InvenTrust Properties Q3 2025 Earnings Report

InvenTrust Properties EPS Results

• Actual EPS: $0.08
• Consensus EPS: $0.45
• Beat/Miss: Missed by -$0.37
• One Year Ago EPS: N/A

InvenTrust Properties Revenue Results

• Actual Revenue: $74.47 million
• Expected Revenue: $73.57 million
• Beat/Miss: Beat by +$901.00 thousand
• YoY Revenue Growth: N/A

InvenTrust Properties Announcement Details

• Quarter: Q3 2025
• Date: 10/28/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, October 29, 2025
• Conference Call Time: 10:00AM ET

InvenTrust Properties (NYSE:IVT) (NYSE: IVT) is a real estate investment trust focused on owning, leasing, developing and managing open-air retail properties. Its portfolio primarily consists of grocery-anchored neighborhood and community shopping centers designed to serve daily consumer needs.

The company concentrates on high-growth markets across the Sun Belt, including the Southeast, Southwest and other expanding regions of the United States. Its properties typically feature grocery stores, pharmacies, restaurants, service businesses and other necessity-oriented retailers, with tenant mixes intended to support recurring customer traffic.

InvenTrust traces its history to Inland American Real Estate Trust and became a publicly traded company on the New York Stock Exchange in 2021. In addition to acquiring and owning retail real estate, the company provides property management, leasing, redevelopment and development services to maintain and enhance its shopping-center portfolio.

InvenTrust Properties Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Raised guidance and FFO growth: NAREIT FFO was $0.49 (+8.9%) and core FFO $0.47 (+6.8%), with the company raising full-year same-property NOI guidance to 4.75%–5.25% and increasing the NAREIT FFO midpoint to $1.87 per share.
• Positive Sentiment: Strong portfolio fundamentals: Q3 same-property NOI rose 6.4%, total leased occupancy was 97.2% (small shops 93.8%, anchors 99.3%), blended leasing spread was 11.5% and ~90% of 2026 leasing is already executed.
• Positive Sentiment: Balance-sheet and liquidity strength: $571 million of liquidity (including $500M revolver), net leverage 24%, net debt/adj. EBITDA ~4x, plus term-loan extensions and interest-rate swaps locking mid‑4% fixed rates.
• Negative Sentiment: Near-term timing and expense risks: Management expects some Q4 deceleration due to backloaded property and corporate expenses, retains a 55–75 bps bad-debt reserve (top of range for unforeseen fallout), and the final California disposition is likely pushed into 2026.

Presentation

[Operator]

Thank you for standing by and welcome to InvenTrust's third quarter 2025 earnings conference call. My name is Becky, and I will be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded, and a replay will be available on the investor section of the company's website at inventrustproperties.com. We will have a chance for a Q&A session on today's call. If you would like to pre-register a question, please press star followed by one on your telephone keypads. I would now like to turn the call over to Mr. Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir.

[Dan Lombardo, VP of Investor Relations at InvenTrust Properties]

Thank you, operator. Good morning, everyone, and thank you for joining us today. On the call 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, the lines will be open 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.

[Dan Lombardo, VP of Investor Relations at InvenTrust Properties]

The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. With that, I'll turn the call over to DJ.

[DJ Busch, President and CEO at InvenTrust Properties]

Thanks, Dan, and good morning, everyone. I'm pleased to report another strong quarter for InvenTrust, one that reflects the consistency of our execution and strength of our strategy. Since our public listing four years ago, we've increased FFO per share by nearly 30%. That track record is a direct result of a deliberate and disciplined approach that has remained consistent. Our success stems from a proven playbook: maintaining high occupancy, embedding contractual rent escalators, attaining strong tenant retention, achieving healthy renewal spreads, and pursuing selective, accretive acquisitions. This quarter, those fundamentals once again delivered tangible results, as same property NOI grew over 6%. Rent spreads remained healthy, and leasing activity was positive across both anchors and small shops. We've built a scalable, high-performing platform that allows us to operate efficiently and grow strategically.

[DJ Busch, President and CEO at InvenTrust Properties]

Our hub-and-spoke operating model enables us to manage a broad network of top-tier assets across Sun Belt markets with minimal incremental G&A impact. As we expand our portfolio, our structure provides both operating leverage and flexibility, positioning us to continue scaling efficiently while maintaining the hands-on oversight that defines our approach. Turning to the macro environment, we continue to see encouraging fundamentals in the Sun Belt consumer base. While national data presents a mixed picture, we view the region's underlying dynamics as a net positive. Census data shows retail sales are up year over year, and industry research points to sustained strength in suburban centers across the Sun Belt, where foot traffic and occupancy remain well above national averages. Hiring momentum in major Sun Belt MSAs remains healthy, and CoStar recently noted that nine of the top 10 U.S. retail metros are in the Sun Belt, the same markets where we are most heavily concentrated.

