UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
FOR THE QUARTERLY PERIOD ENDED
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER:
(Exact name of registrant as specified in its charter)
(or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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Registrant’s telephone number, including area code:
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:
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Name of each exchange on which registered |
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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.
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).
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 |
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Accelerated filer |
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Emerging growth company |
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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
INLAND REAL ESTATE INCOME TRUST, INC.
TABLE OF CONTENTS
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Part I - Financial Information |
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Item 1. |
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Financial Statements |
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Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 |
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Consolidated Statements of Equity for the three months ended March 31, 2024 and 2023 (unaudited) |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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32 |
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2
INLAND REAL ESTATE INCOME TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts)
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March 31, 2024 |
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December 31, 2023 |
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ASSETS |
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Assets: |
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Investment properties held and used: |
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Land |
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$ |
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$ |
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Building and other improvements |
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Total |
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Less accumulated depreciation |
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Net investment properties held and used |
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Cash and cash equivalents |
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Restricted cash |
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Accounts and rent receivable |
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Acquired lease intangible assets, net |
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Operating lease right-of-use asset, net |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Liabilities: |
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Mortgages and credit facility payable, net |
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$ |
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$ |
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Accounts payable and accrued expenses |
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Operating lease liability |
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Distributions payable |
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Acquired intangible liabilities, net |
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Due to related parties |
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Other liabilities |
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Total liabilities |
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and contingencies (Note 9) |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Accumulated distributions and net loss |
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Accumulated other comprehensive income |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
3
INLAND REAL ESTATE INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited, dollar amounts in thousands, except per share amounts)
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Three Months Ended |
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2024 |
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2023 |
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Income: |
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Rental income |
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$ |
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$ |
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Other property income |
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Total income |
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Expenses: |
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Property operating expenses |
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Real estate tax expense |
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General and administrative expenses |
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Business management fee |
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Depreciation and amortization |
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Total expenses |
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Other Income (Expense): |
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Interest expense |
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Interest and other income |
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Net loss |
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$ |
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$ |
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Net loss per common share, basic and diluted |
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$ |
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Weighted average number of common shares outstanding, basic and diluted |
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Comprehensive income (loss): |
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Net loss |
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$ |
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$ |
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Unrealized gain (loss) on derivatives |
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Reclassification adjustment for amounts included in net loss |
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( |
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( |
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Comprehensive income (loss) |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
4
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 |
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Number |
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Common |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Distributions declared ($ |
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— |
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— |
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— |
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( |
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— |
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Proceeds from distribution reinvestment plan |
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— |
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— |
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— |
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Shares repurchased |
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— |
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— |
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— |
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Unrealized gain on derivatives |
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— |
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— |
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— |
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— |
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Reclassification adjustment for amounts |
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— |
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— |
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— |
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— |
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( |
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( |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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For the Three Months Ended March 31, 2023 |
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Number |
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Common |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Distributions declared ($ |
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— |
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— |
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— |
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( |
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— |
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( |
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Proceeds from distribution reinvestment plan |
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— |
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— |
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— |
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Shares repurchased |
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( |
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— |
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— |
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— |
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( |
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Unrealized gain on derivatives |
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— |
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— |
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— |
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— |
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( |
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Reclassification adjustment for amounts |
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— |
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— |
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— |
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( |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
5
INLAND REAL ESTATE INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollar amounts in thousands)
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Three Months Ended |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of debt issuance costs and mortgage premiums, net |
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Amortization of acquired market leases, net |
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Amortization of equity-based compensation |
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Reduction in the carrying amount of the right-of-use-asset |
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Straight-line income, net |
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Other non-cash adjustments |
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Changes in assets and liabilities: |
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Accounts payable and accrued expenses |
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Accounts and rent receivable |
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Other assets |
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( |
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( |
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Due to related parties |
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( |
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( |
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Operating lease liability |
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Other liabilities |
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Net cash flows provided by operating activities |
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Cash flows from investing activities: |
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Capital expenditures |
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Net cash flows used in investing activities |
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Cash flows from financing activities: |
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Payment of credit facility |
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Proceeds from credit facility |
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Payment of mortgages payable |
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Proceeds from the distribution reinvestment plan |
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Shares repurchased |
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( |
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Distributions paid |
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( |
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( |
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Net cash flows used in financing activities |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash, at beginning of the period |
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Cash, cash equivalents and restricted cash, at end of period |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
6
INLAND REAL ESTATE INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited, dollar amounts in thousands)
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Three Months Ended |
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2024 |
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2023 |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
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$ |
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Supplemental schedule of non-cash investing and financing activities: |
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Accrued capital expenditures |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
7
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
At March 31, 2024, the Company owned
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.
8
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:
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March 31, |
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2024 |
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2023 |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Total cash, cash equivalents, and restricted cash |
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$ |
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$ |
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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
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.
9
There were $
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
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 $
NOTE 4 – LEASES
The Company is lessor under approximately
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:
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For the Three Months Ended March 31, |
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2024 |
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2023 |
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Rental income - fixed payments |
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$ |
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$ |
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Rental income - variable payments (a) |
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Amortization of acquired lease intangibles, net |
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( |
) |
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Rental income |
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$ |
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$ |
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10
(a)
As of March 31, 2024, the Company’s accounts and rent receivable, net balance was $
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:
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March 31, 2024 |
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December 31, 2023 |
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Intangible assets: |
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Acquired in-place lease value |
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$ |
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$ |
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Acquired above market lease value |
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Accumulated amortization |
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( |
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( |
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Acquired lease intangibles, net |
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$ |
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$ |
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Intangible liabilities: |
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Acquired below market lease value |
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$ |
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$ |
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Accumulated amortization |
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( |
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( |
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Acquired below market lease intangibles, net |
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$ |
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$ |
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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:
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Three Months Ended |
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2024 |
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2023 |
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Amortization recorded as amortization expense: |
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Acquired in-place lease value |
$ |
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$ |
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Amortization recorded as a (reduction) increase to rental income: |
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Acquired above market leases |
$ |
( |
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$ |
( |
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Acquired below market leases |
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Net rental income (reduction) increase |
$ |
( |
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$ |
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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:
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Acquired |
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Above Market Leases |
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Below |
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2024 (remainder of year) |
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$ |
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$ |
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$ |
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2025 |
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2026 |
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2027 |
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2028 |
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Thereafter |
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Total |
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$ |
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$ |
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$ |
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11
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:
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March 31, 2024 |
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December 31, 2023 |
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Type of Debt |
Principal Amount |
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Weighted |
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Principal |
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Weighted |
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Fixed rate mortgages payable |
$ |
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% |
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$ |
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% |
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Variable rate mortgages payable with swap agreements |
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% |
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% |
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Mortgages payable |
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% |
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% |
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Credit facility payable |
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% |
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% |
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Total debt before unamortized debt issuance costs including impact of interest rate swaps |
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% |
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% |
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(Less): Unamortized debt issuance costs |
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( |
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( |
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Total debt |
$ |
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$ |
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The Company’s indebtedness bore interest at a weighted average interest rate of
As of March 31, 2024, scheduled principal payments and maturities on the Company’s debt were as follows:
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March 31, 2024 |
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Scheduled Principal Payments and Maturities by Year: |
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Scheduled |
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Maturities of Mortgage Loans |
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Maturity of Credit Facility |
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Total |
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2024 (remainder of the year) |
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$ |
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$ |
— |
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$ |
— |
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$ |
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2025 |
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— |
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2026 |
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— |
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2027 |
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— |
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— |
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2028 |
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— |
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— |
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— |
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— |
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Thereafter |
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— |
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— |
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— |
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— |
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Total |
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$ |
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$ |
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$ |
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$ |
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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 $
The Revolving Credit Facility matures on
At March 31, 2024, the Company had $
12
respectively. As of March 31, 2024, the Company had a maximum amount of $
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
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,
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,
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 $
Date |
Effective |
Maturity |
Receive Floating Rate Index (a) |
Pay |
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Notional |
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Fair Value at March 31, 2024 |
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Assets |
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$ |
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$ |
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13
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.
