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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2024
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 000-55146
Inland Real Estate Income Trust, Inc.
(Exact name of registrant as specified in its charter)
|
|
Maryland |
45-3079597 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
2901 Butterfield Road, Oak Brook, Illinois |
60523 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: 630-218-8000
Former name, former address and former fiscal year, if changed since last report: Not Applicable
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
None |
|
None |
|
None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
|
Smaller reporting company |
☐ |
Emerging growth company |
☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of May 7, 2024, there were 36,130,329 shares of the registrant’s common stock, $.001 par value, outstanding.
INLAND REAL ESTATE INCOME TRUST, INC.
TABLE OF CONTENTS
INLAND REAL ESTATE INCOME TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
March 31, 2024 (unaudited) |
|
|
December 31, 2023 |
|
ASSETS |
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
Investment properties held and used: |
|
|
|
|
|
|
Land |
|
$ |
330,456 |
|
|
$ |
330,456 |
|
Building and other improvements |
|
|
1,212,591 |
|
|
|
1,209,740 |
|
Total |
|
|
1,543,047 |
|
|
|
1,540,196 |
|
Less accumulated depreciation |
|
|
(347,580 |
) |
|
|
(335,700 |
) |
Net investment properties held and used |
|
|
1,195,467 |
|
|
|
1,204,496 |
|
Cash and cash equivalents |
|
|
7,708 |
|
|
|
5,975 |
|
Restricted cash |
|
|
479 |
|
|
|
479 |
|
Accounts and rent receivable |
|
|
22,019 |
|
|
|
23,645 |
|
Acquired lease intangible assets, net |
|
|
58,583 |
|
|
|
61,827 |
|
Operating lease right-of-use asset, net |
|
|
13,647 |
|
|
|
13,745 |
|
Other assets |
|
|
40,060 |
|
|
|
33,873 |
|
Total assets |
|
$ |
1,337,963 |
|
|
$ |
1,344,040 |
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Mortgages and credit facility payable, net |
|
$ |
842,105 |
|
|
$ |
843,890 |
|
Accounts payable and accrued expenses |
|
|
11,423 |
|
|
|
11,182 |
|
Operating lease liability |
|
|
25,064 |
|
|
|
24,992 |
|
Distributions payable |
|
|
4,902 |
|
|
|
4,905 |
|
Acquired intangible liabilities, net |
|
|
36,585 |
|
|
|
37,420 |
|
Due to related parties |
|
|
2,790 |
|
|
|
2,796 |
|
Other liabilities |
|
|
9,226 |
|
|
|
10,500 |
|
Total liabilities |
|
|
932,095 |
|
|
|
935,685 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
Preferred stock, $.001 par value, 40,000,000 shares authorized, none outstanding |
|
|
— |
|
|
|
— |
|
Common stock, $.001 par value, 1,460,000,000 shares authorized, 36,142,573 and 36,163,852 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively |
|
|
36 |
|
|
|
36 |
|
Additional paid in capital |
|
|
816,071 |
|
|
|
816,047 |
|
Accumulated distributions and net loss |
|
|
(441,094 |
) |
|
|
(432,854 |
) |
Accumulated other comprehensive income |
|
|
30,855 |
|
|
|
25,126 |
|
Total stockholders’ equity |
|
|
405,868 |
|
|
|
408,355 |
|
Total liabilities and stockholders’ equity |
|
$ |
1,337,963 |
|
|
$ |
1,344,040 |
|
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited, dollar amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2024 |
|
|
2023 |
|
Income: |
|
|
|
|
|
|
Rental income |
|
$ |
37,349 |
|
|
$ |
36,462 |
|
Other property income |
|
|
118 |
|
|
|
49 |
|
Total income |
|
|
37,467 |
|
|
|
36,511 |
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
Property operating expenses |
|
|
7,316 |
|
|
|
6,963 |
|
Real estate tax expense |
|
|
4,783 |
|
|
|
5,254 |
|
General and administrative expenses |
|
|
1,544 |
|
|
|
1,528 |
|
Business management fee |
|
|
2,255 |
|
|
|
2,716 |
|
Depreciation and amortization |
|
|
14,559 |
|
|
|
14,912 |
|
Total expenses |
|
|
30,457 |
|
|
|
31,373 |
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
Interest expense |
|
|
(10,430 |
) |
|
|
(10,409 |
) |
Interest and other income |
|
|
82 |
|
|
|
20 |
|
Net loss |
|
$ |
(3,338 |
) |
|
$ |
(5,251 |
) |
|
|
|
|
|
|
|
Net loss per common share, basic and diluted |
|
$ |
(0.09 |
) |
|
$ |
(0.14 |
) |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and diluted |
|
|
36,151,697 |
|
|
|
36,219,336 |
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
Net loss |
|
$ |
(3,338 |
) |
|
$ |
(5,251 |
) |
Unrealized gain (loss) on derivatives |
|
|
10,066 |
|
|
|
(4,545 |
) |
Reclassification adjustment for amounts included in net loss |
|
|
(4,337 |
) |
|
|
(3,485 |
) |
Comprehensive income (loss) |
|
$ |
2,391 |
|
|
$ |
(13,281 |
) |
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, dollar amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Common Stock |
|
Additional Paid in Capital |
