InvenTrust Properties Corp.

Thank you for standing by and welcome to Inventrust's third quarter 2024 earnings conference call. My name is Elliot 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 investor section of the company's website at inventrustproperties.com. If you would like to register a question during today's event, please press star one on your telephone keypad. Now I'd like to send the call over to Mr. Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and thank you for attending our call today. Joining me from the Inventrust team is DJ Bush, 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 the line 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, I will turn the call over to D.J.

Thank you, Dan, and good morning to everyone joining us today. 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. Mike will 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. Since listing the company in October of 21, Inventorist has executed on all fronts of its simple and focused strategy. The company has delivered above sector average same property NOI growth, above average FFO per share growth, acquired nearly $500 million of assets, including the consolidation of our only joint venture, resulting in the entire IBT portfolio being wholly owned, received an investment grade credit rating, and completed a private placement debt offering. As many of you may recall, the company did not raise equity at the time of the listing. Simply put, our estimated cost of equity through an IPO was not going to be optimally aligned with external growth opportunities. Therefore, we chose to be patient, self-undergrowth with our low-levered balance sheet, prove to the public market that our simple and focused strategy in the Sun Belt can deliver above sector average cash flow growth over a multi-year period, and wait for our cost of capital to improve. 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. The offering was extremely well received by both existing and new shareholders. In addition to the equity offering, following the end of the quarter, the company increased the capacity on its unsecured credit facility by $150 million to $500 million, while extending the maturity to January of 2029. Through the equity raise and the upsized facility, Inventor has effectively added nearly $400 million of additional liquidity, replenishing an already conservative balance sheet, and we're putting the fresh capital to work in an accretive manner. 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. Subsequent to the quarter, we closed on our second property in the Richmond, Virginia market, a Wegmans anchored community center for $62.1 million. Due to our increased optimism surrounding the improving transaction market, coupled with our additional capital, we have increased our net investment activity guidance for the year accordingly to a range of $159 million to $215 million. Moving to operations, less bad debt and higher retention rates are once again fueling better than expected results. Least 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. Blended spreads remained healthy in this high single digits with a retention rate of 93%. Strong operating results across the portfolio are driving the increase to both same property NY growth and FFO per share for 2024. Internal growth remains remarkably healthy and now will be supported by additional external growth efforts as we move from 2024 to 2025. With that, I'm going to turn the call over to Mike to discuss our financial results in greater detail.

Mike. Thank you, DJ. Same property NOI for the quarter was $45.5 million, growing 6.5% over the third quarter of last year. The quarter-day increases were primarily driven by an increase in base rent of over 300 basis points of which 150 basis points were embedded rent bumps. Net expense reimbursement contributed approximately 170 basis points to the increase for the quarter, with better collections from revenues deemed uncollectible, adding 150 basis points. Year-to-date, same property NOI was $123.8 million, growing 4.2% over the first nine months of 2023. Nay read FFO for the first nine months of the year was $91.8 million, or $1.34 per diluted share. It increases 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. Components of FFO growth are primarily driven by same property NOI of 7 cents and NOI from acquisitions of 6 cents, offset by interest expense, G&A, and lower interest income of approximately 6 cents. As DJ discussed, the successful capital raise strengthened and reloaded our balance sheet, providing us additional capital and flexibility to execute on our long-term strategy. Imitra's net leverage ratio dropped to 20%, and our net debt to adjusted EBITDA is 3.6 times on a trailing 12-month basis. Our $72.5 million in variable rate debt was paid off, bringing our weighted average interest rate to 4% at the end of the quarter and our weighted average maturity to 3.6 years. 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. Moving to guidance. Due to our strong operating fundamentals, we are raising our full-year guidance again this quarter. 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. 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.

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 markets. As a reminder, 97% of our ABR is generated from Sunbelt assets with the goal of getting to 100% in the future. 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. All of these conditions allow the Invent Trust team to remain focused on transforming retailer leasing demand into increased ABR and additional portfolio occupancy at our properties. 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. 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%. Our sign 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. As of September 30th, Inventrust's total portfolio ABR was $19.83, an increase of 2.4% compared to 2023. For the quarter, we posted blended comparable leasing spreads of 9.8%. Spreads for new leases were 14.2% and renewals were 9.2%. 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%. 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. Tenants signed during the quarter include ALTA and Skechers. Currently, our portfolio is nearly at 100% occupancy for anchor tenants, with only one available space being kept offline for redevelopment and retenanting 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. In closing, I would like to take an opportunity to update you on recent weather events. As many of you are aware, we have had several hurricanes and significant storms in the South over the past several weeks. Thankfully, all InvenTrust employees in the affected area made it through the storm safely. IVT 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. 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 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 locally. First question comes from Andrew Reel with Bank of America. Your line is open. Please go ahead.

