InvenTrust Properties Corp. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unaudited financial statement amounts below are in millions unless stated otherwise. InvenTrust is a retail REIT focused on owning, managing, acquiring and redeveloping open-air, multi-tenant retail centers.
Business context and portfolio
- At September 30, the platform comprised 68 properties totaling 11.8 million square feet, including 57 wholly owned properties and 11 properties held through its 55%-owned IAGM joint venture. Total economic occupancy was 95.6%, versus 93.7% a year earlier; annualized base rent per square foot was $18.20, versus $17.19.
- During the first nine months, the company acquired properties for a gross $365.8 million and disposed of seven properties for a gross $190.2 million. Management described the strategy as rotating out of non-core or value-maximized assets and reinvesting selectively in target markets.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total income | $58.2 | $60.1 | $171.8 | $185.4 |
| Net income from continuing operations | $24.9 | $8.9 | $35.2 | $66.3 |
| Net income (loss) | $24.9 | $8.9 | $9.7 | $66.3 |
| Operating cash flow | Not separately provided | Not separately provided | $86.2 | $101.7 |
| Cash, cash equivalents and restricted cash at period end | — | — | $118.8 | $185.4 |
- Nine-month lease income declined 7.6% to $167.3 million; management attributed the decrease chiefly to dispositions, partly offset by acquisitions and rent growth. Same-property modified NOI, a non-GAAP measure, rose 3.9% to $91.3 million for nine months and 3.4% to $32.3 million for Q3.
- Q3 net income included $26.8 million of gains on property sales; nine-month property-sale gains were $32.4 million. Nine-month net income also included a $25.5 million discontinued-operations loss related to a settlement. Accordingly, GAAP net income comparisons are materially affected by these items.
- Nine-month FFO applicable to common shares was $58.7 million, down from $106.0 million; modified FFO was $85.8 million, down from $93.7 million. These are non-GAAP measures defined by the company.
- Operating cash flow fell $15.5 million year over year. Investing used $199.7 million, primarily reflecting acquisitions, partly offset by dispositions; financing used $32.6 million. Cash and restricted cash decreased $146.0 million during the period.
- Total debt, net, was $573.1 million at September 30, comprising $175.8 million of mortgage debt and $397.3 million of term loans, compared with $561.8 million at year-end 2018. The company had $400 million of term loans outstanding and no borrowings under its $350 million revolving facility. Mortgage rates were fixed at a 4.34% weighted average.
- Total assets were $2.52 billion and stockholders’ equity was $1.82 billion. The company declared $40.2 million of distributions and paid $39.8 million in the first nine months. Distributions declared per share were $0.06 for the period, versus $0.05 a year earlier.
Material changes and unusual items
- Q3 total income decreased 3.2% year over year; nine-month income decreased 7.4%. Despite lower revenue, Q3 continuing-operations income increased, in part due to higher property-sale gains and lower depreciation and amortization. Nine-month continuing-operations income declined, while the $25.5 million indemnity settlement drove reported net income lower.
- The company paid $30.0 million on June 24 to settle University House Communities Group indemnification claims relating to its 2016 student-housing sale; it recognized a $25.5 million loss in discontinued operations.
- Q3 included a $2.1 million loss on extinguishment of debt, primarily a prepayment penalty, and a $2.4 million property impairment. Nine-month debt-extinguishment loss was $2.9 million.
- On June 24, the company liquidated its Downtown Railyard Venture interest for $30.0 million, with no gain or loss recognized. It adopted the new lease accounting standard on January 1, 2019.
Outlook, risks and contingencies
- No numerical earnings or operating guidance is provided in the filing text. Management said the timing of its strategy and potential stockholder-liquidity transactions is uncertain and may be affected by economic conditions, competition, interest rates, e-commerce, retailer closures and bankruptcies, and government policy.
- Management expects short-term funding needs to be met through operating cash flow, joint-venture distributions, property sales and available credit capacity. It stated that it believes it can repay, refinance or extend debt as needed and was in compliance with mortgage covenants.
- Variable-rate term loans totaled $400 million, of which $150 million was swapped to fixed rates at September 30. A permanent 1% rate change on variable-rate debt would affect annual interest expense by approximately $2.5 million. The company entered into replacement swaps scheduled to take effect in December 2019. Its LIBOR-indexed facilities and hedges will need to transition as LIBOR is phased out.
- On November 1, 2019, the company adopted a share repurchase program effective December 1. It provides semiannual redemptions for qualifying holders at a 25% discount to the latest announced NAV per share, subject to available funds, limitations and prioritization.
- Subsequent to quarter-end, Northwest Marketplace was sold on October 11 for a gross $29.5 million. The company said ordinary-course legal matters were not expected to have a material adverse effect; it reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether rent growth and improved occupancy can offset the revenue effects of continued property sales and portfolio changes.
- How acquisition and disposition proceeds are being redeployed, and whether acquisitions meet management’s return and market criteria.
- Debt refinancing plans, covenant compliance, interest-rate exposure, and the transition from LIBOR to an alternative benchmark.
- The coverage and sustainability of distributions relative to operating cash flow, capital needs and future liquidity demands.
- The detailed eligibility, funding limits and execution of the repurchase program, including the applicable NAV and 25% discount.