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Three Months Ended |
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Derivatives in Cash Flow Hedging Relationships |
2024 |
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2023 |
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Effective portion of derivatives |
$ |
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$ |
( |
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Reclassification adjustment for amounts included in net gain or loss (effective portion) |
$ |
( |
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$ |
( |
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The total amount of interest expense presented on the consolidated statements of operations and comprehensive income (loss) was $
NOTE 7 – DISTRIBUTIONS
The table below presents the distributions paid and declared during the three months ended March 31, 2024 and 2023.
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Three Months Ended |
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2024 |
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2023 |
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Distributions paid |
$ |
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$ |
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Distributions declared |
$ |
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$ |
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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,
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 to
A summary table of the status of the restricted shares is presented below:
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Restricted Shares |
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Outstanding at December 31, 2023 |
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Granted |
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— |
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Vested |
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— |
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Outstanding at March 31, 2024 |
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14
NOTE 11 – SEGMENT REPORTING
The Company has
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.
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Three Months Ended |
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Unpaid amounts as of |
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2024 |
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2023 |
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March 31, 2024 |
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December 31, 2023 |
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General and administrative reimbursements |
(a) |
$ |
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$ |
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$ |
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$ |
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Real estate management fees |
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$ |
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$ |
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$ |
— |
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$ |
— |
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Property operating expenses |
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Construction management fees |
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— |
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Leasing fees |
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Total real estate management related costs |
(b) |
$ |
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$ |
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$ |
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$ |
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Business management fees |
(c) |
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$ |
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$ |
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$ |
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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:
15
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 $
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 − |
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Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. |
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Level 2 − |
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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. |
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Level 3 − |
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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.
16
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Fair Value |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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March 31, 2024 |
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Interest rate swap agreements - Other assets |
$ |
— |
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$ |
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$ |
— |
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$ |
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Interest rate swap agreements - Other liabilities |
$ |
— |
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$ |
— |
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$ |
— |
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$ |
— |
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December 31, 2023 |
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Interest rate swap agreements - Other assets |
$ |
— |
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$ |
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$ |
— |
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$ |
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Interest rate swap agreements - Other liabilities |
$ |
— |
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$ |
— |
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$ |
— |
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$ |
— |
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The fair value of derivative instruments was estimated based on data observed in the forward yield curve which is widely observed in the marketplace. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the counterparty's nonperformance risk in the fair value measurements which utilize Level 3 inputs, such as estimates of current credit spreads. The Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative interest rate swap agreements and therefore has classified these in Level 2 of the hierarchy.
NOTE 14 – SUBSEQUENT EVENTS
In connection with the preparation of its consolidated financial statements, the Company has evaluated events that occurred subsequent to March 31, 2024 through the date on which these consolidated financial statements were issued to determine whether any of these events required disclosure in the consolidated financial statements.
There were no reportable subsequent events or transactions.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words such as “may,” “could,” “should,” “expect,” “intend,” “plan,” “goal,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “variables,” “potential,” “continue,” “expand,” “maintain,” “create,” “strategies,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions, are intended to identify forward-looking statements.
These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of the management of Inland Real Estate Income Trust, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in our 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, some of which are summarized below:
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report, and may ultimately prove to be incorrect or false. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
18
The following discussion and analysis relates to the three months ended March 31, 2024 and 2023 and as of March 31, 2024 and December 31, 2023. Our stockholders should read the following discussion and analysis along with our consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q.
We routinely post important information about us and our business, including financial and other information for investors, on our website. We encourage investors to visit our website at inland-investments.com/inland-income-trust from time to time, as information is updated and new information is posted.
Overview
We were formed as a Maryland corporation on August 24, 2011 and elected to be taxed as a real estate investment trust for U.S. federal income tax purposes (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the year ended December 31, 2013. We have no employees. We are managed by our business manager, IREIT Business Manager & Advisor, Inc., referred to herein as our “Business Manager.” We have also entered into an agreement with Mark Zalatoris, (the “CEO Agreement”) to, among other things, compensate him for performing services as our president and chief executive officer. In connection with entering into the CEO Agreement, we entered into the Fourth Amended and Restated Business Management Agreement (“Fourth Business Management Agreement”) with the Business Manager to, among other things, 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 Fourth Business Management Agreement to direct the day-to day operations of the Business Manager.
We are primarily focused on acquiring and owning retail properties and intend to target a portfolio substantially all of which would be comprised of grocery-anchored properties as described below. We have invested in joint ventures and, to the extent we have available capital, may invest again in additional joint ventures or acquire other real estate assets such as office and medical office buildings, multi-family properties and industrial/distribution and warehouse facilities if management believes the expected returns from those investments exceed that of retail properties. We 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.
On March 4, 2024, our board of directors determined an estimated per share net asset value of our common stock of $19.17 as of December 31, 2023, compared to the previous estimated value of $19.86 as of December 31, 2022. At March 31, 2024, we had total assets of $1.3 billion on our balance sheet and owned 52 properties located in 24 states containing 7.2 million square feet. A majority of our properties are multi-tenant, necessity-based retail shopping centers primarily located in major regional markets and growing secondary markets throughout the United States. At March 31, 2024, grocery-anchored or grocery shadow-anchored shopping center properties represented 87% of our annualized base rent. A grocery shadow-anchored shopping center is a shopping center which we own that is located near a grocery store that we do not own but that we believe generates traffic for the shopping center. As of March 31, 2024, the portfolio properties have an economic occupancy of 92.5% and staggered lease maturity dates. Grocery tenants accounted for 17% of our annualized base rent (“ABR”) as of March 31, 2024.
