Q4 2022 Inventrust Properties Corp Earnings Call
Okay.
Thank you for standing by.
Welcome to inventory fourth quarter 2022 earnings conference call. My name is Emily and I'll be your conference Cooperator today.
Before we begin I would like to remind all listeners that today's presentation is being recorded and a replay will be available on the investors section of the company's website, our infant trust properties don't come.
At the end of the presentation, if you'd like to ask a question you can do so by pressing star followed by the number one on your telephone keypad.
And I'd like to turn the call over to Mr. Donlan body, Vice President of Investor Relations. Please go ahead Sir.
Good morning, everyone and thank you for joining us in the room with me today is D. J Busch, President and Chief Executive Officer, Mike Phillips, Chief Financial Officer, Christy, David Chief Operating Officer, and Dave Heinburger, Chief Investment Officer. Following the team's prepared remarks, we will open up the lines and answer.
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.
<unk> 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 are that are in the quarterly financial supplemental our 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 it is my pleasure to turn the call over to D. J.
Thanks, Dan Good morning, everyone and thank you for joining us the inventors team had a productive 2022, our first full year as a publicly traded company that simple and focused sunbelt portfolio and investment strategy is proving out in all aspects of our business the.
The operations team continues to capitalize on solid leasing demand, while also carefully managing expenses in build out costs associated with a robust leasing pipeline by year end, we successfully rotated capital out of Colorado, selling all three properties in the state leading to further investment in our sunbelt markets.
Lastly, we maintained our disciplined approach to balance sheet management, while diversifying our capital sources through the execution of our inaugural private placement.
As discussed on previous calls <unk> continues to benefit from structural and macroeconomic trends, creating positive tailwind for the retail sector and specifically our portfolio. These.
These include the continued migration of people and jobs to the sunbelt, bringing higher household income consumers to our markets the.
Our continued investment by retailers in brick and mortar locations to support evolving omnichannel business strategies.
And the limited to no new supply of institutional quality grocery anchored centers.
For these reasons and venture us high quality properties remain extremely desirable to new and existing retailers.
We finished 2022 at an all time high leased occupancy rate of 96, 1% grew same property net operating income by four 6% for the full year and delivered double digit <unk> growth compared to the previous year.
All of these results were ahead of our initial forecast.
We remain diligent in our search for opportunities for external growth in the fourth quarter. We acquired two assets a grocery anchored center outside of Charlotte in one of our joint venture assets in San Antonio, which is shadow anchored by the dominant regional grocery HEB.
We also started 2023 by acquiring the remaining stake in our company is joint venture it.
It is well documented that this portfolio was a component of our acquisition strategy. We are pleased with the execution of this transaction.
PJM has been an outstanding partner over the past 10 years and a supporter of our sunbelt grocery anchored strategy and ESG initiatives with this transaction. The inventors portfolio is now 100% wholly owned and further simplifies our investment story.
Including this JV transaction inventory net investment activity totaled over $200 million since our listing in line with our expectations. While we continue to actively look for acquisition opportunities. We recognize the pricing uncertainty in the current environment and are being prudent as we see borrowing cost increase in cap rates expand.
Growing the portfolio is important to our long term strategic plan, but we will remain disciplined when deploying our capital.
Looking ahead into 2023, a degree of uncertainty exists in the economy inflationary impacts on the consumer combined with higher interest rates and potential tenant store closures could dampen some of the positive trends in the retail sector has benefited from over the past few years. However.
However, we continue to be optimistic about our business. This confidence comes from the positive performance of our sunbelt portfolio during the pandemic the resilient nature of our grocery anchored and necessity based tenants and our investment grade balance sheet. Our initial 2023 guidance, which builds upon the strong 2022 results continues to show the strength of our simple and <unk>.
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With that I'm going to turn it over to Mike Phillips to provide more color on our financials and guidance.
Thanks D J and thank you everyone for joining us I'll start with a recap of 2022 and Ventura finished the year on a strong note yesterday, we reported full year core <unk> of $105 9 million or $1 57 per share. This represents 12% growth over 2021. The increase was largely driven by <unk> <unk> per share from pro rata.
Same property NOI and <unk> from 2022 acquisitions. Additionally, we realized G&A savings of <unk>.
And a positive <unk> <unk> impact from our $100 million share repurchase in Q4 of 2021. These gains were offset by <unk> 11, due to higher net interest expense from the private placement that was funded in Q3 of 2022 and increased borrowing costs.