[DJ Busch, President and CEO at InvenTrust Properties]

That said, we're not ignoring the data points that signal caution. Household debt levels are edging higher, and consumer confidence has weakened. While sentiment has softened, day-to-day consumer behavior in our centers remains resilient, underscoring the essential nature of our tenants and the stability of our asset base. Another competitive advantage we see is the limited level of new open-air retail development. The economics for new strip center construction remain challenging, as rising costs, tight capital markets, and restrictive zoning have kept new supply muted. Meanwhile, obsolete retail inventory continues to exit the market. Strategic capital deployment has been an important part of our success this year. During the quarter, we completed the full redeployment of proceeds from the sale of our California portfolio into higher-growth Sun Belt markets, a rare and highly accretive rotation of capital.

[DJ Busch, President and CEO at InvenTrust Properties]

Two of our newest assets, located in Asheville and Charlotte, North Carolina, which Christy will discuss shortly, are perfect examples of what we seek: strong grocery anchors, exceptional demographics, and embedded rent growth potential. In addition to these recent acquisitions, we've been awarded two properties totaling over $100 million. Our capital allocation strategy remains measured and disciplined. We continue to target opportunities that align with our strict return thresholds and enhance the overall quality of our assets. Roughly 70% of our portfolio is comprised of neighborhood and community centers, with the remaining balance consisting of power and lifestyle properties that share similar market dynamics and demographic profiles. This balanced approach provides diversification while maintaining focus on the formats where we have the greatest operational advantage. Looking ahead, strip center fundamentals appear to remain favorable, supported by low vacancies, limited new development, and steady leasing demand.

[DJ Busch, President and CEO at InvenTrust Properties]

With a focused Sun Belt footprint, high-quality tenant base, and financial flexibility, we're confident in our ability to deliver solid total returns for our shareholders. With that, I'm going to turn it over to Mike to review our financial results.

[Mike Phillips, CFO at InvenTrust Properties]

Thanks, DJ, and good morning, everyone. Same property NOI for the quarter was $44.3 million, representing a 6.4% increase compared to the same period last year. The growth was driven by embedded rent escalations, which contributed 160 basis points, along with occupancy gains and positive rent spreads, each adding 100 basis points. Further contributions of 60 basis points from redevelopment activity, 60 basis points of percentage and ancillary rents, and a 220 basis point lift from net expense reimbursements. These gains were offset by a 60 basis point impact from the bad debt reserve. Year to date, same property NOI totaled $128.3 million, a 5.9% increase over the first nine months of 2024. For the third quarter, NAREIT FFO came in at $38.4 million, or $0.49 per diluted share, representing an 8.9% increase compared to the third quarter of last year.

[Mike Phillips, CFO at InvenTrust Properties]

Core FFO also increased 6.8% to $0.47 per diluted share for the three months ending September 30th. Components of core FFO growth per share for the quarter were primarily driven by same property NOI and net acquisition activity, and partially offset by the impact of an increased share count. For the first nine months of the year, NAREIT FFO was $111.1 million, or $1.42 per diluted share, reflecting a 6% year-over-year increase, while core FFO was $1.37 per diluted share, up 5.4% compared to 2024. Turning to the balance sheet, we continue to strengthen our financial position during the quarter by executing on an extension of our existing term loans. This request moved the maturity dates on the two $200 million tranches to August 2030 and February 2031, increasing our weighted average maturity to 4.7 years.

[Mike Phillips, CFO at InvenTrust Properties]

We entered into four starting interest rate swaps that locked in fixed rates of 4.5% and 4.58% respectively, and will take effect upon the expiration of the in-place swaps in 2026 and 2027. As of September 30th, total liquidity stood at $571 million, including $71 million in cash and the full $500 million available under a revolving credit facility. Our weighted average interest rate is 3.98%, and our net leverage ratio is 24%. Net debt to adjusted EBITDA remained at a sector low four times on a trailing 12-month basis. With a long-term debt policy targeting a leverage range of five to six times, we have ample capacity to execute our capital plan while maintaining balance sheet strength. We also declared an annualized dividend of $0.95 per share. During the quarter, we completed four acquisitions totaling $250 million.

