RETAIL OPPORTUNITY INVESTMENTS CORP - Quarter Report: 2011 March (Form 10-Q)

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 March 31, 2011

[ ] 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.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	26-0500600 (I.R.S. Employer Identification No.)

3 Manhattanville Road Purchase, New York (Address of principal executive offices)	10577 (Zip code)

(914) 272-8080

(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.

Yes [ x ] No [ ]

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).

Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]

Accelerated filer [ x ]

Non-accelerated filer [ ]

(Do not check if a smaller reporting company)

Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [ x ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 42,075,433 shares of common stock, par value $0.0001 per share, outstanding as of May 5, 2011.

TABLE OF CONTENTS

			Page
Part I. Financial Information			1
	Item 1.	Consolidated Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010	1
		Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2011 and March 31, 2010	2
		Consolidated Statements of Equity for the three months ended March 31, 2011 (Unaudited)	3
		Consolidated Statements of Cash flows (Unaudited) for the three months ended March 31, 2011 and March 31, 2010	4
		Notes to Consolidated Financial Statements	5
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
	Item 4.	Controls and Procedures	31
Part II. Other Information			32
	Item 1.	Legal Proceedings	32
	Item 1A.	Risk Factors	32
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
	Item 3.	Defaults Upon Senior Securities	32
	Item 4.	(Removed and Reserved)	33
	Item 5.	Other Information	33
	Item 6.	Exhibits	33

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RETAIL OPPORTUNITY INVESTMENTS CORP.

CONSOLIDATED BALANCE SHEETS

	March 31, 2011 (unaudited)			December 31, 2010
ASSETS
Real Estate Investments:
Land	$	122,782,459		$	85,473,305
Building and improvements		266,767,696			187,259,539
		389,550,155			272,732,844
Less: accumulated depreciation		5,282,395			3,078,160
		384,267,760			269,654,684
Mortgage notes receivable		9,500,000			49,978,044
Investment in and advances to unconsolidated joint ventures		43,004,853			24,579,355
Real Estate Investments, net		436,772,613			344,212,083
Cash and cash equivalents		11,764,093			84,736,410
Restricted cash		3,074,914			2,838,261
Tenant and other receivables		2,961,203			2,055,881
Deposits		500,000			1,500,000
Acquired lease intangible asset, net of accumulated amortization		25,438,385			17,672,608
Prepaid expenses		962,306			798,655
Deferred charges, net of accumulated amortization		11,711,144			9,576,904
Other		78,940			801,700
Total assets	$	493,263,598		$	464,192,502

LIABILITIES AND EQUITY
Liabilities:
Revolving credit facility	$	13,000,000		$	—
Mortgage notes payables		41,998,314			42,417,100
Acquired lease intangibles liability, net of accumulated amortization		33,743,739			20,996,167
Accounts payable and accrued expenses		5,141,414			4,889,350
Tenants' security deposits		1,089,928			859,537
Other liabilities		3,981,645			4,506,779
Total liabilities		98,955,040			73,668,932
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; 41,638,100 shares issued and outstanding		4,164			4,164
Additional paid-in-capital		404,439,065			403,915,775
Accumulated deficit		(10,066,786	)		(12,880,840	)
Accumulated other comprehensive loss		(70,274	)		(517,918	)
Total Retail Opportunity Investments Corp. shareholders' equity		394,306,169			390,521,180
Noncontrolling interests		2,389			2,389
Total equity		394,308,558			390,523,570
Total liabilities and equity	$	493,263,598		$	464,192,502

The accompanying notes to consolidated financial statements

are an integral part of these statements.

RETAIL OPPORTUNITY INVESTMENTS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the Three Months Ended
	March 31, 2011			March 31, 2010
Revenues
Base rents	$	7,181,194		$	1,108,683
Recoveries from tenants		1,905,219			260,649
Mortgage interest		954,508			-
Total revenues		10,040,921			1,369,332
Operating expenses
Property operating		1,095,524			206,965
Property taxes		1,052,393			133,957
Depreciation and amortization		4,251,799			443,550
General & Administrative Expenses		2,388,702			2,152,926
Acquisition transaction costs		175,115			486,470
Total operating expenses		8,963,533			3,423,868

Operating income (loss)		1,077,388			(2,054,536	)
Non-operating income (expenses)
Interest expense and other finance expenses		(915,902	)		-
Gain on bargain purchase		5,761,854			-
Equity in earnings from unconsolidated joint ventures		243,279			-
Interest income		13,470			413,561
Net income (loss) attributable to Retail Opportunity Investments Corp.	$	6,180,089		$	(1,640,975	)

Weighted average shares outstanding Basic and diluted:		41,846,694			41,569,675

Income (loss) per share Basic and diluted per share:	$	0.15		$	(0.04	)
Dividends per common share	$	0.08		$	—

The accompanying notes to consolidated financial statements

are an integral part of these statements.

RETAIL OPPORTUNITY INVESTMENTS CORP.

CONSOLIDATED STATEMENTS OF EQUITY

	Common Stock
	Shares		Amount		Additional paid-in capital		Retained earnings (Accumulated deficit)			Accumulated other comprehensive loss			Noncontrolling interests		Equity
Balance at December 31, 2010		41,638,100	$	4,164	$	403,915,775	$	(12,880,840	)	$	(517,918	)	$	2,389	$	390,523,570

Compensation expense related to options granted	—		—		57,051		—			—			—		57,051
Compensation expense related to restricted stock grants	—		—		466,239		—			—			—		466,239
Cash dividends ($.08 per share)	—		—		—		(3,357,135	)		—			—		(3,357,135	)
Dividends payable to officers	—		—		—		(8,900	)		—			—		(8,900	)
Comprehensive income
Net Income Attributable to Retail Opportunity Investments Corp.	—		—		—		6,180,089			—			—		6,180,089
Unrealized gain on swap derivative	—		—		—		—			447,644			—		447,644
Total other comprehensive income															6,627,733
Balance at March 31, 2011	41,638,100	$	4,164	$	404,439,065	$	(10,066,786	)	$	(70,274	)	$	2,389	$	394,308,558

The accompanying notes to consolidated financial statements

are an integral part of these statements.

RETAIL OPPORTUNITY INVESTMENTS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOW

(unaudited)

	For the Three Months Ended
	March 31, 2011			March 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	6,180,089		$	(1,640,975	)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization		4,232,474			443,550
Amortization of deferred financing costs		46,102			—
Gain on bargain purchase		(5,761,854	)		—
Straight-line rent adjustment		(420,254	)		(69,123	)
Amortization of above and below market rent		(514,539	)		(53,075	)
Amortization relating to stock based compensation		523,290			229,146
Provisions for tenant credit losses		328,351			53,351
Equity earned in earnings from unconsolidated joint ventures		(243,279	)		—
Change in operating assets and liabilities
Mortgage escrows		(225,177	)		—
Tenant receivables		(813,419	)		(152,743	)
Prepaid expenses		(163,651	)		(217,266	)
Accounts payable and accrued expenses		(544,932	)		(2,144,526	)
Other asset and liabilities, net		1,412,830			332,360
Net cash provided by (used in) operating activities		4,036,031			(3,219,301	)

CASH FLOWS FROM INVESTING ACTIVITIES
Investments in real estate		(57,856,393	)		(47,945,559	)
Investments in mortgage notes receivables		(9,500,000	)		—
Investments in unconsolidated joint ventures		(18,182,218	)		—
Improvements to properties and deferred charges		(424,626	)		(105,862	)
Deposits on real estate acquisitions		(500,000	)		(973,000	)
Disbursements relating to notes receivable		—			(982,262	)
Construction escrows and other		(11,477	)		—
Net cash (used in) investing activities		(86,474,714	)		(50,006,683	)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayment on mortgages		(176,499	)		—
Proceeds from the draw on revolving credit facility		13,000,000			—
Dividends paid to common shareholders		(3,357,135	)		—
Contributions from consolidated joint venture minority interests, net		—			2,389
Net cash provided by financing activities		9,466,366			2,389
Net decrease in cash and cash equivalents		(72,972,317	)		(53,223,595	)
Cash and cash equivalents at beginning of period		84,736,410			383,240,827
Cash and cash equivalents at end of period	$	11,764,093		$	330,017,232

The accompanying notes to consolidated financial statements

are an integral part of these statements.