|
Accumulated Distributions and Net Loss |
|
Accumulated Other Comprehensive Income |
|
Total |
|
Balance at December 31, 2023 |
|
36,163,852 |
|
$ |
36 |
|
$ |
816,047 |
|
$ |
(432,854 |
) |
$ |
25,126 |
|
$ |
408,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared ($0.135600 per share) |
|
— |
|
|
— |
|
|
— |
|
|
(4,902 |
) |
|
— |
|
|
(4,902 |
) |
Proceeds from distribution reinvestment plan |
|
85,173 |
|
|
— |
|
|
1,691 |
|
|
— |
|
|
— |
|
|
1,691 |
|
Shares repurchased |
|
(106,452 |
) |
|
— |
|
|
(1,691 |
) |
|
— |
|
|
— |
|
|
(1,691 |
) |
Unrealized gain on derivatives |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
10,066 |
|
|
10,066 |
|
Reclassification adjustment for amounts included in net loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,337 |
) |
|
(4,337 |
) |
Equity-based compensation |
|
— |
|
|
— |
|
|
24 |
|
|
— |
|
|
— |
|
|
24 |
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
(3,338 |
) |
|
— |
|
|
(3,338 |
) |
Balance at March 31, 2024 |
|
36,142,573 |
|
$ |
36 |
|
$ |
816,071 |
|
$ |
(441,094 |
) |
$ |
30,855 |
|
$ |
405,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Common Stock |
|
Additional Paid in Capital |
|
Accumulated Distributions and Net Loss |
|
Accumulated Other Comprehensive Income |
|
Total |
|
Balance at December 31, 2022 |
|
36,184,058 |
|
$ |
36 |
|
$ |
814,949 |
|
$ |
(398,097 |
) |
$ |
34,170 |
|
$ |
451,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared ($0.135600 per share) |
|
— |
|
|
— |
|
|
— |
|
|
(4,912 |
) |
|
— |
|
|
(4,912 |
) |
Proceeds from distribution reinvestment plan |
|
87,915 |
|
|
— |
|
|
1,775 |
|
|
— |
|
|
— |
|
|
1,775 |
|
Shares repurchased |
|
(55,099 |
) |
|
— |
|
|
(890 |
) |
|
— |
|
|
— |
|
|
(890 |
) |
Unrealized gain on derivatives |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,545 |
) |
|
(4,545 |
) |
Reclassification adjustment for amounts included in net loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,485 |
) |
|
(3,485 |
) |
Equity-based compensation |
|
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
22 |
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
(5,251 |
) |
|
— |
|
|
(5,251 |
) |
Balance at March 31, 2023 |
|
36,216,874 |
|
$ |
36 |
|
$ |
815,856 |
|
$ |
(408,260 |
) |
$ |
26,140 |
|
$ |
433,772 |
|
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2024 |
|
|
2023 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net loss |
|
$ |
(3,338 |
) |
|
$ |
(5,251 |
) |
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
14,559 |
|
|
|
14,912 |
|
Amortization of debt issuance costs and mortgage premiums, net |
|
|
299 |
|
|
|
310 |
|
Amortization of acquired market leases, net |
|
|
5 |
|
|
|
(76 |
) |
Amortization of equity-based compensation |
|
|
24 |
|
|
|
22 |
|
Reduction in the carrying amount of the right-of-use-asset |
|
|
98 |
|
|
|
103 |
|
Straight-line income, net |
|
|
(345 |
) |
|
|
(37 |
) |
Other non-cash adjustments |
|
|
50 |
|
|
|
49 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
(242 |
) |
|
|
494 |
|
Accounts and rent receivable |
|
|
1,971 |
|
|
|
1,292 |
|
Other assets |
|
|
(155 |
) |
|
|
(127 |
) |
Due to related parties |
|
|
(52 |
) |
|
|
(897 |
) |
Operating lease liability |
|
|
72 |
|
|
|
68 |
|
Other liabilities |
|
|
(1,080 |
) |
|
|
1,544 |
|
Net cash flows provided by operating activities |
|
|
11,866 |
|
|
|
12,406 |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
Capital expenditures |
|
|
(3,144 |
) |
|
|
(1,030 |
) |
Net cash flows used in investing activities |
|
|
(3,144 |
) |
|
|
(1,030 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
Payment of credit facility |
|
|
(4,000 |
) |
|
|
(3,000 |
) |
Proceeds from credit facility |
|
|
2,000 |
|
|
|
3,000 |
|
Payment of mortgages payable |
|
|
(84 |
) |
|
|
(80 |
) |
Proceeds from the distribution reinvestment plan |
|
|
1,691 |
|
|
|
1,775 |
|
Shares repurchased |
|
|
(1,691 |
) |
|
|
(890 |
) |
Distributions paid |
|
|
(4,905 |
) |
|
|
(4,907 |
) |
Net cash flows used in financing activities |
|
|
(6,989 |
) |
|
|
(4,102 |
) |
|
|
|
|
|
|
|
Net increase in cash, cash equivalents and restricted cash |
|
|
1,733 |
|
|
|
7,274 |
|
Cash, cash equivalents and restricted cash, at beginning of the period |
|
|
6,454 |
|
|
|
5,334 |
|
Cash, cash equivalents and restricted cash, at end of period |
|
$ |
8,187 |
|
|
$ |
12,608 |
|
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited, dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2024 |
|
|
2023 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
10,292 |
|
|
$ |
9,560 |
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital expenditures |
|
$ |
1,039 |
|
|
$ |
595 |
|
See accompanying notes to consolidated financial statements.
