f10q_073114.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 June 30, 2014
 
OR
 
o 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.)
94-2969738 (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 o
 
Retail Opportunity Investments Partnership, LP
Yes x  No o
 
(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 o
 
Retail Opportunity Investments Partnership, LP
Yes x  No o
 
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 x
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller
reporting company)
Smaller reporting company o
 
 

 
Retail Opportunity Investments Partnership, LP
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
(Do not check if a smaller
reporting company)
Smaller reporting company o
 
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 o  No x
 
Retail Opportunity Investments Partnership, LP
Yes o  No x
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 91,090,301 shares of common stock, par value $0.0001 per share, outstanding as of July 29, 2014.
 
                                                                                                                                                                                                          
 
 
 

 
EXPLANATORY PARAGRAPH

This report combines the quarterly reports on Form 10-Q for the quarter ended June 30, 2014 of Retail Opportunity Investments Corp., a Maryland corporation (“ROIC”), and Retail Opportunity Investments Partnership, LP, a Delaware limited partnership (the “Operating Partnership”) of which ROIC 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 the Operating Partnership.  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 June 30, 2014, ROIC owned an approximate 96.6% partnership interest and other limited partners owned the remaining 3.4% 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 a 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”).

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 Operating Partnership.
 
This report also includes separate Item 2. 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
 
 
   
Consolidated Financial Statements of Retail Opportunity Investments Corp.:
 
   
   
   
   
   
Consolidated Financial Statements of Retail Opportunity Investments Partnership, LP:
 
   
   
   
   
   
 
 
 
 
  Risk Factors
 
 
 
 
 

 
 
 

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

   
June 30, 2014
(unaudited)
   
December 31, 
2013
 
ASSETS
           
Real Estate Investments:
           
Land
  $ 523,196,947     $ 458,252,028  
Building and improvements
    1,161,380,007       914,181,620  
      1,684,576,954       1,372,433,648  
Less:  accumulated depreciation
    69,716,583       57,499,980  
Real Estate Investments, net
    1,614,860,371       1,314,933,668  
Cash and cash equivalents
    9,537,945       7,919,697  
Restricted cash
    1,223,053       1,298,666  
Tenant and other receivables, net
    25,435,735       20,389,068  
Deposits
    25,000       775,000  
Acquired lease intangible assets, net of accumulated amortization
    74,316,694       55,887,471  
Prepaid expenses
    815,737       1,371,296  
Deferred charges, net of accumulated amortization
    38,315,993       33,121,980  
Other
    2,409,026       3,392,997  
Total assets
  $ 1,766,939,554     $ 1,439,089,843  
                 
LIABILITIES AND EQUITY
               
Liabilities:
               
Term loan
  $ 200,000,000     $ 200,000,000  
Credit facility
    121,750,000       56,950,000  
Senior Notes Due 2023
    246,006,615       245,845,320  
Mortgage notes payable
    116,537,497       118,903,258  
Acquired lease intangible liabilities, net of accumulated amortization
    115,023,731       85,283,882  
Accounts payable and accrued expenses
    9,424,158       11,923,998  
Tenants’ security deposits
    3,706,544       3,422,910  
Other liabilities
    18,621,782       11,350,409  
Total liabilities
    831,070,327       733,679,777  
                 
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 90,489,973 and  72,445,767 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively
    9,043       7,238  
Additional paid-in-capital
    977,242,954       732,701,858  
Dividends in excess of earnings
    (62,662,696 )     (47,616,570 )
Accumulated other comprehensive loss
    (10,124,044 )     (8,969,137 )
Total Retail Opportunity Investments Corp. stockholders' equity
    904,465,257       676,123,389  
Non-controlling interests
    31,403,970       29,286,677  
Total equity
    935,869,227       705,410,066  
Total liabilities and equity
  $ 1,766,939,554     $ 1,439,089,843  
 
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 Six Months Ended
 
   
June 30,
2014
   
June 30,
2013
   
June 30,
2014
   
June 30,
2013
 
Revenues
                       
Base rents
  $ 28,134,808     $ 20,161,341     $ 55,671,712     $ 39,510,902  
Recoveries from tenants
    8,379,966       5,474,089       15,993,807       10,219,377  
Mortgage interest
          208,197             412,256  
Other income
    400,060       219,839       1,599,451       305,380  
Total revenues
    36,914,834       26,063,466       73,264,970       50,447,915  
                                 
