f10q_103113.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549
 
FORM 10-Q
 
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2013
 
OR
 
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 001-33749
 
RETAIL OPPORTUNITY INVESTMENTS CORP.
RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP
(Exact name of registrant as specified in its charter)
 
Maryland (Retail Opportunity Investments Corp.)
Delaware (Retail Opportunity Investments Partnership, LP)
(State or other jurisdiction of
incorporation or organization)
26-0500600 (Retail Opportunity Investments Corp.)
27-1532741 (Retail Opportunity Investments Partnership, LP)
(I.R.S. Employer
Identification No.)
   
8905 Towne Centre Drive, Suite 108
San Diego, California
(Address of principal executive
offices)
92122
(Zip code)
 
(858) 677-0900
(Registrant's telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
 
Retail Opportunity Investments Corp.
Yes [x] No [  ]
 
Retail Opportunity Investments Partnership, LP
Yes [x] No [  ]
 
(Retail Opportunity Investments Partnership, LP became subject to filing requirements under Section 13 of the  Securities Exchange Act of 1934, as amended, upon effectiveness of its Registration Statement on Form S-3 on June 3, 2013 and has filed all required reports subsequent to that date.)
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 
Retail Opportunity Investments Corp.
Yes [x] No [  ]
 
Retail Opportunity Investments Partnership, LP
Yes [x] No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
Retail Opportunity Investments Corp.
 
Large accelerated filer [  ]
Accelerated filer [x]
Non-accelerated filer [  ]
(Do not check if a smaller
reporting company)
Smaller reporting company [  ]
 
 

 
Retail Opportunity Investments Partnership, LP
 
Large accelerated filer [  ]
Accelerated filer [  ]
Non-accelerated filer [x]
(Do not check if a smaller
reporting company)
Smaller reporting company [  ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
 
Retail Opportunity Investments Corp.
Yes [  ] No [x]
 
Retail Opportunity Investments Partnership, LP
Yes [  ] No [x]
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 72,062,585 shares of common stock, par value $0.0001 per share, outstanding as of October 28, 2013.
 
 
 

 
EXPLANATORY PARAGRAPH

This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2013 of Retail Opportunity Investments Corp., a Maryland corporation (“ROIC”), and Retail Opportunity Investments Partnership, LP, a Delaware limited partnership (the “Operating Partnership”) of which Retail Opportunity Investments Corp. is the parent company and general partner.  Unless otherwise indicated or unless the context requires otherwise, all references in this report to “the Company,” “we,” “us,” “our,” or “our company” refer to ROIC together with its consolidated subsidiaries, including Retail Opportunity Investments Partnership, LP.  Unless otherwise indicated or unless the context requires otherwise, all references in this report to the Operating Partnership refer to Retail Opportunity Investments Partnership, LP together with its consolidated subsidiaries.

ROIC operates as a real estate investment trust (“REIT”) and as of September 30, 2013, ROIC owned an approximate 95.6% partnership interest and other limited partners owned the remaining 4.4% partnership interest in the Operating Partnership.  Retail Opportunity Investments GP, LLC, ROIC’s wholly-owned subsidiary, is the sole general partner of the Operating Partnership, and as the parent company, ROIC has the full and complete authority over the operating partnership’s day-to-day management and control.

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

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

There are few differences between ROIC and the Operating Partnership, which are reflected in the disclosures in this report.  The Company believes it is important to understand the differences between ROIC and the Operating Partnership in the context of how these entities operate as an interrelated consolidated company.  ROIC is a REIT, whose 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 of the Operating Partnership 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 warrant exercises and equity issuances by ROIC, which are contributed to the Operating Partnership, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness (directly and through subsidiaries) or through the issuance of operating partnership units (“OP Units”) of the Operating Partnership.

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

This report also includes separate Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources, Item 4. Controls and Procedures sections and separate Chief Executive Officer and Chief Financial Officer certifications for each of ROIC and the Operating Partnership as reflected in Exhibits 31 and 32.
 
 

 
TABLE OF CONTENTS
 
 
     
Page
Part I. Financial Information
 
     
   
   
   
   
     
   
   
   
   
   
 
 
 
Part II. Other Information
 
  Risk Factors
 
 
 
 
 
   

 
 

 
PART I. FINANCIAL INFORMATION
 
Item 1.  Financial Statements
 
RETAIL OPPORTUNITY INVESTMENTS CORP.
Consolidated Balance Sheets

   
September 30, 2013
(unaudited)
   
December 31,
2012
 
ASSETS
           
Real Estate Investments:
           
Land
  $ 374,112,312     $ 283,445,257  
Building and improvements
    886,635,954       588,248,338  
      1,260,748,266       871,693,595  
Less:  accumulated depreciation
    49,725,821       32,364,772  
      1,211,022,445       839,328,823  
Mortgage note receivable
          10,000,000  
Investment in and advances to unconsolidated joint venture
          15,295,223  
Real Estate Investments, net
    1,211,022,445       864,624,046  
Cash and cash equivalents
    9,834,336       4,692,230  
Restricted cash
    1,977,552       1,700,692  
Tenant and other receivables, net
    16,665,091       12,455,190  
Deposits
    1,000,000       2,000,000  
Acquired lease intangible assets, net of accumulated amortization
    44,206,512       41,230,616  
Prepaid expenses
    523,510       1,245,778  
Deferred charges, net of accumulated amortization
    24,963,685       21,623,474  
Other
    2,417,373       1,339,501  
Total assets
  $ 1,312,610,504     $ 950,911,527  
                 
LIABILITIES AND EQUITY
               
Liabilities:
               
