Q4 2023 InvenTrust Properties Corp Earnings Call
Operator: Hello, thank you for standing by, and welcome to Inventrust's fourth quarter 2023 earnings conference. My name is Bailey, and I'll be your conference call operator. 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 investor's website, www.inventrust.co.uk. All lines will be muted during the press conference, and an opportunity for questions and answers at the end, if you would like to ask a question. Star, followed by one on your telephoto lens.
Hello, Thank you for standing by and welcome to event Trust fourth quarter 2023 earnings Conference call My.
My name is <unk> 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 Companys website at <unk>.
Trust properties still come.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
Operator: I'd now like to turn the call over to the Vice President of Investor Relations. Please go ahead.
I'd now like to turn the call over to Mr. John <unk>, Vice President of Investor Relations. Please go ahead Sir.
Daniel Joseph Busch: Thank you, operator. Good morning, everyone, and thank you for attending our call today. Joining me from the Inventrust team are D.J. Bush, President and Chief Executive Officer, Mike Phillips, Chief Financial Officer, Christy David, Chief Operating Officer, and Dave Heimberger, Chief Investment Officer.
Thank you operator, good morning, everyone and thank you for attending our call today, joining me from the <unk> team 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.
Daniel Joseph Busch: 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, 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. Thanks, Dan, and good morning, everyone.
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.
<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 I will turn the call over to D. J.
Thanks, Dan and good morning, everyone.
Daniel Joseph Busch: 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.
Today I'll start with a brief summary regarding the fourth quarter and full year of 2023, Mike will provide an overview of our financial results and some color on our 2024 expectations and Christian will conclude with some of our continued success on the operational front.
Daniel Joseph Busch: 2023 was another excellent year for Inventrust, a 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 21, 21, which is to own and operate essential open-air retail centers exclusively in the Sunbelt region of the U.S. while maintaining a simple and low-levered capital structure and employing a straightforward capital allocation plan. In the two full years since joining the public market, the company has grown the same property net operating income by an average of 4.8% per year, above the Narit Shopping Center average. It increased core FFO per share by 18%, again, well above the narrow reach 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 Sunbelt markets in which we operate and the 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.
2023 was another excellent year for invent trust performance that continues to demonstrate the strength and resiliency of our simple and focused strategy.
And it's been a little over two years since <unk> introduced its portfolio and strategy to the public market in October of 'twenty one.
Which is to own and operate a central open air retail centers exclusively in the Sunbelt region of the U S. While maintaining a simple and low levered capital structure and employee straightforward capital allocation plan.
And the two full years since joining the public market. The company has grown in same property net operating income by an average of four 8% per year above the narrow each shopping center average.
It's increased core <unk> per share by 18% again, well above the narrow each 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 sunbelt markets in which we operate and the 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.
Daniel Joseph Busch: In spite of an uptick in 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, leased 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 11 consecutive quarters. Moreover, the underlying credit strength and predominantly necessity-based offerings within our merchandise mix give us confidence in our tenants' operating ability despite whatever economic disruptions may or may not unfold in the coming years.
In spite of an uptake 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 and.
In fact in the fourth quarter, we executed more new deals than in any quarter since 2019.
As a result leased 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 11 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.
Daniel Joseph Busch: 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 to continued growth beyond 2024. On the capital allocation front, we remain selective regarding new acquisitions.
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 than normal cycle within our business and anchor leasing efforts today will be sizable contributors for continued growth beyond 2024.
On the capital allocation front, we remained selective regarding new acquisitions, we continue to carefully monitor our cost of capital in relation to private market values and will continue to be disciplined as we look to grow the portfolio.
Daniel Joseph Busch: We continue to carefully monitor our cost of capital in relation to private market values and will 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.
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 inventors 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, putting better us 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 <unk> 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.
Mike Phillips: 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 Sunbelt market. With that, I'll turn the call over to Mike to discuss our financial results. Thank you, DJ, and good morning, everyone.