INLAND REAL ESTATE INCOME TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report on Form 10-Q should refer to the audited consolidated financial statements of Inland Real Estate Income Trust, Inc. (which may be referred to herein as the “Company,” “we,” “us,” or “our”) for the year ended December 31, 2023, which are included in the Company’s 2023 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 13, 2024, as certain footnote disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report on Form 10-Q.
NOTE 1 – ORGANIZATION
The Company was formed on August 24, 2011 to acquire and manage a portfolio of commercial real estate investments located in the United States. The Company is primarily focused on acquiring and owning retail properties and targets a portfolio substantially all of which would be comprised of grocery-anchored properties. The Company has invested in joint ventures and may continue to invest in additional joint ventures or acquire other real estate assets if its management believes the expected returns from those investments exceed that of retail properties. The Company also may invest in real estate-related equity securities of both publicly traded and private real estate companies, as well as commercial mortgage-backed securities.
The Company has no employees. The Company is managed by IREIT Business Manager & Advisor, Inc. (the “Business Manager”), an indirect wholly owned subsidiary of Inland Real Estate Investment Corporation (the “Sponsor”), pursuant to a Business Management Agreement, dated October 18, 2012 (as amended, the “Business Management Agreement”) with the Business Manager. The Company entered into an agreement with Mark Zalatoris (the “CEO Agreement”) to, among other things, compensate him for performing services as the Company’s president and chief executive officer. In connection with entering into the CEO Agreement, the Company entered into the Fourth Amended and Restated Business Management Agreement (the “Fourth Business Management Agreement”) with the Business Manager to, among other things, provide the Company with the authority to engage a person not affiliated with or employed by the Business Manager to serve as president and chief executive officer of the Company and to reduce the business management fee payable to the Business Manager by the amount of any payments made to Mr. Zalatoris under the CEO Agreement. Mr. Zalatoris is not an employee of the Company and is not an officer or director of the Business Manager but has the authority under the CEO Agreement and the Business Management Agreement to direct the day-to day operations of the Business Manager.
On March 23, 2023, the Company entered into a Third Amended and Restated Business Management Agreement with the Business Manager effective April 1, 2023, which amended and restated the Business Management Agreement (the “Third Business Management Agreement”). On January 19, 2024, the Company entered into the Fourth Business Management Agreement, as described above, with the Business Manager effective February 1, 2024. See Note 12 - “Transactions with related parties” for a summary of the changes made in the Third Business Management Agreement and the Fourth Business Management Agreement.
On March 5, 2024, as reported in the Company’s Form 8-K filed with the Securities and Exchange Commission on the same date, the Company announced that the Company’s board of directors unanimously approved: (i) an estimated per share net asset value (the “Estimated Per Share NAV”) as of December 31, 2023, which serves as the per share purchase price for shares issued under the Company’s distribution reinvestment plan (as amended, the “DRP”) beginning with the first distribution payment to stockholders in April 2024 until the Company announces a new Estimated Per Share NAV, and (ii) that, in accordance with the share repurchase program (as amended, the “SRP”) as further described below in Note 3 – “Equity”, beginning with repurchases in April 2024 and until the Company announces a new Estimated Per Share NAV, any shares accepted for ordinary repurchases and “exceptional repurchases” will be repurchased at 80% of the Estimated Per Share NAV.
At March 31, 2024, the Company owned 52 retail properties, totaling 7,167,500 square feet. The properties are located in 24 states. At March 31, 2024, the portfolio had a physical occupancy of 92.1% and economic occupancy of 92.5%.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Disclosures discussing all significant accounting policies are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on March 13, 2024, under the heading Note 2 – “Summary of Significant Accounting Policies.” There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2024, except as noted below.
General
The consolidated financial statements have been prepared in accordance with GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In the opinion of management, all adjustments necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods are presented. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.
Restricted Cash
Amounts included in restricted cash represent those required to be set aside by lenders for real estate taxes, insurance, capital expenditures and tenant improvements on the Company's existing properties. These amounts also include post close escrows for tenant improvements, leasing commissions, master lease, general repairs and maintenance, and are classified as restricted cash on the Company’s consolidated balance sheets.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Company’s consolidated balance sheets to such amounts shown on the Company’s consolidated statements of cash flows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2024 |
|
|
2023 |
|
Cash and cash equivalents |
|
$ |
7,708 |
|
|
$ |
12,130 |
|
Restricted cash |
|
|
479 |
|
|
|
478 |
|
Total cash, cash equivalents, and restricted cash |
|
$ |
8,187 |
|
|
$ |
12,608 |
|
Accounting Pronouncements Recently Issued but Not Yet Effective
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, early adoption is permitted. The amendments should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Company is currently evaluating the impact of ASU 2023-07 on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 improves the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-07 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied prospectively, however retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on the Company’s consolidated financial statements.