Operating expenses
                               
Property operating
    5,935,126       4,081,626       12,197,166       8,240,507  
Property taxes
    3,817,362       2,782,806       7,405,536       5,097,984  
Depreciation and amortization
    14,257,274       9,176,706       27,621,340       18,057,836  
General and administrative expenses
    2,775,877       2,727,039       5,336,729       5,494,726  
Acquisition transaction costs
    311,098       519,532       528,831       928,368  
Other expense
    130,080       186,062       346,910       154,956  
Total operating expenses
    27,226,817       19,473,771       53,436,512       37,974,377  
                                 
Operating income
    9,688,017       6,589,695       19,828,458       12,473,538  
Non-operating income (expenses)
                               
Interest expense and other finance expenses
    (6,955,781 )     (3,445,396 )     (13,829,979 )     (7,270,547 )
Equity in earnings from unconsolidated joint venture
          40,242             271,436  
Gain on sale of real estate
    3,318,526             3,318,526        
Income from continuing operations
    6,050,762       3,184,541       9,317,005       5,474,427  
Loss from discontinued operations
          (713,529 )           (713,529 )
Net income
    6,050,762       2,471,012       9,317,005       4,760,898  
Net income attributable to non-controlling interests
    (217,012 )           (351,570 )      
Net Income Attributable to Retail Opportunity Investments Corp.
  $ 5,833,750     $ 2,471,012     $ 8,965,435     $ 4,760,898  
                                 
Net earnings per share - basic:                                
Income from continuing operations
  $ 0.08     $ 0.05     $ 0.12     $ 0.09  
Loss from discontinued operations
          (0.01 )           (0.01 )
Net earnings per share (1)
  $ 0.08     $ 0.04     $ 0.12     $ 0.07  
                                 
Net income per share - diluted:                                
Income from continuing operations
  $ 0.07     $ 0.04     $ 0.12     $ 0.08  
Loss from discontinued operations
          (0.01 )           (0.01 )
Net earnings per share
  $ 0.07     $ 0.03     $ 0.12     $ 0.07  
                                 
Dividends per common share
  $ 0.16     $ 0.15     $ 0.32     $ 0.30  
                                 
Comprehensive income:
                               
Net income
  $ 6,050,762     $ 2,471,012     $ 9,317,005     $ 4,760,898  
Other comprehensive (loss) income
                               
Unrealized (loss) gain on swap derivative
                               
Unrealized swap derivative (loss) gain arising during the period
    (1,543,058 )     5,739,808       (2,926,407 )     6,062,062  
Reclassification adjustment for amortization of interest expense included in net income
    887,957       1,172,818       1,771,500       2,370,502  
Other comprehensive (loss) income
    (655,101 )     6,912,626       (1,154,907 )     8,432,564  
Comprehensive income
    5,395,661       9,383,638       8,162,098       13,193,462  
Comprehensive income attributable to non-controlling interests
    (217,012 )           (351,570 )      
Comprehensive income attributable to Retail Opportunity Investments Corp.
  $ 5,178,649     $ 9,383,638     $ 7,810,528     $ 13,193,462  
_______________________
(1) Earnings per share may not add due to rounding.
 
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
   
Retained
earnings
(Accumulated
deficit)
   
Accumulated
other
comprehensive
loss
   
Non-
controlling
interests
   
Equity
 
Balance at December 31, 2013
   
72,445,767
   
$
7,238
   
$
732,701,858
   
$
(47,616,570
)
 
$
(8,969,137
)
 
$
29,286,677
   
$
705,410,066
 
Shares issued under the 2009 Plan
   
317,671
     
32
     
(32)
     
     
     
     
 
Repurchase of common stock
   
(39,005
)
   
(4
)
   
(574,155
)
   
     
     
     
(574,159)
 
Cancellation of restricted stock units
   
(3,333)
     
     
     
     
     
     
 
Stock based compensation expense
   
     
     
1,705,742
     
     
     
     
1,705,742
 
Proceeds from the exercise of warrants
   
3,393,873
     
339
     
40,726,137
     
     
     
     
40,726,476
 
Adjustment to non-controlling interests ownership in Operating Partnership
   
     
     
(2,767,977
)
   
     
     
2,767,977
     
 
Proceeds from the issuance of common stock
   
14,375,000
     
1,438
     
214,904,813
     
     
     
     
214,906,251
 
Registration expenditures
   
     
     
(9,453,432)
     
     
     
     
(9,453,432)
 
Cash dividends ($0.32 per share/unit)
   
     
     
     
(23,942,229
)
   
     
(1,002,254)
     
(24,944,483)
 
Dividends payable to officers
   
     
     
     
(69,332
)
   
     
     
(69,332)
 
Net income attributable to Retail Opportunity Investments Corp.
   
