RETAIL OPPORTUNITY INVESTMENTS CORP - Quarter Report: 2012 March (Form 10-Q)

f10q_050412.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file number 001-33749

RETAIL OPPORTUNITY INVESTMENTS CORP.

(Exact name of registrant as specified in its charter)

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

81 Main Street, Suite 503 White Plains, New York (Address of principal executive offices)	10601 (Zip code)

(914) 620-2700

(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 o

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 x No o

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

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company o

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

Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 50,345,769 shares of common stock, par value $0.0001 per share, outstanding as of May 3, 2012.

TABLE OF CONTENTS

	Page
Part I. Financial Information	1
Item 1. Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011	1
Consolidated Statements of Operations and Comprehensive Income(Unaudited) for the three months ended March 31, 2012 and March 31, 2011	2
Consolidated Statements of Equity for the three months ended March 31, 2012 (Unaudited)	3
Consolidated Statements of Cash flows (Unaudited) for the three months ended March 31, 2012 and March 31, 2011	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	30

Part II. Other Information	31
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3. Defaults Upon Senior Securities	31
Item 4. Mine Safety Disclosures	31
Item 5. Other Information	31
Item 6. Exhibits	31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RETAIL OPPORTUNITY INVESTMENTS CORP.

CONSOLIDATED BALANCE SHEETS

	March 31, 2012 (unaudited)			December 31, 2011
ASSETS
Real Estate Investments:
Land	$	176,193,572		$	167,191,883
Building and improvements		449,998,716			413,640,527
		626,192,288			580,832,410
Less: accumulated depreciation		18,376,326			14,451,032
		607,815,962			566,381,378
Mortgage notes receivable		10,000,000			10,000,000
Investment in and advances to unconsolidated joint ventures		26,650,344			26,242,514
Real Estate Investments, net		644,466,306			602,623,892
Cash and cash equivalents		10,738,987			34,317,588
Restricted cash		1,703,079			1,230,808
Tenant and other receivables		7,721,266			6,895,806
Deposits		500,000			500,000
Acquired lease intangible asset, net of accumulated amortization		32,296,754			32,024,153
Prepaid expenses		981,014			672,679
Deferred charges, net of accumulated amortization		14,970,057			15,342,132
Other		851,981			825,569
Total assets	$	714,229,444		$	694,432,627

LIABILITIES AND EQUITY
Liabilities:
Credit facilities	$	125,000,000		$	110,000,000
Mortgage notes payable		67,864,171			59,905,964
Acquired lease intangibles liability, net of accumulated amortization		46,734,516			46,700,620
Accounts payable and accrued expenses		5,420,075			7,475,283
Tenants' security deposits		1,578,114			1,552,630
Other liabilities		18,000,685			18,309,076
Total liabilities		264,597,561			243,943,573
Commitments and contingencies		—			—

Equity:
Preferred stock, $.0001 par value 50,000,000 shares authorized; none issued and outstanding		—			—
Common stock, $.0001 par value 500,000,000 shares authorized; and 49,587,238 and 49,375,738 shares issued and outstanding at March 31, 2012 and December 31, 2011		4,959			4,938
Additional paid-in-capital		487,206,209			484,194,434
Accumulated deficit		(24,453,384	)		(19,617,877	)
Accumulated other comprehensive loss		(13,128,290	)		(14,094,830	)
Total Retail Opportunity Investments Corp. stockholders' equity		449,629,494			450,486,665
Noncontrolling interests		2,389			2,389
Total equity		449,631,883			450,489,054
Total liabilities and equity	$	714,229,444		$	694,432,627

The accompanying notes to consolidated financial statements are an integral part of these statements.

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RETAIL OPPORTUNITY INVESTMENTS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(unaudited)

	For the Three Months Ended
	March 31, 2012			March 31, 2011
Revenues
Base rents	$	13,341,420		$	7,181,194
Recoveries from tenants		3,104,042			1,905,219
Mortgage interest		202,222			954,508
Total revenues		16,647,684			10,040,921

Operating expenses
Property operating		2,969,348			1,095,524
Property taxes		1,599,159			1,052,393
Depreciation and amortization		6,649,818			4,251,799
General & Administrative Expenses		2,419,838			2,388,702
Acquisition transaction costs		122,843			175,115
Total operating expenses		13,761,006			8,963,533

Operating income		2,886,678			1,077,388
Non-operating income (expenses)
Interest expense and other finance expenses		(2,293,748	)		(915,902	)
Gain on bargain purchase		—			5,761,854
Equity in earnings from unconsolidated joint ventures		524,329			243,279
Interest income		10,145			13,470
Net income attributable to Retail Opportunity Investments Corp.	$	1,127,404		$	6,180,089

Basic income per share:	$	0.02		$	0.15

Diluted income per share:	$	0.02		$	0.15

Dividends per common share	$	0.12		$	0.08

Comprehensive income:
Net income attributable to Retail Opportunity Investments Corp.	$	1,127,404		$	6,180,089
Other comprehensive income
Unrealized gain on swap derivative		966,540			447,644
Total other comprehensive income		966,540			447,644
Total Comprehensive Income	$	2,093,944		$	6,627,733

The accompanying notes to consolidated financial statements are an integral part of these statements.

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RETAIL OPPORTUNITY INVESTMENTS CORP.

Consolidated Statements of Equity

(unaudited)

	Common Stock
	Shares		Amount		Additional paid-in capital			Retained earnings (Accumulated deficit)			Accumulated other comprehensive loss			Noncontrolling interests		Equity
Balance at December 31, 2011		49,375,738	$	4,938	$	484,194,434		$	(19,617,877	)	$	(14,094,830	)	$	2,389	$	450,489,054
Compensation expense related to options granted		—		—		57,051			—			—			—		57,051
Compensation expense related to restricted stock grants		—		—		498,148			—			—			—		498,148
Proceeds from the sale of stock		211,500		21		2,556,401			—			—			—		2,556,422
Registration expenditures		—		—		(99,825	)		—			—			—		(99,825	)
Dividends ($.12 per share)		—		—		—			(5,962,911	)		—			—		(5,962,911	)
Comprehensive income
Net Income Attributable to Retail Opportunity Investments Corp.		—		—		—			1,127,404			—			—		1,127,404
Other Comprehensive Income		—		—		—			—			966,540			—		966,540
Balance at March 31, 2012		49,587,238	$	4,959	$	487,206,209		$	(24,453,384	)	$	(13,128,290	)	$	2,389	$	449,631,883

The accompanying notes to consolidated financial statements are an integral part of these statements.