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.
Mike Phillips: 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, NAVREAD FFO was $30.8 million, or $0.45 per diluted share, for the three months ended December 31, 2023. Full year NARED 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, and the acquisition of the remaining 10% of our joint venture, as well as higher interest income and higher than anticipated non-recurring income from non-operating activities. These items were offset partially by higher interest expenses.
With that I'll turn the call over to Mike to discuss our financial results Mike.
Thank you D J and good morning, everyone.
I'll 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 <unk> was $30 8 million or <unk> 45 per diluted share for the three months ended December 31 2023.
Full year, NAREIT, <unk> 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 non operated activities. These items were offset partially by higher interest expense.
Mike Phillips: For Core FFO, Inventrust's fourth quarter results were $27.8 million or $0.41 per diluted share, an increase of 21% over the 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, an offset by 40 basis points from revenues deemed uncollectible, and a 60 basis point headwind from out-of-period rent collected in 2022.
<unk> fourth quarter results were $27 8 million or <unk> 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 six 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 a 100 basis points of revenues deemed uncollectible.
Full year same property NOI grew at four 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.
Mike Phillips: 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. Our Net Leverage Ratio is 27%, and our Net Debt to Adjusted EBITDA is 4.9 times on a trailing 12 month basis. Our weighted average interest rate ended the year at 4.3% with a weighted average maturity of 4 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 BJ 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.
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 four nine times on a trailing 12 month basis our.
Our weighted average interest rate ended the year at four 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 and.
In December we paid down $20 million of debt, reducing our variable rate debt exposure to 9%.
As BJ mentioned at the end of 2023, we raised $5 $4 million of net proceeds through the issuance of approximately 208000 shares on the open market at a weighted average price of $26 13.
In the fourth quarter, we declared a dividend payment of $21.05 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 2020 for payment. This brings our annualized dividend to <unk> 95 per share.
I will conclude my remarks by discussing our initial 2024 guidance building on our strong 2023 results, we expect <unk> to be between $1 69, and $1 75 per share. We are setting our guidance range of $1 66 to $1 70 per share for core <unk> components <unk> growth include same property NOI and.
Mike Phillips: 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 90.5 cents per share. I will conclude my remarks by discussing our Initial 2024 Guide. Building on our strong 2023 results, we expect NARED FFO to be between $1.69 and $1.75 per share. We are setting a guidance range of $1.66 to $1.70 per share for core FFO. Components of FFO growth include same property NOI and acquisitions, which are offset by higher G&A, increased interest expense, and less interest income.
Missions, 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 two 5% to three 5%.
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 or full year guidance assumptions are provided in our supplemental disclosure filed yesterday and with that I'm going to turn the call over to Christie to discuss our portfolio activity.
Thanks, Mike Let me begin by re emphasizing details earlier remarks.
We're seeing momentum we have and continued to experience less driven by limited new supply and the scarcity of premium retail space.
Mike Phillips: 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.
We believe limited new supply for the strip centers, both across the country and in particular, a sunbelt will be far below historical average for several years to come keeping premium retail space in high demand.
He was able to capitalize on these market dynamics by increasing rental rates and re merchandising with stronger credit tenants at our centers.
The fourth quarter of 2023 with one of the strongest and most active in recent years.
Christy David: 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 activities. Thanks, Mike.
And 86 leases for over 550000 square feet.
Part of this activity included the signing of two former bed Bath <unk> beyond statement.
Christy David: 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. We believe limited new supply for 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 re-merchandising with stronger credit tenants at our site. The fourth quarter of 2023 was one of the strongest and most active in recent years.
One with PGA superstore, and like Keith said, California, and the other with Nordstrom rack in Charlotte North Carolina.
Outstanding tenants will be additive to the tenant mix and customer experience at each of these centers.
We are projecting the 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 <unk> beyond spaces that each have received multiple alloy. 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 in Bjs brewhouse.