NOTE 3 – EQUITY
The Company commenced an initial public “best efforts” offering (the “Offering”) on October 18, 2012, which concluded on October 16, 2015. The Company sold 33,534,022 shares of common stock generating gross proceeds of $834,399 from the Offering. As of March 31, 2024, there were 36,142,573 shares of common stock outstanding including 6,588,024 shares issued through the DRP, net of 3,997,922 shares repurchased through the SRP.
The Company provides the following programs to facilitate additional investment in the Company’s shares and to provide limited liquidity for stockholders.
Distribution Reinvestment Plan
Through the DRP, the Company provides stockholders with the option to purchase additional shares from the Company by automatically reinvesting cash distributions, subject to certain share ownership restrictions. The Company does not pay any selling commissions, marketing contribution or due diligence expense reimbursement in connection with the DRP. Pursuant to the DRP, the price per share for shares of common stock purchased under the DRP is equal to the estimated value of one share, as determined by the Company’s board of directors and reported by the Company from time to time, until the shares become listed for trading, if a listing occurs, assuming that the DRP has not been terminated or suspended in connection with such listing.
There were $1,691 and $1,775 distributions reinvested through the DRP during the three months ended March 31, 2024 and 2023, respectively.
Share Repurchase Program
The Company adopted the SRP effective October 18, 2012, under which the Company is authorized to purchase shares from stockholders who purchased their shares from the Company or received their shares through a non-cash transfer and who have held their shares for at least one year. Purchases are in the Company’s sole discretion. In the case of repurchases made upon the death of a stockholder or qualifying disability (“Exceptional Repurchases”), as defined in the SRP, the one year holding period does not apply. The SRP has been amended several times. The currently effective version, entitled the “Fifth Amended and Restated Share Repurchase Program” (the “Fifth SRP”), was adopted by the board of directors on November 7, 2023 and became effective on December 27, 2023. Under the Fifth SRP, the board of directors has the discretion to establish the proceeds available to fund repurchases each quarter and may use proceeds from all sources available to the Company, in the board of directors’ sole discretion. The board of directors also has the discretion to determine the amount of repurchases, if any, to be made each quarter based on its evaluation of the Company’s business, cash needs and any other requirements of applicable law. The entirety of the Fifth SRP can be found on the Company’s website.
The SRP will immediately terminate if the Company’s shares become listed for trading on a national securities exchange. In addition, the Company’s board of directors, in its sole discretion, may, at any time, amend, suspend or terminate the SRP.
Repurchases through the SRP were $1,691 and $890 for the three months ended March 31, 2024 and 2023, respectively. There was zero liability related to the SRP as of March 31, 2024 and December 31, 2023.
NOTE 4 – LEASES
The Company is lessor under approximately 820 retail operating leases. The remaining lease terms for the Company’s leases range from less than one year to 15 years. The Company considers the date on which it makes a leased space available to a lessee as the commencement date of the lease. At commencement, the Company determines the lease classification utilizing the classification tests under ASC 842. Options to extend a lease are included in the lease term when it is reasonably certain that the tenant will exercise its option to extend. Termination penalties are included in income when there is a termination agreement, all the conditions of the agreement have been met and amounts due are considered collectable. Such termination fees are recognized on a straight-line basis over the remaining lease term in rental income. If an operating lease is modified and the modification is not accounted for as a separate contract, the Company accounts for the modification as if it were a termination of the existing lease and the creation of a new lease. The Company considers any prepaid or accrued rentals relating to the original lease as part of the lease payments for the modified lease. The Company includes options to modify the original lease term when it is reasonably certain that the tenant will exercise its option to extend.
Most of the revenue from the Company’s properties consists of rents received under long-term operating leases. Most leases require the tenant to pay fixed base rent paid monthly in advance, and to reimburse the Company for the tenant’s pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the Company and recoverable under the terms of the lease. Under these leases, the Company pays all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid.
Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed base rent as well as all costs and expenses associated with occupancy. Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included in the consolidated statements of operations and comprehensive income (loss). Under leases where all expenses are paid by the Company, subject to reimbursement by the tenant, the expenses are included within property operating expenses. Reimbursements for common area maintenance are considered non-lease components that are permitted to be combined with rental income. The combined lease component and reimbursements for insurance and taxes are reported as rental income on the consolidated statements of operations and comprehensive income (loss).
Rental income related to the Company's operating leases is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2024 |
|
|
2023 |
|
Rental income - fixed payments |
|
$ |
28,290 |
|
|
$ |
28,831 |
|
Rental income - variable payments (a) |
|
|
9,064 |
|
|
|
7,555 |
|
Amortization of acquired lease intangibles, net |
|
|
(5 |
) |
|
|
76 |
|
Rental income |
|
$ |
37,349 |
|
|
$ |
36,462 |
|
(a) Primarily includes tenant recovery income for real estate taxes, common area maintenance and insurance.
As of March 31, 2024, the Company’s accounts and rent receivable, net balance was $22,019, which was net of an allowance for bad debts of $820. As of December 31, 2023, the Company’s accounts and rent receivable, net balance was $23,645, which was net of an allowance for bad debts of $871.