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RETAIL OPPORTUNITY INVESTMENTS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOW

(unaudited)

	For the Three Months Ended
	March 31, 2012			March 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,127,404		$	6,180,089
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		6,649,818			4,232,474
Amortization of deferred financing costs		110,582			46,102
Gain on bargain purchase		¾			(5,761,854	)
Straight-line rent adjustment		(959,388	)		(420,254	)
Amortization of above and below market rent		(748,257	)		(514,539	)
Amortization relating to stock based compensation		555,199			523,290
Provisions for tenant credit losses		382,608			328,351
Equity earned in earnings from unconsolidated joint ventures		(524,329	)		(243,279	)
Distribution of cumulative earnings from unconsolidated joint ventures		234,000			234,000
Change in operating assets and liabilities
Mortgage escrows		(361,907	)		(225,177	)
Tenant receivables		(248,680	)		(813,419	)
Prepaid expenses		(308,334	)		(163,651	)
Accounts payable and accrued expenses		(2,307,295	)		(544,932	)
Other asset and liabilities, net		512,686			1,412,830
Net cash provided by operating activities		4,114,107			4,270,031

CASH FLOWS FROM INVESTING ACTIVITIES
Investments in real estate		(36,471,938	)		(57,856,393	)
Investments in mortgage notes receivables		¾			(9,500,000	)
Investments in unconsolidated joint ventures		(735,000	)		(18,416,218	)
Return of capital from unconsolidated joint ventures		617,500			¾
Improvements to properties and deferred charges		(1,603,327	)		(424,626	)
Deposits on real estate acquisitions		(500,000	)		(500,000	)
Construction escrows and other		(110,364	)		(11,477	)
Net cash used in investing activities		(38,803,129	)		(86,708,714	)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayment on mortgages		(263,089	)		(176,499	)
Proceeds from the draw on revolving credit facility		15,000,000			13,000,000
Proceeds from the sale of stock		2,556,422			¾
Deferred financing and other costs		(130,986	)		¾
Registration expenditures		(97,915	)		¾
Dividends paid to common shareholders		(5,954,011	)		(3,357,135	)
Net cash provided by financing activities		11,110,421			9,466,366
Net decrease in cash and cash equivalents		(23,578,601	)		(72,972,317	)
Cash and cash equivalents at beginning of period		34,317,588			84,736,410
Cash and cash equivalents at end of period	$	10,738,987		$	11,764,093

The accompanying notes to consolidated financial statements are an integral part of these statements.

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RETAIL OPPORTUNITY INVESTMENTS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

(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"). The Company specializes in the acquisition, ownership and management of necessity-based community and neighborhood shopping centers in the western and eastern regions of the United States anchored by national and regional supermarkets and drugstores. The Company refers to the properties it targets for investments as its target assets.

With the approval of its stockholders, the Company reincorporated as a Maryland corporation on June 2, 2011. The Company began operations as a Delaware corporation, known as NRDC Acquisition Corp., which was incorporated in Delaware on July 10, 2007, for the purpose of acquiring through a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination with one or more assets or control of one or more operating businesses. On October 20, 2009, the Company's stockholders and warrantholders approved each of the proposals presented at the special meetings of stockholders and warrantholders, respectively, in connection with the transactions contemplated by the Framework Agreement (the "Framework Agreement") it entered into on August 7, 2009 with NRDC Capital Management, LLC, which, among other things, set forth the steps to be taken by it to continue its business as a corporation that has elected to qualify as a REIT for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2010. 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. The Company has elected to be taxed as a REIT, for U.S. federal income tax purposes commencing with the year ended December 31, 2010.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board ("FASB") issued updated guidance on disclosures relating to the reporting of other comprehensive income. The updated guidance eliminates the option to present components of other comprehensive income as part of the statement of equity. The updated guidance was effective as of January 1, 2012. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

Principles of Consolidation

The accompanying consolidated financial statements are prepared on the accrual basis in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP 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, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. 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, 2011.

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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.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the disclosure of contingent assets and liabilities, the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the periods covered by the financial statements. The most significant assumptions and estimates relate to the purchase price allocations, depreciable lives, revenue recognition and the collectability of tenant receivables, other receivables, notes receivables, the valuation of options and warrants and derivatives. Actual results could differ from these estimates.

Federal Income Taxes

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

Although it may qualify as a REIT for U.S. federal income tax purposes, 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, 2012, the tax years 2007 through and including 2011 remain open to examination by the Internal Revenue Service ("IRS") and state taxing authorities. During the year ended December 31, 2011, the IRS requested an examination of the Company's 2009 federal tax return. During the three months ended March 31, 2012 the Company reached a settlement with the IRS in which the Company paid to the IRS approximately $122,000. .

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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, 2012 and 2011, capitalized costs related to the improvements or replacement of real estate properties were approximately $1.8 million and $793,000, 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, 2012 and 2011 of approximately $123,000 and $175,000, respectively.

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Regarding the Company's 2012 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.

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 the Company's real estate investments was impaired at March 31, 2012.

The Company reviews its investments in its unconsolidated joint ventures for impairment periodically and the Company would record an impairment charge when events or circumstances change indicating that a decline in the fair values below the carrying values has occurred and such decline is other-than temporary. The ultimate realization of the Company's investment in its unconsolidated joint ventures is dependent on a number of factors, including the performance of each investment and market conditions. Management does not believe that the carrying value of any of the Company's unconsolidated joint ventures was impaired at March 31, 2012.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed the federally insured limit by the Federal Deposit Insurance Corporation. The Company has never experienced any losses related to these balances.

Restricted Cash

The terms of several of the Company's mortgage loans payable require the Company to deposit certain replacement and other reserves with its lenders. Such "restricted cash" is generally available only for property-level requirements for which the reserves have been established and is not available to fund other property-level or Company-level obligations

Revenue Recognition

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

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.

