Q3 2024 InvenTrust Properties Corp Earnings Call
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Aliah Sennabbi: Thank you for standing by and welcome to invent trust, third quarter, 2024 earnings conference call. My name is Aliah Sennabbi, 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 investor section of the company's website at inventrustpropties.com.
Aliah Sennabbi: If you would like to register a question during the day event, please press star 1 on your telephony pad. Now I'd like to turn it all over to Mr. Dan Lombardo, Vice President of the 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 Event Trust team is DJ Bush, President and Chief Executive Officer, Mike Phillips, Chief Financial Officer, Christy David, Chief Operating Officer and Dave Heimberg, our Chief Investment Officer.
Dan Lombardo: Following the team's prepared remarks, we will open the line for questions.
Dan Lombardo: As a reminder, some of today's comments may contain four 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.
Dan Lombardo: These are based on management's current beliefs and expectations in our subject to various risks and uncertainties.
Dan Lombardo: and the State. Any forward-looking statements speak only as a 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.
Dan Lombardo: In addition, we will also reference certain non-gap financial measures. The comparable gap financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website.
Speaker Change: With that, I will turn the call over to DJ.
DJ Bush: Thank you, Dan, and good morning to everyone joining us today.
DJ Bush: I'm going to provide some highlights regarding our third quarter results including our inaugural follow-on equity offering that was executed in September and the opportunities that lie ahead for InvenTrust.
Speaker Change: Michael discuss our financial results and provide some color regarding yet another increase to our 2024 guidance and Christy will end our prepared remarks with additional commentary regarding our leasing efforts and operations
Speaker Change: Daniel Busch, Floris Dijkum,
Speaker Change: Since listing the company in October of 21, Inventros has executed on all fronts of its simple and focused strategy.
Speaker Change: received an investment grade credit rating and completed a private placement debt offering.
Speaker Change: As many of you may recall, the company did not raise equity at the time of the listing.
Speaker Change: Simply put, our estimated cost of equity through an IPO was not going to be optimally aligned with external growth opportunities.
Speaker Change: Therefore we chose to be patient, self fund our growth with our low levered balance sheet, prove to the public market that our simple and focused strategy in the Sunbelt can deliver above sector average cash flow growth over a multi-year period, and wait for our cost of capital to improve.
Speaker Change: After three years, we took advantage of a stronger capital market backdrop and raised roughly $250 million during the quarter through a follow-on equity offering.
Speaker Change: The offering was extremely well-received by both existing and new shareholders.
Speaker Change: In addition to the equity offering, following the end of the quarter, the company increased the capacity of its unsecured credit facility by 150 million dollars to 500 million dollars, while extending the maturity to January of 2029.
Speaker Change: Through the equity raise and the upsize facility, Inventrust has effectively added nearly $400 million of additional liquidity, replenishing an already conservative balance sheet, and we are putting the fresh capital to work in an accretive manner.
Speaker Change: to that end on the investment front in the third quarter we closed on our second property in the Phoenix MSA Scottsdale North marketplace for 23 million dollars
Speaker Change: Subsequent to the quarter, we closed on our second property in the Richmond, Virginia market, a Wegmans Anchor Community Center, for $62.1 million.
Speaker Change: Daniel Busch, Floris Dijkum, David Heimberger, David Heimberger, David Heimberger, Paulina
Speaker Change: Moving to operations. Less bad debt and higher retention rates are once again feeling better than expected results.
Speaker Change: Leased occupancy climbed to 97% during the quarter, up both sequentially and on a year-over-year basis, setting another new high watermark for the portfolio.
Speaker Change: blended spreads remained healthy in this high single digits with a retention rate of 93 percent
Speaker Change: Strong operating results across the portfolio driving the increase to both same property and Y growth and FFO per share for 2024.
Speaker Change: With that, I'm going to turn the call over to Mike to discuss our financial results in greater detail.
Mike Phillips: Thank you, DJ. Same property NOI for the quarter was 45.5 million dollars, growing 6.5 percent over the third quarter of last year. The quarterly increases were primarily driven by an increase in base rent of over 300 basis points, of which 150 basis points were embedded rent bumps.
