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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, and welcome to InvenTrust Properties Second Quarter Webcast. I am Dan Lombardo, Vice President of Investor Relations for InvenTrust.
Since March, in the outbreak of this global pandemic, our goal at InvenTrust has been to increase our communication and outreach to all our stakeholders, including our investors. We believe that these times of uncertainty demand more information on the performance and outlook of our company. InvenTrust continues this approach with the webcast today.
Our agenda today includes a presentation by Tom McGuinness, our CEO; and DJ Busch, the company's CFO. Then after our prepared remarks, we have time dedicated to answer your questions. Feel free to submit your questions at any time during this webcast as we will do our best to answer as many questions and those topics as possible.
Before we get started, 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 periods ending December 31, 2019, March 31, 2020 and June 30, 2020. We undertake no obligation to update our forward-looking statements as a result of future events or developments related to the current global health crisis.
With that, it's my pleasure to turn the webcast over to Tom.
Thanks, Dan, and welcome to all of our listeners today. I hope that everyone is having a safe summer and enjoying what's left of it as much as you can enjoy it in the midst of a pandemic.
We are giving a second quarter update, but it will have a concentration on how we're operating the company during the pandemic. The situation in front of us will ebb and flow as it has for the last several months. When will we have a vaccine? What -- who will be our next President? And even what kind of an impact will the virus have on all of us? And if you take a look, early on in the pandemic, New York was one of the hotspots and now it has really kind of tamed down. Florida and Texas had their peaks about a month ago, where California is actually having their peak today. I believe in our grocery business and our markets in the long term and is going to be an interesting ride over the depth and breadth of the pandemic.
Flipping over to the next page, it's kind of reminding the shareholders that -- what it is that they own. InvenTrust is 65 open-air properties, not malls. We are in 13 Sun Belt markets with our highest concentration in Texas and other parts, but we're going to show that on the map in the next page. 84% of our shopping centers are grocery-anchored. They either have a grocery as part of our center or adjacent to us. It also includes shopping centers that we have with such names as Walmart, Target and even Costco. We are -- we do have cash in the bank, $182 million. DJ will talk more about that. And we are also very low leveraged with only 17% loan to value. I also wanted to talk about that we did, earlier this year, at the end of the second quarter, purchase back $5 million worth of shares in our share repurchase agreement that has been discontinued since.
The next page shows the map. And I think that this gives us a competitive advantage because other than Denver we can drive within 2 hours to go from one of our management offices to one of our properties. We also have leasing and operations in many of our offices as well. So this means that during the pandemic we're able to actually have boots on the ground and understand what retailers open, who's operating and also partner up with our retailers for things like curbside pickup and other things that we believe that gave us an advantage over other owners.
I want to spend a minute talking about why we think that our shopping centers have an advantage over some of the other asset classes that sometimes get lumped into retail. This is a property that we have in Cary, North Carolina, which is a suburb of Raleigh, Durham. It has Harris Teeter as the main anchor, which is a Kroger flag, and it is the main grocer in this market. It also has other essential uses, such as the CVS drugstore and things like doctors' offices in Space 20. You may note that these spaces in gray such as the McDonald's, while not owned by us, 2 of them are banks, really do help the whole flow of our shopping center.
The next page shows a shopping center type that we do not have. And this really, when you hear about a lot of negative things about retail, in many cases, they're talking more about malls than open air or, for sure, about grocery-anchored shopping centers. So this is an example of a mall in which you have a JCPenney's, which has already filed bankruptcy, with a Burlington Coat, a Dillard's, but is really -- most of it is interior with a food court, et cetera. This is where most of the stress is being seen in the retail market today, not to say that we are exempt from that.
The next page goes to what I mentioned a minute ago that we have a large percentage of essential retail, which is the drug stores, the groceries, et cetera. You can see the medical banks, et cetera. But even within the part that is nonessential, there are categories that give us some degree of comfort as far as our tenant mix. For instance, the 20% of restaurants, 50% of that is quick service, which has done much better in the pandemic. Our soft goods is also made up of T.J. Maxx, Kohl's, Ross Dress For Less. And the personal service is made up of nail salons and hair salons, et cetera, which has been adapting very, very well in the pandemic, with things such as in California, giving haircuts in parking lots, et cetera. Another reason why we like having our management offices out in the field so that we can react and work well with our tenant partners.
