InvenTrust Properties : 2023 Q2 Transcript

InvenTrust Properties Corp. NYSE:IVT

FQ2 2023 Earnings Call Transcripts

Tuesday, August 1, 2023 1:00 PM GMT

S&P Global Market Intelligence Estimates

		-FQ2 2023-		-FQ3 2023-	-FY 2023-	-FY 2024-
	CONSENSUS	ACTUAL	SURPRISE	CONSENSUS	CONSENSUS	CONSENSUS
EPS Normalized	0.02	(0.01)	NM	0.04	0.04	NA
Revenue (mm)	60.90	64.69	6.22	60.26	248.29	NA

Currency: USD

Consensus as of May-24-2023 2:58 PM GMT

- EPS NORMALIZED -

	CONSENSUS	ACTUAL	SURPRISE
FQ3 2022	(0.01)	(0.01)	NM
FQ4 2022	0.00	(0.05)	NM
FQ1 2023	NA	NA	NA
FQ2 2023	0.02	(0.01)	NM

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Contents

Table of Contents

Call Participants	3
Presentation	4
Question and Answer	7

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INVENTRUST PROPERTIES CORP. FQ2 2023 EARNINGS CALL - PRELIMINARY COPY AUG 01, 2023

Call Participants

EXECUTIVES

Christy L. David

COO, Executive VP, General Counsel &

Corporate Secretary

Dan Lombardo

Vice President of Investor Relations

Daniel Joseph Busch

CEO, President & Director

David Heimberger

Senior VP & Chief Investment Officer

Michael Douglas Phillips

Executive VP, CFO & Treasurer

ANALYSTS

Floris Gerbrand Hendrik Van Dijkum

Compass Point Research & Trading,

LLC, Research Division

Unknown Analyst

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INVENTRUST PROPERTIES CORP. FQ2 2023 EARNINGS CALL - PRELIMINARY COPY AUG 01, 2023

Presentation

Operator

Thank you for standing by, and welcome to the InvenTrust Second Quarter 2023 Earnings Conference Call. My name is Carla, and I will be your conference call operator today.

Before we begin, I would like to remind our listeners that today's presentation is being recorded, and a replay will be available on the Investors section of the company website at inventrustproperties.com. [Operator Instructions]

I would now like to turn the call over to Mr. Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir.

Dan Lombardo

Vice President of Investor Relations

Thank you, operator. Good morning, everyone, and thank you for attending our call today. Joining me from the InvenTrust team is DJ Busch, President and Chief Executive Officer; Mike Phillips, Chief Financial Officer; Christy David, Chief Operating Officer; and David Heimberger, Chief Investment Officer. Following the team's prepared remarks, we will open the lines for questions.

As a reminder, some of today's comments may contain forward-looking statements about the company's views on the future of our business and financial performance, including forward-looking earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call or that are in the quarterly financial supplemental or press release.

In addition, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarterly earnings materials, which are posted on our Investor Relations website.

With that, I will turn the call over to DJ.

Daniel Joseph Busch

CEO, President & Director

Thanks, Dan, and good morning, everyone. The InvenTrust portfolio continues to deliver solid operating results, highlighted by strong leasing activity and record occupancy. Our consistent performance is indicative of our simple and focused strategy, owning and operating premier necessity-based shopping centers in growing Sun Belt markets.

Significant demographic trends continue to be an important tailwind in the Sun Belt, which is experiencing some of the healthiest market rent growth across the U.S. A major catalyst is the lack of institutional quality retail space across the sector and the absence of meaningful new development. Inflated construction and labor costs continue to be a hurdle to any new projects, creating a compelling backdrop for our business.

Our strong internal growth prospects are complemented by our low levered balance sheet, which allows us to look for external growth opportunities without having to access the capital markets. We are comfortable with our capital position to support future acquisitions while still maintaining a prudent and low levered balance sheet with a net debt-to-EBITDA target of around 6x on a forward-looking basis and a net leverage ratio of around 35%. That said, an uncertain rate environment continues to keep deal volume relatively low and will remain disciplined and patient in our capital allocation plan. InvenTrust closed on one acquisition in the quarter, The Shoppes at Davis Lake, located in our target MSA of Charlotte, which is approximately 90,000 square feet anchored by Harris Teeter in a strong retail corridor, experiencing population and income growth with significant residential development in the immediate area.

Finally, InvenTrust published its annual ESG report in June. We have set 5-year energy, greenhouse gas, waste and water reduction goals for areas under our operational control and are working with our tenants to optimize operations through our green leases. Investing in our properties is a fundamental part of our business plan as we strive to create best-in-class shopping experiences and improve our communities. We believe that our investment in sustainability will continue to provide appropriate returns and position our company and ask us for the future.

With that, I'm going to turn it over to Mike to walk everyone through our financials and guidance for the quarter. Mike?

Michael Douglas Phillips

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INVENTRUST PROPERTIES CORP. FQ2 2023 EARNINGS CALL - PRELIMINARY COPY AUG 01, 2023

Executive VP, CFO & Treasurer

Thanks, DJ. InvenTrust had another solid quarter of results, and we are positioned for a strong finish for the remainder of 2023. Same Property NOI for the quarter was $38 million, growing 3.7% over the quarter of last year. Year-to-date Same Property NOI was $71.8 million, growing 3.5% over the first 6 months of 2022. The year-to-date increases were primarily driven by base rent and spread equally between rent bumps, occupancy and spreads.

Stripping out the prior period collections headwind of 100 basis points from cash basis tenants, Same Property NOI growth would have been 4.5%. We reported NAREIT FFO of $57.2 million, or $0.84 per diluted share and core FFO of $56.4 million, or $0.83 per diluted share for the first 6 months of the year. This anticipated decline for the first half of the year is primarily due to higher interest rate expense from the private placement debt funded in the third quarter of last year at a blended interest rate of 5.12%.

InvenTrust continues to maintain a strong and flexible balance sheet. We ended the quarter with a net leverage ratio of 28%. Net debt to adjusted EBITDA is 5.4x on a trailing 12-month basis which we do expect to decline as we benefit from the income generated by the acquisition of our joint venture in January. Our weighted average interest rate is 3.9% with a weighted average maturity of 4.3 years and only 2% variable rate debt.

One important note, InvenTrust has $92 million of debt that expires in November of '23. This debt has 2 1-year extension option, which we plan to exercise. This debt will roll to variable rate upon initial maturity in November, increasing our total variable rate debt to approximately 10%.

At quarter end, we had approximately $434 million of total liquidity, including a full $350 million of borrowing capacity available on evolving line of credit. With one of the lowest levered balance sheets in the shopping center space, we remain prepared for the challenges and opportunities that may arise. And finally, we declared a dividend payment of $0.215 per share, which is a 5% increase over last year.

Turning to guidance. We are revising our 2023 core FFO range to $1.61 to $1.64 per share. This increase is due to stronger-than- expected first half same-property NOI. Our NAREIT FFO range will remain at $1.64 to $1.69, driven primarily by noncash GAAP adjustments related to the acquisition of our joint venture in Q1 of 2023. We are also raising our Same Property NOI growth guidance by 25 basis points at the midpoint and narrowing the range to 4% to 5%, mostly driven by higher-than-expected occupancy and recovery rates. Our full year guidance assumptions are provided in our supplemental disclosure filed yesterday.

And with that, I'm going to turn the call over to Christy to discuss our portfolio activity.

Christy L. David

COO, Executive VP, General Counsel & Corporate Secretary

Good morning, everyone. For the first 6 months of 2023, our leasing team stayed busy as we leased 601,000 square feet with a multitude of additional leases in our pipeline in various stages of negotiation and discussion. Our anchor space leased occupancy finished at 98.6%, and our small shop increased to 92%. As of June 30, InvenTrust Same Property portfolio ABR was $19.18, an increase of 2% compared to June 30, 2022.

Our leasing spreads year-to-date were 6.3%, and our retention rate remains high at 92%, driven by increases in small shop retention, which continues to be one of our most effective strategies to grow rents, limiting our capital commitments and downtime. We should note that overall occupancy, which stands at 96.2%, will fluctuate as the process of taking back and re-leasing Bed Bath & Beyond space continues to unfold. That said, the uptick in recent bankruptcies is putting us with a unique opportunity to upgrade our tenant mix at favorable rates.

As I mentioned last quarter, retail is and always will be an evolution of new exciting concepts coming in and others falling out of favor as we are seeing with a few troubled tenants in our portfolio. Starting with Bibentamion, the team has been working on backfilling these locations and had multiple offers for each of the 5 locations. While the debate on bankruptcy is still very fluid, we have recently received clarity on each space. In late June, one lease was acquired at auction by a known national retailer. One location was rejected as of July 1, and we immediately identified the replacement tenant and proceeded to finalize lease terms.

For the remaining 3 locations, we received notice last week that we would regain possession of those boxes as of today. We are currently selecting the best tenant to complement each center and moving each deal towards lease execution.

As for Party City, the bankruptcy is ongoing, but we anticipate that both of our locations will be assumed by the tenant. Our results this quarter highlight the proven ability of our centers to attract tenants as well as our team's ability to capitalize on the opportunities

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