Summary
InvenTrust went public to little fanfare; even many REIT investors might have missed it.
The corporate business model is solid, but realistically there is little growth differences between shopping center REITs.
InvenTrust skews cheap and has several catalysts to propel it higher (buybacks, property acquisitions). It trades at a discount to NAV.
The value proposition is not enough to get me interested, but for some here this might be tantalizing enough to pick up.
This idea was discussed in more depth with members of my private investing community, Energy Income Authority. Learn More »
Povozniuk/iStock via Getty Images Consolidation has been a long time coming in the shopping center submarket of REITs. The number of publicly-traded players are too numerous, with many firms competing for investor dollars. To me, it was inevitable that mergers would begin just based on synergy savings alone. We saw that finally happen in earnest in 2021, with Kite Realty Group (NYSE: KRG ) absorbing Retail Properties of America and Kimco (NYSE: KIM ) picking up Weingarten Realty. It is great to see, and a long time coming in my view. However, during all of this multi-billion dollar M&A that has taken the attention of most observers in the space, a new player recently went public.
InvenTrust Properties (NYSE: IVT ) is a small shopping center REIT that began trading just a little over one month ago. Once privately held, it was brought public via direct listing and tender to provide liquidity for its private owners. However, it is not just a way for private investors and management to have an avenue to shed their shares. Unlike most of its peers that have been cutting assets outside of business combinations and downsizing, InvenTrust has $500mm of available liquidity. It wants to buy new properties and grow, and that provides significant opportunity in this market given the still-healthy spread between its cost to borrow and demanded cap rates in its core properties. While I don’t think the upside is all that high because I really do not to gamble on further cap rate strengthening (20.0% or so), InvenTrust has the best upside story in this area of the market right now. InvenTrust Business Overview, Shopping Center Malaise
InvenTrust owns 63 properties at the moment with nearly 10mm square feet in gross leasable area. These are shopping centers that are classified as either neighborhood centers (roughly two thirds of its assets) or power centers (one third). Neighborhood centers are smaller in leasable area, having many small shop tenants; they are often anchored by a grocer. Power centers are larger, and typically multiple large anchors, generally big box discount stores like Target (NYSE: TGT ) or retailers like Bed, Bath, and Beyond (NASDAQ: BBBY ) and Best Buy (NYSE: BBY ). In general, neighborhood centers fetch better valuations because of the opportunity for higher rents per square foot and easier time on turnover. Importantly, over 85.0% of shopping centers on a net operating income (“NOI”) basis at InvenTrust are either directly or indirectly anchored by a grocer, which is one of the highest percentages among its peer group.
Most of its properties are located in the Sun Belt, which includes hot markets like Austin, Atlanta, Miami, and Raleigh-Durham. Job growth, lower taxes, home affordability, and better weather have all combined to tempt Americans to move to these areas. The pandemic only accelerated these trends, especially as work from home and remote work opportunities expand. Migration trends are expected to continue out of areas in the Northeast and California to the Sun Belt, and because of that consensus expectations are that owners of commercial assets in these areas might have stronger staying power and ability to increase rents on tenants. *Source: InvenTrust, November 2021 Investor Presentation , Slide 11
The flip side of this is commercial land availability. Construction and multi-family housing starts are notoriously volatile, but some of the biggest growers over the past several years are the Sun Belt cities. Nationwide, 2018 starts are forecast to be pretty similar to 2021, but these cities have seen commercial construction growth of between 20 and 80% today versus 2018 levels. Out of favor areas seeing population exodus do at least have the benefit of weaker land availability on their side, and potential new shopping center supply (especially on a population-adjusted basis) in Sun Belt markets is an offset to all their positives. While every market is going to have top tier locales that will see more foot traffic and […]
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