InvenTrust Properties Corp.

We will have a chance for a Q&A session on today's call. If you would like to pre-register a question, please press Start followed by 1 on your telephone keypads. I would now like to turn 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 joining us today. On the call from the InvenTrust team is D.J. 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, the lines will be open 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'll turn the call over to D.J.

Thanks, Dan, and good morning, everyone. I'm pleased to report another strong quarter for InvenTrust, one that reflects the consistency of our execution and strength of our strategy. Since our public listing four years ago, we've increased FFO per share by nearly 30%. That track record is a direct result of a deliberate and disciplined approach that has remained consistent. Our success stems from a proven playbook, maintaining high occupancy, embedding contractual rent escalators, attaining strong tenant retention, achieving healthy renewal spreads, and pursuing selective, accretive acquisitions. This quarter, those fundamentals once again delivered tangible results, as same property NOI grew over 6%. Rent spreads remained healthy, and leasing activity was positive across both anchors and small shops. We've built a scalable, high-performing platform that allows us to operate efficiently and grow strategically. Our hub and spoke operating model enables us to manage a broad network of top tier assets across Sunbelt markets with minimal incremental G&A impact. As we expand our portfolio, our structure provides both operating leverage and flexibility, positioning us to continue scaling efficiently while maintaining the hands-on oversight that defines our approach. Turning to the macro environment, we continue to see encouraging fundamentals in the Sunbelt consumer base. While national data presents a mixed picture, we view the region's underlying dynamics as a net positive. Census data shows retail sales are up year over year, and industry research points to sustained strength in suburban centers across the Sun Belt, where foot traffic and occupancy remain well above national averages. Higher momentum in major Sun Belt MSAs remains healthy, and CoStar recently noted that nine of the top 10 U.S. retail metros are in the Sun Belt. the same markets where we are most heavily concentrated. That said, we're not ignoring the data points that signal caution. Household debt levels are edging higher and consumer confidence has weakened. While sentiment has softened, day-to-day consumer behavior in our centers remains resilient, underscoring the essential nature of our tenants and the stability of our asset base. Another competitive advantage we see is the limited level of new open-air retail development. The economics for new strip center construction remains challenging, Rising cost title capital markets and restrictive zoning have kept new supply muted. Meanwhile, obsolete retail inventory continues to exit the market. Strategic capital deployment has been an important part of our success this year. During the quarter, we completed the full redeployment of proceeds from the sale of our California portfolio into higher growth Sunbelt markets, a rare and highly accretive rotation of capital. Two of our newest assets located in Asheville and Charlotte, North Carolina, which Christy will discuss shortly, are perfect examples of what we seek, strong grocer anchors, exceptional demographics, and embedded rent growth potential. In addition to these recent acquisitions, we've been awarded two properties totaling over $100 million. Our capital allocation strategy remains measured and disciplined. We continue to target opportunities that align with our strict return thresholds and enhance the overall quality of our assets. Roughly 70% of our portfolio is comprised of neighborhood and community centers, with the remaining balance consisting of power and lifestyle properties that share similar market dynamics and demographic profiles. This balanced approach provides diversification while maintaining focus on the formats where we have the greatest operational advantage. Looking ahead, strip center fundamentals appear to remain favorable, supported by low vacancies, limited to new development, and steady leasing demand. With a focused Sunbelt footprint, high-quality tenant base, and financial flexibility, we're confident in our ability to deliver solid total returns for our shareholders. With that, I'm going to turn it over to Mike to review our financial results.