Hi. Good morning, everyone. Thanks for taking our questions. Just one on the acquisition market 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 in your view, has the elected certainties solved any potential sellers?

Yeah, thanks, Andrew. Good morning. You know, 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 what we're currently, you know, 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. Going into this week or next with the election, it tends to, it traditionally has been more quiet. I would expect 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 product hit the market, but also more potential buyers as well, which to us is a pretty healthy environment, and I would expect that to continue in 2025, which is why you saw the changes that we've made as it relates to our expectations.

Okay, thanks. And just another one for 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 to 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?

No, it's a great question. Anecdotally to our portfolio, we haven't seen much of a change. I think sales certainly have stabilized from some pretty impressive growth over the last couple of years, no doubt. The value areas continue to do very well. Hobby, quite honestly, many of those banners have been looking to grow their footprints. And 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. lower price point, if you will, even if price points are higher, but we don't do a whole lot of, you know, wetland and tablecloth types of restaurants. So big, well-capitalized chain restaurants that are still doing quite well. Fast food, quick service continues to do really well 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, some chains, 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.

Okay. Thanks very much.

Thank you. We now turn to Dori Kasten with Wells Fargo. Your line is open. Please go ahead.

Thanks. Good morning. A few of your peers have started to put up some guardrails around 25 things toward NOI growth. Do you have any interest in adding your early thoughts to that?

We noticed that, Dori. Thanks for the question. Look, you know, one of the things that we've tried to do over the last couple years is Everything that the operations team and Chrissy's team has done is tried to build a sustainable model where we can drive consistent growth, both in the same property and OI, but most importantly, cash flow. And we think we're at a really nice level. So what I will tell you is we have nearly 70% of our leasing efforts done next year, 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.

So with the current portfolio, where do you put that more normalized bad debt? Is that closer to 75 basis points?

yeah the 75 basis points is usually where we you know it's kind of the starting benchmark and then obviously we'll move that um you know obviously you know in our portfolio we're not benefiting as much from like out of period adjustments or anything like that to offset it but to you know the the bad debt uh our reserve continues to approve to be conservative as with many of our peers 75 is the benchmark that we tend to anchor to as we go into the year and then we adjust accordingly.

Okay. And then regarding your non-core assets, can you give us an update on where you see the aggregate value there and if your definition of non-core has widened as your acquisition pipeline has grown?

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 Sun Belt, 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. they'd only be non-core in the light of not being in the Sunbelt for InvenTrust, but certainly core properties for anybody else. But we're not for sellers either. What we're going to be looking to do over the next couple of years is to methodically recycle capital when we feel like the time is right and we have a use for that capital. And if there are more opportunities in markets that fit the InvenTrust mold better will accelerate those non-core asset recycling. As it relates to being wider, one of the things that 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 and presence. So it just depends on where we can reallocate that capital in a creative manner.

Thank you.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad now. We now turn to Daniel Perpera with Green Street. Your line is open. Please go ahead.

Good morning. The retail environment has been strong recently. have you seen any changes to this environment or do you expect a continuation of these same trends?

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?

The underlying fundamentals, demand for space, things like that.

Yeah. Yeah. No. So the demand for space continues to be, you know, very, you know, Very robust. I mean, look, we're at an all-time high as it relates to leased occupancy at 97%. Behind that 97%, we have an additional 100-plus basis points of things that are in the works now. Not everything is going to obviously show up in occupancy. Some deals do fall in and out. But there's a lot of demand even behind the current occupancy levels, which is something that we haven't had in the past. And because of the level of occupancy we're at, we're actually filling spaces that we haven't filled in quite some time. And it's broad based across categories. 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 the change in inflation. But health care continues to be strong, 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 effectively fully occupied at this point.

And then if I could ask one more. With a curb line going public at the beginning of this month, you had any interest in looking at convenience centers or any non-anchored centers?

Yeah, so we do own a couple non-anchored, or I guess what you guys would consider 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 get a foothold in as well. But if you look across, if you look at our portfolio, we own small unanchored community centers all the way up to some power centers. And it just depends on what market and what retail node they're in. And we've been able to be successful in growing rents in all formats.

Got it, thank you.

We have no further questions, so I'll now hand back to DJ Bush for any final remarks.

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.

Ladies and gentlemen, today's call is now concluded. Thank you for your participation. You may now disconnect your lines.