Hello and thank you for joining us for InvenTrust's Third Quarter 2023 Earnings Conference Call. My name is Bailey, and I will be your conference call operator today. Before we start, I want to inform our listeners that today's presentation is being recorded and a replay will be accessible on the Investors section of the company's website at inventrustproperties.com. Now, I would like to hand the call over to Mr. Dan Lombardo, Vice President of Investor Relations. Please proceed, sir.

Thank you, operator. Good morning, everyone, and thank you for attending our call today. Joining me from the InvenTrust team is DJ Busch, 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, we will open the lines 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 risks 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 will turn the call over to DJ.

Thank you, Dan, and good morning, everyone. I'll begin the call with some brief remarks regarding the quarter, Mike will provide you with an overview of our financial results, and Christy will touch on some of our operational accomplishments. InvenTrust delivered another solid quarter of operating results driven by our simple and focused strategy. That is to own and operate essential open-air retail centers exclusively in the Sun Belt region of the U.S., maintain a simple and low-levered capital structure and employ a straightforward capital allocation plan. The better-than-expected performance has allowed us to once again adjust our 2023 full-year guidance higher for FFO per share, which Mike will touch on in a bit. The performance in the quarter is even more impressive given the recent liquidation of a top tenant, which drove nearly the entirety of our sequential lease occupancy decline. But like the commentary by many of our peers, the activity around these spaces has been unprecedented with opportunities to grow the rent, upgrade the merchandise mix and ultimately make our centers more valuable. Christy will provide more color on this in a bit. On the supply side, new retail construction remains materially lower than historical averages, and shopping center vacancy is at its lowest level since the global financial crisis. Our leasing results reflect this landlord-favorable supply and demand dynamic, which is amplified in the markets where we operate. Demographic trends in the Sun Belt continue to give us the confidence that market rent growth in our communities should outpace the national average for the foreseeable future. Continued tenant demand, coupled with the activity in our leasing pipeline, bodes well for our ability to organically grow cash flow while waiting for the broader capital markets to be more competitive for external growth opportunities. Regarding our balance sheet, after exercising an extension option subsequent to the quarter, which Mike will touch on, we have no meaningful maturities until late '24, which provides us some flexibility and allows us to be patient until the debt capital markets stabilize, whatever level that may be. Given the uncertainty regarding the capital markets, our external growth criteria has and will remain very selective. Our liquidity and low leverage afford us the ability to be opportunistic when appropriate, but at the end of the day, our primary focus is sustainable cash flow growth year in and year out, which should in turn translate into superior total returns for our shareholders. And with that, I'm going to turn the call over to Mike to discuss some of our financial results.

Thank you, DJ, and good morning, everyone. Same-property NOI grew 5.3% over the third quarter of last year. Year-to-date same-property NOI was $106.3 million, growing 4.4% over the first 9 months of 2022. Year-over-year growth continues to be driven by higher occupancy, contractual rent bumps, and solid leasing spreads. In addition, we have a tailwind of 110 basis points due to lower operating costs in 2023 compared to 2022. And as anticipated, these gains were offset by 70 basis points for out-of-period rents collected in 2022. InvenTrust reported NAREIT FFO of $27.6 million or $0.41 per diluted share for the 3 months ended September 30, 2023, an increase of 5.1% for the same period in 2022. Our year-to-date NAREIT FFO was $84.7 million or $1.25 per diluted share, a decrease of $0.06 per share driven by our private placement debt funding in the third quarter of last year and GAAP adjustments related to our PGGM acquisition completed earlier in 2023. Our core FFO for the quarter was $27.6 million or $0.41 per diluted share, up 11% from last year, and our 9-month core FFO increased 1% compared to 2022. Components of core FFO growth include the increase in same-property NOI, the acquisition of 45% of our joint venture that was not owned and higher interest income, offset by an increase in interest expense. From a balance sheet perspective, we ended the quarter with $457 million of total liquidity, including a full $350 million of borrowing capacity available on our revolving line of credit. Our net leverage ratio was 27%, and our net debt to adjusted EBITDA is 5.2 times on a trailing 12-month basis. Our weighted average interest rate is 3.9% with a weighted average maturity of 4.1 years. In October, we executed a 1-year extension option for the cross-collateralized pool loan we assumed when we acquired the remaining interest in our joint venture, which was set to mature this year. With this subsequent activity, our debt metrics moved to a weighted average interest rate of 4.3% with a weighted average maturity of 4.2 years and a variable rate debt of approximately 10%. In the third quarter, we declared a dividend payment of $0.215 per share, which is a 5% increase over last year. And in August, Fitch Ratings affirmed our long-term issuer rating at BBB- with a rating outlook of stable. Turning to our guidance. We are raising our 2023 core FFO midpoint to $1.64 with a range of $1.63 to $1.65 per share. We also raised our 2023 NAREIT FFO midpoint to $1.68 with a range of $1.66 to $1.69. Finally, our same-property NOI growth guidance midpoint increased to 4.63% with a range of 4.25% to 5%. Our full-year guidance assumptions are provided in our supplemental disclosure filed yesterday. And with that, I'm going to turn the call over to Christy to discuss our portfolio activity.