     
     
     
8,965,435
     
     
     
8,965,435
 
Net income attributable to non-controlling interests
                           
     
     
351,570
     
351,570
 
Other comprehensive loss
   
     
     
     
     
(1,154,907
)
   
     
(1,154,907)
 
Balance at June 30, 2014
   
90,489,973
   
$
9,043
   
$
977,242,954
   
$
(62,662,696
)
 
$
(10,124,044
)
 
$
31,403,970
   
$
935,869,227
 
 
See accompanying notes to consolidated financial statements.
 
 
- 3 -

 
RETAIL OPPORTUNITY INVESTMENTS CORP.
Consolidated Statements of Cash Flow
(unaudited)
 
   
Six Months Ended June 30,
 
   
2014
   
2013
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 9,317,005     $ 4,760,898  
Adjustments to reconcile net income  to cash provided by operating activities:
               
Depreciation and amortization
    27,621,340       18,057,836  
Amortization of deferred financing costs and mortgage premiums, net
    (167,056 )     176,579  
Straight-line rent adjustment
    (648,354 )     (1,737,266 )
Amortization of above and below market rent
    (3,555,365 )     (2,045,464 )
Amortization  relating to stock based compensation
    1,705,742       1,346,155  
Provisions for tenant credit losses
    1,171,683       451,475  
Equity in earnings from unconsolidated joint venture
          (271,436 )
Other noncash interest expense
    865,301        
Gain on sale of real estate
    (3,318,526 )      
Loss on sale of discontinued operations
          713,529  
Other
          308,652  
Change in operating assets and liabilities
               
Restricted cash
    (72,097 )     (214,037 )
Tenant and other receivables
    (5,806,128 )     (1,360,807 )
Prepaid expenses
    534,690       549,838  
Accounts payable and accrued expenses
    (3,276,328 )     (1,940,459 )
Other assets and liabilities, net
    5,069,605       (1,052,625 )
Net cash provided by operating activities
    29,441,512       17,742,868  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Investments in real estate
    (322,683,558 )     (170,955,340 )
Proceeds from sale of real estate
    15,573,617       5,607,612  
Investments in mortgage notes receivables
          (294,000 )
Improvements to properties
    (6,436,173 )     (8,499,196 )
Deposits on real estate acquisitions
    750,000       (2,250,000 )
Construction escrows and other
    147,710       (145,012 )
Net cash used in investing activities
    (312,648,404 )     (176,535,936 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Principal repayments on mortgages
    (992,863 )     (712,467 )
Proceeds from draws on term loan/credit facility
    298,300,000       182,150,000  
Payments on credit facility
    (233,500,000 )     (196,000,000 )
Payment of contingent consideration
          (1,864,370 )
Proceeds from exercise of warrants
    40,911,276       220,371,366  
Payments to acquire warrants
          (21,989,860 )
Distributions to OP Unitholders
    (1,002,254 )      
Deferred financing and other costs
    (64,758 )     (122,318 )
Proceeds from the issuance of common stock
    214,906,251        
Registration expenditures
    (9,164,365 )     (34,870 )
Dividends paid to common stockholders
    (23,993,988 )     (20,746,971 )
Repurchase of common stock
    (574,159 )     (280,974 )
Retirement of options
          (274,830 )
Net cash provided by financing activities
    284,825,140       160,494,706  
Net increase in cash and cash equivalents
    1,618,248       1,701,638  
Cash and cash equivalents at beginning of period
    7,919,697       4,692,230  
Cash and cash equivalents at end of period
  $ 9,537,945     $ 6,393,868  
                 
Other non-cash investing and financing activities – increase (decrease): 
               
Assumed mortgage at fair value
  $     $ 9,670,900  
Intangible lease liabilities
  $ 35,310,821     $ 3,670,775  
Interest rate swap asset
  $ (1,166,720 )   $ 1,379,186  
Interest rate swap liabilities
  $ 853,825     $ (6,911,087 )
Proceeds receivable from exercise of warrants
  $ (184,800 )   $  
Accrued real estate improvement costs
  $ 395,894     $ 390,614  
 
See accompanying notes to consolidated financial statements.
 