The next page shows you how we fare with this grocery-anchored or a power center with a grocery element to it. And as you can see, starting from the left-hand side, only one other publicly traded REIT has percentages that are better than ours. And then you can see going all the way over to the far right that we fared very well, and we believe that we have done very well in the pandemic because of this mix.
Going to the next page, I have to say that we are -- have not been not hurt by the pandemic. We have been. So this chart kind of gives you some background, and I'm going to go through some numbers that aren't necessarily on the chart. Our April rent collection was 85%, which our normal rent collection is 92%. So you can see -- still see that there is a 13% drop as far as the amount that we collected. But if you look at our filings from June 30, it was 80%. So even in the time since we did our filing or since June 30, we've actually picked up 5% collections because some of the numbers, such as the physical deferral plan where we've entered into a deferral plan, where the tenant is not paying us a rent, in this case for April, but is paying us back maybe toward the end of the year, that's 3%. Well, there is -- the remaining rent to collection is 5%, used to be 10% at the end of June. So 5% has actually become rent payer since June 30 by itself.
So you can see that these numbers will ebb and flow even though it is months past it. May, we have collected 78%. At the end of June, it was 72%. And we've collected 80% of June, and it used to be 79%. We feel good that overall 81% rent collection in the middle of a pandemic, where most of our tenants or a lot of our tenants were mandated to not be open, is actually pretty good, but it is still materially less than it would have been in the first quarter where we were at 98%.
So again, we believe in our properties, we believe in our portfolio and we believe that we are doing very, very well, but it is comparative to our peers and it is still a drop in our cash flow.
So with that, I will turn it over to DJ.
Thanks, Tom. Thank you, and good afternoon to all of you joining us today.
As Tom briefly mentioned, InvenTrust's balance sheet profile and liquidity position remains solid as we sit here today about 5 months into the pandemic. Much of the hard work to lower leverage through strategic asset sales and portfolio recycling was done prior to entering 2020, which put us in a strong position to deal with the stress COVID-19 has put on our business.
Since the pandemic, we have taken additional steps to fortify our position, namely by tapping our revolving line of credit for an additional $150 million to further our financial flexibility during this time. We ended the second quarter with $330 million of cash in our balance sheet when including the draw on the revolver. With net leverage below 20% and no significant debt maturities until 2023, our balance sheet remains one of the most conservative in the strip center REIT sector.
Moving on, and as Dan mentioned at the beginning, I wanted to highlight some of the actions and enhancements we've taken from a communication standpoint in light of COVID. In addition to these quarterly webcasts, we've published monthly shareholder letters. We've also provided more detailed disclosure around our rent collections and key attributes about the portfolio and tenant composition to highlight the strengths as well as some of the risks in our current tenant base. Hopefully, many of you were able to attend our virtual shareholder meeting in May, which was in -- which was actually our intention prior to COVID as it allows many more of our shareholders to participate. And finally, we take the feedback and assess it, received from many of you, seriously, and that feedback is discussed with our Board of Directors.
Next, I want to talk through some of our corporate policies as we sit here today. Based on our current cash flow and balance sheet position, we were able to pay our April and July distributions. Our Board, in conjunction with management, will continue to monitor the effects of COVID on our business and will evaluate the distribution each quarter. As recently disclosed, we decided to postpone the publication of our new estimated share value due to the pandemic, which has caused transaction volumes really to come to a halt, down 80% in our property type in many cases and this -- providing very little visibility to asset values today.
Finally, on June 11, InvenTrust announced the suspension of the company's share repurchase program and dividend reinvestment program effective July 11. And as Tom mentioned, we did repurchase roughly $5 million worth of shares in late June through the SRP before suspending the programs. This certainly was not an easy decision for the Board and management. But given the low participation levels and ongoing economic uncertainty, we deemed it the prudent course of action for the time being. We do understand the SRP was an important source of liquidity for many of our shareholders, and we'll continue to evaluate the reinstatement of these programs.
Finally, to recap, there remains much uncertainty around the near- and long-term impact of COVID-19. Visibility is still limited and the ever rapid-changing trends across many cities in the U.S., some of which are important markets for where we do business. But with the property portfolio we've compiled, namely grocery-anchored centers in Sun Belt markets; the platform, certainly highlighted by a simple capital structure and conservative balance sheet; and a strong team that we believe is both collegial yet accountable, we continue to believe that we'll endure and benefit from the opportunities that may arise when the recovery begins.
