Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2022

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

INDUS Realty Trust, Inc., a Maryland corporation, (“INDUS” or the “Company”) is a real estate business principally engaged in developing, acquiring, managing and leasing high-quality industrial and logistics properties in select supply-constrained markets in the United States. The Company conducts substantially all of its business through its operating partnership, INDUS RT, LP, a Maryland limited partnership (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership. As used herein, the “Company” refers to INDUS Realty Trust, Inc. and its consolidated subsidiaries and partnerships, including the Operating Partnership, except where context otherwise requires.

INDUS seeks to add to its property portfolio through the development of land or the acquisition of modern, market-appropriate logistics buildings which can serve multiple drivers of demand in the modern supply chain in the markets it targets. INDUS also owns undeveloped land parcels, much of which is not consistent with the Company’s core industrial and logistics strategy, and, therefore, the Company sells certain non-core properties periodically over time.

On January 4, 2021, the Company announced that it intends to elect to be taxed as a real estate investment trust (“REIT”) under sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”) commencing with its taxable year ended December 31, 2021 (see Note 9).

INDUS’ consolidated financial statements reflect its accounts and its consolidated subsidiaries. INDUS consolidates the subsidiaries it controls through (i) voting rights or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity (“VIE”). There are no VIEs in which the Company is not a primary beneficiary.

INDUS manages its operations on an aggregated, single segment basis for purposes of assessing performance and making operating decisions and, accordingly, has only one reporting and operating segment.

COVID-19

Disruptions caused by the COVID-19 pandemic have caused adverse impacts on and could in the future materially adversely impact the Company’s business, financial condition, results of operations or stock price. COVID-19 has also disrupted the availability, supply and costs of construction materials which has resulted in an increase in the Company’s cost of construction and delays in completion of the Company’s construction projects. If these disruptions and higher costs worsen, it could have material adverse impacts on the Company’s business, financial results and financial position in the future.

COVID-19 did not have an impact on INDUS’ rent collections for the years ended December 31, 2022 and 2021.

Exchange Accommodation Titleholder

INDUS may acquire property using a reverse like-kind exchange structure (a “Reverse 1031 Like-Kind Exchange”) under the Code to defer taxable gains on the subsequent sale of real estate property. As such, the acquired property (the “Parked Property”) remains in the possession of a VIE whose legal equity interests are owned by a qualified intermediary engaged to execute the Reverse 1031 Like-Kind Exchange until the subsequent sale transaction and the Reverse 1031 Like-Kind Exchange are completed. Although the VIE is legally owned by the qualified intermediary, INDUS retains essentially all of the legal and economic benefits and obligations related to the VIE (which holds the legal title to the Parked Property prior to the completion of the Reverse 1031 Like-Kind Exchange) and, as its designated manager, has the key decision-making power over the Parked Property. The VIE (including the Parked Property) is included in INDUS’ consolidated financial statements as a consolidated VIE until legal title is transferred to

the Company upon completion of the Reverse 1031 Like-Kind Exchange. There were no consolidated VIEs on INDUS’ consolidated balance sheets as of December 31, 2022 and 2021.

Real Estate Assets

Real estate assets are recorded at cost. Salaries, interest, property taxes, insurance and other incremental costs directly related to a project are capitalized during the construction period of major facilities and land improvements. The capitalization period begins when activities to develop the parcel commence and ends when the asset constructed is completed. The capitalized costs are recorded as part of the asset to which they relate and are amortized over the asset's estimated useful life. Depreciation is determined on a straight-line basis over the estimated useful asset lives for financial reporting purposes and for tax purposes. Repair and maintenance costs are expensed as incurred.

Real estate acquisitions are evaluated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations.” Generally, all of the Company’s purchases have been determined to be asset acquisitions and are recorded at relative fair value and allocated among the components of the acquired assets, which consist of land and improvements, buildings and improvements and related lease intangibles. INDUS’ intangible assets consist of: (i) the value of in-place leases; and (ii) the value of the associated relationships with tenants. INDUS’ intangible liabilities consist of the value of below market leases. Acquisition costs incurred are capitalized and included in the basis of the acquired entity. Amortization of the value of in-place leases, included in depreciation and amortization expense, is on a straight-line basis over the lease terms. Amortization of the value of below market leases, included in rental revenue, is on a straight-line basis over the lease term.