 
- 4 -

 
RETAIL OPPORTUNITY INVESTMENTS PARTNERSHIP, LP
Consolidated Balance Sheets

   
June 30, 2014
(unaudited)
   
December 31, 
2013
 
ASSETS
           
Real Estate Investments:
           
Land
  $ 523,196,947     $ 458,252,028  
Building and improvements
    1,161,380,007       914,181,620  
      1,684,576,954       1,372,433,648  
Less:  accumulated depreciation
    69,716,583       57,499,980  
Real Estate Investments, net
    1,614,860,371       1,314,933,668  
Cash and cash equivalents
    9,537,945       7,919,697  
Restricted cash
    1,223,053       1,298,666  
Tenant and other receivables, net
    25,435,735       20,389,068  
Deposits
    25,000       775,000  
Acquired lease intangible assets, net of accumulated amortization
    74,316,694       55,887,471  
Prepaid expenses
    815,737       1,371,296  
Deferred charges, net of accumulated amortization
    38,315,993       33,121,980  
Other
    2,409,026       3,392,997  
Total assets
  $ 1,766,939,554     $ 1,439,089,843  
                 
LIABILITIES AND CAPITAL
               
Liabilities:
               
Term loan
  $ 200,000,000     $ 200,000,000  
Credit facility
    121,750,000       56,950,000  
Senior Notes Due 2023
    246,006,615       245,845,320  
Mortgage notes payable
    116,537,497       118,903,258  
Acquired lease intangible liabilities, net of accumulated amortization
    115,023,731       85,283,882  
Accounts payable and accrued expenses
    9,424,158       11,923,998  
Tenants’ security deposits
    3,706,544       3,422,910  
Other liabilities
    18,621,782       11,350,409  
Total liabilities
    831,070,327       733,679,777  
                 
Commitments and contingencies
           
                 
Capital:
               
Partners’ capital, unlimited partnership units authorized:
               
ROIC capital (consists of general and limited partnership interests held by ROIC)
    914,589,301       685,092,526  
Limited partners’ capital (consists of limited partnership interests held by third parties)
    31,403,970       29,286,677  
Accumulated other comprehensive loss
    (10,124,044 )     (8,969,137 )
Total capital
    935,869,227       705,410,066  
Total liabilities and capital
  $ 1,766,939,554     $ 1,439,089,843  

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 Six Months Ended
 
   
June 30,
2014
   
June 30,
2013
   
June 30,
2014
   
June 30,
2013
 
Revenues
                       
Base rents
  $ 28,134,808     $ 20,161,341     $ 55,671,712     $ 39,510,902  
Recoveries from tenants
    8,379,966       5,474,089       15,993,807       10,219,377  
Mortgage interest
          208,197             412,256  
Other income
    400,060       219,839       1,599,451       305,380  
Total revenues
    36,914,834       26,063,466       73,264,970       50,447,915  
                                 
Operating expenses
                               
Property operating
    5,935,126       4,081,626       12,197,166       8,240,507  
Property taxes
    3,817,362       2,782,806       7,405,536       5,097,984  
Depreciation and amortization
    14,257,274       9,176,706       27,621,340       18,057,836  
General and administrative expenses
    2,775,877       2,727,039       5,336,729       5,494,726  
Acquisition transaction costs
    311,098       519,532       528,831       928,368  
Other expense
    130,080       186,062       346,910       154,956  
Total operating expenses
    27,226,817       19,473,771       53,436,512       37,974,377  
                                 
Operating income
    9,688,017       6,589,695       19,828,458       12,473,538  
Non-operating income (expenses)
                               
Interest expense and other finance expenses
    (6,955,781 )     (3,445,396 )     (13,829,979 )     (7,270,547 )
Equity in earnings from unconsolidated joint venture
          40,242             271,436  
Gain on sale of real estate
    3,318,526             3,318,526        
Income from continuing operations
    6,050,762       3,184,541       9,317,005       5,474,427  
Loss from discontinued operations
          (713,529 )           (713,529 )
Net Income Attributable to Retail Opportunity Investments Partnership, LP
  $ 6,050,762     $ 2,471,012     $ 9,317,005     $ 4,760,898  
                                 
Net earnings per unit - basic:                                
Income from continuing operations
  $ 0.07     $ 0.05     $ 0.12     $ 0.09  
Loss from discontinued operations
          (0.01 )           (0.01 )
Net earnings per unit (1)
  $ 0.07     $ 0.04     $ 0.12     $ 0.07  
                                 
Net income per unit - diluted:                                
Income from continuing operations
  $ 0.07     $ 0.04     $ 0.12     $ 0.08  
Loss from discontinued operations
          (0.01 )           (0.01 )
Net earnings per unit
  $ 0.07     $ 0.03     $ 0.12     $ 0.07  
                                 