NOTE 5 – ACQUIRED INTANGIBLE ASSETS AND LIABILITIES
The following table summarizes the Company’s identified intangible assets and liabilities as of March 31, 2024 and December 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
Intangible assets: |
|
|
|
|
|
|
Acquired in-place lease value |
|
$ |
183,305 |
|
|
$ |
183,305 |
|
Acquired above market lease value |
|
|
52,640 |
|
|
|
52,640 |
|
Accumulated amortization |
|
|
(177,362 |
) |
|
|
(174,118 |
) |
Acquired lease intangibles, net |
|
$ |
58,583 |
|
|
$ |
61,827 |
|
Intangible liabilities: |
|
|
|
|
|
|
Acquired below market lease value |
|
$ |
79,914 |
|
|
$ |
79,914 |
|
Accumulated amortization |
|
|
(43,329 |
) |
|
|
(42,494 |
) |
Acquired below market lease intangibles, net |
|
$ |
36,585 |
|
|
$ |
37,420 |
|
The portion of the purchase price allocated to acquired above market lease value and acquired below market lease value is amortized on a straight-line basis over the term of the related lease as an adjustment to rental income. For below market lease values, the amortization period includes any renewal periods with fixed rate renewals. The portion of the purchase price allocated to acquired in-place lease value is amortized on a straight-line basis over the acquired leases’ weighted average remaining term.
Amortization pertaining to acquired in-place lease value, above market lease value and below market lease value is summarized below:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2024 |
|
|
2023 |
|
Amortization recorded as amortization expense: |
|
|
|
|
|
Acquired in-place lease value |
$ |
2,404 |
|
|
$ |
2,952 |
|
Amortization recorded as a (reduction) increase to rental income: |
|
|
|
|
|
Acquired above market leases |
$ |
(840 |
) |
|
$ |
(902 |
) |
Acquired below market leases |
|
835 |
|
|
|
978 |
|
Net rental income (reduction) increase |
$ |
(5 |
) |
|
$ |
76 |
|
Estimated amortization of the respective intangible lease assets and liabilities as of March 31, 2024 for each of the five succeeding years and thereafter is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired In-Place Leases |
|
|
Above Market Leases |
|
|
Below Market Leases |
|
2024 (remainder of year) |
|
$ |
6,699 |
|
|
$ |
2,471 |
|
|
$ |
2,465 |
|
2025 |
|
|
6,741 |
|
|
|
2,929 |
|
|
|
3,065 |
|
2026 |
|
|
5,017 |
|
|
|
2,503 |
|
|
|
2,926 |
|
2027 |
|
|
3,609 |
|
|
|
1,858 |
|
|
|
2,724 |
|
2028 |
|
|
2,909 |
|
|
|
1,612 |
|
|
|
2,587 |
|
Thereafter |
|
|
13,699 |
|
|
|
8,536 |
|
|
|
22,818 |
|
Total |
|
$ |
38,674 |
|
|
$ |
19,909 |
|
|
$ |
36,585 |
|
NOTE 6 – DEBT AND DERIVATIVE INSTRUMENTS
As of March 31, 2024 and December 31, 2023, the Company had the following mortgages and credit facility payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
Type of Debt |
Principal Amount |
|
|
Weighted Average Interest Rate |
|
|
Principal Amount |
|
|
Weighted Average Interest Rate |
|
Fixed rate mortgages payable |
$ |
111,935 |
|
|
|
3.84 |
% |
|
$ |
112,019 |
|
|
|
3.84 |
% |
Variable rate mortgages payable with swap agreements |
|
26,000 |
|
|
|
4.55 |
% |
|
|
26,000 |
|
|
|
4.55 |
% |
Mortgages payable |
|
137,935 |
|
|
|
3.97 |
% |
|
|
138,019 |
|
|
|
3.97 |
% |
Credit facility payable |
|
707,000 |
|
|
|
4.94 |
% |
|
|
709,000 |
|
|
|
4.95 |
% |
Total debt before unamortized debt issuance costs including impact of interest rate swaps |
|
844,935 |
|
|
|
4.78 |
% |
|
|
847,019 |
|
|
|
4.79 |
% |
(Less): Unamortized debt issuance costs |
|
(2,830 |
) |
|
|
|
|
|
(3,129 |
) |
|
|
|
Total debt |
$ |
842,105 |
|
|
|
|
|
$ |
843,890 |
|
|
|
|
The Company’s indebtedness bore interest at a weighted average interest rate of 4.78% per annum at March 31, 2024, which includes the effects of interest rate swaps. The Company estimates the fair value of its total debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by the Company’s lenders using Level 3 inputs. The carrying value of the Company’s debt excluding unamortized debt issuance costs was $844,935 and $847,019 as of March 31, 2024 and December 31, 2023, respectively, and its estimated fair value was $839,153 and $841,313 as of March 31, 2024 and December 31, 2023, respectively.