Term loan
  $ 200,000,000     $ 200,000,000  
Credit facility
    174,750,000       119,000,000  
Mortgage notes payable
    126,910,642       72,689,842  
Acquired lease intangible liabilities, net of accumulated amortization
    58,436,655       57,371,803  
Accounts payable and accrued expenses
    13,273,033       6,468,580  
Tenants' security deposits
    3,242,511       2,336,680  
Other liabilities
    16,580,673       26,502,551  
Total liabilities
    593,193,514       484,369,456  
                 
Commitments and contingencies
           
                 
Equity:
               
Preferred stock, $.0001 par value 50,000,000 shares authorized; none issued and outstanding
           
Common stock, $.0001 par value 500,000,000 shares authorized; and 72,062,585 and  52,596,754 shares issued and outstanding at September 30, 2013 and December 31, 2012
    7,200       5,260  
Additional paid-in-capital
    738,388,691       523,540,268  
Dividends in excess of earnings
    (40,496,143 )     (38,851,234 )
Accumulated other comprehensive loss
    (9,953,654 )     (18,154,612 )
Total Retail Opportunity Investments Corp. stockholders' equity
    687,946,094       466,539,682  
Non-controlling interests
    31,470,896       2,389  
Total equity
    719,416,990       466,542,071  
Total liabilities and equity
  $ 1,312,610,504     $ 950,911,527  


See accompanying notes to consolidated financial statements.
 
- 1 -

 
RETAIL OPPORTUNITY INVESTMENTS CORP.
Consolidated Statements of Operations and Comprehensive Income
(unaudited)
 
 
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30,
2013
   
September 30,
2012
   
September 30,
2013
   
September 30,
2012
 
Revenues
                       
Base rents
  $ 20,686,688     $ 15,196,646     $ 60,197,590     $ 42,734,688  
Recoveries from tenants
    5,330,339       3,343,541       15,549,716       9,427,763  
Mortgage interest
    204,961       189,995       617,217       901,645  
Other income
    925,454       159,092       1,229,575       591,234  
Total revenues
    27,147,442       18,889,274       77,594,098       53,655,330  
                                 
Operating expenses
                               
Property operating
    4,963,809       3,072,670       13,204,316       9,324,140  
Property taxes
    2,795,468       1,781,639       7,893,452       5,115,361  
Depreciation and amortization
    9,755,321       7,070,557       27,813,157       20,737,917  
General and administrative expenses
    2,526,312       3,699,852       8,175,994       8,716,378  
Acquisition transaction costs
    641,224       194,191       1,569,592       947,404  
Total operating expenses
    20,682,134       15,818,909       58,656,511       44,841,200  
                                 
Operating income
    6,465,308       3,070,365       18,937,587       8,814,130  
Non-operating income (expenses)
                               
Interest expense and other finance expenses
    (3,703,556 )     (3,094,023 )     (10,974,103 )     (8,144,879 )
Gain on consolidation of joint venture
    20,381,849       2,144,696       20,381,849       2,144,696  
Gain on bargain purchase
                      3,864,145  
Equity in earnings from unconsolidated joint ventures
    2,118,501       497,311       2,389,937       1,481,132  
Interest income
    189       419       1,448       11,280  
Income from continuing operations
    25,262,291       2,618,768       30,736,718       8,170,504  
Loss from discontinued operations
                (713,529 )      
Net Income Attributable to Retail Opportunity Investments Corp.
  $ 25,262,291     $ 2,618,768     $ 30,023,189     $ 8,170,504  
                                 
Net income per share - basic:
                               
Income from continuing operations
  $ 0.35     $ 0.05     $ 0.47     $ 0.16  
Loss from discontinued operations
                (0.01 )      
Net income per share
  $ 0.35     $ 0.05     $ 0.46     $ 0.16  
                                 
Net income per share - diluted:
                               
Income from continuing operations
  $ 0.34     $ 0.05     $ 0.45     $ 0.16  
Loss from discontinued operations
                (0.01 )      
Net income per share
  $ 0.34     $ 0.05     $ 0.44     $ 0.16  
                                 
Dividends per common share
  $ 0.15     $ 0.14     $ 0.45     $ 0.39  
                                 
Comprehensive income:
                               
Net income attributable to Retail Opportunity Investments Corp.
  $ 25,262,291     $ 2,618,768     $ 30,023,189     $ 8,170,504  
Other comprehensive (loss) income
                               
Unrealized (loss) gain on swap derivative
                               
Unrealized swap derivative (loss) gain arising during the period
    (1,419,472 )     (2,823,453 )     4,642,590       (7,873,977 )
Reclassification adjustment for amortization of interest expense included in net income
    1,187,866       1,184,484       3,558,368       2,720,594  
Unrealized (loss) gain on swap derivative, net
    (231,606 )     (1,638,969 )     8,200,958       (5,153,383 )
Total other comprehensive income
  $ 25,030,685     $ 979,799     $ 38,224,147     $ 3,017,121  
 
See accompanying notes to consolidated financial statements.
 
