UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549


FORM 10-K




[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the fiscal year ended December 31, 2010




or




[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from            to        .


Commission file number:  001-33749




RETAIL OPPORTUNITY INVESTMENTS CORP.


(Exact name of registrant as specified in its charter)




Delaware

(State or other jurisdiction of

incorporation or organization)

3 Manhattanville Road

Purchase, New York

(Address of principal executive offices)
26-0500600

(I.R.S. Employer

Identification No.)

10577

(Zip code)





Registrant's telephone number, including area code:


(914) 272-8080


Securities Registered Pursuant to Section 12(b) of the Act:




Title of Each Class

Name of Exchange on Which RegisteredCommon Stock, $0.0001 par value per share

The NASDAQ Stock Market LLCWarrants, exercisable for Common Stock at

an exercise price of $12.00 per share

The NASDAQ Stock Market LLCUnits, each consisting of one share of

Common Stock and one Warrant

The NASDAQ Stock Market LLC





Securities Registered Pursuant to Section 12(g) of the Act:




None




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  [  ]No  [X]




Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  [  ]  No  [X]




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  [X]  No  [  ]




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  [  ]  No  [  ]




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]




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.  (Check one):




Large accelerated filer

[  ]
Accelerated filer

[X]
Non accelerated filer  [  ]

(Do not check if a smaller reporting company)
Smaller reporting company

[  ]





Indicate by check mark whether the registrant is a Shell Company (as defined in rule 12b-2 of the Exchange Act).  Yes  [  ]  No  [X]




The aggregate market value of the common equity held by non-affiliates of the registrant as of June 30, 2010, the last business day of the registrant's most recently completed second fiscal quarter, was $395,738,732 (based on the closing sale price of $9.65 per share of the registrant's common stock on that date as reported on the NASDAQ Global Market).




Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:  41,799,433 shares of common stock, par value $0.0001 per share, outstanding as of February 23, 2011.




DOCUMENTS INCORPORATED BY REFERENCE




Portions of the registrant's definitive proxy statement for the registrant's 2011 Annual Meeting, to be filed within 120 days after the registrant's fiscal year, are incorporated by reference into Part III of this Annual Report on Form 10-K.


RETAIL OPPORTUNITY INVESTMENTS CORP.
  TABLE OF CONTENTS


PagePART I

2Item 1.
Business
2Item 1A.
Risk Factors
6Item 1B.
Unresolved Staff Comments
21Item 2.
Properties
21Item 3.
Legal Proceedings
22Item 4.
(Removed and Reserved)
22PART II

23Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
23Item 6.
Selected Financial Data
26Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
26Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
35Item 8.
Financial Statements and Supplementary Data
36Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
36Item 9A.
Controls and Procedures
37Item 9B.
Other Information
37PART III

38Item 10.
Directors, Executive Officers and Corporate Governance
38Item 11.
Executive Compensation
38Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
38Item 13.
Certain Relationships and Related Transactions, and Director Independence
38Item 14.
Principal Accounting Fees and Services
38PART IV

39Item 15.
Exhibits and Financial Statement Schedules
39SIGNATURES

45




i


Statements Regarding Forward-Looking Information




When used in this discussion and elsewhere in this Annual Report on Form 10-K, the words "believes," "anticipates," "projects," "should," "estimates," "expects," and similar expressions are intended to identify forward-looking statements with 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 and the time period required for us to acquire our initial portfolio of our target assets;




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




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




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




·
consumer spending and confidence trends;




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




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




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




·
our relationships with our tenants and their financial condition;




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




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




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




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




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




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










PARTI




In this Annual Report on Form 10-K, unless the context requires otherwise, all references to "the Company," "our company," "we," "our," and "us" means Retail Opportunity Investments Corp. and one or more of our subsidiaries, including our operating partnership.




Item 1.
Business




The Company




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




We were incorporated in Delaware in July 2007 and initially formed as special purpose acquisition company.  We commenced our current business operations in October 2009 following the approval by our stockholders and warrantholders of a series of proposals contemplated by the Framework Agreement, dated August 7, 2009, between us and NRDC Capital Management, LLC (the "Framework Agreement") that allowed us to continue our business as a corporation that will elect to qualify as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2010.  We currently operate in a traditional umbrella partnership real estate investment trust ("UpREIT") format pursuant to which Retail Opportunity Investments GP, LLC, our wholly-owned subsidiary, serves as the general partner of, and we conduct substantially all of our business through, our operating partnership subsidiary, Retail Opportunity Investments Partnership, LP, a Delaware limited partnership (our "operating partnership"), and its subsidiaries.  At our 2011 annual meeting of stockholders, our stockholders will be asked to approve a series of proposals that will allow us to convert into a Maryland corporation.




Investment Strategy




We believe that the current market environment presents a significant and growing opportunity to acquire, reposition and manage necessity-based community and neighborhood shopping centers to profitable returns, offering us the potential to achieve attractive risk adjusted returns for our stockholders over time primarily through dividends and secondarily through capital appreciation.  To identify attractive opportunities within our target assets, we rely on the expertise and experience of our management team.  We utilize our management team's extensive contacts in the U.S. real estate market to source investment opportunities, in particular through access to both distressed and more conventional sellers such as banks, institutions, REITs, property funds, other companies and private investors.




In implementing our investment strategy, we utilize our management team's expertise in identifying undervalued real estate and real estate-related debt investments with a focus on the retail sector.  We believe that the key factors to determining current value and future growth potential include the ability to identify the fundamental qualities of an individual asset, understand the inherent strengths and weaknesses of a market, utilize local market knowledge to identify sub-market drivers and trends, and understand how to mitigate appropriate risks prior to the acquisition of an asset.  We seek to target assets where our management team believes there is an opportunity to lease-up vacant space, renew or release expiring leases and take advantage of economies of scale achieved in the management and leasing of properties acquired and developed within our target markets, and redesign and reposition properties that maximize rental revenues and property potential.  We believe that our management team's acquisition process and operational expertise provides us with the capability to identify and properly underwrite investment opportunities.




We also believe that in the current market, we will continue to have opportunities to acquire properties from sellers not able to refinance maturing debt as well as to acquire properties arising out of foreclosure sales or owned by lenders following foreclosures.  In addition, we may find opportunities to acquire properties with deferred capital expenditures, design flaws or other perceived risks, such as tenancy issues or near-term lease expirations.


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 Further, we may find opportunities in incomplete projects held by undercapitalized and/or defaulting developers or partially leased complexes with inexperienced management unable to achieve market occupancy.


With respect to real estate-related debt investments, our primary focus is opportunities to acquire control positions that will enable us to obtain the asset should a default occur, provided that the underlying real estate meets our criteria for direct investment.




Our aim is to seek to provide a diversification of asset classes, tenant exposures, lease terms and locations as our portfolio expands.  In order to capitalize on the changing sets of investment opportunities that may be present in the various points of an economic cycle, we may expand or refocus our investment strategy by emphasizing investments in different parts of the capital structure and different areas of the real estate sector.  Our investment strategy may be amended from time to time, if approved by our board of directors.  We are not required to seek stockholder approval when amending our investment strategy.




Our Operating Strategy




Enhancing rental and capital growth of real estate assets through active asset management




We focus on the condition of our retail properties and their relative attractiveness to tenants.  We believe that the value of our grocery-anchored real estate assets that we invest in should be positioned to withstand market downturns, and well placed to benefit from upwards valuations when cycles recover.




Our intention is to improve income profiles and add value to our real estate portfolio through our management team's proven asset management techniques, which include:




·
Understanding tenants' needs, and restructure leases, for example, remove tenant break clauses to extend lease terms;




·
Seeking opportunities to increase the likelihood of tenants remaining in occupancy when lease expirations occur by enhancing the experience of occupying a particular property wherever possible, for instance by improving parking and facilities;




·
Making cost effective cosmetic and functional improvements; and




·
Monitoring expenses and prudently carrying out capital expenditures.




Repositioning and Management of Real Estate Assets




We follow an approach of renovating, re-merchandising and re-tenanting real estate assets to their highest operating efficiency:




·
Renovation.Renovate assets from unappealing strip malls to visually and functionally attractive retail centers that draw stable tenants and loyal consumers;




·
Re-merchandising.  Position the property to meet the needs of consumers, while creating a complementary offering of tenant merchandise;




·
Re-tenanting.  Utilize existing relationships with tenants to sign leases that optimize stable income patterns, high occupancy, tenant flexibility and opportunities for rent growth; and




·
Property and Risk Management.Employ internal controls to achieve predictable revenues, monitor expenses and prudently carry out capital expenditures, ensuring short-term cash flows and long-term value.




Dispositions




There were no real estate dispositions during 2010.




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Our Financing Strategy




On December 1, 2010, we entered into a credit agreement with Bank of America, N.A., as administrative agent, and L/C issuer, KeyBank National Association, as the syndication agent, PNC Bank, National Association and U.S. Bank National Association, as co-documentation agents, and the other lenders party thereto with respect to our $175 million unsecured revolving credit facility (our "Credit Facility").  During the year ended December 31, 2010, we assumed five mortgage loans totalling $42.4 million in connection with three separate real estate acquisitions.  As of December 31, 2010, we had cash and cash equivalents of approximately $84.7 million and our Credit Facility had $175 million of available borrowings, which we can use to finance acquisition opportunities and other general corporate purposes.  We intend, when appropriate, to employ prudent amounts of leverage and use debt as a means of providing additional funds for the acquisition of our target assets and the diversification of our portfolio.  We intend to finance future acquisitions through a combination of cash, borrowings under our Credit Facility, traditional secured mortgage financing, and equity and debt offerings.  In addition, in connection with the acquisition of certain of our properties, we assumed the existing debt on such properties.  We may assume all or a portion of the existing debt in connection with properties we acquire in the future.




Business Segments




We operate in two business segments: (1) the shopping centers segment and (2) the real estate finance segment.  Financial information concerning our business segments is presented in Note 1 to the accompanying notes to consolidated financial statements.




Regulation




The following discussion describes certain material U.S. federal laws and regulations that may affect our operations and those of our tenants.  However, the discussion does not address state laws and regulations, except as otherwise indicated.  These state laws and regulations, like the U.S. federal laws and regulations, could affect our operations and those of our tenants.




Generally, real estate properties are subject to various laws, ordinances and regulations.  Changes in any of these laws or regulations, such as the Comprehensive Environmental Response and Compensation Liability Act, increase the potential liability for environmental conditions or circumstances existing or created by tenants or others on the properties.  In addition, laws affecting development, construction, operation, upkeep, safety and taxation requirements may result in significant unanticipated expenditures, loss of real estate property sites or other impairments, which would adversely affect our cash flows from operating activities.




Under the Americans with Disabilities Act of 1990 (the "Americans with Disabilities Act") all places of public accommodation are required to meet certain U.S. federal requirements related to access and use by disabled persons.  A number of additional U.S. federal, state and local laws also exist that may require modifications to properties, or restrict certain further renovations thereof, with respect to access thereto by disabled persons.  Noncompliance with the Americans with Disabilities Act could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature and in substantial capital expenditures.  To the extent our properties are not in compliance, we may incur additional costs to comply with the Americans with Disabilities Act.




Property management activities are often subject to state real estate brokerage laws and regulations as determined by the particular real estate commission for each state.




Environmental Matters




Pursuant to U.S. federal, state and local environmental laws and regulations, a current or previous owner or operator of real property may be required to investigate, remove and/or remediate a release of hazardous substances or other regulated materials at or emanating from such property.  Further, under certain circumstances, such owners or operators of real property may be held liable for property damage, personal injury and/or natural resource damage resulting from or arising in connection with such releases.  Certain of these laws have been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility.  The failure to




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 properly remediate the property may also adversely affect the owner's ability to lease, sell or rent the property or to borrow funds using the property as collateral.


In connection with the ownership, operation and management of our current properties and any properties that we may acquire and/or manage in the future, we could be legally responsible for environmental liabilities or costs relating to a release of hazardous substances or other regulated materials at or emanating from such property.  In order to assess the potential for such liability, we conduct an environmental assessment of each property prior to acquisition and manage our properties in accordance with environmental laws while we own or operate them.  All of our leases contain a comprehensive environmental provision that requires tenants to conduct all activities in compliance with environmental laws and to indemnify the owner for any harm caused by the failure to do so.  In addition, we have engaged qualified, reputable and adequately insured environmental consulting firms to perform environmental site assessments of our properties and are not aware of any environmental issues that are expected to have materially impacted the operations of any property.




Competition




We believe that competition for the acquisition, operation and development of retail properties is highly fragmented.  We compete with numerous owners, operators and developers for acquisitions and development of retail properties, including institutional investors, other REITs and other owner-operators of community and neighborhood shopping centers, some of which own or may in the future own properties similar to ours in the same markets in which our properties are located.  We also face significant competition in leasing available space to prospective tenants at our operating and development properties.  Recent economic conditions have caused a greater than normal amount of space to be available for lease generally and in the markets in which our properties are located.  The actual competition for tenants varies depending upon the characteristics of each local market (including current economic conditions) in which we own and manage property.  We believe that the principal competitive factors in attracting tenants in our market areas are location, demographics, price, the presence of anchor stores and the appearance of properties.




Many of our competitors are substantially larger and have considerably greater financial, marketing and other resources than we do.  Other companies may raise significant amounts of capital, and may have investment objectives that overlap with ours, which may create additional competition for opportunities to acquire assets.  In the future, competition from these entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell.  Further, as a result of their greater resources, such entities may have more flexibility than we do in their ability to offer rental concessions to attract tenants.  If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose potential tenants and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants' leases expire.




Employees




As of December 31, 2010, we had 14 employees, including four executive officers, two of whom are also members of our board of directors.  Our Executive Chairman is affiliated with other entities, including NRDC Real Estate Advisors, LLC and National Realty & Development Corp.  Our Executive Chairman has entered into an employment agreement with us under which he has agreed that, during the period that he remains the Executive Chairman, he will not, nor will he permit any company under his control, to acquire or make any controlling equity investment in any retail property that is at least 70% occupied and otherwise fits our investment criteria, unless he first presents the opportunity to us for purchase.  This commitment is not intended to extend to acquisitions or controlling investments in non-U.S. properties or national, regional or local retailers.




Available Information




We file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports with the Securities and Exchange Commission (the "SEC").  You may obtain copies of these documents by visiting the SEC's Public Reference Room at 100 F Street N.E., Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330.  The SEC also maintains a Website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  Our website is www.roireit.net.  Our reports on Forms 10-K, 10-Q and 8-K, and all amendments to those reports are




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 available free of charge on our Website as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC.  The contents of our website are not incorporated by reference herein.


Item 1A.
Risk Factors




Risks Related to Our Business and Operations




There are risks relating to investments in real estate.




Real property investments are subject to varying degrees of risk.  Real estate values are affected by a number of factors, including:  changes in the general economic climate, local conditions (such as an oversupply of space or a reduction in demand for real estate in an area), the quality and philosophy of management, competition from other available space, the ability of the owner to provide adequate maintenance and insurance and to control variable operating costs.  Shopping centers, in particular, may be affected by changing perceptions of retailers or shoppers regarding the safety, convenience and attractiveness of the shopping center, increasing consumer purchases through online retail websites and catalogs,the ongoing consolidation in the retail sector and by the overall climate for the retail industry generally.  Real estate values are also affected by such factors as government regulations, interest rate levels, the availability of financing and potential liability under, and changes in, environmental, zoning, tax and other laws.  A significant portion of our income is derived from rental income from real property.  Our income and cash flow would be adversely affected if a significant number of our tenants were unable to meet their obligations, or if we were unable to lease on economically favorable terms a significant amount of space in our properties.  In the event of default by a tenant, we may experience delays in enforcing, and incur substantial costs to enforce, our rights as a landlord.  In addition, certain significant expenditures associated with each equity investment (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced when circumstances cause a reduction in income from the investment.




We operate in a highly competitive market and competition may limit our ability to acquire desirable assets and to attract and retain tenants.




We operate in a highly competitive market.  Our profitability depends, in large part, on our ability to acquire our target assets at favorable prices and on trends impacting the retail industry in general, national, regional and local economic conditions, financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends.  Many of our competitors are substantially larger and have considerably greater financial, marketing and other resources than we do.  Other companies may raise significant amounts of capital, and may have investment objectives that overlap with ours.  In addition, the properties that we acquire may face competition from similar properties in the same market.  This competition may create additional competition for opportunities to acquire assets and to attract and retain tenants.




We may change any of our strategies, policies or procedures without stockholder consent, which could adversely affect our business.




We may change any of our strategies, policies or procedures with respect to acquisitions, asset allocation, growth, operations, indebtedness, financing strategy and distributions, including those related to maintaining our REIT qualification, at any time without the consent of our stockholders, which could result in making acquisitions that are different from, and possibly riskier than, the types of acquisitions described in this Annual Report on Form 10-K.  A change in our strategy may increase our exposure to real estate market fluctuations, financing risk, default risk and interest rate risk.  Furthermore, a change in our asset allocation could result in us making acquisitions in asset categories different from those described in this Annual Report on Form 10-K.  These changes could adversely affect our financial condition, results of operations, the market price of our common stock or warrants and our ability to make distributions to the stockholders.




Our executive officers and directors are subject to potential conflicts of interest.




Our executive officers and directors face conflicts of interest.  Except for Messrs. Tanz, Roche and Schoebel, none of our executive officers or directors are required to commit his full time to our affairs and,




- 6 -
 
 accordingly, they may have conflicts of interest in allocating management time among various business activities.  In addition, except for Messrs. Tanz, Roche and Schoebel, each of our executive officers and directors is engaged in several other business endeavors and they are not obligated to contribute any specific number of hours per week to our affairs.  In the course of their other business activities, our executive officers and directors may become aware of investment and business opportunities that may be appropriate for presentation to us as well as the other entities with which they are affiliated.  They may have conflicts of interest in determining to which entity a particular business opportunity should be presented.


As a result of multiple business affiliations, our executive officers and directors may have legal obligations relating to presenting opportunities to acquire one or more properties, portfolios or real estate-related debt investments to other entities.  In addition, conflicts of interest may arise when our board of directors evaluates a particular opportunity.  Subject to the limitations described in the employment agreements applicable to Messrs. Tanz, Roche, Schoebel and Baker, our executive officers and directors may present such opportunities to the other entities to which they owe a pre-existing fiduciary duty before presenting such opportunities to us.




We have limited operating history and may not be able to successfully operate our business or generate sufficient revenue to make or sustain distributions to our stockholders.




On October 20, 2009, we commenced operations upon consummation of the transactions contemplated by the Framework Agreement with NRDC Capital Management, LLC, which, among other things, sets forth the steps to be taken by us to continue our business as a corporation that will elect to qualify as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2010 (the "Framework Transactions").  We cannot assure you that we will be able to operate our business successfully or implement our policies and strategies as described in this Annual Report on Form 10-K.  Our ability to provide attractive risk adjusted returns to our stockholders over time is dependent on our ability both to generate sufficient cash flow to pay an attractive dividend and to achieve capital appreciation, and we cannot assure you we will do either.  There can be no assurance that we will be able to generate sufficient revenue from operations to pay our operating expenses and make distributions to stockholders.




Capital markets and economic conditions can materially affect our financial condition and results of operations and the value of our assets.




There are many factors that can affect the value of our assets, including the state of the capital markets and economy.  The recent economic downturn negatively affected consumer spending and retail sales, which has adversely impacted the performance and value of retail properties in most regions in the United States.  In addition, loans backed by real estate were increasingly difficult to obtain and that difficulty, together with a tightening of lending policies, resulted in a significant contraction in the amount of debt available to fund retail properties.  Although we have recently seen a gradual improvement in the credit markets, any reduction in available financing may adversely affect our ability to achieve our financial objectives.  Concern about the stability of the markets generally may limit our ability and the ability of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs which may materially affect our financial condition and results of operations and the value of our securities.  Although we will factor in these conditions in acquiring our target assets, our long term success depends in part on improving economic conditions and the eventual return of a stable and dependable financing market for retail real estate.  If market conditions do not eventually improve, our financial condition and results of operations and the value of our assets will be adversely affected.




Bankruptcy or insolvency of tenants may decrease our revenues and available cash.




In the case of many retail properties, the bankruptcy or insolvency of a major tenant could cause us to suffer lower revenues and operational difficulties, and could allow other tenants to exercise so-called "kick-out" clauses in their leases and terminate their lease or reduce their rents prior to the normal expiration of their lease terms.  As a result, the bankruptcy or insolvency of a major tenant could result in a lower level of net income and funds available for the payment of indebtedness or for distribution to stockholders.




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Inflation or deflation may adversely affect our financial condition and results of operations.




Increased inflation could have a pronounced negative impact on our mortgages and interest rates and general and administrative expenses, as these costs could increase at a rate higher than our rents.  Inflation could also have an adverse effect on consumer spending which could impact our tenants' sales and, in turn, our percentage rents, where applicable.  Conversely, deflation could lead to downward pressure on rents and other sources of income.




Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs.




The Americans with Disabilities Act generally requires that a public building be made accessible to disabled persons.  Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants.  If, under the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations, as well as the amount of cash available for distribution to stockholders.




Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements.  If we fail to comply with these requirements, we could incur fines or private damage awards.  We do not know whether compliance with the requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations.




We expect to acquire additional properties and this may create risks.




