Retail Opportunity Investments Corp. (NASDAQ:ROIC)

CAPS Rating: 5 out of 5

Recs

9
Player Avatar FoolTheRest (99.92) Submitted: 3/22/2010 1:37:26 AM : Outperform Start Price: $8.72 ROIC Score: +7.95

This is certainly a speculative play for me, so here is my thesis:

These guys have not done anything for several years. No operations to speak of. As a result, they brought on Stuart Tanz as CEO to purchase distressed properties. Tanz has a lot of experience in the field, having done an excellent job managing his last REIT, managing a 26% return between 1999 and 2006. I realize this period was the real estate bubble run-up, which is why this is speculation. Investing in ROIC is investing in the abilities of Tanz, and I would likely sell if he leaves.

The stock trades for about a 7% premium to the cash on hand prior to recent acquisitions. With the company finally acquiring retail outlets, I am looking forward to seeing what kind of income is generated (as an REIT must distribute 90%).

The commercial real estate bubble burst, credit is still tight, and there are plenty of owners with distressed properties. With no debt, this feels like the ground floor of a cash-flush REIT preparing to pay dividends with competent management in place. Good luck to all.

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Member Avatar henryking54 (99.57) Submitted: 4/19/2010 6:48:00 PM
Recs: 1

Member Avatar grayparrot (< 20) Submitted: 5/12/2010 7:17:42 PM
Recs: 0

Hi there...the story makes a lot of sense to me. Do you happen to know what kind of cap rates Tanz is getting on his purchases?

Member Avatar metoo105 (28.61) Submitted: 10/9/2010 6:11:26 AM
Recs: 2

Yeah, good question.

I am looking this one over because Tom Jacobs seems to have picked it for his new newsletter and my experience from studying his past picks is that I might want to put a thumbs down on it for caps. When I was less knowledgeable, he led me down several clearly absurd stupid paths, either through bad analysis or perhaps even intent. But I am wiser now and checking this thing out for a thumbs down pick.

Aside from the Tom Jacobs contrary indicator, there is:
1. commercial real estate was simply overbuilt during the bubble so that many distressed properties might never recover,
2. Tanz's track record is marred by the run-up in commercial real estate during that period,
3. the particular niche of the real estate market seems to be shopping centers, which by my reckoning of the stratospherically high unemployment might be the very last segment of the commercial real estate market to return.

Of his two properties in Claremont and Pomona, I cannot speak to the terms of the deal, but the locations are questionable to me given the extremely difficult economic hardships in the immediate areas. Claremont is proximate to the quite wealthy city of Claremont (where I once lived) but the development is on the wrong side of the freeway and an important stretch of road away from the main commerical life of the city. Pomona is a blighted city with a once terrible crime rate that was on the way to recovery during the boom but seems poised to lapse into its old ways. Both are really purchases that I'd have to think would be bad to terrible even at decent cap rates because of the strong possibility that tenants would not renew leases. That is, using this dip to purchase properties in vibrant commercial areas in Los Angeles would be one thing, but to extrapolate from these two purchases, he's making a huge bet on a recovery. Granted, it's not quite like trying the same in Riverside county, but Claremont/Pomona is both geographically and economically half way there.

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