Inflation and Interest Rates
Inflationary pressures and rising interest rates could result in reductions in consumer spending and retailer profitability that impacts our ability to grow rents and tenant demand for new and existing store locations. Regardless of accelerating inflation levels, base rent under most of our long-term anchor leases will remain constant (subject to tenants’ exercise of renewal options at pre-negotiated rent increases) until the expiration of their lease terms. While many of these leases require tenants to pay their share of shopping center operating expenses (including common area maintenance, real estate tax and insurance expenses), our ability to collect the expense increases passed through to tenants is dependent on their ability to absorb and pay these increases. Inflation may also impact other aspects of our operating costs, including fees paid to service providers, the cost to complete redevelopments and build-outs of recently leased vacancies and interest rate costs relating to variable rate loans and refinancing of lower fixed-rate indebtedness. While we have not been significantly impacted by any of these items to date, no assurances can be provided that these inflationary pressures will not have a material adverse effect on our business in the future.
Company Update – Strategic Plan
We have a strategic plan that includes the goals of providing a future liquidity event to investors and creating long-term stockholder value. The strategic plan centers around owning a portfolio of grocery-anchored properties with lower exposure to big box retailers. As part of this strategy, our management team continually evaluates possibilities for the opportunistic sale of certain assets with the goal of redeploying capital into the acquisition of strategically located grocery-anchored centers. Of our 953 leasable spaces, there are 122 non-grocery big box (anchor spaces of at least 10,000 square feet) in the portfolio, and of those 11 are vacant, and zero are dark (meaning that the tenant is still obligated by their lease to pay rent but has vacated the space and left it unused) as of April 30, 2024. We are not actively marketing any properties for sale as of the date of this Quarterly Report on Form 10-Q. We believe increasing our size and
19
profitability would enhance our ability to complete a successful liquidity event. Although we are not actively pursuing any new acquisitions as of the date of this Quarterly Report on Form 10-Q, we may seek and evaluate potential acquisitions and, if we have the requisite capital and financing available to us, opportunistically acquire retail properties that we believe complement our existing portfolio in terms of relevant characteristics such as tenant mix, demographics and geography and are consistent with our plan to try to own a portfolio substantially all of which is comprised of grocery-anchored or shadow-anchored properties. We have considered and may in the future consider other transactions, such as redeveloping certain of our properties or portions of certain of our properties, for example, big-box spaces, to repurpose them for alternative uses. The board has considered and will continue to consider liquidity events, such as listing our common stock on a national securities exchange or merging or selling our portfolio. There is no assurance if or when we will complete such liquidity event. Our consideration of a liquidity event is influenced by our intention to opportunistically grow the portfolio and execute strategic sales and acquisitions. Likewise, we are continually impacted by (i) evolving retail market conditions and other complex factors such as (ii) competition for our tenants from evolving internet businesses, (iii) the state of the commercial real estate market and financial markets, (iv) our ability to raise capital or borrow on terms that are acceptable to us in light of the use of the proceeds and (v) changes in general economic conditions such as high interest rates, among other factors. The timing of the completion of the strategic plan has already extended beyond our original expectations and cannot be predicted with certainty. There is no assurance that we will be able to successfully implement our strategic plan, for example by listing our common stock or merging or selling our portfolio, within the timeframe we would prefer or at all.
SELECT PROPERTY INFORMATION (All dollar amounts in thousands, except per square foot amounts)
Investment Properties
|
|
As of March 31, 2024 |
|
|
Number of properties |
|
52 |
|
|
Purchase price |
|
$ |
1,624,667 |
|
Total square footage |
|
|
7,167,500 |
|
Physical occupancy |
|
|
92.1 |
% |
Economic occupancy |
|
|
92.5 |
% |
Weighted average remaining lease term (years) (a) |
|
|
4.6 |
|
20
The table below presents information for each of our investment properties as of March 31, 2024.
Property |
Location |
Square |
|
Physical |
|
Economic |
|
Mortgage |
|
Interest |
|
|||||
Newington Fair (a) |
Newington, CT |
|
186,205 |
|
|
100.0 |
% |
|
100.0 |
% |
|
— |
|
|
— |
|
Wedgewood Commons (a) |
Olive Branch, MS |
|
169,558 |
|
|
90.7 |
% |
|
92.8 |
% |
|
— |
|
|
— |
|
Park Avenue (a) |
Little Rock, AR |
|
78,702 |
|
|
95.6 |
% |
|
95.6 |
% |
|
— |
|
|
— |
|
North Hills Square (a) |
Coral Springs, FL |
|
63,829 |
|
|
97.5 |
% |
|
97.5 |
% |
|
— |
|
|
— |
|
Mansfield Shopping Center (a) |
Mansfield, TX |
|
148,529 |
|
|
93.5 |
% |
|
93.5 |
% |
|
— |
|
|
— |
|
Lakeside Crossing (a) |
Lynchburg, VA |
|
67,034 |
|
|
100.0 |
% |
|
100.0 |
% |
|
— |
|
|
— |
|
MidTowne Shopping Center (a) |
Little Rock, AR |
|
126,288 |
|
|
70.3 |
% |
|
70.3 |
% |
|
— |
|
|
— |
|
Dogwood Festival (a) |
Flowood, MS |
|
187,468 |
|
|
86.1 |
% |
|
86.1 |
% |
|
— |
|
|
— |
|
Pick N Save Center (a) |
West Bend, WI |
|
94,446 |
|
|
98.9 |
% |
|
98.9 |
% |
|
— |
|
|
— |
|
Harris Plaza (a) |
Layton, UT |
|
125,814 |
|
|
96.6 |
% |
|
96.6 |
% |
|
— |
|
|
— |
|
Dixie Valley (a) |
Louisville, KY |
|
119,981 |
|
|
81.1 |
% |
|
81.1 |
% |
|
— |
|
|
— |
|
The Landings at Ocean Isle (a) |
Ocean Isle, NC |
|
53,203 |
|
|
97.4 |
% |
|
97.4 |
% |
|
— |
|
|
— |
|
Shoppes at Prairie Ridge (a) |
Pleasant Prairie, WI |
|
232,606 |
|
|
98.0 |
% |
|
99.3 |
% |
|
— |
|
|
— |
|
Harvest Square (a) |
Harvest, AL |
|
70,590 |
|
|
93.2 |
% |
|
93.2 |
% |
|
— |
|
|
— |
|
Heritage Square (a) |
Conyers, GA |
|
22,510 |
|
|
93.8 |
% |
|
93.8 |
% |
|
— |
|
|
— |
|
The Shoppes at Branson Hills (a) |
Branson, MO |
|
256,244 |
|
|
97.2 |
% |
|
97.2 |
% |
|
— |
|
|
— |
|
Branson Hills Plaza (a) |
Branson, MO |
|
210,201 |
|
|
100.0 |
% |
|
100.0 |
% |
|
— |
|
|
— |
|
Copps Grocery Store (a) |
Stevens Point, WI |
|
69,911 |
|
|
100.0 |
% |
|
100.0 |
% |
|
— |
|
|
— |
|
Fox Point Plaza (a) |
Neenah, WI |
|
171,121 |
|
|
96.4 |
% |
|
96.4 |
% |
|
— |
|
|
— |
|
Shoppes at Lake Park (a) |
W. Valley City, UT |
|
52,997 |
|
|
100.0 |
% |
|
100.0 |
% |
|
— |
|
|
— |
|
Plaza at Prairie Ridge (a) |
Pleasant Prairie, WI |
|
9,035 |
|
|
100.0 |
% |
|
100.0 |
% |
|
— |
|
|
— |
|
Green Tree Shopping Center (a) |
Katy, TX |
|
147,621 |
|
|
97.5 |
% |
|
97.5 |
% |
|
— |
|
|
— |
|
Eastside Junction (a) |
Athens, AL |
|
79,675 |
|
|
91.0 |
% |
|
91.0 |
% |
|
— |
|
|
— |
|
Fairgrounds Crossing (a) |
Hot Springs, AR |
|
155,127 |
|
|
84.9 |
% |
|
84.9 |
% |
|
— |
|
|
— |
|
Prattville Town Center (a) |
Prattville, AL |
|
168,842 |
|
|
89.0 |
% |
|
89.0 |
% |
|
— |
|
|
— |
|
Regal Court |
Shreveport, LA |
|
363,061 |
|
|
97.0 |
% |
|
97.0 |
% |
|
26,000 |
|
|
4.55 |
% |
Shops at Hawk Ridge (a) |
St. Louis, MO |
|
75,951 |
|
|
100.0 |
% |
|
100.0 |
% |
|
— |
|
|
— |
|
Walgreens Plaza (a) |
Jacksonville, NC |
|
42,219 |
|
|
52.8 |
% |
|
52.8 |
% |
|
— |
|
|
— |
|
Frisco Marketplace (a) |
Frisco, TX |
|
112,024 |
|
|
88.1 |
% |
|
88.1 |
% |
|
— |
|
|
— |
|
White City (a) |
Shrewsbury, MA |
|
256,974 |
|
|
85.4 |
% |
|
85.4 |
% |
|
— |
|
|
— |
|
Yorkville Marketplace (a) |
Yorkville, IL |
|
111,591 |
|
|
94.7 |
% |
|
94.7 |
% |
|
— |
|
|
— |
|
Shoppes at Market Pointe (a) |
Papillion, NE |
|
253,903 |
|
|
95.9 |
% |
|
95.9 |
% |
|
— |
|
|
— |
|
Marketplace at El Paseo (a) |
Fresno, CA |
|
224,683 |
|
|
98.9 |
% |
|
98.9 |
% |
|
— |
|
|
— |
|
The Village at Burlington Creek |
Kansas City, MO |
|
157,937 |
|
|
77.0 |
% |
|
80.1 |
% |
|
16,676 |
|
|
4.25 |
% |
Milford Marketplace |
Milford, CT |
|
111,959 |
|
|
95.9 |
% |
|
95.9 |
% |
|
18,727 |
|
|
4.02 |
% |
Settlers Ridge |
Pittsburgh, PA |
|
473,871 |
|
|
91.7 |
% |
|
91.7 |
% |
|
76,532 |
|
|
3.70 |
% |
Blossom Valley Plaza (a) |
Turlock, CA |
|
111,435 |
|
|
89.4 |
% |
|
89.4 |
% |
|
— |
|
|
|
|
Oquirrh Mountain Marketplace (a) |
South Jordan, UT |
|
75,950 |
|
|
100.0 |
% |
|
100.0 |
% |
|
— |
|
|
— |
|
Marketplace at Tech Center (a) |
Newport News, VA |
|
210,666 |
|
|
89.0 |
% |
|
94.1 |
% |
|
— |
|
|
— |
|
Coastal North Town Center (a) |
Myrtle Beach, SC |
|
304,662 |
|
|
97.5 |
% |
|
98.2 |
% |
|
— |
|
|
— |
|
Oquirrh Mountain Marketplace II (a) |
South Jordan, UT |
|
10,150 |
|
|
100.0 |
% |
|
100.0 |
% |
|
— |
|
|
— |
|
Wilson Marketplace (a) |
Wilson, NC |
|
311,030 |
|
|
93.6 |
% |
|
93.6 |
% |
|
— |
|
|
— |
|
Pentucket Shopping Center (a) |
Plaistow, NH |
|
198,469 |
|
|
86.4 |
% |
|
86.4 |
% |
|
— |
|
|
— |
|
Hickory Tavern |
Myrtle Beach, SC |
|
6,588 |
|
|
100.0 |
% |
|
100.0 |
% |
|
— |
|
|
— |
|
New Town (a) |
Owings Mill, MD |
|
117,593 |
|
|
43.8 |
% |
|
43.8 |
% |
|
— |
|
|
— |
|
Olde Ivy Village (a) |
Smyrna, GA |
|
46,500 |
|
|
93.7 |
% |
|
93.7 |
% |
|
— |
|
|
— |
|
Northpark Village Square (a) |
Santa Clarita, CA |
|
87,103 |
|
|
79.4 |
% |
|
79.4 |
% |
|
— |
|
|
— |
|
Lower Makefield Shopping Center (a) |
Lower Makefield, PA |
|
74,953 |
|
|
97.6 |
% |
|
97.6 |
% |
|
— |
|
|
— |
|
Denton Village (a) |
Denton, TX |
|
48,280 |
|
|
100.0 |
% |
|
100.0 |
% |
|
— |
|
|
— |
|
Rusty Leaf Plaza (a) |
Orange, CA |
|
59,188 |
|
|
97.0 |
% |
|
97.0 |
% |
|
— |
|
|
— |
|
Northville Park Place (a) |
Northville, MI |
|
78,421 |
|
|
98.4 |
% |
|
98.4 |
% |
|
— |
|
|
— |
|
CityPlace (a) |
Woodbury, MN |
|
174,802 |
|
|
98.4 |
% |
|
98.4 |
% |
|
— |
|
|
— |
|
Portfolio total |
|
|
7,167,500 |
|
|
92.1 |
% |
|
92.5 |
% |
$ |
137,935 |
|
|
3.97 |
% |
21
Tenancy Highlights
The following table presents information regarding the top ten tenants in our portfolio based on annualized base rent for leases in-place as of March 31, 2024.
