InvenTrust Properties Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 2, 2023. InvenTrust is a REIT focused on multi-tenant retail properties in Sun Belt markets. Unless stated otherwise, dollar amounts below are in millions; financial statement amounts are in thousands.
Business and portfolio
At quarter-end, the company owned 62 retail properties totaling approximately 10.3 million square feet. Economic occupancy was 94.0%, leased occupancy was 96.1%, and annualized base rent was $19.12 per square foot. Same-property economic occupancy improved to 94.4% from 93.5% a year earlier. The company reported one segment: multi-tenant retail.
On January 18, 2023, InvenTrust acquired the four remaining properties held by its IAGM joint venture for an aggregate purchase price of $222.3 million, assuming $92.5 million of mortgage debt and funding the balance from available liquidity. IAGM distributed substantially all net proceeds; InvenTrust’s share was approximately $71.4 million.
Financial results and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total income | $65.2 | $58.8 | Up $6.4 (10.9%) |
| Net income | $1.1 | $9.5 | Down $8.4 |
| Diluted EPS | $0.02 | $0.14 | Down $0.12 |
| Same-property NOI | $35.8 | $34.7 | Up $1.1 (3.2%) |
| NAREIT FFO | $28.0 | $31.7 | Down $3.6 |
| Core FFO | $27.4 | $29.0 | Down $1.7 |
| Core FFO per diluted share | $0.40 | $0.43 | Down $0.03 |
| Operating cash flow | $16.0 | $26.8 | Down $10.8 |
Lease income increased 12.2% to $64.8 million. Management attributed the increase mainly to acquired properties and higher same-property minimum rent, occupancy, and recoveries. Operating expenses rose to $54.3 million from $47.0 million, including higher depreciation, property operating costs, and real estate taxes. Interest expense nearly doubled to $9.5 million from $4.8 million, reflecting senior notes, higher rates, and assumed mortgages. As a result, net income fell despite higher revenue and same-property NOI.
Same-property NOI margin, calculated as same-property NOI divided by same-property income shown in the filing, was approximately 69.2% versus 70.2% in Q1 2022. This decline reflects expenses growing faster than same-property income.
Cash flow, debt, and liquidity
- Cash, cash equivalents, and restricted cash were $69.3 million at March 31, 2023, down from $137.8 million at year-end 2022. Net cash decreased $68.5 million during the quarter.
- Investing activities used $56.4 million: $129.6 million of net cash acquisition outflows and $6.1 million of capital and leasing investments were partly offset by $79.3 million of distributions from unconsolidated entities.
- Financing activities used $28.1 million, including $13.8 million of shareholder distributions and $13.7 million to repay the Renaissance Center mortgage.
- Debt, net of discounts and issuance costs, was $833.0 million, compared with $754.6 million at December 31, 2022. Gross debt was $838.5 million; the filing reports a weighted-average rate of 4.00%. The $350 million revolving credit facility had no balance outstanding.
- Mortgage maturities totaled $92.5 million in 2023, including the assumed pooled mortgage debt; two 12-month extension options apply to scheduled 2023 maturities. Management said it expects to use property-sale proceeds, cash, and available credit capacity to address near-term maturities. The company reported compliance with all debt covenants.
- Variable-rate debt was $417.5 million at quarter-end, of which $300 million was swapped to fixed rates. A further $100 million term-loan swap became effective April 3, 2023; after that date, the filing says interest-rate exposure was limited to $17.5 million of variable-rate mortgage debt. A 1% rate move on variable debt outstanding at March 31 was estimated to affect annual interest expense by approximately $0.2 million.
Material changes, outlook, and risks
- The IAGM transaction expanded the wholly owned portfolio but also reduced reported equity earnings from the joint venture. IAGM recorded a $45.2 million property-sale gain, of which InvenTrust’s share was approximately $24.9 million; the company’s equity in unconsolidated entities was nevertheless a $0.7 million loss, primarily due to outside-basis adjustments associated with the acquisition. The filing states that $39.9 million of historical deferred gains are reflected in the acquired properties’ basis.
- Management stated that current liquidity sources are sufficient for short- and long-term cash demands. It provided no specific earnings or FFO guidance in the supplied filing text. Future distributions remain subject to Board review and discretion.
- Distributions declared were $0.22 per share, compared with $0.21 a year earlier; distributions paid were $0.20 per share in both periods. The company declared $14.5 million and paid $13.8 million in the quarter.
- Principal risks cited include rent collection and tenant bankruptcies, tenant and consumer retail conditions, leasing and capital costs, acquisition and redevelopment execution, competition and e-commerce, refinancing and interest rates, inflation, and maintaining REIT tax status. Management said ordinary-course legal matters were not expected to have a material adverse effect; no material risk-factor changes were reported.
- Disclosure controls were assessed as effective at March 31, 2023, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- How much of the year-over-year decline in net income and FFO reflects recurring financing costs versus the IAGM transaction and other adjustments.
- Occupancy, rent growth, tenant retention, and expense trends; Q1 leasing retention was approximately 95%, with comparable lease rents up 7.6%.
- Near-term mortgage maturities, extension-option availability, refinancing terms, and liquidity after the IAGM acquisition and distributions.
- Whether the interest-rate hedges remain effective and the impact of future rate changes on debt service and cash flow.
- Distribution coverage by recurring operating cash flow and FFO, noting that Q1 operating cash flow was $16.0 million and declared distributions were $14.5 million.
- How the IAGM liquidation, deferred gains, and acquisition accounting affect future reported earnings and cash flows.