Item 1. Business
Item 1. Business
General
On October 4, 2004, we were incorporated as Inland American Real Estate Trust, Inc., a Maryland corporation, and have elected to be taxed, and currently qualify, as a REIT for federal tax purposes. We changed our name to InvenTrust Properties Corp. in April 2015. We were originally formed to acquire, own, manage, and develop a diversified portfolio of commercial real estate located throughout the United States, to partially own properties through joint ventures and to own investments in marketable securities and other assets. We are now focused on owning, managing, acquiring, and developing a multi-tenant retail platform.
Our wholly-owned and managed retail properties include grocery-anchored community and neighborhood centers and power centers, including those with necessity-based retailers. As of December 31, 2020, we owned or had an interest in a total of 65 retail properties with a total gross leasable area ("GLA") of approximately 10.8 million square feet, which includes 10 retail properties with a GLA of approximately 2.5 million square feet owned through our 55% interest in IAGM Retail Fund I, LLC ("IAGM"), an unconsolidated retail joint venture partnership between the Company and PGGM Private Real Estate Fund ("PGGM").
Where appropriate, we have included results from the IAGM properties at 55% when combined with our wholly-owned properties, defined as "Pro Rata Combined Retail Portfolio" within "Part I" and "Part II" of this Annual Report.
The following table summarizes the properties included in our retail portfolio, on a wholly-owned, IAGM, and pro-rata combined basis, as of December 31, 2020.
Wholly-Owned
Retail Properties IAGM
Retail Properties Pro Rata Combined
Retail Portfolio
No. of properties 55 10 65
GLA (square feet) 8,392,572 2,470,193 9,751,178
Economic occupancy (a) 94.8% 87.4% 93.8%
ABR PSF (b) $18.69 $17.36 $18.52
(a) Economic occupancy is defined as the percentage of total GLA for which a tenant is obligated to pay rent under the terms of its lease agreement, regardless of the actual use or occupancy by that tenant of the area being leased. Actual use may be less than economic occupancy.
(b) Annualized Base Rent ("ABR") is computed as revenue for the last month of the period multiplied by twelve months. ABR includes the effect of rent abatements, lease inducements, straight-line rent GAAP adjustments and ground rent income. ABR per square foot ("PSF") is computed as ABR divided by the total leased square footage at the end of the period. Specialty leasing represents leases of less than one year in duration for inline space and includes any term length for a common area space, and is excluded from the ABR and leased square footage figures when computing the ABR PSF.
1
Business Objective and Strategy
InvenTrust is a multi-tenant retail REIT. Our objective is to own and operate grocery-anchored neighborhood shopping centers that provide essential retail in Sun Belt markets. Our strategy to achieve our business objective includes the following:
• Acquire retail properties in Sun Belt markets;
• Opportunistically dispose of retail properties;
• Maintain conservative leverage and a flexible capital structure; and
• Enhance environment, social and governance practices and standards.
Acquire retail properties in Sun Belt markets. InvenTrust focuses on grocery-anchored neighborhood centers, and select power centers that often have a grocery component, in markets with favorable demographics, including above average growth in population, employment and income. We believe these conditions create favorable demand characteristics for grocery-anchored and necessity-based retail centers which will enable us to capitalize on potential future rent increases while enjoying sustained occupancy at our centers. Using these criteria, we have identified 15 to 20 markets, including the metropolitan areas of Atlanta, Austin, Charlotte, Dallas-Fort Worth-Arlington, Houston, the greater Los Angeles and San Diego areas, Miami, Orlando, Raleigh-Durham, San Antonio and Tampa.
Opportunistically dispose of retail properties. We continue to opportunistically dispose of properties where we believe they no longer meet our investment criteria. These dispositions will allow the Company to re-deploy the proceeds in more attractive opportunities.
Maintain conservative leverage levels and a flexible capital structure. We continually evaluate the economic and credit environment and its impact to our business. We believe we have the liquidity necessary to continue executing on our strategy. We expect to have the ability to repay, refinance or extend any of our debt, and we believe we have adequate sources of funds to meet short-term cash needs related to these refinancings or extensions.
Enhance environment, social and governance practices and standards . We continue to focus on environmental, social and governance ("ESG") practices and standards across our platform. We believe we can enhance our communities, conserve resources and foster a best-in-class working environment while growing long term shareholder value. We remain committed to transparency in our investment strategy with a focus on operating efficiency, responding to evolving trends, and addressing the needs of our tenants and communities by continuing to fully integrate environmental sustainability, social responsibility, and strong governance practices throughout our organization.
Competition
The commercial retail real estate market is highly competitive. We compete for tenants with other owners and operators of commercial rental properties in all of our markets. We compete based on a number of factors that include location, rental rates, suitability of the property's design to tenants' needs and the manner in which the property is operated and marketed. The number of competing properties in a particular market could have a material effect on a property's occupancy levels, rental rates and operating income. We also face significant competition from e-commerce retailers. We believe the competition from e-commerce retailers has been increased and accelerated as a result of the COVID-19 pandemic and shelter-in-place mitigation measures. As retailers increase their e-commerce presence it may cause them to adjust the size or number of brick and mortar retail locations in the future. This shift could adversely impact our occupancy and rental rates, which would, in turn, adversely impact our revenues and cash flows.
We face significant competition and limited supply for attractive investment opportunities. As a result of this competition, the purchase prices for attractive and suitable assets may be significantly elevated, which may adversely impact our ability to redeploy the proceeds from property sales for reinvestment. In addition, our disposition activity could continue to cause us to experience dilution in financial operating performance.
