Inventrust Properties Corp. · NYSE:IVT
Inventrust Properties — Baker Tilly — Investor Presentation (June 2024)
90 slides from Inventrust Properties's investor presentation, June 2024
Slide 1: Commercial real estate market update and outlook
Commercial real estate market update and outlook Ad Hoc 2024
Slide 2: Meet your presenter
Meet your presenter Scan with your smartphone camera to contact Brent: Brent Maier Principal, National real estate advisory leader M: (312) 203-6447 E: brent.maier@bakertilly.com Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice str
Slide 3: Agenda
3 Agenda 1) Current economic scene – landing type 2) Economic Overview 3) Retail 4) Multifamily 5) Industrial 6) Office 7) Q&A 3
Slide 4: Current economic situation
C O M M E R C I A L R E A L E S TAT E M A R K E T U P D AT E A N D O U T L O O K Current economic situation 4
Slide 5: Real Gross Domestic Product (1947 Q1 – 2024 Q1)
1947Q1 Sources: FRED 1948Q2 1949Q3 1950Q4 1952Q1 1953Q2 1954Q3 1955Q4 Shaded areas indicate U.S. recessions. 1957Q1 1958Q2 1959Q3 1960Q4 1962Q1 1963Q2 1964Q3 1965Q4 1967Q1 1968Q2 1969Q3 1970Q4 1972Q1 1973Q2 1974Q3 1975Q4 1977Q1 1978Q2 1979Q3 1980Q4 1982Q1 1983Q2 1984Q3 1985Q4 1987Q1 1988Q2 1989Q3 19
Slide 6: Real Gross Domestic Product (1947 Q1 – 2024 Q1)
1947Q1 Sources: FRED 1948Q2 1949Q3 1950Q4 1952Q1 1953Q2 1954Q3 1955Q4 Shaded areas indicate U.S. recessions. 1957Q1 1958Q2 1959Q3 1960Q4 1962Q1 1963Q2 1964Q3 1965Q4 1967Q1 1968Q2 1969Q3 1970Q4 1972Q1 1973Q2 1974Q3 1975Q4 1977Q1 1978Q2 1979Q3 1980Q4 1982Q1 1983Q2 1984Q3 1985Q4 1987Q1 1988Q2 1989Q3 19
Slide 7: Real Gross Domestic Product (1984 Q1 – 2024 Q1)
1984Q1 Sources: FRED 1984Q4 1985Q3 1986Q2 1987Q1 1987Q4 1988Q3 Shaded areas indicate U.S. recessions. 1989Q2 1990Q1 1990Q4 1991Q3 1992Q2 1993Q1 1993Q4 1994Q3 1995Q2 1996Q1 1996Q4 1997Q3 1998Q2 1999Q1 1999Q4 2000Q3 2001Q2 2002Q1 2002Q4 2003Q3 2004Q2 2005Q1 2005Q4 2006Q3 2007Q2 2008Q1 2008Q4 2009Q3 20
Slide 8: Real Gross Domestic Product (1984 Q1 – 2024 Q1)
1984Q1 Sources: FRED 1984Q4 1985Q3 1986Q2 1987Q1 1987Q4 1988Q3 1989Q2 Shaded areas indicate U.S. recessions. 1990Q1 1990Q4 1991Q3 1992Q2 1993Q1 1993Q4 1994Q3 1995Q2 1996Q1 1996Q4 1997Q3 1998Q2 1999Q1 1999Q4 2000Q3 2001Q2 2002Q1 2002Q4 2003Q3 2004Q2 2005Q1 2005Q4 2006Q3 2007Q2 2008Q1 2008Q4 Growth =
Slide 9: Real Gross Domestic Product (1984 Q1 – 2024 Q1)
1984Q1 Sources: FRED 1984Q4 1985Q3 1986Q2 1987Q1 1987Q4 1988Q3 Shaded areas indicate U.S. recessions. 1989Q2 Workforce = 41.8 Median Age of US 1990Q1 1990Q4 1991Q3 1992Q2 1993Q1 1993Q4 1994Q3 1995Q2 1996Q1 1996Q4 1997Q3 1998Q2 1999Q1 1999Q4 2000Q3 2001Q2 2002Q1 2002Q4 2003Q3 2004Q2 2005Q1 2005Q4 200
Slide 10: Real Gross Domestic Product (2020 Q1 – 2024 Q1)
Real Gross Domestic Product (2020 Q1 – 2024 Q1) 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4 2022Q1 2022Q2 2022Q3 2022Q4 2023Q1 2023Q2 2023Q3 2023Q4 2024Q1 Shaded areas indicate U.S. recessions. Sources: FRED
Slide 11: Real Gross Domestic Product (LTM)
Real Gross Domestic Product (LTM) 2023Q2 2023Q3 2023Q4 2024Q1 Sources: FRED
Slide 12: Real Gross Domestic Product (LTM*)
Real Gross Domestic Product (LTM*) deceleration 2023Q2 2023Q3 2023Q4 2024Q1 *Last Twelve Months Sources: FRED
Slide 13: Economic data (cont.)
