Yahoo Finance InvenTrust Properties Corp. (NYSE:IVT) Q1 2024 Earnings Call Transcript
InvenTrust Properties Corp. (NYSE:IVT) Q1 2024 Earnings Call Transcript May 1, 2024
InvenTrust Properties Corp. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by, and welcome to InvenTrust First Quarter 2024 Earnings Conference Call. My name is Harry, 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 would now like to turn the call over to Mr. Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir.
Dan Lombardo: Thank you, operator. Good morning, everyone and thank you for your attendance on today’s call. Joining me from the InvenTrust team 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 the 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, I will turn the call over to DJ.
DJ Busch: Thanks, Dan and thank you to everyone joining us this morning. Today, I’ll start with some brief commentary on our first quarter results, the overall operating environment and how InvenTrust continues to be positioned to grow sustainable cash flow long-term. Mike will discuss our financial results and provide color around our updated 2024 guidance, and Christy will conclude with additional commentary regarding the leasing and operating landscape. 2024 is off to a solid start following an excellent 2023, where operating fundamentals in the open-air retail sector continue to benefit from the supply and demand dynamics, not seen in several real estate cycles in our property type. We have discussed on previous updates, the tenant demand continues to remain very robust for all of our properties.
Some of that demand is due to the nature of the necessity-based property type that has not only withstood but validated the importance of our offerings to the communities in which we serve. The balance of the demand we at InvenTrust are specifically experiencing is due to the markets in which we operate. As we have said since becoming a public company, we expect the concentration we’ve aggregated within the portfolio that is major cities in some markets should outpace the national average from a market rent growth perspective. And we believe that our past performance, but equally as important, our future expectations will continue to prove out that thesis. Our simple and focused strategy to own and operate essential open-air retail centers exclusively in the Sun Belt region of the U.S. is playing out.
And our straightforward and low levered capital structure will allow us to continue to deploy capital in an appropriate manner, if and when, we can do so in an accretive way for our shareholders. Leasing activity continues to meet or exceed expectations. Our leased occupancy rate finished the quarter at 96.3%, both up slightly sequentially and on a year-over-year basis, all while delivering double-digit blended leasing spreads. Importantly, we are retaining high-quality tenants across the portfolio, negotiating rates that are favorable for our tenants’ continued success, but with better annual escalations, specifically for small shop tenants with minimal cash outlay. Certainly, we are retaining the proven tenants that are integral to the merchandise mix of our centers, while preserving capital, which will drive higher free cash flow for the portfolio into the future.
Small Shop leasing continues to be strong. And while we saw more normal first quarter of arbitration, lease small shop occupancy remained above 92%. We continue to replace underperforming tenants and bring in higher credit and quality operators that will better serve their community constituents. Christy will provide a little more detail in our leasing activity in a few minutes. But to finish on the operating environment, I felt it’s important to highlight how underappreciated the lack of new institutional quality supply exists in open-air retail. Cannot be understated how few development starts are materializing. What this means is that given the lead time from start to stabilization in retail real estate is that landlord should benefit for the next few years before supply, if ever begins to emerge in a material way in our sector.
Coupled out with the demand drivers in the Sun Belt, InvenTrust feels uniquely positioned to appropriately take advantage of this imbalance. On the capital allocation front, the opportunity set of new deals has improved, but we remain selective in deploying capital, heating to our cost of capital, ensuring that we are growing in an appropriately accretive manner. Obviously, the capital market environment has been frustratingly volatile. As much as we would like to accelerate our external growth to complement our internal operations, we will continue to be prudent in our approach. Our balance sheet remains one of the lowest levered in the sector, which allows us to be patient, yet opportunistic and we keep a robust pipeline to be at the ready when the markets open up to our favor.
As discussed on last quarter’s call, we secured our first acquisition in the Phoenix market in the first quarter of 2024. And we also had another property subsequent to the quarter in the Upper West Side of Atlanta. Moores Mill is a neighborhood Publix-anchored center that boasts powerful grocery sales, growth-oriented supporting tenants and is situated on a generational piece of infill real estate. With that, I’m going to turn the call over to Mike to discuss our financial results. Mike?