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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, 2012 and December 31, 2011 was approximately $2.6 million and $2.1 million, respectively.

Depreciation and Amortization

The Company uses the straight-line method for depreciation and amortization. Buildings are depreciated over the estimated useful lives which the Company estimates to be 39-40 years. Property improvements are depreciated over the estimated useful lives that range from 10 to 20 years. Furniture and fixtures are depreciated over the estimated useful lives that range from 3 to 10 years. Tenant improvements are amortized over the shorter of the life of the related leases or their useful life.

Deferred Charges

Deferred charges consist principally of leasing commissions and acquired lease origination costs (which are amortized ratably over the life of the tenant leases) and financing fees (which are amortized over the term of the related debt obligation). Deferred charges in the accompanying consolidated balance sheets are shown at cost, net of accumulated amortization of approximately $5.7 million and $4.7 million, as of March 31, 2012 and December 31, 2011, 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, 2012 and 2011, 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 "IPO"), the 8,000,000 warrants (the "Private Placement Warrants") purchased by NRDC Capital Management, LLC (the "Sponsor") simultaneously with the consummation of the IPO were not included in the calculation of diluted EPS since the weighted average share price was less than the exercise price during the quarter.

For the three months ended March 31, 2012 and 2011, basic EPS was determined by dividing net income allocable to common stockholders for the applicable period by the weighted average number of shares of common stock outstanding during such period. Net income during the applicable period is also allocated to the time-based unvested restricted stock as these grants are entitled to receive dividends and are therefore considered a participating security. Time-based unvested restricted stock is not allocated net losses and/or any excess of dividends declared over net income; such amounts are allocated entirely to the common stockholders other than the holders of time-based unvested restricted stock. For the three months ended March 31, 2012, the Company had 249,198 weighted average unvested restricted shares outstanding. The restricted stock grants awarded under the 2009 plan described in Note 6 are excluded from the basic EPS calculation, as these units are not participating securities.

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The following table sets forth the reconciliation between basic and diluted EPS:

	For the Three Months Ended
	March 31, 2012			March 31, 2011
Numerator:
Income attributable to Retail Opportunity Investments Corp.	$	1,127,404		$	6,180,089
Less, earnings allocated to unvested shares		(29,754	)		—
Net income available for common shareholders, basic and diluted	$	1,097,650		$	6,180,089

Denominator:
Denominator for basic EPS – weighted average common shares		49,603,759			41,846,694
Restricted stock awards-Performance-based		45,413			—
Stock Options		41,078			—
Denominator for diluted EPS – weighted average common equivalent shares		49,690,250			41,846,694

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 time-based grants stock are expensed as compensation over the vesting period. Awards of performance-based grants are expensed as compensation under an accelerated method and are recognized in income (loss) regardless of the results of the performance criteria.

Derivatives

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

Segment Reporting

The Company operates in one industry segment, ownership of commercial real estate properties. The Company does not distinguish in property operations for purposes of measuring performance. Accordingly, the Company believes it has a single reportable segment for disclosure purposes.

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Cash Flows

Supplemental Consolidated Statements of Cash Flow Information

	March 31, 2012		March 31, 2011
Supplemental disclosure of cash activities:
Cash paid for Federal and New York state income taxes	$	124,082	$	85,075
Interest paid		1,776,277		674,167
Other non-cash investing and financing activities:
Purchase accounting allocations:
Intangible lease liabilities		1,235,988		11,781,125
Earnout obligation		—		(524,896	)
Accrued payable to seller of real property		—		420,000
Accrued interest rate swap liabilities		920,148		70,274
Accrued improvements to properties and deferred charges		106,659		(74,296	)

2.	Real Estate Investments

The following real estate investment transactions have occurred during the three months ended March 31, 2012.

Property Acquisitions

On February 16, 2012, the Company acquired a shopping center in Marysville, Washington ("Gateway Shopping Center") for a purchase price of approximately $29.5 million. The Gateway Shopping Center is anchored by WinCo Foods (NAP) and Rite Aid. The property was acquired with cash.

On March 29, 2012, the Company acquired a shopping center in San Diego, California ("Euclid Plaza") for a purchase price of approximately $15.9 million. Euclid Plaza is anchored by a Vallarta Supermarkets. The property was acquired with cash of approximately $7.5 million and the assumption of an existing mortgage of approximately $8.4 million.

The financial information set forth below summarizes the Company's preliminary purchase price allocation for the properties acquired during the three months ended March 31, 2012.

	March 31, 2012
ASSETS
Land	$	9,001,688
Building and improvements		34,530,180
Acquired lease intangible asset		2,787,908
Deferred charges		316,212
Assets acquired	$	46,635,988
Acquired lease intangible liability	$	1,235,988
Mortgage notes assumed		8,428,061
Liabilities assumed	$	9,664,049

Pro Forma Financial Information

The pro forma financial information set forth below is based upon the Company's historical consolidated statements of operations for the three months ended March 31, 2012 and 2011, adjusted to give effect of these transactions at the beginning of each year.

The pro forma financial information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transaction occurred at the beginning of each year, nor does it purport to represent the results of future operations.

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	For the Three Months Ended
	March 31, 2012		March 31, 2011
Statement of operations:
Revenues	$	17,176,560	$	16,894,138
Property operating and other expenses		4,718,403		4,349,521
Depreciation and amortization		6,839,464		7,086,013
Net income attributable to Retail Opportunity Investments Corp.	$	5,618,693	$	5,458,604

The following table summarizes the operating results included in the Company's historical consolidated statement of operations for the three months ended March 31, 2012, for the properties acquired during the three months ended March 31, 2012.

Statement of operations:	Three Months Ended March 31, 2012
Revenues	$	342,999
Property operating and other expenses		70,294
Depreciation and amortization		130,992
Net income attributable to Retail Opportunity Investments Corp.	$	141,713

Mortgage Notes Receivable

The Company holds a $10.0 million second 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.

Unconsolidated Joint Ventures

At March 31, 2012 and December 31, 2011, investments in and advances to unconsolidated joint ventures consisted of the following (with the Company's ownership percentage in parentheses).