Economic data (cont.) Sources: FRED, Costar 13
Slide 14: Consumer Sentiment
Consumer Sentiment 110 100 INDEX VALUE (1966 = 100) 90 80 70 60 50 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 Shaded areas indicate U.S. recessions. Sources: University of Michigan 14
Slide 15: Unemployment Rate (1948 through April 2024)
Unemployment Rate (1948 through April 2024) 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023 Sources: BLS
Slide 16: Unemployment Rate (Jan. 2020 through April 2024)
Unemployment Rate (Jan. 2020 through April 2024) 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2020 2021 2022 2023 2024 Sources: BLS
Slide 17: Unemployment Rate (LTM)
Unemployment Rate (LTM) 4.00% 3.90% 3.80% 3.70% 3.60% 3.50% 3.40% 3.30% 05/01/23 06/01/23 07/01/23 08/01/23 09/01/23 10/01/23 11/01/23 12/01/23 01/01/24 02/01/24 03/01/24 04/01/24 Sources: BLS
Slide 18: Labor Participation Rate
57.0 58.0 59.0 60.0 61.0 62.0 63.0 64.0 65.0 66.0 February 2009 67.0 May 2009 August 2009 Sources: BLS November 2009 February 2010 May 2010 August 2010 November 2010 February 2011 May 2011 August 2011 November 2011 February 2012 May 2012 August 2012 November 2012 February 2013 May 2013 August 2013 N
Slide 19: Inflation – CPI & Core PCE
50 0 100 150 200 250 300 January 2020 350 February 2020 March 2020 Sources: BLS April 2020 May 2020 June 2020 July 2020 August 2020 September 2020 October 2020 November 2020 December 2020 January 2021 February 2021 March 2021 April 2021 May 2021 June 2021 July 2021 August 2021 September 2021 October
Slide 20: Current economic situation (cont.)
Current economic situation (cont.) • Inflation target – 2.0% (FOMC) • 12-month %-change (U.S. Bureau of Labor Statistics) • CPI – 3.36% • Core PCE – 5.84% • What’s the difference? • CPI – headline, overall basket of goods • Core PCE – the FOMC favored indication of inflation: • is the value of the g
Slide 21: FOMC Target Rate since 1982
FOMC Target Rate since 1982 14.0000 12.0000 10.0000 8.0000 6.0000 4.0000 2.0000 0.0000 Sources: FRED 21
Slide 22: FOMC Target Rate since 2020
10.00 12.00 0.00 2.00 4.00 6.00 8.00 2020-01-01 2020-02-01 2020-03-01 2020-04-01 Sources: FRED 2020-05-01 2020-06-01 2020-07-01 2020-08-01 2020-09-01 2020-10-01 2020-11-01 2020-12-01 2021-01-01 2021-02-01 2021-03-01 2021-04-01 2021-05-01 2021-06-01 2021-07-01 2021-08-01 2021-09-01 2021-10-01 2021-11
Slide 23: Economic data (cont.)
Economic data (cont.) Sources: FRED, Costar 23
Slide 24: Economic data (cont.)
Economic data (cont.) Sources: FRED, Costar 24
Slide 25: Economic data (cont.)
Economic data (cont.) • Price change for essentials: Inflation stubbornly above target levels primarily energy related including fuel oil and natural gas. 12-month inflation change as of March 31, 2024. Core items are at healthy levels. Sources: U.S. Bureau of Labor Statistics 25
Slide 26: Economic data (cont.)
Economic data (cont.) Sources: FRED, Costar 26
Slide 27: Economic data (cont.)
Economic data (cont.) • GDP growth projections raised:The GDP growth forecast for 2024 has been revised up to 2.1%, with slight increases for 2025 and 2026 to 2.0%, indicating expected ongoing economic strength. Sources: Yield Pro 27
Slide 28: Economic data (cont.)
Economic data (cont.) • Inflation outlook nearly unchanged: The projected PCE inflation for 2025 was slightly raised to 2.2%, while the 2026 projection remains at the target of 2.0%. Sources: Yield Pro 28
Slide 29: Economic data (cont.)