INDUS classifies a property as “held for sale” when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the property; (2) the property is available for immediate sale in its present condition, subject only to terms that are usual and customary; (3) an active program to locate a buyer and other actions required to complete the plan to sell, have been initiated; (4) the sale of the property is probable and is expected to be completed within one year or the property is under a contract to be sold; (5) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When all of these criteria have been met, the property is classified as “held for sale.” Assets classified as “held for sale” are reported at the lower of their carrying value or fair value less costs to sell. Depreciation of assets ceases upon designation of a property as “held for sale.”

Cash, Cash Equivalents and Restricted Cash

INDUS considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. INDUS’ restricted cash primarily consists of reserves for real estate taxes as required by certain mortgage note obligations as well as proceeds from property sales held by a qualified intermediary to be used for a tax deferred Section 1031 Like-Kind Exchanges (“1031 Like-Kind Exchange”) under the Code.

The following table presents a reconciliation of cash, cash equivalents and restricted cash:

	December 31, 2022		December 31, 2021
Cash and cash equivalents	$	52,014	$	150,263
Restricted cash		358		10,644
Total cash, cash equivalents and restricted cash	$	52,372	$	160,907

Stock-Based Compensation

INDUS accounts for stock options and restricted stock units (“RSUs”) related to INDUS’ common stock at fair value in accordance with FASB ASC 718, “Compensation - Stock Compensation” and FASB ASC 505-50, “Equity – Equity-Based Payments to Non-Employees.” The Company recognizes the expense ratably over the vesting periods.

Impairment of Investments in Long-Lived Assets

INDUS reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment are present, INDUS evaluates the carrying value of the assets in relation to the operating performance and expected future undiscounted cash flows or the estimated fair value based on expected future cash flows of the underlying assets. If the undiscounted cash flows are less than the carrying value of an asset, INDUS would reduce the carrying value of a long-lived asset to its fair value if that asset’s fair value is determined to be less than its carrying value.

Revenue and Gain Recognition

Rental revenue is accounted for on a straight-line basis over the applicable lease term. Rental revenue includes payments received from tenants for certain building improvements owned by INDUS that are recognized over the lease term and the amortization of below market leases. INDUS elected the “non-separation practical expedient” provided for in Accounting Standards Codification Topic 842, Leases (“ASC 842”), which alleviates the requirement to separately present lease and non-lease components of lease contracts if certain criteria are met. As a result, INDUS accounts for and presents all rental income earned pursuant to tenant leases, including tenant reimbursements, as a single component in one line, “Rental revenue,” in its consolidated statements of operations.

In accordance with ASC 842, the Company assesses the collectability of lease receivables (including future minimum rental payments) on a regular basis. If the Company’s assessment of collectability changes during the lease term, any difference between the revenue that would have been received under the straight-line method and the lease payments that have been collected will be recognized as a current period adjustment to rental revenue. Rental revenue associated with leases where collectability has been deemed less than probable is recognized on a cash basis.

Gains on the sale of real estate assets are recognized based on the specific terms of each sale.

Income Taxes

As discussed above, INDUS intends to be taxed as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 2021. To qualify as a REIT, INDUS is required (among other things) to distribute at least 90% of its REIT taxable income to its stockholders and meet various other organization and operating requirements. As a REIT, INDUS will be entitled to a tax deduction for the dividends it pays to shareholders, accordingly INDUS will not be subject to federal income taxes if it distributes 100% of its taxable income for each year to its stockholders. INDUS intends to adhere to the requirements for qualification and taxation as a REIT and maintain its REIT status. However, any taxable income from a taxable REIT subsidiary is subject to federal, state and local income taxes. INDUS has elected taxable REIT subsidiary (“TRS”) status for one of its consolidated subsidiaries which provides services that would otherwise be considered impermissible for a REIT. Accordingly, the Company has recognized an insignificant amount of income tax expense for the federal and state income taxes incurred by its TRS (see Note 9).