	March 31, 2012		December 31, 2011
Wilsonville OTS LLC (95%)	$	4,019,302	$	4,584,496
Crossroads Shopping Center (49%)		14,753,042		13,780,018
Mortgage note receivable secured by Riverside Plaza (50%)		7,878,000		7,878,000
Total	$	26,650,344	$	26,242,514

The Company has no contractual capital contribution commitments to its joint ventures.

The Company has evaluated its investments in the joint ventures and has concluded that the joint ventures are not VIEs. 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.

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3.	Mortgage Notes Payable and Credit Facilities

Mortgage Notes Payable

The mortgage notes payable collateralized by respective properties and assignment of leases at March 31, 2012 and December 31, 2011, respectively, were as follows:

Property	Maturity Date	Interest Rate			March 31, 2012		December 31, 2011
Cascade Summit Town Square	July 2012		7.25	%	$	6,837,798	$	6,894,650
Gateway Village I	February 2014		5.58	%		6,830,781		6,868,492
Gateway Village II	May 2014		5.73	%		6,982,319		7,019,258
Euclid Plaza	November 2014		5.23	%		8,428,061		-
Country Club Gate	January 2015		5.04	%		12,654,064		12,705,857
Renaissance Towne Center	June 2015		5.13	%		16,957,484		17,014,883
Gateway Village III	July 2016		6.10	%		7,524,114		7,546,509
						66,214,621		58,049,649
Mortgage Premium						1,649,550		1,856,315
Total mortgage notes payable					$	67,864,171	$	59,905,964

On March 29, 2012, the Company assumed an existing mortgage loan with an outstanding principal balance of approximately $8.4 million as part of the acquisition of Euclid Plaza. The Euclid Plaza loan bears interest at a rate of 5.23% per annum and has a maturity date of November 2014.

Credit Facilities

The Company has a credit facility with KeyBank National Association, as Administrative Agent and L/C Issuer, Bank of America, N.A. as Syndication Agent, PNC Bank, National Association and U.S. Bank National Association, as Co-Documentation Agents, and the other lenders party thereto, under which the lenders agreed to provide a $175.0 million unsecured revolving credit facility, with a letter of credit sub-limit of up to 20% of the then-current aggregate commitments. The credit facility also provides that the Company may from time to time request increased aggregate commitments of $125.0 million under certain conditions set forth in the credit facility, including the consent of the lenders for the additional commitments. The initial maturity date of the credit facility is September 20, 2014, subject to a one-year extension option, which may be exercised by the Company upon satisfaction of certain conditions, including payment of an extension fee to the credit facility administrative agent in an amount equal to 0.25% multiplied by the aggregate commitments to be shared pro rata among the lenders thereto.

The Company also has a term loan agreement with KeyBank National Association, as Administrative Agent, Bank of America, N.A., as Syndication Agent, PNC Bank, National Association, and U.S. Bank, National Association, as Co-Documentation Agents, and the other lenders party thereto, under which the lenders agreed to provide a $110.0 million unsecured term loan facility. The term loan also provides that the Company may from time to time request increased aggregate commitments of $65.0 million under certain conditions set forth in the term loan, including the consent of the lenders for the additional commitments. The maturity date of the term loan is September 20, 2015.

Borrowings under the credit facility and term loan agreements (collectively, the “loan agreements”) bear interest on the outstanding principal amount at a rate equal to, prior to such time as the Company has obtained an investment grade rating from at least two rating agencies, 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 0.50%, (b) the rate of interest announced by KeyBank National Association as its "prime rate," and (c) the Eurodollar Rate plus 1.00% (the "Base Rate"). From, and after the time the Company obtains an investment grade rating from at least two rating agencies, borrowings under the loan agreements will bear interest on the outstanding principal amount at a rate equal to an applicable rate based on the credit rating level of the Company, plus, as applicable, (i) the Eurodollar Rate, or (ii) the Base Rate. The Company is obligated to pay (i) prior to such time as the Company has obtained an investment grade rating from at least two rating agencies, an unused fee of (a) 0.35% if the total outstanding principal amount is less than 50% of the aggregate commitments or (b) 0.25% if the total outstanding principal amount is greater than or equal to 50% of the aggregate commitments, (ii) from and after such time as the Company has obtained an investment grade rating from at least two rating agencies, a facility fee at a facility fee rate based on the credit rating level of the Company, and (iii) a fronting fee at a rate of 0.125% per year with respect to each letter of credit issued under the agreements. The agreements contain certain representations, financial and other covenants typical for these types of facilities. The Company's ability to borrow under the loan agreements 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, 2012.

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As of March 31, 2012, $110.0 million was outstanding under the term loan and $15.0 million was outstanding under the credit facility. The average interest rate on borrowings under both loans during the three months ended March 31, 2012 was 2.1%. The Company had $165.0 million available to borrow under the credit facility at March 31, 2012. The Company had no available borrowings under the term loan.

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, 2012 and 2011, there were no shares of preferred stock outstanding.

5.	Common Stock and Warrants

On June 23, 2011, the Company entered into an ATM Equity OfferingSM Sales Agreement ("sales agreement") with Merrill Lynch, Pierce, Fenner & Smith Incorporated to sell shares of the Company's common stock par value $0.0001 per share, having aggregate sales proceeds of $50,000,000, from time to time, through an "at the market" equity offering program under which Merrill Lynch, Pierce, Fenner & Smith Incorporated ("agent") acts as sales agent and/or principal agent. During the three months ended March 31, 2012, the Company sold 211,500 shares under the sales agreement, which resulted in gross proceeds of approximately $2.6 million and commissions of approximately $51,000 paid to the agent. At March 31, 2012, the Company sold since the inception of the plan a total of 343,300 shares under the sales agreement, which resulted in gross proceeds of approximately $4.1 million and commissions of approximately $81,000 paid to the agent.

Simultaneously with the consummation of the IPO, 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 IPO 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 IPO 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 charter, does not exceed the restrictions contained in the charter limiting the ownership of shares of the Company's common stock.

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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 $40.0 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, 2012, the Company did not award any restricted stock under the 2009 Plan.

As of March 31, 2012, there remained a total of $1.7 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 1.4 years (irrespective of achievement of the performance grants). For the three months ended March 31, 2012 and 2011, amounts charged to expenses totaled approximately $498,000 and $466,000, respectively.

