Business Context and Reporting Period
InvenTrust Properties Corp. is a Maryland REIT focused on multi-tenant retail properties. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2017; dollar amounts below are in millions unless stated otherwise. At quarter-end, the company reported 70 wholly owned and two consolidated retail assets, plus interests in two joint ventures. Its broader retail platform comprised 87 assets and approximately 15.7 million square feet.
Financial Performance and Key Metrics
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total income | $62.9 | $59.8 | $187.3 | $182.9 |
| Operating income | $8.8 | $7.6 | $14.9 | $19.8 |
| Net income | $22.0 | $37.3 | $58.0 | $226.4 |
| Net income per share, diluted | $0.03 | $0.04 | $0.07 | $0.26 |
| FFO, non-GAAP | $31.5 | $25.0 | $122.1 | $106.7 |
Revenue growth reflected acquisitions and same-property gains, partly offset by dispositions. Lower gains on property sales and lower interest/dividend income were key factors in lower net income versus 2016. Nine-month 2017 results also included $16.4 million of continuing-operations impairment charges; 2016 results included substantially larger gains on dispositions and discontinued operations. Same-property modified NOI was $35.3 million in Q3, down 3.3%, and $95.5 million for nine months, up 0.4%.
Retail-platform economic occupancy was 93.7% at September 30, 2017, versus 95.4% a year earlier; annualized base rent was $16.14 per square foot versus $15.45. Same-property occupancy also declined: 93.1% for the nine-month comparison versus 95.3%. Comparable renewal leases commenced during the first nine months had a 4.2% rent spread; total retention for space expiring in that period was approximately 78%.
Nine-month operating cash flow was $94.9 million versus $96.7 million. Investing activities used $245.9 million, primarily reflecting acquisitions, partly offset by property and securities sales; financing activities used $143.4 million. Cash and cash equivalents were $102.8 million at quarter-end, down from $397.3 million at December 31, 2016. Restricted cash was $14.2 million.
Debt, net, was $667.0 million at quarter-end, compared with $670.7 million at year-end 2016. Mortgage principal was $370.0 million and unsecured term-loan principal was $300.0 million. The company reported $300 million available under its revolving credit facility and compliance with its credit-agreement covenants. Mortgage maturities included $43.2 million for the remainder of 2017 and $59.6 million in 2018. Two mortgage loans totaling $43.2 million were in default after maturing during the nine-month period; the filing states these loans were non-recourse and not cross-collateralized. Approximately $3 million of company mortgage debt and $23 million of joint-venture debt were recourse to the company.
Distributions declared were $0.02 per share for Q3 and $0.05 per share for the nine months, down from $0.08 for the nine-month 2016 period. The board reviews the distribution rate quarterly.
Material Changes and Unusual Items
- The company acquired eight retail assets for an aggregate gross price of $633.4 million and sold six retail assets and its remaining non-core office property for aggregate gross prices of $206.1 million. It reported $839.5 million of real estate transactions in total.
- The August 2017 sale of Worldgate Plaza completed the company’s exit from non-core assets. Continuing operations are now focused on multi-tenant retail.
- Marketable securities declined to $35.5 million from $183.9 million at year-end, following $140.2 million of net sale proceeds. Nine-month 2017 results included a $30.9 million realized gain and reclassification related to securities.
- A jury verdict in a premises-liability case included $6 million in compensatory and $6 million in punitive damages. The compensatory amount was insured; coverage for punitive damages was uncertain. The company paid $0.6 million in settlement and recorded a $2.4 million credit from partially reversing a previously recorded contingency.
- The purchase of The Parke included contingent consideration: $7.4 million was paid in August, with $9.7 million remaining accrued at quarter-end.
Outlook, Risks, and Other Disclosures
Management emphasized disciplined acquisitions and dispositions, focusing on grocery-anchored and necessity-based retail centers in selected Sunbelt, Southern California, Denver, and suburban Washington, D.C. markets. It is pursuing redevelopment and pad-site opportunities, expects to continue selling assets in lower-growth markets, and noted that portfolio refinement may dilute operating performance during disposition periods. Management described the pace of strategy execution and potential stockholder-liquidity transactions as uncertain and gave no specific financial guidance.
Management said retail tenant bankruptcies and store closures had not materially affected results to date, but identified risks including e-commerce and changing consumer preferences, leasing and tenant-credit conditions, lease expirations, property taxes, capital access, refinancing and interest rates, joint-venture performance, and the ability to sustain distributions. A 1% permanent interest-rate increase on floating-rate debt was estimated to increase annual interest expense by $1.5 million; $150 million of term-loan debt was swapped to fixed rates. The filing reported effective disclosure controls and no material change in internal control over financial reporting, and no material change to previously disclosed risk factors.
After quarter-end, the board approved amended bylaws and indemnification agreements on November 9, 2017; a director resigned effective November 8. The company also amended its CFO’s employment agreement, reflecting a $515,000 annual base salary and a target bonus of 90% of base salary.
Investor Verification Priorities
- Confirm the status and resolution plan for the $43.2 million of matured mortgage loans reported in default, and the timing and funding of 2018 maturities.
- Assess whether declining occupancy and Q3 same-property NOI reflect temporary costs or a sustained operating trend; review leasing, tenant-credit, and rollover exposure.
- Evaluate acquisition and disposition pricing, integration and redevelopment plans, and the company’s ability to generate returns from its concentrated retail strategy.
- Review the sustainability of distributions against operating cash flow, required capital and leasing expenditures, and reliance on asset-sale proceeds.
- Check subsequent developments in the punitive-damages coverage and settlement, the remaining The Parke contingent consideration, and the company’s progress toward any strategic transaction or stockholder-liquidity objective.