NASDAQ:ROIC Retail Opportunity Investments Q3 2024 Earnings Report $17.51 +0.02 (+0.11%) Closing price 02/12/2025Extended Trading$17.51 0.00 (0.00%) As of 02/12/2025 04:06 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Retail Opportunity Investments EPS ResultsActual EPS$0.25Consensus EPS $0.26Beat/MissMissed by -$0.01One Year Ago EPS$0.27Retail Opportunity Investments Revenue ResultsActual Revenue$83.50 millionExpected Revenue$82.13 millionBeat/MissBeat by +$1.37 millionYoY Revenue Growth+2.50%Retail Opportunity Investments Announcement DetailsQuarterQ3 2024Date10/22/2024TimeAfter Market ClosesConference Call DateWednesday, October 23, 2024Conference Call Time9:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Retail Opportunity Investments Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 23, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Welcome to Retail Opportunity Investments Third Quarter 20 24 Conference Call. Participants are currently in a listen only mode. Following the company's prepared remarks, the call will be open for questions. Now, I would like to introduce Lauren Severia, the company's Chief Accounting Officer. Speaker 100:00:20Thank you. Please note that certain matters, which we will discuss on today's call, are forward looking statements within the meaning of federal securities laws. These forward looking statements involve risks and other factors, which can cause actual results to differ significantly from future results that are expressed or implied by such forward looking statements. Participants should refer to the company's filings with the SEC, including our most recent annual report on Form 10 ks to learn more about these risks and other factors. In addition, we will be discussing certain non GAAP financial results on today's call. Speaker 100:00:59Reconciliation of these non GAAP financial results to GAAP results can be found in the company's quarterly supplemental, which is posted on our website. Now, I'll turn the call over to Stuart Tanz, the company's Chief Executive Officer. Stuart? Speaker 200:01:14Thank you, Lauren, and good morning, everyone. Here with Lauren and me today is Michael Haynes, our Chief Financial Officer and Rich Schoebel, our Chief Operating Officer. Before we begin, over the past several months, we've received a number of questions regarding speculation in the market. As a matter of company policy, we do not comment on market rumors or speculation and will not do so today. What we will say is that the company carefully evaluates all opportunities to enhance value with the objective of taking actions that the company firmly believes are in the best interest of all stakeholders. Speaker 200:01:51Turning to the company's performance, we were pleased to report that the fundamentals of our grocery anchored shopping centers and the grocery anchored sector as well as the fundamentals of our protected supply constrained markets all remain rock solid and continue to be in our longstanding core drivers of our business. Perhaps the best evidence of this is our portfolio lease rate, which has been above 96% for the past 10 years and today stands at a strong 90 7.1%. Our ability to consistently maintain a high portfolio lease rate is underscored by the strong longstanding demand for space, which continues to come from a growing wide range of diverse tenants. Capitalizing on the demand through the 1st 9 months of 2024, we've already leased well over 1,200,000 square feet of space, including over 450,000 square feet in the 3rd quarter alone. Additionally, we continue to capitalize on the demand to enhance tenancies at every opportunity as well as to drive rents higher. Speaker 200:03:01In fact, we are currently on track to post our 12th consecutive year of achieving solid rent growth on both new and renewed leases. Along with enhancing the value of our portfolio through our leasing initiatives, we continue to implement our investment program that is aimed at enhancing the long term value of our portfolio through disposing certain fully valued properties while acquiring exceptional grocery anchored shopping centers. During the Q3, we sold 2 properties, one located in San Diego and the other located up in Seattle. While both properties were stable assets, we felt that growth prospects going forward were limited and now is the appropriate time to sell each property and capitalize on the value that we created. In terms of acquisitions, as we previously reported back in the Q2, we acquired a terrific dual grocery anchored shopping center that is situated in one of the most sought after affluent communities in the San Diego market, truly irreplaceable real estate. Speaker 200:04:04In terms of the economics, we sold the 2 properties for a total of $69,000,000 equating to a blended exit cap rate in the low 6% range. Both properties were sold to private 1031 buyers in separate transactions. With respect to the acquisition, which we sourced through a longstanding off market relationship, the purchase price was $70,000,000 equating to a going in cap rate in the high 6% range, which we've already started to increase through quickly leasing available space at the center. Going forward, we expect to grow the yield notably over the next several years through releasing below market space as well as enhancing the in line tenant mix. In addition to these transactions, we're currently exploring selling an additional property here in the Q4 and have also identified a couple of potential off market acquisition opportunities that if we decide to move forward with, we would look to close quickly, possibly before year end, given that we know both properties very well. Speaker 200:05:08Now I'll turn the call over to Michael Haines Speaker 300:05:10to take you through our financial results for the Q3. Mike? Thanks, Stuart. GAAP net income attributable to common shareholders totaled $32,100,000 for the Q3 of 2024, equating to $0.25 per diluted share. Included in GAAP net income is $26,700,000 of gain on sale from the 2 properties that we sold during the Q3. Speaker 300:05:32On a same center cash basis, net operating income for the Q3 was down slightly as we anticipated by about 2% as compared to same center NOI from the Q3 of last year, driven by lease recapture income, which was notably higher in the Q3 of last year as a result of recapturing spaces that had considerable term remaining on the leases, all of which we have since released and had significantly higher rents on average. In terms of the 1st 9 months of 2024, same center NOI increased by 1.5% as compared to the 1st 9 months of last year. With respect to funds from operations, for the Q3 FFO totaled $33,200,000 equating to $0.25 per diluted share. The 2 property sales, particularly the larger sale, which occurred early in the 3rd quarter, impacted FFO along with higher interest expense as compared to a year ago. In terms of FFO for the full year, given that through the 1st 9 months FFO totaled $0.78 per diluted share, we currently expect to finish 2024 with FFO per diluted share for the year in the $1.03 to $1.05 range. Speaker 300:06:37With respect