Caution warranted
There are also three uncertainties regarding the warrants. So long as the stock remains above the $12 strike price, investors are more likely to exercise them, the company receive money, and shareholder count increase. But if the stock were to decline below $12 and remain there at expiration, outstanding warrants would expire worthless and without exercise — no dilution, but also no cash from exercise. And for all sorts of reasons beyond my pay grade, the company is able to and could change the warrant strike. For all these reasons, reducing uncertainty over the warrants is good for the stock and for shareholders.
Potential multi-bagger
Whatever the outcome, investors must be patient for any stock rise after the warrant uncertainty is removed and assuming continued positive fundamentals. In the short term, we must ignore at last one expected bump in the road. The company expects to announce in its May 2 first-quarter report a guidance revision downward because of the timing of receiving the capital and investing it.
Retail Opportunity Investments Corp (NASDAQ:ROIC)’s quarterly dividend has risen steadily from $0.06 a share at inception to the most recent quarter’s $0.15. The latter is a run-rate $0.60 annually and 4.6% yield on yesterday’s $13.18 close. With the company’s investments, low leverage, and a disciplined CEO intent on paying value prices for strong unique assets on the West Coast, now is a great time to invest with patience. First, patience for now to warrant expiration, and then a potential long-term catalyst, where multi-year patience could yield multi-bagger gains. CEO Tanz created in 1997 a similar REIT, Pan Pacific Properties, selling in a hot real estate market to Kimco Realty Corp (NYSE:KIM) in 2006 for 9 times its original value.
Meanwhile, CEO Tanz’s history of purchasing shopping centers in strategic locations at discounts from distressed buyers provides a margin of safety. And at today’s valuation, investors take little risk for multiple future opportunities for gains. Value investors are licking their lips.
The article ROIC Reduces Warrant Overhang, Boosts Huge Potential Stock Gains originally appeared on Fool.com and is written by Tom Jacobs.
Tom Jacobs is Lead Advisor for Motley Fool Special Ops, a special situations, opportunistic value, and earnings quality short investment service, based on his new book with Motley Fool John Del Vecchio, What’s Behind the Numbers? and the work of Joel Greenblatt. Follow Tom @TomJacobsInvest and his Fool.com articles. Tom owns shares of Retail Opportunity Investments. The Motley Fool recommends Retail Opportunity Investments. The Motley Fool owns shares of Retail Opportunity Investments. The Motley Fool is the greatest ever (Tom added that one, and, like, duh!)
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