Thanks, DJ, and good morning, everyone. Same property NOI for the quarter was $44.3 million, representing a 6.4% increase compared to the same period last year. The growth was driven by embedded rent escalations, which contributed 160 basis points, along with occupancy gains and positive rent spreads, each adding 100 basis points. Further contributions of 60 basis points from redevelopment activity, 60 basis points of percentage and ancillary rents, and a 220 basis point lift from net expense reimbursements. These gains were offset by a 60 basis point impact from the bad debt reserve. Year to date, same property NOI totaled $128.3 million, a 5.9% increase over the first nine months of 2024. For the third quarter, Navy Read FFO came in at $38.4 million, or $0.49 per diluted share, representing an 8.9% increase compared to the third quarter of last year. Core FFO also increased 6.8% to $0.47 per diluted share for the three months ending September 30th. Components of Core FFO growth per share for the quarter were primarily driven by same-priority NOI and net acquisition activity and partially offset by the impact of an increased share count. For the first nine months of the year neighborhood FFO was $111.1 million, or $1.42 per diluted share, reflecting a 6% year-over-year increase, while core FFO was $1.37 per diluted share, up 5.4% compared to 2024. Turning the balance sheet, we continue to strengthen our financial position during the quarter by executing on an extension of our existing term loans. This request moved the maturity dates on the two $200 million tranches to August 2030 and February 2031, increasing our weighted average maturity to 4.7 years. We entered into four starting interest rate swaps that locked in fixed rates of 4.5% and 4.58%, respectively, and will take effect upon the expiration of the in-place swaps in 2026 and 2027. As of September 30th, total liquidity stood at $571 million, including $71 million in cash and the full $500 million available under a revolving credit facility. Our weighted average interest rate is 3.98%, and our net leverage ratio is 24%. Net debt to adjusted EBITDA remained at a sector low four times on a trailing 12-month basis. With a long-term debt policy targeting a leverage range of five to six times, we have ample capacity to execute our capital plan while maintaining balance sheet strength. We also declared an annualized dividend of 95 cents per share. During the quarter, we completed four acquisitions totaling $250 million. These transactions were funded primarily with cash on hand and one secured mortgage that we assumed with the transaction. Turning to guidance, based on the year-to-date results and current visibility, we are raising our full-year same-property NOI growth guidance to a range of 4.75% to 5.25%, while reducing our bad debt reserve to 55 to 75 basis points of total revenue. We're also increasing the midpoint of our neighborhood FFO guidance to $1.87 per share and raising the low end of our core FFO guidance to a range of $1.80 to $1.83. As reflected in our guidance, we expect some deceleration in the fourth quarter, primarily due to property operating expenses being more backloaded in the fourth quarter and our remaining bad debt reserve. Finally, we have revised our net investment guidance from $100 million to a range of $49.6 million to $158.6 million. Further details on our guidance assumptions are available in our supplemental disclosure. And with that, I'll turn the call over to Christy to discuss our portfolio activity.

Thanks, Mike. Operationally, we continue to see strong tenant engagement and healthy leasing momentum across our portfolio. Our focus on necessity-based, convenience-oriented retail continues to pay dividends. Anchor tenants are renewing at solid rates, and small shop demand has been steady. Our proactive asset management approach emphasizes relationship building and real-time market awareness. By staying close to our tenants, we're able to anticipate needs, identify early renewal opportunities, and support them in ways that enhance retention and portfolio stability. The result is consistent occupancy and strong rent collections across the platform. We also continue to manage expenses effectively, supported by active oversight and strong vendor partnerships. At the same time, we are investing selectively in property enhancements that improve curb appeal, energy efficiency, and tenant and consumer experiences. These targeted upgrades help sustain the long-term competitiveness of our centers while supporting both rent growth and retention. A key area to highlight this quarter continues to be the consumer preference for dining out. Quick service restaurants and convenience-driven dining content remain a significant catalyst for retail demand. Restaurants, bars, and coffee shops represent a meaningful share of new leasing activity, reflecting the public's sustained appetite for experiential and on-the-go dining. These macro trends have translated into meaningful small shop demand. New leases for the third quarter achieved a 25.6% spread, while renewals averaged a 10.4%, producing a blended leasing spread of 11.5%. Notably, more than 90% of our renewal leases include annual rent escalators of 3% or more. These built-in mechanisms, while straightforward, are a powerful driver for sustainable NOI growth over time. Our retention rate year-to-date is 82%, reflecting the impact of a single anchor space at our Gateway property in St. Petersburg, Florida, which will be going through a transformational redevelopment. Excluding that space, our retention rate was 89%, consistent with previous quarters. On the tenant health side, our exposure to bankruptcies or at-risk tenants remains minimal, with a modest and actively monitored watch list. When an occasional vacancy does occur, our operations team is well positioned to mitigate downtime and secure high-quality replacements. At quarter end, total lease occupancy was 97.2%. Small shop leased occupancy maintained its portfolio high of 93.8%, and anchor space finished at 99.3%. Equally important for our cash flow visibility is that approximately 90% of 2026 leasing is already executed. As DJ mentioned, since our last call, we added two high-quality assets in North Carolina, Asheville Market in Asheville, anchored by Whole Foods, and Ray Farms in Charlotte, anchored by Harris-Peter. Ashville offers a strong healthcare and education foundation, a vibrant tourism economy, and population growth projected to exceed the national average over the next five years. Charlotte, one of the fastest growing large metros in the U.S., continues to see in-migration, job expansion in financial services and technology, and above average household income. These transactions demonstrate our acquisition strategy in action, investing in high growth markets and premier properties that fit our operating model. Looking ahead, we remain encouraged by the leasing pipeline as we move into the final quarter of the year. Renewal discussions are active, and small shop inquiries remain strong across the portfolio. With that, I'll turn the call back to the operator for Q&A.