As of March 31, 2024, scheduled principal payments and maturities on the Company’s debt were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2024 |
|
Scheduled Principal Payments and Maturities by Year: |
|
Scheduled Principal Payments |
|
|
Maturities of Mortgage Loans |
|
|
Maturity of Credit Facility |
|
|
Total |
|
2024 (remainder of the year) |
|
$ |
257 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
257 |
|
2025 |
|
|
295 |
|
|
|
92,656 |
|
|
|
— |
|
|
|
92,951 |
|
2026 |
|
|
— |
|
|
|
44,727 |
|
|
|
132,000 |
|
|
|
176,727 |
|
2027 |
|
|
— |
|
|
|
— |
|
|
|
575,000 |
|
|
|
575,000 |
|
2028 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Thereafter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
552 |
|
|
$ |
137,383 |
|
|
$ |
707,000 |
|
|
$ |
844,935 |
|
Credit Facility Payable
On February 3, 2022, the Company entered into a second amended and restated credit agreement (the “Credit Agreement”) with KeyBank National Association, individually and as administrative agent, KeyBanc Capital Markets Inc., PNC Capital Markets LLC and BofA Securities, Inc., as joint lead arrangers, and other lenders from time to time parties to the Credit Agreement (the “Credit Facility”). Pursuant to the Credit Agreement, the aggregate total commitments under the Credit Facility were increased from $350,000 to $475,000. The Credit Facility consists of the “Revolving Credit Facility” providing revolving credit commitments in an aggregate amount of $200,000 and a term loan facility (the term loans funded under such commitments, the “Term Loan”) providing term loan commitments in an aggregate amount of $275,000 (increased from $150,000). On May 17, 2022, the Company entered into a First Amendment to Credit Agreement Regarding Incremental Term Loans (the “First Amendment”), amending the terms of the Credit Agreement primarily to draw an additional $300,000. The Credit Agreement provides the Company with the ability from time to time to increase the size of the Credit Facility up to a total of $1,200,000, subject to certain conditions.
The Revolving Credit Facility matures on February 3, 2026, and the Company has the option to extend the maturity date for one additional year subject to the payment of an extension fee and certain other conditions. The Term Loan matures on February 3, 2027. Borrowings under the Credit Facility bear interest equal to one-month Term Secured Overnight Financing Rate (“SOFR”) plus a margin, the amount of which depends on the Company’s leverage ratio.
At March 31, 2024, the Company had $132,000 outstanding under the Revolving Credit Facility and $575,000 outstanding under the Term Loan. At March 31, 2024, the interest rates on the Revolving Credit Facility and the Term Loan were 7.33% and 4.39%,
respectively. As of March 31, 2024, the Company had a maximum amount of $68,000 available for borrowing under the Revolving Credit Facility, subject to the terms and conditions of the Credit Agreement that governs the Credit Facility, including compliance with the covenants which could further limit the amount available. Although all of the amount available under the Revolving Credit Facility is available to pay off existing mortgages, due to the covenant limitations, the Company expects to have substantially less than all $68,000 available to draw or otherwise undertake as additional debt.
The Company’s performance of the obligations under the Credit Facility, including the payment of any outstanding indebtedness under the Credit Facility, is guaranteed by certain subsidiaries of the Company, including each of the subsidiaries of the Company which owns or leases any of the properties included in the pool of unencumbered properties comprising the borrowing base. Additional properties will be added to and removed from the pool from time to time to support amounts borrowed under the Credit Facility so long as at any time there are at least fifteen unencumbered properties with an unencumbered pool value of $300,000 or more. At March 31, 2024, there were 47 properties included in the pool of unencumbered properties.
The Credit Facility requires compliance with certain covenants, including a minimum tangible net worth requirement, a limitation on the use of leverage, a distribution limitation, restrictions on indebtedness and investment restrictions, as defined. It also contains customary default provisions including the failure to comply with the Company's covenants and the failure to pay when amounts outstanding under the Credit Facility become due. As of March 31, 2024, the Company was in compliance with all financial covenants related to the Credit Facility as amended.
Mortgages Payable
The Company’s mortgage loans require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations. As of March 31, 2024, the Company was current on all of its debt service payments and in compliance with all financial covenants. All of the Company’s mortgage loans are secured by first mortgages on the respective real estate assets. As of March 31, 2024, the weighted average years to maturity for the Company’s mortgages payable was 1.8 years. There are no mortgage loans maturing in the next twelve months.
Interest Rate Swap Agreements
The Company entered into interest rate swaps to fix certain of its floating SOFR based debt under variable rate loans to a fixed rate to manage its risk exposure to interest rate fluctuations. The Company will generally match the maturity of the underlying variable rate debt with the maturity date on the interest swap. See Note 13 – “Fair Value Measurements” for further information.
As of March 31, 2024, the Company had hedged all $26,000 of its variable rate mortgage loans and $525,000 of the Term Loan using interest rate swap contracts. The following table summarizes the Company’s interest rate swap contracts outstanding as of March 31, 2024.
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Entered |
Effective Date |
Maturity Date |
Receive Floating Rate Index (a) |
Pay Fixed Rate |
|
Notional Amount |
|
Fair Value at March 31, 2024 |
|
Assets |
|
|
|
|
|
|
|
|
|
December 5, 2022 |
December 1, 2022 |
January 1, 2026 |
One-month Term SOFR |
|
2.25 |
% |
|
26,000 |
|
|
1,017 |
|
February 3, 2022 |
March 1, 2022 |
February 3, 2027 |
One-month Term SOFR |
|
1.69 |
% |
|
90,000 |
|
|
6,095 |
|
February 3, 2022 |
March 1, 2022 |
February 3, 2027 |
One-month Term SOFR |
|
1.85 |
% |
|
100,000 |
|
|
6,345 |
|
February 3, 2022 |
March 1, 2022 |
February 3, 2027 |
One-month Term SOFR |
|
1.72 |
% |
|
85,000 |
|
|
5,698 |
|
May 17, 2022 |
June 1, 2022 |
February 3, 2027 |
One-month Term SOFR |
|
2.71 |
% |
|
60,000 |
|
|
2,416 |
|
May 17, 2022 |
June 1, 2022 |
February 3, 2027 |
One-month Term SOFR |
|
2.71 |
% |
|
60,000 |
|
|
2,421 |
|
May 17, 2022 |
June 1, 2022 |
February 3, 2027 |
One-month Term SOFR |
|
2.71 |
% |
|
75,000 |
|
|
3,028 |
|
May 17, 2022 |
June 1, 2022 |
February 3, 2027 |
One-month Term SOFR |
|
2.77 |
% |
|
55,000 |
|
|
2,143 |
|
|
|
|
|
|
|
$ |
551,000 |
|
$ |
29,163 |
|
(a)At March 31, 2024, the one-month term SOFR was 5.33%.