to same center NOI growth, we continue to expect that it will be in the 1% to 2% range on a year over year basis. As we commented on our last call, our ongoing anchor releasing activity and the associated downtime between leases has muted same center NOI growth this year. As we complete the anchor releasing, looking ahead at next year, as new anchors take occupancy together with targeted re leasing opportunities in 2025, we expect same channel NOI growth will be in line with our historical average potentially stronger. Lastly, turning to our balance sheet, specifically as it relates to the $250,000,000 of senior notes that mature in December, we are closely monitoring the market and are in a position to move forward expeditiously with refinancing the bonds. Now I'll turn the call over to Rich Schoebel, our COO to discuss property operations. Speaker 300:07:25Rich? Speaker 200:07:25Thanks Mike. To expand on Stuart's comments regarding tenant demand and just how strong it is, a trend that started a few years ago, our prospective tenants submitting standing offers to lease space whenever it may come available and prospective tenants being willing to sign leases before the space is actually available continues to gain momentum across our portfolio and markets today. Additionally, like for like tenants are increasingly jumping at the chance to lease space that fits their infrastructure needs and are proactively seeking out such opportunities. All in all, demand across our grocery anchored portfolio continues to be strong and continues to come from a broad range of necessity, service and destination tenants. Turning to our leasing results. Speaker 200:08:09During the Q3, we leased over 450,000 square feet of space, the bulk of which involve renewing long standing valued tenants. And year to date, we have thus far leased over 1,200,000 square feet with over 3 fourths of that being renewal activity. The bulk of our renewal activity continues to center around anchor tenants, many of which continue to renew well ahead of their scheduled maturities. In fact, of the 6 anchor leases that we renewed during the Q3, all 6 were not scheduled to mature until next year. Furthermore, at the beginning of 2024, we had 22 anchor leases scheduled to mature next year in 2025, totaling 708,000 square feet. Speaker 200:08:53Based on our early renewal and re leasing initiatives, we now have only 10 anchor leases scheduled to mature next year totaling just 317,000 square feet. And based on our discussions today with these tenants, we currently expect that all 10 will renew. With respect to releasing rent growth, as Stuart indicated, we continue to have good success at driving rents higher. Specifically, during the Q3, we achieved a 14% cash increase on new leasing activity on a same space comparative basis and a 7% increase on a renewal activity. In terms of Rite Aid, as recently reported, they are now moving forward as a private company with new leadership. Speaker 200:09:33With respect to the 11 Rite Aid stores in our portfolio, all 11 leases have been extended for another 5 years on average, maintaining the previous in place base rents. As part of extending the leases, some additional TIs were provided on our part to be put towards the repositioning initiatives, which is reflected in our Q3 leasing statistics table. In terms of the 4 Rite Aid stores that we recaptured, the new tenants that we signed to replace Rite Aid are already underway with their respective build out plans and these new tenants base rent is over 20% higher on average from what Rite Aid had been paying before. Lastly, we continue to have good success with getting new tenants open and operating. At the beginning of 2024, newly signed tenants representing about $7,000,000 of incremental base rent on a cash basis had not yet opened their businesses and commenced paying rent. Speaker 200:10:26Of that 7,000,000 year to date approximately 4,600,000 of that are now open and paying rent, including 1,400,000 that opened during the Q3. And while 4,600,000 of incremental rent has opened, given their strong leasing activity, new leases that we have signed year to date have added $5,900,000 of additional incremental rent, including $2,400,000 from new leases that we have signed during the Q3. Taking all of this activity into account, as of September 30, total incremental rent from new leases that haven't yet commenced stood at approximately $8,200,000 Now I'll turn the call back over to Stuart. Thanks, Rich. As we move forward, wrapping up 2024, we expect to have an active and productive Q4. Speaker 200:11:16On the leasing front, we are on track thus far to have another successful quarter. We are certainly moving towards completing the anchor releasing initiative that we commenced earlier in the year, the largest being the releasing of the coal space at Fallbrook. Once the releasing is complete, we expect that our anchor space will again be at 100% leased as it has been for the previous 7 years in a row and we expect that will bring our overall portfolio lease to up lease rate to around 98% again. Additionally, we expect that our anchor release initiative will add over $2,000,000 of additional incremental long term annual revenue. Looking ahead at 2025, as Rich comment, currently expect all of our anchor leases that are scheduled to mature next year will renew. Speaker 200:12:06Several of those have no further renewal options and are notably below market. In addition to leasing, as Mike noted, we will be refinancing the $250,000,000 of maturing bonds, which we expect to do in the coming weeks. Lastly, as I touched on earlier, we are currently looking at several interesting opportunities to continue advancing our investment capital recycling initiatives. From our perspective, selling certain fully valued properties with limited growth going forward, while at the same time acquiring through off market sources irreplaceable assets like our recent acquisition, no doubt enhances the long term strength and appeal of our overall portfolio, as well as our ability to continue growing cash flow and building value well into the future. Before taking questions, as I stated at the beginning of the call, as a matter of company policy, we do not comment on market rumors or speculation. Speaker 200:13:05We ask that you please refrain from questions along those lines. With that, operator, please open up the call for your questions. Operator00:13:17Thank Our first question for the day will be coming from Dore Keeson of Wells Fargo Securities. Your line is open. Speaker 200:13:48Good morning, Dore. Speaker 400:13:50Good morning. You mentioned refinancing your bonds in the next few weeks. Do you still expect to include the term loan with that? And then just on pricing, I think you previously mentioned expect like in the high fives. Is that still appropriate? Speaker 300:14:07Yes. Hi, Dorek, it's Mike. Yes, we do would expect to include the term loan as part of the whole refinancing initiative on the bonds. That's our goal. And the tenure is bouncing around a little bit, but we expect to price somewhere probably in the