- 2 -

 
RETAIL OPPORTUNITY INVESTMENTS CORP.
Consolidated Statement of Equity
(unaudited)
 
   
Common Stock
                               
   
Shares
   
Amount
   
Additional
paid-in capital
   
Dividends in
Excess of
Earnings
   
Accumulated
other
comprehensive
loss
   
Non-controlling
interests
   
Equity
 
Balance at December 31, 2012
    52,596,754     $ 5,260     $ 523,540,268     $ (38,851,234 )   $ (18,154,612 )   $ 2,389     $ 466,542,071  
Shares issued under the 2009 Plan
    233,914       23       (23 )                        
Repurchase of common stock
    (21,865 )     (2 )     (280,972 )                       (280,974 )
Retirement of options
                (274,830 )                       (274,830 )
Stock based compensation expense
                2,109,040                         2,109,040  
Proceeds from the exercise of warrants
    18,565,282       1,851       222,781,527                         222,783,378  
Exercise of Sponsor warrants
    688,500       68       (68 )                        
Buyback of warrants
                (23,318,841 )                       (23,318,841 )
Issuance of OP Units to Non-controlling interests
                                  45,372,731       45,372,731  
Adjustment to for Non-controlling interests ownership in Operating Partnership
                13,901,835                   (13,901,835 )      
Purchase of Non-controlling interest
                                  (2,389 )     (2,389 )
Registration expenditures
                (69,245 )                       (69,245 )
Dividends ($.45 per share)
                      (31,585,598 )                 (31,585,598 )
Dividends payable on performance-based shares
                      (82,500 )                 (82,500 )
Net income attributable to Retail Opportunity Investments Corp.
                      30,023,189                   30,023,189  
Other comprehensive income
                            8,200,958             8,200,958  
Balance at September 30, 2013
    72,062,585     $ 7,200     $ 738,388,691     $ (40,496,143 )   $ (9,953,654 )   $ 31,470,896     $ 719,416,990  
 

See accompanying notes to consolidated financial statements.
 
 
- 3 -

 
RETAIL OPPORTUNITY INVESTMENTS CORP.
Consolidated Statements of Cash Flow
(unaudited)
 
   
Nine Months Ended September 30,
 
   
2013
   
2012
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 30,023,189     $ 8,170,504  
Adjustments to reconcile net income  to cash provided by operating activities:
               
Depreciation and amortization
    27,813,157       20,737,917  
Amortization of deferred financing costs and mortgage premiums, net
    101,572       346,685  
Gain on consolidation of joint venture
    (20,381,849 )     (2,144,696 )
Gain on bargain purchase
          (3,864,145 )
Straight-line rent adjustment
    (2,336,767 )     (2,504,416 )
Amortization of above and below market rent
    (3,044,768 )     (2,569,807 )
Amortization relating to stock based compensation
    2,109,040       2,298,971  
Provisions for tenant credit losses
    961,051       759,857  
Equity in earnings from unconsolidated joint ventures
    (2,389,937 )     (1,481,131 )
Loss on sale of discontinued operations
    713,529        
Distribution of cumulative earnings from unconsolidated joint ventures
          686,017  
Other
    490,924        
Change in operating assets and liabilities
               
Restricted cash
    (353,354 )     (473,465 )
Tenant and other receivables
    (1,832,325 )     (2,299,437 )
Prepaid expenses
    742,972       86,983  
Accounts payable and accrued expenses
    2,725,392       253,885  
Other assets and liabilities, net
    (1,998,197 )     1,192,822  
Net cash provided by operating activities
    33,343,629       19,196,544  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Investments in real estate
    (180,090,191 )     (125,743,992 )
Acquisition of entities
    (43,378,106 )      
Proceeds from sale of real estate
    5,607,612        
Investments in mortgage notes receivables
    (294,000 )      
Investments in unconsolidated joint ventures
          (735,000 )
Return of capital from unconsolidated joint ventures
          8,661,211  
Improvements to properties
    (14,629,136 )     (5,478,170 )
Deposits on real estate acquisitions
    (7,150,000 )     (2,600,000 )
Construction escrows and other
    76,494       (207,290 )
Net cash used in investing activities
    (239,857,327 )     (126,103,241 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Principal repayments on mortgages
    (7,663,760 )     (7,608,484 )
Proceeds from draws on term loan/credit facility
    251,750,000       90,000,000  
Payments on credit facility
    (196,000,000 )      
Payment of contingent consideration
    (1,864,370 )      
Proceeds from exercise of warrants
    222,783,378        
Payments to acquire warrants
    (23,318,841 )      
Proceeds from the sale of stock
          36,860,055  
Purchase of Non-controlling interest
    (2,389 )      
Deferred financing and other costs
    (1,817,567 )     (2,612,648 )
Registration expenditures
    (69,245 )     (821,781 )
Dividends paid to common shareholders
    (31,585,598 )     (19,739,210 )
Repurchase of common stock
    (280,974 )      
Retirement of options
    (274,830 )      
Net cash provided by financing activities
    211,655,804       96,077,932  
Net increase (decrease) in cash and cash equivalents
    5,142,106       (10,828,765 )
Cash and cash equivalents at beginning of period
    4,692,230       34,317,588  
Cash and cash equivalents at end of period
  $ 9,834,336     $ 23,488,823  
                 
Other non-cash investing and financing activities:
               
Issuance of OP Units in connection with acquisitions of entities
  $ 45,372,731     $  
Assumed mortgage at fair value
  $ 62,749,675     $ 8,428,062  
Intangible lease liabilities
  $ 6,444,176     $ 9,660,574  
Transfer of equity investment in property to real estate investment
  $ 15,990,769     $ 4,008,350  
Interest rate swap asset
  $ 1,391,684     $  
Interest rate swap liabilities
  $ (6,665,724 )   $ 5,252,199  
Accrued real estate improvement costs
  $ 721,259     $ 308,771  
 
See accompanying notes to consolidated financial statements.
 
