InvenTrust Properties Corp. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet figures are as of March 31, 2020, unless otherwise noted. InvenTrust is a REIT focused on grocery-anchored neighborhood centers and select power centers, primarily in Sun Belt markets. It reported one segment: multi-tenant retail. Dollar amounts below are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total income | $52.4 | $56.9; down $4.4 |
| Lease income, net | $51.3 | $55.5; down $4.2 |
| Operating expenses | $44.9 | $48.4 |
| Net loss | $(3.5) | Net loss of $(9.5), including $13.5 of discontinued-operation indemnity claims |
| Operating cash flow | $16.9 | $21.5 |
| Cash, cash equivalents and restricted cash | $334.4 | $178.5 at March 31, 2019 |
| Total debt, net | $681.7 | $572.9 at December 31, 2019 |
| Stockholders’ equity | $1,788.1 | $1,819.6 at December 31, 2019 |
Same-property modified NOI, a company-defined non-GAAP measure, increased 3.9% to $30.0 million. FFO was $29.0 million and AFFO was $28.4 million, each approximately $0.04 per diluted share; these supplemental measures are not substitutes for GAAP results or cash flow. Distributions declared and paid were $0.02 per share.
Cash from investing activities was $(38.5) million, principally for property acquisitions and capital and leasing costs. Financing activities provided $95.2 million, including a $150.0 million revolver draw, partly offset by a $41.0 million mortgage payoff and $13.3 million of distributions paid. The $350.0 million revolver had $200.0 million of remaining capacity at quarter-end. Management reported compliance with all debt covenants and said it expected to meet near-term liquidity needs.
Changes versus the prior comparable period
- Total income declined $4.4 million, mainly reflecting properties sold since January 2019, partly offset by acquisitions. Same-property lease income was down $0.3 million, while same-property modified NOI rose $1.1 million.
- Interest expense declined $0.7 million, primarily after the company extinguished a $41.0 million mortgage. Interest and other income included $1.2 million of anticipated tax benefits related to CARES Act NOL provisions.
- A $9.0 million impairment was recorded on one property after its expected holding period was shortened; fair value was based on an executed sales contract. Partial condemnations generated a $0.5 million gain.
- Debt increased from year-end, reflecting the $150.0 million revolver draw, partly offset by repayment of the $41.0 million mortgage. The draw was made to increase financial flexibility in light of COVID-19.
- The portfolio had 66 properties and approximately 11.0 million square feet, versus 73 properties and 12.3 million square feet a year earlier. Total economic occupancy was 95.1%, compared with 94.3%; annualized base rent per square foot was $18.46, versus $17.79.
Outlook, risks and unusual items
- Management said COVID-19 had not caused significant disruption during Q1 but anticipated significant disruption to future operating results. It could not estimate the extent or duration because of uncertainty around the pandemic, restrictions, tenant health and economic recovery.
- As of April 30, 2020, approximately 44% of tenants had requested assistance; about 60% of April rent billings had been collected. All properties were open, and approximately 61% of occupied GLA was open. April collections may not indicate future collections.
- Management was evaluating tenant requests individually and said it did not expect all requests to result in lease amendments or intend to forgo contractual rights. It warned of potential rent delays or nonpayment, tenant bankruptcies and store closures, increased vacancies, and higher estimated credit losses.
- The Board would continue reviewing the distribution, share repurchase program and distribution reinvestment plan. The company did not expect to publish an estimated share value in May 2020 because of valuation uncertainty and limited property transactions. COVID-19 had delayed exploration of a potential strategic transaction intended to enhance stockholder value and provide liquidity.
- Subsequent events: on April 30, 2020, the company prepaid $26.3 million of mortgages; on May 1, it sold Woodlake Crossing for a gross price of $5.5 million.
- Other risks include rent collection and leasing, debt refinancing and interest-rate exposure, access to capital, retail-market and e-commerce changes, and maintaining REIT status. A 1% sustained change in rates on variable-rate debt was estimated to change annual interest expense by approximately $2.5 million. Management said ordinary-course legal matters were not expected to have a material adverse effect; the previously accrued student-housing indemnity matter had settled in 2019.
Key facts for investors to verify
- Subsequent rent collections, tenant relief requests, delinquencies, credit-loss provisions and occupancy as pandemic effects evolve.
- Available revolver capacity, covenant headroom, debt maturities and refinancing plans, including the impact of variable rates and LIBOR transition.
- Whether the $9.0 million impaired property sale closes at the expected terms, and the effect of subsequent property sales and mortgage prepayments.
- Whether the Board changes distributions, and the timing and feasibility of the potential strategic transaction.
- The basis and sustainability of reported non-GAAP modified NOI, FFO and AFFO, including their adjustments and comparability with other REITs.