mid-5.5 percent range. Speaker 400:14:22Okay. And then you've talked about your same store NOI returning to a 3% to 4% growth rate. Would you call that a 26% expectation just taking into account store openings in mid-twenty 5 which I would assume would put your 25% growth closer to the, I don't know, 2%, 2.5% range? Speaker 300:14:44That's I don't know if it's necessarily 26% of that. I expect 25 to be notably higher than this year, simply because we're some of those anchors are going to be into paying earlier in the year as I expect. Stuart, if you can comment on that, but I would expect 25 to be obviously higher than 24. We're just coming off of a measure from last year. So 25 versus 24 should be returning to normal. Speaker 400:15:07Okay. Thank you very much. Operator00:15:11Thank you. One moment for our next question. And our next question will be coming from Juan Sanabrea of BNP Capital Markets. Speaker 200:15:24Good morning, Juan. Speaker 500:15:26Good morning. Maybe just as a first question, just curious on what drove the higher G and A expected outlays for the year? It's Speaker 300:15:41basically, on its comp related, the performance based shares based on when you think the measurements you're going to achieve, you have to adjust that every quarter based on expectations. And this quarter, we had to adjust that up a little bit. Speaker 500:15:55Okay. And then just on the transactions market, you talked a little bit about some of the cap rates for the most recent transactions, but hoping you could give us a sense of where the assets that you may sell and buy in the Q4 or early into 2025 are being valued? Or if you could comment in general on where you see asset values from a cap rate perspective in your website? Sure. Speaker 200:16:26Yes. I mean, look, I think as we all know, the acquisition market has ebbed and flowed as it relates to the 10 year. We saw some pickup in activity over the last quarter, cap rates dropping 25, 50 basis points. Now that the 10 years moved up a bit, I'm expecting the market potentially to slow down a touch, but continue with the momentum that we saw over the last quarter in terms of more activity. From a cap rate perspective, you're looking on the West Coast for high quality grocery anchored assets. Speaker 200:17:03What we see what's trading more recently would be in the high fives, low 6s. So we continue to hope that we can sell assets as we've done over the last several quarters and again in that high five, low 6 range and continue to buy off market transactions at 6% or higher, towards that mid-six percent range so that we're churning the capital, as you would say, accretively. Speaker 500:17:31Thank you very much. Operator00:17:34Thank you. One moment for the next question. And our next question will be coming from Craig Mailman. Speaker 200:17:46Good morning, Craig. Your line Speaker 500:17:47is open. Hey, good morning guys. Just on the acquisition market, I think more recently, when we were with you guys, you had mentioned some OP unit deals potentially coming back into the mix. Is that still on the table at all? Or should we just consider you guys need to sell kind of 50, 75 basis points inside to continue to buy on the capital recycling? Speaker 200:18:15Well, we continue to pursue on the acquisition front two things. Obviously, with the relationships we have on the West Coast, we continue to pursue OP transactions as well as straight purchases. But as we look forward into the Q4 and into 2025, we do think that we've identified more opportunities, to buy assets. And as we continue to build the pipeline, we will continue to sell assets so that it's not having any impact in terms of raising any equity or our balance sheet. Speaker 500:18:56Okay. And then just on Fallbrook, any update on when that lease could be signed? Speaker 200:19:05Sure. Yes. We continue to work on finalizing the lease with the prospective tenant, which is a national long time tenant of ours. We have our goal is to have this process completed and the lease executed before the end of the year. Speaker 500:19:20Great. Thank you. Operator00:19:23Thank you. One moment for the next question. And our next question will be coming from Todd Thomas of KeyBanc Capital Markets. Your line is open. Speaker 200:19:35Good morning, Todd. Good morning, Todd. Speaker 600:19:38Hi, thanks. Good morning. Stuart, I'm not asking about the speculation itself, but the stock reacted to that and has held at higher levels. It's up almost 16% on the year. And so whether your AFFO yield or implied cap rate, your cost of capital has improved quite a bit. Speaker 600:19:57You talked about seeing some potential acquisitions. I'm just curious when is the right time to perhaps be in the market to raise equity capital, maybe use the ATM to take advantage of your improved cost of capital and put some of that capital to work? Speaker 200:20:16Yes. I mean, look, the focus has been the balance sheet with debt coming due in terms of making sure that we continue to focus on those metrics as we move through the balance of the year and into early next year, Todd. So I don't think we're going to be looking to the equity markets in terms of raising capital. The focus now is really on churning our capital and focusing on keeping our balance sheet in check and more importantly, continuing to work on the metrics around going back to the market when the time is right to refinance the debt that's coming due. Speaker 600:20:53Okay. And Michael, was there any consideration to entering into new swap agreements or refinancing the $450,000,000 of combined December and January maturities over the last several weeks? The yield curves bounce quite a bit off the bottom. Just curious on the decision to hold off and the timing around all of that? Speaker 300:21:22Well, we allowed the wind swaps to mature in August kind of consistent with the expectation of timing of new refinancing. Obviously, the goal is to do both the 2024s and the term loan. And to enter into a swap now, we're just kind of muddy that up a little bit because we're expecting the goal is to go back to the bond market in the near term. So it didn't make sense to do a swap currently. Speaker 600:21:46Okay. And just one more if I could. So bad debt, you're at $1,600,000 for the year. The $3,000,000 for the full year in the revised guidance implies a considerable pickup in the Q4. Is there anything that you're eyeing specifically that might hit in the last quarter of the year? Speaker 600:22:09We're almost through October. I'm just curious if you can comment on that and the general health of the tenant base today? Speaker 300:22:15I think the tenant base is pretty healthy. We're just being continuing to be cautiously conservative on the bad debt guidance. Nothing in particular. Speaker 600:22:28Okay. All right. Thank you. Operator00:22:31Thank you. One moment for the next question. And our next question will be coming from Nicholas Demlin of Baird. Your line is open. Speaker 200:22:43Good morning, Nick. Speaker 700:22:46This is actually Wes. Hey, good morning, everyone. Speaker 200:22:48Hey, Wes. Speaker 700:22:50Yes, I