Full year Pro rata same property NOI finished at $141 million growing four 6% over last year. The increase was primarily driven by contractual rent increases occupancy gains reduction of abatements in the current year and offset by net out of period rent collected in one time and pre leasing expenses designed to meet the demand we are seeing some of which were.
We're not fully recoverable, excluding the out of period rent collected a pro rata same property NOI grew by 6% over 2021.
Moving to the balance sheet as of December 31, our net leverage ratio was 25% and net debt to adjusted EBITDA is four eight times, our pro rata weighted average interest rate is 4% with a weighted average maturity of five years.
At yearend, we had approximately $514 million of total liquidity, including a full $350 million of borrowing capacity available on our credit facility with no near term maturities. Finally, as you saw in our press release yesterday, the board announced a 5% increase in our dividend beginning with our April 2023 payment. This brings our annualized dividend to <unk> 86 per <unk>.
Sure.
Moving onto 2023 full year guidance, we expect <unk> to be between $1 $59 64 per share, which is an increase in the range of one 3% to four 5% over 2022, our same property NOI growth is expected to increase by three 5% to 5% for the full year, which contemplates a bad debt reserve of 50 to 100.
50 basis points of total revenue.
For both same property NOI and core F O. We anticipate a lower run rate in the first half of the year due to out of period rent collected in the first half of 2022 and increased interest expense from our private placement.
In the back half of the year, we expect these comparisons to ease as the signed not open pipeline begins to materialize. Our full year guidance assumptions are provided in our supplemental disclosure filed yesterday with that I'm going to turn the call over to Christie to discuss our portfolio activity.
Good morning, everyone.
A high level of demand for space across our portfolio continues to be strong with limited to no new supply coming online in our markups available space on premier centers and scarce.
It provides and Suntrust with significant pricing and negotiating leverage for new and renewal lease negotiation.
To that end, we leased over 461000 square feet of space during the quarter, bringing our total leasing activity for 2022 to one 3 million square feet.
We ended 2022 at 96, 1% leased occupancy, which is a 220 basis point increase.
Last year as well as an all time high.
Our anchor space leased occupancy increased to 98, 7% and our small shop increased to 91, 3% both all time highs.
And on December 31st Trust Pro rata same property portfolio ABR with $19.22, an increase of three 3% compared to December 31 2021.
Oh, great tenant ABR was $12.43 with small.
I'll shop, ABR, having $32 12, both.
Both increases on a sequential and year over year basis.
Our retention rate for the quarter was above 90% and blended lease spreads for the full year were eight 4% for comparable new and renewal leases.
A key benefit of our concentrated and clustered portfolio as the intelligence market data generated by our local underground operations team.
This information allows us to move quickly and take action as it pertains to the stress tenants well ahead of any store closure announcements.
With that said, none of our bed Bath <unk> beyond party city or Regal theater locations are currently targeted for closure.
We feel validates the strength and quality of our centers.
In this environment, they get retail space is becoming scarce and is viewed at a premium.
We view recapturing space now in an orderly manner as a positive opportunity embedded in our portfolio and one we are ready to capitalize on.
Finally, I wanted to conclude my remarks by adding some additional thoughts on our acquisition of the P. G. G. M. JV portfolio these assets as well as the Stoneridge property. We acquired at the end of 2022 are all centers my team has been operating and leasing.
We're wholly owned for the past decade, allowing for natural and seamless transition. There are several interesting leasing opportunities that we are currently working on to further drive growth a few centers now I will turn the call over to TJ for some final remarks.
Thanks, Christie <unk> accomplished a lot in its first year as a publicly traded company.
And we are even more excited for the future.
<unk> is simple focused and provides a unique and specialized investment alternative for investors on exclusive sunbelt predominantly grocery anchored portfolio that is expected to deliver long term value for our shareholders.
Operator. This concludes our prepared remarks, please open the line for any questions.
Yeah.
Thank you if you would like to ask a question. Please do so now by pressing star followed by the number one on your telephone keypad.
Change your mind I would like to be removed from the queue that stall followed by case.
Turning to ask you a question patients showed that youll device, Andrew microphone on mute it likely.
The first question today comes from Floris Van <unk> with Compass point. Please.
Please go ahead.
Great. Thank you.
Hey D J.
Wanted to see if you could give us maybe a little bit more information on the PGM transaction in terms of pricing.
And also what the impact of that transaction will be on your on your leverage ratio going forward, presumably you funded your portion of the.
