InvenTrust Properties Corp. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. InvenTrust is a Maryland REIT focused on grocery-anchored neighborhood centers and select power centers, primarily in Sun Belt markets. At quarter-end, it owned or held an interest in 65 properties totaling approximately 10.8 million square feet.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total income | $52.5m | $58.0m | $146.6m | $172.1m |
| Net income (loss) | $1.7m | $24.9m | ($11.4m) | $9.7m |
| Operating cash flow | Not separately reported | Not separately reported | $69.9m | $86.2m |
| Modified NOI | $32.5m | $36.9m | $94.6m | $110.7m |
| Same-property modified NOI | $29.6m | $30.5m | $82.2m | $87.6m |
| AFFO per diluted share | $0.03 | $0.04 | $0.10 | $0.12 |
Amounts are rounded; financial-statement dollar figures are reported in thousands. Modified NOI, FFO and AFFO are non-GAAP measures. GAAP diluted earnings per share were approximately break-even in Q3 2020 and a loss of $0.02 for the nine-month period.
- Revenue and property operations: Income fell 9.4% in Q3 and 14.8% year to date. Same-property modified NOI decreased 3.0% in Q3 and 6.2% year to date, primarily due to increased estimated credit losses. Nine-month same-property lease income declined $7.0m, including a $9.2m increase in estimated credit losses.
- Profit and unusual items: The nine-month 2020 loss included a $9.0m property impairment and $2.5m debt-extinguishment loss. The comparable 2019 period included $32.4m of property-sale gains and a $25.5m loss tied to settled indemnification claims. These differences materially affect year-over-year net income.
- Margins and portfolio: Economic occupancy for the pro-rata combined portfolio was 94.9%, versus 95.8% a year earlier; ABR per square foot was $18.57 versus $18.28. Q3 lease renewals in the wholly owned portfolio achieved a 5.9% increase in comparable contractual rent; comparable renewals in IAGM were down 9.4%.
- Cash flow and distributions: Nine-month operating cash flow was $69.9m, down $16.3m year over year. Cash, cash equivalents and restricted cash totaled $327.2m at September 30, compared with $118.8m a year earlier. The company declared $0.06 per share in distributions for the first nine months, including $0.02 per share in Q3.
Debt, liquidity and capital
- Debt, net, was $655.2m at September 30, up from $572.9m at December 31, 2019. It comprised $107.0m of mortgages, $150.0m drawn on a $350.0m revolving credit facility, and $398.2m of unsecured term loans, net.
- The revolver had $200.0m remaining capacity at quarter-end. On October 28, 2020, the company used cash to repay $100.0m of the revolver balance.
- All loan covenants were met at September 30. Management said it expected adequate short-term liquidity and believed it could repay, refinance or extend debt, while identifying rent collections, pandemic duration, capital-market access and property sales as important uncertainties.
- Management estimated that a permanent 1% change in rates on variable-rate debt outstanding at quarter-end would change annual interest expense by approximately $2.5m. It also disclosed a $13.8m derivative liability in accumulated comprehensive loss.
COVID-19, outlook and risks
- The pandemic continued to disrupt tenants and collections. By October 29, 100% of properties were open for business, but government restrictions and further outbreaks remained possible. Approximately 62% of tenants, representing 52% of GLA, had requested assistance.
- For Q3 billings, the company reported 90.0% collected, 1.2% under payment deferral plans, 4.9% estimated credit losses and 3.9% remaining receivables. Approximately 92% of October billings had been collected by October 29. Collection outcomes and tenant solvency remained uncertain.
- The board suspended the share repurchase program and distribution reinvestment plan effective July 11, 2020. The company did not publish an estimated share value in May 2020. The board said it would continue reviewing the distribution; the filing provides no specific earnings or distribution guidance.
- A potential strategic transaction intended to enhance stockholder value and provide liquidity was delayed by COVID-19 uncertainty; the company gave no assurance it could complete a transaction on attractive terms. Key risks include tenant bankruptcies, rent defaults or deferred-rent nonpayment, lower occupancy, asset impairment, debt refinancing and market conditions.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Subsequent rent collection rates, deferred-rent repayment and credit-loss provisions, especially as pandemic conditions change.
- Tenant bankruptcies, lease renewals and occupancy trends, including the weaker IAGM renewal spreads.
- Debt maturities, revolver usage after the October repayment, covenant headroom and refinancing access.
- Whether the board changes distributions or resumes the suspended SRP and DRP.
- Progress, terms and timing of any strategic transaction, and whether property values support reported carrying amounts.