So with that, I think we're going to take some questions. And Dan, I'll pass it back over to you.
All right. Thank you, gentlemen.
Tom, we're going to start with you. You mentioned it a little bit earlier about the COVID outbreak kind of hitting some of the key InvenTrust markets earlier in the year. Is there any concern that this will kind of decrease the company's rent collections for the rest of the year?
Well, I think as we pointed out in Page 9, the rent collections were lower, significantly lower in the second quarter. But we think that the second quarter was probably the trough, and we can already see, based on our July rent collections, that it is starting to go up from there, but it is still going to be significantly less than it would have been in the first quarter. However, as DJ said, because of the fact that we are very low levered that we believe that at this point in time we're going to be able to operate the business well in light of the pandemic.
Okay.
DJ, on that pie chart that we showed about how the breakdown of our portfolio -- 20% of our portfolio is restaurant category. Do you have any concerns that a large number of restaurants will go out of business due to COVID?
Sure. I think the restaurant category certainly is seeing a tremendous amount of disruption right now, and I think that will continue. It's a business that depends heavily on capital investments and certainly high traffic. So being shut down for as long as they have been is going to take an impact and some of those restaurants certainly will not be able to recover. From our standpoint, though, most of our restaurants do reside in the quick service category, which has been operating normally and in some cases, actually been operating better. Fine dining, in our opinion, I think, is probably where the real risk is. And our business in the suburban markets that we are in, in the centers that we own, we're limited to that white linen type of restaurant category.
As more people do continue to work from home, we do believe that quick service part of our business will continue to do well. But it is a category that we remain focused on to make sure we're helping those restaurants that we do believe have a future at our InvenTrust properties, and we're appropriately trying to assess the risk of those that may not be able to reopen.
Okay. Do you guys want to touch a little bit on some of the opportunities that we're providing some of our restaurants and having outdoor eating areas and tent areas for our -- in our parking lots, that kind of thing?
Sure. I'll start out, and DJ, anything that I miss, please add.
As DJ talked about, there are many restaurants in which, at least today, we are able to afford them use of parking lots or maybe even vacants in some of the markets where there is restrictions as far as percentages that they can have operating that if they use the parking lot or they use a vacant, they can actually increase the number of people that they can be serving on any given evening. So we are very much open to that. As I mentioned in my opening remarks, in California, hair salons are actually operating in the parking lots, et cetera, or even adding signs to almost all of our properties in which we have curbside pickup to make it easier for someone to come and quickly get their dinner for that particular night.
And I can't say enough, as DJ pointed out, that realistically, there are going to be some retailers that are -- we're going to help more than others. And if it's a concept that we believe will do very well and is very additive to the property to maybe give them a deferral or we give them some abatement, et cetera, that's really what we're working through as we get into the pandemic.
Great. Thanks. Tom, we've gotten a couple of questions on this about publishing our new estimated share value. You want to take that one?
Sure. DJ mentioned that transactions are down by 80%. So we're -- we felt it was disingenuous for us to publish the new share price when there aren't a lot of transactions that are going on. Having said that, I think that this is something that the Board revisits every one of the Board meetings as far as the timing of this. So I think that we will be revisiting this at our next Board meeting.
Okay.
DJ, there's a question here, a couple of them, on the future of the dividends. And do we have enough cash to pay the company's distribution for the rest of the year?
Sure. Obviously, it's something that we've been proud of, being able to sustain our dividend up to this point, and we're going to continue to evaluate that. 5 months in, with the cash flow that we've been able to bring in by the rent collections that we've gotten, we are in a cash flow positive position to pay our dividend, and we feel good about the balance sheet and the financial flexibility that we do have at this time. But given some of the -- we do obviously remain cautious in some of the markets -- some of the activity and cases that are in our markets. So it's certainly something that the Board will continue to assess on a quarterly basis. We do anticipate the disruption, and that disruption is still unknown. I mean as I mentioned earlier, there's still very little visibility, but we are going to continue to assess that on an ongoing basis.
Okay. Well, since we're talking about cash, there's a question that came in between what was reported on 6/30 and what was in our presentation between our ending cash balance. Do you want to give a little color on that?