We expect to acquire additional properties consistent with our investment strategies.  We may not, however, succeed in consummating desired acquisitions on time or within budget.  In addition, we may face competition in pursuing acquisition opportunities that could increase our costs.  When we do pursue a project or acquisition, we may not succeed in leasing newly acquired properties at rents sufficient to cover our costs of acquisition or in operating the businesses we acquired.  Difficulties in integrating acquisitions may prove costly or time-consuming and could result in poorer than anticipated performance.  We may also abandon acquisition opportunities that we have begun pursuing and consequently fail to recover expenses already incurred.  Furthermore, acquisitions of new properties will expose us to the liabilities of those properties, without any recourse or with only limited recourse, some of which we may not be aware of at the time of acquisition, such as liabilities for clean-up of undisclosed environmental contamination, claims by persons in respect of events transpiring or conditions existing before we acquired the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.




Factors affecting the general retail environment could adversely affect the financial condition of our retail tenants and the willingness of retailers to lease space in our shopping centers, and in turn, adversely affect us.




We expect our properties and our real estate-related debt investments to be focused on the retail real estate market.  This means that we will be subject to factors that affect the retail environment generally, including the level of consumer spending and consumer confidence, the threat of terrorism and increasing competition from online retail websites and catalog companies.  These factors could adversely affect the financial condition of our retail tenants and the willingness of retailers to lease space in our shopping centers, and in turn, adversely affect us.




Our growth depends on external sources of capital, which may not be available in the future.




In order to maintain our qualification as a REIT, we are required under Internal Revenue Code of 1986, as amended (the "Code"), to annually distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain.  After we invest our cash on hand, we expect to depend primarily on our Credit Facility and other external financing to fund the growth of our business (including debt and equity financings).  Our access to debt or equity financing depends on the willingness of third parties to lend or make equity investments and on conditions in the capital markets generally.  As a result of current economic conditions, we may be limited in our ability to obtain additional financing or to refinance existing debt maturities on favorable terms or at all and there can be no assurances as to when financing conditions will improve.




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We do not have a formal policy limiting the amount of debt we may incur and our board of directors may change our leverage policy without stockholder consent, which could result in a different risk profile.




Although we are not required to maintain any particular leverage ratio, we intend, when appropriate, to employ prudent amounts of leverage and use debt as a means of providing additional funds for the acquisition of our target assets and the diversification of our portfolio.  The amount of leverage we will deploy for particular investments in our target assets will depend upon our management team's assessment of a variety of factors, which may include the anticipated liquidity and price volatility of the target assets in our investment portfolio, the potential for losses, the availability and cost of financing the assets, our opinion of the creditworthiness of our financing counterparties, the health of the U.S. economy and commercial mortgage markets, our outlook for the level, slope and volatility of interest rates, the credit quality of our target assets and the collateral underlying our target assets.  Our second amended and restated certificate of incorporation, as amended (our "certificate of incorporation"), does not limit the amount of indebtedness we can incur.  Our board of directors may change our leverage policies at any time without the consent of our stockholders, which could result in an investment portfolio with a different risk profile.




Your investment return may be reduced if we are required to register as an investment company under the 1940 Act; if we are required to register under the 1940 Act, we will not be able to continue our business.




We conduct our operations so that neither we, nor our operating partnership nor any of our other subsidiaries, are required to register as investment companies under the 1940 Act.  Section 3(a)(1)(A) of the 1940 Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities.  Section 3(a)(1)(C) of the 1940 Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer's total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the "40% test."  Excluded from the term "investment securities," among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the 1940 Act.  Accordingly, under Section 3(a)(1) of the 1940 Act, in relevant part, a company is not deemed to be an "investment company" if:  (i) it neither is, nor holds itself out as being, engaged primarily, nor proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or (ii) it neither is engaged nor proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and does not own or propose to acquire "investment securities" having a value exceeding 40% of the value of its total assets on an unconsolidated basis.  We believe that we and our operating partnership (which is initially wholly-owned by us) will not meet either of the above definitions of investment company as we invest primarily in real property.  We expect that a majority of our subsidiaries will be wholly- or majority-owned by us and will have at least 60% of their assets in real property.  As these subsidiaries would be investing either solely or primarily in real property, they themselves would be outside of the definition of "investment company" under Section 3(a)(1) of the 1940 Act.  As we are organized as a holding company that conducts its businesses primarily through our operating partnership, which in turn is a holding company conducting its business through its wholly- or majority-owned subsidiaries, both we and our operating partnership conduct our operations so that we and our operating partnership comply with the 40% test.  We also do not believe that we will be considered to be an investment company under Section 3(a)(1)(A) of the 1940 Act because we will not engage primarily or hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities.  Rather, we will be primarily engaged in the non-investment company businesses of our subsidiaries.  We will monitor our holdings to ensure continuing and ongoing compliance with this test.




In the event that the value of investment securities held by the subsidiaries of our operating partnership were to exceed 40%, we expect our subsidiaries to be able to rely on the exclusion from the definition of "investment company" provided by Section 3(c)(5)(C) of the 1940 Act.  Section 3(c)(5)(C), as interpreted by the staff of the SEC, requires each of our subsidiaries relying on this exception to invest at least 55% of its portfolio in "mortgage and other liens on and interests in real estate," which we refer to as qualifying assets and at least 80% of its assets in qualifying assets and other real estate- related assets.  The remaining 20% of the portfolio can consist of miscellaneous assets.  What we buy and sell is therefore limited to these criteria.  How we determine to classify our assets for purposes of the 1940 Act will be based in large measure upon no-action letters issued by the SEC staff and




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 other SEC interpretive guidance.  No assurance can be given that the SEC staff will concur with our classification of our assets.  Future revisions to the 1940 Act or further guidance from the SEC or its staff may cause us to lose our exclusion from registration or force us to re-evaluate our portfolio and our investment strategy.  Such changes may prevent us from operating our business successfully.


To ensure that neither we, nor our operating partnership nor subsidiaries are required to register as an investment company, each entity may be unable to sell assets they would otherwise want to sell and may need to sell assets they would otherwise wish to retain.  In addition, we, our operating partnership or our other subsidiaries may be required to acquire additional assets that we might not otherwise acquire or forego opportunities to acquire interests in companies that we would otherwise want to acquire.  Although we, our operating partnership and our other subsidiaries intend to monitor our portfolio periodically and prior to each acquisition and disposition, any of these entities may not be able to maintain an exclusion from registration as an investment company.  If we, our operating partnership or our other subsidiaries are required to register as an investment company but fail to do so, the unregistered entity would be prohibited from engaging in our business, and criminal and civil actions could be brought against such entity.  In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.




Increasing vacancy rates for retail property assets resulting from recent disruptions in the financial markets and deteriorating economic conditions could adversely affect the value of the retail property assets we acquire.




We depend upon tenants for a majority of our revenue from real property investments.  Recent disruptions in the financial markets have resulted in a trend toward increasing vacancy rates for certain classes of commercial property, including retail properties, due to increased tenant delinquencies and/or defaults under leases, generally lower demand for rentable space, as well as potential oversupply of rentable space.  Business failures and downsizings have led to reduced consumer demand for retail products and services, which in turn has led to retail business failures or downsizings and reducing demand for retail space.  Reduced demand for retail space could require us to increase concessions, tenant improvement expenditures or reduce rental rates to maintain occupancies beyond those anticipated at the time we acquire the property.  The continuation of disruptions in the financial markets and deteriorating economic conditions could impact certain of the retail properties we may acquire and such properties could experience higher levels of vacancy than anticipated at the time of our acquisition of such properties.  The value of our retail property investments could decrease below the amounts we paid for such properties.  Revenues from properties could decrease due to lower occupancy rates, reduced rental rates and potential increases in uncollectible rent.  We incur expenses, such as for maintenance costs, insurance costs and property taxes, even though a property is vacant.  The longer the period of significant vacancies for a property, the greater the potential negative impact on our revenues and results of operations.




Real estate investments' value and income fluctuate due to conditions in the general economy and the real estate business, which may affect our ability to service our debt and expenses.




The value of real estate fluctuates depending on conditions in the general and local economy and the real estate business.  These conditions may also limit our revenues and available cash.  The rents we receive and the occupancy levels at our properties may decline as a result of adverse changes in conditions in the general economy and the real estate business.  If rental revenues and/or occupancy levels decline, we generally would expect to have less cash available to pay indebtedness and for distribution to our stockholders.  In addition, some of our major expenses, including mortgage payments, real estate taxes and maintenance costs, generally do not decline when the related rents decline.




The lack of liquidity of our assets may adversely affect our business, including our ability to value and sell our assets.




Real estate investments are relatively difficult to buy and sell quickly.  In addition, the illiquidity of our investments in commercial mortgage loans and other real estate-related debt investments may make it difficult for us to sell such investments if the need or desire arises.  Many of the securities we purchase will not be registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or their disposition except in a transaction that is exempt from the registration requirements of, or otherwise in accordance with, those laws.  In addition, certain real estate-related debt investments, including mortgage loans, are also particularly illiquid investments due to their short life, their potential unsuitability for securitization and the greater difficulty of recovery




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 in the event of a borrower's default.  As a result, we expect many of our investments will be illiquid and if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments.  As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition.


We depend on leasing space to tenants on economically favorable terms and collecting rent from tenants, some of whom may not be able to pay.




Our financial results depend significantly on leasing space in our properties to tenants on economically favorable terms.  In addition, as a substantial majority of our income comes from renting of real property, our income, funds available to pay indebtedness and funds available for distribution to our stockholders will decrease if a significant number of our tenants cannot pay their rent or if we are not able to maintain occupancy levels on favorable terms.  If a tenant does not pay its rent, we may not be able to enforce our rights as landlord without delays and may incur substantial legal costs.




Some of our properties depend on anchor stores or major tenants to attract shoppers and could be adversely affected by the loss of or a store closure by one or more of these tenants.




Regional malls are typically anchored by department stores and other large, nationally recognized tenants.  The value of some of the retail properties we acquire could be adversely affected if these tenants fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations.  Department store and larger store, also referred to as "big box," consolidations typically result in the closure of existing stores or duplicate or geographically overlapping store locations.  We will not control the disposition of those department stores or larger stores nor will we control the vacant space that is not re-leased in those stores.  Other tenants may be entitled to modify the terms of their existing leases in the event of such closures.  The modification could be unfavorable to us as the lessor and could decrease rents or expense recovery charges.  Additionally, major tenant closures may result in decreased customer traffic which could lead to decreased sales at other stores.  If the sales of stores operating in our properties were to decline significantly due to closing of anchors, economic conditions or other reasons, tenants may be unable to pay their minimum rents or expense recovery charges.  In the event of default by a tenant or anchor store, we may experience delays and costs in enforcing our rights as landlord to recover amounts due to us under the terms of our agreements with those parties.




Loss of revenues from major tenants could reduce distributions to stockholders.




We derive significant revenues from anchor tenants such as Safeway, Inc., Haggen and Rite Aid.  These tenants are our three largest tenants and accounted for 10.4%, 3.8% and 3.8%, respectively, of our annualized base rent on a pro-rata basis for the year ended December 31, 2010.  Distributions to stockholders could be adversely affected by the loss of revenues in the event a major tenant becomes bankrupt or insolvent, experiences a downturn in its business, materially defaults on its leases, does not renew its leases as they expire, or renews at lower rental rates.




Our Common Area Maintenance ("CAM") contributions may not allow us to recover the majority of our operating expenses from tenants, which may reduce operating cash flow from our properties.




CAM costs typically include allocable energy costs, repairs, maintenance and capital improvements to common areas, janitorial services, administrative, property and liability insurance costs and security costs.  We may acquire properties with leases with variable CAM provisions that adjust to reflect inflationary increases or leases with a fixed CAM payment methodology which fixes our tenants' CAM contributions.  With respect to both variable and fixed payment methodologies, the amount of CAM charges we bill to our tenants may not allow us to recover or pass on all these operating expenses to tenants, which may reduce operating cash flow from our properties.




We may incur costs to comply with environmental laws.




Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment, including air and water quality, hazardous or toxic substances and health and safety.  Under some environmental laws, a current or previous owner or operator of real estate may be required to




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 investigate and clean up hazardous or toxic substances released at a property.  The owner or operator may also be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination.  These laws often impose liability without regard to whether the owner or operator knew of the release of the substances or caused the release.  The presence of contamination or the failure to remediate contamination may impair our ability to sell or lease real estate or to borrow using the real estate as collateral.  Other laws and regulations govern indoor and outdoor air quality including those that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or remodelling and also govern emissions of and exposure to asbestos fibers in the air.  The maintenance and removal of lead paint and certain electrical equipment containing polychlorinated biphenyls ("PCBs") and underground storage tanks are also regulated by federal and state laws.  We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible individuals.  We could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to the foregoing regulated substances or tanks or related claims arising out of environmental contamination or human exposure to contamination at or from our properties.  Identification of compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, discovery of additional sites, human exposure to the contamination or changes in cleanup or compliance requirements could result in significant costs to us.


Our investments in mezzanine loans and B-notes may be subject to losses.  The B-notes in which we may invest may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us.




We may acquire mezzanine loans, which are loans made to property owners that are secured by pledges of the borrower's ownership interests, in whole or in part, in entities that directly or indirectly own the real property.  The key distinction from mortgage loans is that the most senior portion of the loan with the least credit risk is owned by the senior lender.  In the event a borrower defaults on a loan and lacks sufficient assets to satisfy our loan, we may suffer a loss of principal or interest.  In the event a borrower declares bankruptcy, we may not have full recourse to the assets of the borrower, or the assets of the borrower may not be sufficient to satisfy the loan.  In addition, mezzanine loans are by their nature structurally subordinated to more senior property level financings.  If a borrower defaults on our mezzanine loan or on debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the property level debt and other senior debt is paid in full.  Similar to our mezzanine loan strategy, we may acquire subordinate interests referred to as B-notes.  B-notes are commercial real estate loans secured by a first mortgage on a single large commercial property or group of related properties and subordinated to a senior interest, referred to as an A-note.  As a result, if a borrower defaults, there may not be sufficient funds remaining for B-notes owners after payment to the A-note owners.  B-notes reflect similar credit risks to comparably rated commercial mortgage-backed securities.  However, since each transaction is privately negotiated, B-notes can vary in their structural characteristics and risks.  For example, the rights of holders of B-notes to control the process following a borrower default may be limited in certain investments.  We cannot predict the terms of each B-note investment.  Significant losses related to our mezzanine loans and B-notes would result in operating losses for us and may limit our ability to make distributions to our stockholders.




We may invest in loans to owners of net leased properties and these investments may generate losses.




We may invest in commercial mortgage loans to owners of net leased real estate assets.  A net lease requires the tenant to pay, in addition to the fixed rent, some or all of the property expenses that normally would be paid by the property owner.  The value of our investments and the income from our investments in loans to owners of net leased properties, if any, will depend upon the ability of the applicable tenant to meet its obligations to maintain the property under the terms of the net lease.  If a tenant fails or becomes unable to so maintain a property, the borrower would have difficulty making its required loan payments to us.  In addition, under many net leases the owner of the property retains certain obligations with respect to the property, including among other things, the responsibility for maintenance and repair of the property, to provide adequate parking, maintenance of common areas and compliance with other affirmative covenants in the lease.  If the borrower were to fail to meet these obligations, the applicable tenant could abate rent or terminate the applicable lease, which may result in a loss of capital invested in, and anticipated profits from, the property to the borrower and the borrower would have difficulty




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 making its required loan payments to us.  In addition, the borrower may find it difficult to lease property to new tenants that may have been suited to the particular needs of a former tenant.


We may be subject to "lender liability" claims, which may subject us to significant liability, should a claim of this type arise.




In recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed "lender liability."  Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders.  We cannot assure prospective investors that such claims will not arise or that we will not be subject to significant liability if a claim of this type did arise.




A prolonged economic slowdown, a lengthy or severe recession or declining real estate values could impair our assets and harm our operations.




We believe the risks associated with our business will be more severe during periods of economic slowdown or recession if these periods are accompanied by declining real estate values.  Because we have only recently acquired assets, we are not burdened by the losses experienced by certain of our competitors as a result of the recent economic downturn and declines in real estate values.  Although we will take current economic conditions into account in acquiring our target assets, our long term success depends in part on improving economic conditions and the eventual return of a stable and dependable financing market for retail real estate.  If the current challenging economic conditions persist or worsen, our financial condition and results of operations and the value of our common stock will be adversely affected.




Loss of our key personnel could harm our operations and adversely affect the value of our common stock.




We are dependent on the efforts of our key personnel of our senior management team.  While we believe that we could find replacements for these key personnel, the loss of their services could harm our operations and adversely affect the value of our common stock.




Under their employment agreements, certain members of our senior management team will have certain rights to terminate their employment and receive severance in connection with a change in control of our company.




We have entered into employment agreements with each of Messrs. Tanz, Roche and Schoebel, which provide that, upon termination of his employment (i) by the applicable officer within 12 months following the occurrence of a change in control (as defined in the employment agreement), (ii) by us without cause (as defined in the employment agreement), (iii) by the applicable officer for good reason (as defined in the employment agreement), (iv) by non-renewal of the applicable officer's employment agreement or (v) by reason of the applicable officer's death or disability (as defined in the employment agreement), such executive officers would be entitled to certain termination or severance payments made by us (which may include a lump sum payment equal to defined percentages of annual salary and prior years' average bonuses, paid in accordance with the terms and conditions of the respective agreement).  Inaddition, the vesting of all his outstanding unvested equity-based incentives and awards will accelerate.  These provisions make it costly to terminate their employment and could delay or prevent a transaction or a change in control of our company that might involve a premium paid for shares of our common stock or otherwise be in the best interests of our stockholders.




Joint investments could be adversely affected by our lack of sole decision-making authority or reliance on a joint venture partner's financial condition.




We own certain of our investment properties through joint ventures with third parties and may also enter into similar arrangements in the future.  Investments in joint ventures involve risks that are not otherwise present with properties which we own entirely.  In these investments, we do not have exclusive control or sole decision-making authority over the development, financing, leasing, management and other aspects of these investments.  As a result, the joint venture partner might have economic or business interests or goals that are inconsistent with our goals or interests, take action contrary to our interests or otherwise impede our objectives.  These investments involve risks and uncertainties, including the risk of the joint venture partner failing to provide capital and fulfill its




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 obligations, which may result in certain liabilities to us for guarantees and other commitments, the risk of conflicts arising between us and our partners and the difficulty of managing and resolving such conflicts, and the difficulty of managing or otherwise monitoring such business arrangements.  The joint venture partner also might become insolvent or bankrupt, which may result in significant losses to us.  Further, although we may own a controlling interest in a joint venture and may have authority over major decisions such as the sale or refinancing of investment properties, we may have fiduciary duties to the joint venture partners or the joint venture itself that may cause, or require, us to take or refrain from taking actions that we would otherwise take if we owned the investment properties outright.


Uninsured losses or a loss in excess of insured limits could adversely affect our financial condition.




We carry comprehensive general liability, fire, extended coverage, loss of rent insurance, and environmental liability where applicable on our properties, with policy specifications and insured limits customarily carried for similar properties.  However, with respect to those properties where the leases do not provide for abatement of rent under any circumstances, we generally do not maintain loss of rent insurance.  In addition, there are certain types of losses, such as losses resulting from wars, terrorism or acts of God that generally are not insured because they are either uninsurable or not economically insurable.  Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property.  Any loss of these types would adversely affect our financial condition.




Our revenues and cash flow could be adversely affected by poor market conditions where our properties are geographically concentrated.




Our performance depends on the economic conditions in markets in which our properties are concentrated.  During the year ended December 31, 2010, our properties in California, Washington and Oregon accounted for 60.9%, 25.7% and 13.3%, respectively, of our consolidated net operating income.  Our revenues and cash available for distribution to stock and unit holders could be adversely affected by this geographic concentration if market conditions, such as an oversupply of space or a reduction in demand for real estate in an area, deteriorate in California, Washington and Oregon relative to other geographic areas.




Risks Related to Financing




Our unsecured revolving credit facility contains restrictive covenants relating to our operations, which could limit our ability to respond to changing market conditions and our ability to pay distributions on our common stock.




Our unsecured revolving credit facility imposes restrictions on us that affect our distribution and operating policies and our ability to incur additional debt.  For example, we are subject to a maximum consolidated leverage ratio (defined as consolidated funded indebtedness to consolidated total asset value) of 55% (provided that, upon our request, the consolidated leverage ratio may be increased once to 60% for a maximum of two consecutive fiscal quarters), which could have the effect of reducing our ability to incur additional debt and consequently reduce our ability to pay distributions on our common stock.  The unsecured revolving credit facility also contains limitations on our ability to pay distributions.  In addition, the revolving credit facility contains customary restrictive covenants requiring us to maintain a minimum consolidated tangible net worth, a minimum consolidated fixed charge coverage ratio, a maximum consolidated unencumbered leverage ratio and a maximum consolidated unsecured indebtedness.  These or other limitations may adversely affect our flexibility and our ability to achieve our operating plans and could result in us being limited in the amount of dividends we would be permitted to pay on our common stock.




Certain of our debt instruments contain covenants that could adversely affect our financial condition and our acquisitions and development activities.