guess this whole auto dial in is picked up Nick for you. Okay, quick question for you on Fallbrook. You said you're looking to have a lease sign there. And when can you have that tenant opened and you're still looking at a pretty big box split there? Speaker 200:23:07Yes, there's still well, the box that need to be split, but significant work needs to be done to the box to accommodate the needs of the tenant. And so we would expect that that would be completed next year and the tenant opening either very late next year or the 1st part of 2026. Speaker 700:23:23Okay. And then you have that comment about tenants are eyeing space before a tenant actually moves out. Would you look to increase your recaptures? And was that mainly an anchor comment? Speaker 200:23:34No. I mean, we have there's other opportunities out there. Some we recaptured a couple of pads at the end of last year, which we've released at significantly higher rents this year. And so there's opportunities sort of embedded throughout the portfolio. The timing of when you can access them, that depends. Speaker 200:23:55But we're eyeing opportunities throughout the portfolio in ShopSpace and Anchor. Speaker 700:24:00Okay. And then one final one on the balance sheet. With the long term yield start to rise, would you maybe pivot to a term loan? Speaker 300:24:09We've given us some consideration that I'd have to talk to my banking group about the appetite on the bank side for term loans. I think that's come back a little bit lately. That's always one of the considerations for sure. Speaker 700:24:21Okay. Thanks everyone. Speaker 200:24:22Thank you. Thank you. Operator00:24:25Thank you. One moment for the next question. And our next question will be coming from the line of Michael Mueller of JPMorgan. Your line is open. Speaker 200:24:38Yes. Good morning, Michael. Speaker 800:24:40Hey, good morning. Just curious, what actually what exactly drove the FFO guidance reduction considering that there wasn't a change in the same store NOI expectation and the other adjustments seem to kind of wash each other out? Speaker 300:24:55Acquisitions. Yes. Well, hey, Mike. Aside from interest expense, the one main variable that's always a bit of a challenge in terms of gauging where actual results will shake out versus our budget as we head towards year end is property level NOI, which is driven in part by our leasing activity. So if leasing is in line with our 4th quarter budget, we would expect to end up in the middle of our range. Speaker 500:25:16Got it. Speaker 800:25:18Okay. And then just out of curiosity, like in terms of general question here, when you're looking at your renewal leasing, what portion of your renewal leasing, if we look either for the Q3 year to date, is tied to fixed renewals versus just kind of going straight to market? Speaker 200:25:35Yes. It's Rich. I don't have a specific number here in front of me, but it really varies from quarter to quarter based on the lease that's expiring. There's definitely several leases coming up, some anchor leases that don't have any options remaining. We will expect to get those leases up to market. Speaker 200:25:52But it's hard to give you a specific percentage because all the leases are varied. Speaker 800:26:00Okay. Appreciate it. Thank you. Operator00:26:04Thank you. One moment for the next question. And our next question will be coming from the line of Paulina Rojas Smith of Green Street. Your line is open. Speaker 200:26:16Good morning. Good morning. Speaker 900:26:19Good morning. And what percentage of your assets would you say that fit this description of stable properties with limited growth ahead that you would be inclined to recycle? Speaker 200:26:35Well, it's tough to get I mean, from a percentage perspective, we've identified probably right now about 5, 6 assets that would move to market sooner than later as it relates to the profile of its NOI growth. We still have a couple of assets that are on the table to sell that. We have had the opportunity to be tenant more recently that aren't grocery anchored. Those are at the top of the list. And we were lucky enough. Speaker 200:27:14One of them was a Rite Aid that we leased to a national tenant that should be coming online within the next 3 to 4 months. That's the type of asset we're focused on now selling. So as we come through the portfolio as we do often, probably 5 or 6 assets is probably what we're looking at as we look into 2025. Speaker 900:27:37That's helpful. And out of curiosity, can you share what retailers have taken the space formerly occupied by Rite Aid? Speaker 200:27:46The Rite Aid spaces, Paulina? Speaker 900:27:48Yes, yes, correct. Speaker 200:27:50Yes. So we have Dollar Tree has taken a piece of one space. We have a swim school. We have a salon suites tenant and we have a grocer and a auto parts. Speaker 900:28:06Okay. Very diverse. And my last question is some restaurants have been recently on the news showing weakness. And I know your concentration to restaurants is mainly in quick service. But how much would you say is local versus national credit? Speaker 200:28:31I don't have a specific number here in front of me or a percentage, but probably, I don't know, Stuart, would you say 50% is local credit for restaurant? Yes. About 15%. And sales continue to be quite strong, only on the West Coast as it relates to the whole category Speaker 300:28:50in terms of our portfolio. Speaker 200:28:52But as you touch on, we haven't had the exposure to the tenants that you're seeing in the headlines. In fact, most of them we don't have any exposure to. Speaker 900:29:00Correct. Okay. Thank you very much. Speaker 200:29:04Yes. Operator00:29:06Thank you. And that concludes the Q and A session for today. I would like to turn the call over to Stuart for closing remarks. Please go ahead. Speaker 200:29:15Hi. In closing, thanks to all of you for joining us today. As always, we appreciate your interest in ROIC. If you have any additional questions, please contact Lauren, Mike, Rich or me directly. Also, you can find additional information in the company's quarterly supplemental package, which is posted on our website as well as our 10 Q. Speaker 200:29:36Lastly, for those of you who are attending NAREIT conference in Las Vegas in a few weeks, we look forward to seeing you there. Thanks again and have a great day everyone. Operator00:29:47This concludes today's conference call. Thank you all for participating. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallRetail Opportunity Investments Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Retail Opportunity Investments Earnings HeadlinesRetail Opportunity Investments (ROIC) Projected to Post Earnings on MondayApril 19, 2025 | americanbankingnews.comNewmark Advises Blackstone in $4B Privatization of Retail Opportunity Investments Corp.February 14, 2025 | investing.comTrump’s treachery Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.April 25, 2025 | Porter & Company (Ad)Acushnet Holdings stock rises on inclusion in S&P SmallCap 600February 11, 2025 | msn.comAcushnet Holdings to replace Retail Opportunity in S&P 600 at open on 2/13February 11, 2025 | markets.businessinsider.comRetail Opportunity Investments Corp (ROIC) to Exit S&P SmallCap 600 Following Acquisition ...February 10, 2025 | gurufocus.comSee More Retail Opportunity Investments Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Retail Opportunity Investments? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Retail Opportunity Investments and other key companies, straight to your email. Email Address About Retail Opportunity InvestmentsRetail Opportunity Investments (NASDAQ:ROIC) (Nasdaq: ROIC), is a fully integrated, self-managed real estate investment trust (REIT) that specializes in the acquisition, ownership and management of grocery-anchored shopping centers located in densely populated, metropolitan markets across the West Coast. As of December 31, 2023, ROIC owned 94 shopping centers encompassing approximately 10.6 million square feet. ROIC is the largest publicly-traded, grocery-anchored shopping center REIT focused exclusively on the West Coast. ROIC is a member of the S&P SmallCap 600 Index and has investment-grade corporate debt ratings from Moody's Investor Services, S&P Global Ratings and Fitch Ratings, Inc.View Retail Opportunity Investments ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step InWhy It May Be Time to Buy CrowdStrike Stock Heading Into EarningsCan IBM’s Q1 Earnings Spark a Breakout for the Stock? 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There are 10 speakers on the call. Operator00:00:00Welcome to Retail Opportunity Investments Third Quarter 20 24 Conference Call. Participants are currently in a listen only mode. Following the company's prepared remarks, the call will be open for questions. Now, I would like to introduce Lauren Severia, the company's Chief Accounting Officer. Speaker 100:00:20Thank you. Please note that certain matters, which we will discuss on today's call, are forward looking statements within the meaning of federal securities laws. These forward looking statements involve risks and other factors, which can cause actual results to differ significantly from future results that are expressed or implied by such forward looking statements. Participants should refer to the company's filings with the SEC, including our most recent annual report on Form 10 ks to learn more about these risks and other factors. In addition, we will be discussing certain non GAAP financial results on today's call. Speaker 100:00:59Reconciliation of these non GAAP financial results to GAAP results can be found in the company's quarterly supplemental, which is posted on our website. Now, I'll turn the call over to Stuart Tanz, the company's Chief Executive Officer. Stuart? Speaker 200:01:14Thank you, Lauren, and good morning, everyone. Here with Lauren and me today is Michael Haynes, our Chief Financial Officer and Rich Schoebel, our Chief Operating Officer. Before we begin, over the past several months, we've received a number of questions regarding speculation in the market. As a matter of company policy, we do not comment on market rumors or speculation and will not do so today. What we will say is that the company carefully evaluates all opportunities to enhance value with the objective of taking actions that the company firmly believes are in the best interest of all stakeholders. Speaker 200:01:51Turning to the company's performance, we were pleased to report that the fundamentals of our grocery anchored shopping centers and the grocery anchored sector as well as the fundamentals of our protected supply constrained markets all remain rock solid and continue to be in our longstanding core drivers of our business. Perhaps the best evidence of this is our portfolio lease rate, which has been above 96% for the past 10 years and today stands at a strong 90 7.1%. Our ability to consistently maintain a high portfolio lease rate is underscored by the strong longstanding demand for space, which continues to come from a growing wide range of diverse tenants. Capitalizing on the demand through the 1st 9 months of 2024, we've already leased well over 1,200,000 square feet of space, including over 450,000 square feet in the 3rd quarter alone. Additionally, we continue to capitalize on the demand to enhance tenancies at every opportunity as well as to drive rents higher. Speaker 200:03:01In fact, we are currently on track to post our 12th consecutive year of achieving solid rent growth on both new and renewed leases. Along with enhancing the value of our portfolio through our leasing initiatives, we continue to implement our investment program that is aimed at enhancing the long term value of our portfolio through disposing certain fully valued properties while acquiring exceptional grocery anchored shopping centers. During the Q3, we sold 2 properties, one located in San Diego and the other located up in Seattle. While both properties were stable assets, we felt that growth prospects going forward were limited and now is the appropriate time to sell each property and capitalize on the value that we created. In terms of acquisitions, as we previously reported back in the Q2, we acquired a terrific dual grocery anchored shopping center that is situated in one of the most sought after affluent communities in the San Diego market, truly irreplaceable real estate. Speaker 200:04:04In terms of the economics, we sold the 2 properties for a total of $69,000,000 equating to a blended exit cap rate in the low 6% range. Both properties were sold to private 1031 buyers in separate transactions. With respect to the acquisition, which we sourced through a longstanding off market relationship, the purchase price was $70,000,000 equating to a going in cap rate in the high 6% range, which we've already started to increase through quickly leasing available space at the center. Going forward, we expect to grow the yield notably over the next several years through releasing below market space as well as enhancing the in line tenant mix. In addition to these transactions, we're currently exploring selling an additional property here in the Q4 and have also identified a couple of potential off market acquisition opportunities that if we decide to move forward with, we would look to close quickly, possibly before year end, given that we know both properties very well. Speaker 200:05:08Now I'll turn the call over to Michael Haines Speaker 300:05:10to take you through our financial results for the Q3. Mike? Thanks, Stuart. GAAP net income attributable to common shareholders totaled $32,100,000 for the Q3 of 2024, equating to $0.25 per diluted share. Included in GAAP net income is $26,700,000 of gain on sale from the 2 properties that we sold during the Q3. Speaker 300:05:32On a same center cash basis, net operating income for the Q3 was down slightly as we anticipated by about 2% as compared to same center NOI from the Q3 of last year, driven by lease recapture income, which was notably higher in the Q3 of last year as a result of recapturing spaces that had considerable term remaining on the leases, all of which we have since released and had significantly higher rents on average. In