IVT - InvenTrust Properties: A Defensive 3.6% Dividend Yield From Grocery-Anchored Retail

2023-09-06 16:45:39 ET

Summary

• InvenTrust Properties is focused on building a grocery-anchored retail REIT property portfolio in the Sunbelt region.
• The company completed its public offering in early 2021 just as the Fed began tightening monetary policy.
• InvenTrust last paid a quarterly cash dividend in line with previous payments and for a 3.56% annualized forward yield.

Sunbelt-focused REIT InvenTrust Properties ( IVT ) is building a grocery-anchored retail property portfolio that stood at 63 properties spread across a 10.4 million gross leasable area as of the end of its fiscal 2023 second quarter. It only completed its public offering in late 2021 just as the Fed embarked on what has become the fastest pace of monetary tightening in decades with the Fed funds rate now sitting at a 22-year high of 5.25% to 5.50%. InvenTrust last declared a quarterly cash dividend of $0.2155 per share , in line with its prior payment and for a 3.56% annualized forward yield. Critically, the REIT is set to enjoy relative recession resilience with around 87% of its net operating income being derived from shopping centers with a grocery anchor.

This outsized exposure to grocers has pushed the common shares to trade at a premium price to a trailing 12-month FFO multiple of 15.3x , nearly 25% higher than its peer group median. The income is of course the prize here and whilst the 3.56% yield does pale in comparison to safer options like CDs that are currently offering yields of up to 5.6% or with a U.S. 10-year Treasury note offering a 4.26% yield, InvenTrust's pathway for dividend growth is healthy and the REIT has raised its quarterly cash dividend by around 5% from a year ago. In view of the common shareholders is further dividend growth against an increasingly recessionary backdrop.

Operating Results And Debt Maturities

The REIT recorded second-quarter revenue of $64.27 million , a 5.9% increase from its year-ago period on the back of same property net operating income that advanced 3.7% over its year-ago quarter. InvenTrust's leased occupancy as of the end of the second quarter was 96.2%, up from 95.4% in the year-ago period with its leased to economic occupancy spread of 230 basis points, driving a roughly $4.9 million in base rent on an annualized basis. Blended re-leasing spreads for new and renewal leases signed at 5.8% helped drive core FFO of $ 29.1 million , around $0.43 per share. This was marginally up from $28.6 million, around $0.42 per share, in the year-ago period.

The REIT completed one property acquisition during the quarter for $22.4 million of The Shoppes at Davis Lake, a 91,000 square foot shopping center anchored by supermarket chain Harris Teeter. InvenTrust's investment pitch is heavily underpinned by its 50% payout ratio which opens the scope for further dividend growth against the elevated interest rate environment. InvenTrust's total debt position at the end of the second quarter stood at $833.7 million and was mainly comprised of fixed-rate debt. The REIT also had an undrawn $350 million revolving line of credit at SOFR plus 1.14%.

The $400 million in term loans were locked in at comparatively low rates with the earliest maturity coming up in September 2026. There is $92.47 million in maturities from mortgages payable coming up through the remainder of 2023. Another $15.7 million of mortgages mature next year. Critically, a combination of low fixed rates, a favorable debt maturity profile, and $434 million of total liquidity as of the end of the second quarter has radically derisked InvenTrust's investment profile and heightened its opportunities for growth.

Tangible Book Value And The Share Premium

This liquidity position was also comprised of $84 million in cash and equivalents as of the end of the second quarter. InvenTrust tangible book value as of the end of the quarter was $1.45 billion, around $21.47 per share, and down from $22.56 per share in the year-ago period. Bears would be right to flag a flattish FFO movement set against tangible book value that declined and a 12.4% premium to tangible book value as reasons to temper enthusiasm in the REIT.

However, with the markets currently pricing in a 93% chance that the Fed maintains rates at their current level at the upcoming FOMC meeting on September 20, we could see greater enthusiasm for REITs return and the current premium move higher. The REIT is down 7.4% over the last year due to this dynamic that looks set to finally invert once the fastest pace of monetary tightening in decades comes to a concrete end. This is as the economy continues to remain resilient, raising hopes of a Goldilocks economic scenario where the US economy stages a soft landing with inflation coming back to the Fed's 2% target. InvenTrust forms a good hold against this economic backdrop.

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