Distributions per unit
  $ 0.16     $ 0.15     $ 0.32     $ 0.30  
                                 
Comprehensive income:
                               
Net income
  $ 6,050,762     $ 2,471,012     $ 9,317,005     $ 4,760,898  
Other comprehensive (loss) income
                               
Unrealized (loss) gain on swap derivative
                               
Unrealized swap derivative (loss) gain arising during the period
    (1,543,058 )     5,739,808       (2,926,407 )     6,062,062  
Reclassification adjustment for amortization of interest expense included in net income
    887,957       1,172,818       1,771,500       2,370,502  
Other comprehensive (loss) income
    (655,101 )     6,912,626       (1,154,907 )     8,432,564  
Comprehensive income
  $ 5,395,661     $ 9,383,638     $ 8,162,098     $ 13,193,462  
_______________________
(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 Partners’ Capital
(unaudited)

   
Limited Partner’s
Capital (1)
   
ROIC Capital (2)
         
   
Units
   
Amount
   
Units
   
Amount
   
Accumulated
other
comprehensive
loss
   
Capital
 
Balance at December 31, 2013
   
3,132,042
   
$
29,286,677
     
72,445,767
   
$
685,092,526
   
$
(8,969,137
)
 
$
705,410,066
 
OP units issued under the 2009 Plan
   
     
     
317,671
     
     
     
 
Repurchase of OP Units
   
     
     
(39,005)
     
(574,159)
     
     
(574,159)
 
Cancellation of OP Units
   
     
     
(3,333)
     
     
     
 
Stock based compensation expense
   
     
     
     
1,705,742
     
     
1,705,742
 
Issuance of OP Units upon exercise of warrants
   
     
     
3,393,873
     
40,726,476
     
     
40,726,476
 
Adjustment to non-controlling interests ownership in Operating Partnership
   
     
2,767,977
     
     
(2,767,977)
     
     
 
Issuance of OP Units in connection with common stock offering
   
     
     
14,375,000
     
214,906,251
     
     
214,906,251
 
Registration expenditures
   
     
     
     
(9,453,432)
     
     
(9,453,432)
 
Cash distributions ($0.32 per unit)
   
     
(1,002,254
)
   
     
(23,942,229)
     
     
(24,944,483
)
Dividends payable to officers
   
     
     
     
(69,332)
     
     
(69,332)
 
Net income attributable to Retail Opportunity Investments Partnership, LP
   
     
351,570
     
     
8,965,435
     
     
9,317,005
 
Other comprehensive loss
   
     
     
     
     
(1,154,907)
     
(1,154,907)
 
Balance at June 30, 2014
   
3,132,042
   
$
31,403,970
     
90,489,973
   
$
914,589,301
   
$
(10,124,044
)
 
$
935,869,227
 
_______________________
(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)
 
   
Six Months Ended June 30,
 
   
2014
   
2013
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 9,317,005     $ 4,760,898  
Adjustments to reconcile net income  to cash provided by operating activities:
               
Depreciation and amortization
    27,621,340       18,057,836  
Amortization of deferred financing costs and mortgage premiums, net
    (167,056 )     176,579  
Straight-line rent adjustment
    (648,354 )     (1,737,266 )
Amortization of above and below market rent
    (3,555,365 )     (2,045,464 )
Amortization  relating to stock based compensation
    1,705,742       1,346,155  
Provisions for tenant credit losses
    1,171,683       451,475  
Equity in earnings from unconsolidated joint venture
          (271,436 )
Other noncash interest expense
    865,301        
Gain on sale of real estate
    (3,318,526 )      
Loss on sale of discontinued operations
          713,529  
Other
          308,652  
Change in operating assets and liabilities
               