- 4 -

 
RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP
Consolidated Balance Sheets
(unaudited)
 
   
September 30,
2013
   
December 31,
2012
 
ASSETS
           
Real Estate Investments:
           
Land
  $ 374,112,312     $ 283,445,257  
Building and improvements
    886,635,954       588,248,338  
      1,260,748,266       871,693,595  
Less:  accumulated depreciation
    49,725,821       32,364,772  
      1,211,022,445       839,328,823  
Mortgage note receivable
          10,000,000  
Investment in and advances to unconsolidated joint venture
          15,295,223  
Real Estate Investments, net
    1,211,022,445       864,624,046  
Cash and cash equivalents
    9,834,336       4,692,230  
Restricted cash
    1,977,552       1,700,692  
Tenant and other receivables, net
    16,665,091       12,455,190  
Deposits
    1,000,000       2,000,000  
Acquired lease intangible assets, net of accumulated amortization
    44,206,512       41,230,616  
Prepaid expenses
    523,510       1,245,778  
Deferred charges, net of accumulated amortization
    24,963,685       21,623,474  
Other
    2,417,373       1,339,501  
Total assets
  $ 1,312,610,504     $ 950,911,527  
                 
LIABILITIES AND CAPITAL
               
Liabilities:
               
Term loan
  $ 200,000,000     $ 200,000,000  
Credit facility
    174,750,000       119,000,000  
Mortgage notes payable
    126,910,642       72,689,842  
Acquired lease intangible liabilities, net of accumulated amortization
    58,436,655       57,371,803  
Accounts payable and accrued expenses
    13,273,033       6,468,580  
Tenants' security deposits
    3,242,511       2,336,680  
Other liabilities
    16,580,673       26,502,551  
Total liabilities
    593,193,154       484,369,456  
                 
Commitments and contingencies
           
                 
Capital:
               
Partners’ Capital, Unlimited partnership units authorized:
               
ROIC capital (consists of general and limited partnership interests held by ROIC)
    697,899,748       484,694,294  
Limited partners’ capital (consists of limited partnership interests held by third parties)
    31,470,896        
Accumulated other comprehensive loss
    (9,953,654 )     (18,154,612 )
Total partners’ capital
    719,416,990       466,539,682  
Non-controlling interests
          2,389  
Total capital
    719,416,990       466,542,071  
Total liabilities and capital
  $ 1,312,610,504     $ 950,911,527  
 
See accompanying notes to consolidated financial statements.
 
- 5 -

 
RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP
Consolidated Statements of Operations and Comprehensive Income
(unaudited)

   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30,
2013
   
September 30,
2012
   
September 30,
2013
   
September 30,
2012
 
Revenues
                       
Base rents
  $ 20,686,688     $ 15,196,646     $ 60,197,590     $ 42,734,688  
Recoveries from tenants
    5,330,339       3,343,541       15,549,716       9,427,763  
Mortgage interest
    204,961       189,995       617,217       901,645  
Other income
    925,454       159,092       1,229,575       591,234  
Total revenues
    27,147,442       18,889,274       77,594,098       53,655,330  
                                 
Operating expenses
                               
Property operating
    4,963,809       3,072,670       13,204,316       9,324,140  
Property taxes
    2,795,468       1,781,639       7,893,452       5,115,361  
Depreciation and amortization
    9,755,321       7,070,557       27,813,157       20,737,917  
General and administrative expenses
    2,526,312       3,699,852       8,175,994       8,716,378  
Acquisition transaction costs
    641,224       194,191       1,569,592       947,404  
Total operating expenses
    20,682,134       15,818,909       58,656,511       44,841,200  
                                 
Operating income
    6,465,308       3,070,365       18,937,587       8,814,130  
Non-operating income (expenses)
                               
Interest expense and other finance expenses
    (3,703,556 )     (3,094,023 )     (10,974,103 )     (8,144,879 )
Gain on consolidation of joint venture
    20,381,849       2,144,696       20,381,849       2,144,696  
Gain on bargain purchase
                      3,864,145  
Equity in earnings from unconsolidated joint ventures
    2,118,501       497,311       2,389,937       1,481,132  
Interest income
    189       419       1,448       11,280  
Income from continuing operations
    25,262,291       2,618,768       30,736,718       8,170,504  
Loss from discontinued operations
                (713,529 )      
Net Income Attributable to Retail Opportunity Investments Partnership, LP
  $ 25,262,291     $ 2,618,768     $ 30,023,189     $ 8,170,504  
                                 
Net income per unit - basic:
                               
Income from continuing operations
  $ 0.35     $ 0.05     $ 0.47     $ 0.16  
Loss from discontinued operations
                (0.01 )      
Net income per unit (1)
  $ 0.35     $ 0.05     $ 0.45     $ 0.16  
                                 
Net income per unit - diluted:
                               
Income from continuing operations
  $ 0.34     $ 0.05     $ 0.45     $ 0.16  
Loss from discontinued operations
                (0.01 )      
Net income per unit
  $ 0.34     $ 0.05     $ 0.44     $ 0.16  
                                 
Distributions per unit
  $ 0.15     $ 0.14     $ 0.45     $ 0.39  
                                 
Comprehensive income:
                               
Net income attributable to Retail Opportunity Investments Partnership, LP.
  $ 25,262,291     $ 2,618,768     $ 30,023,189     $ 8,170,504  
Other comprehensive (loss) income
                               
Unrealized (loss) gain on swap derivative
                               
Unrealized swap derivative (loss) gain arising during the period
    (1,419,472 )     (2,823,453 )     4,642,590       (7,873,977 )
Reclassification adjustment for amortization of interest expense included in net income
    1,187,866       1,184,484       3,558,368       2,720,594  
Unrealized (loss) gain on swap derivative, net
    (231,606 )     (1,638,969 )     8,200,958       (5,153,383 )
Total other comprehensive income
  $ 25,030,685     $ 979,799     $ 38,224,147     $ 3,017,121  
____________________
(1)
Earnings per share may not add due to rounding.
 
See accompanying notes to consolidated financial statements.
 