Economic data (cont.) • Interest rate projections raised: The Federal Reserve has increased the projected Federal Funds rate for 2025 to 3.9% and for 2026 to 3.1%, with the long-term rate adjusted to 2.6%. Sources: Yield Pro 29
Slide 30: Economic data (cont.)
Economic data (cont.) Sources: FRED; Costar 30
Slide 31: Economic data (cont.)
Economic data (cont.) Sources: FRED; Costar 31
Slide 32: Economic data (cont.)
Economic data (cont.) Strengths Opportunities • U.S. Consumer Spending remains strong. • Given the economy recovers from post-COVID inflationary pressures. The Fed will hold and potentially • Both the Sticky Price CPI Less Food and Energy and cut the interest rates in 2024. the overall CPI appear to
Slide 33: Election year – housing value
Election year – housing value Case-Shiller data shows that, on average, home prices have climbed 4.84 percent in election years since 1987. In non-election years, values rose 4.44%. That might lead to the conclusion that presidential elections are good for the housing market, but the reality is far
Slide 34: Election year – market participant insights
Election year – market participant insights The outcome of presidential elections can significantly influence housing affordability. Approximately 22% of homebuyers and Policies implemented by the incoming sellers report that presidential elections administration, ranging from tax reforms to influen
Slide 35: Capital Market
C O M M E R C I A L R E A L E S TAT E M A R K E T U P D AT E A N D O U T L O O K Capital Market
Slide 36: Equity Raises
Equity Raises • Proceeds raised by U.S. equity real estate investment trusts through at- the-market programs totaled $4.07 billion for the first quarter of 2024, according to an analysis by S&P Global Market Intelligence. • The quarter total represents a 38.8% drop compared to the near- record high
Slide 37: Equity Raises
Equity Raises 225 bps Sources: Capital IQ 37
Slide 38: Real Estate Debt
Real Estate Debt • The lenders generally lend at substantial discounts to replacement costs, sometimes at 50% of peak valuations, and achieve gross returns in the low to mid-teens percentage range on mezzanine-like exposures with loan-to- value ratios around 65%. The cost of the origination of the s
Slide 39: Real Estate Debt
Real Estate Debt Sources: RCA, Newmark Research 39
Slide 40: Real Estate Debt
Real Estate Debt Sources: JP Morgan Securities 40
Slide 41: Real Estate Debt
Real Estate Debt Sources: FRED, Costar 41
Slide 42: Real Estate Debt example
Real Estate Debt example Term 2020 Q2 Current Investment Value (gross) $100 million $100 million Loan-to-Value 60% 75% Rate 3.9% 7.0% Annual Debt Service $4.3 million $7.0 million Additional Capital at Close - $15.0 million Additional Debt Service - $2.7 million Additional Debt Service (5-years) $13
Slide 43: Retail
C O M M E R C I A L R E A L E S TAT E M A R K E T U P D AT E A N D O U T L O O K Retail
Slide 44: Market and transaction overview
Market and transaction overview • Slow start to transactions in the beginning of the year, however, the transactions that occurred were significant. • As the quarter progressed, higher-dollar activity picked up which points to the trend of high-quality, well-located assets gaining momentum. Sources:
Slide 45: Market and transaction overview
Market and transaction overview 85.9% 45 Sources: Costar
Slide 46: Market and transaction overview
Market and transaction overview 85.9% 46 Sources: Costar
Slide 47: Market and transaction overview
Market and transaction overview • Strong employment figures and resilient consumer spending are powering strong fundamentals for the retail sector as a whole. • Grocery-anchored assets remain attractive, while capital is also pouring into urban retail and operator expansions. • Trailing 12-month REI
Slide 48: Market and transaction overview
Market and transaction overview • Absorption of retail space began to slow down in Q1 2024. • The vacancy rate in 2024 remained stable around 4%. Sources: Costar, Nareit 48
Slide 49: Market and transaction overview
Market and transaction overview • The asset value remained consistently high throughout 2024, hovering close to $3,000 billion. • Both the cap rate and the interest rate (CMBS origination) show a steady trend in 2024. Sources: Costar, Nareit 49
Slide 50: Market and transaction overview
Market and transaction overview • In the past five years, all categories—malls, neighborhood centers, general retail, and strip centers—exhibited a downward trend in cap rates. • Strip Center experienced the most significant decrease in cap rate, narrowing the gap with malls in Q1 2024. Sources: Cos
Slide 51: Market and transaction overview
Market and transaction overview • In 2024, year-over-year (YoY) rent growth begins to decline from a peak around 2022 and the vacancy rate remains stable at around 4.0%. Sources: Costar, Nareit 51
Slide 52: Consumer behavior and reliance