All of this activity increased our total portfolio leased occupancy to 96, 2% up 110 basis points from last quarter re approaching the portfolio's peak.
Christy David: 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 Laquita, 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 tenants. 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 have each received multiple LOIs.
Our anchor space leased occupancy finished at 98, 2% an increase of 160 basis points from last quarter and our small shop leased occupancy increased to 92, 5% a new high point for our portfolio.
As of December 31, <unk> total portfolio ABR of $19.48, an increase of two 1% compared to 2022.
For the quarter, we posted blended comparable lease spreads of 13, 9%.
Spreads for new leases were approximately 34% with renewals nearing 8% for the quarter.
Christy David: 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 Yardhouse, Old Navy, and BJ's Brewhouse. All this activity increased our total portfolio lease occupancy to 96.2%, up 110 basis points from last quarter, re-approaching the portfolio's. 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 2020. For the quarter, we posted blended comparable lease spreads of 13.9%. Spreads for new leases were approximately 34%, with renewals nearing 8%.
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 the 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, resulting new tenants open and operating at our centers.
Operator that concludes our prepared remarks, and you can open the line for questions.
Thank you.
I would like to ask a question. Please press star followed by one of your telephone keypad. If any reason you would like to repeat that question. Please press star followed by <unk>.
Can I ask a question. Please press star followed by one.
As a reminder, if you are using a speakerphone. Please pick up your handset before asking your question and please do you ensure that youre on mute you directly.
Our first question today comes from the line of Dori Kesten.
Wells Fargo. Please go ahead. Your line is now open.
Hi, Thanks, good morning.
$75 million and net investment activity. This year, how much of that is in your site today and are you assuming.
Non sunbelt asset sales within that.
Hey, Dori. This dji good morning, yes, so within the $775 million net investment assumption Thats built into the guidance you can think about a couple of ways. One obviously, we've already closed on $30 million of that in the first quarter.
Operator: Our retention rate remains at 90% as we continue to see tenants renew their existing leases at meaningful interest rates. 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 results in new tenants opening and operating at our site. Operator, that concludes our prepared remarks, and you can open the line for questions. Thank you. If you would like to ask a question, please press star followed by 1 on your telephone. If, for any reason, you would like to remove that question, please press star followed by 1. Again, to ask a question, please press star followed by 1.
And then there's so there's very good visibility as it relates to the pipeline our pipeline tends to have a couple of hundred million dollars of deals that we're always looking at now many of those as you can imagine.
Pricing either gets away from us or under due diligence, we decided to move in a different direction.
But certainly the acquisition pipeline feels better today than it would have last quarter.
I would suspect that that would continue through the year and I believe many of our peers are seeing the same type of visibility within.
Their pipelines as well.
An important note on our <unk>.
Daniel Joseph Busch: As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question, and please do ensure that you are unmuted locally. Our first question today comes from the line Dory. Wells Fargo, please go ahead. Your line is: Thanks. Good morning.
Net investment assumption is it's really just how we're seeing the market today.
We will pivot depending on what our cost of capital it looks like so the $75 million. Obviously, it's predicated on the current pipeline, where we believe we can buy out today, making sure. It's it's.
Daniel Joseph Busch: You're $75 million in net investment activity this year. How much of that is in your sites today? And are you assuming some non-SUNBELT hasn't failed from that? Hey Dory, this is DJ.
It's accretive to the business.
And we will accelerate that if if the market conditions get better or are we perhaps could pull back as it relates to your question on non stop.
Daniel Joseph Busch: Good morning. Yeah. So within the $77.5 million net investment assumption that's built into the guidance, you can think about a couple ways. One, obviously, we've already closed on $30 million of that in the first quarter. And then there's very good visibility as it relates to the pipeline, where our pipeline tends to have a couple hundred million dollars of deals that we're always looking at. Now, many of those, as you can imagine, pricing either gets away from us, or under due diligence, we decide to move in a different direction. But certainly, the acquisition pipeline feels better today than it would have last quarter, and I would suspect that that would continue through the year.