If the Company fails to qualify as a REIT in any taxable year, and it is unable to avail itself of certain savings provisions set forth in the Code, all of its taxable income will be subject to regular federal corporate income tax, and it may not be able to qualify as a REIT for four subsequent taxable years. Additionally, even if INDUS qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property and to federal income taxes and excise taxes on its undistributed taxable income. The Company may also be subject to a corporate income tax on any gains recognized during a five-year period following the REIT conversion that are attributable to built-in gains with respect to assets that were owned on January 1, 2021.

INDUS evaluates each tax position taken in its tax returns and recognizes a liability for any tax position deemed less likely than not to be sustained under examination by the relevant taxing authorities. INDUS has analyzed its federal and significant state filing positions with respect to FASB ASC 740, “Income Taxes” (“ASC 740”) and believes that its income tax filing positions will be sustained on examination and does not anticipate any adjustments that would result in a material change on its financial statements. As a result, no accrual for uncertain income tax positions has been recorded

pursuant to ASC 740. INDUS’ policy for recording interest and penalties, related to uncertain tax positions, is to record such items as part of its provision for federal and state income taxes.

Environmental Matters

Environmental expenditures related to land and buildings are expensed or capitalized as appropriate, depending upon their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and that do not have future economic benefit, are expensed. Expenditures that create future benefit or contribute to future revenue generation are capitalized. Liabilities related to future remediation costs are recorded when environmental assessments and/or cleanups are probable, and the costs can be reasonably estimated.

Interest Rate Swap Agreements

As of December 31, 2022, INDUS was a party to five interest rate swap agreements to hedge its interest rate exposures. The Company does not use derivatives for speculative purposes. INDUS applies FASB ASC 815, “Derivatives and Hedging,” (“ASC 815”) as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities. ASC 815 requires the Company to recognize all derivatives as either assets or liabilities on its consolidated balance sheet and measure those instruments at fair value. The changes in the fair values of the interest rate swap agreements are measured in accordance with ASC 815 and reflected in the carrying values of the interest rate swap agreements on INDUS’ consolidated balance sheet. The estimated fair values are based primarily on projected future swap rates.

INDUS applies cash flow hedge accounting to its interest rate swap agreements that are designated as hedges of the variability of future cash flows attributable to the contractually specified interest rates. All changes in the fair value of these interest rate swaps are recorded as a component of accumulated other comprehensive income (“AOCI”) in stockholders’ equity. Amounts recorded to AOCI are then reclassified to interest expense as interest on the hedged borrowing is recognized.

At the inception of a hedge, INDUS documents certain items, including the relationship between the hedging instrument and the hedged item, the risk management objective and the nature of the risk being hedged, a description of how effectiveness will be measured, an evaluation of hedge transaction effectiveness at adoption and the contractually specified interest rate being hedged.

Financial Instruments

Pursuant to a Securities Purchase Agreement (the “Securities Purchase Agreement”) dated as of August 24, 2020, between INDUS and CM Change Industrial LP (“Conversant”), an investment entity managed by Conversant Management LLC (f/k/a Cambiar Management LLC), INDUS, among other things, issued a warrant (the “Warrant”) to Conversant to acquire 504,590 shares of INDUS’ common stock (subject to adjustment as set forth therein), par value $0.01 per share (as exercised, collectively, the “Warrant Shares”) as part of a private placement of INDUS’ common stock to raise capital (see Note 2). INDUS applied ASC 815 to the Warrant and it was classified as a derivative liability on the Company’s consolidated balance sheet. The Warrant was initially recorded at its fair value and reported at fair value at each subsequent reporting date while liability classification of the Warrant was appropriate. Changes in the fair value of the Warrant were included in the change in fair value of financial instruments on INDUS’ consolidated statement of operations during the period of the change. The cash settlement provision of the Warrant expired on August 24, 2021 and the Warrant liability was reclassified to equity on that date.

Conditional Asset Retirement Obligations

INDUS accounts for its conditional asset retirement obligations in accordance with FASB ASC 410, “Asset Retirement and Environmental Obligations,” which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated even though uncertainty exists about the timing and/or method of settlement. The conditional asset retirement obligations relate principally to tobacco barns and other structures on INDUS’ land holdings that contain asbestos, primarily in roofing materials. These structures

remain from the tobacco growing operations of former affiliates of INDUS, are not material to the Company’s operations and do not have any book value.