terms of the 1st 9 months of 2024, same center NOI increased by 1.5% as compared to the 1st 9 months of last year. With respect to funds from operations, for the Q3 FFO totaled $33,200,000 equating to $0.25 per diluted share. The 2 property sales, particularly the larger sale, which occurred early in the 3rd quarter, impacted FFO along with higher interest expense as compared to a year ago. In terms of FFO for the full year, given that through the 1st 9 months FFO totaled $0.78 per diluted share, we currently expect to finish 2024 with FFO per diluted share for the year in the $1.03 to $1.05 range. Speaker 300:06:37With respect to same center NOI growth, we continue to expect that it will be in the 1% to 2% range on a year over year basis. As we commented on our last call, our ongoing anchor releasing activity and the associated downtime between leases has muted same center NOI growth this year. As we complete the anchor releasing, looking ahead at next year, as new anchors take occupancy together with targeted re leasing opportunities in 2025, we expect same channel NOI growth will be in line with our historical average potentially stronger. Lastly, turning to our balance sheet, specifically as it relates to the $250,000,000 of senior notes that mature in December, we are closely monitoring the market and are in a position to move forward expeditiously with refinancing the bonds. Now I'll turn the call over to Rich Schoebel, our COO to discuss property operations. Speaker 300:07:25Rich? Speaker 200:07:25Thanks Mike. To expand on Stuart's comments regarding tenant demand and just how strong it is, a trend that started a few years ago, our prospective tenants submitting standing offers to lease space whenever it may come available and prospective tenants being willing to sign leases before the space is actually available continues to gain momentum across our portfolio and markets today. Additionally, like for like tenants are increasingly jumping at the chance to lease space that fits their infrastructure needs and are proactively seeking out such opportunities. All in all, demand across our grocery anchored portfolio continues to be strong and continues to come from a broad range of necessity, service and destination tenants. Turning to our leasing results. Speaker 200:08:09During the Q3, we leased over 450,000 square feet of space, the bulk of which involve renewing long standing valued tenants. And year to date, we have thus far leased over 1,200,000 square feet with over 3 fourths of that being renewal activity. The bulk of our renewal activity continues to center around anchor tenants, many of which continue to renew well ahead of their scheduled maturities. In fact, of the 6 anchor leases that we renewed during the Q3, all 6 were not scheduled to mature until next year. Furthermore, at the beginning of 2024, we had 22 anchor leases scheduled to mature next year in 2025, totaling 708,000 square feet. Speaker 200:08:53Based on our early renewal and re leasing initiatives, we now have only 10 anchor leases scheduled to mature next year totaling just 317,000 square feet. And based on our discussions today with these tenants, we currently expect that all 10 will renew. With respect to releasing rent growth, as Stuart indicated, we continue to have good success at driving rents higher. Specifically, during the Q3, we achieved a 14% cash increase on new leasing activity on a same space comparative basis and a 7% increase on a renewal activity. In terms of Rite Aid, as recently reported, they are now moving forward as a private company with new leadership. Speaker 200:09:33With respect to the 11 Rite Aid stores in our portfolio, all 11 leases have been extended for another 5 years on average, maintaining the previous in place base rents. As part of extending the leases, some additional TIs were provided on our part to be put towards the repositioning initiatives, which is reflected in our Q3 leasing statistics table. In terms of the 4 Rite Aid stores that we recaptured, the new tenants that we signed to replace Rite Aid are already underway with their respective build out plans and these new tenants base rent is over 20% higher on average from what Rite Aid had been paying before. Lastly, we continue to have good success with getting new tenants open and operating. At the beginning of 2024, newly signed tenants representing about $7,000,000 of incremental base rent on a cash basis had not yet opened their businesses and commenced paying rent. Speaker 200:10:26Of that 7,000,000 year to date approximately 4,600,000 of that are now open and paying rent, including 1,400,000 that opened during the Q3. And while 4,600,000 of incremental rent has opened, given their strong leasing activity, new leases that we have signed year to date have added $5,900,000 of additional incremental rent, including $2,400,000 from new leases that we have signed during the Q3. Taking all of this activity into account, as of September 30, total incremental rent from new leases that haven't yet commenced stood at approximately $8,200,000 Now I'll turn the call back over to Stuart. Thanks, Rich. As we move forward, wrapping up 2024, we expect to have an active and productive Q4. Speaker 200:11:16On the leasing front, we are on track thus far to have another successful quarter. We are certainly moving towards completing the anchor releasing initiative that we commenced earlier in the year, the largest being the releasing of the coal space at Fallbrook. Once the releasing is complete, we expect that our anchor space will again be at 100% leased as it has been for the previous 7 years in a row and we expect that will bring our overall portfolio lease to up lease rate to around 98% again. Additionally, we expect that our anchor release initiative will add over $2,000,000 of additional incremental long term annual revenue. Looking ahead at 2025, as Rich comment, currently expect all of our anchor leases that are scheduled to mature next year will renew. Speaker 200:12:06Several of those have no further renewal options and are notably below market. In addition to leasing, as Mike noted, we will be refinancing the $250,000,000 of maturing bonds, which we expect to do in the coming weeks. Lastly, as I touched on earlier, we are currently looking at several interesting opportunities to continue advancing our investment capital recycling initiatives. From our perspective, selling certain fully valued properties with limited growth going forward, while at the same time acquiring through off market sources irreplaceable assets like our recent acquisition, no doubt enhances the long term strength and appeal of our overall portfolio, as well as our ability to continue growing cash flow and building value well into the future. Before taking questions, as I stated at the beginning of the call, as a matter of company policy, we do not comment on market rumors or speculation. Speaker 200:13:05We ask that you please refrain from questions along those lines. With that, operator, please open up the call for your questions. Operator00:13:17Thank Our first question for the day will be