A summary of the status of the Company's non-vested restricted stock awards as of March 31, 2012, and changes during the three months ended March 31, 2012 are presented below:

	Shares			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2011		286,198		$	10.30
Granted
Vested		(13,667	)		10.44
Forfeited		(16,667	)		10.44
Non-vested at March 31, 2012		255,864		$	10.30

Stock Options

During the three months ended March 31, 2012, the Company did not award any options to purchase shares under the 2009 Plan.

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A summary of options activity as of March 31, 2012, and changes during the three months ended March 31, 2012 are presented below:

	Shares		Weighted Average Exercise Price
Outstanding at December 31, 2011		337,000	$	10.44
Granted		—		—
Exercised		—		—
Expired		—		—
Outstanding at March 31, 2012		337,000	$	10.44
Exercisable at March 31, 2012		157,933	$	10.53

For the three months ended March 31, 2012 and 2011, the amounts charged to expenses totaled approximately $57,000 during each period. The total unearned compensation at March 31, 2012, was approximately $268,000. The options vest over an average period of 1.25 years.

Profit Sharing and Savings Plan

During 2011, the Company established a profit sharing and savings plan (the "401K Plan"), which permits eligible employees to defer a portion of their compensation in accordance with the Code. Under the 401K Plan, the Company made contributions on behalf of eligible employees. The Company made contributions to the 401K Plan of approximately $7,000 for the three months ended March 31, 2012. The Company did not make any contributions to the 401K Plan during the three months ended March 31, 2011.

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.

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.

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The carrying values of cash and cash equivalents, restricted cash, tenant and other receivables, deposits, prepaid expenses, other assets, accounts payable and accrued expenses, revolving credit facilities and term loan are reasonable estimates of their fair values because of the short-term nature of these instruments. Mortgage notes receivables were recorded at the actual purchase price. Mortgage notes payable were recorded at their fair value at the time they were assumed and are estimated to have a fair value of approximately $70.4 million as of March 31, 2012.

Disclosure about fair value of financial instruments is based on pertinent information available to us as of March 31, 2012. 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.	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 $25.0 million forward starting interest rate swap with Wells Fargo Bank, N.A. The forward starting swap is being used to hedge variable cash flows associated with the Company's variable-rate debt. The swap was effective on April 15, 2011 and 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, 2012, the Company realized approximately $18,800 of ineffectiveness as a result of the hedging relationship.

During the year ended December 31, 2010, the Company entered into a $50.0 million forward starting interest rate swap with PNC Bank. The forward starting swap is being used to hedge the variable cash flows associated with the Company's variable-rate debt. The swap was effective on July 1, 2011 and 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, 2012, the Company realized no ineffectiveness as a result of the hedging relationship.

During the year ended December 31, 2011, the Company entered into a $50.0 million forward starting interest rate swap with Bank of Montreal. 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 April 2, 2012 and March 1, 2015. The swap has a maturity date of April 1, 2019. 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, 2012, the Company realized no ineffectiveness as a result of the hedging relationship.

During the year ended December 31, 2011, the Company entered into a $25.0 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 between April 2, 2012 and April 2, 2019. The swap has a maturity date of April 2, 2019. 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, 2012, the Company realized approximately $7,000 of ineffectiveness as a result of the hedging relationship.

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The valuation of these instruments 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.

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, 2012 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, 2012, 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, 2012

	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, 2012
Assets
Derivative financial instruments	$	—	$	—		$	—	$	—
Liabilities
Derivative financial instruments	$	—	$	(12,936,272	)	$	—	$	(12,936,272	)

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 $4.1 million will be reclassified as an increase to interest expense.

As of March 31, 2012, 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		4		$150,000,000

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, 2012 and December 31, 2011, respectively:

Derivatives designed as hedging instruments		Balance sheet location		March 31, 2012 Fair Value (liability)		December 31, 2011 Fair Value (liability)
Interest rate products		Other liabilities		$(12,936,272)		$(13,856,420)

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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, 2012 and 2011, respectively. Amounts reclassified from other comprehensive income and ineffectiveness are recognized as interest expense and amounts related to ineffectiveness.

	As of March 31, 2012			As of March 31, 2011
Amount of gain (loss) recognized in OCI on derivative	$	(394,464	)	$	(447,544	)
Amount of gain (loss) reclassified from accumulated OCI into interest	$	(572,076	)	$	—
Amount of gain or (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)	$	(25,651	)	$	(49	)

9.	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.

The Company's headquarters are located in White Plains, New York, which it leases from a third party. The terms of the lease will expire in February 2014. Future minimum rents payable under the terms of the lease, amount to approximately $47,800, $63,800, and $10,640, during the years 2012 through 2014, respectively.

10.	Related Party Transactions

The Company had 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 provided the Company with access to, among other things, their information technology and office space. On October 31, 2011 this agreement expired. For the three months ended March 31, 2011 the Company incurred $22,500 of expenses relating to this agreement which is included in general and administrative expenses in the accompanying consolidated statements of operations. The Company did not incur any expenses relating to this agreement during the three months ended March 31, 2012.

In May 2010, the Company had 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 had provided the use of office space and other resources for a monthly fee of $1,938. The agreement was terminated on October 31, 2011 due to the relocation of office space. For the three months ended March 31, 2011 the Company incurred approximately $5,800 of expenses relating to this agreement which is included in general and administrative expenses in the accompanying consolidated statements of operations. The Company did not incur any expenses relating to this agreement during the three months ended March 31, 2012, since the agreement was terminated on October 31, 2011.

In August 2011, the Company entered into two lease agreements effective July 1, 2011, with an officer of the Company. Pursuant to the lease agreements, the Company is provided the use of storage space for a monthly fee of $790. For the three months ended March 31, 2012, the Company incurred $2,370 of expenses relating to the agreements which were included in general and administrative expenses in the accompanying consolidated statements of operations. The Company did not incur any expenses relating to these agreements during the three months ended March 31, 2011, since the agreements became effective on July 1, 2011.

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11.	Subsequent Events

In determining subsequent events, the Company reviewed all activity from April 1, 2012 to the date the financial statements are issued and discloses the following items:

On April 1, 2012 the Company awarded a total of 306,000 shares of restricted common stock and 11,500 options to purchase common stock under the 2009 Plan.