Thank you. If you wish to ask a question, please press Start followed by 1 on your telephone keypads now. If for any reason you want to remove your question from the queue, please press Start followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Andrew Rill from Bank of America. Your line is now open. Please go ahead.

Hi, good morning, everyone. Thanks for taking my questions. DJ, I appreciate some of your comments at the beginning just on the Sunbelt consumer overall. And obviously, bad debt has been trending favorably recently. But I'd just be curious if you could talk a bit more about tenants and some of your more discretionary categories, including restaurants. And I know, you know, Christy, you mentioned that, you know, consumer preference for dining out remains strong. But obviously, there have been some negative headlines in recent months just around quick service restaurants and dining out. So I would just be curious to hear thoughts on some of those categories and how you're thinking about renewals if we do see a pullback on discretionary spend.

Yeah, Andrew, thanks so much. Good morning. To your point, I mean, I think from our perspective, and Christy said it in her prepared remarks, we still see a lot of demand from quick service, both fast casual and sit-down dining. I think in our portfolio, we're fortunate to where we can kind of go through on a tenant-by-tenant basis and kind of identify whether there's an overarching theme related to some of the tenant disruption or if it's really an operating issue. And in our case, it's mostly been the latter. There's certainly a tremendous amount more restaurants doing quite well in our portfolio versus the ones that we're seeing that are struggling. And there's a lot of different reasons for that, whether it's concept, operations, or whatnot. But generally speaking, we still see a lot of demand. We will have a couple restaurants turn over going into the end of this year, but we already have solid demand. And frankly, some of those have already been leased to another food use.

Okay, thank you. And if I could just ask a follow-up, I guess broadly just within the acquisition pipeline, what percentage is core grocery versus more power and lifestyle? And then just any color around the size of the pipeline and the latest on what you're seeing on pricing. Thank you.

Yeah, it's a good question. I think our pipeline still remains pretty robust. I would say at any given time, we're looking at over a billion dollars of assets. And to your point, It kind of runs across the spectrum of open-air retail. Obviously, most of the stuff we look at has some sort of grocery component or essential nature to the merchandise mix. The two assets that I alluded to and that Christy mentioned that we've been awarded both are grocery anchored as well, in some cases multiple grocers. But the mix that we look at is really just, you know, we're – you look at our pipeline and what you're what you should expect us to continue to transact on is very similar to the makeup of the current portfolio we really like the idea of having the predominant or the majority of our assets having that core grocery component whether it be a smaller neighborhood center or community center with grocery but we also do like having a small mix of power centers as long as they fit um our strategy and our markets that we truly believe in and we're working we're certainly looking at some of those um opportunities as well as uh some of the smaller lifestyle deals that you've seen us do in the past so you know as i mentioned over 70 percent has some sort of core grocery component and then we have a a small mix of of other open air assets that fit our strategy within our markets i think that that's a fair kind of mix within the portfolio that you can expect us to look at going forward.

Okay. Thanks very much.

Thank you. Thank you. Our next question comes from Linda Tsai from Jefferies. Your line is now open. Please go ahead.

Hi. With occupancy over 97%, how are you thinking about the trajectory over the next couple of quarters?

Yeah, good question. Good morning, Linda. You know, obviously we had a high watermark this quarter again in small shop. We do expect the small shop to decline a tad going into the end of the year and into the first quarter with a reacceleration in 26. And at some point, 26 hopefully hitting yet another high watermark. That just speaks to the demand that we're seeing on the small shop side, even with a small amount of fallout, which is nothing out of the ordinary. As a matter of fact, we don't expect to hit or exhaust our bad debt, as has been the case in the years past. And then on the anchor side, I think we have four anchor vacancies today. By the end of the year, I think we'll have five. Three of those are at a redevelopment opportunity in West Florida. So we've strategically kind of de-leased those spaces. with the expectation that we're going to do a redevelopment and a rebuild with a grocer. And then the other two, one is in Southern California. Obviously, our last asset there we're expecting to sell and another really good opportunity in Dallas. So it's always nice when you can fire off the amount of vacancies quickly. That just speaks to kind of the demand that we're seeing there. But there will be a little bit of cadence change going into the year, but we expect it to reaccelerate, like I said, at 26.

That's helpful. And then from where you sit today, how are you thinking about, you know, CapEx releasing in TIs in 26 versus 25?

yeah so um you know in 25 i think it's been a similar kind of spend we do have some redevelopment opportunities that are more about that are more value-add you know going in like i said you know some of these grocery opportunities we have a couple of those coming up those tend to you know those do cost a decent amount of money we get a tremendous amount of return out of those out of those uh opportunities um And I know we've spoke about this in the past. I think now that we have a lot of our anchor leasing and build-outs done, especially as we look into the mid-2026, our expectation is that our capex burden will come down just due to where the occupancy is in the portfolio, which just should lead to greater free cash flow as we look into 26 and beyond.

really helpful just one quick one for mike i think earlier um you mentioned that there are more back-end loaded expenses in 4q could you just give us some context there yeah just uh the last couple years we've had in in the fourth quarter um just our normal operating cycle we've had higher property operating expenses in the back half of the year uh this year that'll show up in in q4 and then on top of that our corporate expenses typically in q4 just tend to run a little bit higher.

Thank you. Thank you. Our next question comes from Cooper Clark from Wells Fargo. The line is now open. Please go ahead.

Great. Thanks for taking the question. Was curious if you could walk through the puts and takes as we think about the current net investment range with respect to the last California disposition and the acquisition pipeline. Just thinking about some of the moving pieces into the end of the year that get us to the high or the low end of the range from a timing perspective.

Yeah, no, no problem. And good morning. Basically, the reason we changed the range is we do have two deals that have been awarded to us, and it's going to be really close on whether they close in 2025 or not. So really, it's just a timing issue. The low end of the range is things that we've already transacted on. The high end of the range is things that we are hopeful that we can get across the finish line by uh before the end of the year but if not those will show up in early 2026. on the disposition side as you as you mentioned in california really that one we're expecting to sell uh probably early in 26 or at some point 26 we're just dealing with some administrative uh issues with with that asset um you know base uh around environmental But it's a great asset and, you know, the last asset in Southern California. And we do expect to transact on that one as well, but it probably won't be this year.

Okay, that's helpful. And then could you just talk about the confidence level to grow creatively from here on acquisitions as we move into 26? Appreciate the positive spread on the California dispositions year to date, but curious on growth from here as you shift towards funding acquisitions with balance sheet capacity?