Restricted cash
    (72,097 )     (214,037 )
Tenant and other receivables
    (5,806,128 )     (1,360,807 )
Prepaid expenses
    534,690       549,838  
Accounts payable and accrued expenses
    (3,276,328 )     (1,940,459 )
Other assets and liabilities, net
    5,069,605       (1,052,625 )
Net cash provided by operating activities
    29,441,512       17,742,868  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Investments in real estate
    (322,683,558 )     (170,955,340 )
Proceeds from sale of real estate
    15,573,617       5,607,612  
Investments in mortgage notes receivables
          (294,000 )
Improvements to properties
    (6,436,173 )     (8,499,196 )
Deposits on real estate acquisitions
    750,000       (2,250,000 )
Construction escrows and other
    147,710       (145,012 )
Net cash used in investing activities
    (312,648,404 )     (176,535,936 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Principal repayments on mortgages
    (992,863 )     (712,467 )
Proceeds from draws on term loan/credit facility
    298,300,000       182,150,000  
Payments on credit facility
    (233,500,000 )     (196,000,000 )
Payment of contingent consideration
          (1,864,370 )
Proceeds from the issuance of OP Units upon exercise of warrants
    40,911,276       220,371,366  
Deferred financing and other costs
    (64,758 )     (122,318 )
Proceeds from the issuance of OP Units in connection with common stock offering
    214,906,251        
Distributions to ROIC
    (9,164,365 )     (22,024,730 )
Distributions to Unitholders
    (24,996,242 )     (20,746,971 )
Repurchase of OP Units
    (574,159 )     (280,974 )
Retirement of OP Units
          (274,830 )
Net cash provided by financing activities
    284,825,140       160,494,706  
Net increase in cash and cash equivalents
    1,618,248       1,701,638  
Cash and cash equivalents at beginning of period
    7,919,697       4,692,230  
Cash and cash equivalents at end of period
  $ 9,537,945     $ 6,393,868  
                 
Other non-cash investing and financing activities – increase (decrease): 
               
Assumed mortgage at fair value
  $     $ 9,670,900  
Intangible lease liabilities
  $ 35,310,821     $ 3,670,775  
Interest rate swap asset
  $ (1,166,720 )   $ 1,379,186  
Interest rate swap liabilities
  $ 853,825     $ (6,911,087 )
Proceeds receivable from exercise of warrants
  $ (184,800 )   $  
Accrued real estate improvement costs
  $ 395,894     $ 390,614  
 
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 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.  On October 20, 2009, ROIC’s stockholders and warrantholders approved 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 (“NRDC”), which, among other things, set 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”).

Recent Accounting Pronouncements
 
In April 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) that raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation.  This guidance is effective for interim and annual periods beginning on or after December 15, 2014, with early adoption permitted.  The Company elected to early adopt the provisions of this guidance.  The adoption did not have a material impact on the Company’s consolidated financial statements.
 
In May 2014, the FASB issued ASU No. 2014-09, “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, 2016.  The Company is in the process of evaluating the impact this pronouncement will have on the Company’s consolidated financial statements.
 
 
- 9 -

 
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, 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. Results of operations for the three and six month periods ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. 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, 2013.
 
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 modify 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, stock options, warrants, 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 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, 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 had been an entity disregarded from its sole owner, ROIC, for U.S. federal income tax purposes and as such had 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 two shopping centers, Crossroads Shopping Center and Five Points Plaza.  Accordingly, the Operating Partnership ceased being a disregarded entity and instead is treated as a partnership for federal income tax purposes.    
 
 
- 10 -

 
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 June 30, 2014, the statute of limitations for the tax years 2010 through and including 2012 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 in an amount not less than its net taxable income, if and to the extent authorized by its board of directors.  If ROIC’s cash available for distribution is less than its net taxable income, 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 in the period incurred.  During the six months ended June 30, 2014 and 2013, capitalized costs related to the improvement or replacement of real estate properties were approximately $6.8 million and $8.5 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, and acquired lease intangible liabilities represent below-market leases, in the accompanying consolidated balance sheets.  The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, which value is then allocated to land, buildings and improvements based on management's determination of the relative fair values of these assets.  In valuing an acquired property's intangibles, factors considered by management include an estimate of carrying costs during the expected lease-up periods, and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand.  Management also estimates costs to execute similar leases, including leasing commissions, tenant improvements, legal and other related costs.  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, 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 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.
 
 
- 11 -

 
In conjunction with the Company's pursuit and acquisition of real estate investments, the Company expensed acquisition transaction costs during the three months ended June 30, 2014 and 2013 of approximately $311,000 and $520,000, respectively, and approximately $529,000 and $928,000 during the six months ended June 30, 2014 and 2013, respectively.
 
Regarding the Company's 2014 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.
 
Sales of real estate are recognized only when sufficient down payments have been obtained, possession and other attributes of ownership have been transferred to the buyer and the Company has no significant continuing involvement.  The application of these criteria can be complex and requires the Company to make assumptions. Management has determined that all of these criteria were met for all real estate sold during the periods presented.

In June 2014, the Company sold the Phillips Village Shopping Center, a non-core shopping center located in Pomona, California with an occupancy rate of approximately 10.4% as of May 31, 2014. The sales price of this property of approximately $16.0 million, less costs to sell, resulted in net proceeds to the Company of approximately $15.6 million.  The Company recorded a gain on sale of property of approximately $3.3 million for the three and six months ended June 30, 2014.