Our mortgage financing contains customary covenants and provisions that limit our ability to pre-pay such mortgages before their scheduled maturity date or to transfer the underlying property without lender consent.  In addition, because a mortgage is secured by a lien on the underlying real property, mortgage defaults subject us to the risk of losing the property through foreclosure.  In addition, our Credit Facility contains customary restrictions and requirements on our method of operations.  Any other unsecured credit facilities, unsecured debt securities and other




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 loans that we may obtain in the future may contain customary restrictions, requirements and other limitations on our ability to incur indebtedness, including covenants that limit our ability to incur debt based upon the level of our ratio of total debt to total assets, our ratio of secured debt to total assets, our ratio of net operating income to our interest expense, and fixed charges, and that require us to maintain a certain level of unencumbered assets to unsecured debt.  In addition, failure to comply with these covenants could cause a default under the applicable debt instrument, and we may then be required to repay such debt with capital from other sources.  Under those circumstances, other sources of capital may not be available to us, or be available only on unattractive terms.  Additionally, our ability to satisfy prospective lenders' insurance requirements may be adversely affected if lenders generally insist upon greater insurance coverage against certain risks than is available to us in the marketplace or on commercially reasonable terms.


Our access to financing may be limited and thus our ability to potentially enhance our returns may be adversely affected.




We intend, when appropriate, to employ prudent amounts of leverage and use debt as a means of providing additional funds for the acquisition of our target assets and the diversification of our portfolio.  To the extent market conditions improve and markets stabilize over time, we expect to increase our borrowing levels.  As of December 31, 2010, our outstanding mortgage indebtedness was approximately $42 million, and we may incur significant additional debt to finance future acquisition and development activities.  We have a $175 million unsecured revolving Credit Facility with Bank of America, N.A., as administrative agent and letter of credit issuer, KeyBank National Association, as syndication agent, PNC Bank, National Association and U.S. Bank National Association, as co-documentation agents, and the other lenders party thereto.  To date, we have no outstanding borrowings under our Credit Facility The amount available to be borrowed may be increased by up to an additional $75 million to $250 million under certain conditions set forth in our Credit Facility, including the consent of the lenders for the additional commitments.




Our access to private sources of financing will depend upon a number of factors, over which we have little or no control, including:




·
general market conditions;




·
the market's view of the quality of our assets;




·
the market's perception of our growth potential;




·
our eligibility to participate in and access capital from programs established by the U.S. government;




·
our current and potential future earnings and cash distributions; and




·
the market price of the shares of our common stock.




Although we have recently seen a gradual improvement in the credit markets, any reduction in available financing may adversely affect our ability to achieve our financial objectives.  Concern about the stability of the markets generally could adversely affect one or more private lenders and could cause one or more private lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing.  In addition, if regulatory capital requirements imposed on our private lenders change, they may be required to limit, or increase the cost of, financing they provide to us.  In general, this could potentially increase our financing costs and reduce our liquidity or require us to sell assets at an inopportune time or price.




During times when interest rates on mortgage loans are high or financing is otherwise unavailable on a timely basis, we have and may continue to purchase certain properties for cash.  Consequently, depending on market conditions at the relevant time, we may have to rely more heavily on additional equity issuances, which may be dilutive to our stockholders, or on less efficient forms of debt financing that require a larger portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities, cash distributions to our stockholders and other purposes.  We cannot assure you that we will have access to such equity or debt capital on favorable terms (including, without limitation, cost and term) at the desired times, or at all, which


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 may cause us to curtail our asset acquisition activities and/or dispose of assets, which could negatively affect our results of operations.


Interest rate fluctuations could reduce the income on our investments and increase our financing costs.




Changes in interest rates will affect our operating results as such changes will affect the interest we receive on our floating rate interest bearing investments and the financing cost of our debt, as well as our interest rate swaps that we utilize for hedging purposes.  There can be no guarantee that the financial condition of the counterparties with respect to our interest rate swaps will enable them to fulfill their obligations under these agreements.  Changes in interest rates may also, in the case of our real estate-related debt investments, affect borrower default rates, which may result in losses for us.




Financing arrangements that we may use to finance our assets may require us to provide additional collateral or pay down debt.




We intend, when appropriate, to use traditional forms of financing, including secured credit facilities.  In the event we utilize such financing arrangements, they would involve the risk that the market value of our assets which are secured may decline in value, in which case the lender may, in connection with a refinancing of the credit facility, require us to provide additional collateral, provide additional equity, or to repay all or a portion of the funds advanced.  We may not have the funds available to repay our debt or provide additional equity at that time, which would likely result in defaults unless we are able to raise the funds from alternative sources, which we may not be able to achieve on favorable terms or at all.  Providing additional collateral or equity would reduce our liquidity and limit our ability to leverage our assets.  If we cannot meet these requirements, the lender could accelerate our indebtedness, increase the interest rate on advanced funds and terminate our ability to borrow funds from them, which could materially and adversely affect our financial condition and ability to implement our business plan.  The providers of credit facilities may also require us to maintain a certain amount of cash or set aside assets sufficient to maintain a specified liquidity position.  As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on assets.  There can be no assurance that we will be able to utilize such arrangements on favorable terms, or at all.




Risks Related to Our Organization and Structure




We depend on dividends and distributions from our direct and indirect subsidiaries.  The creditors of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or distributions to us.




Substantially all of our assets are held through our operating partnership that holds substantially all of its properties and assets through subsidiaries.  Our operating partnership's cash flow is dependent on cash distributions to it by its subsidiaries, and in turn, substantially all of our cash flow is dependent on cash distributions to us by our operating partnership.  The creditors of our direct and indirect subsidiaries are entitled to payment of that subsidiary's obligations to them, when due and payable, before distributions may be made by that subsidiary to its equity holders.  Thus, our operating partnership's ability to make distributions to us and therefore our ability to make distributions to our stockholders will depend on its subsidiaries' ability first to satisfy their obligations to creditors and then to make distributions to our operating partnership.




In addition, our participation in any distribution of the assets of any of our direct or indirect subsidiaries upon the liquidation, reorganization or insolvency, is only after the claims of the creditors, including trade creditors, are satisfied.




The authorized but unissued shares of preferred stock and the ownership limitations contained in our certificate of incorporation may prevent a change in control.




Our certificate of incorporation authorizes us to issue authorized but unissued shares of preferred stock.  In addition, our board of directors, without stockholder approval, has the authority to issue and classify or reclassify any preferred stock and set the terms of the classified or reclassified shares.  As a result, our board of directors may establish a series of shares of preferred stock that could delay or prevent a transaction or a change in control that


- 16 -
 
 might involve a premium price for shares of our common stock or otherwise be in the best interests of our stockholders.


In addition, our certificate of incorporation contains restrictions limiting the ownership and transfer of shares of our common stock and other outstanding shares of capital stock.  The relevant sections of our certificate of incorporation provide that, subject to certain exceptions, ownership of shares of our common stock by any person is limited to 9.8% by value or by number of shares, whichever is more restrictive, of our outstanding shares of common stock (the common share ownership limit), and no more than 9.8% by value or number of shares, whichever is more restrictive, of our outstanding capital stock (the aggregate share ownership limit).  The common share ownership limit and the aggregate share ownership limit are collectively referred to herein as the "ownership limits."  These provisions will restrict the ability of persons to purchase shares in excess of the relevant ownership limits.  Our board of directors has established exemptions from this ownership limit which permit certain institutional investors to hold additional shares of our common stock.  Our board of directors may in the future, in its sole discretion, establish additional exemptions from this ownership limit.




Our failure to qualify as a REIT would subject us to U.S. federal income tax and potentially increased state and local taxes, which would reduce the amount of cash available for distribution to our stockholders.




We intend to operate in a manner that will enable us to qualify as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2010.  We have not requested and do not intend to request a ruling from the IRS that we will qualify as a REIT.  The U.S. federal income tax laws governing REITs are complex.  The complexity of these provisions and of the applicable U.S. Treasury Department regulations that have been promulgated under the Code ("Treasury Regulations") is greater in the case of a REIT that holds assets through a partnership, and judicial and administrative interpretations of the U.S. federal income tax laws governing REIT qualification are limited.  To qualify as a REIT, we must meet, on an ongoing basis, various tests regarding the nature of our assets and our income, the ownership of or outstanding shares, and the amount of our distributions.  Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT.  Thus, while we believe that we have operated and intend to continue to operate so that we will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given that we have qualified or will continue to so qualify for any particular year.




If we fail to qualify as a REIT in any taxable year, and do not qualify for certain statutory relief provisions, we would be required to pay U.S. federal income tax on our taxable income, and distributions to our stockholders would not be deductible by us in determining our taxable income.  In such a case, we might need to borrow money or sell assets in order to pay our taxes.  Our payment of income tax would decrease the amount of our income available for distribution to our stockholders.  Furthermore, if we fail to maintain our qualification as a REIT, we no longer would be required to distribute substantially all of our net taxable income to our stockholders.  In addition, unless we were eligible for certain statutory relief provisions, we could not re-elect to qualify as a REIT until the fifth calendar year following the year in which we failed to qualify.




The stock transfer restrictions in our certificate of incorporation may not be effective as to all stockholders, which could adversely affect our ability to qualify as a REIT.




Under Delaware law, a transfer restriction on a security of a corporation is not binding on the holder thereof unless the holder voted in favor of the restriction.  The transfer restrictions are not effective against any stockholder that did not affirmatively approve the transfer restrictions or any transferee of such stockholder.  Accordingly, despite certain transfer restrictions in our certificate of incorporation, a transfer of shares of our stock could result in our stock being beneficially owned by less than 100 persons and loss of our REIT qualification.  We intend to monitor the beneficial owners of our stock to ensure that our stock is at all times beneficially owned by more than 100 persons, but no assurance can be given that we will be successful in this regard.




Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders.




In order to qualify as a REIT, we must distribute to our stockholders each calendar year at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain.




- 17 -
 
 To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income, we are subject to U.S. federal corporate income tax on our undistributed income.  In addition, we will incur a 4% non-deductible excise tax on the amount, if any, by which our distributions in any calendar year are less than a minimum amount specified under U.S. federal income tax laws.  We intend to distribute our net income to our stockholders in a manner intended to satisfy the REIT 90% distribution requirement and to avoid the 4% non-deductible excise tax.


Our taxable income may exceed our net income as determined by the U.S. generally accepted accounting principles ("GAAP") because, for example, realized capital losses will be deducted in determining our GAAP net income, but may not be deductible in computing our taxable income.  In addition, we may invest in assets that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets.  For example, we may be required to accrue interest income on mortgage loans or other types of debt securities or interests in debt securities before we receive any payments of interest or principal on such assets.  Similarly, some of the debt securities that we acquire may have been issued with original issue discount.  We will be required to report such original issue discount based on a constant yield method.  As a result of the foregoing, we may generate less cash flow than taxable income in a particular year.  To the extent that we generate such non-cash taxable income in a taxable year, we may incur corporate income tax and the 4% non-deductible excise tax on that income if we do not distribute such income to stockholders in that year.  In that event, we may be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable or make a taxable distribution of our shares in order to satisfy the REIT 90% distribution requirement and to avoid U.S. federal corporate income tax and the 4% non-deductible excise tax in that year.




To maintain our REIT qualification, we may be forced to borrow funds during unfavorable market conditions.




In order to qualify as a REIT and avoid the payment of income and excise taxes, we may need to borrow funds on a short-term basis, or possibly on a long-term basis, to meet the REIT distribution requirements even if the then prevailing market conditions are not favorable for these borrowings.  These borrowing needs could result from, among other things, a difference in timing between the actual receipt of cash and inclusion of income for U.S. federal income tax purposes, the effect of non-deductible capital expenditures, the creation of reserves or required debt amortization payments.




Even if we qualify as a REIT, we may be required to pay certain taxes.




Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure and state or local income, franchise, property and transfer taxes, including mortgage recording taxes.  In addition, we hold some of our assets through taxable REIT subsidiary ("TRS") corporations.  Any TRSs or other taxable corporations in which we own an interest will be subject to U.S. federal, state and local corporate taxes.  Payment of these taxes generally would reduce our cash flow and the amount available to distribute to our stockholders.




Dividends payable by REITs generally do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our shares or warrants.




The maximum U.S. federal income tax rate for certain qualified dividends payable to domestic stockholders that are individuals, trusts and estates is 15% (through 2012).  Dividends payable by REITs, however, are generally not eligible for the reduced rates and therefore may be subject to a 35% maximum U.S. federal income tax rate on ordinary income.  Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our shares.




- 18 -


We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our shares of common stock or warrants.




At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly with retroactive effect.  We cannot predict if or when any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take effect retroactively.  We and our stockholders or warrantholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.




The failure of a mezzanine loan to qualify as a real estate asset would adversely affect our ability to qualify as a REIT.




We may acquire mezzanine loans, which are loans secured by equity interests in a partnership or limited liability company that directly or indirectly owns real property.  In Revenue Procedure 2003-65, the IRS provided a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying mortgage interest for purposes of the REIT 75% gross income test.  Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law.  We may acquire mezzanine loans that do not meet all of the requirements for reliance on this safe harbor.  In the event we own a mezzanine loan that does not meet the safe harbor, the IRS could challenge such loan's treatment as a real estate asset for purposes of the REIT asset and the interest generated by such a loan as qualifying income for purposes of the REIT income tests, and if such a challenge were sustained, we could fail to qualify as a REIT.




There may be uncertainties relating to the estimate of our accumulated non-REIT tax earnings and profits, which could result in our failing to qualify as a REIT.




In order to qualify as a REIT for our taxable year ended December 31, 2010, we were required to distribute to our stockholders prior to the end of such calendar year all of our accumulated non-REIT tax earnings and profits ("E&P") incurred by us prior to such calendar year.  We believe that the distributions we made in 2010 were in sufficient amounts to enable us to satisfy this requirement, as well as our minimum REIT distribution requirements in respect of out 2010 taxable income.  However, the IRS could successfully assert that our pre-2010 taxable income should be increased, which would increase our E&P.  Thus, we might fail to satisfy the requirement that we distribute all of our E&P by the close of our first taxable year as a REIT.  Although there are procedures available to cure a failure to distribute all of our E&P, we cannot now determine whether we will be able to take advantage of these procedures (which could result in us failing to qualify as a REIT) nor can we estimate the economic impact that any such steps would cause us to incur.




We could have potential deferred tax liabilities, which could delay or impede future sales of certain of our properties.




Under the Treasury Regulations, if, during the ten-year period beginning on the first day of the first taxable year for which we qualify as a REIT, which we believe to be January 1, 2010, we recognize gain on the disposition of any property that we held as of that date, then, to the extent of the excess of (i) the fair market value of such property as of that date over (ii) our adjusted income tax basis in such property as of that date, we will be required to pay a corporate level U.S. federal income tax on this gain at the highest regular corporate tax rate.  Depending on the timing of our investments and the amount of any appreciation of such investments prior to January 1, 2010, there can be no assurance that a disposition triggering such gain will not occur and, if applicable, these Treasury Regulations could limit, delay or impede sale of our property acquired prior to January 1, 2010.




We cannot assure you of our ability to pay distributions in the future.




We intend to pay quarterly distributions and to make distributions to our stockholders in an amount such that we distribute all or substantially all of our REIT taxable income in each year, subject to certain adjustments.  Our ability to pay distributions may be adversely affected by a number of factors, including the risk factors




- 19 -
 
 described in this Annual Report on Form 10-K.  All distributions will be made, subject to Delaware law, at the discretion of our board of directors and will depend on our earnings, our financial condition, any debt covenants, maintenance of our REIT qualification and other factors as our board of directors may deem relevant from time to time.  We believe that a change in any one of the following factors could adversely affect our results of operations and impair our ability to pay distributions to our stockholders:


·
the profitability of the assets acquired;




·
our ability to make profitable acquisitions;




·
margin calls or other expenses that reduce our cash flow;




·
defaults in our asset portfolio or decreases in the value of our portfolio; and




·
the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.




We cannot assure you that we will achieve results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions in the future.  In addition, some of our distributions may include a return in capital.




Your ability to exercise your warrants may be limited by the ownership limits contained in the terms of the Warrant Agreement and our certificate of incorporation.




Your ability to exercise your warrants may be limited by the ownership limits contained in the terms of the Warrant Agreement, dated as of October 17, 2009, as amended, between us and Continental Stock Transfer and Trust Company (the "Warrant Agreement"), and our certificate of incorporation.  On May 24, 2010, The Bank of New York Mellon was appointed as the Company's new transfer agent, registrar and dividend disbursing agent.  In particular, to assist us in qualifying as a REIT, ownership of shares of our common stock by any person is limited under the certificate of incorporation, with certain exceptions, to 9.8% by value or by number of shares, whichever is more restrictive, of our outstanding shares of common stock and no more than 9.8% by value or by number of shares, whichever is more restrictive, of our outstanding capital stock.  Moreover, the terms of the warrants limit a holder's ability to exercise warrants to ensure that such holder's Beneficial Ownership or Constructive Ownership, each as defined in our certificate of incorporation, does not exceed the restrictions contained in our certificate of incorporation limiting the ownership of shares of our common stock.  In addition, our certificate of incorporation contains various other restrictions limiting the ownership and transfer of our common stock.  As a result, you may not be able to exercise your warrants if such exercise would cause you to own shares of our common stock in excess of these ownership limits.




You will not be able to exercise your warrants if an effective registration statement is not in place when you desire to do so.




No warrant will be exercisable and we will not be obligated to issue shares of common stock unless, at the time a holder seeks to exercise such warrant, a prospectus relating to the common stock issuable upon exercise of the warrant is current.  Under the terms of the Warrant Agreement, we are required to use our best efforts to meet these conditions and to maintain a current prospectus relating to the shares of common stock issuable upon exercise of the warrants until the expiration of the warrants.  However, there can be no assurance that we will be able to do so, and if we do not maintain a current prospectus related to the shares of common stock issuable upon exercise of the warrants, holders will be unable to exercise their warrants.  Additionally, we will have no obligation to settle the warrants for cash or "net cash settle" any warrant exercise.  Accordingly, if the prospectus relating to the common stock issuable upon the exercise of the warrants is not current, the warrants may have no value, the market for the warrants may be limited and the warrants may expire worthless.




- 20 -


Our warrants may be exercised in the future, which would increase the number of shares eligible for future resale in the public market and dilute the ownership of our existing stockholders.




Outstanding warrants to purchase an aggregate of 49,400,000 shares of our common stock are currently exercisable at an exercise price of $12.00 per share.  The warrant exercise price may be lowered under certain circumstances, including, among others, in our sole discretion at any time prior to the expiration date of the warrants for a period of not less than 20 business days; provided, however, that any such reduction shall be identical in percentage terms among all of the warrants.  These warrants likely will be exercised if the market price of the shares of our common stock equals or exceeds the warrant exercise price.  Therefore, as long as warrants remain outstanding, there will be a drag on any increase in the price of our common stock in excess of the warrant exercise price.  To the extent such warrants are exercised, additional shares of our common stock will be issued, which would dilute the ownership of our existing stockholders.  Further, if these warrants are exercised at any time in the future at a price lower than the book value per share of our common stock, existing stockholders could suffer substantial dilution of their investment, which dilution could increase in the event the warrant exercise price is lowered.  Additionally, if we were to lower the exercise price in the near future, the likelihood of this dilution could be accelerated.




Item 1B.
Unresolved Staff Comments




None.




Item 2.
Properties




We maintain our executive office at 3 Manhattanville Road, Purchase, New York 10577.  The cost for this space is included in the $7,500 per month fee we have agreed to pay NRDC Real Estate Advisors, LLC under the Transitional Shared Facilities and Services Agreement, pursuant to which NRDC Real Estate Advisors, LLC provides us with access to, among other things, their information technology and office space.




The following table provides information regarding our properties as of December 31, 2010.




Property

Year Completed/

Renovated

Year

Acquired

Gross

Leasable

Sq. Feet

Number

of

Tenants

%

Leased

Principal TenantParamount Plaza

1966/2010

2009

95,062

14

100.0%

Fresh & Easy, Rite Aid and T.J. MaxxSanta Ana Downtown Plaza, CA

1987/2010

2010

100,305

24

97.6%

Food 4 Less and FAMSA FurnitureMeridian Valley Plaza, WA

1978/1982

2010

51,597

14

95.8%

QFC (Kroger) Grocery StoreGrand Mart Plaza, CA(1)

1980/2006

2010

125,708

19

54.7%

Grand Mart SupermarketThe Market at Lake Stevens, WA

2000

2010

74,130

9

100.0%

Haggen Food & PharmacyNorwood Shopping Center, CA

1993

2010

88,851

15

100.0%

Viva Supermarket, Rite Aid and Citi TrendsPleasant Hill Marketplace, CA

1980

2010

69,786

3

100.0%

Office Depot and Basset FurnitureVancouver Market Center, WA

1996

2010

118,385

18

94.7%

Albertsons and Portland Habitat for HumanityHappy Valley Town Center, OR

2007

2010

132,896

32

91.9%

New Season MarketOregon City Point, OR

2007

2010

35,305

16

85.0%

Safeway SupermarketCascade Summit, OR

2000

2010

95,508

28

95.6%

Safeway SupermarketHeritage Market Center, WA

2000

2010

107,468

19

88.1%

Safeway SupermarketClaremont Center, CA

1982/2007

2010

91,520

7

65.2%

Superking SupermarketShops At Sycamore Creek, CA

2008

2010

74,198

9

79.4%

Safeway SupermarketGateway Village, CA

2003/2005

2010

96,959

27

93.0%

Henry's MarketplaceDivision Crossing, OR

1992

2010

98,321

15

98.5%

Safeway Supermarket; Rite AidHalsey, CA

1992

2010

99,438

16

89.6%

Safeway Supermarket






(1)
Our operating partnership is a managing member of, and has a 99.97% membership interest in, the owner of this property, ROIC Phillips Ranch, LLC.