RETAIL OPPORTUNITY INVESTMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited)

1.	Organization, Basis of Presentation and Summary of Significant Accounting Policies

Business

Retail Opportunity Investments Corp. (the "Company") is a fully integrated and self-managed real estate investment trust ("REIT'), primarily focused on investing in, acquiring, owning, leasing, repositioning and managing a diverse portfolio of well located necessity-based community and neighborhood shopping centers, anchored by national or regional supermarkets and drugstores. The Company targets properties strategically situated in densely populated, middle and upper income markets in the eastern and western regions of the United States. In addition, the Company supplements its direct purchases of retail properties with first mortgages or second mortgages, mezzanine loans, bridge or other loans and debt investments related to retail properties, which are referred to collectively as "real estate-related debt investments," in each case provided that the underlying real estate meets the Company's criteria for direct investment. The Company's primary focus with respect to real estate-related debt investments is to capitalize on the opportunity to acquire control positions that will enable the Company to obtain the asset should a default occur. These properties and investments are referred to as the Company's target assets.

The Company was incorporated in Delaware in July 2007 and initially formed as special purpose acquisition company. The Company commenced its current business operations in October 2009 following the approval by stockholders and warrantholders of a series of proposals contemplated by the Framework Agreement, dated August 7, 2009 (the "Framework Agreement"), between the Company and NRDC Capital Management, LLC the "Sponsor") that allowed the Company to continue our business as a corporation that will elect to qualify as a REIT for U.S. federal income tax purposes, commencing with the Company's taxable year ended December 31, 2010 (the "Framework Transactions"). The Company 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 the Company conducts substantially all of its business through, its wholly-owned operating partnership subsidiary, Retail Opportunity Investments Partnership, LP, a Delaware limited partnership (the "operating partnership"), and its subsidiaries. At the Company's 2011 annual meeting of stockholders, our stockholders voted to approve a series of proposals that will allow us to convert into a Maryland corporation.

Recent Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board ("FASB") issued guidance on the disclosure of supplementary pro forma information for business combinations. Effective for periods beginning after December 15, 2010, the guidance specifies that if a public entity enters into business combinations that are material on an individual or aggregate basis and presents comparative financial statements, the entity must present pro forma revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. While we are currently evaluating the effect of adoption of this guidance, we currently believe that its adoption will not have a material impact on our consolidated financial statements.

In July 2010, the FASB issued updated guidance on disclosures about the credit quality of financing receivables and the allowance for credit losses which will require a greater level of information disclosed about the credit quality of loans and allowance for loan losses, as well as additional information related to credit quality indicators, past due information, and information related to loans modified in trouble debt restructuring. The guidance related to disclosures of financing receivables as of the end of a reporting period is required to be adopted for interim and annual reporting periods ending on or after December 15, 2010. The financing receivables disclosures related to the activity that occurs during a reporting period are required to be adopted for interim and annual reporting periods beginning on or after December 15, 2010. In January 2011, the FASB temporarily delayed

the effective date of the disclosures about troubled debt restructurings to allow the FASB the time needed to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, the guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. Adoption of the remaining guidance for the annual reporting period ending December 31, 2010 resulted in additional disclosures in our consolidated financial statements.

In January 2010, the FASB issued updated guidance on fair value measurements and disclosures, which requires disclosure of details of significant asset or liability transfers in and out of Level 1 and Level 2 measurements within the fair value hierarchy and inclusion of gross purchases, sales, issuances, and settlements in the rollforward of assets and liabilities valued using Level 3 inputs within the fair value hierarchy. The guidance also clarifies and expands existing disclosure requirements related to the disaggregation of fair value disclosures and inputs used in arriving at fair values for assets and liabilities using Level 2 and Level 3 inputs within the fair value hierarchy. These disclosure requirements were effective for interim and annual reporting periods beginning after December 15, 2009. Adoption of this guidance on January 1, 2010, excluding the Level 3 rollforward, resulted in additional disclosures in our consolidated financial statements. The gross presentation of the Level 3 rollforward is required for interim and annual reporting periods beginning after December 15, 2010. The adoption of the guidance did not have a material effect on the consolidated financial statements at March 31, 2011.

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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the three month period ended March, 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. 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, 2010.

The consolidated financial statements include the accounts of the Company and those of its subsidiaries, which are wholly-owned or controlled by the Company. Entities which the Company does not control through its voting interest and entities which are variable interest entities ("VIEs"), but where it is not the primary beneficiary, are accounted for under the equity method. All significant intercompany balances and transactions have been eliminated.

The Company follows the FASB guidance for determining whether an entity is a VIE and requires the performance of a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE. Under this guidance, an entity would be required to consolidate a VIE if it has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests are required to be presented as a separate component of equity in the consolidated balance sheet and modifies the presentation of net income by requiring earnings and other comprehensive income to be attributed to controlling and non-controlling interests.

The Company assesses the accounting treatment for each joint venture. This assessment includes a review of each joint venture or limited liability company agreement to determine which party has what rights and whether those rights are protective or participating. For all VIEs, the Company reviews such agreements in order to determine which party has the power to direct the activities that most significantly impact the entity's economic performance. In situations where the Company or its partner approves, among other things, the annual budget, receives a detailed monthly reporting package from the Company, meets on a quarterly basis to review the results of the joint venture, reviews and approves the joint venture's tax return before filing, and approves all leases that cover more than a nominal amount of space relative to the total rentable space at each property, the Company does not

consolidate the joint venture as it considers these to be substantive participation rights that result in shared power of the activities that most significantly impact the performance of the joint venture. The Company's joint venture agreements also contain certain protective rights such as the requirement of partner approval to sell, finance or refinance the property and the payment of capital expenditures and operating expenditures outside of the approved budget or operating plan. As of March 31, 2011 the Company did not have any VIEs.

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 and the valuation of options and warrants. Actual results could differ from these estimates.

Federal Income Taxes

Commencing with the Company's taxable year ended December 31, 2010, the Company intends to elect to qualify as a REIT under Sections 856-860 of the Internal Revenue Code (the "Code"). Under those sections, a REIT that, among other things, distributes at least 90% of REIT taxable income and meets certain other qualifications prescribed by the Code will not be taxed on that portion of its taxable income that is distributed.

Although it may qualify as a REIT for U.S. federal income tax purposes, the Company is subject to state income or franchise taxes in certain states in which some of its properties are located. In addition, taxable income from non-REIT activities managed through the Company's taxable REIT subsidiary ("TRS") is fully subject to U.S. federal, state and local income taxes.

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 March 31, 2011, the tax years 2007 through and including 2010 remain open to examination by the Internal Revenue Service ("IRS") and state taxing authorities. During the three months ended March 31, 2011 the IRS requested an examination of the Company's 2009 federal tax return. The examination is ongoing as of the date of this report.

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. For the three months ended March 31, 2011 and 2010, the capitalized costs related to the improvements or replacement of real estate properties were approximately $793,000 and $495,360, respectively.

Upon the acquisition of real estate properties, the fair value of the real estate purchased is allocated to the acquired tangible assets (consisting of land, buildings and improvements), and acquired intangible assets and liabilities (consisting of above-market and below-market leases and acquired in-place leases). Acquired lease intangible assets include above market leases and acquired in-place leases in the accompanying consolidated balance sheet. The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, which value is then allocated to land, buildings and improvements based on management's determination of the relative fair values of these assets. In valuing an acquired property's intangibles, factors considered by management include an estimate of carrying costs during the expected lease-up periods, and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand.

Management also estimates costs to execute similar leases, including leasing commissions, tenant improvements, legal and other related costs. Leasing commissions, legal and other related costs ("lease origination costs") are classified as deferred charges in the accompanying consolidated balance sheet.

The value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates, over (ii) the estimated fair value of the property as if vacant. Above-market and below-market lease values are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be received and management's estimate of market lease rates, measured over the terms of the respective leases that management deemed appropriate at the time of acquisition. Such valuations include a consideration of the non-cancellable terms of the respective leases as well as any applicable renewal periods. The fair values associated with below-market rental renewal options are determined based on the Company's experience and the relevant facts and circumstances that existed at the time of the acquisitions. The value of the above-market and below-market leases associated with the original lease term is amortized to rental income, over the terms of the respective leases. The value of below-market rental lease renewal options is deferred until such time as the renewal option is exercised and subsequently amortized over the corresponding renewal period. 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.

In conjunction with the Company's pursuit and acquisition of real estate investments, the Company expensed acquisition transaction costs during the three months ended March 31, 2011 and 2010 of $175,000 and $486,000, respectively.

Regarding the Company's 2011 property acquisitions (see Note 2), the fair values of in-place leases and other intangibles have been allocated to intangible assets and liability accounts. Such allocations are preliminary and may be adjusted as final information becomes available.

For the three months ended March 31, 2011 and 2010, the net amortization of acquired lease intangible assets and acquired lease intangible liabilities was $514,500 and $53,000 respectively, which amounts are included in base rents in the accompanying consolidated statements of operations.

During the three months ended March 31, 2011, the Company adjusted the fair value of a liability resulting from a deferred payment to the seller of one of its properties. The re-measurement resulted in a $524,000 reduction to the liability and was recorded as a reduction to property operating expenses in the accompanying consolidated statements of operations.