coming from Dore Keeson of Wells Fargo Securities. Your line is open. Speaker 200:13:48Good morning, Dore. Speaker 400:13:50Good morning. You mentioned refinancing your bonds in the next few weeks. Do you still expect to include the term loan with that? And then just on pricing, I think you previously mentioned expect like in the high fives. Is that still appropriate? Speaker 300:14:07Yes. Hi, Dorek, it's Mike. Yes, we do would expect to include the term loan as part of the whole refinancing initiative on the bonds. That's our goal. And the tenure is bouncing around a little bit, but we expect to price somewhere probably in the mid-5.5 percent range. Speaker 400:14:22Okay. And then you've talked about your same store NOI returning to a 3% to 4% growth rate. Would you call that a 26% expectation just taking into account store openings in mid-twenty 5 which I would assume would put your 25% growth closer to the, I don't know, 2%, 2.5% range? Speaker 300:14:44That's I don't know if it's necessarily 26% of that. I expect 25 to be notably higher than this year, simply because we're some of those anchors are going to be into paying earlier in the year as I expect. Stuart, if you can comment on that, but I would expect 25 to be obviously higher than 24. We're just coming off of a measure from last year. So 25 versus 24 should be returning to normal. Speaker 400:15:07Okay. Thank you very much. Operator00:15:11Thank you. One moment for our next question. And our next question will be coming from Juan Sanabrea of BNP Capital Markets. Speaker 200:15:24Good morning, Juan. Speaker 500:15:26Good morning. Maybe just as a first question, just curious on what drove the higher G and A expected outlays for the year? It's Speaker 300:15:41basically, on its comp related, the performance based shares based on when you think the measurements you're going to achieve, you have to adjust that every quarter based on expectations. And this quarter, we had to adjust that up a little bit. Speaker 500:15:55Okay. And then just on the transactions market, you talked a little bit about some of the cap rates for the most recent transactions, but hoping you could give us a sense of where the assets that you may sell and buy in the Q4 or early into 2025 are being valued? Or if you could comment in general on where you see asset values from a cap rate perspective in your website? Sure. Speaker 200:16:26Yes. I mean, look, I think as we all know, the acquisition market has ebbed and flowed as it relates to the 10 year. We saw some pickup in activity over the last quarter, cap rates dropping 25, 50 basis points. Now that the 10 years moved up a bit, I'm expecting the market potentially to slow down a touch, but continue with the momentum that we saw over the last quarter in terms of more activity. From a cap rate perspective, you're looking on the West Coast for high quality grocery anchored assets. Speaker 200:17:03What we see what's trading more recently would be in the high fives, low 6s. So we continue to hope that we can sell assets as we've done over the last several quarters and again in that high five, low 6 range and continue to buy off market transactions at 6% or higher, towards that mid-six percent range so that we're churning the capital, as you would say, accretively. Speaker 500:17:31Thank you very much. Operator00:17:34Thank you. One moment for the next question. And our next question will be coming from Craig Mailman. Speaker 200:17:46Good morning, Craig. Your line Speaker 500:17:47is open. Hey, good morning guys. Just on the acquisition market, I think more recently, when we were with you guys, you had mentioned some OP unit deals potentially coming back into the mix. Is that still on the table at all? Or should we just consider you guys need to sell kind of 50, 75 basis points inside to continue to buy on the capital recycling? Speaker 200:18:15Well, we continue to pursue on the acquisition front two things. Obviously, with the relationships we have on the West Coast, we continue to pursue OP transactions as well as straight purchases. But as we look forward into the Q4 and into 2025, we do think that we've identified more opportunities, to buy assets. And as we continue to build the pipeline, we will continue to sell assets so that it's not having any impact in terms of raising any equity or our balance sheet. Speaker 500:18:56Okay. And then just on Fallbrook, any update on when that lease could be signed? Speaker 200:19:05Sure. Yes. We continue to work on finalizing the lease with the prospective tenant, which is a national long time tenant of ours. We have our goal is to have this process completed and the lease executed before the end of the year. Speaker 500:19:20Great. Thank you. Operator00:19:23Thank you. One moment for the next question. And our next question will be coming from Todd Thomas of KeyBanc Capital Markets. Your line is open. Speaker 200:19:35Good morning, Todd. Good morning, Todd. Speaker 600:19:38Hi, thanks. Good morning. Stuart, I'm not asking about the speculation itself, but the stock reacted to that and has held at higher levels. It's up almost 16% on the year. And so whether your AFFO yield or implied cap rate, your cost of capital has improved quite a bit. Speaker 600:19:57You talked about seeing some potential acquisitions. I'm just curious when is the right time to perhaps be in the market to raise equity capital, maybe use the ATM to take advantage of your improved cost of capital and put some of that capital to work? Speaker 200:20:16Yes. I mean, look, the focus has been the balance sheet with debt coming due in terms of making sure that we continue to focus on those metrics as we move through the balance of the year and into early next year, Todd. So I don't think we're going to be looking to the equity markets in terms of raising capital. The focus now is really on churning our capital and focusing on keeping our balance sheet in check and more importantly, continuing to work on the metrics around going back to the market when the time is right to refinance the debt that's coming due. Speaker 600:20:53Okay. And Michael, was there any consideration to entering into new swap agreements or refinancing the $450,000,000 of combined December and January maturities over the last several weeks? The yield curves bounce quite a bit off the bottom. Just curious on the decision to hold off and the timing around all of that? Speaker 300:21:22Well, we allowed the wind swaps to mature in August kind of consistent with the expectation of timing of new refinancing. Obviously, the goal is to do both the 2024s and the term loan. And to enter into a swap now, we're just kind of muddy that up a little bit because we're expecting the goal is to go back to the bond market in the near term. So it didn't make sense to do a swap currently. Speaker 600:21:46Okay. And just one more if I could. So bad debt, you're at $1,600,000 for the year. The $3,000,000 for the full year in the revised guidance implies a considerable pickup in the Q4. Is there anything that you're eyeing specifically that might hit in the last quarter of the year? Speaker 600:22:09We're