There are three assets that are considered outside of this in about one being enrichment two in Maryland. Those assets are always candidates those are assets.
Have said in the past that we would move along from if we found an accretive a replacement.
For those for.
For those for that capital excuse me.
And we will continue to do so so those the disposition of those properties will just be predicated on how much we can do on the acquisition side.
Yes.
Okay.
And I believe your floating exposure now stands rounds.
Under 10% with the swaps expired are you are you comfortable at that level throughout the year should we expect.
Daniel Joseph Busch: And I believe many of our peers are seeing the same type of visibility within their pipelines as well. An important note on our net investment assumption is that it's really just how we're seeing the market today. We will pivot depending on what our cost of capital looks like. So the $35 million is obviously predicated on the current pipeline, where we believe we can buy at today, making sure it's accretive to the business. And we will accelerate that if, you know, if the market conditions get better, or we could perhaps pull back. As it relates to your question on non-stumble, there are three assets that are considered outside of the Sunbelt, one being in Richmond, and two in Maryland. Those assets are always candidates.
Additional swaps.
Yes, we are.
Obviously, we're monitoring the curve as everyone else is as we look through 2024, we did decided to pay down a little bit of that with cash on hand at the end of last year to.
Lower that.
That exposure a little bit I think 10% is a good number for us.
It's obviously, if we can't find accretive opportunities in the open market is not our first choice, but we will choose to chip away at that if rates move in a different direction than what we're expecting.
And then we will look to.
Replace that with Permian that win win when the markets are a little bit more accommodative.
We'll start to look at that probably in the second half of this year.
Daniel Joseph Busch: Those are assets that we have said in the past that we would move along from if we found an accretive replacement for those for that capital, excuse me. And we will continue to do so. So those are the dispositions of those properties will just be predicated on how much we can do on the acquisition side. Okay, and I believe your floating enclosure now stands around just under 10% with some swaps expired. Are you comfortable at that level throughout the year, or should we expect more?
Okay, and just lastly can you talk to the rationale behind the relatively small size of the ATM issuance in the quarter. I think you said the I mean, the pricing with accretive acquisition.
So, yes, the 5 million sizing.
Oh, yes, absolutely.
Obviously, one of the challenges with our with our one of the few challenges I would say is we did not issue equity when we decided to list. The company. So we didn't do a traditional IPO so the $5 million.
As de Minimis as it is was important.
Daniel Joseph Busch: to get additional slots. Okay, and just lastly, can you talk about the rationale behind the relatively small size of the ATN issuance in the quarter? I think you said the, I mean, the pricing was creative with the acquisition. Oh, yeah, absolutely. Well, as you know, obviously, one of the challenges with our company, you know, one of the few challenges I would say is that we did not issue equity when we decided to list the company, so we didn't do a traditional IPO.
For us to show that we do have that access.
And it really just came down at the end of the at the end of the year.
<unk> pricing, obviously, there was a little momentum in the REIT market and we decided just to explore that Avenue and we raised a little bit and that's something that we'll continue to do if the price gets to a level.
That is acceptable for us and where we think we can put the proceeds.
To work in an accretive manner.
Okay.
Okay. Thank you.
Daniel Joseph Busch: So the five million dollars, as de minimis as it is, was important for us to show that, you know, we do have that access. And it really just came down at the end of the year when pricing, obviously, there was a little momentum in the market. And we decided just to explore that avenue, and we raised a little bit. And it's something that we'll continue to do if the price gets to a level that is acceptable for us and where we think we can put the proceeds to work in a creative manner. Okay, thank you.
Thanks.
Okay.
Our next question today comes from the line of <unk> <unk> from Bank of America. Please go ahead. Your line is now open.
