Business context and reporting period
InvenTrust Properties Corp. is a Maryland REIT focused on open-air, multi-tenant retail properties, including grocery-anchored centers and necessity-based power centers. This Form 10-K covers the fiscal year ended December 31, 2018; quarterly supplemental data are also provided. Unless stated otherwise, financial amounts below are in millions of dollars.
At year-end, the company managed 71 properties totaling 12.1 million square feet, including 58 wholly owned and consolidated properties and 13 held through its 55%-owned IAGM joint venture. Portfolio economic occupancy was 94.0%, versus 93.5% in 2017; annualized base rent (ABR) per square foot was $17.59, versus $16.23.
Financial and operating metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Total income | $242.7 | $251.8 |
| Net income | $83.8 | $61.8 |
| Net income per diluted share | $0.11 | $0.07 |
| Funds from operations (FFO), non-GAAP | $134.7 | $167.7 |
| Total modified NOI, non-GAAP | $157.6 | $168.8 |
| Same-property modified NOI, non-GAAP | $99.7 | $99.9 |
| Cash from operating activities | $124.7 | $118.2 |
| Cash and cash equivalents at year-end | $260.1 | $162.7 |
| Total assets | $2,536.0 | $2,698.6 |
| Debt, net | $561.8 | $667.9 |
| Cash distributions paid | $54.2 | $53.4 |
Fourth-quarter 2018 total income was $56.5 million and net income was $17.5 million, or $0.03 per diluted share. The filing does not provide a clear quarterly cash-flow or FFO value.
Material changes versus the prior comparable period
- Total income declined 3.6%, principally reflecting dispositions; lower rental income was partly offset by acquisitions and same-property contributions.
- Net income rose 35.7%, but the comparison is affected by a $95.1 million net gain on property sales and transfers, a $9.1 million gain on debt extinguishment, and lower property impairment charges. Net income should not be read as a measure of recurring operating growth.
- FFO fell 19.7%; total modified NOI decreased 6.6%, while same-property modified NOI was nearly flat, down 0.2%. Dispositions reduced the size of the portfolio.
- ABR per square foot rose to $17.59 from $16.23, and occupancy improved to 94.0% from 93.5%. Comparable renewal leases achieved a 4.0% increase in contractual rent; comparable new leases increased 11.1%.
- Debt, net, fell by approximately $106.1 million, while year-end cash and cash equivalents increased by approximately $97.4 million.
Liquidity, debt, strategy and risks
- Operating cash flow was $124.7 million. Investing activities provided $175.4 million, mainly reflecting $430.5 million of net property-sale proceeds, partly offset by acquisitions, capital spending and leasing costs. Financing activities used $207.1 million, including the $98.4 million share repurchase and $54.2 million in distributions.
- At year-end, gross mortgage principal was $213.9 million and unsecured term-loan principal was $352.0 million. The company also had a $350 million revolving facility with no borrowings outstanding and $48 million of unused term-loan capacity. Mortgages had no scheduled 2019 maturities; $41.0 million was scheduled for 2020. The company reported compliance with mortgage requirements.
- Approximately $202 million of debt bore variable rates and $363.9 million bore fixed rates, including $150 million of term loans swapped to fixed rates. Management estimated that a sustained 1% rate change on variable-rate debt would change annual interest expense by approximately $2.0 million.
- The company acquired properties for a gross $222.6 million and disposed of or transferred properties for a gross $466.2 million during 2018. Two properties were surrendered to lenders in satisfaction of non-recourse debt. In January 2019, it acquired a neighborhood center for $23.3 million.
- The company recorded a $29.9 million other-than-temporary impairment on its Downtown Railyard Venture investment, and $3.5 million of impairment on retail properties. These valuation-sensitive items materially affected reported results.
- Management’s strategy is to concentrate on selected growth markets, pursue redevelopment, selectively acquire and dispose of properties, and maintain relatively low leverage. It expects to assess strategic transactions intended to provide stockholder liquidity, but timing and outcome are uncertain. No specific earnings or operating guidance is provided.
- Shares were not listed on a national exchange and had no established public trading market. The company’s May 2018 estimated share value was $3.14; management cautioned that this was not a realizable sale or liquidation value. A 2018 tender offer repurchased 46.6 million shares at $2.10 each.
- The annualized distribution rate increased from $0.0695 to $0.0716 per share in 2018, with a further increase to $0.0737 scheduled for April 2019. 2018 distributions were funded by operating cash flow, joint-venture distributions and property-sale proceeds; approximately 61% was classified as return of capital for tax purposes. Future distributions are not assured.
- Key risks include e-commerce and tenant financial distress, lease renewals and tenant-improvement costs, geographic concentration (about 40.3% of ABR came from Texas), refinancing and interest-rate exposure, and the uncertain timing or availability of a liquidity transaction. A University House indemnification matter could result in losses up to $5.0 million above the amount accrued.
- Management reported effective disclosure controls and internal control over financial reporting at year-end. The independent auditor issued an unqualified opinion on the consolidated financial statements.
Important facts for investors to verify
- Assess recurring operating performance separately from sale gains, debt-extinguishment gains and the Downtown Railyard impairment; reconcile GAAP net income with FFO and NOI measures.
- Review the sustainability of distributions against operating cash flow, capital spending, leasing requirements and property-sale proceeds.
- Confirm progress on tenant renewals and leasing, particularly the 2019–2020 expirations, and track occupancy and rent spreads.
- Review debt covenants, refinancing plans, variable-rate exposure and the joint venture’s debt maturities and ability to refinance.
- Evaluate the assumptions behind the $3.14 estimated share value and any proposed strategic transaction; the shares lack an established trading market.
- Monitor the resolution of the University House indemnification claims and any further valuation changes in the Downtown Railyard investment.