Yeah, obviously, you know, we look at our, and it's a great point, we look at our different pockets, our sources of capital differently. Obviously, the California rotation gave us an opportunity that's unique. We were able to, from our perspective, upgrade the portfolio materially in markets where we've seen really good growth and that we're excited about. And we're able to do that on a positive spread in day one with even better growth over time. now obviously when we're looking at growing on our balance sheet that cost of capital is a little bit different and we uh we've already kind of made that that shift as we you know go through investment committee and we're looking for those new opportunities because it is important i mean at the end of the day this this platform is scalable but we got to do it in a responsible way we got to do it in a creative manner for our shareholders so that's kind of where we're at today so um you know you know that comes When we think about our overall transaction opportunity set, it really is, as a response I mentioned earlier, we're looking at a lot of different formats, a lot of different property types, and we can get to a creative cash flow in many different ways because of the opportunity sets that we see in our markets.

Great. Thank you.

Thank you. Our next question comes from Mike Mueller from JPMorgan. Your line is now open. Please go ahead.

Yeah, hi. First, when it comes to the remaining budgeted bad debt expense for the year, does most of what's being assumed for the fourth quarter fall into the, you know, it's visible or more into the it's still an assumption bucket?

Yeah, I think I can take that as Mike. I think it's a little bit of both. So in our forecast, you know, our range is 55 to 75 basis points right now. In our forecast, we have visibility probably into the bottom of that range at 55 basis points. And then to get the top of the range is kind of reserved for, you know, unforeseen fallout that might not be right in front of us.

Got it. OK. And then going back to occupancy for a second, the small shops are a little under 92% occupied. What do you see as being a ceiling for that metric? And do you think the current backdrop is one where you can ultimately get to it sometime over the next few years? And I understand the comment about near term. We may see a little drop off, though.

Yeah, Mike. You know, from what we see in the pipeline and the demand that we continue to see, I think we expect that we can continue to kind of march higher. Obviously, once you get into the mid-90s from an occupied standpoint, you're really only talking about frictional vacancy. And it's hard to push that further and further just because some space is just always going to be a little bit more structurally challenging to lease. We do have a full strategy around that, whether it be lower rents, percentage rent deals, giving tenants an opportunity to succeed in areas that have tried and vacant for quite some time, which is an issue across the industry. There's always space that's a little bit less desirable, no matter how high of quality your center is. So we'll continue to do that. But at the end of the day, you know, if we can hold occupancy where we're at and continue to get the escalators that we have been getting, and that continues to deliver real NOI growth on a year-over-year basis, and then we get our double-digit spreads that we've gotten eight quarters in a row on a renewal basis, all that with a very high retention rate, It's just a tremendous opportunity for us to accelerate free cash flow growth because we're not churning our tenants as much as we have in the past. Now, there will be churn. There always is at retail. But from when we look at, and I think I've heard some of our peers mention this on their calls as well, the quality of our tenant base is just so much, it's far superior than it has been in years past. The credit quality, the merchandising of our tenants, we just don't have the large tenants that specifically anchor tenants that are struggling right now. And whether that changes over the next couple of years, we'll see. But right now, we feel very confident in our anchors. We feel very confident in our national and regional small shops. And then obviously, the local flavor of our small shops have been doing phenomenal for quite some time.

Got it. Okay. Thank you.

Thank you. Our next question comes from Michael Gorman from BTIG. The line is now open. Please go ahead.

Yeah, thanks. Good morning. I just wanted to ask a question on the lease to economic occupancy spread. It can continue to compress in the quarter. And I'm just curious, given the strength of the leasing in the pipeline, strength of demand, the strong retention rate, Can that compress below the 2021 levels or where should we expect that to stabilize as you move into 2026 and beyond?