Thanks, Mike. The InvenTrust portfolio continues to deliver solid operating results, highlighted by strong leasing activity, leasing spreads, and occupancy levels. Our outstanding performance is indicative of our strategy of owning and operating premier necessity-based shopping centers and growing Sunbelt markets. Tenant demand for our portfolio remains broad-based and includes tenant categories such as grocers, off-price retailers, medical, fitness concepts, and restaurants. For the quarter, we leased 273,000 square feet with additional leases in our pipeline at various stages of negotiation, including our Bed Bath & Beyond spaces, which we will discuss in detail shortly. Our anchor space lease occupancy finished at 96.6%, a decline of 200 basis points from last quarter, primarily driven by new vacancies from recent bankruptcies. Our small shop leased occupancy increased to 92.4%. Our total portfolio lease occupancy finished at 95.1%. As of September 30, InvenTrust total portfolio ABR was $19.36, an increase of 2.4% compared to 2022. Comparable leasing spreads were at 16% and 8% for new and renewal leases, respectively. A portion of our new leasing activity did involve larger spaces with longer lease duration, which aligns with our increased leasing costs compared to last quarter. Our retention remains high at 89%, which we continue to view as a positive balance with our new deal activity given the capital commitments required for retenanting. InvenTrust had 5 Bed Bath & Beyond spaces, one lease at The Highlands of Flower Mound property in Dallas MSA was purchased at auction by Michaels, which will lead to minimal disruption and no impact to base rent. For our other Bed Bath & Beyond spaces, we have identified replacement tenants and are in the process of finalizing lease terms. Our leasing team is also in the process of replacing a former Christmas tree shop space with a painted tree boutique, a home decor and boutique clothing store. This tenant is a fantastic addition to our Westpark Shopping Center in the Richmond MSA. We are projecting these tenants to open their stores sometime in the next 12 to 18 months with sizable rent increases. As DJ mentioned earlier, retailer bankruptcies continue, which ultimately affords us the opportunity to remerchandise with stronger credit tenants. Rite Aid recently announced their bankruptcy and initial list of store closings. InvenTrust has one Rite Aid location in Southern California, which accounts for 0.2% of our overall ABR. This space is in a strong center and was not on the current list of stores to be closed. Our exposure is limited, and we are confident in our ability to absorb and re-lease these spaces. In closing, we acknowledge that our results reflect the strength of the current retail environment, the attractiveness of our Sun Belt assets and our operating team's hard work, we see this momentum continuing as we work through the opportunity set in our pipeline. Operator, that concludes our prepared remarks, and you can open up the line for Q&A.

Thank you. Our first question today comes from Lizzy Doykan from Bank of America. Please go ahead. Lizzy, your line is now open.

Hi. Good morning, everyone. I just wanted to dig into the comments around Bed Bath and the other anchor tenants with bankruptcies involved. Could you again confirm how many Bed Bath boxes are left to backfill in addition to Christmas Tree and Michaels? And then kind of talk to the expected timeline for backfilling each of these boxes? And then separately, if we could kind of get a better understanding of the economics on the returns associated with the boxes when it comes to the associated costs?