Mike Phillips: Thank you, DJ, and good morning, everyone. I will start with our results for the quarter, then discuss our balance sheet position and end with an update to our 2024 full year guidance. InvenTrust reported strong same property NOI of $41.5 million, an increase of 4.1% over the same time period last year. The increase was driven by growth from base rent, including 170 basis points from embedded rent bumps and net expense reimbursements of 280 basis points. NAREIT FFO for the quarter was $30.8 million or $0.45 per diluted share for the 3 months ending March 31, 2024, an increase of 9.8% over last year. For the quarter, core FFO grew 10% to $0.44 per share compared to the same time period in 2023. Components of FFO growth for the quarter are primarily driven by same-property NOI and NOI from acquisitions.
As DJ mentioned earlier, our balance sheet remains strong and provides us the ability to remain flexible as we navigate a challenging capital markets environment. We finished the first quarter with $421 million of total liquidity, including a full $350 million of borrowing capacity available on our revolving line of credit. Our net leverage ratio was 28%. Our net debt to adjusted EBITDA is 5.1x on a trailing 12-month basis. Our weighted average interest rate ended the quarter at 4.3% with a weighted average maturity of 3.7 years. Our debt maturities are manageable, and we are comfortable with the limited amount maturing over the next 2 years. We will continue to observe markets as we evaluate our options for the $72 million pool of loan that matures in November.
And as a reminder, we do have a 1-year extension option. Finally, we declared an annualized dividend payment of $0.91 per share, a 5% increase over last year. I will conclude my remarks by updating InvenTrust 2024 guidance. With our strong start to 2024, we are raising our same-property NOI growth guidance by 50 basis points at the midpoint which is now expected to be in the range of 2.75% to 3.75%. We’re increasing NAREIT FFO to $1.71 to $1.77 per share, and finally, we are moving core FFO guidance up to $1.67 to $1.71 per share. Our bad debt reserve will remain at 50 to 100 basis points of total revenue, and our net investment activity for the year remains unchanged at $75 million. Finally, as we mentioned last quarter, we continue to anticipate a headwind in the second quarter due to the impact of the bankruptcies of Bed Bath & Beyond and Christmas tree shops that took place in 2023, and NOI growth should reaccelerate after the second quarter.
Our full year 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. As DJ mentioned, demand continues to be strong and is coming equally from local, regional and national tenants looking to expand their footprint. On the tenant side, store openings outpaced closings in 2023 by 2:1, and that trend is continuing into 2024. Given the favorable demand dynamics in the strip center space, we are committed to adding to our organic growth profile by securing annual contractual rent bumps and converting tenants to fixed CAM, both key factors to achieving stable long-term cash flow. Turning to our operating results. We started 2024 by signing 41 leases for over 180,000 square feet with additional leases in our pipeline at various stages of negotiation. We executed leases with tenants such as 7 Brew, Sephora and Cavender’s, which backfills at Bed Bath & Beyond space.
We have one remaining Bed Bath & Beyond space with the replacement tenant identified and lease negotiations underway. Our total portfolio lease occupancy ended the quarter at an all-time high of 96.3%, up 10 basis points from last quarter. Our anchor space leased occupancy finished at 98.6%, an increase of 40 basis points from last quarter and our small shop leased occupancy ended the quarter at 92.1%. As of March 31, InvenTrust total portfolio ABR is $19.61, an increase of 2.6% compared to the first quarter of 2023. For the quarter, we posted blended comparable leasing spreads of 11.2%, and spreads for new leases were 24.3% with renewals at 9.4% for the quarter. Our retention rate remains at 90% as we continue to see tenants renew their existing leases at meaningful increases.
Our signed, not open, pipeline remains at 290 basis points as of the first quarter, representing nearly $8 million of annual base rent with 75% expected to come online at some point this year. In closing, leasing demand has never been stronger. Our portfolio has and continues to prove its resiliency and ability to drive results. Operator, that concludes our prepared remarks, and you can open the line for questions.
See also
15 Best Places to Retire in Mississippi and
Top 12 Alternatives to Edward Jones.
To continue reading the Q&A session, please click here.
