InvenTrust Properties : 2023 Q1 Transcript

InvenTrust Properties

Corp. NYSE:IVT

Earnings Call

Friday, April 28, 2023 3:00 PM GMT

CALL PARTICIPANTS	2
PRESENTATION	3
QUESTION AND ANSWER	7

INVENTRUST PROPERTIES CORP. FQ1 2023 EARNINGS CALL APR 28, 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

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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Copyright © 2014, S&P Capital IQ, a part of McGraw Hill Financial.

INVENTRUST PROPERTIES CORP. FQ1 2023 EARNINGS CALL APR 28, 2023

Presentation

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Operator

Thank you for standing by, and welcome to InvenTrust First Quarter 2023 Earnings Conference Call. My name is Emily, and I'll be your conference call operator today.

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

I would 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 today. In the room with me is D.J. Busch, President and Chief Executive Officer; Mike Phillips, Chief Financial Officer; Christy David, Chief Operating Officer; and David Heimberger, Chief Investment Officer. Following the team's prepared remarks, we will open up lines for questions.

As a reminder, some of today's comments may contain forward-looking statements about the company's views on the future of our business and financial performance, including forward-looking earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call or that are in the quarterly financial supplemental or press release.

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

With that, 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. InvenTrust opened 2023 with another strong quarter of operating results. In the face of some economic uncertainty and a challenging capital markets backdrop, our Sun Belt grocery and necessity-based portfolio continue to perform well. We maintained our record-high occupancy rate of 96.1% for the second quarter in a row, and our same- property net operating income grew at 3.2% over the first quarter of 2022. Both our NAREIT and core FFO grew sequentially by over 17% compared to fourth quarter of 2022. Our results are a testament to the dependability, consistency and strength of our portfolio and markets.

Necessity-based retail continues to show signs of strength and has proven to perform well during challenging economic times, despite persistent inflation. The InvenTrust portfolio consists of high- quality essential retail tenants, with approximately 60% of our ABR coming from either grocery, discount or necessity-based retailers. Fine-tuning our merchandise mix across our properties to serve each of communities' needs accordingly has been and will continue to be a pretty component of our long-term strategy and ultimate success.

A notable tailwind in this space is the continued lack of new retail supply. Development for new strip center properties has been well below historical averages for the better part of a decade, and we expect this trend to continue as inflated construction costs and elongated delivery times persist. Lack of premier space factors into the demand and the pricing power we are currently experiencing at the time of lease negotiation and renewals.

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Copyright © 2014, S&P Capital IQ, a part of McGraw Hill Financial.

INVENTRUST PROPERTIES CORP. FQ1 2023 EARNINGS CALL APR 28, 2023

Next, retailers, particularly grocers, continue to evolve and extract value out of their local brick-and- mortar locations. In our portfolio, we continue to see the expansion of our online order execution and fulfillment directly from our store locations.

Additionally, and arguably the most important and unique attribute of our portfolio, is the continued benefit from the well-documented migration to the Sun Belt. 95% of InvenTrust's NOI comes from Sun Belt markets. Demographics in our markets continue to grow, and we expect these market dynamics will create advantages to our portfolio and performance for the years to come.

A secondary point regarding migration is the suburbanization movement accelerated by the hybrid work model that is seemingly the new normal. Clearly, the structural shift places consumers closer to our centers for longer periods during traditional working hours, bringing additional activity and intern demand to our properties.

Our simple and focused portfolio is well-positioned to produce strong sector-leading internal growth. And with our balance sheet capacity, we have the ability to grow through acquisitions without the immediate need for external funding should capital markets remain influx. This gives us flexibility to capture acquisition opportunities as they present themselves.

On the acquisition front, as we discussed last quarter, we started the year by executing on the roughly $100 million purchase of the remaining stake in our joint venture. This transaction has been a part of our investment strategy since entering the public market.

In terms of private market transactions, with lower deal volume and the attractiveness of the Sun Belt, competition for quality centers remains high, and we will continue to remain disciplined and patient in our capital allocation plan.

Before I turn it over to Mike Phillips, I want to reiterate that we have started the year in an outstanding position and believe we are set to produce impressive sector-leading internal growth in 2023. Delivering at a high level within a competitive space is a testament to how this team and this portfolio will continue to create value for our shareholders.

Mike will now walk everyone through our financials and guidance for the quarter. Mike?

Michael Douglas Phillips

Executive VP, CFO & Treasurer

Thanks, DJ. InvenTrust started 2023 on a positive note. First quarter same-property NOI finished at $35.8 million, growing 3.2% over the first quarter of last year. The increase was primarily driven by contractual rent increases, occupancy gains and rent spreads.