Hi, good morning.
It was good to see you guys close on.
The center in Phoenix, and enter that new market.
Just curious on.
Kind of the process do you plan on.
Okay, starting on just how will you get familiar with that market.
Expanding your team there.
Where's the opportunity to grow from there.
Daniel Joseph Busch: Thanks. Our next question today comes from the line of Lizzie Doykamp from Bank of America. Please go ahead; your line is now open.
And then if I might've missed it but if you could provide any details on pricing or the cap rate that would be helpful.
Yeah, Hey, good morning, Great question I'm happy to address most of that.
Daniel Joseph Busch: Hi, good morning. It was good to see you guys close on, you know, the center in Phoenix and enter that new market. Just curious about the kind of process you plan on starting on just, you know, how will you get familiar with that market, expanding your team there? Where is the opportunity to grow from there?
So.
Arizona and Phoenix in particular is a market.
And this predates me, but and <unk>.
Has owned and operated assets in that market. Prior this goes back several years most of those were larger boxes in nature.
Daniel Joseph Busch: And then I might have missed it, but if you could provide any details on pricing or the cap rate, that would be helpful. Yeah. Hey Lizzie.
It was a market that the team was familiar with it it just had been a while.
He had been familiarizing ourselves with the Phoenix MSA more from.
Daniel Joseph Busch: Good morning. Great question. I'm happy to address most of that. So, you know, Arizona and Phoenix, in particular, is a market, and this predates me, but Inventrust has owned and operated assets in that market before. This goes back several years.
More familiar with it I should say over the last call. It couple of years, even since we listed the company. It's a market that we've been very interested in getting into and I was just trying to find the right asset.
Daniel Joseph Busch: Most of those were larger boxes in nature, so it was a market that the team was familiar with. It just had been a while.
Kind of stick out put a flag in the ground and this one fits that bill and the reason is it's a stable asset.
Daniel Joseph Busch: We have been familiarizing ourselves with the Phoenix MSA, getting more familiar with it, I should say, over the last, call it a couple of years, even since we listed the company. It's a market that we've been very interested in getting into, and it was just trying to find the right asset to kind of stick up, put our flag in the ground. And this one fits that bill.
It's a really high quality asset there is not a lot of.
Leg work to do as it relates to property management or or any value add opportunities. It's really one of those assets that you can you can kind of.
You said, it and operate it and it's going to do do great.
Daniel Joseph Busch: And the reason is it's a stable asset. It's a really high-quality asset. There's not a lot of legwork to do as it relates to property management or, you know, or any value-add opportunities. It's really one of those assets that you can kind of, you know, set it up and operate it, and it's going to do great. It's rather new; call it the 2016 vintage.
Rather new call. It 2016 vintage and the reason that's important is a lot of these new or newer assets, sometimes don't have a whole lot of embedded rent growth. However, if you think about where Phoenix was in 2016 and where retail was in 2016. The market has changed dramatically. So we do actually think for a for a more stable asset. This one actually has a little bit.
Daniel Joseph Busch: And the reason that's important is a lot of these newer assets sometimes don't have a whole lot of embedded rent growth. However, if you think about where Phoenix was in 2016 and where retail was in 2016, the market has changed dramatically. So we do actually think for a more stable asset, this one actually has a little bit more upside. As it relates to your pricing question, without getting into specific cap rates, this asset did get to kind of the hurdle rates or the unlevered IRRs that we try to get to. Obviously, it's a core grocery store. It's a little bit smaller.
More upside.
As it relates to your pricing question with.
Without getting into specific cap rates. This this asset did get to kind of the hurdle rates or the unlevered IRR is that we tried to get to obviously, it's a core grocery it's a little bit smaller. So you can imagine the irr's that we're trying to get to is right around seven call it high sixes or seven.
Okay. That's that's helpful.
And the credit loss assumption.
You guys put out within guidance of 50 to 100 basis points seems.