Tenant Name |
|
Number |
|
|
Annualized |
|
|
Percent of |
|
|
Annualized |
|
|
Square |
|
|
Percent of |
|
||||||
The Kroger Co |
|
|
5 |
|
|
$ |
4,770 |
|
|
|
4.3 |
% |
|
$ |
16.11 |
|
|
|
296,150 |
|
|
|
4.1 |
% |
The TJX Companies, Inc. |
|
|
14 |
|
|
|
3,784 |
|
|
|
3.4 |
% |
|
|
10.69 |
|
|
|
354,070 |
|
|
|
4.9 |
% |
Ross Dress for Less, Inc. |
|
|
10 |
|
|
|
2,772 |
|
|
|
2.5 |
% |
|
|
10.58 |
|
|
|
262,080 |
|
|
|
3.7 |
% |
Ulta Salon, Cosmetics & Fragrance Inc. |
|
|
11 |
|
|
|
2,370 |
|
|
|
2.1 |
% |
|
|
21.36 |
|
|
|
110,958 |
|
|
|
1.6 |
% |
Amazon/Whole Foods Market Group, Inc. |
|
|
3 |
|
|
|
2,340 |
|
|
|
2.1 |
% |
|
|
20.27 |
|
|
|
115,410 |
|
|
|
1.6 |
% |
Sprouts Farmers Market, LLC |
|
|
4 |
|
|
|
2,159 |
|
|
|
1.9 |
% |
|
|
19.09 |
|
|
|
113,092 |
|
|
|
1.6 |
% |
PetSmart |
|
|
7 |
|
|
|
2,103 |
|
|
|
1.9 |
% |
|
|
15.17 |
|
|
|
138,578 |
|
|
|
1.9 |
% |
Albertsons/Jewel/Shaw's |
|
|
2 |
|
|
|
2,090 |
|
|
|
1.9 |
% |
|
|
16.34 |
|
|
|
127,892 |
|
|
|
1.8 |
% |
LA Fitness (Fitness International) |
|
|
2 |
|
|
|
1,966 |
|
|
|
1.8 |
% |
|
|
21.94 |
|
|
|
89,600 |
|
|
|
1.3 |
% |
Dicks Sporting Goods, Inc. |
|
|
4 |
|
|
|
1,959 |
|
|
|
1.8 |
% |
|
|
10.84 |
|
|
|
180,766 |
|
|
|
2.5 |
% |
Top ten tenants |
|
|
62 |
|
|
$ |
26,313 |
|
|
|
23.7 |
% |
|
$ |
14.71 |
|
|
|
1,788,596 |
|
|
|
25.0 |
% |
The following table sets forth a summary of our tenant diversity for our entire portfolio and is based on leases in-place at March 31, 2024.
Tenant Type |
Gross Leasable |
|
|
Percent of |
|
|
Percent of |
|
|||
Discount and Department Stores |
|
1,386,881 |
|
|
|
20.9 |
% |
|
|
10.5 |
% |
Grocery |
|
1,331,589 |
|
|
|
20.1 |
% |
|
|
17.0 |
% |
Lifestyle, Health Clubs, Books & Phones |
|
871,269 |
|
|
|
13.1 |
% |
|
|
15.9 |
% |
Home Goods |
|
815,853 |
|
|
|
12.3 |
% |
|
|
6.8 |
% |
Restaurant |
|
643,576 |
|
|
|
9.7 |
% |
|
|
18.7 |
% |
Apparel & Accessories |
|
445,219 |
|
|
|
6.7 |
% |
|
|
9.0 |
% |
Consumer Services, Salons, Cleaners, Banks |
|
343,859 |
|
|
|
5.2 |
% |
|
|
9.5 |
% |
Pet Supplies |
|
256,913 |
|
|
|
3.9 |
% |
|
|
4.0 |
% |
Sporting Goods |
|
202,067 |
|
|
|
3.0 |
% |
|
|
2.2 |
% |
Health, Doctors & Health Foods |
|
193,263 |
|
|
|
2.9 |
% |
|
|
5.1 |
% |
Other |
|
136,477 |
|
|
|
2.2 |
% |
|
|
1.3 |
% |
Total |
|
6,626,966 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
The following table sets forth a summary, as of March 31, 2024, of the percent of total annualized base rent and the weighted average lease expiration by size of tenant.
Size of Tenant |
|
Description - |
|
Percent of Total Annualized Base Rent |
|
|
Weighted Average Lease Expiration – Years |
|
||
Anchor |
|
10,000 and over |
|
|
48 |
% |
|
|
5.6 |
|
Junior Box |
|
5,000-9,999 |
|
|
14 |
% |
|
|
4.2 |
|
Small Shop |
|
Less than 5,000 |
|
|
38 |
% |
|
|
3.5 |
|
Total |
|
|
|
|
100 |
% |
|
|
4.6 |
|
22
With respect to our locations affected by the Bed Bath and Beyond bankruptcy, we have executed a lease for three out of our four locations that closed and are in active lease negotiations with a national tenant to re-lease the last remaining space.
With respect to our locations affected by the Rite Aid bankruptcy, one of our two locations has closed and that lease was rejected. We are in possession of this space and are currently marketing it for backfill. Our other location is still open and operating and is not on the initial closure list.
Lease Expirations
The following table sets forth a summary, as of March 31, 2024, of lease expirations scheduled to occur during the remainder of 2024 and each of the calendar years from 2025 to 2033 and thereafter, assuming no exercise of renewal options or early termination rights for leases commenced on or prior to March 31, 2024. Annualized base rent represents the rent in-place of the applicable property at March 31, 2024. The table below includes ground leases. If ground leases are excluded, annualized base rent would equal $101,667 or $19.64 per square foot for total expiring leases.
Lease Expiration Year |
|
Number of |
|
|
Gross Leasable Area of Expiring Leases - Square Footage |
|
|
Percent of |
|
|
Total |
|
|
Percent of |
|
|
Annualized Base Rent per Leased Square Foot |
|
||||||
2024 (including month-to-month) |
|
|
88 |
|
|
|
338,945 |
|
|
|
5.1 |
% |
|
$ |
8,304 |
|
|
|
7.4 |
% |
|
$ |
24.50 |
|
2025 |
|
|
137 |
|
|
|
771,010 |
|
|
|
11.6 |
% |
|
|
16,787 |
|
|
|
15.0 |
% |
|
|
21.77 |
|
2026 |
|
|
106 |
|
|
|
461,998 |
|
|
|
7.0 |
% |
|
|
10,337 |
|
|
|
9.3 |
% |
|
|
22.37 |
|
2027 |
|
|
125 |
|
|
|
878,803 |
|
|
|
13.3 |
% |
|
|
14,967 |
|
|
|
13.4 |
% |
|
|
17.03 |
|
2028 |
|
|
143 |
|
|
|
1,414,653 |
|
|
|
21.3 |
% |
|
|
18,568 |
|
|
|
16.7 |
% |
|
|
13.13 |
|
2029 |
|
|
81 |
|
|
|
749,311 |
|
|
|
11.3 |
% |
|
|
11,770 |
|
|
|
10.6 |
% |
|
|
15.71 |
|
2030 |
|
|
29 |
|
|
|
319,459 |
|
|
|
4.8 |
% |
|
|
5,732 |
|
|
|
5.1 |
% |
|
|
17.94 |
|
2031 |
|
|
23 |
|
|
|
203,017 |
|
|
|
3.1 |
% |
|
|
3,944 |
|
|
|
3.5 |
% |
|
|
19.43 |
|
2032 |
|
|
30 |
|
|
|
200,551 |
|
|
|
3.0 |
% |
|
|
4,761 |
|
|
|
4.3 |
% |
|
|
23.74 |
|
2033 |
|
|
29 |
|
|
|
208,789 |
|
|
|
3.2 |
% |
|
|
3,883 |
|
|
|
3.5 |
% |
|
|
18.60 |
|
Thereafter |
|
|
27 |
|
|
|
1,080,430 |
|
|
|
16.3 |
% |
|
|
12,441 |
|
|
|
11.2 |
% |
|
|
11.52 |
|
Leased Total |
|
|
818 |
|
|
|
6,626,966 |
|
|
|
100.0 |
% |
|
$ |
111,494 |
|
|
|
100.0 |
% |
|
$ |
16.82 |
|
23
Liquidity and Capital Resources
General
Our primary uses and sources of cash are as follows:
Uses |
|
Sources |
||
• |
Interest and principal payments on mortgage loans and |
|
• |
Cash receipts from our tenants |
• |
Property operating expenses |
|
• |
Sale of shares through the DRP |
• |
General and administrative expenses |
|
• |
Proceeds from new or refinanced mortgage loans |
• |
Distributions to stockholders |
|
• |
Borrowing on our Credit Facility |
• |
Fees payable to our Business Manager and Real Estate |
|
• |
Proceeds from sales of real estate (if any)* |
• |
Repurchases of shares under the SRP |
|
• |
Proceeds from issuance of securities (if any) other than through the DRP* |
• |
Capital expenditures, tenant improvements and leasing commissions |
|
|
|
• |
Acquisitions of real estate directly or through joint ventures* |
|
|
|
• |
Redevelopments of entire properties or certain spaces within our properties* |
|
|
|
*We cannot provide any assurance that we will be able to sell properties or issue new securities to raise capital when we would like, for example, to increase the proportion of grocery-anchored or shadow-anchored properties or increase the size of our portfolio of properties, or under terms that would be acceptable to us considering factors such as the anticipated use of the proceeds. Because the our common stock is not listed on a national securities exchange, our ability to access the public or private market, particularly for equity capital, is limited.