- 6 -

 
RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP
Consolidated Statement of Capital
(unaudited)
 
   
Limited Partner’s Capital (1)
   
ROIC Capital (2)
                   
   
Units
   
Amount
   
Units
   
Amount
   
Accumulated
other
comprehensive
loss
   
Non-controlling
interests
   
Capital
 
Balance at December 31, 2012
                52,596,754     $ 484,694,294     $ (18,154,612 )   $ 2,389     $ 466,542,071  
Distributions to ROIC
                (21,865 )     (55,611,988 )                 (55,611,988 )
Contributions from ROIC
                19,487,696       222,783,378                   222,783,378  
Stock based compensation expense
                      2,109,040                   2,109,040  
Issuance of OP Units to Non-controlling interests
    3,290,263       45,372,731                               45,372,731  
Adjustment to Non-controlling interests
          (13,901,835 )           13,901,835                    
Purchase of Non-controlling interests
                                  (2,389 )     (2,389 )
Net income attributable to Retail Opportunity Investments Partnership, LP
                      30,023,189                   30,023,189  
Other comprehensive income
                            8,200,958             8,200,958  
Balance at September 30, 2013
    3,290,263     $ 31,470,896       72,062,585     $ 697,899,748     $ (9,953,654 )   $     $ 719,416,990  
 

____________________
(1)
Consists of limited partnership interests held by third parties.
(2)
Consists of general and limited partnership interests held by ROIC.

 

See accompanying notes to consolidated financial statements.
 
 
- 7 -

 
RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP
Consolidated Statements of Cash Flow
(unaudited)
 
   
Nine Months Ended September 30,
 
   
2013
   
2012
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 30,023,189     $ 8,170,504  
Adjustments to reconcile net income  to cash provided by operating activities:
               
Depreciation and amortization
    27,813,157       20,737,917  
Amortization of deferred financing costs and mortgage premiums, net
    101,572       346,685  
Gain on consolidation of joint venture
    (20,381,849 )     (2,144,696 )
Gain on bargain purchase
          (3,864,145 )
Straight-line rent adjustment
    (2,336,767 )     (2,504,416 )
Amortization of above and below market rent
    (3,044,768 )     (2,569,807 )
Amortization relating to stock based compensation
    2,109,040       2,298,971  
Provisions for tenant credit losses
    961,051       759,857  
Equity in earnings from unconsolidated joint ventures
    (2,389,937 )     (1,481,131 )
Loss on sale of discontinued operations
    713,529        
Distribution of cumulative earnings from unconsolidated joint ventures
          686,017  
Other
    490,924        
Change in operating assets and liabilities
               
Restricted cash
    (353,354 )     (473,465 )
Tenant and other receivables
    (1,832,325 )     (2,299,437 )
Prepaid expenses
    742,972       86,983  
Accounts payable and accrued expenses
    2,725,392       253,885  
Other assets and liabilities, net
    (1,998,197 )     1,192,822  
Net cash provided by operating activities
    33,343,629       19,196,544  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Investments in real estate
    (180,090,191 )     (125,743,992 )
Acquisition of entities
    (43,378,106 )      
Proceeds from sale of real estate
    5,607,612        
Investments in mortgage notes receivables
    (294,000 )      
Investments in unconsolidated joint ventures
          (735,000 )
Return of capital from unconsolidated joint ventures
          8,661,211  
Improvements to properties
    (14,629,136 )     (5,478,170 )
Deposits on real estate acquisitions
    (7,150,000 )     (2,600,000 )
Construction escrows and other
    76,494       (207,290 )
Net cash used in investing activities
    (239,857,327 )     (126,103,241 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Principal repayments on mortgages
    (7,663,760 )     (7,608,484 )
Proceeds from draws on term loan/credit facility
    251,750,000       90,000,000  
Payments on credit facility
    (196,000,000 )      
Payment of contingent consideration
    (1,864,370 )      
Deferred financing and other costs
    (1,817,567 )     (2,612,648 )
Distributions to ROIC
    (55,529,488 )     (20,560,991 )
Contributions from ROIC
    222,783,378       36,860,055  
Purchase of Non-controlling interest
    (2,389 )      
Net cash provided by financing activities
    211,655,804       96,077,932  
Net increase (decrease) in cash and cash equivalents
    5,142,106       (10,828,765 )
Cash and cash equivalents at beginning of period
    4,692,230       34,317,588  
Cash and cash equivalents at end of period
  $ 9,834,336     $ 23,488,823  
                 
Other non-cash investing and financing activities:
               
Issuance of OP Units in connection with acquisitions of entities
  $ 45,372,731     $  
Assumed mortgage at fair value
  $ 62,749,675     $ 8,428,062  
Intangible lease liabilities
  $ 6,444,176     $ 9,660,574  
Transfer of equity investment in property to real estate investment
  $ 15,990,769     $ 4,008,350  
Interest rate swap asset
  $ 1,391,684     $  
Interest rate swap liabilities
  $ (6,665,724 )   $ 5,252,199  
Accrued real estate improvement costs
  $ 721,259     $ 308,771  
 
See accompanying notes to consolidated financial statements.
 
- 8 -

 
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 refers to the properties it targets for investments as its target assets.
 
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, commencing with its taxable year ended December 31, 2010.
 
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 warrant exercises and equity issuances by ROIC, which are contributed to the Operating Partnership, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness (directly and through subsidiaries) or through the issuance of operating partnership units (“OP Units”) of the Operating Partnership.