almost through October. I'm just curious if you can comment on that and the general health of the tenant base today? Speaker 300:22:15I think the tenant base is pretty healthy. We're just being continuing to be cautiously conservative on the bad debt guidance. Nothing in particular. Speaker 600:22:28Okay. All right. Thank you. Operator00:22:31Thank you. One moment for the next question. And our next question will be coming from Nicholas Demlin of Baird. Your line is open. Speaker 200:22:43Good morning, Nick. Speaker 700:22:46This is actually Wes. Hey, good morning, everyone. Speaker 200:22:48Hey, Wes. Speaker 700:22:50Yes, I guess this whole auto dial in is picked up Nick for you. Okay, quick question for you on Fallbrook. You said you're looking to have a lease sign there. And when can you have that tenant opened and you're still looking at a pretty big box split there? Speaker 200:23:07Yes, there's still well, the box that need to be split, but significant work needs to be done to the box to accommodate the needs of the tenant. And so we would expect that that would be completed next year and the tenant opening either very late next year or the 1st part of 2026. Speaker 700:23:23Okay. And then you have that comment about tenants are eyeing space before a tenant actually moves out. Would you look to increase your recaptures? And was that mainly an anchor comment? Speaker 200:23:34No. I mean, we have there's other opportunities out there. Some we recaptured a couple of pads at the end of last year, which we've released at significantly higher rents this year. And so there's opportunities sort of embedded throughout the portfolio. The timing of when you can access them, that depends. Speaker 200:23:55But we're eyeing opportunities throughout the portfolio in ShopSpace and Anchor. Speaker 700:24:00Okay. And then one final one on the balance sheet. With the long term yield start to rise, would you maybe pivot to a term loan? Speaker 300:24:09We've given us some consideration that I'd have to talk to my banking group about the appetite on the bank side for term loans. I think that's come back a little bit lately. That's always one of the considerations for sure. Speaker 700:24:21Okay. Thanks everyone. Speaker 200:24:22Thank you. Thank you. Operator00:24:25Thank you. One moment for the next question. And our next question will be coming from the line of Michael Mueller of JPMorgan. Your line is open. Speaker 200:24:38Yes. Good morning, Michael. Speaker 800:24:40Hey, good morning. Just curious, what actually what exactly drove the FFO guidance reduction considering that there wasn't a change in the same store NOI expectation and the other adjustments seem to kind of wash each other out? Speaker 300:24:55Acquisitions. Yes. Well, hey, Mike. Aside from interest expense, the one main variable that's always a bit of a challenge in terms of gauging where actual results will shake out versus our budget as we head towards year end is property level NOI, which is driven in part by our leasing activity. So if leasing is in line with our 4th quarter budget, we would expect to end up in the middle of our range. Speaker 500:25:16Got it. Speaker 800:25:18Okay. And then just out of curiosity, like in terms of general question here, when you're looking at your renewal leasing, what portion of your renewal leasing, if we look either for the Q3 year to date, is tied to fixed renewals versus just kind of going straight to market? Speaker 200:25:35Yes. It's Rich. I don't have a specific number here in front of me, but it really varies from quarter to quarter based on the lease that's expiring. There's definitely several leases coming up, some anchor leases that don't have any options remaining. We will expect to get those leases up to market. Speaker 200:25:52But it's hard to give you a specific percentage because all the leases are varied. Speaker 800:26:00Okay. Appreciate it. Thank you. Operator00:26:04Thank you. One moment for the next question. And our next question will be coming from the line of Paulina Rojas Smith of Green Street. Your line is open. Speaker 200:26:16Good morning. Good morning. Speaker 900:26:19Good morning. And what percentage of your assets would you say that fit this description of stable properties with limited growth ahead that you would be inclined to recycle? Speaker 200:26:35Well, it's tough to get I mean, from a percentage perspective, we've identified probably right now about 5, 6 assets that would move to market sooner than later as it relates to the profile of its NOI growth. We still have a couple of assets that are on the table to sell that. We have had the opportunity to be tenant more recently that aren't grocery anchored. Those are at the top of the list. And we were lucky enough. Speaker 200:27:14One of them was a Rite Aid that we leased to a national tenant that should be coming online within the next 3 to 4 months. That's the type of asset we're focused on now selling. So as we come through the portfolio as we do often, probably 5 or 6 assets is probably what we're looking at as we look into 2025. Speaker 900:27:37That's helpful. And out of curiosity, can you share what retailers have taken the space formerly occupied by Rite Aid? Speaker 200:27:46The Rite Aid spaces, Paulina? Speaker 900:27:48Yes, yes, correct. Speaker 200:27:50Yes. So we have Dollar Tree has taken a piece of one space. We have a swim school. We have a salon suites tenant and we have a grocer and a auto parts. Speaker 900:28:06Okay. Very diverse. And my last question is some restaurants have been recently on the news showing weakness. And I know your concentration to restaurants is mainly in quick service. But how much would you say is local versus national credit? Speaker 200:28:31I don't have a specific number here in front of me or a percentage, but probably, I don't know, Stuart, would you say 50% is local credit for restaurant? Yes. About 15%. And sales continue to be quite strong, only on the West Coast as it relates to the whole category Speaker 300:28:50in terms of our portfolio. Speaker 200:28:52But as you touch on, we haven't had the exposure to the tenants that you're seeing in the headlines. In fact, most of them we don't have any exposure to. Speaker 900:29:00Correct. Okay. Thank you very much. Speaker 200:29:04Yes. Operator00:29:06Thank you. And that concludes the Q and A session for today. I would like to turn the call over to Stuart for closing remarks. Please go ahead. Speaker 200:29:15Hi. In closing, thanks to all of you for joining us today. As always, we appreciate your interest in ROIC. If you have any additional questions, please contact Lauren, Mike, Rich or me directly. Also, you can find additional information in the company's quarterly supplemental package, which is posted on our website as well as our 10 Q. Speaker 200:29:36Lastly, for those of you who are attending NAREIT conference in Las Vegas in a few weeks, we look forward to seeing you there. Thanks again and have a great day everyone. Operator00:29:47This concludes today's conference call. Thank you all for participating. You may now disconnect.Read morePowered by