Discontinued Operations

Operating results and the gain or loss on sale for a component or groups of components, whose disposition represents a strategic shift that has or will have a major effect on the Company’s operations and financial results, are presented as discontinued operations in the consolidated statements of operations and the assets and liabilities of the component to be disposed of are classified as held for sale. In December 2022, INDUS completed the previously announced sale of its remaining office/flex properties (the “Office/Flex Portfolio”) and fully exited its legacy investment in office properties (see Note 4). The Office/Flex Portfolio was comprised of seven buildings totaling approximately 175,000 square feet located in Bloomfield, Connecticut as well as an approximately 18,000 square foot building that is located adjacent to the Office/Flex Portfolio and was principally used for storage by INDUS’ property management group.

The Office/Flex Portfolio is recorded as a discontinued operation as of December 31, 2022 and, for all prior periods presented, the related assets and liabilities are presented as assets and liabilities of discontinued operations on the consolidated balance sheets and the related operating results are presented as income from discontinued operations on the consolidated statements of operations.

Income Per Share

Basic net income per common share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the year. The calculation of diluted net income per share of common stock reflects adjusting INDUS’ outstanding shares assuming the exercise of all potentially dilutive INDUS stock options, restricted stock units and warrants.

Risks and Uncertainties

INDUS’ future results of operations involve a number of risks and uncertainties. Factors that could affect INDUS’ future operating results and cause actual results to vary materially from historical results include, but are not limited to, the geographical concentration of the Company’s real estate holdings, credit risk and market risk.

INDUS’ real estate holdings are concentrated in the north submarket of the Hartford, Connecticut area, the Lehigh Valley of Pennsylvania, the greater Charlotte, North Carolina area, Central and Southern Florida and the greater Charleston, South Carolina area. The market and economic challenges experienced by the U.S. economy as a whole or the local economic conditions in the markets in which INDUS holds properties may affect the Company’s real estate business. INDUS’ results of operations, financial condition or ability to expand may be adversely affected as a result of the following, any of which may be exacerbated by the continuance of the COVID-19 pandemic: (i) poor economic conditions or unfavorable financial changes to INDUS’ tenants, which may result in tenant defaults under leases or may lead to a curtailment of expansion plans; (ii) significant job losses, which could adversely affect the demand for rental space causing market rental rates and property values to be negatively impacted; (iii) the ability of INDUS to borrow on terms and conditions that it finds acceptable; and (iv) possibly reduced values of INDUS’ properties potentially limiting the proceeds from a sale of its properties or from debt financing collateralized by its properties.

INDUS holds floating rate debt under nonrecourse mortgage loans, the interest on which is based on LIBOR. The Company entered into interest rate swap agreements whereby the floating LIBOR rates under all mortgage loans are hedged, effectively fixing the interest rate on those loans. FASB Topic 848, “Reference Rate Reform” anticipates the effect on financial reporting of the discontinuation of LIBOR and provides a means to maintaining effective hedge accounting. In adopting a practical expedient under ASU 2022-06 (see below), INDUS can continue to assert that the occurrence of the hedged forecasted transactions as they were originally documented remain probable even though the reference rate for the interest payments is modified or expected to be modified.

INDUS’ cash equivalents consisted of overnight investments that are not significantly exposed to interest rate risk.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year’s presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the periods reported. Actual results could differ from those estimates. INDUS’ significant estimates include the impairment evaluation of its long-lived assets, derivative financial instruments, revenue and gain recognition including the estimated costs to complete required offsite improvements related to land sold, assumptions used in determining stock compensation and the allocation of the purchase price of acquisitions.

Recent Accounting Pronouncements Adopted

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU No. 2020-04”). ASU No. 2020-04 provides temporary optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The amendments in ASU No. 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. INDUS adopted the practical expedient related to the probability of the hedged forecasted transaction during 2020 (see above). The application of ASU No. 2020-04 did not have an impact on the Company’s consolidated financial statements.

In December 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” (“ASU 2022-06”), which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

There are various other updates recently issued which represent technical corrections to the accounting literature or apply to specific industries. INDUS does not expect the application of any of these other updates to have an impact on its consolidated financial statements.