Daniel Joseph Busch: So you can imagine the IRRs that we're trying to get to are right around seven, call it high sixes or seven. Right, that's helpful. And the credit loss assumption you guys put out within guidance, the 50 to 100 basis points seems fairly wide. Just curious about what the underlying assumptions are for that cushion, whether it's based on scenarios of known tenant disruption versus the unknown. And then I don't know if you can comment specifically on what might be incorporated for JOANN. Sure, no; I'm happy to.
Fairly wide just just curious on what the underlying assumptions.
Or for that question, whether it's based on.
Scenarios, if of known tenant disruption versus the unknown.
And then I don't know if you can comment specifically on what might be incorporated for Joanne.
Sure No happy.
So we have one joanne.
Daniel Joseph Busch: So we have one, Joanne, and that would be incorporated in our assumptions in the underlying assumptions in that 50 to 100 basis point range. Also incorporated in that is that we have one Rite Aid out in California. Obviously, Rite Aid is just going through the process.
That that would be incorporated in our assumptions in that.
Assumptions in that 50 to 100 basis point range also incorporated in that is we have one rite aid out in California.
Obviously rite aid just going through the process if they make it through the process, we feel confident that.
Daniel Joseph Busch: If they make it through the process, we feel confident that it's a site that they're happy with, but we'll wait to be seen. And then the remainder really is the unknown small shop. The small shop risk over the last two years has been a pleasant surprise. A more normalized level is expected at some point, and that would make up the balance. So you kind of nailed it with Joanne.
It's a site that they're happy with but we'll wait to see and then the remainder really is the unknown small shop.
<unk> shop.
<unk>.
Risk over the last two years has been a pleasant surprise a more normalized level is at some point as expected.
And.
That would make up the balance so you kind of nailed it with Joanne I would mentioned the other ones Rite aid those those two don't make up a ton but.
Daniel Joseph Busch: I would mention the other ones, Rite Aid. Those two don't make up a ton, but on the anchor side, those would be the two that I would point to. And then the remainder is really just unforeseen small shop fallout. Okay, helpful.
On the anchor side those would be the two that I would point to and then the remainder is really just.
Unfortunately small shop fallout.
Okay helpful. Thank you.
Daniel Joseph Busch: Thank you. Thank you. As a reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad. The next question today comes from the line of Floris van Dijkum. Please go ahead; your line is now open.
Thanks.
Okay.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
The next question today comes from the line of Floris Van <unk>.
From Compass point. Please go ahead. Your line is now open.
Okay.
Floris van Dijkum: Hey, good morning guys. Thanks for taking my question. So, D.J. Good morning.
Hey, good morning, guys. Thanks for taking my question.
So DJ.
Hi, good morning.
Solid solid results the portfolio seems to be doing pretty well here.
Floris van Dijkum: Solid results. The portfolio seems to be doing pretty well here. Phoenix is a new market. I know you addressed it a little bit, but what can we expect?
Phoenix and new market I know you addressed it a little bit, but what can we expect for you to plant a flag.
Floris van Dijkum: For you to plant a flag, Phoenix is a pretty big market. What can we expect in terms of dollar volume or in terms of assets over the medium term for IVT to own in a market like Phoenix? Hey, Floris.
Phoenix is a pretty big market I mean, what can we expect in terms of dollar volume or in terms of assets.
Over the medium term.
<unk>.
For IGT to one in a market like Phoenix.
Daniel Joseph Busch: No, it's a great question. And one of the things that you have to challenge yourself with is that it's really hard to get scale quickly. So it's one of those ones. We found an asset where, if it's the only one we have for a period of time, depending on pricing or opportunity set within the market, we'd be happy. Now, obviously, to get to a level where, you know, if you think about our portfolio, where we have our assets very clustered, and we think that that's a reason that, you know, we feel like we operate at a much higher level because of that clustered nature of the portfolio. That would indicate that, you know, we think we operate at our best when we have at least three or four assets in a market. Now, that's just going to take time.