Recent Accounting Pronouncements
 
In February 2013, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update to improve the reporting of reclassifications out of accumulated other comprehensive income (“AOCI”), requiring companies to present information about reclassifications out of AOCI in one place and by component.  This guidance is effective for interim and annual periods beginning on or after December 15, 2012.  Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
 
Principles of Consolidation
 
The accompanying consolidated financial statements are prepared on the accrual basis in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statement disclosures. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Results of operations for the three and nine month periods ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2012.
 
- 9 -

 
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.
 
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 and other receivables, the valuation of performance-based restricted stock, stock options, and derivatives.  Actual results could differ from these estimates.
 
Federal Income Taxes
 
Commencing with ROIC’s taxable year ended December 31, 2010, ROIC 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 REIT taxable income 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, ROIC 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") 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 3,290,263 OP Units in connection with the acquisitions of Crossroads Shopping Center and Five Points Plaza, which are described under Note 2 below.  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 September 30, 2013, the tax years 2010 through and including 2012 remain open to examination by the Internal Revenue Service ("IRS") and state taxing authorities.  During the year ended December 31, 2011, the IRS conducted an examination of the Company's 2009 federal tax return.  During the nine months ended September 30, 2012 the Company reached a settlement with the IRS in which the Company paid to the IRS approximately $122,000.
 
- 10 -

 
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 in the period incurred.  During the nine months ended September 30, 2013 and 2012, capitalized costs related to the improvements or replacement of real estate properties were approximately $14.4 million and $5.8 million, respectively.
 
Upon the acquisition of real estate properties, the fair value of the real estate purchased is allocated to the acquired tangible assets (consisting of land, buildings and improvements), and acquired intangible assets and liabilities (consisting of above-market and below-market leases and acquired in-place leases).  Acquired lease intangible assets include above-market leases and acquired in-place leases in the accompanying consolidated balance sheet.  The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, which value is then allocated to land, buildings and improvements based on management's determination of the relative fair values of these assets.  In valuing an acquired property's intangibles, factors considered by management include an estimate of carrying costs during the expected lease-up periods, and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand.  Management also estimates costs to execute similar leases, including leasing commissions, tenant improvements, legal and other related costs.  Leasing commissions, legal and other related costs ("lease origination costs") are classified as deferred charges in the accompanying consolidated balance sheet.
 
The value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates, over (ii) the estimated fair value of the property as if vacant.  Above-market and below-market lease values are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be received and management's estimate of market lease rates, measured over the terms of the respective leases that management deemed appropriate at the time of acquisition.  Such valuations include a consideration of the non-cancellable terms of the respective leases as well as any applicable renewal periods.  The fair values associated with below-market rental renewal options are determined based on the Company's experience and the relevant facts and circumstances that existed at the time of the acquisitions.  The value of the above-market and below-market leases associated with the original lease term is amortized to rental income, over the terms of the respective leases.  The value of in-place leases are amortized to expense, and the above-market and below-market lease values are amortized to rental income, over the remaining non-cancellable terms of the respective leases.  If the value of below-market leases includes renewal option periods, the Company includes such renewal periods in the amortization period utilized.  If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recognized in operations at that time.  The Company may record a bargain purchase gain if it determines that the purchase price for the acquired assets was less than the fair value.  The Company will record a liability in situations where any part of the cash consideration is deferred.  The amounts payable in the future are discounted to their present value.  The liability is subsequently re-measured to fair value with changes in fair value recognized in the consolidated statements of operations.  If, up to one year from the acquisition date, information regarding fair value of assets acquired and liabilities assumed is received and estimates are refined, appropriate property adjustments are made to the purchase price allocation on a retrospective basis.
 
In conjunction with the Company's pursuit and acquisition of real estate investments, the Company expensed acquisition transaction costs during the three months ended September 30, 2013 and 2012 of approximately $641,000 and $194,000, respectively, and approximately $1.6 million and $947,000 during the nine months ended September 30, 2013 and 2012, respectively.
 
 
- 11 -

 
Regarding the Company's 2013 property acquisitions (see Note 2), the fair value of in-place leases and other intangibles have been allocated to intangible asset and liability accounts.  Such allocations are preliminary and may be adjusted as final information becomes available.
 
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 September 30, 2013.
 
In June 2013, the Company sold the Nimbus Winery Shopping Center, a non-grocery anchored, non-core shopping center located in Rancho Cordova, California. The sales price of this property of approximately $6.3 million, less costs to sell, resulted in proceeds to the Company of approximately $5.6 million.  Accordingly, the Company recorded a loss on sale of property of approximately $714,000 for the nine months ended September 30, 2013, which has been included in discontinued operations.
 
The Company reviewed its investment in its unconsolidated joint venture for impairment periodically and the Company would record an impairment charge when events or circumstances change indicating that a decline in the fair values below the carrying values has occurred and such decline is other-than temporary.  The ultimate realization of the Company's investment in its unconsolidated joint venture was dependent on a number of factors, including the performance of each investment and market conditions.  As of September 30, 2013, the Company has no remaining unconsolidated joint ventures.
 
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.
 
- 12 -

 
Termination fees (included in rental revenue) 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) collectivity 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 generally accepted accounting principles 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 and the allowance for bad debts 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 both September 30, 2013 and December 31, 2012 was approximately $3.2 million.
 
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 Charges
 
Deferred charges consist principally of leasing commissions and acquired lease origination costs (which are amortized ratably over the life of the tenant leases) and financing fees (which are amortized over the term of the related debt obligation).  Deferred charges in the accompanying consolidated balance sheets are shown at cost, net of accumulated amortization of approximately $13.0 million and $9.1 million, as of September 30, 2013 and December 31, 2012, respectively.
 