Mike Phillips: That expense reimbursement contributed approximately 170 basis points to the increase for the quarter, with better collections from revenues deemed uncollectible adding 150 basis points.
Mike Phillips: Year-to-date same property NOI was $123.8 million, growing 4.2% over the first nine months of 2023.
Mike Phillips: NARED FFO for the first nine months of the year was $91.8 million or $1.34 per diluted share, an increase of 7.2% over the same time period last year. Year to date, Core FFO grew 4.8% to $1.30 per share compared to the same time period of 2023.
Mike Phillips: Components of FFO growth are primarily driven by same property NOI of seven cents and NOI from acquisitions of six cents, offset by interest expense, G&A, and lower interest income of approximately six cents.
Speaker Change: As D.J. discussed, the successful capital raise strengthened and reloaded our balance sheet, providing us additional capital and flexibility to execute our long-term strategy. Imitra's net leverage ratio dropped to 20 percent, and our net debt to adjusted EBITDA is 3.6 times on a trailing 12-month basis.
Speaker Change: Our remaining debt is now 100% fixed. Finally, we declared an annualized dividend payment of $0.91 per share, a 5% increase over last year.
Speaker Change: moving the guidance
Speaker Change: Due to our strong operating fundamentals, we are raising our full year guidance again this quarter.
Speaker Change: The new guidance range for the company's 2020 full-year same-property NOI growth is 4.25% to 5%. Our new NARATE FFO guidance is now $1.74 to $1.77 per share, and our core FFO guidance is up to $1.70 to $1.73 per share.
Speaker Change: Full year details on our 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?
Christy David: Thanks Mike. Our portfolio continues to benefit from the positive fundamentals in the strip center space and the migration to and growth in the Sunbelt market. As a reminder, 97% of our ABR is generated from Sunbelt assets with the goal of getting to 100% in the future.
Christy David: Additionally, supply remains limited, creating increased demand for high-quality retail space. As retailers struggle to find new space to satisfy their internal growth plans, they continue to look for creative ways as it relates to store size and location within our centers.
Christy David: All of these conditions allow the InvenTrust team to remain focused on transforming retailer leasing demand into increased ABR and additional portfolio occupancy at our properties.
Christy David: For the nine months ending in September, our total portfolio lease occupancy ended at 97%, up 60 basis points from last quarter, and at an all-time high.
Christy David: Our Anchor Space lease occupancy finished at 99.8%, an increase of 70 basis points from last quarter, also at an all-time high. And our Small Shop lease occupancy ended the quarter at 92%.
Christy David: Our Stein Not Open Pipeline is 280 basis points that equates to about $7.2 million of additional income coming online into our portfolio over the next several quarters.
Christy David: As of September 30th, InvenTrust's total portfolio ABR was $19.83, an increase of 2.4% compared to 2023.
Christy David: For the quarter, we posted blended comparable leasing spreads of 9.8 percent.
Christy David: Spreads for new leases were 14.2% and renewals were 9.2%.
Christy David: The retention rate was 93%, and 90% of our renewals have embedded rent escalators of 3% or higher. Year-to-date, our blended comparable leasing spreads were 10.4%.
Christy David: We signed 160 leases for over 1,094,000 square feet so far this year, with additional leases in our pipeline at various stages of negotiation.
Christy David: Tenants signed during the quarter include Alta and Skechers.
Christy David: Currently, our portfolio is nearly at 100% occupancy for anchor tenants, with only one available space being kept offline for a redevelopment and re-tenanting opportunity in the future. These opportunities exist throughout our portfolio, and we will be focused on executing these accretive strategic re-merchandising and redevelopment projects for the next several years.
Christy David: In closing, I would like to take an opportunity to update you on recent weather events.
Christy David: As many of you are aware, we have had several hurricanes and significant storms in the South over the past several weeks.