[Mike Phillips, CFO at InvenTrust Properties]

These transactions were funded primarily with cash on hand and one secured mortgage that we assumed with the transaction. Turning to guidance, based on the year-to-date results and current visibility, we are raising our full-year same property NOI growth guidance to a range of 4.75%-5.25%, while reducing our bad debt reserve to 55 basis points-75 basis points of total revenue. We're also increasing the midpoint of our NAREIT FFO guidance to $1.87 per share and raising the low end of our core FFO guidance to a range of $1.80-$1.83. As reflected in our guidance, we expect some deceleration in the fourth quarter, primarily due to property operating expenses being more backloaded in the fourth quarter and our remaining bad debt reserve. Finally, we have revised our net investment guidance from $100 million to a range of $49.6 million-$158.6 million.

[Mike Phillips, CFO at InvenTrust Properties]

Further details on our guidance assumptions are available in our supplemental disclosure. With that, I'll turn the call over to Christy to discuss our portfolio activity.

[Christy David, COO at InvenTrust Properties]

Thanks, Mike. Operationally, we continue to see strong tenant engagement and healthy leasing momentum across our portfolio. Our focus on necessity-based, convenience-oriented retail continues to pay dividends. Anchor tenants are renewing at solid rates, and small shop demand has been steady. Our proactive asset management approach emphasizes relationship building and real-time market awareness. By staying close to our tenants, we're able to anticipate needs, identify early renewal opportunities, and support them in ways that enhance retention and portfolio stability. The result is consistent occupancy and strong rent collections across the platform. We also continue to manage expenses effectively, supported by active oversight and strong vendor partnerships. At the same time, we are investing selectively in property enhancements that improve curb appeal, energy efficiency, and tenant and consumer experiences. These targeted upgrades help sustain the long-term competitiveness of our centers while supporting both rent growth and retention.

[Christy David, COO at InvenTrust Properties]

A key area to highlight this quarter continues to be the consumer preference for dining out. Quick service restaurants and convenience-driven dining content remain a significant catalyst for retail demand. Restaurants, bars, and coffee shops represent a meaningful share of new leasing activity, reflecting the public's sustained appetite for experiential and on-the-go dining. These macro trends have translated into meaningful small shop demand. New leases for the third quarter achieved a 25.6% spread, while renewals averaged at 10.4%, producing a blended leasing spread of 11.5%. Notably, more than 90% of our renewal leases include annual rent escalators of 3% or more. These built-in mechanisms, while straightforward, are a powerful driver for sustainable NOI growth over time. Our retention rate year to date is 82%, reflecting the impact of a single anchor space at our Gateway property in St. Petersburg, Florida, which will be going through a transformational redevelopment.

[Christy David, COO at InvenTrust Properties]

Excluding that space, our retention rate was 89%, consistent with previous quarters. On the tenant health side, our exposure to bankruptcies or at-risk tenants remains minimal, with a modest and actively monitored watch list. When an occasional vacancy does occur, our operations team is well-positioned to mitigate downtime and secure high-quality replacements. At quarter end, total leased occupancy was 97.2%. Small shop leased occupancy maintained its portfolio high of 93.8%, and anchor space finished at 99.3%. Equally important for our cash flow visibility is that approximately 90% of 2026 leasing is already executed. As DJ mentioned, since our last call, we added two high-quality assets in North Carolina: Asheville Market in Asheville, anchored by Whole Foods, and Ray Farms in Charlotte, anchored by Harris Teeter.

[Christy David, COO at InvenTrust Properties]

Asheville offers a strong healthcare and education foundation, a vibrant tourism economy, and population growth projected to exceed the national average over the next five years. Charlotte, one of the fastest growing large metros in the U.S., continues to see in-migration, job expansion in financial services and technology, and above-average household income. These transactions demonstrate our acquisition strategy in action, investing in high-growth markets and premier properties that fit our operating model. Looking ahead, we remain encouraged by the leasing pipeline as we move into the final quarter of the year. Renewal discussions are active, and small shop inquiries remain strong across the portfolio. With that, I'll turn the call back to the operator for Q&A.

[Operator]

Thank you. If you wish to ask a question, please press star followed by one on your telephone keypads now. If for any reason you want to remove your question from the queue, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Andrew Reale from Bank of America. Your line is now open. Please go ahead.

[Andrew Reale, Equity Research Analyst at Bank of America]

Hi, good morning, everyone. Thanks for taking my questions. DJ, I appreciate some of your comments at the beginning just on the Sun Belt consumer overall, and obviously bad debt has been trending favorably. I'd just be curious if you could talk a bit more about tenants in some of your more discretionary categories, including restaurants. I know, Christy, you mentioned that consumer preference for dining out remains strong, but obviously there have been some negative headlines in recent months just around quick service restaurants and dining out. We'd just be curious to hear thoughts on some of those categories and how you're thinking about renewals if we do see a pullback on discretionary spend.

[DJ Busch, President and CEO at InvenTrust Properties]

Yeah, Andrew, thanks so much. Good morning. To your point, I mean, I think from our perspective, and Christy said it in her prepared remarks, we still see a lot of demand from quick service, both fast casual and sit-down dining. I think, in our portfolio, we're fortunate to where we can kind of go through on a tenant-by-tenant basis and identify whether there's an overarching theme related to some of the tenant disruption or if it's really an operator, an operating issue. In our case, it's mostly been the latter. There's certainly a tremendous amount more restaurants doing quite well in our portfolio versus the ones that we're seeing that are struggling. There's a lot of different reasons for that, whether it's concept, operations, or whatnot. Generally speaking, we still see a lot of demand.

[DJ Busch, President and CEO at InvenTrust Properties]

We will have a couple restaurants turnover going into the end of this year, but we already have solid demand and, frankly, some of those have already been leased to another food use.

[Andrew Reale, Equity Research Analyst at Bank of America]

Okay, thank you. If I could just ask a follow-up, I guess broadly just within the acquisition pipeline, what percentage is core grocery versus more power and lifestyle? Also, any color around the size of the pipeline and the latest on what you're seeing on pricing. Thank you.

[DJ Busch, President and CEO at InvenTrust Properties]

Yeah, it's a good question. I think our pipeline still remains pretty robust. I would say at any given time, we're looking at over $1 billion of assets. To your point, it kind of runs across the spectrum of open-air retail. Obviously, most of the stuff we look at has some sort of grocery component or essential nature to the merchandise mix. The two assets that I alluded to and that Christy mentioned, that we've been awarded, both are grocery-anchored as well, in some cases, multiple grocers. The mix that we look at is really just, you know, when you look at our pipeline and what you should expect us to continue to transact on, is very similar to the makeup of the current portfolio.

[DJ Busch, President and CEO at InvenTrust Properties]

We really like the idea of having the predominant or the majority of our assets having that core grocery component, whether it be a smaller neighborhood center or a community center with grocery. We also do like having a small mix of power centers as long as they fit our strategy and our markets that we truly believe in. We're certainly looking at some of those opportunities, as well as some of the smaller lifestyle deals that you've seen us do in the past. As I mentioned, over 70% has some sort of core grocery component. We have a small mix of other open-air assets that fit our strategy within our markets. I think that that's a fair kind of mix within the portfolio that you can expect us to look at going forward.

[Andrew Reale, Equity Research Analyst at Bank of America]

Okay, thanks very much.

[DJ Busch, President and CEO at InvenTrust Properties]

Thank you.

[Operator]

Thank you. Our next question comes from Linda Tsai from Jefferies. Your line is now open. Please go ahead.

[Linda Tsai, Senior VP at Jefferies]

Hi. With occupancy over 97%, how are you thinking about the trajectory over the next couple of quarters?

[DJ Busch, President and CEO at InvenTrust Properties]

Yeah, good question. Morning, Linda. You know, obviously, we had a high watermark this quarter again in small shop. We do expect the small shop to kind of decline a tad going into the end of the year and into the first quarter with a reacceleration in 2026. At some point in 2026, hopefully hitting yet another high watermark. That just speaks to the demand that we're seeing on the small shop side, even with a small amount of fallout, which is nothing out of the ordinary. As a matter of fact, we don't expect to hit or exhaust our bad debt as has been the case in the years past. On the anchor side, I think we have about, I think we have four anchor vacancies today. By the end of the year, I think we'll have five. Three of those are at a redevelopment opportunity in West Florida.

[DJ Busch, President and CEO at InvenTrust Properties]

We've strategically kind of de-leased those spaces with the expectation that we're going to do a redevelopment and a rebuild of the grocer. The other two, one is in Southern California. Obviously, our last asset there we're expecting to sell and another really good opportunity in Dallas. It's always nice when you can fire off the amount of vacancies quickly. That just speaks to the demand that we're seeing there. There will be a little bit of cadence change going into the year, but we expect it to reaccelerate, like I said, in 2026.

[Linda Tsai, Senior VP at Jefferies]

That's helpful. From where you sit today, how are you thinking about CapEx for leasing and TIs in 2026 versus 2025?

[DJ Busch, President and CEO at InvenTrust Properties]

Yeah, so, you know, in 2025, I think it's been a similar kind of spend. We do have some redevelopment opportunities that are more value-added, you know, going in, like I said, you know, some of these grocery opportunities. We have a couple of those coming up. Those tend to, you know, those do cost a decent amount of money. We get a tremendous amount of return out of those opportunities. I know we've spoken about this in the past. I think now that we have a lot of our anchor leasing and build-outs done, you know, and especially as we look into mid-2026, our expectation is that our CapEx burden will come down, just due to where the occupancy is in the portfolio, which should lead to greater free cash flow as we look into 2026 and beyond.

[Linda Tsai, Senior VP at Jefferies]

That's really helpful. Just one quick one for Mike. I think earlier, you mentioned that there are more back-end loaded expenses in for Q4. Could you just give us some context there?

[Mike Phillips, CFO at InvenTrust Properties]

Yeah, just the last couple of years we've had in the fourth quarter, just our normal operating cycle, we've had higher property operating expenses in the back half of the year. This year, that'll show up in Q4. On top of that, our corporate expenses typically in Q4 just tend to run a little bit higher.

[Linda Tsai, Senior VP at Jefferies]

Thank you.

[Operator]

Thank you. Our next question comes from Cooper Clark from Wells Fargo. Your line is now open. Please go ahead.

[Cooper Clark, Equity Research Associate at Wells Fargo]

Great. Thanks for taking the question. I was curious if you could walk through the puts and takes as we think about the current net investment range with respect to the last California disposition and the acquisition pipeline, just thinking about some of the moving pieces into the end of the year that get us to the high or the low end of the range from a timing perspective?

[DJ Busch, President and CEO at InvenTrust Properties]

Yeah, no problem. Good morning, Cooper. Basically, the reason we changed the range is we do have two deals that have been awarded to us, and it's going to be really close on whether they close in 2025 or not. It's just a timing issue. The low end of the range is things that we've already transacted on. The high end of the range is things that we are hopeful that we can get across the finish line before the end of the year. If not, those will show up in early 2026. On the disposition side, as you mentioned in California, that one we're expecting to sell probably early in 2026 or at some point in 2026. We're just dealing with some administrative issues with that asset, based around environmental.

[DJ Busch, President and CEO at InvenTrust Properties]

It's a great asset, the last asset in Southern California, and we do expect to transact on that one as well, but it probably won't be this year.

[Cooper Clark, Equity Research Associate at Wells Fargo]

Okay, that's helpful. Could you just talk about the confidence level to grow creatively from here on acquisitions as we move into 2026? Appreciate the positive spread on the California dispositions year to date, but curious on growth from here as you shift towards funding acquisitions with balance sheet capacity.

[DJ Busch, President and CEO at InvenTrust Properties]

Yeah, obviously, we look at our, and it's a great point. We look at our different pockets, our sources of capital differently. Obviously, the California rotation gave us an opportunity that's unique. We were able to, from our perspective, upgrade the portfolio materially in markets where we've seen really good growth and that we're excited about. We were able to do that on a positive spread in day one with even better growth over time. Now, obviously, when we're looking at growing on our balance sheet, that cost of capital is a little bit different. We've already kind of made that shift as we go through investment committee and then we're looking for those new opportunities because it is important. At the end of the day, this platform is scalable, but we got to do it in a responsible way.

[DJ Busch, President and CEO at InvenTrust Properties]

We got to do it in a creative manner for our shareholders. That's kind of where we're at today. That comes when we think about our overall transaction opportunity set. It really is, as you know, as a response I mentioned earlier, we're looking at a lot of different formats, a lot of different property types. We can get to a creative cash flow in many different ways because of the opportunity sets that we see in our markets.

[Cooper Clark, Equity Research Associate at Wells Fargo]

Great. Thank you.

[Operator]

Thank you. Our next question comes from Mike Mueller from JPMorgan. Your line is now open. Please go ahead.

[Mike Mueller, Senior Equity Research Analyst at JPMorgan]

Yeah, hi. First, when it comes to the remaining budgeted bad debt expense for the year, does most of what's being assumed for the fourth quarter fall into the, you know, it's visible or more into the, it's still an assumption bucket?

[Mike Phillips, CFO at InvenTrust Properties]

I think I can take that, this is Mike. I think it's a little bit of both. In our forecast, our range is 55 basis points-75 basis points right now. In our forecast, we have visibility probably into the bottom of that range at 55 basis points. To get to the top of the range is kind of reserved for unforeseen fallout that might not be right in front of us.

[Mike Mueller, Senior Equity Research Analyst at JPMorgan]

Got it. Okay. Going back to occupancy for a second, the small shops are a little under 92% occupied. What do you see as being a ceiling for that metric? Do you think the current backdrop is one where you can ultimately get to it sometime over the next few years? I understand the comment about near term, we may see a little drop-off, though.

[DJ Busch, President and CEO at InvenTrust Properties]

Yeah, Mike, from what we see in the pipeline and the demand that we continue to see, I think we expect that we can continue to kind of march higher. Obviously, once you get into the mid-90s from an occupied standpoint, you're really only talking about frictional vacancy. It's hard to push that further and further just because some space is always going to be a little bit more structurally challenging to lease. We do have a full strategy around that, whether it be lower rents, percentage rent deals, giving tenants an opportunity to succeed in areas that have probably been vacant for quite some time, which is an issue across the industry. There's always space that's a little bit less desirable no matter how high of quality your center is. We'll continue to do that.

[DJ Busch, President and CEO at InvenTrust Properties]

At the end of the day, if we can hold occupancy where we're at and continue to get the escalators that we have been getting, and that continues to deliver real NOI growth on a year-over-year basis, and then we get our double-digit spreads that we've gotten eight quarters in a row on a renewal basis, all that with a very high retention is just a tremendous opportunity for us to accelerate free cash flow growth because we're not churning our tenants as much as we have in the past. There will be churn. There always is in retail. From when we look at, and I think I've heard some of our peers mention this on their calls as well, the quality of our tenant base is just so much, it's far superior than it has been in years past.

[DJ Busch, President and CEO at InvenTrust Properties]

The credit quality, the merchandising of our tenants, we just don't have the large tenants, specifically anchor tenants, that are struggling right now. Whether that changes over the next couple of years, we'll see. Right now, we feel very confident in our anchors. We feel very confident in our national and regional small shops. Obviously, the local flavor of our small shops have been doing phenomenal for quite some time.

[Mike Mueller, Senior Equity Research Analyst at JPMorgan]

Got it. Okay, thank you.

[Operator]

Thank you. Our next question comes from Michael Gorman from BTIG. Your line is now open. Please go ahead.

[Michael Gorman, Managing Director at BTIG]

Yeah, thanks. Good morning. I just wanted to ask a question on the lease-to-economic occupancy spread. It continued to compress in the quarter. I'm just curious, given the strength of the leasing in the pipeline, strength of demand, the strong retention rate, can that compress below the 2021 levels, or where should we expect that to stabilize as you move into 2026 and beyond?

[DJ Busch, President and CEO at InvenTrust Properties]

Yeah, Michael, it's a good question. When we look at the spread, a lot of that just comes down to timing. I kind of mentioned it, depending on when we're signing new deals versus when we're expecting a tenant to vacate, and then obviously when we're expecting that tenant, the new tenant, to take ownership or occupancy. A lot of the spread comes down to timing. I think from our perspective, anywhere between 150 basis points-200 basis points is probably the normal run rate, and that's going to ebb and flow. The way we think about that spread is more just what's in the pipeline. We have $5 million in our signed but not open pipeline, and we're expecting about 80% of that to be captured next year.

[DJ Busch, President and CEO at InvenTrust Properties]

A substantial portion is getting open and occupied and paying rent in the first quarter and then driving substantial new NOI in the upcoming year. That spread will always kind of ebb and flow, but you're right, it did contract a little bit this quarter.

[Michael Gorman, Managing Director at BTIG]

Great. That's helpful. DJ, you talked about some of the macro signals that you were looking at, but not seeing in your portfolio yet. One of the things that we've been trying to understand a little bit more is obviously the grocer sector continues to be pretty strong, but at the same time, you're seeing a climbing percentage of spend on eating out and takeaway food and QSRs and everything. How do you think about that balance going forward? Can both of those sectors continue to grow and be strong here, or how does the consumer adapt if it continues to show some weakness and, you know, the economic environment continues to soften? How do those two balance out?

[DJ Busch, President and CEO at InvenTrust Properties]

Yeah, no, it's a great question. I don't have a great overarching answer, but I will tell you, within our portfolio, it's been interesting because we haven't seen those two categories, whether it be our grocers versus our quick service or eat away from home, as you said, being a substitute. They've been more complements. We've had our quick service, our restaurants, across the different formats, continue to do quite well. Also, our grocers have been doing very well. Some of that is inflationary-driven, certainly, but our grocers continue to march forward. I think it speaks to, one, the markets that we're in. We've just seen a lot of in-migration growth, which kind of rises, you know, the tide rises all boats in that case, and the types of grocers that we're dealing with. Obviously, one of our top tenants is Publix.

[DJ Busch, President and CEO at InvenTrust Properties]

I know in the Southeast, they're a formidable grocer, a phenomenal operator. H-E-B in Texas, obviously, Kroger and Albertsons are at the top of our top ten list as well. The types of grocers that we're dealing with, I think, have more or less been investing in their stores, been able to grow ID sales. It's been an interesting dynamic over the past couple of years where food at home and food away from home have been able to grow.

[Michael Gorman, Managing Director at BTIG]

Great. Thanks for the time.

[Operator]

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

[Paulina Rojas, Equity Research Analyst at Green Street]

Good morning.

[DJ Busch, President and CEO at InvenTrust Properties]

Good morning.

[Paulina Rojas, Equity Research Analyst at Green Street]

Looking at your recent acquisitions, I see that they have skewed towards secondary and tertiary markets. I'm curious, would you be comfortable if tertiary Sun Belt markets grew to represent a much larger portion of your portfolio and perhaps doubling their current share? How do you think about that?

[DJ Busch, President and CEO at InvenTrust Properties]

Yeah, it's a good question, Paulina. It's a good observation. I don't think we tend to not get caught up in, you know, gateway, secondary, primary, secondary, tertiary. I think the predominant part of the, you know, obviously, the vast majority of our portfolio are in cities that we like to call 18-hour cities, obviously big CBDs, perhaps considered primary or secondary markets. I would argue that Charlotte is one of the fastest growing markets, albeit it has traditionally been called a secondary market. Certainly, the dynamics on the ground in a market like Charlotte are quite different. What we found in it for our ability to grow our portfolio, I mentioned it in my prepared remarks, we really, really like the hub-and-spoke model. Charlotte is a core market for InvenTrust. From that market, we can also invest in markets like Asheville, which has seen a tremendous amount of migrations.

[DJ Busch, President and CEO at InvenTrust Properties]

It's gone from something that's been more of a secondary residence area to a primary residence area. Now, obviously, Asheville has its own tragedy in the not too distant past, but we feel very confident that that market's going to rebound in a big way. Now, having said that, when you mention secondary and tertiary markets, our quality or the level of quality has to be higher. If we're going to be in that secondary market, we got to make sure that we're going to own and operate the best asset in that market or the second best asset in the market, where certainly in larger gateway markets or primary markets, you certainly can own a lot more because there's just a lot more population and density to accommodate that.

[Paulina Rojas, Equity Research Analyst at Green Street]

Do you think cap rates change if you go to markets that are less pursued by typical institutional investors, but where local trade area demographics are equally strong? Do you see a cap rate difference?

[DJ Busch, President and CEO at InvenTrust Properties]

Sure. It all comes down to what's the risk-adjusted return that you're trying to get. That's why I mentioned the quality is very important. You have to make sure that you're at the high end of the quality spectrum when you do go into a smaller market. I wouldn't call it a tertiary market. Certainly, some of them are tertiary. We've tended to stay away from markets that are very thin in population unless there are green shoots of impressive growth coming in the future. There are, you know, what we tend to look at, Paulina, is anywhere from, call it high fives to high sixes from an initial yield standpoint. That tends to get us to our risk-adjusted returns that are comfortably in the sevens. I know people quote IRRs quite differently, but from the way we look at the world, we can make that accretive to our business.

[DJ Busch, President and CEO at InvenTrust Properties]

Certainly, there are cap rate nuances not only from market to market, but property type to property type and depending on your merchandise mix.

[Paulina Rojas, Equity Research Analyst at Green Street]

Yeah. I guess what I was getting to is something that is more an opportunity, more in market inefficiency because fewer investors are looking at those markets, where perhaps the return that you are able to get is not really explained by higher risk. It's really a function of less demand.