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 both the three and nine months ended September 30, 2013 and 2012, the effect of the 41,400,000 warrants to purchase ROIC’s common stock  (the "Public Warrants") issued in connection with ROIC’s initial public offering (the "IPO") and the 8,000,000 warrants (the "Private Placement Warrants") purchased by NRDC Capital Management, LLC (the "Sponsor") simultaneously with the consummation of the IPO, for the time these were outstanding during these periods, were included in the calculation of diluted EPS as the weighted average share price was greater than the exercise price during these periods.  See Note 6 below.
 
For the three and nine months ended September 30, 2013 and 2012, 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 awards outstanding under the 2009 Plan described in Note 7 are excluded from the basic EPS calculation, as these units are not participating securities until they vest.
 
- 13 -

 
The following table sets forth the reconciliation between basic and diluted EPS for ROIC:
 
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30,
2013
   
September 30,
2012
   
September 30,
2013
   
September 30,
2012
 
Numerator:
                       
Net income attributable to ROIC
  $ 25,262,291     $ 2,618,768     $ 30,023,189     $ 8,170,504  
Less, earnings allocated to unvested shares
    (20,736 )     (70,280 )     (57,623 )     (165,949 )
Net income available for common shareholders, basic and diluted
  $ 25,241,555     $ 2,548,488     $ 29,965,566     $ 8,004,555  
                                 
Denominator:
                               
Denominator for basic EPS – weighted average common shares
    72,025,017       51,440,751       65,810,620       50,483,251  
Warrants 
    1,318,662       1,823,756       2,827,612       609,877  
OP Units
    143,055             48,209        
Restricted stock awards – performance-based
    134,402       126,697       123,661       125,071  
Stock Options
    59,094       54,634       61,263       47,512  
Denominator for diluted EPS – weighted average common equivalent shares
    73,680,230       53,445,838       68,871,365       51,265,711  

Earnings Per Unit

The following table sets forth the reconciliation between basic and diluted earnings per unit for the Operating Partnership:
 
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30,
2013
   
September 30,
2012
   
September 30,
2013
   
September 30,
2012
 
Numerator:
                       
Net income attributable to the Operating Partnership
  $ 25,262,291     $ 2,618,768     $ 30,023,189     $ 8,170,504  
Less, earnings allocated to unvested units
    (20,736 )     (70,280 )     (57,623 )     (165,949 )
Net income available for unitholders, basic and diluted
  $ 25,241,555     $ 2,548,488     $ 29,965,566     $ 8,004,555  
                                 
Denominator:
                               
Denominator for basic earnings per unit – weighted average units
    72,168,072       51,440,751       65,858,829       50,483,251  
Warrants 
    1,318,662       1,823,756       2,827,612       609,877  
Restricted stock awards – performance-based
    134,402       126,697       123,661       125,071  
Stock Options
    59,094       54,634       61,263       47,512  
Denominator for diluted earnings per unit – weighted average units
    73,680,230       53,445,838       68,871,365       51,265,711  

Stock-Based Compensation
 
The Company has a stock-based employee compensation plan, which is more fully described in Note 7.
 
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 financial performance criteria ("performance-based grants").  Time-based grants are valued according to the market price for ROIC’s common stock at the date of grant.  For performance-based grants, the Company generally engages an independent appraisal company to determine the value of the shares at the date of grant, 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 or the date immediately prior to the grant date.  Awards of stock options and time-based grants stock are expensed as compensation ratably over the vesting period.  Awards of performance-based grants are expensed as compensation under an accelerated method and are recognized in income regardless of the Company results against the performance criteria.
 
- 14 -

 
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.
 
Segment Reporting
 
The Company operates in one industry segment, ownership of commercial real estate properties.  The Company does not distinguish in property operations for purposes of measuring performance.  The Company reassesses its conclusion that it has one reportable operating segment at least annually.
 
Reclassifications
 
Certain reclassifications have been made to the prior period consolidated financial statements and notes to conform to the current year presentation.
 
2.  
Real Estate Investments
 
The following real estate investment transactions have occurred during the nine months ended September 30, 2013.
 
Property Acquisitions
 
On February 1, 2013, the Company acquired the property known as Diamond Bar Town Center located in Diamond Bar, California, within the Los Angeles metropolitan area, for a purchase price of approximately $27.4 million.  Diamond Bar Town Center is approximately 100,000 square feet and is anchored by a national grocer. The property was acquired with borrowings under the Company’s credit facility.
 
On February 6, 2013, the Company acquired the property known as Bernardo Heights Plaza in Rancho Bernardo, California, within the San Diego metropolitan area, for a purchase price of approximately $12.4 million. Bernardo Heights Plaza is approximately 38,000 square feet and is anchored by Sprouts Farmers Market and Tuesday Morning. The property was acquired with cash of approximately $3.6 million and the assumption of an existing mortgage with a principal amount of approximately $8.9 million, and a fair value of approximately $9.7 million.
 
On April 15, 2013, the Company acquired the property known as Canyon Crossing Shopping Center located in Puyallup, Washington, within the Seattle metropolitan area, for a purchase price of approximately $35.0 million.  Canyon Crossing Shopping Center is approximately 121,000 square feet and is anchored by Safeway Supermarket. The property was acquired using borrowings under the Company’s credit facility.
 
On April 22, 2013, the Company acquired the property known as Diamond Hills Plaza located in Diamond Bar, California, within the Los Angeles metropolitan area, for a purchase price of approximately $48.0 million.  Diamond Hills Plaza is approximately 140,000 square feet and is anchored by an H Mart Supermarket and a Rite Aid. The property was acquired using borrowings under the Company’s credit facility.
 