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 amounts of the assets exceed the fair value. Management does not believe that the value of any of its real estate investments is impaired at March 31, 2011.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash held in banks and money market depository accounts with U.S. financial institutions with original maturities of less than ninety days. These balances in the United States may exceed the Federal Deposit Insurance Corporation ("FDIC") insurance limits.

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. Restricted cash also includes $2.0 million held by a bank in an interest bearing account to secure a contingent letter of credit obligation. The letter of credit expired undrawn and the $2.0 million was returned to the Company in May 2011.

Revenue Recognition

Management has determined that all of the Company's leases with its various tenants are operating leases. Rental income is generally recognized based on the terms of leases entered into with tenants. In those instances in which the Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition and lease incentive amortization when possession or control of the space is turned over to the tenant for tenant work to begin. Minimum rental income from leases with scheduled rent increases is recognized on a straight-line basis over the lease term. Percentage rent is recognized when a specific tenant's sales breakpoint is achieved. Property operating expense recoveries from tenants of common area maintenance, real estate taxes and other recoverable costs are recognized in the period the related expenses are incurred. Lease incentives are amortized as a reduction of rental revenue over the respective tenant lease terms.

During the three months ended March 31, 2011, the Company wrote off a tenant’s unamortized lease incentive balance and straight line rent receivable balance of $574,000 and $138,000, respectively, as a result of the tenant terminating its lease prior to the expiration date. The amounts were recorded as a reduction to base rents in the accompanying consolidated statements of operations.

Termination fees (included in rental revenue) are fees that the Company has agreed to accept in consideration for permitting certain tenants to terminate their lease prior to the contractual expiration date. The Company recognizes termination fees in accordance with Securities and Exchange Commission Staff Accounting Bulletin 104, "Revenue Recognition," when the following conditions are met: (a) the termination agreement is executed; (b) the termination fee is determinable; (c) all landlord services pursuant to the terminated lease have been rendered, and (d) collectivity of the termination fee is assured. Interest income is recognized as it is earned. Gains or losses on disposition of properties are recorded when the criteria for recognizing such gains or losses under generally accepted accounting principles have been met.

The Company must make estimates as to the collectability of its accounts receivable related to base rent, straight-line rent, expense reimbursements and other revenues. Management analyzes accounts receivable and the allowance for bad debts by considering tenant creditworthiness, current economic trends, and changes in tenants' payment patterns when evaluating the adequacy of the allowance for doubtful accounts receivable. The Company also provides an allowance for future credit losses of the deferred straight-line rents receivable. The provision for doubtful accounts at March 31, 2011 and December 31, 2010 was $942,900 and $542,300, 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 35-40 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 as of March 31, 2011 and December 31, 2010, were $1.7 million and $861,000, respectively.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

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 (Loss) Per Share

Basic earnings (loss) per share ("EPS") excludes the impact of dilutive shares and is computed by dividing net income (loss) 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.

As of March 31, 2010 the effect of the 41,400,000 warrants to purchase the Company's common stock (the "Public Warrants") issued in connection with the Company's initial public offering (the "Public Offering"), the 8,000,000 warrants (the "Private Placement Warrants") purchased by the Sponsor simultaneously with the consummation of the Public Offering, and the restricted stock and options granted in 2009 were not included in the calculation of diluted EPS since the effect would be anti-dilutive since the Company reported a net loss during this period.

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, the Company generally engages an independent appraisal company to determine the value of the shares at the date of grant, taking into account the underlying contingency risks associated with the performance criteria. It is the Company’s policy to grant options with an exercise price equal to the quoted closing market price of stock on the grant date. Awards of stock options and restricted stock are expensed as compensation on a current basis over the vesting period.

Derivatives

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to

designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

Supplemental Consolidated Statements of Cash Flow Information


	March 31, 2011			March 31, 2010
Supplemental disclosure of cash activities:
Cash paid for Federal and New York state income taxes	$	85,075		$	—
Interest paid		674,167			—
Supplemental disclosure of non-cash activities:
Purchase accounting allocations:
Intangible lease liabilities		11,781,125			2,412,302
Earnout obligation		(524,896	)		—
Other non-cash investing and financing activities:
Accrued payable to seller of real property		420,000			—
Accrued interest rate swap liabilities		70,274			—
Accrued real estate improvement costs		157,137			137,367

2.	Real Estate Investments

The following real estate investment transactions have occurred during the three months ended March 31, 2011.

Property Acquisitions

On January 3, 2011, the Company acquired a shopping center located in Oceanside, California (the "Market Del Rio Property"), for a purchase price of $35.7 million. The Market Del Rio Property is a shopping center of 177,136 square feet. The Market Del Rio Property is anchored by Stater Brothers Market and Walgreens. The acquisition of the property was funded from available cash.

On January 6, 2011, the Company acquired a shopping center located in Pinole, California (the "Pinole Vista Property"), for a purchase price of $20.8 million. The Pinole Vista Property is a shopping center of 165,025 square feet. The Pinole Vista Property is anchored by Kmart and Dollar Tree, and shadow anchored by Lucky (SavMart). The acquisition of the property was funded from available cash.

On February 17, 2011, the Company obtained ownership of three grocery-anchored neighborhood shopping Centers (collectively, the "Lakha Properties"), which secured three of four loans (“CA Loans”) purchased during the year ended December 31, 2010 for $50.0 million. The Company obtained ownership of the Lakha Properties pursuant to a Conveyance in Lieu of Foreclosure Agreement, dated as of January 28, 2011. The consideration for the title to the Lakha Properties included additional payments of approximately $2.3 million. The three Lakha Properties are as follows:

Desert Springs Marketplace, a shopping center located in Palm Desert, California. Desert Springs Marketplace is a grocery-anchored neighborhood shopping center of 105,157 square feet and was 99.1% leased at March 31, 2011.

Mills Shopping Center, a shopping center located in Rancho Cordova, California. Mills Shopping Center is a grocery-anchored neighborhood shopping center of 252,912 square feet and was 77.7% leased at March 31, 2011.

Nimbus Winery Shopping Center, a shopping center located in Rancho Cordova, California. Nimbus Winery Shopping Center is a grocery-anchored neighborhood shopping center of 74,998 square feet and was 73.5% leased at March 31, 2011.

Mortgage Notes Receivable

During the three months ended March 31, 2011, the Company made a $9.5 million mortgage loan to the joint venture that owns the Crossroads shopping center as per the joint venture agreement. The Company owns a 49% equity interest in the joint venture. The interest due on the loan is 8% per annum and matures on September 1, 2015, which is coterminous with the existing first mortgage. A portion of the proceeds from the loan were used by the joint venture to pay off an existing second mortgage on the property.

Unconsolidated Joint Ventures

At March 31, 2011, and December 31, 2010, investments in and advances to unconsolidated joint ventures consisted of the following (with the Company’s ownership percentage in parentheses).

	March 31, 2011		December 31, 2010
Wilsonville OTS LLC (95%)	$	4,484,325	$	4,484,325
Crossroads Shopping Center (49%)		12,527,443		12,295,030
Mortgage note receivable secured by Riverside Plaza (50%)		7,878,000		7,800,000
Mortgage note receivable secured by Lakeside Plaza and Village at Eagle Glen (50%)		18,115,085		—
Total	$	43,004,853	$	24,579,355

The Company completed one transaction related to unconsolidated joint ventures during the three months ended March 31, 2011. On March 22, 2011, through a 50/50 joint venture with Winthrop Realty Trust, the Company acquired two maturity defaulted first mortgage loans that are secured by two grocery-anchored shopping centers for a purchase price of approximately $35.2 million. The purchase price represents the aggregate outstanding principal balance due under the loans. Both loans provide for a default interest rate of 4.0% over the regular interest rate of 4.92%. The Company’s $18.0 million investment was funded by available cash. The loans are secured by:

Plaza at Lakeside, a shopping center located in Moreno Valley, California. Plaza at Lakeside is a grocery-anchored shopping center of approximately 87,321 square feet; and

Village at Eagle Glen, a shopping center located in Corona, California. Village at Eagle Glen is a grocery-anchored shopping center of approximately 95,777 square feet.

The Company accounts for its investment in its unconsolidated joint ventures under the equity method of accounting since it exercises significant influence over, but does not control the unconsolidated joint ventures. The other members in the unconsolidated joint ventures have substantial participation rights in the financial decisions and operations of the unconsolidated joint ventures. The Company has evaluated its investments in the unconsolidated joint ventures and has concluded that the unconsolidated joint ventures are not VIEs.

The following summarizes our allocation of the purchase price of the assets acquired and liabilities assumed upon the completion of the properties above:

	March 31, 2011 (unaudited)
ASSETS
Land	$	37,309,154
Building and improvements		78,469,798
Acquired lease intangible asset		9,589,321
Deferred charges		2,737,580
Assets acquired		128,105,853
Acquired lease intangible liability		13,619,624
Liabilities assumed	$	13,619,624

The following summarizes certain financial information related to the Company’s investment in the properties above as if the acquisitions occurred on the first day of the year for the period presented:

	For the three months ended March 31, 2011 (unaudited)
Statement of operations:
Revenues	$	3,118,956
Property operating and other expenses		753,162
Management fees to the Company		112,341
Acquisition transaction costs		170,841
Depreciation and amortization		1,586,336
Net income	$	496,275

3.	Mortgage Notes Payables and Bank Lines of Credit

The first mortgage notes payable collateralized by respective properties and assignment of leases at March 31, 2011 and December 31, 2010, respectively, were as follows:

Property	Maturity Date	Interest Rate			March 31, 2011		December 31, 2010
Cascade Summit Town Square	July 2012		7.25	%	$	7,069,245	$	7,124,718
Heritage Market Center	December 2011		7.11	%		11,479,003		11,538,777
Gateway Village I	February 2014		5.58	%		6,978,692		7,011,658
Gateway Village II	May 2014		5.73	%		7,130,787		7,159,072
Gateway Village III	July 2016		6.10	%		7,580,000		7,580,000
						40,237,727		40,414,225
Mortgage Premium						1,760,587		2,002,875
Total mortgage notes payable					$	41,998,314	$	42,417,100

The Company has an unsecured revolving credit facility (the "facility") with several banks. The facility provides for borrowings of up to $175.0 million and contains an accordion feature, which allows the Company to increase the facility amount up to an aggregate of $250.0 million subject to commitments and other conditions. The facility has an initial maturity date of December 1, 2012 with an option that allows the Company to extend the facility for one year upon satisfaction of certain conditions. Interest on outstanding amounts is at a rate equal to an applicable rate based on the consolidated leverage ratio of the Company and its subsidiaries, plus, as applicable, (i) a LIBOR rate determined by reference to the cost of funds for Dollar deposits for the relevant period (the "Eurodollar Rate"), or (ii) a base rate determined by reference to the highest of (a) the federal funds rate plus one-half of 1%, (b) the rate of interest announced by Bank of America, N.A. as its "prime rate," and (c) the Eurodollar Rate plus 1.00% (the "Base Rate") The Company is obligated to pay (i) an unused facility fee of (a) 0.50% if the total outstanding principal amount is less than 50% of the aggregate commitments or (b) 0.40% if the total outstanding principal amount is greater than or equal to 50% of the aggregate commitments, and (ii) a fronting fee with respect to each letter of credit issued under the credit agreement. The facility contains certain representations, financial and other covenants typical for this type of facility. The Company’s ability to borrow under the facility is subject to its compliance with the covenants and other restrictions on an ongoing basis. The Company was in compliance with such covenants at March 31, 2011. The Company borrowed $13.0 million under the facility during the three months ended March 31, 2011.

4.	Preferred Stock

The Company is authorized to issue 50,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the board of directors. As of March 31, 2011 and 2010, there were no shares of preferred stock outstanding.

5.	Common Stock and Warrants

On October 23, 2007, the Company sold 41,400,000 units ("Units") in the Public Offering at a price of $10 per Unit, including 5,400,000 Units sold by the underwriters in their exercise of the full amount of their over-allotment option. Each Unit consists of one share of the Company's common stock and one warrant.

Simultaneously with the consummation of the Public Offering, the Sponsor purchased 8,000,000 Private Placement Warrants at a purchase price of $1.00 per warrant. The Private Placement Warrants were identical to the Public Warrants except that the Private Placement Warrants are exercisable on a cashless basis as long as they are still held by the Sponsor or its permitted transferees. In addition, the Private Placement and Public Warrants have different prices at which the Company's common stock must trade before the Company is able to redeem such warrants. The purchase price of the Private Placement Warrants approximated the fair value of such warrants at the purchase date.

The Company has the right to redeem all of the warrants it issued in the Public Offering and the Private Placement Warrants, at a price of $0.01 per warrant upon 30 days' notice while the warrants are exercisable, only in the event that the last sale price of the common stock is at least a specified price. The terms of the warrants are as follows:

The exercise price of the warrants is $12.00.

The expiration date of the warrants is October 23, 2014.

The price at which the Company's common stock must trade before the Company is able to redeem the warrants it issued in the Public Offering is $18.75.

The price at which the Company's common stock must trade before the Company is able to redeem the Private Placement Warrants is (x) $22.00, as long as they are held by the Sponsor or its members, members of its members' immediate families or their controlled affiliates, or (y) $18.75.

To provide that a warrantholder's ability to exercise warrants is limited to ensure that such holder's "Beneficial Ownership" or "Constructive Ownership," each as defined in the Company's certificate of incorporation, does not exceed the restrictions contained in the certificate of incorporation limiting the ownership of shares of the Company's common stock.

The Company has reserved 53,400,000 shares for the exercise of the Public Warrants and the Private Placement Warrants, and issuance of shares under the Company's 2009 Equity Incentive Plan (the "2009 Plan").

Warrant Repurchase

In May 2010, the Company's board of directors authorized a warrant repurchase program to repurchase up to a maximum of $40 million of the Company's warrants. To date, the Company has not repurchased warrants under such program.

6.	Stock Compensation and Other Benefit Plans

The Company follows the FASB guidance related to stock compensation which establishes financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer, or the employer incurs

liabilities to employees in amounts based on the price of the employer's stock. The guidance also defines a fair value-based method of accounting for an employee stock option or similar equity instrument.

During 2009, the Company adopted the 2009 Plan. The 2009 Plan provides for grants of restricted common stock and stock option awards up to an aggregate of 7.5% of the issued and outstanding shares of the Company's common stock at the time of the award, subject to a ceiling of 4,000,000 shares.

Restricted Stock

During the three months ended March 31, 2011, the Company awarded 276,000 shares of restricted common stock under the 2009 Plan of which 111,250 are performance-based grants and the remainder of the shares are time based grants. The performance based grants vest in three equal annual tranches, depending on the Company achieving an 8% total return to shareholders, or exceeding the top one-third of a certain peer group of companies over a three-year period from December 30, 2010, through December 31, 2013. An independent appraisal Company determined the value of the performance-based grants to be $9.62 per share, compared to a market price at the date of grant of $10.88.

As of March 31, 2011, there remained a total of $3.9 million of unrecognized restricted stock compensation related to outstanding non-vested restricted stock grants awarded under the 2009 Plan. Restricted stock compensation is expected to be expensed over a remaining weighted average period of 2.5 years (irrespective of achievement of the performance grants). For the three months ended March 31, 2011 and 2010, amounts charged to compensation expense totaled $466,000 and $189,000, respectively.

A summary of the status of the Company's non-vested restricted stock awards as of March 31, 2011, and changes during the three months ended March 31, 2011 are presented below:

	Shares		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2010		161,333	$	10.27
Granted		276,000		10.31
Vested		—		—
Forfeited		—		—
Non-vested at March 31, 2011		437,333	$	10.30

Stock Options

During the three months ended March 31, 2011, the Company awarded a total of 102,000 options to purchase shares under the 2009 Plan. The Company has used the Monte Carlo method for purposes of estimating the fair value in determining compensation expense for the options that were granted during the three months ended March 31, 2011. The assumption for expected volatility has a significant effect on the grant fair value. Volatility is determined based on the historical volatilities of REITs similar to the Company. The Company used the simplified method to determine the expected life which is calculated as an average of the vesting period and the contractual term. The fair value for the options awarded by the Company during the three months ended March 31, 2011, was estimated at the date of the grant using the following weighted-average assumptions. There were no options awarded during the three months ended March 31, 2010.

	Three months ended March 31, 2011
Average volatility				26.0		%
Expected dividends	$			0.12
Expected life (in years)	6.0 to 6.5
Risk-free interest rate (range)		2.59	%	to	2.73	%

A summary of options activity as of March 31, 2011, and changes during the three months ended March 31, 2011 are presented below:

	Shares		Weighted Average Exercise Price
Outstanding at December 31, 2010		235,000	$	10.25
Granted		102,000		10.88
Exercised		—		—
Expired		—		—
Outstanding at March 31, 2011		337,000	$	10.46
Exercisable at March 31, 2011		73,667	$	10.26

For the three months ended March 31, 2011 and 2010, the amounts charged to compensation expense totaled $57,000 and $40,000, respectively. The total unearned compensation at March 31, 2011 was $497,000. The shares vest over an average period of 2.2 years.

7.	Fair Value of Financial Instruments

The Company follows the FASB guidance that defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The guidance applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Derivative Financial Instruments

Currently, the Company uses two interest rate swaps to manage its interest rate risk. The valuation of this instrument is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves, and implied volatilities.

