Inventrust Properties Corp. quarterly report, Q1 FY2019

InvenTrust Properties Corp. — Q1 2019 Form 10-Q

Reporting period: Three months ended March 31, 2019. Unaudited financial statements; dollar amounts below are in millions unless stated otherwise. InvenTrust is a REIT focused on owning, managing, acquiring, and developing multi-tenant retail properties.

Financial performance and key metrics

Metric	Q1 2019	Q1 2018
Total income	$56.4	$63.8
Net income from continuing operations	$4.0	$34.2
Net income (loss)	$(9.5)	$34.2
Net income (loss) per diluted share	$(0.01)	$0.04
Cash provided by operating activities	$21.5	$27.3
Cash used in investing activities	$(94.0)	Cash provided: $114.3
Cash used in financing activities	$(13.8)	$(13.9)
FFO applicable to common shares	$15.5	$43.7
Modified FFO applicable to common shares	$27.9	$30.1

Same-property modified NOI increased 3.7% to $33.5 million. Management attributed the increase mainly to leasing previously vacant space and more favorable rental terms, with a smaller contribution from lower credit losses and bad debt expense. Total modified NOI was $36.2 million, down from $41.5 million.

At March 31, 2019, assets were $2.525 billion, cash and cash equivalents were $174.2 million, and restricted cash was $4.3 million. Debt, net, was $561.4 million, comprising $212.4 million of mortgages and $349.0 million of term loans. Stockholders’ equity was $1.829 billion. The company had no borrowings under its $350 million revolving credit facility; reported total debt and liquidity figures do not include the joint ventures’ debt unless stated.

Quarterly distributions were declared and paid at $0.02 per common share. Cash distributions declared were $13.4 million and paid were $13.0 million.

Material changes versus the prior comparable period

• Total income fell $7.4 million, primarily reflecting dispositions of 16 properties since January 1, 2018; acquisitions and same-property growth partly offset the decline.
• The year-over-year earnings comparison was affected by Q1 2018 gains of $20.3 million on property sales and transfers and $10.8 million on debt extinguishment, neither of which recurred in Q1 2019.
• Q1 2019 included a $13.5 million increase in the estimated loss contingency for University House Communities Group indemnity claims, reported as discontinued operations. The 2019 net loss therefore contrasts with Q1 2018 net income.
• Operating cash flow decreased $5.8 million. Investing cash flow shifted from a $114.3 million inflow in Q1 2018, largely from property-sale proceeds, to a $94.0 million outflow in Q1 2019, mainly for acquisitions.
• During Q1 2019, the company acquired two retail properties for a gross price of $86.75 million. No properties were disposed of during the quarter.
• The company’s retail platform had 73 properties and 12.3 million square feet, including joint-venture properties. Economic occupancy was 94.3%, compared with 92.8% a year earlier; ABR per square foot was $17.79 versus $16.61.

Outlook, risks, and unusual items

• Management’s strategy is to focus on grocery-anchored and necessity-based retail centers in selected growth markets, pursue disciplined acquisitions and dispositions, and reinvest sale proceeds. The company said competition can raise acquisition prices and dispositions may temporarily dilute operating performance. It did not provide numeric earnings or NOI guidance in the supplied filing text.
• The board approved an increase in the annual distribution rate effective with the quarterly distribution paid in April 2019. The new rate is not clearly stated in the supplied filing text; management said the board will continue to review distributions in light of the company’s strategy and progress.
• The UHC indemnity claims remain uncertain. The company accrued an additional $13.5 million in Q1 and disclosed that the ultimate loss could be up to $7.0 million more than the amount accrued; management said these claims are not expected to be covered by insurance.
• Interest-rate exposure remains relevant: $352 million of term loans was outstanding, of which $150 million was swapped to fixed rates. Management estimated that a sustained 1 percentage-point rate increase or decrease would change annual interest expense by approximately $2.0 million. The swaps terminate December 1, 2019, and related deferred amounts are expected to be reclassified into earnings during 2019.
• Management cited retail-sector and property risks including e-commerce, tenant bankruptcies and lease expirations, rent collection, property-market conditions, refinancing and interest rates, and the ability to complete acquisitions, dispositions, redevelopment, and strategic transactions. The filing reported no material change to previously disclosed risk factors.
• Subsequent to quarter-end, the company sold Brooks Corner for $26.3 million and extinguished its $12.5 million mortgage. On May 7, 2019, it acquired one Houston-area property for approximately $14 million; its joint venture acquired three additional Houston-area properties for approximately $47 million.
• The company adopted lease-accounting standard Topic 842 on January 1, 2019. It recognized operating-lease right-of-use assets of $2.9 million and liabilities of $3.1 million at adoption; management described the changes as primarily affecting accounting and disclosures.

Key facts for investors to verify

• Review the status and potential final cost of the UHC indemnity claims, including the disclosed possible $7.0 million excess over the accrued amount.
• Confirm the new annual distribution rate and assess distribution sustainability against operating cash flow and capital needs.
• Track same-property NOI, occupancy, rent growth, credit losses, and leasing results against management’s portfolio-refinement strategy.
• Review debt maturities, variable-rate exposure, swap termination and refinancing plans, and the company’s available borrowing capacity.
• Assess acquisition and disposition prices, including the post-quarter Brooks Corner sale and Houston-area acquisitions, and their effect on liquidity and operating performance.