InvenTrust Properties Corp. (NYSE:IVT) Q4 2023 Earnings Call Transcript
InvenTrust Properties Corp. (NYSE:IVT) Q4 2023 Earnings Call Transcript February 14, 2024
InvenTrust Properties Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by, and welcome to InvenTrust Fourth Quarter 2023 Earnings Conference Call. My name is Benny, and I'll 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's website at inventrustproperties.com. [Operator Instructions] I'd now like to turn the call over to Mr. Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir.
Dan Lombardo: 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 Dave 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 quarter's earnings materials, which are posted on our Investor Relations website. With that, I will turn the call over to DJ.
DJ Busch: Thanks, Dan, and good morning, everyone. Today, I'll start with a brief summary regarding the fourth quarter and the full year of 2023, Mike will provide an overview of our financial results and some color on our 2024 expectations, and Christy will conclude with some of our continued success on the operational front. 2023 was another excellent year for InvenTrust, performance that continues to demonstrate the strength and resiliency of our simple and focused strategy. It has been a little over two years since InvenTrust introduced its portfolio and strategy to the public market in October of '21, which is to own and operate essential open-air retail centers exclusively in the Sun Belt region of the U.S. while maintaining a simple and low levered capital structure and employ a straightforward capital allocation plan.
In the two full years since joining the public market, the company has grown same-property net operating income by an average of 4.8% per year, above the NAREIT shopping center average. It's increased core FFO per share by 18%, again, well above the NAREIT shopping center average And completed $240 million of net investment activity or a 10% expansion of the asset base. The strength in our underlying fundamentals is undoubtedly driven by the favorable demand drivers in the Sun Belt markets in which we operate and a generationally low amount of new retail construction. To take demand dynamics a step further, nearly 85% of our properties are located in states that have disproportionately benefited from positive migration trends with Texas and Florida leading the way.
In spite of an uptick on some well-documented retail bankruptcies in 2023, our leasing velocity remains strong as we continue to push rents and lease up the minimal number of vacancies left in the portfolio. In fact, in the fourth quarter, we executed more new deals than in any quarter since 2019. As a result, lease occupancy continues to be near all-time highs at over 96% primarily driven by the continued strength in our small shop tenancy, which again reached an all-time high of 92.5% and has increased sequentially for 11th consecutive quarters. Moreover, the underlying credit strength and predominantly necessity-based offerings within our merchandise mix gives us confidence in our tenants' operating ability despite whatever economic disruptions may or may not unfold in the coming years.
As indicated in our 2024 guidance, the favorable trends within our business are expected to more than offset some of the downtime related to the bankruptcies noted earlier, a normal cycle within our business. And the anchor leasing efforts today will be sizable contributors for continued growth beyond 2024. On the capital allocation front, we remain selective regarding new acquisitions. We continue to carefully monitor our cost of capital in relation to private market values, and we'll continue to be disciplined as we look to grow the portfolio. During the quarter, we did raise a modest amount of equity through our ATM program for the first time since becoming a publicly traded company. This subtle yet important milestone displays yet another avenue for InvenTrust to raise capital if and when proceeds can be used in a value-accretive manner.
Our balance sheet continues to be the core strength of the company. sector low leverage levels and de minimis near-term maturities put InvenTrust in an enviable position as we seek new opportunities for growth. On that note, the company did acquire a grocery-anchored center subsequent to the quarter and in Chandler, Arizona. This marks InvenTrust's first property in the Phoenix MSA and we're excited to expand our footprint in a market that exhibits many of the favorable demographic drivers we see in the rest of our Sun Belt markets. Our core operations, coupled by selective external growth opportunities, like the one just described, is the precise recipe on how we expect to deliver sustainable cash flow growth year in and year out, which should translate into superior total returns for our stakeholders.
With that, I'll turn the call over to Mike to discuss our financial results. Mike?
Mike Phillips: Thank you, DJ, and good morning, everyone. I will start by taking you through our fourth quarter and full year financial highlights. Then I will discuss the condition of our balance sheet and conclude with our 2024 guidance. To start, NAREIT FFO was $30.8 million or $0.45 per diluted share for the three months ended December 31, 2023. Full year NAREIT FFO was $115.5 million or $1.70 per diluted share. The increases were primarily driven by NOI growth, the acquisition of the remaining 45% of our joint venture, higher interest income and higher-than-anticipated nonrecurring income from nonoperating activities. These items were offset partially by higher interest expense. For core FFO, InvenTrust's fourth quarter results were $27.8 million or $0.41 per diluted share, an increase of 21% over fourth quarter of 2022.