At March 31, 2024, we had $132 million outstanding under the Revolving Credit Facility and $575 million 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. At March 31, 2023, the interest rates on the Revolving Credit Facility and the Term Loan were 6.66% and 4.33%, respectively. The Revolving Credit Facility matures on February 3, 2026 subject to a twelve month extension, at the Company’s option. The Term Loan matures on February 3, 2027. As of May 8, 2024, we had $68 million available for borrowing under the Revolving Credit Facility, subject to the terms and conditions, including compliance with the covenants which could further limit the amount available, of the Credit Agreement that governs the Credit Facility. Although $68 million is the maximum available, covenant limitations affect what we can actually draw, and we expect to have substantially less than $68 million actually available to draw or otherwise undertake as additional debt. By “additional debt,” we mean debt in addition to existing debt such as existing mortgages. The properties comprising the borrowing base for the Credit Facility are not available to be used as collateral for other debt unless removed from the borrowing base, which would shrink availability under the Credit Facility.
As of March 31, 2024, we had total debt outstanding of $845 million, excluding unamortized debt issuance costs, which bore interest at a weighted average interest rate of 4.78% per annum. As of March 31, 2024, the weighted average years to maturity for our debt was 2.5 years. As of both March 31, 2024 and December 31, 2023, our borrowings were 52% of the purchase price of our investment properties. At March 31, 2024, our cash and cash equivalents balance was $7.7 million.
As of May 8, 2024, in the next twelve months, we do not have any mortgage loans maturing.
During the three months ended March 31, 2024, we repurchased $1.7 million of shares of common stock.
During the three months ended March 31, 2024, we spent $3.1 million on capital expenditures and tenant improvements, which is approximately $2.1 million more than we did in the three months ended March 31, 2023. We expect to materially increase spending on tenant improvements in connection with new or renewed leases and capital expenditures in 2024 but do not anticipate a material effect on our liquidity from this increase, assuming the businesses of our tenants, including those that were negatively affected by the COVID-19 pandemic, remain steady or improve or they otherwise continue to pay their rent and fulfill their lease obligations.
As of March 31, 2024, we have paid all interest and principal amounts when due, and were in compliance with all financial covenants under the Credit Facility as amended.
24
Cash Flow Analysis
|
|
Three Months Ended |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
2024 vs. 2023 |
|
|||
|
|
(Dollar amounts in thousands) |
|
|||||||||
Net cash flows provided by operating activities |
|
$ |
11,866 |
|
|
$ |
12,406 |
|
|
$ |
(540 |
) |
Net cash flows used in investing activities |
|
$ |
(3,144 |
) |
|
$ |
(1,030 |
) |
|
$ |
(2,114 |
) |
Net cash flows used in financing activities |
|
$ |
(6,989 |
) |
|
$ |
(4,102 |
) |
|
$ |
(2,887 |
) |
Operating activities
The decrease in cash from operating activities during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to a decrease in prepaid rental income partially offset by a decrease in accounts receivable.
Investing activities
|
|
Three Months Ended |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
2024 vs. 2023 |
|
|||
|
|
(Dollar amounts in thousands) |
|
|||||||||
Capital expenditures |
|
$ |
(3,144 |
) |
|
$ |
(1,030 |
) |
|
$ |
(2,114 |
) |
Net cash used in investing activities |
|
$ |
(3,144 |
) |
|
$ |
(1,030 |
) |
|
$ |
(2,114 |
) |
The increase in cash used for investing activities during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to an increase in capital expenditures.
Financing activities
|
|
Three Months Ended |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
2024 vs. 2023 |
|
|||
|
|
(Dollar amounts in thousands) |
|
|||||||||
Total changes related to debt |
|
$ |
(2,084 |
) |
|
$ |
(80 |
) |
|
$ |
(2,004 |
) |
Proceeds from the distribution reinvestment plan, net of shares repurchased |
|
|
— |
|
|
|
885 |
|
|
|
(885 |
) |
Distributions paid |
|
|
(4,905 |
) |
|
|
(4,907 |
) |
|
|
2 |
|
Net cash used in financing activities |
|
$ |
(6,989 |
) |
|
$ |
(4,102 |
) |
|
$ |
(2,887 |
) |
During the three months ended March 31, 2024, changes in total debt decreased $2.0 million from the three months ended March 31, 2023 primarily due to net repayment of $2.0 million on the credit facility. During the three months ended March 31, 2024, we generated proceeds from the sale of shares pursuant to the DRP of $1.7 million. For the three months ended March 31, 2024, share repurchases were $1.7 million. During the three months ended March 31, 2024, we paid $4.9 million in distributions.
Distributions
Distributions when declared are paid quarterly in arrears. A summary of the distributions declared, distributions paid and cash flows provided by operations for the three months ended March 31, 2024 and 2023 follows (Dollar amounts in thousands except per share amounts):
|
|
|
|
|
|
|
|
Distributions Paid (1) |
|
|
|
|
|
||||||||||||
Three Months Ended |
|
Distributions |
|
|
Distributions |
|
|
Cash |
|
|
Reinvested |
|
|
Total |
|
|
Cash Flows |
|
|
||||||
2024 |
|
$ |
4,902 |
|
|
$ |
0.135600 |
|
|
$ |
3,214 |
|
|
$ |
1,691 |
|
|
$ |
4,905 |
|
|
$ |
11,866 |
|
|
2023 |
|
$ |
4,912 |
|
|
$ |
0.135600 |
|
|
$ |
3,132 |
|
|
$ |
1,775 |
|
|
$ |
4,907 |
|
|
$ |
12,406 |
|
|
25
Share Repurchases
Refer to “Part II. Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Repurchases of Securities – Share Repurchase Program” for details regarding our SRP. The SRP is funded by the proceeds from the DRP.