Consumer behavior and reliance Online shopping and social commerce Consumer behavior in inflationary • The line between social media and e-commerce is blurring, • Spending on essentials has surged, with inflation prompting a leading to the rise of social commerce. shift to more affordable products,
Slide 53: Consumer behavior and reliance
Consumer behavior and reliance E-commerce performance: E-commerce total sales have shown a steady increase from 2018 through early 2021, with a peak in Q3 2020. Although there's a slight dip afterward, sales volumes remain significantly higher than in earlier years, maintaining robust growth over ti
Slide 54: Consumer behavior and reliance
Consumer behavior and reliance Social commerce increase: U.S. annual social commerce sales (products or services ordered via social and messaging apps) per buyer will nearly double from $627.8 in 2023 to $1,223.7 in 2027, according to our forecast. TikTok Shop sales are on the rise, and social platf
Slide 55: Consumer behavior and reliance
Consumer behavior and reliance Priority for consumption: The largest segment of consumers identifies as affordability first (26%) — compared with experience first (23%), planet first (21%), health first (17%), and society first (13%). Sources: Costar 55
Slide 56: Consumer behavior and reliance
Consumer behavior and reliance Change in consumption: Despite a potentially looming recession and prices of goods at an all-time high, U.S. consumers will continue to do what they do best — consume. The U.S. consumer showcases a higher desire to maintain their consumption during the high inflationar
Slide 57: Consumer behavior and reliance
Consumer behavior and reliance Consumer Sentiment: The University of Michigan's consumer sentiment index increased by 22.3% compared to the previous year. This index has reached its highest post- COVID level since July 2021, which has contributed to a higher growth rate in retail sales and a respons
Slide 58: Market response
Market response • Experiential shopping: With the shift in consumer behavior towards experiential shopping, retailers focused on in- person experiences, such as shoe stores, home furnishings, specialty stores, grocery stores, and toy/game stores, have seen increased market presence. • Restaurants bo
Slide 59: Market response
Market response The size of newly executed leases fell 11.1% from the previous quarter to an average of 3,027 square feet. This is a result of a predominance of retailers taking small spaces (under 2,500 square feet) due to the increase in e-commerce transactions, restaurant expansion and more exper
Slide 60: Market response
Market response Spaces under 2,500 square feet also comprised the greatest square feet signed during the quarter. More than two-thirds (68.5%) of deals inked in the first quarter were for such small spaces, given that quick-service and fast-casual restaurants generally fall within this size category
Slide 61: Market response
Market response Lifestyle centers remain in demand: As experiential shopping becomes a central consumer preference, lifestyle centers have demonstrated strong demand and a positive net absorption of 0.3 million square feet this quarter. They have a notably high lease rate of 34.6% compared to other
Slide 62: Market response
Market response Retailers have more confidence in Class A malls: Starting in 2021, Class A malls saw a resurgence in leasing activity growth, due to expanding retailers focusing on high-quality mall space. Class A shopping malls generally provide a better shopping experience for consumers, which inc
Slide 63: Multifamily
C O M M E R C I A L R E A L E S TAT E M A R K E T U P D AT E A N D O U T L O O K Multifamily
Slide 64: Market and transaction overview
Market and transaction overview • Activity stable with regions like the coasts and Sunbelt remain most active, in addition to Great Lakes and Ohio Valley. • Blackstone announces multifamily acquisition in Q2 valued at approximately $10 billion. Sources: Press releases, SEC Filings and published arti
Slide 65: Market and transaction overview
Market and transaction overview 85.9% Sources: Costar 65
Slide 66: Market and transaction overview
Market and transaction overview 85.9% Sources: Costar 66
Slide 67: Market and transaction overview
Market and transaction overview • Single Family Rental (SFR) is a growing force. In high populated growth areas and markets with ample available land, investors and developers of SFR are capitalizing on the unmet demand for a product with attractive returns. • Multifamily poised for more activity. R
Slide 68: Market and transaction overview
Market and transaction overview There is a noticeable increase in absorption in Q1 2024 compared to past quarters. However, despite the improved absorption, the vacancy rate continues to rise, reaching above 8% by Q1 2024. Sources: Costar, Nareit 68
Slide 69: Market and transaction overview
Market and transaction overview • The asset value continues to decrease starting Q2 2022, hovering close to $4,500 billion in Q1 2024. • Both the cap rate and the interest rate (CMBS origination) show an increasing trend in Q1 2024. Sources: Costar, Nareit 69