The fair value of the interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

To comply with the guidance the Company incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty's non-performance risk in the fair value measurements. In adjusting the fair value of its derivative contract for the effect of non-performance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2011 the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative position and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.

The table below presents the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at March 31, 2011

	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Balance at March 31, 2011
Assets
Derivative financial instruments	$	—	$	217,250		$	—	$	217,250
Liabilities
Derivative financial instruments	$	—	$	(287,524	)	$	—	$	(287,524	)

The following disclosures of estimated fair value were determined by management, using available market information and appropriate valuation methodologies as discussed in Note 1. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts realizable upon disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.

The carrying values of cash and cash equivalents, restricted cash, tenant and other receivables, deposits, prepaid expenses, other assets and accounts payable and accrued expenses are reasonable estimates of their fair values because of the short-term nature of these instruments. Mortgage notes receivable are based on the actual disbursements incurred for these recent acquisitions. Mortgage notes payable were recorded at their fair value at the time the mortgages were assumed and are estimated to have a fair value of $41.9 million as of March 31, 2011.

Disclosure about fair value of financial instruments is based on pertinent information available to us as of March 31, 2011. Although the Company is not aware of any factors that would significantly affect the reasonable fair value amount, such amount have not been comprehensively re-valued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

8. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

	March 31, 2011		December 31, 2010
Payroll and related costs	$	577,554	$	2,138,935
Professional fees		983,007		868,889
Costs related to the acquisition of properties and mortgage notes		458,147		606,654
Debt financing costs		378,510		222,916
Property operating		1,293,155		224,478
Landlord costs		788,346		289,862
Other		662,695		537,616
	$	5,141,414	$	4,889,350

9.	Derivative and Hedging Activities

The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

During the year ended December 31, 2010, the Company entered into a $25 million forward starting interest rate swap with Wells Fargo Bank, N.A. The forward starting swap is being used to hedge the anticipated variable cash flows associated with the Company's variable-rate debt that is planned to be issued in 2011. The swap has a maturity date of April 15, 2021. The effective portion of changes in the fair value of the derivative that is designated as a cash flow hedge is being recorded in accumulated other comprehensive income and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Ineffectiveness, if any, related to the Company's changes in estimates about the debt issuance related to the forward starting swap would be recognized directly in earnings. During the three months ended March 31, 2011, the Company realized no ineffectiveness as a result of the hedging relationship.

During the year ended December 31, 2010, the Company entered into a $50 million forward starting interest rate swap with PNC Bank. The forward starting swap is being used to hedge the anticipated variable cash flows associated with the Company's variable-rate debt that is planned to be issued between July 1, 2011 and December 31, 2013. The swap has a maturity date of July 1, 2018. The effective portion of changes in the fair value of the derivative that is designated as a cash flow hedge is being recorded in accumulated other comprehensive income and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Ineffectiveness, if any, related to the Company's changes in estimates about the debt issuance related to the forward starting swap would be recognized directly in earnings. During the three months ended March 31, 2011, the Company realized no ineffectiveness as a result of the hedging relationship.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest expense is recognized on the hedged debt. During the next twelve months, the Company estimates that $1.8 million will be reclassified as an increase to interest expense.

As of March 31, 2011, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

Interest Rate Derivative		Number of instruments				Notional
Interest rate swap			2			$	75,000,000

As of March 31, 2011, the Company had no outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk.

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the balance sheet as of March 31, 2011 and December 31, 2010, respectively:

Derivatives designed as hedging instruments	Balance sheet location		March 31, 2011 Fair Value(liability)				December 31, 2010 Fair Value(liability)
Interest rate products	Other liabilities		$	(70,274	)		$	(517,918	)

Derivatives in Cash Flow Hedging Relationships

The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three months ended March 31, 2011 and 2010, respectively.

	As of March 31, 2011			As of March 31, 2010
Amount of gains recognized in accumulated other comprehensive income as interest rate derivatives (effective portion)	$	(447,544	)	$	—
Amount of loss reclassified from accumulated other comprehensive income into income as interest expense (effective portion)	$	—		$	—
Amount of gain recognized in income on derivative as gain on derivative instruments (ineffective portion and amount excluded from effectiveness testing)	$	—		$	—

10.	Commitments and Contingencies

In the normal course of business, from time to time, the Company is involved in legal actions relating to the ownership and operations of its properties. In management's opinion, the liabilities, if any, that ultimately may result from such legal actions are not expected to have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.

11.	Related Party Transactions

The Company has entered into a Transitional Shared Facilities and Services Agreement with NRDC Real Estate Advisors, LLC, an entity wholly owned by four of the Company's current and former directors. Pursuant to the Transitional Shared Facilities and Services Agreement, NRDC Real Estate Advisors, LLC provides the Company with access to, among other things, their information technology and office space. For the three months ended March 31, 2011 and 2010, the Company incurred $22,500, of expenses relating to the agreement which is included in general and administrative expenses in the accompanying consolidated statements of operations.

In May 2010, the Company entered into a Shared Facilities and Service Agreement effective January 1, 2010 with an officer of the Company. Pursuant to the Shared Facilities and Service Agreement, the Company is provided the use of office space and other resources for a monthly fee of $1,938. For the three months ended March 31, 2011, the Company incurred $5,814 of expenses relating to this agreement which is included in general and administrative expenses in the accompanying consolidated statements of operations. For the three months ended March 31, 2010 the Company did not incur expenses relating to this agreement since a retroactive payment related to this period was recorded during the three months ended June 30, 2010.

12.	Subsequent Events

In determining subsequent events, the Company reviewed all activity from January 1, 2011 to the date the financial statements are issued and discloses the following items:

On April 4, 2011, the Company deposited a second $500,000 deposit into an interest-bearing account with the Title Company in accordance with a purchase sale agreement entered into on March 15, 2011. The deposit is for the potential acquisition of the property known as Country Club Gate Shopping Center located in Pacific Grove, California. The deposit was funded from available cash.

deposits are for the potential acquisition of the property known as Renaissance Towne Center located in San Diego, California. The deposits were funded from available cash.

On April 20, 2011, the Company made an additional $500,000 mortgage loan payment to the joint venture that owns the Crossroads shopping center. The total amount loaned to the joint venture at April 20, 2011 was $10.0 million. The Company owns a 49% equity interest in the joint venture. The interest due on the loan is 8% per annum.

On May 3, 2011, the Company's board of directors declared a cash dividend on its common stock of $0.09 per share, payable on June 15, 2011 to holders of record on May 31, 2011.

On May 4, 2011, the Company deposited $500,000 into an interest-bearing account with the Title Company in accordance with a purchase sale agreement entered into on May 1, 2011. The deposit is for the potential acquisition of the property known as Morada Ranch Shopping Center located in Stockton, California. The deposit was funded from available cash.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this Quarterly Report on Form 10-Q, we refer to Retail Opportunity Investments Corp. as "we," "us," "Company," or "our," unless we specifically state otherwise or the context indicates otherwise.

When used in this discussion and elsewhere in this Quarterly Report on Form 10-Q, the words "believes," "anticipates," "projects," "should," "estimates," "expects," and similar expressions are intended to identify forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and in Section 21F of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Actual results may differ materially due to uncertainties including:

our ability to identify and acquire retail real estate and real estate-related debt investments that meet our investment standards in our target markets and the time period required for us to acquire our initial portfolio of its target assets;

the level of rental revenue and net interest income we achieve from our target assets;

the market value of our assets and the supply of, and demand for, retail real estate and real estate-related debt investments in which we invest;

the length of the current economic downturn;

the conditions in the local markets in which we will operate, as well as changes in national economic and market conditions;

consumer spending and confidence trends;

our ability to enter into new leases or to renew leases with existing tenants at the properties we acquire at favorable rates;

our ability to anticipate changes in consumer buying practices and the space needs of tenants;

the competitive landscape impacting the properties we acquire and their tenants;

our relationships with our tenants and their financial condition;

our use of debt as part of our financing strategy and our ability to make payments or to comply with any covenants under any borrowings or other debt facilities we obtain;

the level of our operating expenses, including amounts we are required to pay to our management team and to engage third party property managers;

changes in interest rates that could impact the market price of our common stock and the cost of our borrowings; and

legislative and regulatory changes (including changes to laws governing the taxation of real estate investment trusts ("REITs")).

Forward-looking statements are based on estimates as of the date of this report. We disclaim any obligation to publicly release the results of any revisions to these forward-looking statements reflecting new estimates, events or circumstances after the date of this report.