The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2024 and 2023.
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Derivatives in Cash Flow Hedging Relationships |
2024 |
|
|
2023 |
|
Effective portion of derivatives |
$ |
10,066 |
|
|
$ |
(4,545 |
) |
Reclassification adjustment for amounts included in net gain or loss (effective portion) |
$ |
(4,337 |
) |
|
$ |
(3,485 |
) |
The total amount of interest expense presented on the consolidated statements of operations and comprehensive income (loss) was $10,430 and $10,409, for the three months ended March 31, 2024 and 2023, respectively. The net gain or loss reclassified into income from accumulated other comprehensive income (loss) is reported in interest expense on the consolidated statements of operations and comprehensive income (loss). The amount that is expected to be reclassified from accumulated other comprehensive income into income (loss) in the next 12 months is $15,227.
NOTE 7 – DISTRIBUTIONS
The table below presents the distributions paid and declared during the three months ended March 31, 2024 and 2023.
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2024 |
|
|
2023 |
|
Distributions paid |
$ |
4,905 |
|
|
$ |
4,907 |
|
Distributions declared |
$ |
4,902 |
|
|
$ |
4,912 |
|
NOTE 8 – EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the “common shares”). Diluted EPS is computed by dividing net income (loss) by the common shares plus common share equivalents. The Company excludes antidilutive restricted shares and units from the calculation of weighted-average shares for diluted EPS. As a result of a net loss in the three months ended March 31, 2024 and 2023, 3,602 and 3,359 shares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company may be subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material adverse effect on the consolidated financial statements of the Company.
NOTE 10 – EQUITY-BASED COMPENSATION
Under the Company’s Employee and Director Restricted Share Plan (“RSP”), restricted shares generally vest over a one to three year vesting period from the date of the grant, subject to the specific terms of the grant. In accordance with the RSP, restricted shares are issued to non-employee directors as compensation. Each restricted share entitles the holder to receive one common share when it vests. Restricted shares are included in common stock outstanding on the date of the vesting. The grant-date value of the restricted shares is amortized over the vesting period representing the requisite service period. Compensation expense associated with the restricted shares issued to the non-employee directors was $24 and $22, in the aggregate, for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the Company had $104 of unrecognized compensation expense related to the unvested restricted shares, in the aggregate. The weighted average remaining period that compensation expense related to unvested restricted shares will be recognized is 1.53 years. There were no restricted shares that vested during the three months ended March 31, 2024 and 2023.
A summary table of the status of the restricted shares is presented below:
|
|
|
|
|
|
|
Restricted Shares |
|
Outstanding at December 31, 2023 |
|
|
9,477 |
|
Granted |
|
|
— |
|
Vested |
|
|
— |
|
Outstanding at March 31, 2024 |
|
|
9,477 |
|
NOTE 11 – SEGMENT REPORTING
The Company has one reportable segment as defined by GAAP, retail real estate, for the three months ended March 31, 2024 and 2023.
NOTE 12 – TRANSACTIONS WITH RELATED PARTIES
The following table summarizes the Company’s related party transactions for the three months ended March 31, 2024 and 2023. Certain compensation and fees payable to the Business Manager for services provided to the Company are limited to maximum amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Unpaid amounts as of |
|
|
|
2024 |
|
2023 |
|
March 31, 2024 |
|
December 31, 2023 |
|
General and administrative reimbursements |
(a) |
$ |
402 |
|
$ |
437 |
|
$ |
275 |
|
$ |
268 |
|
|
|
|
|
|
|
|
|
|
|
Real estate management fees |
|
$ |
1,470 |
|
$ |
1,495 |
|
$ |
— |
|
$ |
— |
|
Property operating expenses |
|
|
425 |
|
|
468 |
|
|
33 |
|
|
15 |
|
Construction management fees |
|
|
44 |
|
|
— |
|
|
120 |
|
|
74 |
|
Leasing fees |
|
|
90 |
|
|
67 |
|
|
107 |
|
|
128 |
|
Total real estate management related costs |
(b) |
$ |
2,029 |
|
$ |
2,030 |
|
$ |
260 |
|
$ |
217 |
|
|
|
|
|
|
|
|
|
|
|
Business management fees |
(c) |
|
2,255 |
|
$ |
2,716 |
|
$ |
2,255 |
|
$ |
2,311 |
|
(a)The Business Manager and its related parties are entitled to reimbursement for certain general and administrative expenses incurred by the Business Manager or its related parties relating to the Company’s administration. Such costs are included in general and administrative expenses in the consolidated statements of operations and comprehensive income (loss). Unpaid amounts are included in due to related parties on the consolidated balance sheets.
