In the three-plus years since its 2021 listing, InvenTrust Properties Corp. (NYSE: IVT) has doubled down on fortifying its position in its core Sun Belt markets to benefit from the positive migration and business formation patterns that continue to shape the region.
The Downers Grove, Illinois-based REIT owns a portfolio of open-air shopping centers that are primarily anchored by essential goods and services providers and are almost exclusively located in Sun Belt markets where InvenTrust sees solid growth potential. As of year-end 2024, the company’s leased occupancy rate was 97.4%.
“We've proven in the first three years of our business that we can grow our free cash flow, or our FFO per share growth, faster than the sector average,” says CEO Daniel ‘DJ’ Busch. “If we can build a flywheel, where we can continue to grow our dividend because our FFO per share is growing at a faster pace, then our total returns for our investors who want to be in retail should stand up quite favorably to the competition,” he adds.
Busch, who joined InvenTrust as CFO in 2019 from Green Street, says the REIT had begun its pivot to the Sun Belt prior to his arrival. He credits his predecessors with recognizing the “green shoots” of the region’s fundamentals and adds that tailwinds benefitting Sun Belt markets are unlikely to change materially going forward.
“It could probably slow, but I do think the likes of Texas and Arizona, where we have recently acquired some properties, South Carolina, North Carolina, and Florida will continue to benefit relative to what we're seeing in other regions of the country,” Busch says.
Given the population growth in its core markets, InvenTrust has kept a close eye on new supply. However, with construction costs remaining elevated and the length of time needed to stabilize a new retail property, “there's still quite a bit of runway for high quality retail centers with no real new supply competition, which is going to bode well for the next couple of years,” Busch says.
InvenTrust’s portfolio also benefits from having a majority of its properties located in established markets, according to Busch. Any new supply tends to enter the outer rings of those markets, which “insulates our properties to a greater extent than if you're buying properties that are the first in a new market where there could be immediate new competition as more households are built,” he says.
Keep it Simple
For a small cap REIT like InvenTrust, a simple, focused strategy is key, Busch says, while admitting that “simple” is a term his team isn’t always keen to hear him use. “It's not as simple as I make it sound, but I think it's important in real estate to let the properties speak for themselves and don't make it overly complicated.”
By making sure investors are not “burdened with complexity,” Busch says, there’s a greater chance they are more open-minded to hearing the InvenTrust story and investing in the company.
That approach seemed to bear fruit in late September 2024, when InvenTrust successfully conducted its first equity offering since becoming a traded company, raising approximately $250 million.
“We felt good about our cost of equity at the time, but most importantly, we had a robust acquisition pipeline that had really good visibility of success,” Busch says. “We paid off a little bit of debt and then we grew the business through acquisitions and those funds were almost exhausted by the end of last year.”
Since then, the capital markets have pulled back, but InvenTrust continues to monitor conditions and is prepared to act. “We're always keeping a robust acquisition pipeline at the ready so that once our cost of capital aligns, we can be very opportunistic as it relates to moving quickly and growing the business faster. As a small company, that's what our investors want to see us do,” Busch says. For 2025, InvenTrust has set a baseline net acquisition target of about $100 million, or roughly 3% of its asset base.
The REIT is also considering some capital recycling this year, Busch says, namely shrinking its California portfolio and reinvesting the proceeds into markets where it has seen success for the last couple of years.
Consumer Resilience
As it assesses the landscape for acquisitions, InvenTrust is always keeping consumer spending and retail patterns front and center of its decision-making. With most of its retailers in the non-discretionary spending arena, inflation hasn’t impacted customers as much as perhaps other retail areas.
“The consumer has been wildly resilient in this inflationary environment, but I don't think that can last forever,” Busch says. “We're very mindful of the current political landscape and what could happen if these different state or federal policies impact the sourcing of many of our tenants’ goods and services.”
For now though, “we've been very, very lucky that our retailers have been resilient and therefore sales have held up and cost ratios and health ratios for our tenants have remained in a great spot,” Busch says.
Fostering Strong Tenant Relations
While the location and quality of its assets is paramount, Busch stresses that InvenTrust’s role as a partner to its tenants is also an important element behind its success. “To continue to grow rents, we need to do it an appropriate fashion where not only is the tenant going to be successful, but they want to continue to do business with us once that lease term expires,” he says.
“If a tenant is successful, they will almost never leave a location where they've already built a moat for their business and they've already built a habit for their customers to come to a certain space. If you can make sure that they're successful, then you're going to have a long-term relationship with that tenant,” Busch says.
Meanwhile, InvenTrust’s markets continue to benefit from hybrid work patterns, Busch says. Tenants that emerged during the pandemic, including dentists, urgent care providers, and womens’ health centers, have been a strong addition to InvenTrust’s existing lineup and ensure a regular cadence of customers visit its centers throughout the week.
Positioned for Success
Looking ahead, Busch says InvenTrust’s disciplined acquisition approach in key Sun Belt markets, its straightforward capital structure without complicated joint ventures or exotic debt instruments, and well-established tenant relationships positions the REIT for sustained success in 2025 and beyond.
At the same time, the board’s decision to increase the REIT’s dividend by 5% for 2025 “demonstrates confidence in our strategy and commitment to shareholder returns. We look forward to building on this momentum in the years ahead,” Busch says.