The risks included here are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Overview

Retail Opportunity Investments Corp. (the "Company") is a fully integrated and self-managed REIT, primarily focused on investing in, acquiring, owning, leasing, repositioning and managing a diverse portfolio of well located necessity-based community and neighborhood shopping centers, anchored by national or regional supermarkets and drugstores. The Company targets properties strategically situated in densely populated, middle and upper income markets in the eastern and western regions of the United States. In addition, the Company supplements its direct purchases of retail properties with first mortgages or second mortgages, mezzanine loans, bridge or other loans and debt investments related to retail properties, which are referred to collectively as "real estate-related debt investments," in each case provided that the underlying real estate meets the Company's criteria for direct investment. The Company's primary focus with respect to real estate-related debt investments is to capitalize on the opportunity to acquire control positions that will enable the Company to obtain the asset should a default occur. These properties and investments are referred to as the Company's target assets.

As of March 31, 2011, the Company’s portfolio consisted of 22 shopping centers in California, Oregon and Washington which contained approximately 2.3 million net rentable square feet and were approximately 89.2% leased. In addition, the Company owned a 49% ownership interest in Crossroads Shopping Center, a 464,822 square foot shopping center situated on approximately 40 acres of land, which is currently 90% leased. The Company also owned a 95% interest in a development property joint venture, and a 50% interests in two joint ventures that own several mortgage notes receivables.

Subsequent Events

On April 14, 2011 and April 27, 2011, the Company deposited a total of $1,000,000 into an interest-bearing account with the Title Company in accordance with a purchase sale agreement entered into on April 11, 2011. The deposits are for the potential acquisition of the property known as Renaissance Towne Center located in San Diego, California. The deposits were funded from available cash.

On May 3, 2011, the Company's board of directors declared a cash dividend on its common stock of $0.09 per share, payable on June 15, 2011 to holders of record on May 31, 2011.

Factors Impacting Our Operating Results

The results of our operations are affected by a number of factors and primarily depend on, among other things, the following:

Our ability to identify and acquire retail real estate and real estate-related debt investments that meet our investment standards and the time period required for us to acquire our initial portfolio of our target assets;

The level of rental revenue and net interest income we achieve from our target assets;

The market value of our assets and the supply of, and demand for, retail real estate and real estate-related debt investments in which we invest;

The length of the current economic downturn;

The conditions in the local markets in which we will operate, as well as changes in national economic and market conditions;

Consumer spending and confidence trends;

Our ability to enter into new leases or to renew leases with existing tenants at the properties we acquire at favorable rates;

Our ability to anticipate changes in consumer buying practices and the space needs of tenants;

The competitive landscape impacting the properties we acquire and their tenants;

Our relationships with our tenants and their financial condition;

Our use of debt as part of our financing strategy and our ability to make payments or to comply with any covenants under any borrowings or other debt facilities we obtain;

The level of our operating expenses, including amounts we are required to pay to our management team and to engage third party property managers and loan servicers; and

Changes in interest rates that could impact the market price of our common stock and the cost of our borrowings.

legislative and regulatory changes (including changes to laws governing the taxation of real estate investment trusts ("REITs")).

Report on Operating Results

Funds from operations ("FFO"), is a widely-recognized non-GAAP financial measure for REIT's that the Company believes when considered with financial statements determined in accordance with GAAP, provides additional and useful means to assess our financial performance. FFO is frequently used by securities analysts, investors and other interested parties to evaluate the performance of REITs, most of which present FFO along with net income as calculated in accordance with GAAP.

The Company computes FFO in accordance with the "White Paper" on FFO published by the National Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income attributable to common stockholders (determined in accordance with GAAP) excluding gains or losses from debt restructuring and sales of depreciable property, plus real estate related depreciation and amortization, and after adjustments for partnerships and unconsolidated joint ventures.

In accordance with the Financial Accounting Standards Board ("FASB") guidance relating to business combinations, which, among other things, requires any acquirer of a business (investment property) to expense all acquisition costs related to the acquisition, the amount of which will vary based on each specific acquisition and the volume of acquisitions. Accordingly, the costs of completed acquisitions will reduce our FFO. Acquisition costs for the three months ended March 31, 2011 and 2010, were 175,000 and 486,000, respectively.

However, FFO:

does not represent cash flows from operating activities in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income); and

should not be considered an alternative to net income as an indication of our performance.

FFO as defined by us may not be comparable to similarly titled items reported by other real estate investment trusts due to possible differences in the application of the NAREIT definition used by such REITs. The table below provides a reconciliation of net income applicable to stockholders in accordance with GAAP to FFO for the three months ended March 31, 2011 and 2010.

	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
	$	6,180,089		$	(1,640,975	)
Net income(Loss) for period

Plus: Real property depreciation		1,803,464			174,779
Amortization of tenant improvements and allowances		565,863			26,819
Amortization of deferred leasing costs		2,321,823			241,952
Funds from (used in) operations	$	10,871,239		$	(1,197,425	)

Net Cash Provided by (Used in):
Operating Activities	$	4,036,031		$	(3,219,301	)
Investing Activities	$	(86,474,714	)	$	(50,006,683	)
Financing Activities	$	9,466,366		$	2,389

Results of Operations

At March 31, 2011, the Company had equity interests in 24 properties, of which 22 are consolidated in the accompanying financial statements and two are accounted for under the equity method of accounting. The Company believes, because of the location of the properties in densely populated areas, the nature of its investment provides for relatively stable revenue flows even during difficult economic times. The Company has a strong capital structure with manageable debt. The Company expects to continue to explore acquisition opportunities that might present themselves during this economic downturn consistent with its business strategy.

Results of Operations for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

During the three months ended March 31, 2011, the Company generated net income of approximately $6.2 million compared to a net loss of $1.6 million incurred during the three months ended March 31, 2010. The substantial cause of the differences during the two periods resulted from higher operating income from owned properties as a result of an increase in the number of properties owned by the Company in 2011 as compared to 2010. As of March 31, 2011, the Company had an equity interest in 24 properties which generated operating income of approximately $2.3 million. In comparison as of March 31, 2010, the Company owned five properties which generated operating income of approximately $585,000. During the three months ended March 31, 2011, the Company generated mortgage interest of $955,000 from mortgages notes receivables. The Company did not own any mortgage notes during the three months ended March 31, 2010. In addition the Company recognized a $5.8 million bargain purchase gain in 2011, when recording the fair values of three properties that were acquired during the period through a Conveyance in Lieu of Foreclosure Agreement. During the three months ended March 31, 2011, the Company generated interest income of approximately $445,000 from several mortgage notes receivables acquired after March 31, 2010. The Company incurred property acquisition costs during the three months ended March 31, 2011 of $175,000 compared to $486,000 that was incurred during the comparable period in 2010. Property acquisition costs were higher in 2010 due to a greater number of acquisitions during this period as compared to the three months ended March 31, 2011. During the three months ended March 31, 2011, interest income recognized was $400,000 lower than the corresponding period in 2010 due to lower cash balances in 2011 resulting from the utilization of cash to purchase properties and mortgage notes after March 31, 2010.

Critical Accounting Policies

Critical accounting policies are those that are both important to the presentation of the Company's financial condition and results of operations and require management's most difficult, complex or subjective judgments. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. This summary should be read in conjunction with the more complete discussion of our accounting policies included in Note 1 to our consolidated financial statements.

Revenue Recognition

The Company records base rents on a straight-line basis over the term of each lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in tenant and other receivables on the accompanying consolidated balance sheets. Most leases contain provisions that require tenants to reimburse a pro-rata share of real estate taxes and certain common area expenses. Adjustments are also made throughout the year to tenant and other receivables and the related cost recovery income based upon our best estimate of the final amounts to be billed and collected. In addition, the Company also provides an allowance for future credit losses in connection with the deferred straight-line rent receivable.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is established based on a quarterly analysis of the risk of loss on specific accounts. The analysis places particular emphasis on past-due accounts and considers information such as the nature and age of the receivables, the payment history of the tenants or other debtors, the financial condition of the tenants and any guarantors and management's assessment of their ability to meet their lease obligations, the basis for any disputes and the status of related negotiations, among other things. Management's estimates of the required allowance is subject to revision as these factors change and is sensitive to the effects of economic and market conditions on tenants, particularly those at retail properties. Estimates are used to establish reimbursements from tenants for common area maintenance, real estate tax and insurance costs. The Company analyzes the balance of its estimated accounts receivable for real estate taxes, common area maintenance and insurance for each of its properties by comparing actual recoveries versus actual expenses and any actual write-offs. Based on its analysis, the Company may record an additional amount in our allowance for doubtful accounts related to these items. In addition, the Company also provides an allowance for future credit losses in connection with the deferred straight-line rent receivable.

Real Estate

Land, buildings, property improvements, furniture/fixtures and tenant improvements are recorded at cost. Expenditures for maintenance and repairs are charged to operations as incurred. Renovations and/or replacements, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.

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). 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.