Yeah, Michael, it's a good question. You know, when we look at our, when we look at the spread, a lot of that just comes down to timing. And I kind of mentioned it, like, you know, depending on when we're signing new deals versus when we're expecting a tenant to vacate. And then obviously when we're expecting that tenant, the new tenant to take ownership or occupancy. So a lot of the spread comes down to timing. I think from our perspective, anywhere between 150 to 200 basis points is probably the normal run rate, and that's going to ebb and flow. The way we think about that spread is more just what's in the pipeline. We have $5 million in our side but not open pipeline. And we're expecting about 80% of that to be captured next year. So a substantial portion, you know, getting open and occupied and paying rent in the first quarter and then driving substantial, you know, new, you know, NOI in the next, in the upcoming year. But that spread will always kind of ebb and flow. But you're right, it did contract a little bit this quarter.

Great. That's that's helpful. And then DJ, you talked about some of the macro signals that you were looking at not seeing in your portfolio yet. One of the things that we've been trying to understand a little bit more is obviously the grocer sector continues to be pretty strong. But at the same time, you're seeing a climbing percentage of spend on eating out and take away food and QSRs and everything. How do you think about that balance going forward? Can both of those sectors continue to grow and be strong here? Or how does the consumer adapt if it continues to show some weakness and the economic environment continues to soften? How do those two balance out?

Yeah, it's a great question. And, you know, I don't have a great overarching answer, but I will tell you, within our portfolio, it's been interesting because we haven't seen those two categories, whether it be our grocers versus our quick service or eat away from home, as you said, being as substitutes. They've been more complements. We've had our restaurants across the different formats have continued to do uh quite well also our groceries have been doing you know very well uh some of that is inflationary driven certainly but our grocers continue you know to march forward i think it speaks to one the markets that we're in we've just seen a lot of in migration growth but kind of uh which uh rises uh you know the tide rises all boats in that case um and the types of grocers that we're dealing with obviously one of our top tenants publics i know you know in the southeast they're a formidable grocer a phenomenal operator uh you know atb in texas obviously kroger and albertsons are at the top you know at the top of our top 10 list as well so you know the types of grocers that we're dealing with um i think have been a you know more or less been investing in their stores uh we've been able to you know grow id sales And it's been an interesting dynamic over the past couple years where food at home and food away from home have been able to grow.

Great. Thanks for the time.

Thank you. Our next question comes from Paulina Rojas from Green Street. Your line is now open. Please go ahead. Good morning.

Looking at your recent acquisitions, I see that they have skewed towards secondary and tertiary markets. And I'm curious, would you be comfortable if tertiary sunbelt markets grew to represent a much really larger portion of your portfolio? And perhaps doubling their share. How do you think about that?

Yeah, it's a good question, Wally, and look, it's a good observation. I don't think we tend to not get caught up in, you know, gateway, secondary, primary, secondary, tertiary. I think the predominantly, you know, obviously the vast majority of our portfolio are in cities that we like to call 18-hour cities, obviously big CBDs, perhaps considered primary or secondary markets, but I mean, I would argue that Charlotte is one of the fastest-growing markets, albeit it has traditionally been called a secondary market. Certainly, the dynamics on the ground in a market like Charlotte are quite different. And what we've found is for our ability to grow our portfolio, I mentioned it in my prepared remarks, we really, really like the up-and-spoke model. So Charlotte is a core market for Inventrust. From that market, we can also invest in markets like Asheville, which has seen tremendous amount of migrations. It's gone from something that's been more of a secondary residence area to a primary residence area. Now, obviously, Asheville has its own tragedy, not too distant past, but we feel very confident that that market's going to rebound in a big way. Now, having said that, when you mentioned secondary and tertiary markets, the level of quality has to be higher. If we're going to be in that secondary market, we've got to make sure that we're going to own and operate the best asset in that market or the best asset in the market where certainly in larger gateway markets or primary markets, you certainly can own a lot more because there's certainly just a lot more population and density to accommodate that.

Do you think cap rates change if you go to markets that are less pursued by typical institutional investors, but where local trade area demographics are equally strong? Do you see a cap rate difference? Sure.