- 15 -

 
On June 27, 2013, the Company acquired the property known as Hawthorne Crossings located in San Diego, California, for a purchase price of approximately $41.5 million.  Hawthorne Crossings is approximately 141,000 square feet and is anchored by Mitsuwa Supermarket, Ross Dress For Less and Staples.  The property was acquired using borrowings under the Company’s credit facility.
 
On June 27, 2013, the Company acquired the property known as Granada Shopping Center located in Livermore, California, for a purchase price of approximately $17.5 million.  Granada Shopping Center is approximately 69,000 square feet and is anchored by SaveMart (Lucky) Supermarket.  The property was acquired using borrowings under the Company’s credit facility.
 
On August 23, 2013, the Company acquired the property known as Robinwood Shopping Center located in West Linn, Oregon, for a purchase price of approximately $14.2 million.  Robinwood Shopping Center is approximately 71,000 square feet and is anchored by Walmart Neighborhood Market.  The property was acquired using borrowings under the Company’s credit facility.
 
On September 18, 2013, the Company acquired a parcel of land adjacent to one of its properties located in Pomona, California, for a purchase price of approximately $700,000.  The parcel of land was acquired using available cash on hand.
 
Acquisitions of Entities
 
On September 27, 2013, the Company acquired the remaining 51% of the partnership interests in the Terranomics Crossroads Associates, LP from its joint venture partner.  The purchase of the remaining interest was funded through the issuance of 2,639,632 OP Units with a fair value of approximately $36.4 million and the assumption of a $49.6 million mortgage loan on the property.  Prior to the acquisition date, the Company accounted for its 49% interest in the Terranomics Crossroad Associates, LP as an equity method investment.  The acquisition-date fair value of the previous equity interest was $36.0 million and is included in the measurement of the consideration transferred.  The Company recognized a gain of $20.4 million as a result of remeasuring its prior equity interest in the venture held before the acquisition.  The gain is included in the line item Gain on consolidation of joint venture in the consolidated income statement.  The primary asset of Terranomics Crossroads Associates is Crossroads Shopping Center located in Bellevue, Washington, within the Seattle metropolitan area.  Crossroads Shopping Center is approximately 464,000 square feet and is anchored by Kroger (QFC) Supermarket, Sports Authority and Bed Bath and Beyond.
 
On September 27, 2013, the Company acquired 100% of the membership interests in SARM Five Points Plaza, LLC for an adjusted purchase price of approximately $52.6 million.  The primary asset of SARM Five Points Plaza, LLC is Five Points Plaza located in Huntington Beach, California.  Five Points Plaza is approximately 161,000 square feet and is anchored by Trader Joes, Old Navy and Pier 1.  The purchase of the membership interests was funded through approximately $43.6 million in cash using borrowings under the Company’s credit facility (of which approximately $17.2 million was used by the seller to pay off the existing financing) and the issuance of 650,631 OP Units with a fair value of approximately $9.0 million.
 
The financial information set forth below summarizes the Company's preliminary purchase price allocation for the properties and entities acquired during the nine months ended September 30, 2013.
 
 
- 16 -

 
   
September 30,
2013
 
ASSETS
     
Land
  $ 92,737,353  
Building and improvements
    287,160,030  
Cash and cash equivalents
    552,213  
Acquired lease intangible asset
    12,645,524  
Deferred charges
    4,718,347  
Tenant receivables and other assets
    1,132,232  
Assets acquired
  $ 398,945,699  
LIABILITIES
       
Acquired lease intangible liability
    6,444,176  
Mortgage notes assumed
    62,749,675  
Accrued expenses and other liabilities
    4,282,450  
Liabilities assumed
  $ 73,476,301  

The Company assessed the fair value of the lease intangibles based on estimated cash flow projections that utilize appropriate discount rates and available market information. Such inputs are Level 3 in the fair value hierarchy.  See Note 9, “Fair Value of Financial Instruments,” for a discussion of the framework for measuring fair value.
 
Pro Forma Financial Information
 
The pro forma financial information set forth below is based upon the Company's historical consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012, adjusted to give effect of these transactions as if they had been completed at the beginning of 2012.
 
The pro forma financial information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transactions occurred at the beginning of each year, nor does it purport to represent the results of future operations.
 
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30,
2013
   
September 30,
2012
   
September 30,
2013
   
September 30,
2012
 
Statement of operations:
                       
Revenues
  $ 31,583,264     $ 29,649,795     $ 94,490,509     $ 91,581,332  
Property operating and other (income) and expenses
    (4,322,845 )     14,576,943       31,298,109       43,355,811  
Depreciation and amortization
    10,801,778       10,459,503       32,730,036       33,045,275  
Net income attributable to Retail Opportunity Investments Corp.
  $ 25,104,331     $ 4,613,349     $ 30,462,364     $ 15,180,246  

The following table summarizes the operating results included in the Company's historical consolidated statement of operations for the three and nine months ended September 30, 2013, for the properties acquired during the nine months ended September 30, 2013.
 
   
For the Three
Months Ended
   
For the Nine
Months Ended
 
   
September 30,
2013
   
September 30,
2013
 
Statement of operations:
           
Revenues
  $ 3,704,067     $ 6,267,584  
Property operating and other expenses
    1,562,393       2,798,255  
Depreciation and amortization
    1,709,838       2,970,022  
Net income attributable to Retail Opportunity Investments Corp.
  $ 431,836     $ 499,307  
 
- 17 -

 
The following table summarizes the operating results included in the Company's historical consolidated statement of operations for the three and nine months ended September 30, 2012, for the properties acquired during the nine months ended September 30, 2012.
 
   
For the Three
Months Ended
   
For the Nine
Months Ended
 
   
September 30,
2012
   
September 30,
2012
 
Statement of operations:
           
Revenues
  $ 2,404,248     $ 4,714,303