The equity for that transaction with that with cash and so.
If you can give us a little bit more detail and is that indicative of where you think.
Cap rates are for the market.
And what do you expect is going to happen.
In your markets in terms of cap rates.
Hey, Floris.
Thanks for the question, so without getting into specifics on.
On pricing I will just tell you that.
The returns that we see first of all it was.
It's a great partnership in many of the folks.
Actually all of the folks that are sitting here with me.
We're part of this joint venture at inception, So hi.
I joined three three or so years ago.
I cannot say that the.
<unk> is a great partner and someone actually frankly that we wouldn't mind doing business with in the future. If it made strategic sense for our business.
But we do like what we see going forward and these assets you.
As you know some of these are some of our larger assets. They are in the Houston market and obviously the one in San Antonio.
But.
Dominant grocers ATB and Kroger specifically.
And really fit kind of the core strategy of interest, but we are excited about the potential growth opportunities that we see in this so without giving kind of a real cap rate.
Unlevered returns that we see coming out of these properties are something that we're really excited about and our partner was very happy with our exit.
Execution as well as it relates to the balance sheet. It's a good question, our leverage will tick up a little bit.
But no.
Still well within our range as you know finished below five times still have ample capacity and as we.
Highlighted in our release last night.
This transaction is about $100 million or so pro rata of the $150 million of investment activity that we're planning to do this year. So you can expect us to be very careful and very prudent on how we're allocating that capital given that our cost of capital as well as many in our space is elevated and we're still trying to.
Find footing on.
On the transaction in the transaction market, which I think will probably be a little bit back loaded.
But we still expect to.
Look for.
Some of those opportunities to the tune of $50 million and more if we see opportunities that are unique.
Great and if I can ask also maybe ask about your your guidance your same store NOI.
Three 5% to 5%.
It's probably.
Somewhat higher than some of your peers who've made explicit reserves for.
Bad debt around some of the troubled.
Retailers, maybe if you can comment a little bit on your exposure, there and what what sort of assumptions you've made in terms of.
Potential reserves for for the year.
Yeah, No. It's a great question and I think there is many of the folks in our sector has provided really good transparency around this I would say.
One of the unique benefits of having a smaller portfolio as we're obviously have very good insight on our select few.
Properties that have exposure to these tenants so.
As it relates to bed Bath and beyond we have four bed Bath banners, one buy buy baby.
But from our perspective and from.
Our operations teams insights as well as conversation with with with the retailer itself.
We feel confident in our ability either to negotiate if that's if that's the strategy that we.
Undertake or.
We're prepared to take that back and not unlike many of our peers. We've had many discussions with several retailers that are dying to get more space on the potential.
Or are the opportunities to enter these enter some of our properties if that opportunity.
Were to arise to give you a little bit of the goalpost at the low end of the 50 basis points that Mike Phillips alluded to that's really.
If we really don't get much back maybe call it one or two boxes.
And.
It probably comes towards the latter end of the year, plus a little bit of unforeseen fallout from call. It small shop tenants. So that would probably that would be the low end of that 50 to 150.
On the flip side, the 150 would be if we were to get most of those spaces back in short order as well as maybe some other unforeseen.
Boxes or from other smaller shop bankruptcies.
That's kind of that's kind of the range.
What we're expecting and what frankly, what we're currently what we're hoping is that we do get some of those spaces back because of the opportunities releasing opportunities that we do see that some of these assets to really upgrade the merchandising mix and bring in higher rents.
Do you have an idea of whats what sort of rent spreads that you could achieve I mean, some of your peers have talked about up to 60% rent spreads.
<unk> actually achieved already is should we expect some sort of.
Jump in base rents if you were to.
We leased some of that.
No.
60% is I think not.
Knowing who said that it feels to me that those are out there, but those are exceptions, rather than the rule. When we look at our portfolio in a very pragmatic fashion, we like the our ability to replace the current rents I would say, let's let's take for example party city in Tuesday morning, which tend to be around 10 to 12000 square feet, we have very de minimis.
As you are to either one of those tenants.
But I think it's four boxes in total if we were to get any of those spaces back.
Those rents could probably be pushed to the tune of call it 10% to 20%.
And then as it relates to bed Bath <unk> beyond a little larger spaces.
We think anything between call it five and 15% is a reasonable spread.
Yeah.
