InvenTrust Properties Corp. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY2021. Unless stated otherwise, financial amounts below are in millions of dollars. The company is a Sun Belt-focused, multi-tenant retail REIT operating grocery-anchored neighborhood and community centers and select power centers.
Business and operating context
- At year-end, the company owned or held an interest in 62 properties, representing approximately 10.3 million square feet on a 100%-owned basis. Its pro rata combined portfolio had 93.9% economic occupancy and 96.1% leased occupancy, compared with 92.8% and 93.9%, respectively, in 2021.
- Pro rata annualized base rent per square foot was $19.08, up from $18.59. Texas generated 38.7% of portfolio annualized base rent; small-shop tenants generated 56.9%.
- In 2022, the company acquired six properties and an outparcel for a gross price of $319.1 million and sold three properties for $110.5 million. On January 18, 2023, it acquired the four remaining IAGM joint-venture properties for $222.3 million, assumed $92.5 million of mortgage debt, and funded the balance with available liquidity.
Financial performance and position
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total income | $236.7 | $212.0 |
| Net income (loss) | $52.2 | $(5.4) |
| Net income margin | 22.1% | (2.5)% |
| Net cash from operating activities | $125.8 | $90.0 |
| Pro rata same-property NOI | $141.1 | $134.8 |
| Core FFO | $106.0 | $99.6 |
| Core FFO per diluted share | $1.57 | $1.40 |
- Income grew 11.7%, led by higher lease income. Same-property NOI rose 4.5%, supported by occupancy and rent increases and higher grocery percentage rent, partly offset by operating-cost increases and credit-loss reversals recorded in the prior year.
- Net income improved by $57.6 million, but included a $38.2 million gain on property sales, versus $1.5 million in 2021. The 2021 result also included $19.8 million of direct-listing costs. Interest expense rose to $26.8 million from $16.3 million, reflecting senior-note issuance, higher rates and borrowing balances, and assumed property mortgages.
- Cash provided by operations increased $35.8 million. Investing activities used $144.5 million, principally for property acquisitions and capital/leasing investment, partly offset by sale proceeds and joint-venture distributions. Financing activities provided $111.6 million, including $250.0 million of senior-note proceeds; the company paid $55.3 million in distributions.
- At December 31, 2022, total assets were $2.47 billion, total liabilities $869.1 million, and stockholders’ equity $1.60 billion. Cash, cash equivalents and restricted cash totaled $137.8 million. Debt was $759.8 million gross, or $754.6 million net of unamortized discounts and issuance costs; the revolving credit facility had no balance outstanding.
- The company declared and paid $0.82 per share in 2022, totaling $55.3 million. In November 2022, the Board approved an increase to the annual distribution rate effective with the quarterly distribution paid in April 2023; the filing text does not provide a clear new per-share rate.
Material changes and financing
- In August 2022, the company issued $250 million of senior notes: $150 million at 5.07%, due 2029, and $100 million at 5.20%, due 2032. Total debt increased from $537.0 million at year-end 2021 to $759.8 million at year-end 2022.
- Of $400 million in term loans, $300 million was fixed through interest-rate swaps and $100 million remained variable-rate at 1-month Term SOFR plus 1.30%. Management estimated a sustained 1% rate move would change annual interest expense and related future cash flows by approximately $1.0 million.
- Management reported compliance with debt covenants and stated it believed it had adequate sources to meet short-term cash needs. The company received an inaugural BBB- investment-grade rating from Fitch in 2022. It established a $250 million ATM equity program and a $150 million share-repurchase authorization; neither had been used to sell or repurchase common stock by year-end.
- On February 6, 2023, the company repaid a $13.7 million mortgage using available liquidity. The joint venture’s $92.5 million of year-end mortgage debt was expected to mature in 2023, with two 12-month extension options; that debt was not recourse to the company.
Outlook, risks and unusual items
- Management’s strategy is to acquire and operate grocery-anchored retail in attractive Sun Belt markets, selectively dispose of non-core assets, and maintain capital flexibility. The filing provides no numerical earnings or NOI guidance.
- Key risks include tenant and anchor-retailer failures, small-shop tenant exposure, lease renewals and vacancy, e-commerce shifts, inflation and rising interest rates, refinancing and debt covenants, geographic concentration, weather and climate impacts, property impairment, and the company’s ability to maintain REIT qualification and distributions.
- Texas represented 38.7% of annualized base rent. Leases covering 4.9% of pro rata portfolio GLA were scheduled to expire in 2023 and 10.0% in 2024. Management reported a 90.2% retention rate for 2022 expirations.
- Management said distributions in 2022 were funded from operating cash flow, joint-venture distributions and property-sale proceeds. Future distributions remain subject to Board discretion, financial condition and financing restrictions.
- The auditor issued an unqualified opinion on the financial statements and internal controls. The critical audit matter was management’s estimate of investment-property holding periods used in impairment evaluations. No company impairment charge was recorded in 2022 or 2021; the estimate remains sensitive to disposition plans and assumptions about property cash flows and value.
Important facts for investors to verify
- How much of 2022’s net-income improvement reflects recurring operations versus the $38.2 million property-sale gain and the absence of prior-year listing costs.
- The post-year-end IAGM acquisition’s impact on debt, liquidity, operating cash flow and future distributions, including the actual financing and integration costs.
- The new distribution rate effective in April 2023 and the extent to which recurring operating cash flow supports distributions after capital and leasing requirements.
- Debt maturities, variable-rate exposure, refinancing terms and available revolving-credit capacity, especially as rates and credit conditions change.
- Lease renewal outcomes and rent spreads, tenant credit quality, and the effects of Texas and small-shop concentration on portfolio performance.