On April 2, 2012, the Company acquired a $11.2 million defaulted first mortgage loan secured by a drugstore shopping center for a purchase price of approximately $8.3 million. The acquisition of the mortgage note was funded with cash.

In April 2012, the Company deposited a total of $1,000,000 into an interest-bearing account with a title company in accordance with a purchase sale agreement entered into on April 5, 2012. The deposit is for the potential acquisition of the property known as Marlin Cove. The deposit was funded with cash.

On April 10, 2012, the Company paid off $6.9 million of mortgage debt that was secured by the Cascade Summit shopping center.

On May 2, 2012, the Company's board of directors declared a cash dividend on its common stock of $0.13 per share, payable on May 30, 2012 to holders of record on May 16, 2012.

On May 3, 2012, the Company acquired the property known as Aurora Square located in the Seattle suburb of Shoreline, Washington for a purchase price of $4.2 million. Aurora Square is 38,030 square feet and is anchored by a 35,000 square foot Central Market. The property was acquired with cash.

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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. and its consolidated subsidiaries 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;

·	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 operate and our concentration in those markets, 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 own or 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 own or acquire and their tenants;

·	our relationships with our tenants and their financial condition and liquidity;

·	our ability to continue to qualify as a real estate investment trust (a “REIT”) for U.S. federal income tax;

·	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 currently have or subsequently 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 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.

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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. commenced operations in October 2009 as a fully integrated and self-managed REIT. The Company specializes in the acquisition, ownership and management of necessity-based community and neighborhood shopping centers in the western and eastern regions of the United States, anchored by national and regional supermarkets and drugstores. The Company refers to the properties it targets for investment as its target assets.

From the commencement of its operations through March 31, 2012, the Company completed approximately $671.0 million of shopping center investments. As of March 31, 2012, the Company's portfolio consisted of 32 wholly-owned retail properties totalling approximately 3.4 million square feet of gross leasable area (“GLA”). The Company also owns two retail properties owned through joint ventures, encompassing approximately 500,000 square feet of GLA. The joint ventures are comprised of a 49% ownership interest in the Crossroads Shopping Center, a 464,822 square foot shopping center situated on approximately 40 acres of land, which is currently 92% leased and a 95% interest in a shopping center located in Wilsonville, Oregon. In addition, the Company owns a 50% interest in a B-note of an existing promissory note secured by a 407,952 square foot shopping center.

As of March 31, 2012, the Company's portfolio was approximately 92.2% leased. At March 31, 2012, the Company considered 28 of its wholly-owned properties to be stabilized properties with a weighted average leased area of 94.4%. The remaining four properties were considered by the Company to be re-development properties that were 76.0 % leased at March 31, 2012. During the three months ended March 31, 2012, the Company leased or renewed a total of 172,461 square feet in its portfolio. The Company has committed approximately $445,000 and $134,000 in tenant improvements and leasing commissions respectively, for the new leases and renewals that occurred during the year ended March 31, 2012. During the three months ended March 31, 2012, the Company experienced a 1.0% increase in rental rates across its portfolio with respect to lease renewals that expired during such period.

The Company reincorporated as a Maryland corporation on June 2, 2011. The Company has elected to be taxed as a REIT, for U.S. federal income tax purposes, commencing with the year ended December 31, 2010.

Subsequent Events

On April 1, 2012 the Company awarded a total of 306,000 shares of restricted common stock and 11,500 options to purchase common stock under the Company’s 2009 Equity Incentive Plan.

On April 2, 2012, the Company acquired a $11.2 million defaulted first mortgage loan secured by a drug store-anchored shopping center for a purchase price of approximately $8.3 million. The acquisition of the mortgage note was funded with cash.

On April 10, 2012, the Company paid off $6.9 million of mortgage debt that was secured by the Cascade Summit shopping center.

On May 2, 2012, the Company's board of directors declared a cash dividend on its common stock of $0.13 per share, payable on May 30, 2012 to holders of record on May 16, 2012.

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Report on Operating Results

Funds from operations ("FFO"), is a widely-recognized non-GAAP financial measure for REITs that the Company believes when considered with financial statements determined in accordance with GAAP, provides additional and useful means to assess its 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, sales of depreciable property, and impairments, 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, 2012 and 2011, were $123,000 and$175, 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 REITs 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, 2012 and 2011.

	Three Months Ended
	March 31, 2012			March 31, 2011
	$	1,127,404		$	6,180,089
Net income for period

Plus: Real property depreciation		3,206,588			1,803,464
Amortization of tenant improvements and allowances		1,088,800			565,863
Amortization of deferred leasing costs		2,960,695			2,321,823
Funds from operations	$	8,383,487		$	10,871,239

Net Cash Provided by (Used in):
Operating Activities	$	4,114,107		$	4,270,031
Investing Activities	$	(38,803,129	)	$	(86,708,714	)
Financing Activities	$	11,110,421		$	9,466,366

Results of Operations

At March 31, 2012, the Company had equity interests in 34 properties, of which 32 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.

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Results of Operations for the three months ended March 31, 2012 compared to the three months ended March 31, 2011.

The following comparison for the three months ended March 31, 2012 compared to the three months ended March 31, 2011, makes reference to the effect of the same-store properties. Same-store properties represent all consolidated operating properties owned by the Company in the same manner during both periods which totaled 17 of the Company’s 32 consolidated properties. Operating income is defined as operating income generated from the Company’s consolidated operating properties (net of depreciation and amortization).

During the three months ended March 31, 2012, the Company generated net income of approximately $1.1 million compared to net income of $6.2 million generated during the three months ended March 31, 2011. The substantial cause of the differences during the two periods resulted from a bargain purchase gain recorded during the three months ended March 31, 2011. 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. In addition, operating income increased by $2.5 million as a result of an increase in the number of properties owned by the Company in 2012 compared to 2011 and an increase in same- store properties operating income. As of March 31, 2012, the Company owned 32 properties as compared to 24 properties at March 1, 2011. The newly acquired properties increased operating income in 2012 by approximately $1.8 million. Operating income from the 17 same-store properties increased operating income by approximately $680,000 primarily due to an increase in the weight average leased area which increased to 90.8% in 2012 as compared to 89.6% in 2011 for these properties. During the three months ended March 31, 2012, interest income generated from mortgages notes receivables decreased by approximately $750,000 as a result of the Company obtaining ownership interest in three properties that were previously secured by a mortgage note. The Company obtained the properties through a Conveyance in Lieu of Foreclosure agreement during the three months ended March 31, 2011. During the three months ended March 31, 2012, the Company incurred approximately $2.3 million of interest expense compared to approximately $916,000 during the three months ended March 31, 2011, due to borrowings on the term loan. During the three months ended March 31, 2012, the Company had $110.0 million outstanding on its term loan. There were no borrowings outstanding on the term loan at March 31, 2011, as the Company obtained the loan after March 31, 2011.

