InvenTrust Properties Corp. (NYSE:IVT) Q3 2023 Earnings Call Transcript
InvenTrust Properties Corp. (NYSE:IVT) Q3 2023 Earnings Call Transcript November 3, 2023
Operator: Hello and thank you for standing by, and welcome to InvenTrust Third Quarter 2023 Earnings Conference Call. My name is Bailey, 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: Thank you, Dan, and good morning, everyone. I'll begin the call with some brief remarks regarding the quarter, Mike will provide you with an overview of our financial results, and Christy will touch on some of our operational accomplishments. InvenTrust delivered another solid quarter of operating results driven by our simple and focused strategy. That is to own and operate essential open air retail centers exclusively in the Sun Belt region of the U.S., maintain a simple and low levered capital structure and employ straightforward capital allocation plan. The better-than-expected performance has allowed us to once again adjust our 2023 full-year guidance higher for FFO per share, which Mike will touch on in a bit.
The performance in the quarter is even more impressive given the recent liquidation of a top tenant, which drove nearly the entirety of our sequential lease occupancy decline. But like the commentary by many of our peers, the activity around these spaces has been unprecedented with opportunities to grow the rent, upgrade the merchandise mix and ultimately make our centers more valuable. Christy will provide more color on this in a bit. On the supply side, new retail construction remains materially lower than historical averages and shopping center vacancy is at its lowest level since the global financial crisis. Our leasing results reflect this landlord, favorable supply and demand dynamic, which is amplified in the markets where we operate.
Demographic trends in the Sun Belt continue to give us the confidence that market rent growth in our communities should outpace the national average for the foreseeable future. Continued tenant demand, coupled with the activity in our leasing pipeline, bodes well for our ability to organically grow cash flow while waiting for the broader capital markets to be more competitive for external growth opportunities. Regarding our balance sheet, after exercising an extension option subsequent to the quarter, which Mike will touch on, we have no meaningful maturities until late '24, which provides us some flexibility and allows us to be patient until the debt capital markets stabilize, whatever level that may be. Given the uncertainty regarding the capital markets, our external growth criteria has and will remain very selective.
Our liquidity and low leverage affords us the ability to be opportunistic when appropriate, but at the end of the day, our primary focus is sustainable cash flow growth year in and year out, which should in turn translate into superior total returns for our shareholders. And with that, I'm going to turn the call over to Mike to discuss some of our financial results. Mike?
Mike Phillips: Thank you, DJ, and good morning, everyone. Same-property NOI grew 5.3% over the third quarter of last year. Year-to-date same-property NOI was $106.3 million, growing 4.4% over the first 9 months of 2022. Year-over-year growth continues to be driven by higher occupancy, contractual rent bumps and solid leasing spreads. In addition, we have a tailwind of 110 basis points due to lower operating costs in 2023 compared to 2022. And as anticipated, these gains were offset by 70 basis points for out-of-period rents collected in 2022. InvenTrust reported NAREIT FFO of $27.6 million or $0.41 per diluted share for the 3 months ended September 30, 2023, an increase of 5.1% for the same period in 2022. Our year-to-date NAREIT FFO was $84.7 million or $1.25 per diluted share, a decrease of $0.06 per share driven by our private placement debt funding in the third quarter of last year and GAAP adjustments related to our PGGM acquisition completed earlier in 2023.
Our core FFO for the quarter was $27.6 million or $0.41 per diluted share, up 11% from last year, and our 9-month core FFO increased 1% compared to 2022. Components of core FFO growth include the increase in same-property NOI, the acquisition of 45% of our joint venture that was not owned and higher interest income, offset by an increase in interest expense. From a balance sheet perspective, we ended the quarter with $457 million of total liquidity, including a full $350 million of borrowing capacity available on our revolving line of credit. Our net leverage ratio was 27%, and our net debt to adjusted EBITDA is 5.2 times on a trailing 12-month basis. Our weighted average interest rate is 3.9% with a weighted average maturity of 4.1 years. In October, we executed a 1-year extension option for the cross-collateralized pool loan we assumed when we acquired the remaining interest in our joint venture, which was set to mature this year.
With this subsequent activity, our debt metrics moved to a weighted average interest rate of 4.3% with a weighted average maturity of 4.2 years and a variable rate debt of approximately 10%. In the third quarter, we declared a dividend payment of $0.215 per share, which is a 5% increase over last year. And in August, Fitch Ratings affirmed our long-term issuer rating at BBB- with a rating outlook of stable. Turning to our guidance. We are raising our 2023 core FFO midpoint to $1.64 with a range of $1.63 to $1.65 per share. We also raised our 2023 NAREIT FFO midpoint to $1.68 with a range of $1.66 to $1.69. Finally, our same-property NOI growth guidance midpoint increased to 4.63% with a range of 4.25% to 5%. 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. The InvenTrust portfolio continues to deliver solid operating results, highlighted by strong leasing activity, leasing spreads and occupancy levels. Our outstanding performance is indicative of our strategy of owning and operating premier necessity-based shopping centers and growing Sunbelt markets. Tenant demand for our portfolio remains broad-based and includes tenant categories such as grocers, off-price retailers, medical, fitness concepts and restaurants. For the quarter, we leased 273,000 square feet with additional leases in our pipeline at various stages of negotiation, including our Bed Bath & Beyond spaces, which we will discuss in detail shortly. Our anchor space lease occupancy finished at 96.6%, a decline of 200 basis points from last quarter, primarily driven by new vacancies from recent bankruptcies.
Our small shop leased occupancy increased to 92.4%. Our total portfolio lease occupancy finished at 95.1%. As of September 30, InvenTrust total portfolio ABR was $19.36, an increase of 2.4% compared to 2022. Comparable leasing spreads were at 16% and 8% for new and renewal leases, respectively. A portion of our new leasing activity did involve larger spaces with longer lease duration, which aligns with our increased leasing costs compared to last quarter. Our retention remains high at 89%, which we continue to view as a positive balance with our new deal activity given the capital commitments required for retenanting. InvenTrust had 5 Bed Bath & Beyond spaces, one lease at The Highlands of Flower Mound property in Dallas MSA was purchased at auction by Michaels, which will lead to minimal disruption and no impact to base rent.
For our other Bed Bath & Beyond spaces, we have identified replacement tenants and are in the process of finalizing lease terms. Our leasing team is also in the process of replacing a former Christmas tree shop space with a painted tree boutique, a home decor and boutique clothing store. This tenant is a fantastic addition to our Westpark Shopping Center in the Richmond MSA. We are projecting these tenants to open their stores sometime in the next 12 to 18 months with sizable rent increases. As DJ mentioned earlier, retailer bankruptcies continue, which ultimately affords us the opportunity to remerchandise with stronger credit tenants. Rite Aid recently announced their bankruptcy and initial list of store closings. InvenTrust has one Rite Aid location in Southern California, which accounts for 0.2% of our overall ABR.
This space is in a strong center and was not on the current list of stores to be closed. Our exposure is limited and we are confident in our ability to absorb and re-lease these spaces. In closing, we acknowledge that our results reflect the strength of the current retail environment, the attractiveness of our Sun Belt assets and our operating team's hard work, we see this momentum continuing as we work through the opportunity set in our pipeline. Operator, that concludes our prepared remarks, and you can open up the line for Q&A.
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