As it relates to the filing, the $309 million is absolutely correct. As it relates to the 10-Q, that would be our consolidated share -- consolidated cash number. The $330 million noted, I believe, on Page 10 relates to our total cash position, including the share of our JV interest.
Okay.
Tom, there was a question here, why do you -- why did you suspend the SRP in the DRIP?
First of all, the hope was that the DRIP would fund the SRP and because stock prices had dropped outside of our space people had converted to getting their dividend as opposed to reinvesting, which meant that the amount of money to come in to take out the SRP was really pretty much dried up. So most of the money, the $5 million was really supplied by the company itself in order to take out the people that had the life events at least.
Okay. And just to be clear, I know we've talked about the suspension of the dividend reinvestment plan. That is separate apart from our dividend distribution which was never suspended and remains at its current rate.
Yes. There was a question -- it's a good point. There was a question on some confusion on whether they thought that -- the questioner was asking why was the distribution suspended? It actually was never suspended. Only the SRP was suspended. That's why you received the distribution check or a wire from your distribution in July.
So the next question, Tom, and this is probably the biggest question we've received so far is, when will the Board pursue a liquidity event?
I think the Board is going to evaluate the right time. And if you take a look at our rent collections, even though they are very, very good, now would not be the right time. If you also take a look at what our peers are trading at, some of them are trading as much as a 50% reduction to the net asset value. So that's not really an environment in which you want to take advantage of anything, whether it's a cash sale of the company, merging the company or even listing the company. So the Board is fixated on this. This is something that we talk about with the advisers that the Board has as far as what's the good timing. And obviously, in the middle of a pandemic, I don't think anybody thinks that this would be a good time.
What is the occupancy percentage of all properties?
I'm going to give a little bit of a long-winded answer because it's probably not as simple as people think based on the Page 9 where we have deferral plans, we have credit loss, et cetera. So our physical occupancy is approximately 95%. But we do have some tenants within that 95% that are on deferral plans, so they may not have paid us April or maybe there -- we do have the category as far as credit loss. So these are tenants that we think that are at risk. So -- but physically, there's a tenant there, whether they're operating or not, it's 95%.
Okay.
DJ, this one is probably for you. Can debt maturities in this interest rate environment possibly be an improvement? So I guess with the current low interest rates, can we do something to our balance sheet to improve it?
No, it's a great question, and it's something that we think a lot about, even looking out to 2023. Obviously, we don't have much activity over the next couple of years so we can take advantage of the interest rate environment. I will say right now, the credit markets appear to be open for well-capitalized companies. I think we've -- we certainly fall into that bucket. It's a little bit different and a little bit more bifurcated on the secured financing side. Secured financing is fairly much widely available for core grocery goods centers. But really, after that, there's not a whole lot of activity on the secured side for certainly larger regional properties or power centers.
We do have some variable rate debt that we can think about [ terming on to ] take an advantage, but it's something that we're taking a wait-and-see approach. Because as of now, it looks like many of the creditors have taken a priority on fixing balance sheets with some of the companies that may be in a little bit more duress. And -- so we're going to continue to monitor the markets. And if it makes sense for us to take advantage of it, we will certainly do so.
Okay. Are there any concerns -- DJ, this will probably be for you. Are there any concerns that the grocery business will experience a disruption from consumers preferring to receive online or delivery orders?
Look, I think not only in retail but -- the pandemic and COVID-19 is creating a tremendous amount of disruption across many different asset classes in real estate. And some of that tremendous disruption is going to be a positive for some categories and sectors and maybe -- and certainly a negative for others. I think what this has done has really accelerated what has -- what was going to be a multiyear transition for some of the share of grocery sales to move online just strictly because that's what the customer has been wanting in some cases and it's another layer of convenience that the grocery stores can provide.
I will say, though, we do believe -- I mean we certainly believe that our centers are still -- will still play a very important role in the communities that they serve and we still believe that brick-and-mortar will be the preferred shopping behavior for the majority of grocery sales. And we've seen that in the markets that we have, even in some of the markets where we've seen cases spike, there hasn't been any shortage of lines out some of our grocers' front doors. And it goes to instant gratification or convenience or certainly just having the power to pick your own goods, and I think that will continue.
But we do want to adapt to some of these changes as it relates to being more accessible as it relates to pickup and delivery, and we've made some of those changes real-time. And we've also bolstered our marketing efforts around some of those pickups at our centers. So it certainly is an accelerant to a transition that was already happening. I don't know if it's -- we're -- we've fast-forwarded 5 or 10 years. But I think actually having accelerated so quickly and getting us to more of a stable standpoint is probably better than a lingering effect over the next several years.
Great. There's a question here. What is the current dividend? The current dividend is -- on an annualized basis is $0.076 per share. So that answers that question.
Tom, this -- I think you've mentioned this, but this is maybe a little bit of a follow-up. What amount of the leases are in default now?
Well, default is -- it can be a legal tool that we can put a tenant into default. And some of the ones that are remaining to collect, the reason that, as I mentioned before, in April, it went from 10% down to 5% is because we defaulted the tenants which brings the collection to a head. So default is something that if a tenant doesn't pay us by a certain date each month they are technically in default. We, as a landlord, can choose to defer that and mutually along with the tenant to accept that they're not paying us and not default them. So it's hard to say what percentage is in default because default is a tool to bring a tenant to the table to make sure that they do pay us.
And I would just add on the -- on Page 9 of the estimated credit losses, a portion of that certainly are those tenants that we've assessed, whether it's a strategic default or not and then I will say there has been an acceleration of bankruptcies in the space. We've -- I would -- there's been more in the enclosed shopping mall space, but we certainly haven't been immune. And as it relates to the amount of -- the percentage of the annual base rent that we collect, our bankruptcies are right -- just over about 2%.
Okay. Great. So this is a broad question, I'll throw it out to both of you. But has there been a supply chain disruption? Or what do you see what's going on with the supply chain in the U.S.?
Well, maybe I'll start out and, DJ, you add in.
I think that early on in the pandemic there were issues with the supply chain and I guess the one that always comes to mind is toilet paper, right? You couldn't go -- couldn't get toilet paper, you couldn't get bleach, you couldn't get cleaning supplies, et cetera. And I would say that, that was really twofold. Number one, the demand was off the Richter scale. We had grocery stores, for instance, an H-E-B in Texas, that was doing in 1 week the sales that they normally would have done in 1 month. So in that case, there was such high demand that there's no supply chain that could have covered the demand at that point. I think that as restaurants have opened up a little bit you see the grocery store sales being more normalized and then the supply chain itself is more rightsized to that demand. But I also think that the, whether it's logistic companies or the grocery operators themselves, kind of now understand the pandemic, and they've made some modifications as well.
Also early on in the pandemic there were a lot of materials that were coming from China. China was obviously having their own problems with the pandemic. So I think there were multiple factors that really you're not going to see as much today.
But DJ, how do you think about it?
Yes, the only thing I would add is we -- outside of grocery, we've seen anecdotes, and I'm sure folks on the call can relate to some of these. But if you think about all the changes that we've seen even with going back to school, how the inventories for back to school, whether it's clothes or even at-home desks, so many of these things are -- have been disrupted. And a lot of those are the discussions that we would like -- that we have with our retailers because we want to make sure to be a partner for them as they get back up to speed. So that's where the negotiations and maybe some of the deferments that we're providing. And if there's any way that we can get some of the lease language change in our favor about -- to help some of these retailers that have had major supply chain disruptions get back on their feet and can get their sales back up to a more profitable level.
Well, the last question I have in the queue currently is kind of related to liquidity. So the grocery-anchored portfolio would likely be very attractive to another REIT or potential purchaser. What are the factors you would look for in a sale discussion?
Well, the ability for a buyer to pay. And if you think about it, that if it's another REIT and they're trading at a 50% discount to their net asset value what their cost of capital is, you also have to talk about the credit markets. And as DJ said, the credit markets are wide open, but it does have some limitations. And the limitations are, they want to make sure that they see that some of the deferrals that we are working through are paid back before they would want to necessarily give credit. So I think that there's many factors that kind of go into that.
Okay. All right.
Well, at this time, I'm going to close the webcast by thanking everyone for attending. We hope our presentation was informative and provided you a better understanding of the company's financial performance and the steps we are taking to mitigate the effects of the economic disruption caused by COVID-19.
Thank you again for your time today, and we wish everyone good health and safety. Have a great rest of the day.