InvenTrust Properties Corp. (IVT) Earnings Call Transcript & Summary

Hello, and welcome to InvenTrust Properties webcast discussing our new estimated share value. I am Dan Lombardo, Vice President of Investor Relations for InvenTrust. With me today is Tom McGuinness, President and CEO of InvenTrust; DJ Busch, Executive Vice President and CFO; and Christy David, Executive Vice President, CIO and General Counsel. Thank you for joining us today. To start, DJ is going to begin with a few prepared remarks, then we will open the webcast to -- up to answer your questions. Feel free to submit your questions at any time during this webcast. Before we begin, I would like to remind everyone that during the course of this webcast, we will be making forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ significantly from those indicated. These risks are outlined in our 10-K and 10-Qs for the period ending December 31, 2019, March 31, 2020, June 30, 2020 and September 30, 2020. We undertake no obligation to update our forward-looking statements as a result of future events or developments. With that, it's my pleasure to turn the webcast over to DJ.

Thanks, Dan, and good afternoon to all joining us today. I hope everyone had a happy and safe holiday season and a happy new year. As Dan mentioned, I'll walk through our prepared remarks which will include a brief COVID-19 update, an update on InvenTrust's current distribution, and then I'll walk through the 2020 estimated share value. The near and long-term impact of the COVID-19 pandemic is still very much uncertain. Cases and hospitalizations in many U.S. markets continue to increase, causing additional government mandates and reduced operating capacity or even closures in many nonessential retail categories. With the essential nature of InvenTrust portfolio, our shopping centers remain open and continue to play a key role providing goods and services in their local communities, but many of our tenants are struggling. And our teams both at the corporate office and in the field continue to work tirelessly with our tenants to make sure both parties, tenant and landlord, can emerge from the pandemic stronger than when we entered. But this is going to take some time. The recent rollout and administration of COVID-19 vaccines is an important green shoot and provides some much-needed visibility or a small light at the end of the tunnel for many of our retailers. This added visibility allows us to continue to work with our tenants on creative solutions to address rent obligations and get them to the proverbial other side. In addition to our tenant outreach and assistance programs, we have recently hired additional leasing agents, knowing that there is much work to be done, releasing spaces at our centers. Our current cash flow and balance sheet position has provided us a unique opportunity during this time of disruption to invest appropriately in our people, our assets and even take on some near-term vacancy to capture longer-term, value-creating opportunities that will position our properties to serve their respective communities long term. So moving on to the platform. Just a quick reminder of the InvenTrust portfolio. We own and operate 65 properties in around a dozen Sunbelt markets, from Southern California to Southern Florida, up through the Carolinas and D.C. with our highest investment being in Texas. Roughly 85% of our properties have a grocery component, which speaks to the essential nature of our portfolio, as mentioned earlier. The essential nature of our portfolio is also why we believe our rent collections have been some of the strongest in the retail real estate sector at north 90%, still below pre-pandemic collections, which were effectively 99% but strong nonetheless. Our average base rent is above the shopping center peer group average, which often can be an indication of the quality tenants within our centers and the quality of the demographics in the markets in which we operate. And finally, our net leverage ratio remains below 20%, which is materially lower than our shopping center peers. So moving on. Next, I wanted to highlight, in conjunction with our estimated share value announcement on December 21, 2020, the Board approved an additional 3% increase to the company's dividend to an annualized rate of $0.0782 per share, the fifth consecutive year of such an increase. Our conservative dividend payout ratio for the proportion of the company's funds from operations that it distributes to shareholders coming into the pandemic and low leverage allowed us not only to protect but to continue to increase this important income stream for of our shareholders. InvenTrust is one of the only retail REITs that did not either materially lower or even suspend its dividend in light of the pandemic, which I believe is further testament to the durability of the portfolio's cash flow and our good approach to leverage. So moving on to the estimated share value. On December 21, we published the new estimated share value of $2.89. Duff & Phelps, an independent third-party valuation firm, completed a detailed valuation analysis of the company's portfolio of assets and balance sheet as of December 1, 2020. From that analysis, Duff & Phelps provided the Audit Committee of the Board of Directors a range of per share values from $2.76 to $3.03 per share. From that range, the InvenTrust Board selected the midpoint of $2.89 per share. As anticipated, the impact of the COVID-19 on the retail real estate was a meaningful driver in the 8% share price decline. That said, based on industry observations, we do believe that the decline could have been more material had it not been for the grocery nature of our portfolio, the markets where we operate and the low leverage capital structure we employ. On Page 7, we highlight some of the other factors that impacted the estimated share value, all of which are directly or indirectly related to COVID-19. Retail bankruptcies and distress have been well documented, of which InvenTrust has certainly not exempt. The e-commerce has continued to accelerate at an incredible pace, which impacts demand for physical space. That said, many of our centers have proven to be an important last mile distribution point for grocers who experienced years of e-commerce growth in a matter of months due to the pandemic. As grocers and many of our other retail partners continue to evolve their business models to a more omnichannel friendly structure, we believe our centers will play an important role in that evolution. As for some of the moving pieces, our same property portfolio declined by $0.19. Our transaction activity, both acquisitions and dispositions, decreased by $0.13, but this decline was mostly offset by cash proceeds from dispositions, which is captured in the total cash and other assets net of other liabilities line item below. And there were no real material changes to our corporate or proper level debt. On Page 8, we wanted to highlight and provide a little bit more insight as to how the values changed within our different property types. As expected, the decline in our grocery-anchored shopping centers was less severe than our power centers, which continues to confirm our multiyear thesis and fuel our go-forward strategy of increasing ownership and investment in grocery-anchored retail centers. On Page 9 and before I close up, before we open the call to questions, we know that this has been a very difficult time for many of our shareholders. And while we do see some light at the end of the tunnel, we are bracing for another difficult several months. In the meantime, our commitment to maintaining proactive communication with our shareholders will continue. In conjunction, the Board and management team will continue to navigate InvenTrust through the pandemic and operate the business to the best interest of its stakeholders. This includes: the evaluation and the distribution rate on an ongoing basis, reassessing the share repurchase program and dividend reinvestment program, continue to curate the portfolio and enhance internal best practices to improve public company readiness, which in turn, will serve the company well when market conditions are appropriate for the potential final liquidity event that will create the best value for our shareholders. And with that, I'm going to turn it back over to Dan to open up our question-and-answer session. Dan?

Yes. Thank you, DJ. And what I wanted to start out this session with several points that we've been receiving since our announcement that the company has been receiving since our announcement of our new share value. And Tom, I wanted you to address the first one, and that is, when will InvenTrust pursue a liquidity event?

Thanks, Dan. And first, I just wanted to welcome all of our shareholders that are attending and broker-dealers financial planners. Thank you very much for attending. I also wanted to also, like DJ, wish everyone a Happy New Year. And clearly, our hope is that 2021 is better than 2020 was. Again, just to kind of dovetail onto some of the things that DJ has already said, it's really hard to say when we're going to have a liquidity event because there are a number of things that are outside of our control. We know that the vaccine is not being rolled out as quickly as everyone would like. By the end of the year, there was only 2 million people that were vaccinated as opposed to 20 million people. And now we have the unknown of the fact that they have the new virus, which is in England and 5 states in the United States, which is actually spreading even faster than the original virus. But that said, I would say that the same low leverage, essential retail, grocery-centric portfolio that we put together that was really built to have us do something with the company, has been perfect in the middle of this pandemic. And I can assure you that our Board of Directors and the senior management team continue to evaluate all the time to make sure that as soon as the time is ready, that we are ready to go forward.

Okay. Thanks, Tom. I think a follow-up to that is that we've received is due to COVID, has the potential form or vehicle of a liquidity event changed?

No, not really. I think our Board is agnostic and whether it's a listing a merger or a potential sale of the entire platform, that's been demonstrated on the fact that when we sold our student housing platform before, it was a sale. And then we listed our hotel platform on the New York Stock Exchange. So I think the Board is agnostic whatever is going to get us the greatest value for our shareholders that is, in fact, the direction that our Board will go on.

Okay. So Christy, there's a couple of questions for you that we've also received. With COVID, do you see any opportunities to purchase underperforming assets to move into our portfolio?

Thanks, Dan. Our goal continues to be to acquire assets that add value to our platform. We continue to focus on purchasing necessity-based grocery-anchored assets in our core markets with the favorable demographics. And at this point, there just has been very minimal activity in the transaction market. Our hope is to see that, that activity pick up and see additional listings and properties that fit our demographics come to the market. But at this time, that activity remains rather slow. When they do start to reopen, we will be very disciplined in our acquisition approach and continue to pursue those opportunities. And of course, as we do in the normal course of our business, we also evaluate our current assets for those that might be a good opportunity to dispose of. And when the market is open, we will evaluate our current assets for that activity as well.

Okay. And a follow-up to that, in general, what are the key demographic factors you consider before acquiring [indiscernible].

We look at several factors. Some of these include household income, education, population growth. We also take a look at very individualistic categories each property, such as traffic patterns, daytime [ solution ], other competitive retail centers in the area.

Okay. Tom, this one is for you. Why did InvenTrust suspend the SRP and the DRP? And will it be reinstated?

Many factors went in, in March and April to the decision that was made by the Board regarding the SRP and the DRP. One of the main factors was that the DRP and the SRP were designed to be match funded. And unfortunately, because of declining participation, due primarily because of what was happening with the stock market, we, therefore, decided to suspend it. However, the Board and management is always keeping an eye open to is there an opportunity and when would the timing of that opportunity, if possible, be to reinstate these programs.

Okay. DJ, for you, there's been questions about a significant portion of our portfolio is considered essential. Of the nonessential category, which tenants do you feel will experience the greatest disruption going forward?

Yes, sure. Obviously, I mentioned a couple of times in our prepared remarks that our properties play a critical role providing the essential products and services. And we're comfortable with the pandemics that we actually have within the portfolio, but there's certainly some nonessential categories that we've seen disruption in 2020, and we'll continue to see some disruption in 2021. The categories probably that come to mind and are probably the most obvious are full-service dining and then certainly, fitness and entertainment. Those are the main categories where we've seen the most pressure on our tenants to perform because of the mandates a lot of times that have been put in place. The good news is, I guess, these categories really make up -- our exposure to these categories which is just over 10%, certainly nothing to stop that, but on a relative basis and where it fits within our overall merchandise mix, we're comfortable with that, but we're going to keep a very watchful eye. And as it relates to restaurants and some other of these nonessential retailers that haven't been able to perform within the 4 walls of their space, we have tried to come up with some alternatives at the property level, so they can operate even within the compounds of our property. And some of those examples would be taking advantage of our common area space, parking stalls, sidewalks when appropriate to allow curbside pickup, improved traffic flow for pickups and deliveries. And then, as I mentioned, outdoor dining, which in our portfolio being in the Sunbelt markets, we can continue to do that given the climate in the markets where we operate throughout the winter months, which is very important.

Okay. Thanks, DJ. Tom, a couple of questions that have come in about, will we publish a new estimated share value this year, 2021?

Yes. Thank you for correcting that. We are now on a schedule. We had been doing May to May for a number of years. But because of the pandemic, there were uncertainties which is the reason why we didn't do it in May of 2020. But after publishing it in December 2020, we are now on that December end of year. So I would anticipate now, Dan, that we would be doing it at the end of 2021, probably sometime around December.

Okay. Thank you. DJ, back to you. What effect will COVID-19 have on future distributions? Does InvenTrust have enough cash to pay the company's distribution for the rest of the year?

Yes, sure. And I think I touched on this a couple of different times in the prepared remarks, but heading into the pandemic, our -- the InvenTrust's true differentiator was our balance sheet position and our low leverage. Clearly, to your point, the company has no immediate capital liquidity concerns. We only have one small maturity coming due in the middle of this year that we'll take care of with no issue. And because of our position, the Board has maintained their confidence, as I mentioned earlier, with the financial health, the cash flow of the company, which is why they felt comfortable not only maintaining the dividend, but increasing the dividend, which is obviously going to take place in April of this year. That said, Tom outlined a couple of additional risks. As we look forward, we're certainly not out of the woods yet. So the Board and management team will continue to evaluate the distribution on a quarterly basis.

Okay. Thank you. I just want to remind the audience, feel free to submit your questions. The next topic, DJ, is to you. Are you concerned that grocery business will experience a disruption from customers preferring to receive online/delivery orders?

Yes. I think the short answer is, yes. In some categories and with some grocers, there will be disruption, maybe in some retail real estate property types as well. We still believe in a brick-and-mortar -- that brick-and-mortar is critical for the grocery business. We've seen that play out during the pandemic at our centers. So as e-grocery continues to grow and it went through probably the biggest level or the most accelerated level of growth that it will ever see just given what happened last year. That transformation is going to continue, but where our centers are at, the close proximity to the rooftops and in the communities where we do business, we can be an important part again of that evolution, whether it be last mile distribution pickup being close and then also with a lot of the ancillary benefits that our centers have as it relates to services, things you can't buy online that play alongside those grocery anchored centers, I still feel like -- we feel like those centers, we're in a great competitive position.

Sure. Thank you. I did -- I have received some questions offline about 1099s, those typically will be out by the end of the month, typically, that's when the tax forms are sent to shareholders. Another question for you, DJ. InvenTrust keeps communicating that investing in grocery-anchored properties is bringing value to the shareholders, but the company's estimated share value is not increasing. How do you explain that?

Thanks, Dan. It's a fair question. And I think I alluded to it earlier, retail real estate has been negatively impacted by COVID-19. Some property types and categories much more so than others. The grocery-anchored nature of our portfolio, I think, has minimized some of that value decline that we are seeing in other property types, power centers specifically of which we own some. Certainly, larger regional malls, mixed-use centers, centers that anchor entertainment. So we still believe that the essential nature and grocery-centric nature of our portfolio has minimized what otherwise would have been a larger value decline than what we actually experienced.

Okay. Thank you. So looking at the different questions that have been coming in, I think, we've handled most of those topics a couple of times. So at this point, I'm going to close the webcast by thanking everybody for attending. We hope our presentation was informative and provided you a better understanding of the company's new estimated share value. Thank you again for your time today, and we wish everyone good health and safety, and have a great day and a happy new year.