InvenTrust Properties Corp. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 21, 2020. Dollar amounts are in millions unless otherwise noted. This is an annual report, not a standalone fourth-quarter filing. InvenTrust is a REIT focused on grocery-anchored retail centers and select power centers, primarily in Sun Belt markets.
Business context and portfolio
- At year-end, the company owned or held an interest in 65 retail properties totaling approximately 10.9 million square feet, including 11 properties held through its 55%-owned IAGM joint venture.
- Portfolio economic occupancy was 95.2%, up from 94.0% in 2018; annualized base rent per leased square foot was $18.48, versus $17.59.
- Texas accounted for 46.3% of portfolio GLA and approximately 42.0% of annualized base rent. Houston alone represented approximately 13.3% of annualized base rent.
- The company acquired seven retail properties and additional adjacent property interests in 2019, and sold 10 retail properties. It continues to pursue selective acquisitions, dispositions, and redevelopment.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Total income | $226.5 | $242.7 | Down 6.7% |
| Net income | $38.4 | $83.8 | Down 54.2%; includes $25.5 loss from discontinued operations |
| Net income from continuing operations | $63.9 | $83.8 | Down from prior year |
| Net income per diluted share | $0.05 | $0.11 | 2019 continuing operations contributed $0.09 per share; discontinued operations reduced results by $0.04 |
| Modified NOI, same-property | $108.3 | $104.3 | Up 3.9% |
| FFO applicable to common shares | $85.2 | $134.7 | Down; non-GAAP measure |
| Modified FFO applicable to common shares | $112.4 | $123.3 | Down; non-GAAP measure |
| Cash provided by operating activities | $106.0 | $124.7 | Down $18.6 |
| Cash, cash equivalents and restricted cash, year-end | $260.7 | $264.9 | Down $4.1 |
| Debt, net, year-end | $572.9 | $561.8 | Up $11.1 |
Operating cash flow was below distributions paid of $53.3 million only in the sense that those are separate totals: operating cash flow was about twice distributions paid. The company also disclosed that 2019 distributions were funded from operating cash flow, distributions from unconsolidated entities, and property-sale proceeds. Investing activities used $41.8 million; financing activities used $68.3 million. The company had no borrowings outstanding on its $350 million unsecured revolving credit facility at year-end.
- Debt included $176.1 million of mortgage principal and $400.0 million of unsecured term loans. Approximately $300 million of the term loans was swapped to fixed rates; approximately $100 million remained variable-rate. The filing estimates a 1% rate change would alter annual interest expense by about $1.0 million.
- Scheduled company mortgage maturities were $41.0 million in 2020, $49.8 million in 2022, $40.9 million in 2023, and $15.7 million in 2024. Term loans mature in 2023 and 2024. Management said it expects to repay, refinance, or extend debt and has sources to meet near-term needs.
- Cash distributions paid were $53.3 million in 2019 versus $54.2 million in 2018. For tax purposes, approximately 96% of 2019 distributions were classified as return of capital. The board approved an annualized distribution rate of $0.0759 per share, effective for the quarterly payment in April 2020.
Material changes and unusual items
- Income declined mainly because dispositions reduced lease income by $40.4 million, partly offset by $21.2 million from acquisitions and $3.3 million of same-property growth. Total income fell 6.7%.
- Same-property modified NOI increased $4.1 million, supported by rent increases and leasing of previously unoccupied space; management also reported higher non-recoverable operating expenses.
- Gains on property sales declined to $62.0 million from $95.1 million. The company sold 10 retail properties for a gross disposition price of $357.8 million and recorded a $2.9 million debt-extinguishment loss, including prepayment penalties.
- The company paid $30.0 million in June 2019 to settle indemnity claims related to its former student-housing business, recognizing a $25.5 million loss in discontinued operations. It had recorded a $29.9 million impairment on the Downtown Railyard joint venture in 2018; its 2019 liquidation for $30.0 million generated no additional gain or loss.
- The share repurchase program bought back 8.5 million shares for $20.1 million at $2.355 per share, a 25% discount to the company’s estimated $3.14 NAV per share. The shares are not listed on an exchange, and the estimated NAV is not a guaranteed sale or liquidation value.
Outlook, risks and contingencies
Management’s strategy is to concentrate on grocery-anchored and necessity-based retail in selected markets, pursue redevelopment and selective acquisitions, and sell assets when it believes value has been maximized. It said a potential strategic transaction could provide stockholder liquidity and a return of capital, but timing and form are uncertain and no transaction is assured. The filing provides no specific earnings or operating guidance.
- Key operating risks include e-commerce-driven changes in tenant demand, tenant bankruptcies or defaults, lease expirations, leasing costs, anchor-tenant performance, and geographic concentration in Texas. Leases covering 5.3% of total GLA were scheduled to expire in 2020 and 10.7% in 2021.
- Key financial risks include refinancing and interest-rate exposure, debt covenants, asset-sale execution and pricing, joint-venture partner decisions, and dependence on property-sale proceeds or other sources to support distributions. LIBOR’s expected phase-out after 2021 may affect floating-rate contracts.
- The company reported no material tenant bankruptcies or receivable write-offs in 2019. It said ordinary-course legal matters were not expected to materially affect financial condition, results, or liquidity. It also identified REIT qualification, environmental matters, and indemnification obligations as potential risks.
- Management concluded disclosure controls and internal control over financial reporting were effective at year-end. KPMG issued an unqualified opinion on the consolidated financial statements; it was not engaged to opine on internal control effectiveness.
Important facts for investors to verify
- Review the reconciliation of GAAP net income to FFO and modified FFO, and assess the extent to which recurring property operations support distributions.
- Confirm the company’s debt maturities, covenant headroom, revolver availability, and exposure to variable rates and benchmark-rate transition.
- Assess whether occupancy, rent growth, lease renewals, and re-leasing costs support continued same-property NOI growth.
- Evaluate the assumptions behind the $3.14 estimated NAV, the 25%-discount repurchase and DRP prices, and the practical limits on stockholder liquidity; there is no established public trading market.
- Track progress and terms of any strategic transaction, future asset sales and reinvestment, and any additional claims or costs related to the former student-housing business.