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 the Company's accounting policies included in Note 1 to the Company's 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 the Company's 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.

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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 its 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.

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

Buildings	39-40 years
Property Improvements	10-20 years
Furniture/Fixtures	3-10 years
Tenant Improvements	Shorter of lease term or their useful life

Asset Impairment

The Company reviews its investments in its unconsolidated joint ventures for impairment periodically and the Company would record an impairment charge when events or circumstances change indicating that a decline in the fair values below the carrying values has occurred and such decline is other-than temporary. The ultimate realization of the Company's investment in its unconsolidated joint ventures is dependent on a number of factors, including the performance of each investment and market conditions. Management does not believe that the value of its unconsolidated joint ventures was impaired at March 31, 2012.

REIT Qualification Requirements

The Company has elected and qualified to be taxed as a REIT under the Code, and believes that it has been organized and has operated in a manner that will allow it to continue to qualify for taxation as a REIT under the Code.

The Company is subject to a number of operational and organizational requirements to qualify and then maintain qualification as a REIT. If the Company does not qualify as a REIT, its income would become subject to U.S. federal, state and local income taxes at regular corporate rates that would be substantial and the Company cannot re-elect to qualify as a REIT for four taxable years following the year that it failed to qualify as a REIT. The resulting adverse effects on the Company's results of operations, liquidity and amounts distributable to stockholders would be material.

Liquidity and Capital Resources

Liquidity is a measure of the Company's ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain its assets and operations, make distributions to its stockholders and meet other general business needs. During the three months ended March 31, 2012, the Company's primary sources of cash was (i) cash on hand and cash flows from operating activities, (ii) proceeds from bank borrowings and (iii) proceeds from the sale of common stock. As of March 31, 2012, the Company has determined that it has adequate working capital to meet its debt obligations and operating expenses for the next twelve months.

The Company has a credit facility with several banks which provides for up to $175.0 million of unsecured borrowings, with a letter of credit sub-limit of up to 20% of the then-current aggregate commitments. The credit facility also provides that the Company may from time to time request increased aggregate commitments of $125.0 million under certain conditions set forth in the credit facility, including the consent of the lenders for the additional commitments. The initial maturity date of the credit facility is September 20, 2014, subject to a one-year extension option, which may be exercised by the Company upon satisfaction of certain conditions, including payment of an extension fee to the credit facility administrative agent in an amount equal to 0.25% multiplied by the aggregate commitments to be shared pro rata among the lenders thereto. As of March 31, 2012, $15.0 million was outstanding under the credit facility.

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The Company also has a term loan that provides for up to $110.0 million of unsecured borrowings. The term loan also provides that the Company may from time to time request increased aggregate commitments of $65.0 million under certain conditions set forth in the term loan, including the consent of the lenders for the additional commitments. The maturity date of the term loan is September 20, 2015. As of March 31, 2012, $110.0 million was outstanding under the term loan.

Pursuant to the term loan and credit facility agreements, the Company is subject to various affirmative and negative covenants, including limitations on liens, investments, indebtedness, fundamental organizational changes, dispositions, changes in the nature of business, transactions with affiliates, burdensome agreements, use of proceeds and stock repurchases. The Company is also required to comply with the following financial covenants: (i) minimum consolidated tangible net worth equal to the sum of $326 million plus 80% of the net proceeds of future equity sales and issuances by the Company, (ii) minimum consolidated fixed charge coverage ratio of 1.5 to 1.0, (iii) maximum consolidated leverage ratio of 60%, (iv) maximum quarterly distributions as determined pursuant to the credit agreement, (v) maximum consolidated unencumbered leverage ratio of 60%, (vi) maximum consolidated secured indebtedness ratio of 40% and (vii) maximum consolidated unsecured indebtedness as of the last day of any fiscal quarter, of the Mortgageability Amount (as defined in each of the agreements).

During the three months ended March 31, 2012, the Company assumed an existing mortgage loan with an outstanding principal balance of approximately $8.4 million as part of the acquisition of Euclid Plaza. The assumption of the loan was deemed to be cost beneficial when compared to the defeasance fees that would have been incurred to prepay the loan on behalf of the seller of the property.

During the year ended December 31, 2011, the Company entered into an ATM Equity OfferingSM Sales Agreement ("sales agreement") with Merrill Lynch, Pierce, Fenner & Smith Incorporated to sell shares of the Company's common stock, par value $0.0001 per share, having aggregate sales proceeds of $50.0 million from time to time, through an "at the market" equity offering program under which Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as sales agent and/or principal (“agent”). During the three months ended March 31, 2012, the Company sold 211,500 shares under the sales agreement, which resulted in gross proceeds of approximately $2.6 million and commissions of approximately $51,000 paid to the agent.

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 the Company's interest rate risk and liquidity needs, meet other operating objectives and adapt to market conditions. The timing and impact of future sales of its investments, if any, cannot be predicted with any certainty.

Potential future sources of capital include cash flows from operating activities, proceeds from unsecured or secured financings from banks or other lenders and undistributed funds from operations. In addition, the Company anticipates raising additional capital from future equity financings and if the value of its common stock exceeds the exercise price of its warrants through the sale of common stock to the holders of its warrants from time to time.

Net Cash Flows from:

Operating Activities

Net cash flows provided by operating activities amounted to $4.1 million in the three months ended March 31, 2012, compared to $4.3 million in the comparable period in 2011. During the three months ended March 31, 2012, cash flows from operating activities was increased by approximately $3.4 million due to additional operating income from new acquisitions. This increase was partially offset by an increase in interest expense of $1.4 million in 2012 as a result of higher borrowing amounts in 2012 and due to a decrease in accrued expenses of $2.4 million in 2012.