Results of Operations
This section describes and compares our results of operations for the three months ended March 31, 2024 and 2023. Dollar amounts are stated in thousands.
We generate primarily all of our net operating income from property operations. All 52 investment properties we currently own were held for the entirety of both the three months ended March 31, 2024 and 2023.
Net operating income is a supplemental non-GAAP performance measure that we believe is useful to investors in measuring the operating performance of our property portfolio because our primary business is the ownership of real estate, and net operating income excludes various items included in GAAP net income that do not relate to, or are not indicative of, our property operating performance, such as depreciation and amortization and parent-level corporate expenses (including general and administrative expenses).
The following table presents the property net operating income prior to straight-line income (expense), net, amortization of intangibles, interest, and depreciation and amortization for the three months ended March 31, 2024 and 2023, along with a reconciliation to net loss, calculated in accordance with GAAP.
Comparison of the three months ended March 31, 2024 and 2023
|
|
|
|||||||
|
Three Months Ended |
|
|||||||
|
2024 |
|
2023 |
|
Change |
|
|||
|
(Dollar amounts in thousands) |
|
|||||||
Rental income |
$ |
37,059 |
|
$ |
36,398 |
|
$ |
661 |
|
Other property income |
|
118 |
|
|
49 |
|
|
69 |
|
Total income |
|
37,177 |
|
|
36,447 |
|
|
730 |
|
|
|
|
|
|
|
|
|||
Property operating expenses |
|
7,146 |
|
|
6,793 |
|
|
353 |
|
Real estate tax expense |
|
4,783 |
|
|
5,254 |
|
|
(471 |
) |
Total property operating expenses |
|
11,929 |
|
|
12,047 |
|
|
(118 |
) |
|
|
|
|
|
|
|
|||
Property net operating income |
|
25,248 |
|
|
24,400 |
|
|
848 |
|
|
|
|
|
|
|
|
|||
Straight-line income (expense), net |
|
175 |
|
|
(133 |
) |
|
308 |
|
Amortization of intangibles and lease incentives |
|
(55 |
) |
|
27 |
|
|
(82 |
) |
General and administrative expenses |
|
(1,544 |
) |
|
(1,528 |
) |
|
(16 |
) |
Business management fee |
|
(2,255 |
) |
|
(2,716 |
) |
|
461 |
|
Depreciation and amortization |
|
(14,559 |
) |
|
(14,912 |
) |
|
353 |
|
Interest expense |
|
(10,430 |
) |
|
(10,409 |
) |
|
(21 |
) |
Interest and other income |
|
82 |
|
|
20 |
|
|
62 |
|
Net loss |
$ |
(3,338 |
) |
$ |
(5,251 |
) |
$ |
1,913 |
|
Net loss. Net loss was $3,338 and $5,251 for the three months ended March 31, 2024 and 2023, respectively.
Total property net operating income. During the three months ended March 31, 2024, property net operating income increased $848, total property income increased $730, and total property operating expenses including real estate tax expense decreased $118.
The increase in total property income is primarily due to an increase in base rent and an increase in percentage rent during the three months ended March 31, 2024. The increase in property operating expenses is primarily due to an increase in snow removal costs, higher
26
repairs and maintenance costs due to the timing of projects and an increase in insurance premium costs compared to 2023. The decrease in real estate tax expense is due to change in estimates for prior year actuals.
Straight-line income (expense), net. Straight-line income (expense), net increased $308 in 2024 compared to 2023. This increase is primarily due to lower straight-line write-offs in 2024 compared to 2023.
Amortization of intangibles and lease incentives. Income from the amortization of intangibles and lease incentives decreased $82 in 2024 compared to 2023. The decrease is primarily due to fully amortized intangibles and fewer write-offs for early terminations.
General and administrative expenses. General and administrative expenses increased $16 in 2024 compared to 2023.
Business management fee. Business management fees decreased $461 in 2024 compared to 2023. The decrease is primarily due to an amendment to the agreement that reduced the base fee. As noted herein, the amount we pay Mr. Zalatoris under the CEO Agreement with him reduces our payment under the Business Management Agreement on a dollar-for-dollar basis. During the three months ended March 31, 2024, total costs incurred under the CEO Agreement were $59, which are included in general and administrative expenses.
Depreciation and amortization. Depreciation and amortization decreased $353 in 2024 compared to 2023. The decrease is primarily due to a larger amount of fully amortized assets in 2024 compared to 2023.
Interest expense. Interest expense increased $21 in 2024 compared to 2023.
Interest and other income. Interest and other income increased $62 in 2024 compared to 2023.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Leasing Activity
The following table sets forth leasing activity during the three months ended March 31, 2024. Leases with terms of less than 12 months have been excluded from the table.
|
|
Number of Leases Signed |
|
|
Gross Leasable Area |
|
|
New Contractual Rent per Square Foot |
|
|
Prior Contractual Rent per Square Foot |
|
|
% Change over Prior Annualized Base Rent |
|
|
Weighted Average Lease Term |
|
|
Tenant Allowances per Square Foot |
|
|||||||
Comparable Renewal Leases |
|
|
35 |
|
|
|
248,341 |
|
|
$ |
20.32 |
|
|
$ |
19.49 |
|
|
|
4.3 |
% |
|
|
4.7 |
|
|
$ |
1.14 |
|
Comparable New Leases |
|
|
4 |
|
|
|
7,613 |
|
|
$ |
38.87 |
|
|
$ |
35.71 |
|
|
|
8.8 |
% |
|
|
5.7 |
|
|
$ |
12.41 |
|
Non-Comparable New and Renewal Leases (a) |
|
|
7 |
|
|
|
24,627 |
|
|
$ |
16.14 |
|
|
N/A |
|
|
N/A |
|
|
|
4.7 |
|
|
$ |
12.70 |
|
||
Total |
|
|
46 |
|
|
|
280,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Non-GAAP Financial Measures
Accounting for real estate assets in accordance with GAAP assumes the value of real estate assets is reduced over time due primarily to non-cash depreciation and amortization expense. Because real estate values may rise and fall with market conditions, operating results from real estate companies that use GAAP accounting may not present a complete view of their performance. We use Funds from Operations, or “FFO”, a widely accepted metric to evaluate our performance. FFO provides a supplemental measure to compare our performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or “NAREIT”, has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT. On November 7, 2018, NAREIT’s Executive Board approved the White Paper restatement, effective December 15, 2018. The purpose of the restatement was not to change the fundamental definition of FFO but to clarify existing guidance. The restated definition of FFO by NAREIT is net income (loss) computed in accordance with GAAP, excluding depreciation and amortization related to real estate, excluding gains (or losses) from sales of certain real estate assets, excluding impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable
27
to decreases in the value of depreciable real estate and excluding gains and losses from change in control. We have adopted the restated NAREIT definition for computing FFO. Previously presented periods were not impacted.