It all comes down to what's the risk-adjusted return that you're trying to get. And that's why I mentioned the quality is very important. You have to make sure that you're at the high end of the quality spectrum when you do go into a smaller market. I wouldn't call it a tertiary market. Certainly some of them are tertiary. We've tended to stay away from markets that are very thin in population unless there is green shoots of impressive growth coming in the future. But what we tend to look at, Paulina, is anywhere from, call it high fives to high sixes from an initial yield standpoint. And that tends to get us to our risk-adjusted returns that are comfortably in the sevens. I know people quote IRRs quite differently, but from the way we look at the world, we can make that accretive to our business. But certainly there are cap rate nuances, not only from market to market, but property type to property type, and depending on your merchandise mix.

Yeah, I guess what I was getting to is something that is more an opportunity, more in market inefficiency, because fewer investors are looking at those markets, and where perhaps the the return that you are able to get is not really explained by higher risk. And that it's really a function of that demand.

No, that could be the case. I mean, look, I think one of the interesting dynamics, you know, obviously our decision to move out, to exit out of California was a strategic one for EdTrust. It's a core market for almost every other private or public operator. And California trades differently than most of any other state or the markets in California trade differently than any other markets in the country. And to your point, it's because of the demand and the liquidity that it offers. Now, we're, as a public brief, as a perpetual vehicle, That's really not as important to us. What's important to us is to create sustainable free cash flow growth over a long period of time for our shareholders. And we can do that in other areas outside of California, which allows us to take advantage of, for lack of a better term, some sort of arbitrage.

Yeah. Okay.

Well, thank you. Very helpful.

Thanks, Pauline.

Thank you. Our next question comes from Cooper Clark from Wells Fargo. Your line is now open. Please go ahead.

Great. Thanks for taking the follow-up. You spoke to operating leverage in your prepared remarks, and margins look to be up about 100 basis points year over year. I was curious if this is mostly timing related, as you noted some backloaded expenses earlier on the call, and if you could provide color on the potential for farther upside to margins as additional occupancy comes online.

Yeah, so, like, obviously, you know, we get operating leverage as our occupancy climbs higher, as you mentioned. We do expect to continue to get, you know, marginal operating leverage as we continue to grow the portfolio. That's one of the best things about having the platform that we have is we can continue to scale it, and there should be real tangible benefits not only at the operating margin level but also at the EBITDA margin level. And that's just going to come as we continue to grow the asset base. The piece that you're probably alluding to this quarter is our recovery rates continue to get stronger as we continue to transition to a more fixed-scan model. Great. Thank you.

Thank you. Our next question comes from Hong Zhang from JP Morgan. The line is now open. Please go ahead.

Yeah. Hey, guys. I guess if I think about same-store growth, you've managed to sustain mid-single-digit same-store growth historically. But just reading in between the lines of your comments about occupancy, do you expect that to be sustainable going forward? Or do you think occupancy is going to be a little bit of a headline to same-store growth in the near term?

Thanks for the question. I wouldn't call it a headwind. This goes back to my comments on CapEx. As we move forward, obviously, you do get a decent amount of same-store growth out of occupancy gains, no doubt. But with those occupancy gains, as you're doing with leases, comes with real costs, especially in the retail business. So we look at it as an opportunity, even if our same store NOI growth would slow down from what's been a real nice run of, I think, 5% for several years running now. Even if that were to moderate a little bit, it would only be due to a higher retention rate across the portfolio. So we'd be doing more renewals. We'll get our embedded escalators, a little bit of redevelopment. And then with that should be stronger free cash flow growth.

Got it. Thank you. Thank you.

Thank you. We currently have no further questions. So I'll hand back to Mr. DJ Bush for closing remarks.

Thank you, everyone, for taking the time. Thank you for your interest in Inventrust. We're excited about finishing the end of the year strong, and we're even more optimistic as we move to 2026. Looking forward to seeing you guys at many of the conferences coming up later this winter and in the next year. Have a great day.

This concludes today's call. Thank you for joining us. You may now disconnect your lines.