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 June 30, 2014.

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 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.
 
 
- 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) 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 June 30, 2014 and December 31, 2013 was approximately $3.6 million and $3.2 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 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 $15.9 million and $14.9 million, as of June 30, 2014 and December 31, 2013, respectively.
 
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 three months ended June 30, 2014 and 2013, the Company capitalized approximately $234,000 and $129,000, respectively.  During the six months ended June 30, 2014 and 2013, the Company capitalized approximately $436,000 and $316,000, 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.
 
 
- 13 -

 
During the three and six months ended June 30, 2014 and 2013 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 simultaneously with the consummation of the IPO, for the period of time these warrants were outstanding during such period, were included in the calculation of diluted EPS as the weighted average share price of ROIC’s common stock was greater than the exercise price of such warrants during these periods.  See Note 5 to the accompanying consolidated financial statements.
 
For the three and six months ended June 30, 2014 and 2013, 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 6 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:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2014
   
2013
   
2014
   
2013
 
Numerator:
                       
Income from continuing operations
  $ 6,050,762     $ 3,184,541     $ 9,317,005     $ 5,474,427  
Less income from continuing operations attributable to non-controlling interest
    (217,012 )           (351,570 )      
Less earnings allocated to unvested shares
    (45,053 )     (51,572 )     (85,705 )     (101,660 )
Income from continuing operations available for common shareholders, basic
    5,788,697       3,132,969       8,879,730       5,372,767  
Loss from discontinued operations available to common shareholders, basic
          (713,529 )           (713,529 )
Net income available for common stockholders, basic
  $ 5,788,697     $ 2,419,440     $ 8,879,730     $ 4,659,238  
                                 
Numerator:
                               
Income from continuing operations
  $ 6,050,762     $ 3,184,541     $ 9,317,005     $ 5,474,427  
Less earnings allocated to unvested shares
    (45,053 )     (51,572 )     (85,705 )     (101,660 )
Income from continuing operations available for common shareholders, diluted
    6,005,709       3,132,969       9,231,300       5,372,767  
Loss from discontinued operations available to common shareholders, diluted
          (713,529 )           (713,529 )
Net income available for common stockholders, diluted
  $ 6,005,709     $ 2,419,440     $ 9,231,300     $ 4,659,238  
                                 
Denominator:
                               
Denominator for basic EPS – weighted average common equivalent shares
    76,998,054       67,915,106       74,888,123       62,651,921  
Warrants
    819,443       2,987,628       950,776       3,667,635  
OP Units
    3,132,042             3,132,042        
Restricted stock awards – performance-based
    130,339       120,268       114,095       104,278  
Stock options
    88,326       72,090       81,463       62,367  
Denominator for diluted EPS – weighted average common equivalent shares
    81,168,204       71,095,092       79,166,499       66,486,201  

 
- 14 -

 
Earnings Per Unit

The following table sets forth the reconciliation between basic and diluted earnings per unit for the Operating Partnership:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2014
   
2013
   
2014
   
2013
 
Numerator:
                       
Income from continuing operations
  $ 6,050,762     $ 3,184,541     $ 9,317,005     $ 5,474,427  
Less earnings allocated to unvested shares
    (45,053 )     (51,572 )     (85,705 )     (101,660 )
Income from continuing operations available for unitholders, basic and diluted
    6,005,709       3,132,969       9,231,300       5,372,767  
Loss from discontinued operations available to unitholders, basic and diluted
          (713,529 )           (713,529 )
Net income available to unitholders, basic and diluted
  $ 6,005,709     $ 2,419,440     $ 9,231,300     $ 4,659,238  
                                 
Denominator:
                               
Denominator for basic earnings per unit – weighted average equivalent units
    80,130,096       67,915,106       78,020,165       62,651,921  
Warrants
    819,443       2,987,628       950,776       3,667,635  
Restricted stock awards – performance-based
    130,339       120,268       114,095       104,278  
Stock options
    88,326       72,090       81,463       62,367  
Denominator for diluted earnings per unit – weighted average equivalent units
    81,168,204       71,095,092       79,166,499       66,486,201  
 
Stock-Based Compensation
 
The Company has a stock-based employee compensation plan, which is more fully described in Note 6.
 
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 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.  Awards of performance-based grants are expensed as compensation under an accelerated method and are recognized in income regardless of the results of the performance criteria.

Derivatives
 
The Company records all derivatives on the balance sheets 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.
 