The value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates, over (ii) the estimated fair value of the property as if vacant. Above-market and below-market lease values are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be received and management's estimate of market lease rates, measured over the terms of the respective leases that management deemed appropriate at the time of acquisition. Such valuations include a consideration of the non-cancellable terms of the respective leases as well as any applicable renewal periods. The fair values associated with below-market rental renewal options are determined based on the Company's experience and the relevant facts and circumstances that existed at the time of the acquisitions. The value of the above-market and below-market leases associated with the original lease term is amortized to rental income, over the terms of the respective leases. The value of below-market rental lease renewal options is deferred until such time as the renewal option is exercised and subsequently amortized over the corresponding renewal period. 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 will 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.

The Company is required to make subjective assessments as to the useful life of its properties for purposes of determining the amount of depreciation. These assessments have a direct impact on its net income.

Properties are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:

Buildings	35-40 years
Property Improvements	10-20 years
Furniture/Fixtures	3-10 years
Tenant Improvements	Shorter of lease term or their useful life

Asset Impairment

On a continuous basis, management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A property value is considered impaired when management's estimate of current and projected operating cash flows (undiscounted and without interest) of the property over its remaining useful life is less than the net carrying value of the property. Such cash flow projections consider factors such as expected future operating income, trends and prospects, as well

as the effects of demand, competition and other factors. To the extent impairment has occurred, the loss is measured as the excess of the net carrying amount of the property over the fair value of the asset. Changes in estimated future cash flows due to changes in our plans or market and economic conditions could result in recognition of impairment losses which could be substantial. Management does not believe that the value of our rental properties is impaired at March 31, 2011.

REIT Qualification Requirements

We intend to elect and qualify to be taxed as a REIT under the Code, commencing with our taxable year ending December 31, 2010. We believe that we have been organized and we intend to operate in a manner that will allow us to qualify for taxation as a REIT under the Code commencing with our taxable year ending December 31, 2010. Qualification and taxation as a REIT depend on our ability to meet, on a continuing basis, through actual operating results, distribution levels, and diversity of stock ownership, various qualification requirements imposed upon REITs by the Code. In addition, our ability to qualify as a REIT may depend in part upon the operating results, organizational structure and entity classification for U.S. federal income tax purposes of certain entities in which we invest. Our ability to qualify as a REIT for a particular year also requires that we satisfy certain asset and income tests during such year, some of which depend upon the fair market values of assets directly or indirectly owned by us. Such values may not be susceptible to a precise determination. Accordingly, no assurance can be given that the actual results of our operations for any taxable year will satisfy such requirements for qualification and taxation as a REIT.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations make distributions to our stockholders and other general business needs. The Company funds operating expenses and other short-term liquidity requirements, including debt service, tenant improvements, leasing commissions and common dividend distributions, if made, primarily from operations. The Company expects to fund long-term liquidity requirements for property acquisitions, development, capital improvements through a combination of issuing debt, assuming mortgage debt and the sale of equity securities.

The Company has an unsecured revolving credit facility with several banks. The facility provides for borrowings of up to $175.0 million and contains an accordion feature, which allows the Company to increase the facility amount up to an aggregate of $250.0 million subject to commitments and other conditions. The facility has an initial maturity date of December 1, 2012 with an option that allows the Company to extend the facility for one year upon satisfaction of certain conditions. Interest on outstanding amounts is at a rate equal to an applicable rate based on the consolidated leverage ratio of the Company and its subsidiaries, plus, as applicable, (i) a LIBOR rate determined by reference to the cost of funds for Dollar deposits for the relevant period (the "Eurodollar Rate"), or (ii) a base rate determined by reference to the highest of (a) the federal funds rate plus one-half of 1%, (b) the rate of interest announced by Bank of America, N.A. as its "prime rate," and (c) the Eurodollar Rate plus 1.00% (the "Base Rate") The Company is obligated to pay (i) an unused facility fee of (a) 0.50% if the total outstanding principal amount is less than 50% of the aggregate commitments or (b) 0.40% if the total outstanding principal amount is greater than or equal to 50% of the aggregate commitments, and (ii) a fronting fee with respect to each letter of credit issued under the credit agreement. The facility contains certain representations, financial and other covenants typical for this type of facility. The Company’s ability to borrow under the facility is subject to its compliance with the covenants and other restrictions on an ongoing basis. The Company was in compliance with such covenants at March 31, 2011. The Company borrowed $13.0 million under the facility during the three months ended March 31, 2011.

While the Company generally intends to hold its target assets as long term investments, certain of its investments may be sold in order to manage its interest rate risk and liquidity needs, meet other operating objectives and adapt to market conditions. The timing and impact of future sales of our investments, if any, cannot be predicted with any certainty.

Potential future sources of capital include proceeds from the sale of real estate or real estate-related debt investments, proceeds from secured or unsecured financings from banks or other lenders and undistributed funds

from operations. In addition, we anticipate raising additional capital from future equity financings and if the value of our common stock exceeds the exercise price of our warrants through the sale of common stock to the holders of our warrants from time to time.

Net Cash Flows from:

Operating Activities

Net cash flows provided by operating activities amounted to $4.0 million during the three months ended March 31, 2011, compared to net cash used in operating activities of $3.2 million in the comparable period of 2010. Operating cash flows increased in 2011 primarily due to an increase in operating income from owned properties of approximately $5.5 million during the three months ended March 31, 2011 compared to the three months ended March 31, 2010. This increase resulted from a significant increase in the Company’s portfolio after March 31, 2010. As of March 31, 2011, the Company owned 22 properties and had an equity interest in four joint ventures. As of March 31, 2010, the Company owned five properties.

Investing Activities

Net cash flows used by investing activities amounted to $86.5 million in the three months ended March 31, 2011, compared to $50.0 million in the comparable period in 2010. During the three months ended March 31, 2011, the Company acquired two properties and several mortgages notes receivables for a total acquisition price of $85.6 million. During the comparable period in 2010 the Company acquired five properties for a total acquisition price of approximately $47.9 million.

Financing Activities

Net cash flows provided by financing activities amounted to $9.5 million for the three months ended March 31, 2011, compared to $2,389 in the comparable period in 2010. During the three months ended March 31, 2011, the Company received proceeds of $13.0 million from borrowings on its revolving credit facility to partially finance property and mortgage notes receivable acquisitions. Partially offsetting this increase in financing activities was the payment of dividends to common stockholders of approximately $3.4 million in March 2011. No dividends were paid during the three months ended March 31, 2010.

Contractual Obligations

The following table presents the principal amount of the Company's long-term debt maturing each year, including amortization of principal based on debt outstanding at March 31, 2011.

	2011		2012		2013		2014		2015		Thereafter		Total
Contractual obligations:
Long-term debt principal payments (1)	$	11,926,487	$	7,346,051	$	438,264	$	13,535,984	$	202,169	$	6,788,772	$	40,237,727
Earn-out obligations to the sellers of properties		—		—		4,392,580		—		—		—		4,392,580
Operating lease obligations		150,000		200,000		200,000		200,000	$	200,000		10,800,000		11,750,000
Total	$	12,076,487	$	7,546,051	$	5,030,844	$	13,735,984	$	402,169	$	17,588,772	$	56,380,307

(1)	Does not include Mortgage premium of $1.7 million.

As of March 31, 2011, the Company did not have any capital lease obligations, operating lease obligations or purchase obligations. Upon consummation of the Framework Transactions, the Company entered into a Transitional Shared Facilities and Services Agreement with NRDC Real Estate Advisors, LLC, pursuant to which NRDC Real Estate Advisors, LLC provides the Company with access to, among other things, their information technology and office space. The Company pays NRDC Real Estate Advisors, LLC a monthly fee of $7,500 pursuant to the Transitional Shared Facilities and Services Agreement.

In May 2010, the Company entered into a Shared Facilities and Service Agreement, effective January 1, 2010, with an officer of the Company. Pursuant to the Shared Facilities and Service Agreement, the Company is provided the use of office space and other resources for a monthly fee of $1,938.

Off-Balance Sheet Arrangements

The Company's investments in unconsolidated joint ventures are off-balance sheet investments. These unconsolidated joint ventures are accounted for under the equity method of accounting as the Company has the ability to exercise significant influence, but not control the operating and financial decisions of these investments. The Company's off-balance sheet arrangements are more fully discussed in Note 2, "Real Estate Investments," in the accompanying consolidated financial statements.

Real Estate Taxes

Our leases generally require the tenants to be responsible for a pro rata portion of the real estate taxes.

Inflation

Our leases at wholly-owned and consolidated partnership properties generally provide for either indexed escalators, based on the Consumer Price Index or other measures or, to a lesser extent, fixed increases in base rents. The leases also contain provisions under which the tenants reimburse us for a portion of property operating expenses and real estate taxes. The revenues collected from leases are generally structured as described above, with year over year increases. We believe that inflationary increases in expenses will be offset, in part, by the contractual rent increases and tenant expense reimbursements described above.