Maybe last question for me in terms of your shop occupancy, which obviously your anchor occupancy youre almost all youre almost full because youre 98, 7% leased if I'm not correct.
But your shop occupancy of 91, 3% what is the least.
Sorry, what's the physical occupancy there and where is that is that the segment of your portfolio that's going to.
<unk> provides.
A big chunk of your growth going forward in your view.
Yeah, No. It's a great question and I think.
So just to give you the number of our small shop economic occupancy is 88, 8%.
So the spread there is actually a tad bit wider than what it is on the anchor side, which as you mentioned, 98% leased 96, 8% economic occupancy when I think about the small shop, that's where the next leg of growth is going to come from rate.
As you mentioned, we have three vacancies anchor vacancies in the portfolio right now.
So not a whole lot of real opportunity there unless we were to get some of the spaces back like we just discussed.
So the small shop is really where we're pushing is and if you think about comments that I made last quarter and what you saw in the fourth quarter as well as it relates to some of our operating expenses being elevated it's really some of our pre leasing efforts getting spaces that haven't been leased in a long time, making our assets as good as possible given the demand that we see.
Today, knowing and I think David Lukes at a set of well on his call that the demand is as strong as it's been but it's not it may not last forever. So what can we do to position ourselves.
To be ready to take advantage of those opportunities in many of those opportunities will be coming on the small shop side, where if.
If you think about your ability to close that spread youll get a lot more <unk>.
<unk> for lack of a better word because of the types of rents that you can put in those spaces.
Thanks JJ.
Thanks Lars.
The next question comes from Craig Schmidt with Bank of America, Craig. Please go ahead.
Good morning. This is <unk> on for Craig Thanks for taking my question.
I was wondering if you could provide a bit more detail on the <unk>.
Colorado assets that sold during the quarter.
<unk>.
And remind us again of how this fits into your strategy of rotating capital out of.
Colorado.
And then increasing your concentration in the sunbelt.
And how that might fit and just within that plan to 150 million of net investments within guidance.
No. Thanks, Thanks for the question, maybe I'll start and I'll pass it over to Dave Heimberger, but really I think we've been pretty transparent as it relates to.
The opportunities to recycle capital if we can find.
Uses for that capital in our current markets and that Carla Colorado is a great example of that exiting out of the three properties that we did one in that state and frankly, it's a great market. It's a core market for most for most.
<unk> or portfolios. It just it just didn't fit our are focused and concentrated strategy on being in the sunbelt.
It is a great use of capital because it's such a strong market and in itself and it gives us an ability to move move.
<unk> capital further south.
On an accretive basis.
Market that would fit that similar strategy would be the assets that we own kind of in the Virginia, Maryland corridor call. It DC greater DC, if you will.
Three fantastic properties.
Not being marketed today, but when we think long term those are certainly.
As a potential source of capital if we find further opportunities beyond the $50 million already earmarked that we're planning to deploy this year, if we find the right.
Right assets and the right opportunities I don't know David if you have anything you want to do.
Nothing really to add other than we like the idea.
Sort of match funding the PGM strategy that we had in place.
Getting closer to our operational presence in our offices in the Sunbelt is obviously important to us in Colorado, just was a market that was difficult to grow in.
And again, just trying to make it more simple and focused.
Thanks, Ben could you provide any color on just the cap rates around those sales.
Yes, so we don't typically disclose cap rates on dispositions, mainly to protect the buyers I would.
Say these are a.
The little box here.
On a couple of them.
So it probably skewed towards a higher end of the cap rate range of of things Youre seeing out there.
So hopefully that's enough color.
Yes.
Alright. Thanks.
The second question I guess on the 220 <unk> lease to economic spread.
Is the timing of the.
Delivery look like now and it is back on track in line with your expectation has there been any change in discussion.
With with tenants.
Just if you could provide an update on that.
Yes. So good question, so almost all of that spread I R. I think all of it we're expecting to come online at some point. This year. So there is $4 eight I think the 220 basis points represents $4 $8 million of potential ABR on an annualized basis.
It tends to be back half weighted but we would expect to probably call. It just to give you a round number get to get half that this year if.
If we stay on time and on schedule, which.
As of now we feel really really good about.
Okay, great. Thank you.
This concludes the Q&A session on today's call and I will now hand back to DJ for concluding remarks.
Thank you everyone for joining us today, if you have any follow up questions. Please feel free to reach out to Dan Lombardo, otherwise enjoy the rest of your day.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
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Okay.
Yeah.