 
- 15 -

 
Segment Reporting
 
The Company’s primary business is the ownership, management, and redevelopment of retail real estate properties.  The Company reviews operating and financial information for each property on an individual basis and therefore, each property represents an individual operating segment.  The Company evaluates financial performance using property operating income, defined as operating revenues (base rent and recoveries from tenants), less property and related expenses (property operating expenses and property taxes).  No individual property constitutes more than 10% of the Company’s revenues or property operating income, and the Company has no operations outside of the United States of America.  Therefore, 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.

2.  
Real Estate Investments
 
The following real estate investment transactions have occurred during the six months ended June 30, 2014.
 
Property Acquisitions
 
On February 18, 2014, the Company acquired the property known as Tigard Marketplace located in Tigard, Oregon, within the Portland metropolitan area, for a purchase price of approximately $25.1 million.  Tigard Marketplace is approximately 137,000 square feet and is anchored by H-Mart Supermarket. The property was acquired with borrowings under the Company’s credit facility.
 
On February 28, 2014, the Company acquired the property known as Creekside Plaza located in Poway, California, within the San Diego metropolitan area, for a purchase price of approximately $44.0 million.  Creekside Plaza is approximately 129,000 square feet and is anchored by Stater Brothers Supermarket. The property was acquired with borrowings under the Company’s credit facility.
 
On April 30, 2014, the Company acquired the property known as North Park Plaza located in San Jose, California, within the San Francisco Bay Area metropolitan area, for a purchase price of approximately $27.8 million.  North Park Plaza is approximately 77,000 square feet and is anchored by SF Supermarket. The property was acquired with borrowings under the Company’s credit facility and available cash.
 
On May 22, 2014, the Company acquired the property known as Aurora Square II located in Shoreline, Washington, within the Seattle metropolitan area, for a purchase price of approximately $15.8 million.  Aurora Square II is approximately 66,000 square feet and is contiguous to an existing ROIC grocery-anchored shopping center, Aurora Square. Aurora Square II, together with Aurora Square, aggregate 104,000 square feet and is anchored by Marshall’s (Aurora Square II) and Central Supermarket (Aurora Square).  The property was acquired with borrowings under the Company’s credit facility and available cash.
 
On June 13, 2014, the Company acquired the property known as Fallbrook Shopping Center located in West Hills, California, within the Los Angeles metropolitan area, for a purchase price of approximately $210.0 million.  Fallbrook Shopping Center is approximately 1.1 million square feet of gross leasable area, or GLA, of which approximately 751,000 square feet is owned by the Company.  Key tenants include Trader Joe’s, Sprouts, Home Depot, Kohl’s, TJ Maxx, Ross Dress For Less, AMC Theaters and 24 Hour Fitness.  Fallbrook Shopping Center also features Target, Walmart and Kroger (Ralph’s) Supermarket, which occupy substantially all of the GLA not owned by the Company.  The property was acquired with borrowings under the Company’s credit facility and available cash.
 
 
- 16 -

 
The financial information set forth below summarizes the Company's preliminary estimated purchase price allocation for the properties acquired during the six months ended June 30, 2014.
 
   
June 30, 2014
 
ASSETS
     
Land
  $ 70,076,536  
Building and improvements
    252,700,222  
Acquired lease intangible asset
    26,437,437  
Deferred charges
    8,780,184  
Assets acquired
  $ 357,994,379  
LIABILITIES
       
Acquired lease intangible liability
  $ 35,310,821  
Liabilities assumed
  $ 35,310,821  

With respect to these acquisitions, 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.
 
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 six months ended June 30, 2014 and 2013, adjusted to give effect of these transactions as if they had been completed at the beginning of 2013.
 
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.
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2014
   
2013
   
2014
   
2013
 
Statement of operations:
                       
Revenues
  $ 40,424,349     $ 38,913,036     $ 82,566,068     $ 79,426,675  
Property operating and other expenses
    18,348,177       19,837,698       40,725,295       40,188,749  
Depreciation and amortization
    15,490,805       14,111,014       31,049,509       29,417,797  
Net income attributable to Retail Opportunity Investments Corp.
  $ 6,585,367     $ 4,964,324     $ 10,791,264     $ 9,820,129  

The following table summarizes the operating results included in the Company's historical consolidated statement of operations for the three and six months ended June 30, 2014, for the properties acquired during the six months ended June 30, 2014.
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30, 2014
   
June 30, 2014
 
Statement of operations:
           
Revenues
  $ 2,849,935     $ 3,391,211  
Property operating and other expenses
    986,985       1,229,835  
Depreciation and amortization
    1,471,205       1,531,026