Hey, Floris, it's a great question and one of the things that you have to challenge yourself with it's really hard to get scale quickly. So it's one of those ones. We found an asset where if it's the only one we have for a period of time, depending on pricing or opportunity set within the market we'd be happy now obviously to get to a level, where if you.
You think about our portfolio, where we have.
Our assets are very clustered and we think that that's a reason that we feel like we can operate at a much higher level because of that cluster nature of the portfolio.
That would indicate that.
We think we operate at our best when we have at least three or four assets in a market now that's just going to take time.
Daniel Joseph Busch: But there's also never, or very few, I should say, portfolios in a single market that you can kind of grab in one fell swoop, especially where the pricing would make sense. So this is one that we've had our eyes on for a while. For a lot of the reasons I mentioned earlier, we got very comfortable with it. And look, Phoenix is going to be, as it has been, high on our list to add to our portfolio because of the characteristics that it has. And it has many of the characteristics that we see in Florida, that we see in our, you know, in the four cities in Texas, the ones, the characteristics that we see in North Carolina.
But theres also never or very few I should say.
Portfolios in a single market that you can kind of grab in one fell swoop, especially where the pricing would make sense. So this is one that we've had our eyes on for a while.
A lot of the reasons I mentioned earlier, we got very comfortable with it and look in Phoenix is going to be as it has been high on our list to add to our portfolio.
Because of the the characteristics that it has and it's many of the characteristics that we see in Florida that we see in our forest.
Four cities in Texas, the ones the characteristics that we see in North Carolina. So we.
Daniel Joseph Busch: So we're excited about further exploring the opportunity set there. And, you know, Chandler being the third largest city in that county gives us a lot of confidence that, you know, we're in the right spot and we will continue to expand, you know, if the opportunities arise. They had a bunch of stuff, I think, in Phoenix as well.
We're excited about further exploring the opportunity set there and Chandler being the third largest city.
In that in that county gives us a lot of confidence that we're in the right spot and we will continue to expand.
If the opportunities arise.
Speaking of those opportunities I mean, I know that site, it's basically put itself its portfolio in the market out there for to focus on curve.
Daniel Joseph Busch: Presumably, you would look at that. Is that something on your radar? Without getting into specific companies or portfolios, we'll look at everything, Floris, because, as you know, our portfolio, while certainly predominantly neighborhood center and certainly almost exclusively necessity-based or grocery, we can be property agnostic. We do have some power centers. We do have some smaller centers. So the most important focus for us in our business model is location, necessity-based retail in the right location. I'm speaking to and not, you know, being a little ignorant of the site centers portfolio, but I would imagine most of those would be larger in nature. And because of that, those are going to come with a little bit higher level of risk or perceived risk.
They had a bunch of stuff I think in Phoenix as well, presumably you would look at that.
That something on your radar.
Without getting into specific companies or portfolio is we'll look at everything Florida, because as you know our.
Our portfolio a while.
Certainly predominantly neighborhood center, and certainly almost exclusively necessity based or grocery.
We are we are we can be property agnostic, we do have some power centers, we do have some smaller smaller centers. So the.
The most important focus for us and our business model is location.
And necessity based retail in the right location.
Just speaking to and not.
Being a little ignorant to site centers portfolio.
I would imagine most of those would be larger in nature and because of that those are going to come with a little bit higher.
Level of risk or perceived risk.
Daniel Joseph Busch: And I would imagine if we were underwriting those, the hurdle rates would be a little bit higher, but it's certainly something that we would take a look at if the operations team could get comfortable with it. Great. And maybe one other question for me.
I would imagine if we were underwriting those hurdle rates would be a little bit higher but it's certainly something that we would take a look at it.
If the operations team could get comfortable with it.
Great and maybe one other question for me.
