IVT earnings call transcript, October 28, 2026

Thank you for standing by and welcome to Inventrust's third quarter 2026 earnings conference call. My name is Caleb and I will be your conference call operator today. Before we begin, I would like to remind listeners that today's presentation is being recorded and a replay will be available on the investors section of the company's website at inventrustproperties.com.

After today's prepared remarks, we will host a question and answer session. If you would like to ask a question. Please press star one to raise your hand. To withdraw your question, press star one again. I would now like to turn the call over to Mr. Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir. Thank you, operator. Good morning, everyone. And thank you for joining us today. On the call from the Inventrust team is DJ Bush, President and Chief Executive Officer. Mike Phillips, Chief Financial Officer. Christy David, Chief Operating Officer. And Dave Heimberger, Chief Investment Officer. Following the team's prepared remarks, the lines will be open for questions. As a reminder, some of today's comments may contain forward-looking statements about the company's views on the future of our business and financial performance, including forward-looking earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risk and uncertainties. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call or that are in the quarterly financial supplemental or press release. In addition, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website.

With that, I'll turn to- call over to DJ. Good morning, everyone, and thank you for joining us. The third quarter was another period of solid execution for Inventrust, supported by healthy leasing demand, strong tenant retention, and our team's continued ability to convert that activity into occupancy and cash flow. This momentum generated year-to-date same property NOI and narrate FFO per share growth of 3.4% and 9.9% respectively, underscoring the value of our well-located centers serving everyday needs We'll see you next time. of growing communities. Our recent acquisitions are contributing to growth as well. Earlier this year, market conditions created an attractive opportunity to expand the portfolio and we acquired six Sunbelt properties adding over 800,000 square feet of GLA for a total of nearly $290 million. The capital markets have shifted quickly since then. Rising Treasury yields have increased the cost of debt across the industry while share prices have come under pressure. At the same time, at the same time, right? Private capital remains active in the market for high quality retail assets and transaction pricing is yet to fully reflect today's financing costs and return requirements. We are responding with discipline. We have raised our return hurdles and are taking a measured approach until pricing better aligns with our cost of capital. Our team remains active, underwriting opportunities, tracking seller expectations and evaluating the right sources of capital.

Our goal remains to grow the portfolio and make a greater use of our operations. Our goal is to grow the operating platform with investments that can deliver durable cash flow growth. In the meantime, operating fundamentals in our Sunbelt portfolio remain strong. Contractual rent increases provide a dependable foundation while renewals and new leases give us opportunities to capture mark to market rent growth. Our sign but not open lease pipeline adds visibility as those leases commence and begin contributing rent. Tenant retention is an important part of this approach. It supports rent growth and stronger lease terms while helping limit downtime and incremental capital needs. High occupancy also gives us the flexibility to recapture space selectively when we believe it can improve the center's long-term performance. Overall, we remain highly confident in our portfolio and the opportunities ahead. We'll continue to operate our centers to meet the needs of our tenants and consumers, invest where we see best risk-adjusted returns, and maintain financial flexibility as the market can evolve. Mike will now review our financial results. Thanks, DJ, and good morning, everyone. Same property NOI for the third quarter was $50.4 million, an increase of 3.1% from the third quarter of 2025. Growth was led by base rent increases of 280 basis points, including approximately 340 basis points from contractual rent bumps, leasing spreads, and redevelopment activity. Other contributors included 40 basis points from percentage rent and specialty income.

These positive drivers were partially offset by an expected temporary occupancy impact of 60 basis points and 10 basis points of bad debt. Through the first nine months of the year, same property NOI totaled $144.8 million, representing 3.4% growth over the same period in 2025. As we noted previously, third quarter same property NOI growth was affected by the timing of certain operating expenses associated with scheduled projects. We expect growth to reaccelerate in the fourth quarter as newly and the third quarter as newly weeks has commenced and our signed but not open pipeline converts to rent paying occupancy. Third quarter NAIT REIT FFO was $41.5 million or 53 cents per diluted share, up 8.2% from the third quarter of 2025. Core FFO increased 6.4% year over year to 50 cents per share. Same property NOI and net acquisition activity were the primary drivers of FFO growth, partially offset by interest expense. Through the first nine months of 2026 NAIT REIT FFO total. $122.6 million or $1.56 per diluted share, up 9.9% year over year. Core FFO was $1.47 per diluted share, up 7.3% from the comparable 2025 period. We closed the quarter with total liquidity of $510 million, including $29.5 million of cash and $480 million of availability under our revolving credit facility. Net debt to adjusted EBITDA is 4.9 times on a current quarter annualized basis. while net leverage is 31.2%. Our weighted average interest rate is 4.7% and our weighted average term to maturity is 4.1 years. With no debt maturities in 2026 and only $26 million due in 2027, we have good visibility into near-term interest expense and limited refinancing exposure.