Yes, good morning, Lizzy. I can start and then Christy will add more details. We have five Bed Bath & Beyond locations. One has been assigned, and the other four are currently in negotiations. We believe these will be finalized soon, possibly by the end of the year or early next year. We're optimistic about filling these locations and the opportunities available. Typically, once these agreements are finalized, it takes about 12 to 15 months for them to come to fruition, so we don't anticipate significant income in 2024. This may present some challenges, but we believe we can manage them as we look to next year. Regarding the economics, with rising construction costs, we are more cautious about using our own capital to ensure a good return. We have been pleased with the rental rates we are achieving in many of these locations. To provide some insight into our current negotiations, the payback periods for these locations are generally under two years, which is strong for anchor spaces. We are expecting healthy net effective rents in the low double digits.

Okay, great. And to confirm, is that above what's typical of repositioning or retenanting your anchor boxes in terms of...

It is surprisingly so because if you think about pre-pandemic, we're talking about probably a $60 square foot buildout and now that's closer to $90. So the rents - and because of the performance of the open-air space and the strength of the retailers and the sales up to this point, we're able to push the rents to offset those higher construction costs in almost every case.

Great. Thank you. And then for my next question, you all spoke to this last quarter, but just curious on hearing any new thoughts on addressing the swap that's set to expire in November this year on the $75 million maturity for the mortgage loan. Would you look to reinstate the swap, let it go to variable? Could you just discuss what options you're considering when it comes to refinancing the loan given your view of where rates are headed?

No, it's a great question. We try to remain neutral regarding future interest rates. None of us are economists, but we always want to ensure we have a clear view for forecasting our cash flows. Fixing the rates is certainly something we are considering. It's important to remember that we have ample liquidity and significant cash on our balance sheet, allowing us to reduce that loan if necessary, should that be the best use of our capital at that moment. Ultimately, as I mentioned earlier, our goal is to consistently grow cash flow, which can take many forms. We are exploring various options, including fixing the rates or paying down a portion of the loan. All these possibilities are under consideration. The positive aspect is that with the extension option, we have some flexibility as we plan for 2024. With an additional extension possibility, there isn’t much we need to address for the upcoming year.

Okay. That's it from me.

Thanks.

Thank you. Our next question today comes from the line of Cesar Bracho from Wells Fargo. Please go ahead. Your line is now open.

Hi, good morning. Thanks for taking up the question. Can you comment about the bid ask spreads you're seeing in your core Sun Belt markets for properties that meet your criteria? Like do you think that gap has closed a little bit in recent trades or what do you see?

It's a good question. There are still factors influencing the market. If we consider what we sold this quarter, such as the smaller asset in Atlanta and deals in the $10 million to $15 million range, the bid spread seems to have narrowed, making transactions easier. However, as assets become more reliant on financing, the bid-ask spread tends to widen. We're currently not pursuing very large assets for that reason, even though financing is available for larger open-air assets; the pricing has risen significantly compared to the past. We'll need to adjust to this new pricing landscape. From what I've heard, some peers have successfully transacted larger, high-quality shopping centers, which is encouraging. However, looking back at our comments from last quarter, not much has changed, except that there remains some activity in the smaller asset segment.

Got it. Thanks. And just quick following up. How would you - what is that cap rate difference now for larger assets versus, say, the smaller assets similar to what you sold recently? And can you provide a cap rate for the asset that was sold?

Our sale was in the high-5s, which I believe was a fair price for both the buyer and the seller for that type of asset. I can't provide much detail on other transactions, but it appears that some of the cap rates for those larger assets have been quite appealing, as cap rates generally widen with increased asset size. Those cap rates likely reflected solid decisions, but that's just my perspective from the outside.

Got it. And then one more, if I may. What's the realistic timeline to put the excess cash to work? I acknowledge the comment to Lizzy's question about the option to use it to pay down debt, depending on how rates evolve. I'm just curious, I think the priority is to grow the property portfolio, so what’s a realistic timeline to address that?