- 21 -


For the year ended December 31, 2010, no single tenant comprised more than 10.4% of the total annual base rent of our properties.  The following table sets forth a summary schedule of our ten largest tenants by percent of total annual base rent as of December 31, 2010.




Tenant

Number of Stores


% of Total Annual

Base RentSafeway


6



10.4
%Haggen


1



3.8
%Rite Aid


3



3.8
%New Seasons Market


1



2.5
%Henry's Market Place


1



2.3
%Office Depot


1



2.2
%QFC-Kroger


2



2.0
%Fresh & Easy


1



2.0
%Buy Buy Baby


1



1.9
%Viva Market


1



1.6
%18



32.5
%





The following table sets forth a summary schedule of the annual lease expirations for leases in place at December 31, 2010, assuming that no tenants exercise renewal or cancellation options.




Year of Expiration

Number of

Leases Expiring


Square Footage


Minimum Base

Rentals


Base Rent%2011


41



103,004


$
1,924,045



8.8
%2012


40



131,353



2,096,281



9.5
%2013


54



132,362



2,869,472



13.0
%2014


43



101,944



2,171,922



9.8
%2015


39



150,832



2,023,682



9.2
%Thereafter


68



770,228



10,913,228



49.7
%Total


285



1,389,723


$
21,998,629



100.0
%




Item 3.
Legal Proceedings




There is no litigation currently pending or, to our knowledge, threatened against us or any of our officers or directors in their capacity as such.




Item 4.
(Removed and Reserved)




- 22 -


PARTII




Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities




Market Information




Our common stock trades on the NASDAQ Global Market ("NASDAQ") under the symbol "ROIC."  Prior to November 3, 2009, our common stock traded on the NYSE Amex under the symbol "NAQ."  The following table sets forth, for the period indicated, the high and low sales price for our common stock as reported by the NASDAQ and the NYSE Amex, as applicable, and the per share dividends declared:




Period

High


Low


Dividends

Declared2009First Quarter

$
9.64


$
9.15


$
—Second Quarter

$
9.72


$
9.52


$
—Third Quarter

$
11.04


$
9.68


$
—Fourth Quarter

$
10.76


$
10.01


$
—2010First Quarter

$
10.50


$
9.95


$
—Second Quarter

$
10.64


$
9.34


$
0.06Third Quarter

$
10.18


$
9.35


$
0.06Fourth Quarter

$
10.17


$
9.53


$
0.06





On February 23, 2011, the closing price of our common stock as reported by the NASDAQ was $10.65.




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




As of December 31, 2010, 100% of the outstanding interests in our operating partnership were owned by us.




Holders




As of February 23, 2011, we had 10 registered holders.  Such information was obtained through our registrar and transfer agent.




- 23 -


Stockholder Return Performance









The above graph compares the cumulative total return on our common stock with that of the Standard and Poor's 500 Stock Index ("S&P 500") and the National Association of Real Estate Investment Trusts Equity Index ("FTSE NAREIT Equity REITs") from October 23, 2007 (the date that our common stock began to trade publicly) through December 31, 2010.  The stock price performance graph assumes that an investor invested $100 in each of us and the indices, and the reinvestment of any dividends.  The comparisons in the graph are provided in accordance with the SEC disclosure requirements and are not intended to forecast or be indicative of the future performance of our shares of common stock.  The Company commenced its operations as a REIT on October 20, 2009.  Prior to October 20, 2009, the Company operated as a special purpose acquisition company in pursuit of an initial business combination.




Period EndingIndex

10/30/07


12/31/07


12/31/08


12/31/09


12/31/10Retail Opportunity Investments Corp.


100.00



100.44



100.22



110.51



110.59S&P 500


100.00



96.67



60.90



77.02



88.62FTSE NAREIT Equity REITs


100.00



87.33



54.38



69.60



89.05





Except to the extent that we specifically incorporate this information by reference, the foregoing Stockholder Return Performance information shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or under the Exchange Act.  This information shall not otherwise be deemed filed under such Acts.




- 24 -


Securities Authorized For Issuance Under Equity Compensation Plans




During 2009, we adopted the 2009 Equity Incentive Plan (the "2009 Plan").  (For a description of the 2009 Plan, see Note 8 to the consolidated financial statements in this Annual Report on Form 10-K.)




The following table presents certain information about our equity compensation plans as of December 31, 2010:




Plan Category

Number of securities to

be issued upon exercise

of outstanding options,

warrants and rights


Weighted-average

exercise price of

outstanding options,

warrants and rights


Number of securities

remaining available for

future issuance under

equity compensation

plans (excluding

securities reflected in

the first column of this

table)Equity compensation plans approved by stockholders


235,000


$
10.25



3,480,000Equity compensation plans not approved by stockholders


—



—



—Total


235,000


$
10.25



3,480,000





Unregistered Sales of Equity Securities and Use of Proceeds




None of our securities sold by us within the past three years were not registered under the Securities Act.




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




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




As of December 31, 2010, we have applied approximately $5.6 million of the net proceeds of the initial public offering and the private placement toward consummating a "business combination," including the Framework Transactions and paid approximately $305.7 million to acquire our properties and mortgage notes receivable.  For more information see Item 2, "Properties" in this Annual Report on Form 10-K.




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




- 25 -


Item 6.
Selected Financial Data




The following selected financial and operating information should be read in conjunction with Item 7, "Management Discussion and Analysis of Financial Conditions and Results of Operations" and our financial statements, including the notes, included elsewhere herein.




Year Ended

December 31, 2010


Year Ended

December 31, 2009


Year Ended

December 31, 2008Statement of Income Data:Total Revenues

$
16,328,969


$
45,736


$
—Operating expenses


21,642,506



11,385,270



1,566,294Operating loss


(5,313,537
)


(11,339,534
)


(1,566,294
)Gain on bargain purchase


2,216,824



—



—Interest income


1,108,507



1,705,421



5,563,075Other income


1,873,398



—



—(Loss) Income before provision for income taxes


(400,921
)


(9,364,113
)


3,996,781(Benefit) Provision for income taxes


—



(268,343
)


1,358,906Net (loss) income attributable to Retail Opportunity Investments Corp.

$
(400,921
)

$
(9,365,770
)

$
2,637,875Weighted average shares outstanding Basic and diluted:


41,582,401



49,734,703



51,750,000(Loss) earnings per share Basic and diluted:

$
(0.01
)

$
(0.19
)

$
0.05Dividends per common share:

$
0.18


$
—


$
—Balance Sheet Data:Net real estate investments, net

$
337,755,295


$
16,544,905


$
—Investments held in trust

$
—


$
—


$
396,804,576Investments held in trust from underwriter

$
—


$
—


$
14,490,000Cash and cash equivalents

$
84,736,410


$
383,240,287


$
4,222Total assets

$
464,192,502


$
403,873,513


$
412,387,958Total liabilities

$
73,668,932


$
5,678,738


$
15,723,332Total equity

$
390,523,570


$
398,194,775


$
279,074,571





Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations




The following discussion should be read in conjunction with the Retail Opportunity Investments Corp.  Consolidated Financial Statements and Notes thereto appearing elsewhere in this Annual Report on Form 10-K.  The company makes statements in this section that are forward-looking statements within the meaning of the federal securities laws.  For a complete discussion of forward-looking statements, see the section in this Annual Report on Form 10-K entitled "Statements Regarding Forward-Looking Information."  Certain risk factors may cause actual results, performance or achievements to differ materially from those expressed or implied by the following discussion.  For a discussion of such risk factors, see the section in this Annual Report on Form 10-K entitled "Risk Factors."




Overview




Retail Opportunity Investments Corp. is a fully integrated and self-managed REIT, primarily focused on investing in, acquiring, owning, leasing, repositioning and managing a diverse portfolio of well located necessity-based community and neighborhood shopping centers, anchored by national or regional supermarkets and drugstores.  We target properties strategically situated in densely populated, middle and upper income markets in the eastern and western regions of the United States.  In addition, we supplement our direct purchases of retail properties with first mortgages or second mortgages, mezzanine loans, bridge or other loans and debt investments related to retail properties, which are referred to collectively as "real estate-related debt investments," in each case provided that the underlying real estate meets our criteria for direct investment.  Our primary focus with respect to real estate-related




- 26 -
 
 debt investments is to capitalize on the opportunity to acquire control positions that will enable us to obtain the asset should a default occur.  We refer to these properties and investments as our target assets.


We believe that the current market environment presents a significant and growing opportunity to acquire, reposition and manage necessity-based community and neighborhood shopping centers to profitable returns, offering us the potential to achieve attractive risk adjusted returns for our stockholders over time primarily through dividends and secondarily through capital appreciation.  To identify attractive opportunities within our target assets, we rely on the expertise and experience of our management team.  We utilize our management team's extensive contacts in the U.S. real estate market to source investment opportunities, in particular through access to both distressed and more conventional sellers such as banks, institutions, REITs, property funds, other companies and private investors.




In implementing our investment strategy, we utilize our management team's expertise in identifying undervalued real estate and real estate-related debt investments with a focus on the retail sector.  We believe that the key factors to determining current value and future growth potential include the ability to identify the fundamental qualities of an individual asset, understand the inherent strengths and weaknesses of a market, utilize local market knowledge to identify sub-market drivers and trends, and understand how to mitigate appropriate risks prior to the acquisition of an asset.  We seek to target assets where our management team believes there is an opportunity to lease-up vacant space, renew or release expiring leases and take advantage of economies of scale achieved in the management and leasing of properties acquired and developed within our target markets, and redesign and reposition properties that maximize rental revenues and property potential.  We believe that our management team's acquisition process and operational expertise provides us with the capability to identify and properly underwrite investment opportunities.




We also believe that in the current market, we will continue to have opportunities to acquire properties from sellers not able to refinance maturing debt as well as acquire properties arising out of foreclosure sales or owned by lenders following foreclosures.  In addition, we may find opportunities to acquire properties with deferred capital expenditures, design flaws or other perceived risks, such as tenancy issues or near-term lease expirations.  Further, we may find opportunities in incomplete projects held by undercapitalized and/or defaulting developers or partially leased complexes with inexperienced management unable to achieve market occupancy.




With respect to real estate-related debt investments, our primary focus is opportunities to acquire control positions that will enable us to obtain the asset should a default occur, provided that the underlying real estate meets our criteria for direct investment.




Our aim is to seek to provide a diversification of asset classes, tenant exposures, lease terms and locations as our portfolio expands.  In order to capitalize on the changing sets of investment opportunities that may be present in the various points of an economic cycle, we may expand or refocus our investment strategy by emphasizing investments in different parts of the capital structure and different areas of the real estate sector.  Our investment strategy may be amended from time to time, if approved by our board of directors.  We are not required to seek stockholder approval when amending our investment strategy.




As of December 31, 2010, our portfolio consisted of 17 wholly-owned retail properties totalling approximately 1.6 million square feet of gross leasable area, which were approximately 89.1% leased.  In addition, we owned 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 90% leased.  We also owned a 95% interest in a development property.  We owned a 50% interest in a B-note of an existing promissory note secured by Riverside Plaza, a 407,952 square foot shopping center, and three mortgage notes secured by three shopping centers totalling 433,017 square feet and a line of credit facility loan secured by an office building.




Report on Operating Results




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




- 27 -


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




In accordance with the Financial Accounting Standards Board ("FASB") guidance relating to business combinations, which, among other things, requires any acquirer of a business (investment property) to expense all acquisition costs related to the acquisition, the amount of which will vary based on each specific acquisition and the volume of acquisitions.  Accordingly, during the year ended December 31, 2010 the costs of completed acquisitions will reduce our FFO.  For the year ended December 31, 2010, the Company expensed $2.6 million relating to real estate acquisitions.




The Company considers FFO a meaningful, additional measure of operating performance because it primarily excludes the assumption that the value of its real estate assets diminishes predictably over time and industry analysts have accepted it as a performance measure.




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 year ended December 31, 2010.  FFO for the years ended December 31, 2009 and 2008 are not provided, since there was minimal operational income and expenditures in 2009 and no real estate assets were owned by the Company in 2008.




For the year ended

December 31, 2010Net Loss for period

$
(400,921
)Plus:  Real property depreciation


2,347,536Amortization of tenant improvements and allowances


710,574Amortization of deferred leasing costs


3,046,274Funds from operations

$
5,703,463Net Cash Provided by (Used in):Operating Activities

$
2,305,270Investing Activities

$
(290,775,946
)Financing Activities

$
(10,033,740
)




Results of Operations




The Company's entire activity prior to the consummation of the Framework Transactions was limited to organizational activities, activities relating to its initial public offering and, after the initial public offering, activities relating to identifying and evaluating prospective acquisition targets.  During that period, the Company neither engaged in any operations nor generated any revenues, other than interest income earned on the proceeds of the initial public offering.  Prior to the consummation of the Framework Transactions, the majority of its operating income is derived from interest earned from the Trust Account previously held.




At December 31, 2010, the Company had equity interests in 19 properties, of which 17 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




- 28 -
 
 structure with manageable debt as of year ended December 31, 2010.  The Company expects to continue to explore acquisition opportunities that might present themselves during this economic downturn consistent with its business strategy.


Results of Operations for the year ended December 31, 2010 compared to the year ended December 31, 2009




During the year ended December 31, 2010, the Company incurred a net loss of approximately $400,921 compared to a net loss of approximately $9.4 million incurred during the year ended December 31, 2009.  On October 20, 2009, as a result of the approval of the Framework Transactions, the Company commenced its business plan of acquiring and managing retail properties.  Since commencing this business plan, the Company has acquired an equity interest in 19 properties, of which all but one property was purchased during 2010.  During the year ended December 31, 2010, the Company generated operating income from properties of approximately $4.6 million from these properties.  During the year ended December 31, 2009, there was minimal operating income activity.  In addition, during the year ended December 31, 2010, the Company generated interest income of $1.1 million from several mortgage notes receivables acquired during 2010.  During the year ended December 31, 2010, the Company received $3.1 million of federal and state tax refunds relating to prior years, of which approximately $1.9 million was recorded to other income.  During the year ended December 31, 2010, the Company recognized a bargain purchase gain of $2.2 million in recording the fair value of one of its properties when evaluating the purchase price allocation.  General and administrative expenses decreased to approximately $8.4 million for the year ended December 31, 2010, from approximately $11.3 million during the same period a year ago, mostly due to costs related to the Framework Transactions of $5.6 million incurred in 2009, which decrease was partially offset by higher payroll costs incurred in 2010 upon hiring key personnel following the consummation of the Framework Transactions.  During the year ended December 31, 2010, the Company incurred acquisition transaction costs of approximately $2.6 million in connection with its pursuit and acquisition of real estate properties.  During the year ended December 31, 2010, interest income recognized was $597,000 lower than the corresponding period in 2009 due to lower cash balances in 2010 resulting from the utilization of cash to purchase properties and mortgage notes.




Results of Operations for the year ended December 31, 2009 compared to the year ended December 31, 2008




Net loss of $9.4 million and net income of $2.6 million reported for the years ended December 31, 2009 and December 31, 2008 respectively, consisted primarily of interest income of $1.7 million and $5.6 million, respectively.  Interest income decreased for the year ended December 31, 2009 due to declining interest rates beginning in late 2008.  We incurred general and administrative expenses of $11.3 million and $1.6 million, respectively.  For the year ended December 31, 2009, general and administrative expenses increased due to the active pursuit of an initial business combination and transaction costs associated with the Framework Transactions.  Included in general and administrative expenses are $5.6 million of costs related to the Framework Transactions, $1.3 million in payroll and related expenses, $1.2 million in costs related to abandoned deals incurred during the pursuit of an initial business combination, $1.2 million for general legal, advisory and accounting fees and $0.5 million in state income taxes.  Approximately $0.2 million of costs related to the acquisition of properties was incurred.  Other expenses included the issuance of restricted stock to newly appointed board members and board fees totalling $0.6 million.




Critical Accounting Policies




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




Revenue Recognition




The Company records base rents on a straight-line basis over the term of each lease.  The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in tenant and other receivables on the accompanying consolidated balance sheets.  Most leases contain provisions that require tenants to reimburse a pro-rata share of real estate taxes and certain common area expenses.  Adjustments are also made throughout the year to tenant and other receivables and the related cost recovery income based upon our best




- 29 -
 
 estimate of the final amounts to be billed and collected.  In addition, the Company also provides an allowance for future credit losses in connection with the deferred straight-line rent receivable.


Allowance for Doubtful Accounts




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




Real Estate




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




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




The value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates, over (ii) the estimated fair value of the property as if vacant.  Above-market and below-market lease values are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be received and management's estimate of market lease rates, measured over the terms of the respective leases that management deemed appropriate at the time of acquisition.  Such valuations include a consideration of the non-cancellable terms of the respective leases as well as any applicable renewal periods.  The fair values associated with below-market rental renewal options are determined based on the Company's experience and the relevant facts and circumstances that existed at the time of the acquisitions.  The value of the above-market and below-market leases associated with the original lease term is amortized to rental income, over the terms of the respective leases.  The value of below-market rental lease renewal options is deferred until such time as the renewal option is exercised and subsequently amortized over the corresponding renewal period.  The value of in-place leases are amortized to expense, and the above-market and below-market lease values are amortized to rental income, over the remaining non-cancellable terms of the respective leases.  If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recognized in operations at that time.  The Company will record a bargain purchase gain if it determines that the purchase price for the acquired assets was less than the fair value.  The Company will record a liability in situations where any part of the cash consideration is deferred.  The amounts payable in the future are discounted to their present value. The liability is subsequently re-measured to fair value with changes in fair value recognized in the consolidated statements of operations.  If, up to one year from the acquisition date, information regarding fair value of assets acquired and liabilities assumed is received and estimates are refined, appropriate property adjustments are made to the purchase price allocation on a retrospective basis.




- 30 -


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




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




Buildings
35-40 yearsProperty Improvements
10-20 yearsFurniture/Fixtures
3-10 yearsTenant Improvements
Shorter of lease term or their useful life





Asset Impairment




On a continuous basis, management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  A property value is considered impaired when management's estimate of current and projected operating cash flows (undiscounted and without interest) of the property over its remaining useful life is less than the net carrying value of the property.  Such cash flow projections consider factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors.  To the extent impairment has occurred, the loss is measured as the excess of the net carrying amount of the property over the fair value of the asset.  Changes in estimated future cash flows due to changes in our plans or market and economic conditions could result in recognition of impairment losses which could be substantial.  Management does not believe that the value of our rental properties is impaired at December 31, 2010.




REIT Qualification Requirements




The Company intends to elect and qualify to be taxed as a REIT under the Code, commencing with its taxable year ended December 31, 2010.  The Company believes that it has been organized and has operated in a manner that will allow it to qualify for taxation as a REIT under the Code commencing with its taxable year ended December 31, 2010.




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 year ended December 31, 2010, the Company's primary sources of cash generally consist of the funds released from its Trust Account upon consummation of the Framework Transactions that occurred during year ended December 31, 2009, cash generated from its operating results and interest it receives on its cash investments.  The Company will use its current cash to purchase its target assets make distributions to its stockholders and fund its operations.  The Company expects to fund long-term liquidity requirements for property acquisitions, development, and capital improvements through a combination of unsecured and secured debt financing, assumption of existing mortgage debt on acquired properties and equity financing.




As of December 31, 2010, the Company had cash and cash equivalents of approximately $84.7 million, compared to approximately $383.2 million at December 31, 2009.  As of December 31, 2010, there were no borrowings outstanding on the Credit Facility, which provides for borrowings of up to $175 million and contains an accordion feature that allows the Company the ability to increase the facility amount up to $250 million subject to commitments and other conditions.  Pursuant to the Credit Facility, 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:




- 31 -
 
 (i) minimum consolidated tangible net worth equal to the sum of $310 million plus 80% of the net proceeds of future equity sales and issuances by the Company, (ii) minimum consolidated fixed charge coverage ratio of 1.75 to 1.00, (iii) maximum consolidated leverage ratio of 55% (which amount may be increased once to 60% for a maximum of two consecutive quarters), (iv) maximum quarterly distributions as determined pursuant to the credit agreement, (v) maximum consolidated unencumbered leverage ratio of 55%, (vi) maximum consolidated secured indebtedness ratio of 35% and (vii) maximum consolidated unsecured indebtedness as of the last day of any fiscal quarter, of the Mortgageability Amount (as defined in the credit agreement).  During the year ended December 31, 2010, the Company assumed five mortgage loans in connection with three separate real estate acquisitions.  The assumptions of these loans were deemed to be cost beneficial when compared to the defeasance fees that would have been incurred to prepay the loans on behalf of the seller of each property.  As of December 31, 2010, the Company has determined that it has adequate working capital to meet its debt obligations and operating expenses for the next twelve months.


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 proceeds from the sale of real estate or real estate-related debt investments, 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.




Cash Flows




The Company expects to meet its short-term liquidity requirements primarily from the cash on hand of approximately $84.7 million.  The Company believes the cash on hand will be sufficient to fund its short-term liquidity requirements for 2011 and to meet its dividend requirements necessary to qualify and maintain its qualification as a REIT.  In 2010, net cash flow provided by operations amounted to $2.3 million, compared to net cash flow used in operations of $6.1 million in 2009 and $5.2 million in 2008.  During 2010, the Company generated operating income of approximately $4.6 million from its ownership interest in the 19 properties in its portfolio.  In 2009, the Company generated approximately $7,700 from the one property owned.  The Company did not own or have any ownership interest in any property during 2008.  In 2010, the Company commenced payment of dividends on its common stock in the amount of $7.5 million.




Net Cash Flows from:





Operating Activities





Net cash flows provided by operating activities amounted to $2.3 million in 2010, compared to net cash flow used in operations of $6.2 million in 2009 and $5.2 million in 2008.  The changes in operating cash flows were primarily the result of:





Increase in cash flows provided by operating activities from 2009 to 2010:





During 2010, the Company generated operating income of approximately $4.6 million from its equity interest in the 19 properties in its portfolio.  The Company also earned $1.1 million of interest on mortgage notes receivables.  In addition, the Company filed amended federal and state tax returns for prior years which resulted in a refund of approximately $3.1 million which was received in 2010.  In October 2009, the Company commenced operations and acquired one property in December 2009.  As a result, net operating income was immaterial during 2009.  Prior to October 2009, the only source of revenue was interest income on investments held in the Trust Account.  In addition, in 2009 the Company incurred various costs associated with the pursuit of an initial business combination.




- 32 -


Increase in cash flows used in operating activities from 2008 to 2009:





The increase in costs during 2009 was associated with the pursuit of an initial business combination and transaction cost associated with the Framework Transactions.





Investing Activities





Net cash flows used in investing activities were $290.8 million in 2010, compared to net cash flow provided by investing activities of $393.6 million in 2009 and $5.0 million in 2008.  The changes in investing cash flows were primarily the result of:





Increase in cash flows used in investing activities from 2009 to 2010:





During 2010, the Company acquired 19 properties for approximately $210.7 million and six mortgage notes for approximately $66.9 million.  During 2010, one mortgage note receivable in the amount of $9.2 million was paid in full.  In addition, the Company invested approximately $16.7 million in two equity joint ventures.  As of December 31, 2010 the Company had deposited $1.5 million for two additional properties that closed subsequent to December 31, 2010.  During 2009, the Company only commenced operations in the fourth quarter after the Framework Transactions were approved in October 2009.





Increase in cash flows provided by investing activities from 2008 to 2009:





During 2009, investments of approximately $411.6 million previously held as restricted in the Trust Account were released to the Company and were available for investing activities.  This increase was partially offset by the acquisition of a property for approximately $18.0 million in cash in December 2009.





Financing Activities





Net cash flows used in financing activities amounted to $10.0 million in 2010, $4.3 million in 2009 and $48,900 in 2008.  The change in net cash used by financing activities was primarily attributable to:





Increase in cash flows used in financing activities from 2009 to 2010:





During 2010, the Company paid dividends on its common stock in the amount of $7.5 million.  In addition, during 2010, the Company incurred approximately $2.4 million in financing costs associated with obtaining the Credit Facility and assuming five mortgages notes.





Decrease in cash flows provided by financing activities from 2008 to 2009:





During 2009, fees of $4.2 million were paid to underwriters relating to the Company's initial public offering in 2007.  These fees were to be paid upon consummation of the Framework Transactions, which occurred in 2009.




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 December 31, 2010:




2011



2012



2013



2014



2015



Thereafter



TotalContractual obligations:Long-term debt principal payments (1)

$
12,102,986


$
7,346,051


$
438,264


$
13,535,984


$
202,169


$
6,788,772


$
40,414,226Earn-out obligations to the sellers of properties


—



—



4,916,580



—



—



—



4,916,580Operating lease obligations


200,000



200,000



200,000



200,000


$
200,000



10,800,000



11,800,000Total

$
12,302,986


$
7,546,051


$
5,354,844


$
13,735,984


$
402,169


$
17,588,772


$
56,930,806


(1)
Does not include Mortgage premium of $2.0 million.





- 33 -


As of December 31, 2010, the Company did not have any capital lease obligations, operating lease obligations or purchase obligations.  Upon consummation of the Framework Transactions, the Company entered into a Transitional Shared Facilities and Services Agreement with NRDC Real Estate Advisors, LLC, pursuant to which NRDC Real Estate Advisors, LLC provides the Company with access to, among other things, their information technology and office space.  The Company pays NRDC Real Estate Advisors, LLC a monthly fee of $7,500 pursuant to the Transitional Shared Facilities and Services Agreement.




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




Off-Balance Sheet Arrangements




The Company's investment in the Wilsonville OTS LLC development project and its investment in Crossroads Shopping Center are off-balance sheet investments in real estate property.  These investments are unconsolidated joint ventures and 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.




Leverage Policies




The Company intends, when appropriate, to employ prudent amounts of leverage and use debt as a means of providing additional funds for the acquisition of its target assets and the diversification of its portfolio.  As of December 31, 2010, there were no borrowings outstanding on the Credit Facility, which provides for borrowings of up to $175 million and contains an accordion feature that allows the Company the ability to increase the facility amount up to $250 million subject to commitments and other conditions.  The Company intends to continue to use traditional forms of financing, including mortgage financing and credit facilities.  In connection with the acquisition of properties, the Company may assume all or a portion of the existing debt on such properties.  In addition, the Company may acquire retail property indirectly through joint ventures with institutional investors as a means of increasing the funds available for the acquisition of properties.




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




- 34 -


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




Dividends




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 7A.
Quantitative and Qualitative Disclosures About Market Risk




As of December 31, 2010, the Company had no variable rate debt outstanding.  As of December 31, 2010, the Company used fixed-rate debt and two forward starting interest rate swaps to manage its interest rate risk.  See the discussion under Note 11 of the accompanying consolidated financial statements for certain quantitative details related to the interest rate swaps.




The Company entered into two forward starting interest rate swaps in order to economically hedge against the risk of rising interest rates that would affect the Company's interest expense related to its future anticipated debt issuances as part of its overall borrowing program.  The sensitivity analysis table presented below shows the estimated instantaneous parallel shift in the yield curve up and down by 50 and 100 basis points, respectively, on the clean market value of its interest rate derivatives as of December 31, 2010, exclusive of non-performance risk.




Swap Notional

Less 100 basis points


Less 50 basis points


December 31, 2010

Value


Increase 50 basis

points


Increase 100 basis

points$25M

$
(2,850,580
)

$
(1,627,996
)

$
(485,066
)

$
586,697


$
1,603,556$50M

$
(3,694,140
)

$
(1,870,686
)

$
(194,002
)

$
1,376,511


$
2,883,507





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




As a corporation that will elect to qualify as a REIT for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2010, the Company's future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates.  Market risk refers to the risk of loss from




- 35 -
 
 adverse changes in market prices and interest rates.  The Company will be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties and make real estate-related debt investments.  The Company's interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs.  To achieve these objectives, the Company expects to borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to convert variable rates to fixed rates.  In addition, the Company uses derivative financial instruments to manage interest rate risk.  The Company will not use derivatives for trading or speculative purposes and will only enter into contracts with major financial institutions based on their credit rating and other factors.  Currently, the Company uses two interest rate swaps to manage its interest raterisk.  See Note 11 of the accompanying consolidated financial statements.


Item 8.
Financial Statements and Supplementary Data




The information required by Item 8 of Part II is incorporated by reference to Item 15 of Part IV commencing on page F-1 to this Annual Report on Form 10-K.




Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure




On March 29, 2010, the Company dismissed McGladrey & Pullen, LLP ("McGladrey & Pullen") as its independent registered public accounting firm.  The decision to change accounting firms was recommended by the audit committee of the Company’s board of directors and approved by its board of directors.




During each of the fiscal years ended December 31, 2008 and December 31, 2009 and the subsequent period from January 1, 2010 through the Company’s notice to McGladrey & Pullen of its dismissal on March 29, 2010: (i) there were no disagreements between the Company and McGladrey & Pullen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure, which disagreement, if not resolved to the satisfaction of McGladrey & Pullen, would have caused McGladrey & Pullen to make reference to the matter in their report; and (ii) there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K).




McGladrey & Pullen’s reports on the Company’s financial statements for 2008 and 2009 did not contain an adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles, except that the report of the December 31, 2008 financial statements included an explanatory paragraph about the Company's ability to continue as a going concern due to the Company's mandatory liquidation by October 23, 2009 if a business combination had not been consummated.




The Company provided McGladrey & Pullen with a copy of the above disclosures and requested that McGladrey & Pullen furnish the Company with a letter addressed to the SEC stating whether it agrees with such statements made by the Company.  A copy of that letter, dated March 30, 2010, was filed as Exhibit 16.1 to its current report on Form 8-K filed with the SEC on April 1, 2010.




On March 31, 2010, the Company engaged Ernst & Young LLP ("Ernst & Young") to serve as its independent registered public accountants.  The decision to engage Ernst & Young was recommended by the audit committee of the Company’s board of directors and approved by its board of directors.  During the Company’s two most recent fiscal years and the subsequent interim period through March 31, 2010, neither the Company nor anyone on the Company’s behalf consulted with Ernst & Young with respect to (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on its consolidated financial statements, and neither a written report was provided to the Company nor oral advice was provided that Ernst & Young concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (b) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K), or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).




- 36 -


Item 9A.
Controls and Procedures




Evaluation of Disclosure Controls and Procedures




The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e).  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Also, the Company has investments in certain unconsolidated entities.  As the Company does not control these entities, the Company's disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those the Company maintains with respect to its consolidated subsidiaries.




As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.




Management's Report on Internal Control over Financial Reporting




Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).  Under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2010 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on that evaluation, the Company concluded that its internal control over financial reporting was effective as of December 31, 2010.




Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.




The effectiveness of internal control over financial reporting as of December 31, 2010, has been audited by Ernst & Young, LLP, an independent registered public accounting firm, as stated in its report which appears on page F-2 of this Annual Report on Form 10-K.




Changes in Internal Control over Financial Reporting




There was no change in the Company’s internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during its most recent quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.




Item 9B.
Other Information




None.




- 37 -


PARTIII




Item 10.
Directors, Executive Officers and Corporate Governance




Information required by this Item is hereby incorporated by reference to the material appearing in the Proxy Statement for the Company's 2011 Annual Meeting of Stockholders to be filed within 120 days after December 31, 2010.




Item 11.
Executive Compensation




Information required by this Item is hereby incorporated by reference to the material appearing in the Proxy Statement for the Company's 2011 Annual Meeting of Stockholders to be filed within 120 days after December 31, 2010.




Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters




Information required by this Item is hereby incorporated by reference to the material appearing in the Proxy Statement for the Company's 2011 Annual Meeting of Stockholders to be filed within 120 days after December 31, 2010.




Item 13.
Certain Relationships and Related Transactions, and Director Independence




Information required by this Item is hereby incorporated by reference to the material appearing in the Proxy Statement for the Company's 2011 Annual Meeting of Stockholders to be filed within 120 days after December 31, 2010.




Item 14.
Principal Accounting Fees and Services




Information required by this Item is hereby incorporated by reference to the material appearing in the Proxy Statement for the Company's 2011 Annual Meeting of Stockholders to be filed within 120 days after December 31, 2010.




- 38 -


PARTIV




Item 15.
Exhibits and Financial Statement Schedules




(a)(1) and (2) Financial Statements and Schedules




Reference is made to the "Index to Consolidated Financial Statements and Financial Statement Schedules" on page F-1 of this Annual Report on Form 10-K and the consolidated financial statements included herein, beginning on page F-2.




(a)(3) Exhibits




3.1
Second Amended & Restated Certificate of Incorporation(1)3.2
Second Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation(2)3.3
Third Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation(2)3.4
Fourth Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation(2)3.5
Amended and Restated Bylaws(2)4.1
Specimen Unit Certificate(2)4.2
Specimen Common Stock Certificate(2)4.3
Specimen Warrant Certificate(2)4.4
Form of Warrant Agreement, between Continental Stock Transfer & Trust Company and 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 October 20, 2009(2)10.1
Letter Agreement among NRDC Acquisition Corp., Banc of America Securities LLC and NRDC Capital Management, LLC(3)10.2
Letter Agreement among NRDC Acquisition Corp., Banc of America Securities LLC and William L. Mack(4)10.3
Letter Agreement among NRDC Acquisition Corp., Banc of America Securities LLC and Robert C. Baker(4)10.4
Letter Agreement among NRDC Acquisition Corp., Banc of America Securities LLC and Richard A. Baker(4)10.5
Letter Agreement among NRDC Acquisition Corp., Banc of America Securities LLC and Lee S. Neibart(3)10.6
Letter Agreement among NRDC Acquisition Corp., Banc of America Securities LLC and Michael J. Indiveri(3)10.7
Letter Agreement among NRDC Acquisition Corp., Banc of America Securities LLC and Edward H. Meyer(3)10.8
Letter Agreement among NRDC Acquisition Corp., Banc of America Securities LLC and Laura Pomerantz(3)10.9
Letter Agreement among NRDC Acquisition Corp., Banc of America Securities LLC and Vincent Tese(3)  - 39 -
 10.10
Letter Agreement among NRDC Acquisition Corp., Banc of America Securities LLC and Ronald W. Tysoe(3)10.11
Promissory Note issued by NRDC Acquisition Corp. to NRDC Capital Management, LLC(5)10.12
Form of Registration Rights Agreement, between NRDC Acquisition Corp. and NRDC Capital Management, LLC(3)10.13
Private Placement Warrant Purchase Agreement, between NRDC Acquisition Corp. and NRDC Capital Management, LLC(4)10.14
Letter Agreement between NRDC Acquisition Corp. and Apollo Real Estate Advisors(4)10.15
Framework Agreement, by and between NRDC Acquisition Corp. and NRDC Capital Management, LLC(6)10.16
Letter Agreement between NRDC Acquisition Corp. and Banc of America Securities LLC(7)10.17
Letter Agreement, dated August 10, 2009, among NRDC Acquisition Corp., Banc of America Securities LLC and NRDC Capital Management, LLC(8)10.18
Letter Agreement, dated August 10, 2009, among NRDC Acquisition Corp., Banc of America Securities LLC and William L. Mack(8)10.19
Letter Agreement, dated August 10, 2009, among NRDC Acquisition Corp., Banc of America Securities LLC and Robert C. Baker(8)10.20
Letter Agreement, dated August 10, 2009, among NRDC Acquisition Corp., Banc of America Securities LLC and Richard A. Baker(8)10.21
Letter Agreement, dated August 10, 2009, among NRDC Acquisition Corp., Banc of America Securities LLC and Lee S. Neibart(8)10.22
Letter Agreement, dated August 10, 2009, among NRDC Acquisition Corp., Banc of America Securities LLC and Michael J. Indiveri(8)10.23
Letter Agreement, dated August 10, 2009, among NRDC Acquisition Corp., Banc of America Securities LLC and Edward H. Meyer(8)10.24
Letter Agreement, dated August 10, 2009, among NRDC Acquisition Corp., Banc of America Securities LLC and Laura Pomerantz(8)10.25
Letter Agreement, dated August 10, 2009, among NRDC Acquisition Corp., Banc of America Securities LLC and Vincent Tese(8)10.26
Letter Agreement, dated August 10, 2009, among NRDC Acquisition Corp., Banc of America Securities LLC and Ronald W. Tysoe(8)10.27
Letter Agreement between NRDC Acquisition Corp. and Ladenburg Thalmann & Co. Inc.(9)10.28
Letter Agreement between NRDC Acquisition Corp. and Maxim Group LLC(10)10.29
Letter Agreement between NRDC Acquisition Corp. and Gunnallen Financial, Inc.(11)10.30
Amendment to Framework Agreement, by and between NRDC Acquisition Corp. and NRDC Capital Management, LLC(11)10.31
Amendment to Placement Warrant Purchase Agreement, by and between NRDC Acquisition Corp. and NRDC Capital Management, LLC, dated as of October 20, 2009(2)  - 40 -
 10.32
Transitional Shared Facilities and Services Agreement, by and between NRDC Acquisition Corp. and NRDC Real Estate Advisors, LLC, dated as of October 20, 2009(2)10.33
Employment Agreement, by and between NRDC Acquisition Corp. and Stuart Tanz, dated as of October 20, 2009(2)10.34
Employment Agreement, by and between NRDC Acquisition Corp. and John Roche, dated as of October 20, 2009(2)10.35
Employment Agreement, by and between NRDC Acquisition Corp. and Richard A. Baker, dated as of October 20, 2009(2)10.36
Restricted Stock Award Agreement, by and between Retail Opportunity Investments Corp. and Stuart Tanz, dated as of October 20, 2009(2)10.37
Restricted Stock Award Agreement, by and between Retail Opportunity Investments Corp. and John Roche, dated as of October 20, 2009(2)10.38
Restricted Stock Award Agreement, by and between Retail Opportunity Investments Corp. and Richard A. Baker, dated as of October 20, 2009(2)10.39
Option Award Agreement, by and between Retail Opportunity Investments Corp. and Stuart Tanz, dated as of October 20, 2009(2)10.40
Option Award Agreement, by and between Retail Opportunity Investments Corp. and John Roche, dated as of October 20, 2009(2)10.41
Option Award Agreement, by and between Retail Opportunity Investments Corp. and Richard A. Baker, dated as of October 20, 2009(2)10.42
Corporate Opportunity Agreement, by and between NRDC Acquisition Corp. and Robert C. Baker, dated as of October 20, 2009(2)10.43
Corporate Opportunity Agreement, by and between NRDC Acquisition Corp. and William L. Mack, dated as of October 20, 2009(2)10.44
Termination of Co-Investment Agreement, by and between NRDC Acquisition Corp. and NRDC Capital Management, LLC, dated as of October 20, 2009(2)10.45
2009 Equity Incentive Plan(2)10.46
Form of Restricted Stock Award Agreement under 2009 Equity Incentive Plan(2)10.47
Form of Option Award Agreement under 2009 Equity Incentive Plan(2)10.48
Agreement of Purchase and Sale and Joint Escrow Instructions, by and between Retail Opportunity Investments Corp. and PPSC, LLC and 15717 Downey Ave LLC, dated as of November 25, 2009(12)10.49
Purchase and Sale Agreement and Receipt for Earnest Money, between PBS Associates, LLC and Retail Opportunity Investments Corp., dated December 15, 2009(12)10.50
Purchase and Sale Agreement and Receipt for Earnest Money, between Meridian Valley Properties, LLC and Retail Opportunity Investments Corp., dated December 24, 2009(12)10.51
Agreement of Purchase and Sale and Escrow Instructions, by and between Regency Centers, L.P. and Retail Opportunity Investments Corp., dated as of December 30, 2009(12)10.52
Employment Agreement, by and between Retail Opportunity Investment Corp. and Richard K. Schoebel, dated as of December 9, 2009(12)  - 41 -
 10.53
Restricted Stock Award Agreement, by and between Retail Opportunity Investments Corp. and Richard K. Schoebel, dated as of December 9, 2009(12)10.54
Option Award Agreement, by and between Retail Opportunity Investments Corp. and Richard K. Schoebel, dated as of December 9, 2009(12)10.55
Common Stock Award, by Retail Opportunity Investments Corp. to Melvin S. Adess, dated as of December 11, 2009 and effective as of October 20, 2009(12)10.56
Common Stock Award, by Retail Opportunity Investments Corp. to Charles J. Persico, dated as of December 11, 2009 and effective as of October 20, 2009(12)10.57
Purchase and Sale Agreement, dated February 2, 2010, among ROIC Phillips Ranch, LLC, CMP Phillips Associates, LLC, MCC Realty III, LLC and First American Title Insurance Company(13)10.58
Purchase and Sale Agreement, dated February 14, 2010, by and between Corniche Development, Inc. and Retail Opportunity Investments Corp.(14)10.59
Purchase and Sale Agreement, dated as of March 21, 2010, by and between Norwood Properties, LLC and Retail Opportunity Investments Corp.(14)10.60
Purchase and Sale Agreement, dated as of March 21, 2010, by and between Watt Elkhorn Associates, L.P. and Retail Opportunity Investments Corp.(14)10.61
Agreement for Sale and Purchase of Property, dated March 25, 2010, between SPI P Hill Associates, L.P., by and through Todd Robinette in his capacity as court appointed receiver in case number CIV MSC 09-01627, in the Superior Court of California, County of Contra Costa, and Retail Opportunity Investments Corp.(14)10.62
Purchase and Sale Agreement, dated May 11, 2010, by and between J-T Properties Ltd. and Retail Opportunity Investments Corp.(15)10.63
Purchase and Sale Agreement, dated June 15, 2010, by and between 162nd & Fourth Plain, LLC and Retail Opportunity Investments Corp.(15)10.64
Purchase and Sale Agreement, dated June 15, 2010, by and between Gramor Acme LLC and Retail Opportunity Investments Corp.(15)10.65
Purchase and Sale Agreement, dated June 15, 2010, by and between Cascade Summit Retail LLC and Retail Opportunity Investments Corp.(15)10.66
Purchase and Sale Agreement, dated June 15, 2010, by and between OC Point, LLC and Retail Opportunity Investments Corp.(15)10.67
Operating Agreement of Wilsonville OTS LLC, dated  as of July 14, 2010, between Gramor Wilsonville OTS LLC and ROIC Oregon, LLC(16)10.68
Purchase and Sale Agreement, dated as of July 21, 2010, by and between O'Hearn/Hillcrest Properties, LLC and Retail Opportunity Investments Corp.(16)10.69
Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of September 16, 2010, by and among Grand Gateway I, LLC, Grand Gateway II, LLC, Grand Gateway III, LLC, and Retail Opportunity Investments Corp.(16)10.70
Conveyance in Lieu of Foreclosure Agreement, dated as of September 20, 2010, by and between DKVCMT, LLC, DLVCMT, LLC, Donald P. Knapp, Dale K. Lenington and ROIC Claremont Center, LLC(16)  - 42 -
 10.71
Purchase and Sale Agreement, dated as of September 27, 2010, between Retail Opportunity Investments Corp. and Shops at Sycamore Creek, LLC(17)10.72
Agreement for Purchase and Sale of Real Property and Joint Escrow Instructions, by and between Retail Opportunity Investments Corp. and Pinole Vista LLC, dated as of October 13, 201010.73
Purchase and Sale Agreement, dated November 18, 2010, by and between Mission Center, LLC and Retail Opportunity Investments Corp.10.74
Purchase and Sale Agreement, dated as of November 29, 2010, by and between PDC Community Centers L.L.C. and Retail Opportunity Investments Corp.10.75
Agreement for the Sale and Purchase of Partnership Interests, by and among TCA Holdings, LLC, Sher GP, Inc., Mel Ronick IRA, Merrill Lynch IRA FBO Eugene Clahan, and Jacqueline Kudler, Trustee of the Joel J. Kudler Marital Trust u/a dated 11/11/88, Doris Blum, The Blum Family Trust, The Joseph Blum Irrevocable Trust, The Blum 1986 Grandchildren's Trust I, The Ari Blum Trust, The Morgan Blum Trust, Thomas Bomar Trust B under the Harris Trust u/a dated 7/22/88, Rawson, Blum & Company, The Rawson Living Trust, Argus Group, Ltd., Eugene E. and Kathleen B. Clahan Revocable Trust u/a dated 11/11/88, Merritt and Pamela Sher Living Trust, Ronald Sher, Sylvia Sher, Sydney Sher Marital Trust, Terranomics Investment Partnership, Terranomics, and Terranomics Crossroads Associates, and Retail Opportunity Investments Partnership, LP, dated as of November 30, 201010.76
Credit Agreement, dated as of December 1, 2010, among Retail Opportunity Investments Partnership, LP, as the Borrower, Retail Opportunity Investments Corp., as the Parent Guarantor, certain subsidiaries of the Parent Guarantor identified therein, as the Subsidiary Guarantors, Bank of America, N.A., as Administrative Agent and L/C Issuer, KeyBank National Association, as the Syndication Agent, PNC Bank, National Association and U.S. Bank National Association, as Co-Documentation Agents, and the other lenders party thereto(18)14.1
Code of Business Conduct and Ethics(19)16.1
Letter from McGladrey & Pullen, LLP(20)21.1
List of Subsidiaries of Retail Opportunity Investments Corp.23.1
Consent of Ernst &Young LLP23.2
Consent of McGladrey & Pullen, LLP31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act31.2
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act32.1
Certifications pursuant to Section 1350






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


(2)
Incorporated by reference to our current report on Form 8-K filed on October 26, 2009.


(3)
Incorporated by reference to our registration statement on Form S-1/A filed on September 27, 2007 (File No. 333-144871).


(4)
Incorporated by reference to our registration statement on Form S-1/A filed on October 10, 2007 (File No. 333-144871).


(5)
Incorporated by reference to our registration statement on Form S-1 filed on July 26, 2007 (File No. 333-144871).


(6)
Incorporated by reference to our current report on Form 8-K filed on August 10, 2009.


(7)
Incorporated by reference to our current report on Form 8-K filed on August 12, 2009.


(8)
Incorporated by reference to our current report on Form 8-K filed on August 14, 2009.


(9)
Incorporated by reference to our current report on Form 8-K filed on August 21, 2009.


(10)
Incorporated by reference to our current report on Form 8-K filed on August 31, 2009.




- 43 -


(11)
Incorporated by reference to our current report on Form 8-K filed on September 16, 2009.


(12)
Incorporated by reference to our annual report on Form 10-K for the fiscal year ended December 31, 2009, filed on March 12, 2010.


(13)
Incorporated by reference to our current report on Form 8-K filed on February 9, 2010.


(14)
Incorporated by reference to our quarterly report on Form 10-Q for the quarterly period ended March 31, 2010, filed on May 6, 2010.


(15)
Incorporated by reference to our quarterly report on Form 10-Q for the quarterly period ended June 30, 2010, filed on August 5, 2010.


(16)
Incorporated by reference to our quarterly report on Form 10-Q for the quarterly period ended September 30, 2010, filed on November 4, 2010.


(17)
Incorporated by reference to our current report on Form 8-K filed on October 1, 2010.


(18)
Incorporated by reference to our current report on Form 8-K filed on December 6, 2010.


(19)
Incorporated by reference to our annual report on Form 10-K for the fiscal year ended December 31, 2009, filed on March 12, 2010.


(20)
Incorporated by reference to our current report on Form 8-K filed on April 1, 2010.





- 44 -


SIGNATURES




Pursuant to the requirements of Section 13 or 15(d) 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:  February 25, 2011
/s/ Stuart A. TanzStuart A. Tanz

President and Chief Executive Officer

(Principal Executive Officer)Date:  February 25, 2011
/s/ John B. RocheJohn B. Roche

Chief Financial Officer

(Principal Financial and Accounting Officer)





Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.









Date:  February 25, 2011
/s/ Richard A. BakerRichard A. Baker

Executive Chairman of the BoardDate:  February 25, 2011
/s/ Stuart A. TanzStuart A. Tanz

President, Chief Executive Officer and DirectorDate:  February 25, 2011
/s/ Melvin S. AdessMelvin S. Adess

DirectorDate:  February 25, 2011
/s/ Mark BurtonMark Burton

DirectorDate:  February 25, 2011
/s/ Michael J. IndiveriMichael J. Indiveri

DirectorDate:  February 25, 2011
/s/ Edward H. MeyerEdward H. Meyer

Director   
 Date:  February 25, 2011
/s/ Lee S. NeibartLee S. Neibart

DirectorDate:  February 25, 2011
/s/ Charles J. PersicoCharles J. Persico

DirectorDate:  February 25, 2011
/s/ Laura H. PomerantzLaura H. Pomerantz

Director










Retail Opportunity Investments Corp.




Index To Financial Statements and Financial Statement Schedules




PageReports of Independent Registered Public Accounting Firms
F-2Consolidated Balance Sheets at December 31, 2010 and 2009
F-5Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008
F-6Consolidated Statements of Equity for the years ended December 31, 2010, 2009 and 2008
F-7Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
F-8Notes to Consolidated Financial Statements
F-9SchedulesIII   Real Estate and Accumulated Depreciation – December 31, 2010
F-29IV   Mortgage Loans on Real Estate – December 31, 2010
F-31










All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.








- F-1 -


REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Board of Directors and Stockholders of


Retail Opportunity Investments Corp.





We have audited Retail Opportunity Investments Corp.’s (the “Company”) internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Item 9A. Controls and Procedures - Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.





We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.





A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.





Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.




In our opinion, Retail Opportunity Investments Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based onthe COSO criteria.




We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Retail Opportunity Investments Corp. as of December 31, 2010, and the related consolidated statements of operations, equity, and cash flows for the year ended December 31, 2010 of the Company and our report dated February 25, 2011 expressed an unqualified opinion thereon.









/s/ Ernst & Young LLP




New York, New York




February 25, 2011




- F-2 -




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




The Board of Directors and Stockholders of


Retail Opportunity Investments Corp.







We have audited the accompanying consolidated balance sheet of Retail Opportunity Investments Corp. (the “Company”) as of December 31, 2010, and the related consolidated statement of operations, equity, and cash flows for the year ended December 31, 2010.  Our audit also included the financial statement schedules listed in the Index at Item 15.  These financial statements and schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audit.




We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.




In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Retail Opportunity Investments Corp. at December 31, 2010, and the consolidated results of their operations and their cash flows for the year ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.




We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Retail Opportunity Investments Corps.’ internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2011 expressed an unqualified opinion thereon.














/s/ Ernst & Young LLP




New York, New York




February 25, 2011







- F-3 -




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







To the Board of Directors and Stockholders





Retail Opportunity Investments Corp.








We have audited the accompanying consolidated balance sheets of Retail Opportunity Investments Corp. and Subsidiaries as of December 31, 2009, and the related consolidated statements of income, stockholders' equity, and cash flows for the years ended December 31, 2009 and 2008.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Retail Opportunity Investments Corp. and Subsidiaries as of December 31, 2009 the results of their operations and their cash flows for the years ended December 31, 2009 and 2008, in conformity with U.S. generally accepted accounting principles.











/s/ McGladrey & Pullen, LLP





McGLADREY & PULLEN, LLP





New York, New York





March 11, 2010





- F-4 -




RETAILOPPORTUNITY INVESTMENTS CORP.




CONSOLIDATED BALANCE SHEETS




December 31, 2010


December 31, 2009ASSETSReal Estate Investments:Land

$
85,473,305


$
6,346,871Building and improvements


187,259,539



10,218,422272,732,844



16,565,293Less: accumulated depreciation


3,078,160



20,388269,654,684



16,544,905Mortgage notes receivable


57,778,044



—Investment in and advances to unconsolidated joint ventures


16,779,355



—Real Estate Investments, net


344,212,083



16,544,905Cash and cash equivalents


84,736,410



383,240,827Restricted cash


2,838,261



—Tenant and other receivables


2,055,881



—Deposits


1,500,000



—Acquired lease intangible asset, net of accumulated amortization


17,672,608



1,820,151Income taxes receivable


—



1,236,375Prepaid expenses


798,655



147,634Deferred charges, net of accumulated amortization


9,576,904



870,769Other


801,700



12,852Total assets

$
464,192,502


$
403,873,513LIABILITIES AND EQUITYLiabilities:Mortgage notes payable

$
42,417,100


$
—Acquired lease intangibles liability, net of accumulated amortization


20,996,167



1,121,187Accounts payable and accrued expenses


4,889,350



4,434,586Due to related party


—



5,556Tenants' security deposits


859,537



22,946Other liabilities


4,506,778



94,463Total liabilities


73,668,932



5,678,738Commitments 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

41,638,100 and 41,569,675 shares issued and outstanding at December

31, 2010 and 2009


4,164



4,156Additional paid-in-capital


403,915,775



403,184,312Accumulated deficit


(12,880,840
)


(4,993,693
)Accumulated other comprehensive loss


(517,918
)


—Total Retail Opportunity Investments Corp. stockholders' equity


390,521,181



398,194,775Noncontrolling interests


2,389



—Total equity


390,523,570



398,194,775Total liabilities and equity

$
464,192,502


$
403,873,513





The accompanying notes to consolidated financial statements


are an integral part of these statements




- F-5 -


RETAILOPPORTUNITY INVESTMENTS CORP.




CONSOLIDATED STATEMENTS OF OPERATIONS




For the Year Ended December 31,2010


2009


2008RevenuesBase rents

$
12,381,427


$
45,736


$
—Recoveries from tenants


2,878,582



—



—Mortgage interest


1,068,960



—



—Total revenues


16,328,969



45,736



—Operating expensesProperty operating


2,847,702



9,149



—Property taxes


1,697,200



—



—Depreciation and amortization


6,080,571



28,864



—General & Administrative Expenses


8,381,358



11,145,476



1,566,294Acquisition transaction costs


2,635,675



201,781



—Total operating expenses


21,642,506



11,385,270



1,566,294Operating loss


(5,313,537
)


(11,339,534
)


(1,566,294
)Non-operating income (expenses)Interest expense and other finance expenses


(324,126
)


—



—Gain on bargain purchase


2,216,824



—



—Equity in earnings from unconsolidated joint ventures


38,013



—



—Interest Income


1,108,507



1,705,421



5,563,075Other income


1,873,398



—



—(Loss) income before provision for income taxes


(400,921
)


(9,634,113
)


3,996,781Benefit (Provision) for Income Taxes


—



268,343



(1,358,906
)Net income (loss) attributable to Retail Opportunity

Investments Corp.

$
(400,921
)

$
(9,365,770
)

$
2,637,875Weighted average shares outstanding Basic and diluted:


41,582,401



49,734,703



51,750,000Basic income (loss) per share

$
(0.01
)

$
(0.19
)

$
0.05Diluted income (loss) per share

$
(0.01
)

$
(0.19
)

$
0.05Dividends per common share

$
0.18


$
—


$
—





The accompanying notes to consolidated financial statements


are an integral part of these statements




- F-6 -


RETAILOPPORTUNITY INVESTMENTS CORP.




CONSOLIDATED STATEMENTS OF EQUITY




Common StockShares


Amount


Additional

paid-in capital


Retained

earnings

(Accumulated

deficit)


Accumulated

other

comprehensive

loss


Noncontrolling

interests


EquityBalance at December 31, 2007


51,750,000


$
5,175


$
274,677,214


$
1,734,202



—



—


$
276,416,591Adjustment to expenses incurred in initial

public offering


—



—



20,105



—



—



—



20,105Net income


—



—



—



2,637,875











2,637,875Balance at December 31, 2008


51,750,000



5,175



274,697,319



4,372,077



—



—


$
279,074,571Reduction of deferred underwriting fee


—



—



10,267,778



—



—



—



10,267,778Shares of 5,325 exercised during conversion


(5,325
)


(1
)


(52,172
)


—



—



—



(52,173
)Shares of 12,414,674 unexercised previously subject

to possible conversion


—



—



117,590,055



—



—



—



117,590,055Cancellation of shares issued to Founders

on July 13, 2007


(10,225,000
)


(1,023
)


1,023



—



—



—



—Issuance of common shares to directors


50,000



5



512,495



—



—



—



512,495Compensation expense related to restricted

stock grants


—



—



138,400



—



—



—



138,400Compensation expense related to options granted


—



—



29,414



—



—



—



29,414Net loss


—



—



—



(9,365,770
)










(9,365,770
)Balance at December 31, 2009


41,569,675



4,156



403,184,312



(4,993,693
)


—



—



398,194,775Shares issued under the 2009 Plan


73,667



9



—



—



—



—



9Repurchase of common stock


(5,242
)


(1
)


(50,904
)


—



—



—



(50,905
)Compensation expense related to options granted


—



—



160,453



—



—



—



160,453Compensation expense related to

restricted stock grants


—



—



769,675



—



—



—



769,675Registration expenditures


—



—



(147,761
)


—



—



—



(147,761
)Cash dividends ($.18 per share)


—



—



—



(7,486,226
)


—



—



(7,486,226
)Contributions


—



—



—



—



—



2,389



2,389Comprehensive lossNet Loss Attributable to Retail

Opportunity Investments Corp.


—



—



—



(400,921
)


—



—



(400,921
)Unrealized loss on swap derivative


—



—



—



—



(517,918
)


—



(517,918
)Total other comprehensive loss


























(918,839
)Balance at December 31, 2010


41,638,100


$
4,164


$
403,915,775


$
(12,880,840
)

$
(517,918
)

$
2,389


$
390,523,570







The accompanying notes to consolidated financial statements


are an integral part of these statements




- F-7 -


RETAILOPPORTUNITY INVESTMENTS CORP




CONSOLIDATED STATEMENTS OF CASH FLOWS




For the Year Ended December 31,2010


2009


2008CASH FLOWS FROM OPERATING ACTIVITIESNet (loss) Income

$
(400,921
)

$
(9,365,770
)

$
2,637,875Adjustments to reconcile (loss) income to cash provided

by(used in) operating activities:Depreciation and amortization


6,080,571



28,864



—Amortization of deferred financing costs


(220,293
)


—



—Gain on bargain purchase


(2,216,824
)


—



—Straight-line rent adjustment


(1,147,139
)


—



—Amortization of above- and below-market rent


(922,941
)


(2,827
)


—Amortization relating to stock based compensation


930,128



680,314



—Provisions for tenant credit losses


542,312



—



—Equity earned in earnings from unconsolidated joint

ventures


(38,013
)


—



—Net income earned in acquisition


—



(29,641
)


—Change in operating assets and liabilitiesMortgage escrows


(267,443
)


—



—Tenant and other receivables


(1,451,054
)


—



—Prepaid expenses


(651,021
)


(100,380
)


80,876Interest on investments held in trust


—



(352,407
)


(6,522,954
)Income taxes receivable


1,236,375



(870,222
)


(366,153
)Deferred tax asset


—



675,753



(542,684
)Due to related party


(5,556
)


5,556



—Deferred interest payable


—



(960,648
)


960,648Accounts payable and accrued expenses


(135,389
)


4,161,902



(123,587
)Other asset and liabilities, net


972,478



(3,777
)


—Net cash provided by (used) in operating activities


2,305,270



(6,133,283
)


(5,187,568
)CASH FLOWS FROM INVESTING ACTIVITIESWithdrawal of funds from investments placed in trust


—



411,646,984



5,042,115Investments in real estate


(210,720,303
)


(18,002,923
)


—Investments in mortgage notes


(66,948,044
)


—



—Proceeds from the repayment of mortgage notes


9,170,000



—



—Investments in unconsolidated joint ventures


(16,741,343
)


—



—Improvements to properties and deferred charges


(1,465,438
)


—



—Deposits on real estate acquisitions


(1,500,000
)


—



—Construction escrows and other


(2,570,818
)


—



—Net cash (used in) provided by investing activities


(290,775,946
)


393,644,061



5,042,115CASH FLOWS FROM FINANCING ACTIVITIESPayments for shares redeemed during conversion


—



(52,173
)


—Payments of offering costs


—



(4,222,000
)


(48,895
)Increase in deferred financing and other costs


(2,367,615
)


—



—Principal repayments on mortgages


(131,393
)


—



—Noncontrolling interests:Contributions from consolidated joint venture

minority interests, net


2,389



—



—Dividends paid to common stockholders


(7,486,226
)


—



—Common shares issued under the 2009 Plan


9



—



—Repurchase shares of common stock


(50,905
)


—



—Net cash used in financing activities


(10,033,741
)


(4,274,173
)


(48,895
)Net (decrease) increase in cash and cash equivalents


(298,504,417
)


383,236,605



(194,348
)Cash and cash equivalents at beginning of period


383,240,827



4,222



198,570Cash and cash equivalents at end of period

$
84,736,410


$
383,240,827


$
4,222







The accompanying notes to consolidated financial statements


are an integral part of these statements




- F-8 -


RETAILOPPORTUNITY INVESTMENTS CORP.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




December 31, 2010




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




Business




Retail Opportunity Investments Corp. (the "Company"), formerly known as NRDC Acquisition Corp., 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 (the "Business Combination").  On August 7, 2009, the Company entered into the Framework Agreement (the "Framework Agreement") with NRDC Capital Management, LLC (the "Sponsor") which, among other things, sets forth the steps to be taken by the Company to continue the business as a corporation that will elect to qualify as a real estate investment trust ("REIT") for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2010.  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 Transactions"), including to provide that the consummation of substantially all of the Framework Transactions also constitutes a Business Combination under the Company's second amended and restated certificate of incorporation, as amended (the "certificate of incorporation").  Following the consummation of the Framework Transactions, the Company has been primarily focused on investing in, acquiring, owning, leasing, repositioning and managing a diverse portfolio of well located community and neighborhood shopping centers, anchored by national or regional supermarkets and drugstores.




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.




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").  The consolidated financial statements include the accounts 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.




In June 2009, the Financial Accounting Standards Board ("FASB") amended the 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.  Adoption of this guidance on January 1, 2010 did not have a material impact on the Company's consolidated financial statements.




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.




- F-9 -


The Company assesses the accounting treatment for each joint venture.  This assessment includes a review of each joint venture or limited liability company agreement to determine which party has what rights and whether those rights are protective or participating.  For all VIEs, the Company reviews such agreements in order to determine which party has the power to direct the activities that most significantly impact the entity's economic performance.  In situations where the Company or its partner approves, among other things, the annual budget, receives a detailed monthly reporting package from the Company, meets on a quarterly basis to review the results of the joint venture, reviews and approves the joint venture's tax return before filing, and approves all leases that cover more than a nominal amount of space relative to the total rentable space at each property, the Company does not consolidate the joint venture as it considers these to be substantive participation rights that result in shared power of the activities that most significantly impact the performance of the joint venture.  The Company's joint venture agreements also contain certain protective rights such as the requirement of partner approval to sell, finance or refinance the property and the payment of capital expenditures and operating expenditures outside of the approved budget or operating plan.  As of December 31, 2010 the Company did not have any VIEs.




Use of Estimates




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




Federal Income Taxes




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




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




The Company follows the FASB guidance that defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The FASB also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The Company records interest and penalties relating to unrecognized tax benefits, if any, as interest expense.  As of December 31, 2010, the tax years 2007 through and including 2009 remain open to examination by the Internal Revenue Service ("IRS") and state taxing authorities.  Subsequent to the year ended December 31, 2009, the IRS requested an examination of the Company’s 2009 federal tax return.  The examination is ongoing as of the date of this report.




Real Estate Investments




All costs related to the improvement or replacement of real estate properties are capitalized.  Additions, renovations and improvements that enhance and/or extend the useful life of a property are also capitalized.  Expenditures for ordinary maintenance, repairs and improvements that do not materially prolong the normal useful life of an asset are charged to operations as incurred.  The Company expenses transaction costs associated with business combinations in the period incurred.  During the years ended December 31, 2010 and 2009, the capitalized costs related to the improvements or replacement of real estate properties were $1.5 million and $0, respectively.




- F-10 -


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 years ended December 31, 2010 and 2009 of $2.6 million and $201,781, respectively.  No acquisition transaction costs were incurred during the year ended December 31, 2008.




Regarding the Company's 2010 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 its real estate investments is impaired at December 31, 2010.




- F-11 -


Cash and Cash Equivalents




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




Restricted Cash




The terms of several of the Company's mortgage loans payable require the Company to deposit certain replacement and other reserves with its lenders.  Such "restricted cash" is generally available only for property-level requirements for which the reserves have been established and is not available to fund other property-level or Company-level obligations.  Restricted cash also includes $2.0 million held by a bank in an interest bearing account to secure a contingent letter of credit obligation.




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 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.




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 was $542,300 at December 31, 2010.  The provision for doubtful accounts was $0 for the year ended December 31, 2009.




Depreciation and Amortization




The Company uses the straight-line method for depreciation and amortization.  Buildings are depreciated over the estimated useful lives which the Company estimates to be 35-40 years.  Property improvements are depreciated over the estimated useful lives that range from 10 to 20 years.  Furniture and fixtures are depreciated over the estimated useful lives that range from 3 to 10 years.  Tenant improvements are amortized over the shorter of the life of the related leases or their useful life.




Deferred Charges




Deferred charges consist principally of leasing commissions and acquired lease origination costs (which are amortized ratably over the life of the tenant leases) and financing fees (which are amortized over the term of the related debt obligation).  Deferred charges in the accompanying consolidated balance sheets




- F-12 -
 
 are shown at cost, net of accumulated amortization of $861,000 and $2,147 as of December 31, 2010 and 2009, respectively.


The unamortized balances of deferred charges will be charged to future operations as follows:




Lease origination costs


Financing costs


Total2011

$
1,142,918


$
1,232,086


$
2,375,0042012


1,016,612



1,104,255



2,120,8672013


853,128



51,349



904,4772014


690,825



43,896



734,7212015


598,055



13,765



611,820Thereafter


2,810,751



19,264



2,830,015$
7,112,289


$
2,464,615


$
9,576,904




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 December 31, 2010 and 2009 the effect of the 41,400,000 warrants to purchase the Company's common stock  (the "Public Warrants") issued in connection with the Company's initial public offering (the "Public Offering"), the 8,000,000 warrants (the "Private Placement Warrants") purchased by the Sponsor simultaneously with the consummation of the Public Offering, and the restricted stock and options granted in 2009 were not included in the calculation of diluted EPS since the effect would be anti-dilutive.  In 2008 the effect of the 41,400,000 Public Warrants and the 8,000,000 Private Placement Warrants were not considered in diluted EPS since such warrants were contingently exercisable.




Stock-Based Compensation




The Company has a stock-based employee compensation plan, which is more fully described in Note 7.




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.  It is the Company's policy to grant options with an exercise price equal to the quoted closing market price of stock on the grant date.  Awards of stock options and restricted stock are expensed as compensation on a current basis over the vesting period.




Derivatives




The Company records all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the




- F-13 -
 
 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 has two reportable segments:  the shopping centers segment and real estate finance segment.  The accounting policies for both segments are the same as those described in the summary of significant accounting policies.  The Company evaluates property performance primarily based on net operating income before depreciation, amortization and certain nonrecurring item.  The ultimate decision is determined by the Company's chief executive officer in conjunction with its board of directors.  The following table sets forth certain segment information for the Company for the year ended December 31, 2010.The Company commenced its current business operations in October 2009 following the approval by its stockholders and warrantholders of the Framework Transactions, and acquired its first property in 2009.  Therefore, the Company did not report segment information prior to 2010.




Shopping

Centers


Real Estate

Finance


Other


TotalRevenues

$
15,260,009


$
1,068,960


$
—


$
16,328,969Property operating expenses and real estate taxes


4,544,903



—



—



4,544,903Acquisition transaction costs


2,038,997



213,948



382,730



2,635,675Other expenses


—



—



8,381,358



8,381,358Income before depreciation and amortization


8,676,109



855,012



(8,764,088
)


767,033Depreciation and amortization


(6,080,571
)


—



—



(6,080,571
)Unrealized gain on acquisition of property


2,216,824



—



—



2,216,824Equity in earnings from unconsolidated joint ventures


38,013



—



—



38,013Interest and other finance expense


(251,209
)


—



(72,916
)


(324,125
)Interest income


—



—



1,108,507



1,108,507Other income


—



—



1,873,398



1,873,398Net loss attributable to Retail Opportunity Investments Corp.

$
4,599,166


$
855,012


$
(5,855,099
)

$
(400,921
)Real estate at cost

$
272,732,844


$
—


$
—


$
272,732,844Expenditures for real estate and improvements

$
210,720,303


$
57,778,044


$
—


$
268,498,347Total assets

$
302,206,311


$
60,094,405


$
101,891,786


$
464,192,502





Accounting Standards Updates




Effective January 1, 2010 the Company adopted the accounting guidance related to noncontrolling interests in the consolidated financial statements, which clarifies that a noncontrolling interest in a subsidiary (minority interests or certain limited partners' interest, in the case of the Company), subject to the classification and measurement of redeemable securities, is an ownership interest in a consolidated entity which should be reported as equity in the parent company's consolidated statements.  The guidance requires a reconciliation of the beginning and ending balances of equity attributable to noncontrolling interests and disclosure, on the face of the consolidated statement of operations, of those amounts of consolidated statement of operations attributable to the noncontrolling interests, eliminating the past practice of reporting these amounts as an adjustment in arriving at the consolidated statement of operations.  The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.




Effective January 1, 2010 the Company adopted the FASB guidance which requires additional information regarding transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets.  The guidance eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures.  The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.




- F-14 -


Effective January 1, 2010 the Company adopted the FASB guidance which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.  The guidance clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance.  The guidance requires an ongoing reassessment of whether a company is the primary beneficiary of a VIE.  The guidance also requires additional disclosures about a company's involvement in VIEs and any significant changes in risk exposure due to that involvement.  The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.




Supplemental consolidated statements of cash flow information




For the Year Ended December 31,2010


2009


2008Supplemental disclosure of cash activities:Cash paid for Federal and New York state income taxes

$
—


$
—


$
4,345,144Interest paid


379,074



—



—Supplemental disclosure of non-cash activities:Assumption of mortgage loans payables – acquisitions


40,545,619



—



—Purchase accounting allocations:Intangible lease liabilities


22,404,932



1,125,871



—Earnout obligation


3,266,600



—



—Net valuation increase in assumed mortgage loan

payable(1)


2,002,874



—



—Other non-cash investing and financing activities:Reduction of deferred underwriting fee


—



(10,267,778
)


—Accrued interest rate swap liabilities


517,918



—



—Accrued real estate improvement costs


290,364



—



—Accrued financing costs and other


152,028



—



—Capitalization of deferred financing costs


(2,519,643
)


—



—






(1)
The net valuation increase in the assumed mortgage loan payables resulted from adjusting the contract rate of interest for the Cascade Summit Loan (7.25% per annum), the Heritage Market Loan (7.1% per annum), and the Gateway Village Loans (5.58% to 6.1%) to a market rate of interest ranging (3.62% and 4.76% per annum).




2.
Real Estate Investments




The following real estate investment transactions have occurred during the year ended December 31, 2010.




Property Acquisitions




On January 26, 2010, the Company acquired a shopping center located in Santa Ana, California (the "Santa Ana Property"), for a purchase price of approximately $17.3 million.  The Santa Ana Property is a shopping center of approximately 100,306 square feet.  The Santa Ana Property has two anchor tenants, including Food 4 Less and FAMSA Furniture Store.  The acquisition of the property was funded from available cash.




On February 1, 2010, the Company acquired a shopping center located in Kent, Washington (the "Meridian Valley Property"), for an aggregate purchase price of approximately $7.1 million.  The Meridian Valley Property is a fully leased shopping center of approximately 51,566 square feet, anchored by a QFC (Kroger) Grocery store.  The acquisition of the property was funded from available cash.




On February 2, 2010, the Company purchased a 99.97% membership interest in ROIC Phillips Ranch, LLC, (the "Phillips Ranch, LLC") which owns and manages the Grand Mart Plaza Shopping Center formerly known as the Phillips Ranch Shopping Center (the "Grand Mart Plaza Property"), a neighborhood center located in Pomona, California, for an aggregate purchase price of approximately $7.4 million.  The Grand Mart Plaza Property is approximately 125,554 square feet.  The investment in the Phillips Ranch, LLC was funded from available cash.




- F-15 -


Pursuant to the Phillips Ranch, LLC agreement the seller is entitled to receive an earn-out payment based on future cash flows of the property.  At December 31, 2010, the Company recorded a liability of $3.4 million related to the earn-out obligation which is reflected in other liabilities of the accompanying consolidated balance sheets.  The Company also recorded a bargain purchase gain of $2.2 million to reflect the fair value of the property as determined by a third party consultant at the time of purchase.




As the managing member of the Phillips Ranch, LLC, a subsidiary of the Company has the authority to oversee the day-to-day operations of the Phillips Ranch, LLC.  The Phillips Ranch, LLC has hired an affiliate (the "Phillips Ranch Manager") of the third party member of the Phillips Ranch, LLC which holds a 0.03% membership interest in the Phillips Ranch, LLC to assist in managing and operating the Grand Mart Plaza Property as specified in that certain Management Services Agreement dated February 2, 2010 between Phillips Ranch, LLC and the Phillips Ranch Manager.  The Company receives a management fee based on 4% of collected revenue.  The Phillips Ranch Manager is to receive a monthly asset management fee of $8,000.  Effective July 1, 2010, the Management Services Agreement dated February 2, 2010, was amended to terminate the compensation of the Phillips Ranch Manager of one-third of actual management fees received by the Company.




On March 11, 2010, the Company acquired a shopping center located in Lake Stevens, Snohomish County, Washington (the "Lake Stevens Property"), for an aggregate purchase price of approximately $16.2 million.  The Lake Stevens Property is a shopping center of approximately 74,130 square feet and anchored by Haggen Food & Pharmacy.  The acquisition of the property was funded from available cash.




On April 5, 2010, the Company acquired a shopping center located in Sacramento, California (the "Norwood Property"), for an aggregate purchase price of $13.5 million.  The Norwood Property is approximately 90,000 square feet and is anchored by Viva Supermarket, Rite Aid and Citi Trends.  The acquisition of the property was funded from available cash.




On April 8, 2010, the Company acquired a shopping center located in Pleasant Hill, California (the "Pleasant Hill Marketplace Property"), for an aggregate purchase price of $13.7 million.  The Pleasant Hill Marketplace Property is approximately 71,000 square feet and is anchored by Office Depot and Basset Furniture, and shadow anchored by Best Buy.  The acquisition of the property was funded from available cash.




On June 17, 2010, the Company acquired a shopping center located in Vancouver, Washington (the "Vancouver Market Center Property"), for an aggregate purchase price of $11.2 million.  The Vancouver Market Center Property is approximately 118,500 square feet and is anchored by Albertsons and Portland Habitat for Humanity, and shadow anchored by Taco Bell, Subway, Carl's Jr and Blockbuster.  The acquisition of the property was funded from available cash.




On July 14, 2010, the Company acquired a shopping center located in Happy Valley, Oregon (the "Happy Valley Town Center Property"), for an aggregate purchase price of $39.4 million.  The Happy Valley Town Center Property is approximately 135,422 square feet and is anchored by New Season Market Inc.  The acquisition of the property was funded from available cash.




On July 14, 2010, the Company acquired a shopping center located in Oregon City, Oregon (the "Oregon City Point Property"), for an aggregate purchase price of $11.6 million.  The Oregon City Point Property is approximately 35,305 square feet and consists of 19 shop tenants.  The acquisition of the property was funded from available cash.




On August 20, 2010, the Company acquired a shopping center located in West Linn, Oregon (the "Cascade Summit Town Square Property"), for an aggregate purchase price of $17.1 million.  The Cascade Summit Town Square Property is approximately 94,924 square feet and is anchored by Safeway Inc.  The acquisition was funded in part from available cash of $9.9 million and the assumption of an existing mortgage of $7.2 million (the "Cascade Summit Loan").




On September 23, 2010, the Company acquired a shopping center located in Vancouver, Washington (the "Heritage Market Center Property"), for an aggregate purchase price of $20.0 million.  The Heritage Market Center Property is approximately 107,471 square feet and is anchored by Safeway Inc.  The




- F-16 -
 
 acquisition was funded in part from available cash of $8.4 million and the assumption of an existing mortgage of $11.6 million (the "Heritage Market Loan").


On May 18, 2010, the Company acquired a mortgage note from a financial institution for an aggregate purchase price of $7.3 million.  The note matured in July 2009 and the borrowers were in default.  The note was secured by a shopping center located in Claremont, California (the "Claremont Center Property").  On September 20, 2010, the Company entered into a conveyance in lieu of foreclosure agreement (the "Conveyance Agreement") with the borrower to acquire the Claremont Center Property.  Pursuant to the Conveyance Agreement, a subsidiary of the Company, as the holder of the note, agreed not to bring any action against the borrowers or the guarantors, subject to certain exceptions, and the borrowers agreed to transfer the Claremont Center Property to a subsidiary of the Company.  The conveyance was completed on September 23, 2010.  The Claremont Center Property is a neighborhood shopping center of approximately 91,000 square feet.




On September 30, 2010, the Company acquired a shopping center located in Corona, California (the "Sycamore Creek Property"), for an aggregate purchase price of approximately $17.3 million.  The Sycamore Creek Property is approximately 74,198 square feet and is anchored by Safeway Inc. (Vons).  The acquisition of the property was funded from available cash.




On December 16, 2010, the Company acquired a shopping center located in Chino Hills, California (the "Gateway Village Property"), for an aggregate purchase price of $34.0 million.  The Gateway Village Property is approximately 96,959 square feet and is anchored by Henry's Marketplace (Smart & Final).  The acquisition was funded in part from available cash of $12.2 million and the assumption of three existing mortgages totalling $21.8 million (the "Gateway Village Loans").




On December 22, 2010, the Company acquired a shopping center located Portland, Oregon (the "Division Property") for an aggregate purchase price of approximately $11.0 million.  The Division Property is a grocery-anchored neighborhood shopping center of approximately 98,321 square feet that is anchored by Safeway. The acquisition of the property was funded from available cash.




On December 22, 2010, the Company acquired a shopping center located Gresham, Oregon (the "Halsey Property") for an aggregate purchase price of approximately $7.0 million.  The Halsey Property is a grocery-anchored neighborhood shopping center of approximately 99,438 square feet that is anchored by Safeway. The acquisition of the property was funded from available cash.




Mortgage Notes Receivable




On June 28, 2010, the Company through a 50/50 joint venture with Winthrop Realty Trust acquired from John Hancock Life Insurance Company a newly created B participation interest, represented by a B-note of an existing promissory note secured by Riverside Plaza Shopping Center ("Riverside Plaza").  The Company's equity investment is $7.8 million.  Riverside Plaza is located in Riverside, California and is approximately 407,952 square feet and approximately 99% occupied.  The Participation Agreement also includes a buy-out provision of the A participation of the promissory note upon monetary or maturity default.  The A participation has an original principal balance of $54.4 million.  If the Company declines to purchase the A participation, the only rights retained by the B participation will be for residual proceeds above the A participation.  The acquisition of the B-note was funded from available cash.




On July 9, 2010, the Company acquired a first mortgage note for an aggregate purchase price of $9.2 million.  The note matured in May 2010 and was secured by a shopping center located in Downey, California known as Gallatin Plaza.  The acquisition of the mortgage note was funded from available cash.  On August 20, 2010, the borrower paid to the Company the principal balance and unpaid interest in the amount of $9.4 million in full satisfaction of the note.




On December 16, 2010, the Company acquired four loans (the "CA Loans") for an aggregate purchase price of $50.0 million, which represents approximately a 14% discount to the aggregate outstanding principal amount owed under the CA Loans. The CA Loans are currently in default and provide for a default interest rate of 5.0% over the regular interest rate of LIBOR +350 basis points to +450 basis points.  The Loans are cross-collateralized and are secured by:




- F-17 -


(i)
Desert Springs Marketplace, a shopping center located in Palm Desert, CA. Desert Springs Marketplace is a grocery-anchored neighborhood shopping center of approximately 105,157 square feet.




(ii)
Mills Shopping Center, a shopping center located in Rancho Cordova, CA. Mills Shopping Center is a grocery-anchored neighborhood shopping center of approximately 252,912 square feet.




(iii)
Nimbus Winery Shopping Center, a shopping center located in Rancho Cordova, CA.  Nimbus Winery Shopping Center is a grocery-anchored neighborhood shopping center of approximately 74,998 square feet.




(iv)
One of the CA Loans is also secured by a second mortgage on an office building in Kirkland, WA.




Unconsolidated Joint Ventures




On July 13, 2010, the Company, through a wholly-owned subsidiary, entered into an Operating Agreement (the "Operating Agreement") of Wilsonville OTS LLC ("Joint Venture") with Gramor Wilsonville OTS LLC ("Gramor"), with respect to the purchase of a 5.8 acre parcel of land known as Wilsonville Old Town Square ("Wilsonville Old Town Square") in Wilsonville, Oregon and the development of a 50,613 square feet shopping center on such land.  The Company expects that Wilsonville Old Town Square will be anchored by a 145,000 square foot Fred Meyer (The Kroger Co.) which is to be developed.  The Fred Meyer pad will not be owned by the joint venture.  Pursuant to the Operating Agreement, the Company and Gramor have each agreed to make capital contributions, on a 95%/5% basis, in connection with the acquisition and development of Wilsonville Old Town Square.  During the year ended December 31, 2010, the Company funded $4.5 million from available cash. The Joint Venture plans on funding the remaining development costs with a construction loan that it has obtained with a third party bank. The members will receive a 9% preferred return on their respective capital contributions and, following a return of the members' capital contributions, all distributions thereafter will be made on a 50%/50% basis to the members.  Pursuant to the Operating Agreement the members appointed Gramor as the managing member to oversee the day-to day operations of the Joint Venture.




On December 23, 2010, the Company, through a wholly-owned subsidiary, acquired a 49% equity interest in the Crossroads Shopping Center ("Crossroads"), a grocery-anchored shopping center located in Bellevue, Washington, for a net investment of approximately $12.3 million.  Crossroads is a 435,900 square foot shopping center situated on approximately 40 acres of land, which is currently 90% leased.  In addition, the Company will receive a preferred return of 8% of the purchase price for two years after the closing date.  The Company will receive 49% of any cash flows after debt service and preferred returns.  The Company will also have the option to purchase the remaining 51% interest in Crossroads during a specified period in the future for either cash or units of the Company's operating partnership priced at a 10% premium to common stock at the date of acquisition, subject to certain exceptions.  As of December 31, 2010, Crossroads was encumbered by two loans (i) a $53 million first mortgage with American International Group, Inc. with an interest rate of 6.5% and (ii) a $10 million second mortgage ($9 million is currently drawn-down) with an interest rate of 6.0%, both of which mature on September 1, 2015.  Subsequent to year end the Company paid off the $9 million second mortgage.  The day-to-day management of Crossroads will be undertaken by the Company's partner in the venture.  Major decisions must be approved by the unanimous vote of the Company and the other general partner in the joint venture.




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




- F-18 -


3.
Mortgage Notes Payables and Bank Lines of Credit




At December 31, 2010, mortgage notes payable are due in installments over various periods through year ended December 31, 2016 at effective rates of interest ranging from 5.58 % to 7.25% and are collateralized by real estate investments having a net carrying value of approximately $73.2 million.




The following reflects mortgage loan activity for the year ended December 31, 2010:




On August 20, 2010, the Company assumed an existing mortgage loan with an outstanding principal balance of approximately $7.2 million as part of the acquisition of the Cascade Summit Town Square Property.  At date of acquisition, the Company determined the fair market value to be $7.7 million.  The Cascade Summit Loan bears interest at a rate of 7.25% per annum and has a maturity date of July 2012.




On September 23, 2010, the Company assumed an existing mortgage loan with an outstanding principal balance of approximately $11.6 million as part of acquisition of the Heritage Market Center Property.  At date of acquisition, the Company determined the fair market value to be $12.1 million.  The Heritage Market Loan bears interest at a rate of 7.1% per annum and has a maturity date of December 2011.




On December 1, 2010, the Company assumed three existing mortgage loans with an outstanding principal balance of approximately $21.8 million as part of its acquisition of Gateway Village.  At date of acquisition, the Company determined the fair market value to be $23.0 million.  The Gateway Village Loans bear interest at a blended rate of 5.8% per annum and are scheduled to mature between 2014 and 2016.




Combined aggregate principal maturities of mortgage notes payable during the next five years and thereafter are as follows:




Principal

Repayments


Scheduled

Amortization


Mortgage

Premium


Total2011

$
11,270,461


$
832,525


$
965,954


$
13,068,9402012


6,732,230



613,821



449,247



7,795,2982013


—



438,264



323,837



762,1012014


13,256,024



279,960



136,720



13,672,7042015


—



202,169



84,512



286,681Thereafter


6,682,820



105,952



42,604



6,831,376$
37,941,535


$
2,472,691


$
2,002,874


$
42,417,100





On December 1, 2010, the Company entered into a credit agreement with Bank of America, N.A., as administrative agent, and Letter of Credit issuer, KeyBank National Association, as the syndication agent, PNC Bank, National Association and U.S. Bank National Association, as co-documentation agents, and the other lenders party thereto, with respect to an unsecured revolving credit facility ("facility").  The facility provides for borrowings of up to $175 million and contains an accordion feature, which allows the Company the ability to increase the facility amount up to an aggregate of $250 million subject to commitments and other conditions. The facility has an initial maturity date of December 1, 2012 with an option that allows the Company to extend the facility for oneyear upon satisfaction of certain conditions.  Interest on outstanding amounts is at a rate equal to an applicable rate based on the consolidated leverage ratio of the Company and its subsidiaries, plus, as applicable, (i) a LIBOR rate determined by reference to the cost of funds for Dollar deposits for the relevant period (the "Eurodollar Rate"), or (ii) a base rate determined by reference to the highest of (a) the federal funds rate plus one-half of 1%, (b) the rate of interest announced by Bank of America, N.A. as its "prime rate," and (c) the Eurodollar Rate plus 1.00% (the "Base Rate")  The Company is obligated to pay (i) an unused facility fee of (a) 0.50% if the total outstanding principal amount is less than 50% of the aggregate commitments or (b) 0.40% if the total outstanding principal amount is greater than or equal to 50% of the aggregate commitments, and (ii) a fronting fee with respect to each letter of credit issued under the Credit Agreement.




- F-19 -


4.
Acquired Lease Intangibles




For the years ended December 31, 2010, 2009 and 2008, the net amortization of acquired lease intangible assets and acquired lease intangible liabilities was $923,000, $2,827 and $0 respectively, which amounts are included in base rents in the accompanying consolidated statements of operations.




The scheduled amortization of acquired lease intangible assets as of December 31, 2010 is as follows:




Year ending December 31:2011

$
3,603,6712012


2,722,9432013


2,134,0612014


1,709,3282015


1,385,456Thereafter


6,117,149$
17,672,608





The scheduled amortization of acquired lease intangible liabilities as of December 31, 2010 is as follows:




Year ending December 31:2011

$
1,594,5632012


1,556,0152013


1,476,7552014


1,243,9822015


1,025,198Thereafter


14,099,654$
20,996,167







5.
Tenant Leases




Space in the shopping centers and other retail properties is leased to various tenants under operating leases that usually grant tenants renewal options and generally provide for additional rents based on certain operating expenses as well as tenants' sales volume.




Minimum future rentals to be received under non-cancellable leases for shopping centers as of December 31, 2010 are summarized as follows:




2011

$
21,373,8312012


21,805,7512013


21,589,8562014


22,744,8272015


21,928,426Thereafter


482,716,180$
592,158,881





6.
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 December 31, 2010 and 2009, there were no shares of preferred stock outstanding.




7.
Common Stock and Warrants




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




- F-20 -


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




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




·
The exercise price of the warrants is $12.00.




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




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




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




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




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




Warrant Repurchase




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




8.
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 year ended December 31,2010, the Company did not award any shares of restricted stock.  As of December 31, 2010, there remained a total of $1.5 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




- F-21 -
 
 2.0 years.  For the years ended December 31, 2010, 2009 and 2008, amounts charged to compensation expense totaled $769,700, $138,400 and $0, respectively.


A summary of the status of the Company's non-vested restricted stock awards as of December 31, 2010, and changes during the year ended December 31, 2010 are presented below:




Shares


Weighted Average

Grant Date Fair

ValueNon-vested at December 31, 2009


235,000


$
10.27Granted


—



—Vested


(73,667
)


10.27Forfeited


—



—Non-vested at December 31, 2010


161,333


$
10.27





Stock Options




A summary of options activity as of December 31, 2010, and changes during the year then ended is presented:




Shares


Weighted Average

Exercise PriceOutstanding at December 31, 2009


235,000


$
10.25Granted


—



—Exercised


—



—Expired


—



—Outstanding at December 31, 2010


235,000


$
10.25Exercisable at December 31, 2010


73,667


$
10.25





For the years ended December 31, 2010, 2009 and 2008, amounts charged to compensation expense totaled $160,500, $29,414 and $0, respectively.  The total unearned compensation at December 31, 2010 was $335,100.  The shares vest over an average period of 2.5 years.




9.
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.




- F-22 -


Derivative Financial Instruments




Currently, the Company uses two interest rate swaps to manage its interest raterisk.  The valuation of this instrument is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative.  This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves, and implied volatilities.  The fair value of the interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts).  The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.




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




Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.  However, as of December 31, 2010 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 December 31, 2010, 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 December 31, 2010




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

December 31,

2010AssetsDerivative financial instruments

$
—


$
—


$
—


$
—LiabilitiesDerivative financial instruments

$
—


$
(517,918
)

$
—


$
(517,918
)





The following disclosures of estimated fair value were determined by management, using available market information and appropriate valuation methodologies as discussed in Note 2.  Considerable judgment is necessary to interpret market data and develop estimated fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts realizable upon disposition of the financial instruments.  The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.




The carrying values of cash and cash equivalents, restricted cash, tenant and other receivables, deposits, prepaid expenses, other assets and accounts payable and accrued expenses are reasonable estimates of their fair values because of the short-term nature of these instruments.  Mortgage notes receivable are based




- F-23 -
 
 on the actual disbursements incurred for these recent acquisitions.  Mortgage notes payable were recorded at their fair value at the time the mortgages were assumed which occurred during the year ended December 31, 2010.


Disclosure about fair value of financial instruments is based on pertinent information available to us as of December 31, 2010.  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.




10.
Accounts Payable and Accrued Expenses




Accounts payable and accrued expenses consist of the following:




December 31, 2010


December 31, 2009Framework Transactions costs

$
—


$
2,440,060Professional fees


868,889



896,928Payroll and related costs


2,138,935



521,598Costs related to the acquisition of properties and mortgage notes


606,654



328,485Debt financing costs


222,916



—Property operating


224,478



—Landlord costs


289,862



—Other


537,616



247,515$
4,889,350


$
4,434,586





11.
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.




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




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




Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest expense is recognized on the hedged debt.  During the next twelve months, the Company estimates that $1.2 million will be reclassified as an increase to interest expense.




- F-24 -


As of December 31, 2010, 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


NotionalInterest rate swap


2


$
75,000,000





As of December 31, 2009, the Company had no outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk.




The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the Balance Sheet as of December 31, 2010:






Derivatives designed as hedging instruments

Balance sheet

location

Fair Value(liability)Interest rate products

Other liabilities

$
( 517,918
)





Derivatives in Cash Flow Hedging Relationships




The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the year ended December 31, 2010.  The Company had no derivatives outstanding as of December 31, 2009 and 2008.




Year Ended

December 31, 2010Amount of loss recognized in accumulated other comprehensive income as interest rate derivatives (effective portion)

$
(517,918
)Amount of loss reclassified from accumulated other comprehensive income into income as interest expense (effective portion)

$
—Amount of gain recognized in income on derivative as gain on derivative instruments (ineffective portion and amount excluded from effectiveness testing)

$
—




12.
Income Taxes




There is no provision for income taxes for the year ended December 31, 2010 because the Company intends to elect to qualify as a REIT for U.S. federal income tax purposes.  The components of the provision for income taxes for the years ended December 31, 2009 and 2008 are as follows:




For the year ended

December 31,

2009


For the year ended

December 31,

2008Current:Federal

$
(944,096
)

$
1,901,590State


—



—Deferred:Federal


675,753



(542,684
)State


—



—Total provision for income taxes

$
(268,343
)

$
1,358,906







The components of the deferred tax asset are as follows:




December 31, 2009


December 31, 2008Assets deferred for income tax purposes

$
1,120,109


$
407,664Deferred interest income


—



381,377Valuation allowance


(1,120,109
)


(113,288
)Deferred Tax asset


—


$
675,753





- F-25 -


For the year ended December 31, 2008, the Company recorded a valuation allowance against the state deferred tax asset since it was not able determine realizability for tax purposes and therefore was not able to conclude that the deferred tax asset is more likely than not recoverable.  However, at December 31, 2009, the Company recorded a full valuation allowance against the deferred tax asset as a result of the Company’s intention to elect to qualify as a REIT for U.S. federal income tax purposes.





The Company’s effective tax rate differs from the effective tax rate of 34.0% for the year ended December 31, 2008 principally due to the following:





For the year ended

December 31,

2009


For the year ended

December 31,

2008Federal statutory rate


34.0
%


34.0
%Permanent differences


-19.8
%


-State taxes


-1.0
%


-2.3
%Valuation allowance


-10.5
%


2.3
%Effective tax rate


2.7.
%


34.0
%




During the year ended December 31, 2010, the Company filed amended federal and state tax returns for prior years resulting in a total refund of $3.1 million of which approximately $1.8 million was included in other income in the accompanying consolidated statements of operations.





13.
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.




14.
Related Party Transactions




The Company has entered into a Transitional Shared Facilities and Services Agreement with NRDC Real Estate Advisors, LLC, an entity wholly owned by four of the Company's current and former directors.  Pursuant to the Transitional Shared Facilities and Services Agreement, NRDC Real Estate Advisors, LLC provides the Company with access to, among other things, their information technology and office space.  For the years ended December 31, 2010, 2009, and 2008 the Company incurred $90,000, $62,661 and $90,000, respectively, of expenses relating to the agreement which is included in general and administrative expenses in the accompanying consolidated statements of operations.




In May 2010, the Company entered into a Shared Facilities and Service Agreement effective January 1, 2010 with an officer of the Company.  Pursuant to the Shared Facilities and Service Agreement, the Company is provided the use of office space and other resources for a monthly fee of $1,938.  For the year ended December 31, 2010, the Company incurred $23,000 of expenses relating to this agreement which is included in general and administrative expenses in the accompanying consolidated statements of operations.  For the years ended December 31, 2009 and 2008, the Company did not incur expenses relating to this agreement.




15.
Quarterly Results of Operations (Unaudited)




The unaudited quarterly results of operations for the years ended December 31, 2010 and 2009 are as follows (in thousands, except per share data):




- F-26 -


Year Ended December 31, 2010

Quarter Ended


Year Ended December 31, 2009

Quarter EndedMar 31


Jun 30


Sept 30


Dec 31


Mar 31


Jun 30


Sept 30


Dec 31Revenues

$
1,369


$
2,912


$
5,076


$
6,971


$
—


$
—


$
—


$
46Interest Income

$
414


$
288


$
234


$
173


$
74


$
83


$
64


$
1,484Net loss (income)

Attributable to Retail

Opportunity Investments

Corp

$
(1,641
)

$
(1,090
)

$
(103
)

$
2,433


$
(220
)

$
(739
)

$
(2,337
)

$
(6,070
)Basic and diluted (loss) income per share

$
(0.04
)

$
(0.03
)

$
(0.00
)

$
0.06


$
(0.00
)

$
(0.01
)

$
(0.05
)

$
(0.14
)





16.
Pro Forma Financial Information (unaudited)




During the period January 1, 2010 through December 31, 2010, the Company acquired 16 shopping centers aggregating approximately 1.5 million square foot of gross leasable area for total cost of approximately $255.3 million.  The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for 2010, as if all of these acquisitions and sales were completed as of January 1, 2010.  This unaudited pro forma information does not purport to represent what the actual results of operations of the Company would have been had all the above occurred as of January 1, 2010, nor does it purport to predict the results of operations for future periods.




2010Revenues.

$
30,624,672Net income attributable to Retail Opportunity Investments Corp.

$
1,820,979Per common share

$
0.04Weighted average number of common shares outstanding


41,582,401





17.
Subsequent Events




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




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




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




On January 6, 2011, the Company provided a mortgage loan to its joint venture that owns the Crossroads shopping center for approximately $9.0 million.  The Company will receive 8% interest on the loan.  The proceeds from the loan were used by the joint venture to pay off an existing second mortgage on the property.




On February 17, 2011, the Company obtained ownership of three grocery-anchored neighborhood shopping centers, Desert Springs Marketplace, Mills Shopping Center and Nimbus Winery Shopping Center, located in Palm Desert, CA, Rancho Cordova, CA and Rancho Cordova, CA, respectively (collectively, the "Lakha Properties"), from unaffiliated third parties of the Company, Lakha Properties-Sacramento, LLC, Lakha Properties-Sacramento II, LLC and Lakha Properties-Palm Desert, LLC.   The Company obtained ownership of the Lakha Properties pursuant to a Conveyance in Lieu of Foreclosure Agreement, dated as of January 28, 2011.  The Lakha Properties consist of an aggregate of approximately 433,067 square feet and are currently collectively 82.2% leased.  The aggregate balance of the CA Loans on the Company's consolidated balance sheet at December 31, 2010 was $50.0 million.  The consideration for the title to the Lakha Properties




- F-27 -
 
 included the release and termination of the CA Loans and additional payments of approximately $2.5 million of costs.  In addition, the borrowers and guarantor under the CA Loans agreed to the release, without any further obligations, of certain alleged liabilities of the Company and the Company's President and Chief Executive Officer.


On February 22, 2011, the Company's board of directors declared a cash dividend on its common stock of $.08 per share, payable on March 31, 2011 to holders of record on March 15, 2011.


























- F-28 -


RETAILOPPORTUNITY INVESTMENTS CORP.


SCHEDULE III-REAL ESTATE AND


ACCUMULATED DEPRECIATION


December 31, 2010







Initial Cost to Company


Cost Capitalized

Subsequent to Acquisition


Amount at Which Carried at

Close of PeriodDescription and Location

Encumbrances


Land


Building &

Improvements


Land


Building &

Improvements


Land


Building &

Improvements


Total (a)


Accumulated

Depreciation (b)(1)

Date of

AcquisitionParamount Plaza, CA

$
-


$
6,346,871


$
10,218,422


$
-


$
56,003


$
6,346,871


$
10,274,425


$
16,621,296


$
337,397

12/22/2009Santa Ana Downtown Plaza, CA


-



7,895,272



9,707,154



-



183,286



7,895,272



9,890,440



17,785,712



296,421

1/26/2010Meridian Valley Plaza, WA


-



1,880,637



4,787,726



-



7,063



1,880,637



4,794,789



6,675,426



171,178

2/1/2010Grand Mart Plaza, CA


-



4,530,336



6,855,256



-



351,002



4,530,336



7,206,258



11,736,594



376,220

2/2/2010The Market at Lake Stevens, WA


-



3,086,933



12,397,178



-



-



3,086,933



12,397,178



15,484,111



305,300

3/11/2010Norwood Shopping Center, CA


-



3,031,309



11,481,158



-



53,081



3,031,309



11,534,239



14,565,548



251,273

4/5/2010Pleasant Hill Marketplace, CA


-



6,359,471



6,922,347



-



5,000



6,359,471



6,927,347



13,286,818



147,036

4/8/2010Vancouver Market Center, WA


-



4,080,212



6,868,841



-



43,314



4,080,212



6,912,155



10,992,367



134,331

6/17/2010Happy Valley Town Center, OR


-



11,678,257



27,011,054



-



-



11,678,257



27,011,054



38,689,311



146,239

7/14/2010Oregon City Point, OR


-



1,792,230



9,011,207



-



167,998



1,792,230



9,179,205



10,971,435



466,667

7/14/2010Cascade Summit, OR


7,500,147



8,852,543



7,730,116



-



1,828



8,852,543



7,731,944



16,584,487



153,900

8/20/2010Heritage Market Center, WA


11,930,875



6,594,766



17,384,101



-



15,132



6,594,766



17,399,233



23,993,999



133,443

9/23/2010Claremont Center, CA


-



5,975,391



1,004,856



-



13,649



5,975,391



1,018,505



6,993,896



13,317

9/23/2010Shops At Sycamore Creek, CA


-



3,747,011



11,578,487



-



5,372



3,747,011



11,583,858



15,330,869



101,133

9/30/2010Gateway Village, CA


22,986,078



5,916,530



27,298,339



-



-



5,916,530



27,298,339



33,214,869



32,528

12/16/2010Division Crossing, OR


-



3,705,536



8,327,097



-



-



3,705,536



8,327,097



12,032,633



5,864

12/22/2010Halsey Crossing, CA


-



-
(2)


7,773,472



-



-



-



7,773,472



7,773,472



5,913

12/22/2010Total

$
42,417,100


$
85,473,305


$
186,356,811


$
-


$
902,728


$
85,473,305


$
187,259,539


$
272,732,844


$
3,078,160








- F-29 -


RETAIL OPPORTUNITY INVESTMENTS CORP.


SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION – CONTINUED


DECEMBER 31, 2010







(a)
RECONCILIATION OF REAL ESTATE – OWNED SUBJECT TO OPERATING LEASES




For the Year Ended December 31,2010


2009


2008Balance at beginning of year

$
16,565,293


$
—


$
—Property improvements during the year


902,728



—



—Properties acquired during the year


255,264,823



16,565,293



—Balance at end of year

$
272,732,844


$
16,565,293


$
—(b)RECONCILIATION OF ACCUMULATED DEPRECIATIONBalance at beginning of year

$
20,388



—



—Depreciation expenses


3,060,389



20,388



—Property assets fully depreciated and written off


(2,617
)


—



—Balance at end of year

$
3,078,160


$
20,388


$
—







(1)
Depreciation and investments in building and improvements reflected in the consolidated statement of operations is calculated over the estimated useful life of the assets as follows:




Building:  35-40 years




Property Improvements: 10-20 years




(2)
Property is subject to a ground lease.






- F-30 -


RETAILOPPORTUNITY INVESTMENTS CORP




SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE


December 31, 2010





Description and Location

Interest Rate

Final

Maturity

Date
Periodic Payment Terms

Prior

Liens


Face Amount

of Mortgages


Carrying

Amount of

Mortgage

(a)(b)


Principal

Amount of

Loans

Subject to

Delinquent

Principal or

InterestMortgage Loans (shopping centers):Desert Springs Marketplace,

Palm Desert, CA

LIBOR + 3.50%

Apr  2010

(delinquent)
Interest only payments are due monthly. Principal is due at maturity.


N/A


$
31,758,722



(e)


(c)Mills Shopping Center,

Rancho Cordova, CA

LIBOR + 4.50%

Apr 2010

(delinquent)
Interest only payments are due monthly. Principal is due at maturity.


N/A



16,596,646



(e)


(c)Nimbus Winery Shopping

Center, Rancho Cordova, CA

LIBOR + 4.50%

Apr 2010

(delinquent)
Interest only payments are due monthly. Principal is due at maturity.


N/A



8,478,463



(e)


(c)Second Mortgage Loans (Office):Individually < 3%

LIBOR + 4.50%

Apr 2010

(delinquent)







1,062,002



(e)


(c)Total Portfolio











57,895,833



49,978,044B Note (shopping center):Riverside, CA

12.0%

Dec 2012
Interest only payments are due monthly. Principal is due at maturity.


N/A



7,800,000



7,800,000


Total











$
65,695,833


$
57,778,044


- F-31 -


RETAIL OPPORTUNITY INVESTMENTS CORP.


SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE – CONTINUED


DECEMBER 31, 2010




(a)
RECONCILIATION OF MORTGAGE LOANS ON REAL ESTATE
  For the Year

Ended December

31,2010Balance at beginning of period:

$
Mortgage loans acquired during the current period


66,948,044Mortgage loans paid off during the current period


(9,170,000
)Balance at end of period:

$
57,778,044
  (b)
The aggregate costs basis for Federal income tax purposes is equal to the carrying amount of the loans.
  (c)
These loans are currently in default and provide for a default interest rate of 5.0% over the regular interest rate.  On February 17, 2011, the Company obtained ownership of three grocery-anchored neighborhood shopping centers, Desert Springs Marketplace, Mills Shopping Center and Nimbus Winery Shopping Center, located in Palm Desert, CA, Rancho Cordova, CA and Rancho Cordova, CA, respectively (collectively, the "Lakha Properties"), from unaffiliated third parties of the Company, Lakha Properties-Sacramento, LLC, Lakha Properties-Sacramento II, LLC and Lakha Properties-Palm Desert, LLC.  The Company obtained ownership of the Lakha Properties pursuant to a Conveyance in Lieu of Foreclosure Agreement, dated as of January 28, 2011.  The consideration for the title to the Lakha Properties included the release and termination of these loans and additional payments of approximately $2.5 million of costs.  See Note 17 to the consolidated financial statements in this Annual Report on Form 10-K for more information.
  (d)
We did not have any mortgage loans outstanding prior to 2010.
  (e)
Values have not been established for each loan since they were purchased as a portfolio of assets.
  
 - F-32 -