Finally, we declared a quarterly dividend of $0.25 per share. Turning to our outlook, we are updating our full-year same-property NOI gains range to 3.7%.

We are also raising our FFO per share guidance to $2.05 to $2.07 for NAIDREAD FFO and $1.94 to $1.96 for CORE FFO. To reflect the timing of transactions, we are adjusting our net investment assumption to a range of $190 million to $255 million. Additional information on the assumptions underlying our guidance is included in our supplemental disclosure. With that, I'll turn the call over to Christy for an update on our portfolio activity.

Thanks, Mike. Our portfolio continues to perform well, supported by broad tenant interest and strong execution by our teams. Retailers are advancing multi-year expansion plans and industry announcements continue to point to more openings than closures, especially in Sunbelt markets. That is consistent with what we hear from our national and regional tenants who are focused on adding stores in the right locations. Favorable and growing demographics remain important. But site selection decisions increasingly reflect the role each store plays within a broader pickup delivery and omnichannel strategy. At the same time, elevated replacement costs continue to constrain new retail construction, making high quality space in established trade areas more valuable. Where the limited development is occurring, it is generally tied to residential growth rather than new retail supply that competes directly with our centers. These dynamics support strong backfill interest and attractive lease economics when space becomes available. Leasing demand remains robust across food, fitness, health, and other service-oriented uses. These tenants complement our grocery and essential retail anchors, giving customers more reasons to visit throughout the day and contributing to a more resilient tenant mix. Restaurants and beverage concepts are particularly active, ranging from growing brands such as 7Brew and Dutch Bros to established operators like Wingstop and Chipotle. Traffic at our centers is up nearly 5% over the same period last year.

With our grocery anchors remaining key drivers, several grocery partners continue to reinvest in existing stores within our portfolio. These projects demonstrate their confidence in our centers and trade areas, while helping attract additional visits to our properties. Turning to our portfolio results, we executed 86 leases during the quarter, covering approximately 549,000 square feet. Comparable blended lease spreads were 14%, with new lease spreads of 42% and renewal spreads of 11%. Excluding contractual options, renewal spreads were 16% with year-to-date tenant retention at 89%. Annual rent escalators on new and renewal small shop leases executed in 2026 averaged over 3.1%. One of the quarter's standout leasing wins was backfilling the former painted tree space. In less than three months, our team signed Nordstrom Rack at a 73% spread, which added a strong national retailer to the center and helped drive a 30 basis point sequential increase in anchor leased occupations. It's a great example of the demand for quality space and the speed at which our team can act when the space becomes available. Annualized base rent per square foot increased 3.4% year over year to $20 and 97 cents, reflecting continued strength in our leasing fundamentals. Leased occupancy ended the quarter at 96.4%, an increase of 20 basis points sequentially, while economic occupancy improved 70 basis points to 95.3%.

Small shot, please. Leased occupancy remained steady at 93.2%, and anchor leased occupancy increased 30 basis points to 98.4%. Looking ahead, our signed but not open lease pipeline represents approximately 110 basis points of occupancy and $4.3 million in annualized base rent, providing meaningful visibility into future cash flow growth. Beyond these executed leases, we have an additional 140 basis points of potential ABR in various stages of negotiation and documentation. Thank you very much. In closing, our results reflect the quality of our portfolio and the strength of our leasing execution. We are retaining productive tenants, introducing concepts that support the community, and securing terms that drive long-term rent growth. As we work through the active pipeline, our focus on building the right tenant mix, making every new lease improve cash flow, and add value to each location.

Operator, that concludes our prepared remarks, and we are ready to open the line for questions.

We will now begin the question and answer session. If you would like to ask a question,

please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Todd Thomas with KeyBank Capital Markets. Your line is open. Please go ahead.

different mindset if we if we're still in an environment where rates tend to move back upwards rather than down okay that's helpful with with private capital interest you know still remaining strong you know during this this this point and I think the revised that investment guidance still implies you know additional dispositions at the midpoint perhaps you know maybe talk about the pipeline for additional asset sales here is it is there an opportunity to capitalize on that that strong you know private capital demand in the market today ahead of ahead of you know deployment yeah exactly and you know what that you know thank you for highlighting that what is what's implied in the guidance that alone is we do have two assets in the market just come down to timing uh we're expecting at least one if not both to close by the end of the year um obviously uh we'll fall somewhere in between that range um at this point in the year it may not you know get across the finish line opportunities in the pipeline since today um it's still a very robust pipeline across all formats uh we're seeing lifestyle power obviously on a strip um you know there's been a lot of activity there and then our bread and butter uh neighborhood community um you know to call it two you know billion five two billion dollars at any given time that we're that we're looking at uh pipeline i would expect that to uh remain

consistent and the good news is um even with the competition in the sunbelt you know increasing that's not new that's still been going on for three or four years we're still been we've still been able to find you know pockets of opportunity that if like i mentioned in the prepared remarks been additive uh already being very additive uh to the core uh growth thank you your next question comes from the line of samir kanal with bank of america your line is open please go ahead

thank you and and good morning everybody i guess uh maybe dj maybe talk around kind of what you're seeing on the shop occupancy side at this point right um how much more you can push on that end and then just broadly how is the health of the the local small shop tenant right as it relates to ar levels or delayed payments given uh maybe the increase in interest rates we've seen yeah you know uh we have about you know just under 20 percent or so local tenants those are the ones that we tend to look at when we some of these uh spikes or that are a little bit more sensitive to inflation or or removements um they've been they've been very resilient obviously there's been some small uh bankruptcies out there of what we of which we have minimal exposure um but the small shop occupancy has still been very strong i think implied in our guidance with uh from a bad debt perspective is you know we're kind of trending towards goal um of of that guidance for the full year you know we're hopeful that the year we may have some operators that have been there that have

um as it relates to the occupancy simply because we had some really nice anchors um and then that should expand nicely um in the other way by the end of the year and then as Christy mentioned we have 140 basis points you know of real good visibility as we move 2027.

that debt reserve we're talking about all-time high occupancy levels by mid next year got it and i guess as a follow-up just looking at you know with the focus being on 27 for for many investors now as you look ahead today do you see a path for the same strength of white growth to accelerate and i guess how much visibility do you have as it relates to that based on you know your existing leasing pipeline thanks

yeah it's hard to get i don't you know without getting too far into 2027 you know the path that we see is um really um a high probability of that long-term trajectory which we've kind of three to four percent for the operating portfolio from the same property analyze standpoint um but most importantly if we as we get closer and closer to these you know frictional occupancy levels you get to you get opportunities to keep a retention rate high and i know we've talked about that a lot which should accelerate free cash flow that's what's exciting about the next couple years is if the credit quality and the tenancy is so much better than it was in years past therefore if we can just if those if the strong tenants that are still serving our communities um you know we were able to renew them at healthy renewal rates uh you know curate those tenants thanks a lot your next question comes from the line of jamie feldman

with wells fargo your line is open please go ahead hi thank you you have connor on with jamie maybe a two-parter here on your lease to economic spread narrowing to 110 basis points this quarter but building on last call's commentary how much of the remaining 4.3 million do you expect to start paying rent in the fourth quarter versus 2027 and are there any known off known move out offsets and you expect to rebuild the spread from new signings or is 110 basis points more of a normal level going forward yeah thanks I can take that question this is Mike so um yeah the 4.3 million dollars that Christine mentioned the parks a third of that should come online uh this year in 2026 in the fourth quarter which is really accelerating our about 75 percent of that should be 2027 and we don't have any no kind of move outs uh embedded in that and then like DJ just that

we're negotiating right now that we expect to be on by year end so that we do see that expanding thank you and then maybe another the net debt to EBITDA is now 5.3 times on a trailing basis 4.9 on the current quarter annualized uh with the sub five times target by year end if acquisition opportunities become more attractive in 2027 how much net investment can can IVT fund while maintaining leverage below five and at what point would you consider equity or or joint venture so uh good question so obviously you know uh you know the annualized number um is lower because we we did uh you know get all the income from a lot of our more recent acquisitions um that should continue to move down as we move to the to the end of the year as you mentioned uh look our our leverage tolerance uh remains the same on a forward basis our target is always been between five and five and a half times we push a little bit further than that with uh with the whole idea of kind of balancing on a long-term basis right around five and a half times net that deep stop um that gives us that still gives us a plenty the current balance sheet without having to go to a third party partner or or the equity markets um if we you know when we look at our business over the next five years we can grow and a lot substantially to the tune of almost 50 percent while using the current balance sheet um and and growing the business uh through external opportunities obviously there's been a lot of private capital formations both at the asset level and at uh the partnership or joint venture level um in the space um event trust's philosophy up to this point has always been um keeping a simple strategy a wholly owned strategy um and that's you know resonated with

and investors to this point those cap those pockets of capital are available to us if we were ever to want to go that route but uh to this point uh you know we've found uh you know the holio strategy given the homogenous nature of our portfolio um you know the right uh the right avenue for us at least at this time thank you your next question comes from the line of linda sai with chewist

