InvenTrust Properties Corp. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report, not a quarterly report. Dollar amounts below are in millions unless stated otherwise; the filing presents most financial statements in thousands.
Business context
InvenTrust is a REIT focused on grocery-anchored neighborhood and community centers and power centers, primarily in Sun Belt markets. At year-end, it owned 62 properties totaling 10.3 million square feet. Economic occupancy was 93.3%, leased occupancy was 96.2%, and annualized base rent (ABR) was $19.48 per occupied square foot.
Financial and operating results
- Revenue: Total income was $258.7, up $22.0 (9.3%) from $236.7. Net lease income increased $24.2, reflecting acquired properties and higher same-property minimum rent, partly offset by dispositions and lower lease-intangible and straight-line rent adjustments.
- Profit and margins: GAAP net income was $5.3, versus $52.2 in 2022; diluted EPS was $0.08 versus $0.77. Operating income was $35.8, or approximately 13.8% of total income; net margin was approximately 2.0%, compared with 22.1% in 2022. The decline primarily reflects the much smaller property-sale gain in 2023 ($2.7 versus $38.2) and higher interest expense ($38.1 versus $26.8).
- REIT operating measures: Same-property NOI increased 4.9% to $142.1. NAREIT FFO was $115.5, or $1.70 per diluted share, versus $112.0, or $1.66, in 2022. Core FFO was $111.9, or $1.65 per diluted share, versus $106.0, or $1.57. These are non-GAAP measures and are not substitutes for cash flow or net income.
- Cash flow: Operating cash flow was $129.6, up from $125.8. Investing activities used $79.7, including property acquisitions and capital and leasing investments, partly offset by $95.1 in distributions from the liquidated joint venture. Financing activities used $87.9, including $57.5 in distributions paid. Cash, cash equivalents and restricted cash ended at $99.8, down from $137.8.
- Liquidity and debt: Gross debt was $818.5 ($814.6 net of discounts and issuance costs), compared with $759.8 gross a year earlier. The $350.0 million revolving credit facility was undrawn at year-end. Debt included $168.5 in mortgages, $400.0 in term loans and $250.0 in senior notes. The company reported compliance with debt covenants. $72.5 of cross-collateralized variable-rate mortgage debt is due November 2, 2024; the company had extended the loan and paid down $20.0 in December 2023. The filing says a 1 percentage-point change in rates on remaining variable-rate debt would change annual interest expense by about $0.7.
- Distributions: The company declared $58.2 and paid $57.5 in 2023. Declared distributions were $0.86 per share, versus $0.82 in 2022. The Board approved an increase in the annual distribution rate effective for the quarterly payment in April 2024; the filing does not state the new rate in the provided text.
Material changes versus 2022
- The company acquired the four remaining properties from its 55%-owned IAGM joint venture in January 2023 and acquired a fifth property in June; IAGM was fully liquidated in December. The four-property transaction increased the wholly owned portfolio, but the pro rata comparison of the overall portfolio was 62 properties in both years.
- On a pro rata basis, economic occupancy declined to 93.3% from 93.9%, while leased occupancy edged up to 96.2% from 96.1%. ABR per square foot increased to $19.48 from $19.08. Same-property economic occupancy decreased to 93.4% from 94.1%.
- Interest expense rose, in part due to the 2022 senior-note issuance, higher rates on term loans, and assumed mortgage debt. The company swapped its $400.0 million term loans to fixed rates during 2023.
- Property-sale activity was lower: 2023 dispositions generated $13.1 in gross proceeds, versus $110.5 in 2022. The company also raised $5.4 net through its ATM equity program in the fourth quarter, issuing 208,040 shares.
Outlook, risks and unusual items
- Management’s strategy remains focused on Sun Belt grocery-anchored and necessity-based retail, selective acquisitions and dispositions, and maintaining capital flexibility. The filing provides no quantified earnings or FFO guidance.
- Key risks include tenant defaults or bankruptcies, e-commerce competition, lease renewals and occupancy, inflation and operating costs, interest rates and refinancing, and weather or climate events. Texas generated approximately 41.7% of portfolio ABR; small-shop tenants generated approximately 58.0%.
- Leases representing 5.0% of portfolio GLA expire in 2024 and 12.1% in 2025. For leases expiring during 2023, the company re-leased approximately 90% of the expiring GLA. Comparable renewal rents increased 7.2%; comparable new leases increased 25.3%, though new leases involved higher tenant-improvement and leasing-commission costs.
- Management said it believes it has adequate sources to meet short-term cash needs and expects to use property-sale proceeds, cash and available credit capacity as needed for near-term mortgage maturities. This remains subject to market and financing conditions.
- The company formed a captive insurance subsidiary in April 2023 to cover certain losses below third-party policy deductibles; it reported no outstanding or unpaid captive claims at year-end. Management did not expect pending legal matters to have a material adverse effect. No known cybersecurity incidents had materially affected the company, though management acknowledged material exposure to cyber threats if realized.
- After year-end, on February 1, 2024, the company acquired The Plant, a 57,000-square-foot Arizona neighborhood center, for $29.5, using cash and assuming $13.0 of mortgage debt.
Most important facts for investors to verify
- Whether the 2024 mortgage maturities, especially the $72.5 variable-rate loan due in November, are repaid, refinanced or extended on acceptable terms.
- Whether occupancy and rent growth persist, and whether upcoming lease expirations are renewed without disproportionate concessions or leasing costs.
- Whether operating cash flow supports distributions, capital spending and debt service; FFO and Core FFO do not measure cash available for distributions.
- How acquisition integration, the post-year-end acquisition and any further portfolio transactions affect leverage, liquidity and per-share results.
- The assumptions used in property impairment testing, particularly expected holding periods and projected cash flows; the auditor identified expected hold periods as a critical audit matter. KPMG issued unqualified opinions on the financial statements and internal controls.