Investing Activities

Net cash flows used by investing activities amounted to $38.8 million in the three months ended March 31, 2012, compared to $86.7 million in the comparable period in 2011. During the three months ended March 31, 2012, the Company acquired two properties totaling a net cash investment of $36.5 million. During the comparable period in 2011 the Company acquired two properties and several mortgages notes receivables totaling a net cash investment of approximately $85.8 million.

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Financing Activities

Net cash flows provided by financing activities amounted to $11.1 million for the three months ended March 31, 2012, compared to $9.5 million in the comparable period in 2011. During the three months ended March 31, 2012, the Company received proceeds of $15.0 million from borrowings on its revolving credit facility compared to $13.0 million in the comparable period a year ago. In both periods the Company used the proceeds to partially finance property and mortgage notes receivable acquisitions. During the three months ended March 31, 2012, the Company received proceeds of approximately $2.5 million from the sale of common stock. Partially offsetting the increase in financing activities was an increase in the dividend payment to common stockholders of approximately $2.6 million during the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. The dividend payment increased in 2012 as a result of an increase in the quarterly rate in 2012 of $0.04 and an increase in the number of shares outstanding in 2012 due to a common stock offering in December 2011.

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, 2012:

	2012		2013		2014		2015		2016		Thereafter		Total
Contractual obligations:
Mortgage Notes Payable (1)	$	7,579,911	$	980,764	$	22,090,425	$	28,354,304	$	7,209,217		—	$	66,214,621
Term loan		—		—		—		110,000,000		—		—		110,000,000
Credit facility		15,000,000		—		—		—		—		—		15,000,000
Earn-out obligations to the sellers of properties		—		4,136,380		—		—		—		—		4,136,380
Operating lease obligations		518,166		690,888		690,888		690,888		754,910		24,900,617		28,246,357
Total	$	23,098,077	$	5,808,032	$	22,781,313	$	139,045,192	$	7,964,127	$	24,900,617	$	223,597,358

(1)	Does not include unamortized mortgage premium of $1.6 million as of March 31, 2012.

As of March 31, 2012, the Company did not have any capital lease obligations, or purchase obligations.

The Company had entered into two lease agreements with an officer of the Company in a prior year. Pursuant to the lease agreement, the Company is provided the use of storage space for a monthly fee of $790.

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

The Company’s leases generally require the tenants to be responsible for a pro rata portion of the real estate taxes.

Inflation

The Company's long-term leases contain provisions to mitigate the adverse impact of inflation on its operating results. Such provisions include clauses entitling the Company to receive (a) scheduled base rent increases and (b) percentage rents based upon tenants' gross sales which generally increase as prices rise. In addition, many of the Company's non-anchor leases are for terms of less than ten years, which permits the Company to seek increases in rents upon renewal at then-current market rates if rents provided in the expiring leases are below then-existing market rates. Most of the Company's leases require tenants to pay a share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation.

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Leverage Policies

The Company employs prudent amounts of leverage and uses debt as a means of providing additional funds for the acquisition of its properties and the diversification of its portfolio. The Company seeks to primarily utilize unsecured debt in order to maintain liquidity and flexibility in its capital structure.

As of March 31, 2012, the Company had $110.0 million of borrowings outstanding on its term loan and $15.0 million outstanding on the credit facility. The Company's ability to borrow under the credit facility is subject to its compliance with the covenants and other restrictions on an on-going basis. The Company was in compliance with such covenants at March 31, 2012. The credit facilities provide that the Company may from time to time request increased aggregate commitments, subject to certain conditions, including the consent of the lenders for the additional commitments.

In addition, in connection with the acquisition of a property on March 29, 2012, the Company assumed a mortgage representing an unpaid principal amount as of March 31, 2012 of approximately $8.4 million.

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 may protect 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.

The Company plans to finance future acquisitions of its target assets through a combination of cash, borrowings under its credit facilities, the assumption of existing mortgage debt in connection with the future acquisition of properties, and equity and debt offerings. 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.

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Dividends

The Company intends to make regular quarterly distributions to holders of its 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. The Company intends to pay regular quarterly dividends to its stockholders in an amount not less than its net taxable income, if and to the extent authorized by its board of directors. If the Company's cash available for distribution is less than its net taxable income, the Company could be required to sell assets or borrow funds to make cash distributions or the Company 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

The Company's primary market risk exposure is to changes in interest rates related to its 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, 2012, the Company had $125.0 million of variable rate debt outstanding. As of March 31, 2012, the Company has primarily used fixed-rate debt and four forward starting interest rate swaps to manage its interest rate risk. See the discussion under Note 8, “Derivative and Hedging Activities,” to the accompanying consolidated financial statements for certain quantitative details related to the interest rate swaps.

The Company entered into four 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, 2012, exclusive of non-performance risk.

Swap Notional	Less 100 basis points			Less 50 basis points			March 31, 2012 Value			Increase 50 basis points			Increase 100 basis points
$ 25M		(2,402,374	)		(1,605,050	)		(800,764	)		19,915			810,678
$ 50M		(8,169,857	)		(6,529,153	)		(4,863,745	)		(3,166,777	)		(1,531,022	)
$ 50M		(7,769,851	)		(6,323,668	)		(4,837,775	)		(3,308,428	)		(1,829,063	)
$ 25M		(5,602,231	)		(4,437,539	)		(3,290,049	)		(2,193,799	)		(1,146,560	)

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, 2012, 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.

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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, 2011. There have been no significant changes to our risk factors during the three months ended March 31, 2012.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

3.1	Articles of Merger between Retail Opportunity Investments Corp., a Delaware corporation, and Retail Opportunity Investments Corp., a Maryland corporation, as survivor (1).

3.2	Articles of Amendment and Restatement.(1)

3.3	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)

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

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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.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Database

101.DEF

Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

(1)	Incorporated by reference to the Company's current report on Form 8-K filed on June 2, 2011.

(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).

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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 4, 2012	/s/ Stuart A. Tanz Stuart A. Tanz President and Chief Executive Officer
Date: May 4, 2012	/s/ John B. Roche John B. Roche Chief Financial Officer

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