Floris van Dijkum: Your occupancy levels are, I would argue, probably near the top of sector peers in both your anchor as well as your shop, your least occupied anyway. How much more room do you see, where do you see your ups? I mean, as I look at this, I would say your shop occupancy, at ninety two and a half percent, probably has greater potential for growth. But I'm curious to see how you think about that where and how much higher you can push occupancy in your view over the next eighteen to twenty-four months. No, it's a good question and observation.
Occupancy levels are.
Would argue are probably near the top of of sector peers in both in your anchor as well as your shop.
You were leased occupancy anyway.
How much more room.
Where do you see your ops.
As I look at this I would say your shop occupancy at 92, 5%.
Has greater potential for growth.
But I'm curious to see how you think about that where and how much higher can you push occupancy in your view over the next 18.
<unk> to 24 months.
No I'd say, it's a good question and observation just to get just a dive in and give a little color around that we have five anchor vacancies in the entire portfolio two of which are.
Daniel Joseph Busch: Just to dive in and give a little color around that we have five anchor vacancies in the entire portfolio, two of which are from Bed Bath & Beyond closures for which we're well underway on getting signed leases in place. One of the vacancies is being purposefully held for a larger development that's down in Florida, or redevelopment, I should say, which will be a great opportunity for us in the next couple years, and then the last two are also in some form of negotiation right now. So of the five, the team is effectively getting close to the finish line on all those.
From bed Bath, and beyond closures of which were well underway on getting.
Signed leases in place.
One of the vacancies as being purposely held for a larger development, that's down in Florida, which will or redevelopment I should say, which will be a great opportunity for us in the next couple of years.
And then the last two are also in some form of negotiation right now so of the five the team is effectively.
Getting close to the finish line on all of those now that's not to say that we're not going to have some fallout but.
Daniel Joseph Busch: Now, that's not to say that we're not going to have some fallout, but we're, we're getting pretty close to full occupancy on the anchor side. So I think your observation is correct. The opportunity set is in the seven and a half percent of vacancy that we have in the small shop. And the team is obviously working really hard on coming up with strategies for a lot of that remaining space, some of which hasn't been leased in a while. And, you know, we've made a lot of good headway on that. I would tell you that a little bit of our growth over the next couple of years will continue to come from occupancy. The rest is going to be coming from rates and retention. Retaining customers and at higher rates is probably the best return that we can get. Minimal to no capital, higher rent, and a proven concept.
We're getting pretty close to full occupancy on the anchor side. So I think your observation is correct.
The opportunity set is in the seven 5% of vacancy that we have in the small shop and the team is.
Is working obviously really hard on coming up with strategies for a lot of that remaining space some of which hasnt been leased in a while.
And we've made a lot of good headway on that I would tell you.
<unk> of our growth over the next couple of years, we will continue to come from occupancy the rest is going to be coming from rate and retention.
Retaining and at higher rates is probably the best return that we can get.
Minimal to no capital higher rent.
And with a proven with.
Daniel Joseph Busch: Thanks, D.J. Thanks. Thank you. There are no additional questions waiting at this time, so I'd like to pass the call back over to DJ for any closing remarks. Thank you, and thank you to everyone for joining us this morning. As always, if you have any questions, feel free to reach out to our team here. We appreciate you joining us and you're interested in Inventrust, and we look forward to seeing many of you in the coming months. Have a great day. This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines. Thank you for watching.
With a proven concept.
Yes.
Thanks P J.
Yeah.
Thanks.
Thank you.
There are no additional questions waiting at this time, so I'd like to pass the call back over to T. J for any closing remarks.
Thank you and thank you everyone for joining us. This morning as always if you have any questions feel free reach out to our team here.
We appreciate you joining and your interest in <unk> and we look forward to seeing many of you in the coming months have a great day.
This concludes today's conference call. Thank you for your participation you may now disconnect your lines.
[music].
Okay.
Okay.
Yeah.