We compete with many third parties engaged in real estate investment activities, including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies and other entities. Many real estate investors, including other REITs, have investment objectives similar to ours. In addition, many real estate investors seek financing through the same channels that we do. Therefore, we compete in a market where funds for real estate investment may decrease, grow less than the underlying demand or be unaffordable.
2
Environmental Matters
Compliance with federal, state and local environmental laws has not had a material adverse effect on our business, assets, results of operations, financial condition and/or our ability to pay distributions. We do not believe that our existing retail platform will require us to incur material expenditures to comply with these laws and regulations. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on our properties.
Tax Status
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), beginning with the tax year ended December 31, 2005. Because we qualify for taxation as a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, we will be subject to federal and state income tax on our taxable income at regular corporate rates. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property or net worth, respectively, and to federal income and excise taxes on our undistributed income.
Human Capital Management
We believe that our employees are our greatest asset. We are committed to creating a corporate culture characterized by high levels of employee engagement, growth and development, health and wellness. We seek to attract and retain diverse and talented professionals who provide a wide range of opinions and experiences to drive our business forward. As of December 31, 2020, we have 124 full-time employees. Women represent approximately 60% of our employees. Approximately 39% of women employed by the Company hold management level/leadership roles.
Our human capital strategy is focused on talent management. We base our hiring, development, training, compensation and advancement decisions on an objective evaluation of qualifications, performance, skills and experience. Our employees are fairly compensated, without regard to gender, race and ethnicity. All of our employees are offered a comprehensive benefits package, including, but not limited to, paid time off and parental leave, medical dental and vision insurance, disability, life insurance, 401(k) matching, tuition reimbursement, summer hours and work from home flexibility. We have established an extensive employee review process and offer a number of incentives and acknowledgments throughout the year to increase employee engagement and development. We monitor our performance through employee engagement surveys and utilize the results of those surveys to continually improve our organization.
We endeavor to maintain workplaces that are free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identity or expression or any other status protected by applicable law. To that end, we conduct annual training to raise awareness of, and prevent, harassment and discrimination.
We have a shared passion and dedication to giving back to our community and for this reason we have developed the InvenTrust Charitable Team, a program led by employees who actively contribute Company time and resources to support charitable causes.
Access to Company Information
We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission ("SEC"). The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.
We make available, free of charge, by responding to requests addressed to our investor relations group, the Annual Report, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports on our website, www.inventrustproperties.com. These reports are available as soon as reasonably practicable after such material is electronically filed or furnished to the SEC. The information on the Company's website is not incorporated by reference in this Annual Report.
Executive Officers of Registrant
Set forth below is information concerning our executive officers as of February 1, 2021.
Thomas P. McGuinness, 65. Mr. McGuinness currently serves as our President and Chief Executive Officer and is also a member of our board of directors, where, in collaboration with senior management, he oversees the direction and strategic
3
initiatives of the Company. Mr. McGuinness has served as President of the Company since our self-management transactions in March 2014 and as our Chief Executive Officer since November 2014. Prior to the self-management transactions, he served as President and principal executive officer and President of our former business manager since September 2012 and January 2012, respectively. Mr. McGuinness previously served as the president of the Chicagoland Apartment Association and as the regional vice president of the National Apartment Association. Mr. McGuinness served on the board of directors of the Apartment Building Owners and Managers Association, and was a trustee with the Service Employees' Local No. 1 Health and Welfare Fund and its Pension Fund. Mr. McGuinness also currently services as an Executive Committee member of our retail joint venture entity IAGM.
Daniel J. Busch, 39. Mr. Busch currently serves as our Executive Vice President, Chief Financial Officer and Treasurer. Mr. Busch joined InvenTrust in September 2019, providing oversight to our financial and accounting practices, and ensuring the financial viability of the Company's strategy. Prior to that, Mr. Busch served as Managing Director, Retail at Green Street Advisors, an independent research and advisory firm for the commercial real estate industry in North America and Europe, where he conducted independent research on the shopping center, regional mall, and net lease sectors. Prior to serving as Managing Director, Mr. Busch served in increasingly senior roles at Green Street covering the Mall Sector, conducting analysis and research, building financial models and providing analysis of financial statements for U.S. REITs. Previously, Mr. Busch served as an equity research analyst at Telsey Advisory Group and worked in a corporate capacity at Petco Animal Supplies Inc. He is a member of the Urban Land Institute, contributing as an active member on the Commercial and Retail Development Council. Mr. Busch received a B.S. in Applied Economics and Management from Cornell University and an MBA with specializations in general finance, financial instruments and markets from New York University.
Christy David, 42. Ms. David currently serves as our Executive Vice President, Chief Investment Officer, General Counsel, and Corporate Secretary, leading the implementation of the Company's strategy within its transactional and investment initiatives. Ms. David has served as InvenTrust’s General Counsel since 2017. Ms. David joined InvenTrust in 2014 as Managing Counsel – Transactions and held that position until November 2016 when she was named Vice President, Deputy General Counsel and Secretary. Ms. David was promoted to the Company's General Counsel in 2017 and has served in that role since that time. Prior to joining the Company, Ms. David served at The Inland Group Inc., where she managed, reviewed, and drafted legal documents and matters regarding InvenTrust's acquisitions, dispositions, corporate contracts and spin-offs. Prior to joining the Inland Group, Ms. David served as an Associate Attorney at The Thollander Law Firm and held various positions at David & Associates. Ms. David serves on the Ravinia Associates Board as well as its Nominating Committee. Ms. David received a Juris Doctor from Washington University School of Law and a Bachelor of Business Administration in Finance from Loyola University.