Slide 70: Market and transaction overview
Market and transaction overview • After the lowest peak of the cap rate in 2022, all types of building exhibits an increasing trend throughout 2024. • 4 - 5-star buildings continue to have the lower cap rate compared to 3-star buildings in the past five years. Sources: Costar, Nareit 70
Slide 71: Market and transaction overview
Market and transaction overview In 2024, year-over-year (YoY) rent growth begins to decline from a peak around 2022 and the vacancy rate remains stable at around 10.0%. Sources: Costar, Nareit 71
Slide 72: Industrial
C O M M E R C I A L R E A L E S TAT E M A R K E T U P D AT E A N D O U T L O O K Industrial
Slide 73: Market and transaction overview
Market and transaction overview • The growth of the sector since the onset of the pandemic has cooled to more of a pre- pandemic level in Q1. • Q1 represented the lowest level of industrial sales since Q2 2020. • As the new year started, the asset class has seen significant transaction activity as a
Slide 74: Market and transaction overview
Market and transaction overview 78.9% 74 Sources: Costar
Slide 75: Market and transaction overview
Market and transaction overview 78.9% 75 Sources: Costar
Slide 76: Market and transaction overview
Market and transaction overview After a strong fourth quarter showing, industrial REITs reflected the overall slowdown of the sector, returning a net loss in the first quarter as illustrated in the graph. Sources: Cushman & Wakefield Research, Nareit 76
Slide 77: Market and transaction overview
Market and transaction overview The U.S. industrial real estate market remains relatively healthy but faces numerous challenges over the next 12 months. The record surge in new construction continues to restrict net absorption and push the average vacancy rate higher, which will likely continue into
Slide 78: Market and transaction overview
Market and transaction overview • Asset value remains stable and high through 2024. • Cap rate has a slight increase after the lowest peak in Q1 2022. Sources: Costar 78
Slide 79: Market and transaction overview
Market and transaction overview • The cap rate for all properties trends downwards into 2024, suggesting an overall increase in property valuations or a decrease in investment risk perceptions. • Logistics and flex properties both show a narrowing of their cap rates towards the overall market cap ra
Slide 80: Market and transaction overview
Market and transaction overview The vacancy rate continued to grow in Q1 2024 and year-over- year (YoY) rent growth dropped significantly in, which is getting back to the pre-COVID period. Sources: Costar 80
Slide 81: Office
C O M M E R C I A L R E A L E S TAT E M A R K E T U P D AT E A N D O U T L O O K Office
Slide 82: Market and transaction overview
Market and transaction overview Sector continues to grapple with diminishing demand, leaving lingering uncertainties about when bottom will hit, as investors and industry participants remain vigilant and poised to deploy capital when cues to recovery become present. Sources: Press releases, SEC Fili
Slide 83: Market and transaction overview
Market and transaction overview 82.8% Sources: Costar 83
Slide 84: Market and transaction overview
Market and transaction overview 82.8% 84 Sources: Costar
Slide 85: Market and transaction overview
Market and transaction overview • Instability in the sector remains persistent since COVID-19, but signs of pending recovery are emerging in the near term. • Cities like Miami, New York, and San Francisco have increased office foot traffic, which signals a shift towards in-person work. • May see pot
Slide 86: Market and transaction overview
Market and transaction overview Absorption vs. net deliveries: In 2024, absorption consistently lags behind net deliveries, indicating a surplus of new space coming onto the market that is not being fully occupied. This trend of higher net deliveries compared to absorption starts intensifying around
Slide 87: Market and transaction overview
Market and transaction overview • The asset value continue its decrease throughout 2024, hovering close to $2,400 billion. • Market cap rate continue to increase during Q1 2024 with the interest rate (CMBS origination) to decrease from the highest peak. Sources: Costar, Nareit 87
Slide 88: Market and transaction overview
Market and transaction overview 4 - 5-star buildings continue to have a lower cap rate compared to 3-star buildings with a consistent gap of 200 basis points. Sources: Costar, Nareit 88
Slide 89: Market and transaction overview
Market and transaction overview Vacancy rate has increased to the historical highest in the past five years. Sources: Costar, Nareit 89
Slide 90: Questions?
Questions? Scan with your smartphone to contact Brent: Connect with me: Brent Maier Principal, National real estate advisory leader M: (312) 203-6447 E: brent.maier@bakertilly.com Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice st