Business Context and Reporting Period
This Form 8-K, filed on November 1, 2019, by InvenTrust Properties Corp. (a Maryland REIT), discloses financial statements and pro forma information regarding three real estate acquisitions completed in 2019. The filing satisfies SEC Rule 3-14 requirements for audited statements of revenues and operating expenses for the acquired properties and presents unaudited pro forma consolidated financial information as if the acquisitions occurred on January 1, 2018, and June 30, 2019.
- Lakeside Winter Park & Lakeside Crossing: Acquired March 20, 2019, for $63.5 million.
- Southern Palm: Acquired July 11, 2019, for $96.75 million.
- Eldorado Marketplace: Acquired September 13, 2019, for $70.85 million.
Key Financial Metrics
Acquired Property Operating Results (Year Ended Dec 31, 2018)
| Property | Total Revenues ($000s) | Total Operating Expenses ($000s) | Net Operating Income ($000s) | NOI Margin |
|---|---|---|---|---|
| Lakeside | 4,218 | 953 | 3,265 | 77.4% |
| Southern Palm | 7,319 | 2,481 | 4,838 | 66.1% |
| Eldorado Marketplace | 5,037 | 1,988 | 3,049 | 60.5% |
Pro Forma Consolidated Impact (Year Ended Dec 31, 2018)
The pro forma statement reflects the inclusion of the acquired properties' historical results adjusted for straight-line rent, amortization of intangibles, and interest on debt used to fund the acquisitions.
- Pro Forma Total Income: $259.4 million (vs. $242.7 million historical).
- Pro Forma Net Income: $83.2 million (vs. $83.8 million historical).
- Pro Forma EPS (Basic & Diluted): $0.11 (unchanged from historical).
- Pro Forma Debt (as of June 30, 2019): $596.8 million (includes $48 million drawdown on line of credit).
- Pro Forma Cash (as of June 30, 2019): $26.9 million.
Material Changes and Acquisitions
The primary material change is the expansion of the Company's portfolio through the acquisition of three properties totaling approximately $231.1 million in purchase price. The acquisitions were funded through a combination of cash on hand and a $48 million drawdown on the Company's line of credit.
- Portfolio Expansion: Added 608,200 square feet of gross leasable area (GLA).
- Occupancy: As of June 30, 2019, Southern Palm was 93.5% occupied and Eldorado Marketplace was 91.9% occupied. Lakeside occupancy data for the acquisition date was not explicitly stated in the summary tables but the property was acquired as a neighborhood center.
- Pro Forma Adjustments: The pro forma results include additional depreciation and amortization of $10.4 million for the full year 2018 and $4.4 million for the six months ended June 30, 2019, related to the new assets.
Outlook, Risks, and Contingencies
Management states that the pro forma financial statements are for informational purposes only and do not represent actual results had the acquisitions occurred on the specified dates, nor do they project future results.
- Tenant Concentration:
- Lakeside: Top 4 tenants accounted for 14%, 12%, 11%, and 10% of rental income.
- Southern Palm: Top 3 tenants accounted for 24%, 15%, and 7% of rental income.
- Eldorado: Top 3 tenants accounted for 22%, 7%, and 6% of rental income.
- Lease Terms: Future minimum lease payments are disclosed, excluding percentage rent and expense reimbursements. Leases may include CPI adjustments.
- Contingencies: Management reports no material litigation or threatened litigation against the acquired properties as of the filing date.
- Risk Factors: The filing references the Company's Form 10-K for a comprehensive list of risk factors, noting that actual results may differ materially from the pro forma information due to various factors.
Investor Verification Checklist
- Verify the occupancy rates and lease expiration schedules for Southern Palm and Eldorado Marketplace post-acquisition.
- Confirm the impact of the $48 million line of credit drawdown on the Company's overall leverage ratios and liquidity covenants.
- Review the specific lease terms for the top tenants at each property to assess concentration risk and renewal probabilities.
- Examine the pro forma adjustments for straight-line rent and intangible asset amortization to understand the divergence between cash flow and reported net income.
- Assess the integration costs and any non-recurring expenses associated with the acquisitions that may not be fully reflected in the pro forma adjustments.