InvenTrust Properties : 2022 Q4 Transcript

InvenTrust Properties

Corp. NYSE:IVT

Earnings Call

Wednesday, February 15, 2023 3:00 PM GMT

CALL PARTICIPANTS	2
PRESENTATION	3
QUESTION AND ANSWER	6

INVENTRUST PROPERTIES CORP. FQ4 2022 EARNINGS CALL FEB 15, 2023

Call Participants

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EXECUTIVES

Christy L. David

COO, Executive VP, General

Counsel & Corporate Secretary

Dan Lombardo

Vice President of Investor

Relations

Daniel Joseph Busch

CEO, President & Director

David Heimberger

Senior VP & Chief Investment

Officer

Michael Douglas Phillips

Executive VP, CFO & Treasurer

ANALYSTS

Floris Gerbrand Hendrik Van

Dijkum

Compass Point Research &

Trading, LLC, Research Division

Unknown Analyst

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INVENTRUST PROPERTIES CORP. FQ4 2022 EARNINGS CALL FEB 15, 2023

Presentation

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Operator

Thank you for standing by, and welcome to InvenTrust Fourth Quarter 2022 Earnings Conference Call. My name is Emily, and I will be your conference call operator today.

Before we begin, I would like to remind our listeners that today's presentation is being recorded, and a replay will be available on the Investors section of the company's website at inventrustproperties.com. [Operator Instructions]

I'd now like to turn the call over to Mr. Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir.

Dan Lombardo

Vice President of Investor Relations

Good morning, everyone, and thank you for joining us. In the room with me today is DJ Busch, President and Chief Executive Officer; Mike Phillips, Chief Financial Officer; Christy David, Chief Operating Officer; and Dave Heimberger, Chief Investment Officer.

Following the team's prepared remarks, we will open 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, including forward-looking earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call or that are in the quarterly financial supplemental or press release.

In addition, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website.

With that, it is my pleasure to turn the call over to DJ.

Daniel Joseph Busch

CEO, President & Director

Thanks, Dan. Good morning, everyone, and thank you for joining us. The InvenTrust team had a productive 2022, our first full year as a publicly traded company. The simple and focused Sun Belt portfolio and investment strategy is proving out in all aspects of our business. The operations team continues to capitalize on solid leasing demand while also carefully managing expenses and 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 Sun Belt markets.

Lastly, we maintained our displayed approach to balance sheet management while diversifying our capital sources through the execution of our inaugural private placement. As discussed on previous calls, InvenTrust continues to benefit from structural and macroeconomic trends creating positive tailwinds for the retail sector and specifically our portfolio. These include the continued migration of people and jobs to the Sun Belt, bringing higher household income consumers to our markets, the 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, InvenTrust 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 4.6% for the full year and delivered double-digit core FFO growth compared to the previous year. All of these results were ahead of our initial forecast.

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INVENTRUST PROPERTIES CORP. FQ4 2022 EARNINGS CALL FEB 15, 2023

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 and one of our joint venture assets in San Antonio, which is shadow anchored by the dominant regional grocer HEB.

We also started 2023 by acquiring the remaining stake in our company's joint venture. It is well documented that this portfolio was a component of our acquisition strategy. We are pleased with the execution of this transaction. PGGM has been an outstanding partner over the past 10 years and a supporter of our Sun Belt grocery-anchored strategy and ESG initiatives.

With this transaction, the InvenTrust portfolio is now 100% wholly owned and further simplifies our investment story. Including this JV transaction, InvenTrust net investment activity totals 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 at the retail sector has benefited from over the past few years.

However, we continue to be optimistic about our business. This confidence comes from the positive performance of our Sun Belt 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 strong 2022 results continues to show the strength of our simple and focused strategy.

With that, I'm going to turn it over to Mike Phillips to provide more color on our financials and guidance.

Michael Douglas Phillips

Executive VP, CFO & Treasurer

Thanks, DJ, and thank you, everyone, for joining us. I'll start with a recap of 2022. InvenTrust finished the year on a strong note. Yesterday, we reported full year core FFO of $105.9 million or $1.57 per share. This represents 12% growth over 2021. The increase was largely driven by $0.09 per share from pro rata same-property NOI and $0.04 from 2022 acquisitions.

Additionally, we realized G&A savings of $0.07 and a positive $0.08 impact from our $100 million share repurchase in Q4 of 2021. These gains were offset by $0.11 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 4.6% 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 and onetime and pre-leasing expenses designed to meet the demand we are seeing, some of which were not fully recoverable. Excluding out-of-period rent collected, our 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 4.8x. Our pro rata weighted average interest rate is 4% with a weighted average maturity of five years. At year-end, 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 $0.86 per share.

Moving on to 2023 full year guidance. We expect core FFO to be between $1.59 and $1.64 per share, which is an increase in the range of 1.3% to 4.5% over 2022. Our same-property NOI growth is expected to increase by 3.5% to 5% for the full year, which contemplates a bad debt reserve of 50 to 150 basis points of total revenue.

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INVENTRUST PROPERTIES CORP. FQ4 2022 EARNINGS CALL FEB 15, 2023

For both same-property NOI and core FFO, 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 sign that 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 Christy to discuss our portfolio activity.

Christy L. David

COO, Executive VP, General Counsel & Corporate Secretary

Good morning, everyone. As DJ highlighted, demand for space across our portfolio continues to be strong with limited to no new supply coming online in our markets, available space in premier centers is scarce. This provides InvenTrust with significant pricing and negotiating leverage through new and renewal lease negotiations.

To that end, we leased over 461,000 square feet of space during the quarter, bringing our total leasing activity for 2022 to 1.3 million square feet. We ended 2022 at 96.1% leased occupancy, which is a 220 basis point increase from the end of 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. As of December 31, InvenTrust pro rata same-property portfolio ABR, was $19.22, an increase of 3.3% compared to December 31, 2021. Anchor tenant ABR was $12.43 with small shop ABR hitting $32.12, 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 8.4% for comparable new and renewal leases. A key benefit of our concentrated and clustered portfolio is the intelligence and market data generated by our local underground operations team. This information allows us to move quickly and take action as it pertains to distressed tenants well ahead of any store closure announcements.

With that said, none of our Bed Bath & Beyond, Party City or Regal theater locations are currently targeted for closure, which we feel validates the strength and quality of our centers. In this environment, vacant 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 PGGM JV portfolio. These assets as well as the Stone Ridge property we acquired at the end of 2022 or all centers my team has been operating and leasing as if they were wholly owned for the past decade, allowing for a natural and seamless transition. There are several interesting leasing opportunities that we are currently working on to further drive growth at these centers.

Now I will turn the call over to DJ for some final remarks.

Daniel Joseph Busch

CEO, President & Director

Thanks, Christy. InvenTrust accomplished a lot in its first year as a publicly traded company, and we are even more excited for the future. InvenTrust thesis is simple, focused and provides a unique and specialized investment alternative for investors, an exclusive Sun Belt, predominantly grocer-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.

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