InvenTrust Properties Corp. Q3 FY2024 earnings call

• Executed inaugural follow-on equity offering in September. - Increased capacity on unsecured credit facility by $150 million to $500 million and extended maturity to January 2029. - Closed on two properties in Phoenix MSA and Richmond, Virginia markets. - Leased occupancy climbed to 97% during the quarter, with blended spreads in the high single digits and a retention rate of 93%. - Total portfolio ABR increased 2.4% compared to 2023, with blended comparable leasing spreads of 9.8% for the quarter and 10.4% year-to-date.

For the third quarter, same-property NOI was $45.5 million, growing 6.5% over the third quarter of last year. Year-to-date, same-property NOI was $123.8 million, growing 4.2% over the first nine months of 2023. NAREIT FFO for the first nine months of the year was $91.8 million or $1.34 per diluted share, an increase of 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. 97% of the company's ABR is generated from Sun Belt assets.

• Raised full year 2024 same-property NOI growth guidance to 4.25% to 5%. - NAREIT FFO guidance now $1.74 to $1.77 per share. - Core FFO guidance up to $1.70 to $1.73 per share. - Increased net investment activity guidance for the year to a range of $159 million to $215 million.

• Reversal of interest rates could impact acquisition opportunities. - Election uncertainty may stall potential sellers. - Consumer pullback on discretionary spend could affect renewals in certain tenant categories.

Q: 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 also curious, in your view, has the election uncertainty stalled any potential sellers?

A: Yes. Our acquisition pipeline 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 of interest rates hasn't had really -- certainly didn't have an impact on what we're currently 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 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, the types of markets and the types of product that we're looking at, we've actually seen more products 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 made as it relates to our expectations.

Q: Bad debt overall been trending favorably, but would be curious if you could just talk a bit about your tenants and more discretionary categories, home goods, hobby, maybe full-service restaurants, too. Just curious on how sales and traffic are holding up? And how do you think about renewals in some of those categories if consumers continue to pull back on discretionary spend?

A: No, it's a great question. Anecdotally, to our portfolio, we haven't seen much of a change. There's -- 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, had -- 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 white linen 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 quite -- and is still one of the better performers in our portfolio. There's very healthy occupancy cost ratios across that category. And if there -- 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 that's second-generation restaurant space because it tends to be a lower capital going in.

Q: A few of your peers have started to put up some guardrails around 2025 same-store NOI growth. Do you have any interest in adding your early thoughts to that?

A: We noticed that, Dori. Thanks for the question. Look, one of the things that we tried to -- one of the things we've tried to do over the last couple of years is everything that the operations team and Christy's team has done is try to build a sustainable model where we can drive consistent growth both in same-property NOI, 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 -- or 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're seeing -- that we've seen in the last two years.

Q: With the current portfolio, where do you put that more normalized bad debt? Is that like closer to 75 basis points?

A: Yes. This 75 basis points is usually where we -- is kind of the starting benchmark and then obviously, we'll move that. Obviously, in our portfolio, we're not benefiting as much from like out-of-period adjustments or anything like that to offset it. But the bad debt, our reserve continues to prove to be conservative as with many of our peers. 75 basis points is always -- is kind of the -- is the best market that we tend to anchor to as we go into the year and then we'll adjust accordingly.

Q: Regarding your noncore assets, can you give us an update on where you see the aggregate value there? And if your definition of noncore has widened as your acquisition pipeline has grown?

A: Yes, it's a good question. I think one of the things that we've always talked about as being exclusively in the Sun Belt, right? So we do have two assets that sit in the mid-Atlantic corridor, just north of -- in Maryland. Those assets are phenomenal assets, one is anchored by Safeway, one is anchored by Trader Joe's. They'd only be noncore in the light of not being in the Sun Belt for InvenTrust, but certainly core properties for anyone 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 it -- 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 better, we'll accelerate those noncore 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 an accretive manner.

Q: The retail environment has been strong recently. Have you seen any changes to this environment? Or do you expect continuation of these same trends?

A: As far as -- what do you mean by -- Daniel, good morning. What do you mean by the retail market? Are you talking about the transaction market or the underlying fundamentals? The demand for space continues to be 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 we have -- and because of the level of occupancy we're at, we're actually filling spaces that we haven't filled in quite some time. So -- 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 demand in our small shop -- both in our small shop and in our anchor space, which is effectively fully occupied at this point.

Q: With [Indiscernible] going public at the beginning of this month, you had any interest in looking at convenience centers or any non-anchored centers?

A: Yes. So we do own a couple non-anchored what -- 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.