Christy David: Thankfully, all InvenTrust employees in the affected area made it through the storm safely. IDT was fortunate that our assets only sustained minimal damage and debris cleanup. We continue to provide aid and stand by our communities and tenants to support their needs and help them recover.
Christy David: Operator, that concludes our prepared remarks and you can open the line for questions.
Speaker Change: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted.
Speaker Change: First question comes from Andrew Reill with Bank of America. Your line is open, please go ahead.
Andrew Reill: Hi, good morning everyone. Thanks for taking our questions.
Andrew Reill: Just one on the acquisition markets and external opportunities. Just curious if the reversal in interest rates since the time of your equity issuance has put a damper on the number of external opportunities you're seeing. And I'll be curious if your view, has the elective certainty solved any potential sellers?
Speaker Change: Yeah, thanks Andrew. Good morning.
Speaker Change: Our acquisition pipeline, you know, and what you see that's implied in the guidance is things that we've been working on for quite some time. So the reversal interest rates hasn't had really certainly didn't have an impact on
Speaker Change: on what we're currently chasing from an acquisition standpoint. And really, to be honest, in our markets, with the type of product that we're looking at, we haven't seen much change given the recent movements.
Speaker Change: You know, going into this week or next with the election, it tends to, it traditionally has been more quiet I would expect.
Speaker Change: that transaction market to open back up after there's a little bit more certainty, but that's just speculation. But going back to what I said, you know, the types of markets and the types of product that we're looking at, we've actually seen more products at the market, but also more potential buyers as well. You know, which, you know, to us, you know, is is a pretty healthy environment. And I would expect that to continue in 2025, which is
Speaker Change: which is why you saw, you know, the changes that we've made as it relates to our expectations.
Speaker Change: and Dan Lombardo. Thank you.
Dan Lombardo: Okay, thanks. And just another one from me, bad debt overall been trending favorably, but would be curious if you could just talk a bit about your tenants and more discretionary categories, you know, home goods, hobby, maybe full-service restaurants too. Just curious on how sales and traffic are holding up and how do you think about renewals and some of those categories if consumers continue to pull back on discretionary spend?
Speaker Change: Thank you very much. Thank you.
Speaker Change: No, it's a great question. You know, anecdotally to our portfolio, we haven't seen much of a change that you know, there's, I think sales certainly have stabilized from, you know, some pretty impressive growth over the last couple of years, no doubt.
Speaker Change: The value areas continue to do very well.
Speaker Change: Many of those banners have been looking to grow their footprints.
Speaker Change: As it relates to food service and even full-service restaurants, the types of restaurants that are in our portfolio tend to be that still, even if they're full-service, tend to be that kind of middle-income.
Speaker Change: Lower price point if you will even if price points are higher, but we don't do a whole lot of you know Well in a tablecloth types of types of restaurants
Speaker Change: and is still one of the better performers in our portfolio. There's very, very healthy occupancy cost ratios across that category. And, you know, if there has been some restaurants that have struggled, some franchises have changed.
Speaker Change: But the most valuable space that we have that's in the most demand in the portfolio, our operations team would tell you is that second generation restaurant space because it tends to be lower capital going in.
Speaker Change: and Dan Lombardo. Thank you.
Speaker Change: Okay, thanks very much.
Speaker Change: Thank you. We now.
Speaker Change: We now turn to Dory Keston with Wells Fargo. Your line is open, please go ahead.
Dory Keston: Thanks, good morning. A few of your peers have started to put up some guardrails around 25 things to our NOI growth. Do you have any interest in adding your early thoughts to that?
Speaker Change: We noticed that, Doreen. Thanks for the question. Look, you know, one of the things we've tried to do over the last couple of years is...
Speaker Change: Everything that the operations team and Christy's team has done is tried to build a sustainable You know model where we can drive consistent growth both in the same property and alive but most importantly cash flow
Speaker Change: and we think we're at a really nice level. So what I will tell you is we have nearly, or 70% of our leasing efforts done next year.
Speaker Change: Notwithstanding any material changes as we see in bad debt, but maybe a more normalized run rate bad debt, we're expecting a very similar type of cadence and growth that we've seen in the last two years.
Speaker Change: So with the current portfolio, where do you put that more normalized bad debt? Is that closer to 75 basis points?
Speaker Change: Yeah, the 75 basis points is usually where we, you know, is kind of the starting benchmark, and then obviously we'll move that, you know, obviously.
Speaker Change: Seventy-five is the benchmark that we tend to anchor to as we go into the year and then we adjust accordingly.
Speaker Change: Okay and then regarding your non-core assets, can you give us an update on where you see the aggregate value there and and if your definition of non-core has widened as your acquisition pipeline has grown?
Speaker Change: Yeah, you know, it's a good question. I think one of the things that we've always talked about is being exclusively in the Sunbelt, right? So we do have two assets that sit in the Mid-Atlantic Corridor, just north of, you know, in Maryland. Those assets are phenomenal assets. One's anchored by Safeway, one's anchored by Trader Joe's. You know, they'd only be non-core in the light of not being in the Sunbelt for Invent Trust, but certainly core properties for anybody else. But we're not, we're not for sellers either.
Speaker Change: What we're going to be looking to do over the next couple years is to methodically recycle capital when we feel like the time is right and we have a use for that capital.
Speaker Change: And if there are more opportunities in markets that fit the InvenTrust better, we'll accelerate those non-core asset recycling.
Speaker Change: As it relates to being wider, one of the things we've discussed is our view on California. California is still a phenomenal market, and it's always priced that way. It's one of those things that we'll continue to consider over time. But again, we have a really, really strong California portfolio in presence.
Speaker Change: So it just depends on where we can where we can reallocate that capital in a creative manner
Speaker Change: Okay, thank you.
Speaker Change: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad now.
Speaker Change: We now turn to Daniel Perpera with Green Street. Your line is open, please go ahead.
Daniel Perpera: Good morning. The retail environment has been strong recently. Have you seen any changes to this environment or do you expect continuation of these same trends?
Speaker Change: As far as what do you mean by, Daniel, hey good morning, what do you mean by the retail market? Are you talking about the transaction market or the underlying fundamentals?
Speaker Change: and Dan Lombardo.
Speaker Change: An additional 100 plus basis points of things that are in the works now. Not, not everything is going to obviously show up in occupancy. Some deals do fall in and out. But there's, there's a lot of demand even behind the current occupancy levels, which is something that we haven't had in the past.
Speaker Change: And because of the level of occupancy we're at, we're actually filling spaces that we haven't filled in quite some time.
Speaker Change: So, and, you know, it's broad and basic across categories, you know, to my earlier comments, food service continues to be a very strong category for us, even though there has been probably a little bit of a slowdown in sales, perhaps some of that is due to, you know, the change in inflation.
Speaker Change: But health care continues to be strong, you know, services, so we're seeing a pretty broad-based level of demand in our small shop, both in our small shop and in our anchor space, which is, you know, effectively fully occupied at this point.
Speaker Change: Thank you.
Speaker Change: And if I could ask one more, with Curb Line going public at the beginning of this month, you had any interest in looking at convenience centers or any non-anchored centers?
Speaker Change: Thank you. Thank you.
Speaker Change: Yeah, so we do own a couple non-anchor, or I guess what you guys would consider non-anchor.
Speaker Change: non-anchored centers. Look, at the end of the day, we're a little bit more property agnostic. We're just looking for the right retail that has a necessity-based component, primarily in a market that we know we can grow rents, and most of those markets we're already in. We do have a handful of markets that we're trying to
Speaker Change: get a foothold in it as well.
Speaker Change: Small unanchored community centers all the way up to some power centers and it just depends on what market and what retail note they're in and We've we've been able to be successful in growing rents in all formats
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: We have no further questions. I'll now hand back to DJ Busch for any final remarks.
DJ Busch: Thank you everyone for joining us. We look forward to seeing hopefully many of you next month I guess in Las Vegas. Until then, have a great day.
Speaker Change: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Speaker Change: [music]