13,459
|
|
|
—
|
|
|
392
|
|
|
3,673
|
|
|
13,851
|
|
|
17,524
|
|
|
1,637
|
|
|
6/27/2013
|
|
Hawthorne Crossings, CA
|
—
|
|
|
10,383
|
|
|
29,277
|
|
|
—
|
|
|
558
|
|
|
10,383
|
|
|
29,835
|
|
|
40,218
|
|
|
3,374
|
|
|
6/27/2013
|
|
Robinwood, CA
|
—
|
|
|
3,997
|
|
|
11,317
|
|
|
—
|
|
|
687
|
|
|
3,997
|
|
|
12,004
|
|
|
16,001
|
|
|
1,360
|
|
|
8/23/2013
|
|
Five Points Plaza, CA
|
—
|
|
|
18,420
|
|
|
36,965
|
|
|
—
|
|
|
3,571
|
|
|
18,420
|
|
|
40,536
|
|
|
58,956
|
|
|
3,805
|
|
|
9/27/2013
|
|
Crossroads Shopping Center, CA
|
—
|
|
|
68,366
|
|
|
67,756
|
|
|
—
|
|
|
7,886
|
|
|
68,366
|
|
|
75,642
|
|
|
144,008
|
|
|
8,525
|
|
|
9/27/2013
|
|
Peninsula Marketplace, CA
|
—
|
|
|
14,730
|
|
|
19,214
|
|
|
—
|
|
|
1,884
|
|
|
14,730
|
|
|
21,098
|
|
|
35,828
|
|
|
2,008
|
|
|
11/1/2013
|
|
Country Club Village, CA
|
—
|
|
|
9,986
|
|
|
26,579
|
|
|
—
|
|
|
1,896
|
|
|
9,986
|
|
|
28,475
|
|
|
38,461
|
|
|
3,113
|
|
|
11/26/2013
|
|
Plaza de la Canada, CA
(2)
|
—
|
|
|
10,351
|
|
|
24,819
|
|
|
—
|
|
|
320
|
|
|
10,351
|
|
|
25,139
|
|
|
35,490
|
|
|
2,297
|
|
|
12/13/2013
|
|
Tigard Marketplace, CA
|
—
|
|
|
13,587
|
|
|
9,603
|
|
|
—
|
|
|
524
|
|
|
13,587
|
|
|
10,127
|
|
|
23,714
|
|
|
1,235
|
|
|
2/18/2014
|
|
Creekside Plaza, CA
|
—
|
|
|
14,807
|
|
|
29,476
|
|
|
—
|
|
|
154
|
|
|
14,807
|
|
|
29,630
|
|
|
44,437
|
|
|
2,961
|
|
|
2/28/2014
|
|
North Park Plaza, CA
|
—
|
|
|
13,593
|
|
|
17,733
|
|
|
—
|
|
|
507
|
|
|
13,593
|
|
|
18,240
|
|
|
31,833
|
|
|
1,376
|
|
|
4/30/2014
|
|
Aurora Square II, WA
|
—
|
|
|
6,862
|
|
|
9,798
|
|
|
—
|
|
|
73
|
|
|
6,862
|
|
|
9,871
|
|
|
16,733
|
|
|
936
|
|
|
5/22/2014
|
|
Fallbrook Shopping Center
(2)
|
—
|
|
|
21,232
|
|
|
186,197
|
|
|
83
|
|
|
6,080
|
|
|
21,315
|
|
|
192,277
|
|
|
213,592
|
|
|
14,890
|
|
|
6/13/2014
|
|
Moorpark Town Center, CA
|
—
|
|
|
7,063
|
|
|
19,694
|
|
|
—
|
|
|
1,565
|
|
|
7,063
|
|
|
21,259
|
|
|
28,322
|
|
|
1,709
|
|
|
12/4/2014
|
|
Mission Foothill Marketplace, CA
|
—
|
|
|
11,415
|
|
|
17,783
|
|
|
—
|
|
|
248
|
|
|
11,415
|
|
|
18,031
|
|
|
29,446
|
|
|
1,292
|
|
|
12/4/2014
|
|
Wilsonville Town Center, OR
|
—
|
|
|
10,334
|
|
|
27,101
|
|
|
—
|
|
|
211
|
|
|
10,334
|
|
|
27,312
|
|
|
37,646
|
|
|
1,852
|
|
|
12/11/2014
|
|
Park Oaks Shopping Center, CA
|
—
|
|
|
8,527
|
|
|
38,064
|
|
|
—
|
|
|
505
|
|
|
8,527
|
|
|
38,569
|
|
|
47,096
|
|
|
2,387
|
|
|
1/6/2016
|
|
Ontario Plaza, CA
|
—
|
|
|
9,825
|
|
|
26,635
|
|
|
—
|
|
|
1,025
|
|
|
9,825
|
|
|
27,660
|
|
|
37,485
|
|
|
1,792
|
|
|
1/6/2015
|
|
Winston Manor, CA
|
—
|
|
|
10,018
|
|
|
9,762
|
|
|
—
|
|
|
1,664
|
|
|
10,018
|
|
|
11,426
|
|
|
21,444
|
|
|
799
|
|
|
1/7/2015
|
|
Jackson Square, CA
|
—
|
|
|
6,886
|
|
|
24,558
|
|
|
—
|
|
|
251
|
|
|
6,886
|
|
|
24,809
|
|
|
31,695
|
|
|
1,206
|
|
|
7/1/2015
|
|
Tigard Promenade, OR
|
—
|
|
|
9,844
|
|
|
10,843
|
|
|
—
|
|
|
3
|
|
|
9,844
|
|
|
10,846
|
|
|
20,690
|
|
|
474
|
|
|
7/28/2015
|
|
Sunnyside Village Square, OR
|
—
|
|
|
4,428
|
|
|
13,324
|
|
|
—
|
|
|
634
|
|
|
4,428
|
|
|
13,958
|
|
|
18,386
|
|
|
673
|
|
|
7/28/2015
|
|
Gateway Centre, CA
|
—
|
|
|
16,275
|
|
|
28,308
|
|
|
—
|
|
|
487
|
|
|
16,275
|
|
|
28,795
|
|
|
45,070
|
|
|
1,179
|
|
|
9/1/2015
|
|
Johnson Creek, OR
|
—
|
|
|
9,009
|
|
|
22,534
|
|
|
—
|
|
|
994
|
|
|
9,009
|
|
|
23,528
|
|
|
32,537
|
|
|
901
|
|
|
11/9/2015
|
|
Iron Horse Plaza, CA
|
—
|
|
|
8,187
|
|
|
39,654
|
|
|
—
|
|
|
329
|
|
|
8,187
|
|
|
39,983
|
|
|
48,170
|
|
|
1,200
|
|
|
12/4/2015
|
|
Bellevue Marketplace, WA
|
—
|
|
|
10,488
|
|
|
39,119
|
|
|
—
|
|
|
97
|
|
|
10,488
|
|
|
39,216
|
|
|
49,704
|
|
|
1,306
|
|
|
12/10/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Four Corner Square, WA
|
—
|
|
|
9,926
|
|
|
31,415
|
|
|
—
|
|
|
177
|
|
|
9,926
|
|
|
31,592
|
|
|
41,518
|
|
|
1,084
|
|
|
12/21/2015
|
|
Warner Plaza Shopping Center, CA
|
—
|
|
|
16,104
|
|
|
60,188
|
|
|
—
|
|
|
4,443
|
|
|
16,104
|
|
|
64,631
|
|
|
80,735
|
|
|
1,741
|
|
|
12/31/2015
|
|
Magnolia Shopping Center, CA
|
9,135
|
|
|
12,501
|
|
|
27,040
|
|
|
—
|
|
|
836
|
|
|
12,501
|
|
|
27,876
|
|
|
40,377
|
|
|
712
|
|
|
3/10/2016
|
|
Casitas Plaza Shopping Center, CA
|
7,448
|
|
|
9,905
|
|
|
18,731
|
|
|
—
|
|
|
182
|
|
|
9,905
|
|
|
18,913
|
|
|
28,818
|
|
|
510
|
|
|
3/10/2016
|
|
Bouquet Center, CA
|
—
|
|
|
10,040
|
|
|
48,362
|
|
|
—
|
|
|
165
|
|
|
10,040
|
|
|
48,527
|
|
|
58,567
|
|
|
964
|
|
|
4/28/2016
|
|
North Ranch Shopping Center, CA
|
—
|
|
|
31,522
|
|
|
95,916
|
|
|
—
|
|
|
23
|
|
|
31,522
|
|
|
95,939
|
|
|
127,461
|
|
|
1,579
|
|
|
6/1/2016
|
|
Monterey Center, CA
(2)
|
—
|
|
|
1,073
|
|
|
10,609
|
|
|
—
|
|
|
5
|
|
|
1,073
|
|
|
10,614
|
|
|
11,687
|
|
|
162
|
|
|
7/14/2016
|
|
Rose City Center, OR
(2)
|
—
|
|
|
3,637
|
|
|
10,301
|
|
|
—
|
|
|
—
|
|
|
3,637
|
|
|
10,301
|
|
|
13,938
|
|
|
117
|
|
|
9/15/2016
|
|
Trader Joe’s at the Knolls, CA
|
—
|
|
|
9,722
|
|
|
18,299
|
|
|
8
|
|
|
34
|
|
|
9,730
|
|
|
18,333
|
|
|
28,063
|
|
|
140
|
|
|
10/3/2016
|
|
Bridle Trails Shopping Center, WA
|
—
|
|
|
11,529
|
|
|
20,700
|
|
|
4
|
|
|
169
|
|
|
11,533
|
|
|
20,869
|
|
|
32,402
|
|
|
168
|
|
|
10/17/2016
|
|
Torrey Hills Corporate Center, CA
|
—
|
|
|
1,976
|
|
|
7,902
|
|
|
—
|
|
|
—
|
|
|
1,976
|
|
|
7,902
|
|
|
9,878
|
|
|
17
|
|
|
12/6/2016
|
|
|
$
|
70,683
|
|
|
$
|
765,039
|
|
|
$
|
1,794,090
|
|
|
$
|
1,160
|
|
|
$
|
126,729
|
|
|
$
|
766,199
|
|
|
$
|
1,920,819
|
|
|
$
|
2,687,018
|
|
|
$
|
193,021
|
|
|
|
|
|
|
|
(a)
|
RECONCILIATION OF REAL ESTATE – OWNED SUBJECT TO OPERATING LEASES (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
Balance at beginning of period:
|
$
|
2,296,617
|
|
|
$
|
1,785,898
|
|
|
$
|
1,372,434
|
|
|
Property improvements during the year
|
41,359
|
|
|
28,104
|
|
|
27,515
|
|
|
Properties acquired during the year
|
354,035
|
|
|
485,853
|
|
|
416,298
|
|
|
Properties sold during the year
|
—
|
|
|
—
|
|
|
(23,676
|
)
|
|
Assets written off during the year
|
(4,993
|
)
|
|
(3,238
|
)
|
|
(6,673
|
)
|
|
Balance at end of period:
|
$
|
2,687,018
|
|
|
$
|
2,296,617
|
|
|
$
|
1,785,898
|
|
|
|
|
|
(b)
|
RECONCILIATION OF ACCUMULATED DEPRECIATION (in thousands)
|
|
|
|
|
|
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Year Ended December 31,
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2016
|
|
2015
|
|
2014
|
|
Balance at beginning of period:
|
$
|
134,311
|
|
|
$
|
88,173
|
|
|
$
|
57,500
|
|
|
Depreciation expenses
|
63,872
|
|
|
49,619
|
|
|
38,890
|
|
|
Properties sold during the year
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—
|
|
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—
|
|
|
(2,081
|
)
|
|
Property assets fully depreciated and written off
|
(5,162
|
)
|
|
(3,481
|
)
|
|
(6,136
|
)
|
|
Balance at end of period:
|
$
|
193,021
|
|
|
$
|
134,311
|
|
|
$
|
88,173
|
|
|
|
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(1)
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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
|
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(2)
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Property is subject to a ground lease.
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|
|
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(3)
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The aggregate cost for Federal Income Tax Purposes for real estate was approximately
$2.5 billion
at
December 31, 2016
.
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