[DJ Busch, President and CEO at InvenTrust Properties]

No, that could be the case. I mean, look, I think one of the interesting dynamics and, you know, obviously, our decision to move out to exit out of California was a strategic one for InvenTrust. It's a core market for almost every other private or public operator. California trades differently than most any other state or, you know, the markets in California trade differently than any other markets in the country. It, to your point, is because of the demand and the liquidity that it offers. Now, we're, as a public arena, as a perpetual vehicle, that's really not as important to us. What's important to us is to create sustainable free cash flow growth over a long period of time for our shareholders.

[DJ Busch, President and CEO at InvenTrust Properties]

We can do that in other areas outside of California, which allows us to take advantage of, you know, for lack of a better term, some sort of arbitrage.

[Paulina Rojas, Equity Research Analyst at Green Street]

Yeah. Okay. Thank you. Very helpful.

[DJ Busch, President and CEO at InvenTrust Properties]

Thanks, Paulina.

[Operator]

Thank you. Our next question comes from Cooper Clark from Wells Fargo. Your line is now open. Please go ahead.

[Cooper Clark, Equity Research Associate at Wells Fargo]

Great. Thanks for taking the follow-up. You spoke to operating leverage in your prepared remarks, and margins look to be up about 100 basis points year over year. I was curious if this is mostly timing related, as you noted some backloaded expenses earlier on the call, and if you could provide color on the potential for farther upside to margins as additional occupancy comes online?

[DJ Busch, President and CEO at InvenTrust Properties]

Yeah. Obviously, you know, we get operating leverage as our occupancy climbs higher, as you mentioned. We do expect to continue to get, you know, marginal operating leverage as we continue to grow the portfolio. That's one of the best things about having the platform that we have, as we can continue to scale it, and there should be real tangible benefits not only at the operating margin level, but also at the EBITDA margin level. That's just going to come as we continue to grow the asset base. The piece that you're probably alluding to this quarter is, you know, our recovery rates continue to get stronger as we continue to, you know, transition to a more fixed-cap model.

[Cooper Clark, Equity Research Associate at Wells Fargo]

Great. Thank you.

[Operator]

Thank you. Our next question comes from Hong Zhang from JPMorgan. Your line is now open. Please go ahead.

[Hong Zhang, Analyst at JPMorgan]

Yeah. Hey, guys. I guess if I think about same-store growth, you've managed to sustain mid-single-digit same-store growth historically. Just reading in between the lines of your comments about occupancy, do you expect that to be sustainable going forward, or do you think occupancy is going to be a little bit of a headwind to same-store growth in the near term?

[DJ Busch, President and CEO at InvenTrust Properties]

No, thanks for the question. I wouldn't call it a headwind. This goes back to my comments on CapEx. As we move forward, obviously, you do get a decent amount of same-store growth out of occupancy gains, no doubt. With those occupancy gains, as you're doing new leases, it comes with real costs, especially in the retail business. We look at it as an opportunity, even if our same-store NOI growth would slow down from what's been a real nice run of, I think, 5% for several years running now. Even if that were to moderate a little bit, it would only be due to a higher retention rate across the portfolio. We'd be doing more renewals. We'll get our embedded escalators, a little bit of redevelopment, and with that should be stronger free cash flow growth.

[Hong Zhang, Analyst at JPMorgan]

Got it. Thank you.

[DJ Busch, President and CEO at InvenTrust Properties]

Thank you.

[Operator]

Thank you. We currently have no further questions, so I'll hand back to Mr. DJ Busch for closing remarks.

[DJ Busch, President and CEO at InvenTrust Properties]

Thank you, everyone, for taking the time. Thank you for your interest in InvenTrust. We're excited about finishing the end of the year strong, and we're even more optimistic as we move into 2026. Looking forward to seeing you guys at many of the conferences coming up later this winter and in the next year. Have a great day.

[Operator]

This concludes today's call. Thank you for joining us. You may now disconnect your lines.

Participants

Executives

• Mike Phillips, CFO
• Dan Lombardo, VP of Investor Relations
• DJ Busch, President and CEO
• Christy David, COO

Analysts

• Andrew Reale, Equity Research Analyst at Bank of America
• Linda Tsai, Senior VP at Jefferies
• Mike Mueller, Senior Equity Research Analyst at JPMorgan
• Cooper Clark, Equity Research Associate at Wells Fargo
• Michael Gorman, Managing Director at BTIG
• Paulina Rojas, Equity Research Analyst at Green Street
• Hong Zhang, Analyst at JPMorgan