Leverage Policies

The Company intends, when appropriate, to employ prudent amounts of leverage and use debt as a means of providing additional funds for the acquisition of its target assets and the diversification of its portfolio. As of March 31, 2011, the Company had $13 million of borrowings outstanding on its revolving credit facility, which provides for borrowings of up to $175 million and contains an accordion feature that allows the Company the ability to increase the facility amount up to $250 million subject to commitments and other conditions. The Company’s ability to borrow under the facility is subject to its compliance with the covenants and other restrictions on an ongoing basis. The Company was in compliance with such covenants at March 31, 2011. The Company intends to continue to use traditional forms of financing, including mortgage financing and credit facilities. In connection with the acquisition of properties, the Company may assume all or a portion of the existing debt on such properties. In addition, the Company may acquire retail property indirectly through joint ventures with third parties as a means of increasing the funds available for the acquisition of properties.

The Company may borrow on a non-recourse basis or at the corporate level or operating partnership level. Non-recourse indebtedness means the indebtedness of the borrower or its subsidiaries is secured only by specific assets without recourse to other assets of the borrower or any of its subsidiaries. Even with non-recourse indebtedness, however, a borrower or its subsidiaries will likely be required to guarantee against certain breaches of representations and warranties such as those relating to the absence of fraud, misappropriation, misapplication of funds, environmental conditions and material misrepresentations. Because non-recourse financing generally restricts the lender's claim on the assets of the borrower, the lender generally may only proceed against the asset securing the debt. This protects the Company's other assets.

The Company plans to evaluate each investment opportunity and determine the appropriate leverage on a case-by-case basis and also on a Company-wide basis. The Company may seek to refinance indebtedness, such as when a decline in interest rates makes it beneficial to prepay an existing mortgage, when an existing mortgage matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase the investment. In the future, the Company may also seek to raise further equity capital or issue debt securities in order to fund its future investments.

Dividends

We intend to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay U.S. federal income tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. We intend to pay regular quarterly dividends to our stockholders in an amount not less than our net taxable income, if and to the extent authorized by our board of directors. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

Recently Issued Accounting Pronouncements

See Note 1 to the accompanying consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk exposure is to changes in interest rates related to our debt. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company’s future financing requirements.

As of March 31, 2011, the Company had $13.0 million of variable rate debt outstanding and $40.2 million of fixed-rate debt outstanding.

As of March 31, 2011, the Company has primarily used fixed-rate debt and two forward starting interest rate swaps to manage its interest rate risk. See the discussion under Note 9 of the accompanying consolidated financial statements for certain quantitative details related to the interest rate swaps. The Company entered into two forward starting interest rate swaps in order to economically hedge against the risk of rising interest rates that would affect the Company's interest expense related to its future anticipated debt issuances as part of its overall borrowing program. The sensitivity analysis table presented below shows the estimated instantaneous parallel shift in the yield curve up and down by 50 and 100 basis points, respectively, on the clean market value of its interest rate derivatives as of March 31, 2011, exclusive of non-performance risk.

Swap Notional	Less 100 basis points			Less 50 basis points			March 31, 2011 Value			Increase 50 basis points		Increase 100 basis points
$25M	$	(2,592,817	)	$	(1,419,206	)	$	(302,543	)	$	758,057	$	1,766,997
$50M	$	(3,260,359	)	$	(1,518,690	)	$	125,399		$	1,683,698	$	3,182,803

See Note 9 of the accompanying consolidated financial statements for a discussion on how the Company values derivative financial instruments. The Company calculates the value of its interest rate swaps based upon the present value of the future cash flows expected to be paid and received on each leg of the swap. The cash flows on the fixed leg of the swap are agreed to at inception and the cash flows on the floating leg of a swap change over time as interest rates change. To estimate the floating cash flows at each valuation date, the Company utilizes a forward curve which is constructed using LIBOR fixings, Eurodollar futures, and swap rates, which are observable in the market. Both the fixed and floating legs' cash flows are discounted at market discount factors. For purposes of adjusting its derivative valuations, the Company incorporates the nonperformance risk for both itself and its counterparties to these contracts based upon management's estimates of credit spreads, credit default swap spreads (if available) or Moody's KMV ratings in order to derive a curve that considers the term structure of credit.

As a corporation that will elect to qualify as a REIT for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2010, the Company's future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The Company will be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties and make real estate-related debt investments. The Company's interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, the Company expects to borrow

primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to convert variable rates to fixed rates. In addition, the Company uses derivative financial instruments to manage interest rate risk. The Company will not use derivatives for trading or speculative purposes and will only enter into contracts with major financial institutions based on their credit rating and other factors. Currently, the Company uses two interest rate swaps to manage its interest rate risk. See Note 9 of the accompanying consolidated financial statements.

Item 4. Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer, based on their evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, have concluded that as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder.

During the three months ended March 31, 2011, there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any material litigation nor, to our knowledge, is any material litigation pending or threatened against us, other than routine litigation arising out of the ordinary course of business or which is expected to be covered by insurance and not expected to harm our business, financial condition or results of operations.

Item 1A. Risk Factors

See our Annual Report on Form 10-K for the year ended December 31, 2010. There have been no significant changes to our risk factors during the three months ended March 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not sell any equity securities during the three months ended March 31, 2011 that were not registered under the Securities Act.

On October 23, 2007, we consummated a private placement of 8,000,000 warrants with NRDC Capital Management, LLC, an entity owned and controlled by certain of our executive officers and directors, and our initial public offering of 41,400,000 units, including 5,400,000 units pursuant to the underwriters' over-allotment option. We received net proceeds of approximately $384 million and also received $8 million of proceeds from the private placement sale of 8,000,000 insider warrants to NRDC Capital Management, LLC. Banc of America Securities, LLC served as the sole bookrunning manager for our initial public offering. The securities sold in the initial public offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-144871). The SEC declared the registration statement effective on October 17, 2007.

Upon the closing of the initial public offering and private placement, $406.5 million including $14.5 million of the underwriters' discounts and commissions was held in the Trust Account and invested in U.S. "government securities" within the meaning of Section 2(a)(16) of the 1940 Act having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the 1940 Act until the earlier of (i) the consummation of our initial "business combination" and (ii) our liquidation. On October 20, 2009, we consummated the Framework Transactions, which constituted our initial business combination. Stockholders representing an aggregate of 5,325 shares of common stock that we issued in our initial public offering elected to exercise conversion rights, while holders representing an aggregate of 41,394,675 shares we issued in our initial public offering did not exercise conversion rights, resulting in such shares remaining outstanding upon completion of the Framework Transactions. As a result, we had approximately $405 million released to us (after payment of deferred underwriting fees) from the Trust Account established in connection with our initial public offering to invest in our target assets and to pay expenses arising out of the Framework Transactions.

As of March 31, 2011, we have applied approximately $5.6 million of the net proceeds of the initial public offering and the private placement toward consummating a "business combination," including the Framework Transactions and paid approximately $392 million to acquire real estate properties. For more information see Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q.

No portion of the proceeds of the initial public offering was paid to directors, officers or holders of 10% or more of any class of our equity securities or their affiliates.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

Item 6. Exhibits

3.1	Second Amended & Restated Certificate of Incorporation.(1)

3.2	Second Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation.(2)

3.3	Third Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation.(2)

3.4	Fourth Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation.(2)

3.5	Amended and Restated Bylaws.(2)

4.1	Specimen Unit Certificate.(2)

4.2	Specimen Common Stock Certificate.(2)

4.3	Specimen Warrant Certificate.(2)

4.4	Form of Warrant Agreement between Continental Stock Transfer & Trust Company NRDC Acquisition Corp.(3)

4.5	Supplement and Amendment to Warrant Agreement by and between NRDC Acquisition Corp. and Continental Stock Transfer & Trust Company, dated as of October 20, 2009.(2)

10.1	Conveyance in Lieu of Foreclosure Agreement, dated as of January 28, 2011, by and among the Company, Lakha Properties-Sacramento, LLC, Lakha Properties-Sacramento II, LLC and Lakha Properties-Palm Desert, LLC, Lakha Investment Co., LLC and Amin S. Lakha.

31.1	Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	Incorporated by reference to the Company's registration statement on Form S-1/A filed on September 27, 2007 (File No. 333-33749).

(2)	Incorporated by reference to the Company's Current Report on Form 8-K filed on February 9, 2009.

(3)	Incorporated by reference to the Company’s registration statement on Form S-1/A filed on September 7, 2007 (File No. 333-144871).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RETAIL OPPORTUNITY INVESTMENTS CORP. Registrant
Date: May 6, 2011	/s/ Stuart A. Tanz Stuart A. Tanz President and Chief Executive Officer
Date: May 6, 2011	/s/ John B. Roche John B. Roche Chief Financial Officer