It's a good question. We see this as a fluid situation, and we're still active with our pipeline, which has assets we're eager to transact on. However, the hurdle rate is significantly higher now. We're considering using our cash to reduce some of our debt while also focusing on business growth. Our primary goal is to enhance cash flow, and we aim to achieve this alongside scaling the business. We view these aspects through the same lens, but, as you mentioned, paying down debt using part of our cash is one option we are contemplating. If we can identify accretive acquisitions that allow us to grow cash flow and expand our asset base, we will certainly pursue those opportunities. We just need to do it carefully.

Thanks for the time. Congratulations on the good quarter.

Thanks, Cesar.

Thank you. The next question today comes from Paulina Rojas from Green Street. Please go ahead. Your line is now open.

Good morning. The implied guidance range for the fourth quarter regarding same-property net operating income is quite broad. With a month of the fourth quarter already passed, I wonder what justifies maintaining this wide range. Additionally, how cautious do you intend to be with your guidance for 2024? Do you believe it is prudent to be conservative, considering the possibility of higher than usual tenant turnover next year?

It's a good question, Paulina, good morning. When we consider our implied guidance for the fourth quarter, we need to keep in mind the scale of our company, which involves variations of about $600,000 or $500,000 around the midpoint. Essentially, we are mostly addressing any unexpected challenges that may arise in the last couple of months of the quarter. These could slightly affect our results, but we are fairly confident in the range we have given. It comes down to a few smaller issues related to bad debt in the fourth quarter. Looking ahead to next year, I don't believe Argo or anyone in the industry aims to be overly conservative. Instead, our approach is pragmatic given the current situation, which has shown resilience thus far. The opportunities stemming from Bed Bath & Beyond and other bankruptcies mean that timing will be a crucial factor next year in terms of bringing significant rent back online, not just for InvenTrust but for many of our competitors. This timing will influence our ability to effectively reintegrate those rents, determining our success for the upcoming year. I am optimistic that we will navigate many of the challenges ahead due to our capacity to increase rents and the solid foundation we have for implementing in-place escalators. All of this will, of course, contribute positively to our outcomes in 2024.

Given the current uncertainty and macroeconomic factors, is it reasonable to expect that bad debt will be higher than the historical average?

This year, it has been interesting to see that most shopping center REITs have maintained their bad debt levels despite significant bankruptcies, including some of their top tenants. Additionally, there have been a few other bankruptcies. This situation highlights the robust fundamentals of the business. Looking ahead to next year, I don't anticipate significant changes. We believe anchor risk has been reduced since we experienced some of it this year. The resilience of small shops remains impressive, and I expect it to stabilize next year as well. We are monitoring this closely. While financing costs have increased for many of our small shop retailers, their credit quality has also improved, enhancing their financial stability, even amidst inflationary pressures and other challenges. Therefore, as we approach next year, I don't expect substantial differences in tenant fallout or bad debt.

If I may ask one last question, I noticed that the project has been moved to product development. It seems that you are converting a single tenant building into multiple tenant buildings. While you haven't shared the general and administrative costs, I'm curious about the cost per square foot for such a project. I believe you mentioned this in your prepared remarks, but I missed the details. Could you please repeat it? I think you mentioned the cost associated with replacing a tenant with a senior tenant. Additionally, it would be helpful if you could provide an update on the costs involved in retenanting different types of assets.

I apologize, I missed the second part of your question, Paulina, but I'll address the first part and you can repeat the second part if needed. The Sarasota Pavilion presents a remerchandising opportunity for us. The costs are higher compared to a single-tenant usage, which is something that is not unique to us. To put it in broad terms, for many of our Bed Bath & Beyond opportunities, we are looking at about $90 per square foot for a space conversion, with potential costs rising to $150 to $175 per square foot depending on the size and specifics of the build-out. We're evaluating the financial aspects to ensure they are favorable for InvenTrust, but we see this as an exciting opportunity for this strong center in Florida. We are pursuing it because we expect the returns to be acceptable and beneficial to us. Please go ahead and repeat the second part of your question.

Yes, No need. I think you have articulated well and we got it. Thank you so much.

All right. Great.

Thank you. There are currently no additional questions waiting at this time. So I'd like to pass the call back over to the management team for any closing remarks.

No, thank you, everyone, for joining us today, and we look forward to seeing many of you this - later this month at NAREIT in Los Angeles. Enjoy the rest of the day.

This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.