your line is open please go ahead hi good morning um in terms of the anchor lease comment is this the three anchor leases you hope to execute by year end as you discussed in 2q and then is there an update on the former painted tree in dallas party city spaces uh thanks linda this is christy um with respect to the the uh the painted tree space um we were able to sign a lease with nordstrom rack which we expected to come online and be open uh late 2027. so that was a great win for the team um you know like i had said in the remarks we were able to complete that in um less than three months and able to get over 70 percent spread on that on that deal um with respect to the other anchor vacancies we have six of them um three and including the the bell's box that you mentioned um are at our gateway market property in st. peak florida and those are all being held for a greater um repositioning remark development program with an repositioning at that center um we expect to be able to break ground on that larger project in 2027. um the other three one of them is at our remaining california assets and we do have an loi on that particular space and the other two one being um the former party city at stonehenge in richmond and the former party city at the highlands of flower run in dallas each of those we expect to have signed leases on by the end of this year thanks and then with non-option renewal spreads at 16 percent

are tenants asking for greater concessions or capital commitments to accept those increases you know what we have actually not seen any anything out of the ordinary i think across the portfolio um and being able to see what what we can do what the team can produce with those we just actually get our hands and have the ability to negotiate those thank you

as a reminder if you would like to ask a question please press star one to raise your hand your next question comes from the line of michael gorman with btig your line is open please go ahead

yeah thanks good morning maybe um just building a little bit off of linda's last question there dj you mentioned kind of shifting into the free cash flow opportunity as the occupancy in the portfolio fills up towards that frictional level and i'm just curious is do you see that being more driven by lower turnover in the portfolio or are you seeing greater progress on negotiating some of those capital commitments given the tightness of the market where tenants aren't asking for the same build outs or are accepting spaces as is so you're seeing a reduction in leasing costs overall kind of how do you see that playing out and michael it's a great question it's much more of a former it's it's more of a retention than the capital required to build out to be said now having said that obviously the format the you know the space the category of which tenant that they're that they're doing it that all impacts capital in a different way and those deals a lot of times just comes down to what does the tenant need to be successful what type of build out do they need obviously you know local and regional tend to be a little bit less costly as you can imagine that's an endeavor commitments that are just needed and necessary and hit their own returns initial term but through their option periods

that free cash flow really accelerates is you know keeping

great thank you very helpful your next question comes from the line of polina rojas with green street your line is open please go ahead good morning dj you you indicated that you expect to stay active on external goals in in 2027 if i understood well and but

our expectations are rising and while private market prices seem to stay sticky so acquisitions are becoming increasingly harder to make pencil so as you think about the future what are your thoughts on not setting external growth guidance for example for 2027 and staying truly opportunistic on that front

yeah no so I think it's a good observation on some of my comments I think what it comes down to we're always opportunistic right and we're looking at the end of the day we're always matching our different pockets of capital or what or a cost of capital to what you know what uses we see available on the market or what type of returns we see in the market if that doesn't make sense we're very happy to generate intro a group or just sit on our internal growth opportunities wait for the market to come back to us because because it will hope of our course at any point in time said differently we have we've got to give you a chance to do that. I'm back.

initial return hurdles, but we're going to dilute the quality and at some point, dilute the growth profile and add additional risk to what today is a very relatively speaking lower risk, high quality portfolio. So your question is well taken. I think we're always going to be looking at things that make sense to add to the portfolio and we will lean in with. The time is right. And that's what we did earlier this year. That's what we've done in the last several years. And I know that there will be opportunities at some point over the next 12 to 18 months to do the same thing.

Okay. And then you mentioned private market values being sticky or I don't remember your exact word. Going into more detail, would you say that pricing hasn't moved at all? Or that there has been some movements, but marginal? What do you hear from the marketplace? Any inclination to change underwriting targets if the situation remains as it is today? Yeah. So the transaction market is funny that way because everything that's being signed today was negotiated. You know, several weeks, if not months ago. So it's a little bit of a lag. Our sense is that it should change just given what's happened over the last 90 days. Now, obviously, there's a tremendous amount of volatility in the treasury rates. All that takes a little bit of time for the private market to digest because it's such a long process from marketing an asset to execution. And we're happy, you know, we're happy to kind of wait to see.

Thank you very much. Thanks, Paulina.

There are no further questions at this time. I will now turn the call back to DJ Bush for closing remarks.

Thank you to everyone who joined us. If you have any follow-up questions, please reach out. We'd be happy to discuss further. Otherwise, we're looking forward to seeing many of you at the

time. Have a great day. This concludes today's call. Thank you for attending. You may now disconnect.