InvenTrust Properties Corp. Q2 FY2025 earnings call

We're pleased to report solid operating results. Same property NOI grew ~6% in H1 and Nareit FFO per share rose nearly 5% Y/Y. Leased Occupancy was 97.3% and Small Shop Occupancy was 93.8%. Raised same-property NOI growth expectations for the year to 4%-5%. Completed sale of a 5-property California portfolio for ~$306 million, with plan to sell remaining San Pedro property by year-end. Redeployed proceeds into high-growth Sunbelt markets, having closed on 6 properties totaling ~$230 million and secured/under contract for another 2 properties worth nearly $126 million. Actively targeting investment opportunities in Asheville, Charleston, etc. Operationally, driving rent growth via embedded lease escalations, optimizing Small Shop occupancy, and activating signed but not open leases. Signed new Trader Joe's at Shops at Galleria in Austin and Crunch Fitness at Skolfield Crossing in Austin

For the first half of the year, same property NOI grew approximately 6% and Nareit FFO per share rose nearly 5% year-over-year. The second quarter same-property NOI was $42.6 million, representing a 4.8% increase compared to the same period last year. Year-to-date, same-property NOI totaled $85.1 million, a 5.6% increase over the first 6 months of 2024. Nareit FFO for the second quarter was $35.5 million or $0.45 per diluted share, representing a 2.3% increase compared to the second quarter of last year. Core FFO also increased 2.3%, to $0.44 per diluted share for the 3 months ending June 30. For the first half of the year, Nareit FFO was $72.6 million or $0.93 per diluted share, reflecting a 4.5% year-over-year increase. Core FFO for the first 6 months of 2025 was $0.90 per diluted share, up 3.4% compared to the prior year. Leased Occupancy stood at 97.3% near an all-time record, while Small Shop Occupancy reached 93.8%

Raised full year same property NOI growth guidance to 4%-5% and adjusted bad debt reserve to 65-85 basis points of total revenue. Maintained Nareit FFO and Core FFO guidance, and net investment guidance remains at $100 million. Net investment activity will be more back-end loaded for the year due to the positive outcome and speed of the California portfolio transaction

• Consumer confidence不足 and stubborn inflationary pressures • Tenant bankruptcies risk • Transaction market uncertainty • Debt maturity refinancing risk

Q: Given acquisition activity is more back-end loaded than you initially expected. Does that mean you would have raised guidance if you had the acquisition activity happened during the time period you initially expected?

A: Linda, it's a great question. I think the short answer is you would have seen probably a similar movement in our expectations relative to the internal operations. I think that's a fair assessment, especially when you're moving the amount of I guess, proceeds that we are. I mean, if you think about our California portfolio, it's roughly 10%, maybe a little bit more of NOI. So to do that in 1 year, and match fund it perfectly, nothing is really perfect in the transaction market. And the transaction market this year in the spring was a little bit slower than what we anticipated. So we're being a little bit more selective. And we are seeing that speed up, I think as many of our peers have mentioned, in the back half of this year, which gives us a lot of optimism as we finish '25 strongly and then move into '26.

Q: What was the same-store growth profile of the California assets you sold?

A: It's a good question. Without getting into the underwriting of those assets, obviously, what we were expecting -- I think the way I would frame it is the growth profile that we were going to expect for the next couple of years in California was not going to be as favorable as what we've been seeing and experiencing in our portfolio in the Southeast. There's a lot of reasons for that. Obviously, demographic trends, migration, business-friendly environments, all those things have continue to draw us towards the Carolinas, towards Florida, towards -- in some select areas in Texas. And we see the unlevered risk-adjusted returns in those markets just to be more favorable what we were experiencing in California.

Q: Given what you're saying, does that mean the 4% to 5% same-store growth that you expect for this year becomes more sustainable as you look to next year, though I know you're not giving guidance?

A: That's a good question. I think what I would say is what we used to think 3% to 4% is a very strong year on an internal growth basis. We've been surprised to how sticky it's been north of 4%. I think that's building in higher escalators. Obviously, our occupancy is near an all-time high, getting close to frictional vacancy, if we're not already there. I think we continue to surprise ourselves on getting higher watermarks, and we still do have some nice visibility as it relates to occupancy gains in our Small Shop for the next couple of years, notwithstanding any material change in the economy that would suggest a Small Shop fallout. But that 4% does seem like a sustainable number or it has been for the last couple of years.

Q: It seems like the level of competition for core grocery-anchored centers has just become so strong this year. Just curious if you're seeing any decline in the number of accretive core grocery opportunities available to you? And then I guess could we maybe see you target more unanchored or shadow-anchored opportunities versus core?

A: Andrew, good morning. All really good questions. So I'll walk you through. I do think on balance, and I think you've seen it from some of our peers' commentary as well and their transaction activity that there is a lot of institutional interest, both public and private to grow the grocery-anchored parts of their portfolio. So the competition is there. I think the reason that we were so excited about the opportunity to rotate out of Southern California, which is obviously a core market for almost everyone. Certainly, on the -- certainly it gets a tremendous amount of private interest as well because of the financing options that you do have in such a liquid market. But our ability to take those proceeds and redeploy that cost of capital is probably as good as we can get, right? So we were able to be appropriately competitive on assets that we really, really liked at cap rates that would probably otherwise not be available to us. And not only were we able to do it day 1 accretive, but the growth profiles on the assets that we're acquiring are more compelling.

Q: Okay. That makes a lot of sense. And then now Small Shop, almost 94% leased, new high watermark there. What's a realistic ceiling in terms of where that can go from here?

A: It's hard to say. Obviously, not every center was built to perfection when developed. There's always areas of the center that are a little bit more challenging to lease, and that's even in the A+ types of centers. But we do have a process and operational strategy to lease some of those areas that -- perhaps the market rent in those locations is much -- is materially lower than in the center of the shopping center per se. But based on what we see today, we have direct visibility and, call it, another 100 basis points. Obviously, that could be offset by any tenant fallout or bad debt expense that we're taking. But based in our pipeline outside of executed leases, so you think of LOI and legal stages, there's another 100 basis points of runway, and we think that there could be a little bit more after that as well, so long as the Small Shop health stays as strong as it has.

Q: Can you provide some color on the current acquisition pipeline in terms of size and pricing and the confidence level on hitting the $100 million net acquisition guide from here?

A: Yes, no doubt. So what I would say is we've -- our acquisition pipeline, give or take, always has about $1 billion of real opportunities in it, and that will flex up and down a tad, but we tend to try and be canvassing that amount. Obviously, our level of success on closing on everything has been pretty good. We have looked at opportunities this year that we weren't successful in acquiring, which is fine. We just couldn't get to the final pricing. But as we sit here today and obviously, as we reiterate our Core FFO guidance, we feel very confident that we're going to get to that $100 million. And if there are more opportunities, which it feels like a lot more opportunities are going to unlock and have already unlocked following the holiday, we think we can surpass that if those opportunities do come to fruition. And we have, obviously, plenty of capacity to do that.

Q: Great. And then as a follow-up there, just trying to figure out kind of what assumptions you need to get to the low end of the FFO range and if the low end assumes any further transaction activity throughout the rest of the year?

A: It's a good question, and I think you're thinking about it the right way. If activity kind of froze as we sit here today, that put us probably closer to the low end of guidance. And then on the flip side, if we're able to bring a couple of deals forward or timing is a little bit better or a little bit more on our side, you could see us float to maybe the higher end of our range. So really -- at this point in the year, it really is mostly dependent on timing of that net transaction activity.