(b)For each property that is managed by Inland Commercial Real Estate Services LLC (the “Real Estate Manager”) (and its predecessor), the Company pays a monthly real estate management fee of up to 1.9% of the gross income from any single-tenant, net-leased property, and up to 3.9% of the gross income from any other property type. The Real Estate Manager determines, in its sole discretion, the amount of the fee with respect to a particular property, subject to the limitations. For each property that is managed directly by the Real Estate Manager or its affiliates, the Company pays the Real Estate Manager a separate leasing fee. Further, in the event that the Company engages its Real Estate Manager to provide construction management services for a property, the Company pays a separate construction management fee. Leasing fees are included in deferred costs, net and construction management fees are included in building and other improvements in the consolidated balance sheets. The Company also reimburses the Real Estate Manager and its affiliates for property-level expenses that they pay or incur on the Company’s behalf, including the salaries, bonuses and benefits of persons performing services for the Real Estate Manager and its affiliates except for the salaries, bonuses and benefits of persons who also serve as an executive officer of the Real Estate Manager or the Company. Real estate management fees and reimbursable expenses are included in property operating expenses in the consolidated statements of operations and comprehensive income (loss).
(c)Prior to April 1, 2023, the Company paid the Business Manager an annual business management fee equal to 0.65% of its “average invested assets.” The fee is payable quarterly in an amount equal to 0.1625% of its average invested assets as of the last day of the immediately preceding quarter. Effective April 1, 2023, the Company paid the Business Manager an annual business management fee equal to 0.55% of its “averaged invested assets.” The fee is payable quarterly in an amount equal to 0.1375% of its average invested assets as of the last day of the immediately preceding quarter. “Average invested assets” means, for any period, the average of the aggregate book value of the Company’s assets, including all intangibles and goodwill, invested, directly or indirectly, in equity interests in, and loans secured by, properties, as well as amounts invested in securities and consolidated and unconsolidated joint ventures or other partnerships, before reserves for amortization and depreciation or bad debts, impairments or other similar non-cash reserves, computed by taking the average of these values at the end of each month during the relevant calendar quarter. Unpaid amounts are included in due to related parties on the consolidated balance sheets.
On March 23, 2023, the Company entered into the Third Business Management Agreement with the Business Manager effective April 1, 2023, which amended and restated the Second Amended and Restated Business Management Agreement dated October 15, 2021, to make the following changes, among others:
•decreased the annual business management fee (the “Business Management Fee”) payable to the Business Manager by the Company from 0.65% of Average Invested Assets to 0.55% of Average Invested Assets;
•changed the termination date of the agreement to March 31, 2027, and removed the provisions regarding one-year renewal terms;
•deleted the provision, formerly included to conform to provisions in the Company’s Third Articles of Amendment and Restatement, which has since been amended and restated, requiring the Business Manager to reimburse the Company, subject to certain exceptions, for any amount by which the Total Operating Expenses (including the Business Management Fee and other fees payable hereunder) of the Company for the Fiscal Year just ended exceeded the greater of (i) two percent (2%) of the total of the Average Invested Assets for the just ended Fiscal Year; or (ii) twenty-five percent (25%) of the Net Income for the just ended Fiscal Year; and
•amended the indemnification section to remove certain conditions to, and limitations on, the Company’s ability to indemnify the Business Manager and the Business Manager’s officers, directors, employees and agents, which conditions and limitations were formerly included to conform to provisions in the Company’s Third Articles of Amendment and Restatement that has since been amended and restated, and to provide that indemnification will be provided to the full extent permitted by law;
Capitalized terms used above but not defined in this Quarterly Report on Form 10-Q have the definitions ascribed to them in the applicable business management agreement. The above description is qualified by reference to the Third Business Management Agreement in its entirety.
On January 19, 2024, the Company entered into the Fourth Business Management Agreement with the Business Manager effective February 1, 2024, to, among other things, provide the Company with the authority to engage a person not affiliated with or employed by the Business Manager to serve as president and chief executive officer of the Company and to reduce the business management fee payable to the Business Manager by the amount of any payment made to any third-party person as compensation for service as the Company’s president and chief executive officer. In connection with the CEO Agreement entered into with Mr. Zalatoris, the Business Management Fee is reduced by the amount of any payments made to Mr. Zalatoris under the CEO Agreement. The foregoing description is qualified by reference to the Fourth Business Management Agreement in its entirety. During the three months ended March 31, 2024, total costs incurred under the CEO Agreement were $59. Such costs are included in general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).
NOTE 13 – FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
The Company defines fair value based on the price that it believes would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:
|
|
|
Level 1 − |
|
Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. |
|
|
|
Level 2 − |
|
Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
|
|
|
Level 3 − |
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
The Company has estimated the fair value of its financial and non-financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes.
Recurring Fair Value Measurements
For assets and liabilities measured at fair value on a recurring basis, the table below presents the fair value of the Company’s cash flow hedges as well as their classification on the consolidated balance sheets as of March 31, 2024 and December 31, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|