Full year results were $111.9 million or $1.65 per diluted share, an increase of 5% over the previous year. Fourth quarter same-property NOI grew at 6.4% over the same quarter in 2022. Drivers of NOI growth for the quarter were base rent of 260 basis points, net expense reimbursements of 420 basis points, ancillary and percentage rents of 100 basis points and partially offset by 100 basis points of revenues deemed uncollectible. Full year same-property NOI grew at 4.9%, driven primarily by base rent growth of 390 basis points, net expense reimbursements of 190 basis points and offset by 40 basis points from revenues deemed uncollectible and a 60 basis point headwind from out-of-period rent collected in 2022. Our balance sheet remains well positioned with $446 million of total liquidity, including a full $350 million of borrowing capacity available on our revolving line of credit.
Net leverage ratio was 27% and our net debt to adjusted EBITDA is 4.9x on a trailing 12-month basis. Our weighted average interest rate ended the year at 4.3% with a weighted average maturity of four years. As a reminder, in October, we extended the maturity on our cross-collateralized pooled loan by executing one of its two one year extension options. In December, we paid down $20 million of debt, reducing our variable rate debt exposure to 9%. As DJ mentioned, at the end of 2023, we raised $5.4 million of net proceeds through the issuance of approximately 208,000 shares on the open market at a weighted average price of $26.13. In the fourth quarter, we declared a dividend payment of $0.215 per share. And as you saw in our press release yesterday, the Board also announced another 5% increase in our dividend beginning with our April 2024 payment.
This brings our annualized dividend to $0.905 per share. I will conclude my remarks by discussing our initial 2024 guidance. Building on our strong 2023 results, we expect NAREIT FFO to be between $1.69 and $1.75 per share. We are setting the guidance range of $1.66 to $1.70 per share for core FFO. Components of FFO growth include same-property NOI and acquisitions, which is offset by higher G&A, increased interest expense and less interest income. Finally, we expect same-property NOI growth to be in the range of 2.25% to 3.25%. Our same-property NOI guidance range assumes a bad debt reserve of 50 to 100 basis points of total revenue. Growth for same-property NOI is primarily driven by base rent, including 150 basis points coming from contractual rent bumps.
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 David: Thanks, Mike. Let me begin by reemphasizing DJ's earlier remarks. The leasing momentum we have and continue to experience is driven by limited new supply and the scarcity of premium retail space. We believe limited new supply for the strip center space across the country and in particular, the Sun Belt will be far below historical averages for several years to come, keeping premium retail space in high demand. The team is able to capitalize on these market dynamics by increasing rental rates and remerchandising with stronger credit tenants at our centers. The fourth quarter of 2023 was one of the strongest and most active in recent years. We signed 86 leases for over 550,000 square feet. Part of this activity included the signing of two former Bed Bath & Beyond spaces, one with PGA Superstore in La Quinta, California, and the other with Nordstrom Rack in Charlotte, North Carolina.
These outstanding tenants will be additive to the tenant mix and customer experience at each of these centers. We are projecting these tenants to open their stores sometime in the next 12 to 18 months with sizable rent spreads of over 30%. We have two remaining Bed Bath & Beyond spaces that each have received multiple LOIs. The team is actively assessing the best tenant for each asset and will proceed to lease execution. During the quarter, we also secured several other leases with tenants, including Yard House, Old Navy and BJ's Brewhouse. All this activity increased our total portfolio leased occupancy to 96.2%, up 110 basis points from last quarter, reapproaching the portfolio's peak. Our anchor space lease occupancy finished at 98.2%, an increase of 160 basis points from last quarter, and our small shop lease occupancy increased to 92.5%, a new high point for our portfolio.
As of December 31, InvenTrust's total portfolio ABR is $19.48, an increase of 2.1% compared to 2022. For the quarter, we posted blended comparable lease spreads of 13.9%. The spreads for new leases were approximately 34% with renewals nearing 8% for the quarter. Our retention rate remains at 90% as we continue to see tenants renew their existing leases at meaningful increases. One of our main focal points for 2024 will be to lease up the few remaining anchor spaces within our portfolio and have our localized experience teams expeditiously work to ensure all the leasing activity in 2023 result in new tenants open and operating at our centers. Operator, that concludes our prepared remarks, and you can open the line for questions.
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