We reported first quarter NAREIT FFO of $28 million, or $0.41 per share, and core FFO of $27.4 million, or $0.40 per share. This anticipated decline over the first quarter of 2022 is primarily due to higher interest rate expenses and our strategic exit from Colorado in 2022. As DJ mentioned, on a sequential basis, both our FFO results increased over 17% as compared to fourth quarter of 2022.

Moving to the balance sheet. As of March 31, our net leverage ratio is 28%, and net debt to adjusted EBITDA is 5.5x on a trailing 12-month basis. Our weighted average interest rate is 4%, with a weighted average maturity of 4.6 years. And when contemplating extension options available to us, we only have $16 million of maturities through 2024, 2% of our debt stack. At quarter end, we had approximately $436 million of total liquidity, including the full $350 million of borrowing capacity available on our revolving line of credit.

Effective April 3, we were able to swap $100 million of floating rate debt on a portion of one of our term loans to a fixed rate of 3.69%, with an all-in rate of 4.99%. This further reduced our exposure to a volatile interest rate environment. And with the swap in place, our fixed-rate debt now totals 98%. Finally, we declared a dividend payment for the second quarter of $0.215 per share, which is a 5% increase over last year.

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Copyright © 2014, S&P Capital IQ, a part of McGraw Hill Financial.

INVENTRUST PROPERTIES CORP. FQ1 2023 EARNINGS CALL APR 28, 2023

Turning to guidance. We are reaffirming our 2023 core FFO guidance of $1.59 to $1.64 per share as well as our NAREIT FFO guidance of $1.64 to $1.69 per share. We are also reaffirming our 2023 same-property NOI guidance of 3.5% to 5%. These ranges have the same 50 to 150 basis points of bad debt that we provided in our call last quarter. The bankruptcy scenarios and potential disruption of rent collection from struggling businesses is playing out how we anticipated in our initial forecast, which gives us the confidence to reaffirm our guidance.

And one final note. As discussed in our previous call and as implied in our guidance, we expect our growth to accelerate throughout the second half of the year. 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. InvenTrust continues to experience strong leasing momentum. We are observing demand across the board from both national anchor tenants and local businesses looking to expand their footprints. Demand is also broad-based from a full array of retail categories, such as fast casual restaurants, wellness and beauty tenants and discount retailers.

Lack of new supply has made premier, well-located retail space more valuable. This dynamic is allowing landlords, like InvenTrust, to push rents and fill vacancy across their portfolios. Separately, despite the potential headwinds around struggling businesses like Bed Bath & Beyond, Party City, David's Bridal and Tuesday Morning, there is a bit of a silver lining if space becomes available.

For example, in the past, Bed Bath was a brand-name tenant. And for the most part, their stores were located in prime locations at high-quality centers. These boxes are attractive to a variety of tenants, which reduces marketing time to fill the vacancy.

We have already had constructive conversations with a variety of tenants for every one of our 5 Bed Bath locations. We continue to believe our market-dominant essential retail centers are exactly where retailers want to be, and they are waiting anxiously for this space to become available.

Despite some long telegraph bankruptcies, there are multiple retail concepts with announced store openings. Along with retail categories mentioned earlier, our team is also seeing demand for medical users. Medical tenants have been active, and we are excited to include them in our centers.

From a tenant mix perspective, medical complements our fitness and wellness operators. And with our occupancy rate at an all-time high, their willingness to take traditionally hard-to-lease space matches the vacancy we currently have available.

Retail is and always will be an evolution of concepts and new ideas. Regardless of all of the negative headlines, we are not seeing softening of retail fundamentals, but a more return to normal retail environment, where some tenants may fail.

Names on the marquess may change over time, but that is what keeps our properties fresh and vibrant. This is a normal retail cycle. This environment allows the InvenTrust team to focus on ensuring our properties have an attractive tenant mix, with tenants that are going to drive traffic and improve the financial performance of our centers.

Let me conclude my remarks by reviewing our leasing results for the quarter. We leased 254,000 square feet of space during the quarter, with a multitude of additional leasing activity at various stages in the process. We ended the quarter at 96.1% leased occupancy, which is a 170-basis-point increase over the first quarter of 2022.

Our anchor space lease occupancy increased to 98.8% and our small shop increased to 91.4%, both all- time highs. As of March 31, InvenTrust same-property portfolio ABR was $19.12, an increase of 2.6% compared to March 31, 2022.

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Copyright © 2014, S&P Capital IQ, a part of McGraw Hill Financial.