Under GAAP, acquisition related costs are treated differently if the acquisition is a business combination or an asset acquisition. An acquisition of a single property will likely be treated as an asset acquisition as opposed to a business combination and acquisition related costs will be capitalized rather than expensed when incurred. Publicly registered, non-listed REITs typically engage in a significant amount of acquisition activity in the early years of their operations, and thus incur significant acquisition related costs, during these initial years. Although other start up entities may engage in significant acquisition activity during their initial years, publicly registered, non-listed REITs are unique in that they typically have a limited timeframe during which they acquire a significant number of properties and thus incur significant acquisition related costs. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Institute for Portfolio Alternatives, or “IPA”, an industry trade group, published a standardized measure known as Modified Funds from Operations, or “MFFO”, which the IPA has promulgated as a supplemental measure for publicly registered non-listed REITs and which may be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that, when compared year-over-year, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
MFFO excludes expensed costs associated with investing activities, some of which are acquisition related costs that affect our operations only in periods in which properties are acquired, and other non-operating items that are included in FFO, such as straight-lining of rents as required by GAAP. By excluding costs that we consider more reflective of acquisition activities and other non-operating items, the use of MFFO provides another measure of our operating performance once our portfolio is stabilized. Because MFFO may be a recognized measure of operating performance within the non-listed REIT industry, MFFO and the adjustments used to calculate it may be useful in order to evaluate our performance against other non-listed REITs. Like FFO, MFFO is not equivalent to our net income or loss as determined under GAAP, as detailed in the table below, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we continue to acquire a significant amount of properties. MFFO should only be used as a measurement of our operating performance while we are acquiring a significant amount of properties because it excludes, among other things, acquisition costs incurred during the periods in which properties were acquired.
We believe our definition of MFFO, a non-GAAP measure, is consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the “Practice Guideline,” issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to straight-line rents and amortization of above and below market lease assets and liabilities, accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.
Our presentation of FFO and MFFO may not be comparable to other similarly titled measures presented by other REITs. We believe that the use of FFO and MFFO provides a more complete understanding of our operating performance to stockholders and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs. Neither FFO nor MFFO is intended to be an alternative to “net income” or to “cash flows from operating activities” as determined by GAAP as a measure of our capacity to pay distributions. Management uses FFO and MFFO to compare our operating performance to that of other REITs and to assess our operating performance.
Our FFO and MFFO for the three months ended March 31, 2024 and 2023 are calculated as follows:
|
|
|
|
Three Months Ended |
|
|||||
|
|
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
(Dollar amounts in thousands) |
|
|||||
|
|
Net loss |
|
$ |
(3,338 |
) |
|
$ |
(5,251 |
) |
Add: |
|
Depreciation and amortization related to investment properties |
|
|
14,559 |
|
|
|
14,912 |
|
|
|
Funds from operations (FFO) |
|
|
11,221 |
|
|
|
9,661 |
|
|
|
|
|
|
|
|
|
|
||
Less: |
|
Amortization of acquired lease intangibles, net |
|
|
5 |
|
|
|
(76 |
) |
|
|
Straight-line income (expense), net |
|
|
(175 |
) |
|
|
133 |
|
|
|
Modified funds from operations (MFFO) |
|
$ |
11,051 |
|
|
$ |
9,718 |
|
28
Subsequent Events
For information related to subsequent events, reference is made to Note 14 – “Subsequent Events” which is included in our March 31, 2024 Notes to Consolidated Financial Statements in Item 1.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
We are exposed to various market risks, including those caused by changes in interest rates and commodity prices. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and commodity prices. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We have entered into, and may continue to enter into, financial instruments to manage and reduce the impact of changes in interest rates. The counterparties are, and are expected to continue to be, major financial institutions.
Interest Rate Risk
We are exposed to interest rate changes primarily as a result of long-term debt and the revolving credit facility used to purchase properties or other real estate assets and to fund capital expenditures.
As of March 31, 2024, we had outstanding debt of $844.9 million, excluding unamortized debt issuance costs, bearing interest rates ranging from 3.70% to 7.33% per annum. The weighted average interest rate was 4.78%, which includes the effect of interest rate swaps. As of March 31, 2024, the weighted average years to maturity for our mortgages and credit facility payable was 2.5 years.
As of March 31, 2024, our fixed-rate debt consisted of secured mortgage financings with a carrying value of $111.9 million and a fair value of $105.8 million. Changes in interest rates do not affect interest expense incurred on our fixed-rate debt until their maturity or earlier repayment, but interest rates do affect the fair value of our fixed rate debt obligations. If market interest rates were to increase by 1% (100 basis points), the fair market value of our fixed-rate debt would decrease by $1.7 million at March 31, 2024. If market interest rates were to decrease by 1% (100 basis points), the fair market value of our fixed-rate debt would increase by $1.7 million at March 31, 2024.
As of March 31, 2024, we had $182 million of debt or 21.5% of our total debt, excluding unamortized debt issuance costs, bearing interest at variable rates with a weighted average interest rate equal to 6.52% per annum. We had additional variable rate debt subject to swap agreements of $551 million, or 65.2% of our total debt, excluding unamortized debt issuance costs, at March 31, 2024.
If interest rates on all debt which bears interest at variable rates as of March 31, 2024 increased by 1% (100 basis points), the increase in interest expense would decrease earnings and cash flows by $1.8 million annually. If interest rates on all debt which bears interest at variable rates as of March 31, 2024 decreased by 1% (100 basis points), the decrease in interest expense would increase earnings and cash flows by the same amount.
With regard to variable rate financing, our management assesses our interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We utilize risk management control systems implemented by our Business Manager to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions.
We use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions are determined in light of the facts and circumstances existing at the time of the hedge. We have used derivative financial instruments, specifically interest rate swap contracts, to hedge against interest rate fluctuations on variable rate debt, which exposes us to both credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us because the counterparty may not perform. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We seek to manage the market risk associated with interest-rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. There is no assurance we will be successful.
29
Derivatives
For information related to derivatives, reference is made to Note 6 – “Debt and Derivative Instruments” which is included in our March 31, 2024 Notes to Consolidated Financial Statements in Item 1.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
We are not a party to, and none of our properties are subject to, any material pending legal proceedings.
Item 1A. Risk Factors
There are no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Repurchases of Securities
Recent Sales of Unregistered Equity Securities
During the quarter covered by this report, we did not sell any equity securities that were not registered under the Securities Act.
Share Repurchase Program
Our board of directors, in its sole discretion, may amend, suspend (in whole or in part), or terminate our SRP. In the event that we amend, suspend or terminate the SRP, however, we will send stockholders notice of the change at least thirty days prior to the change, and we will disclose the change in a report filed with the Securities and Exchange Commission on either Form 8-K, Form 10-Q or Form 10-K, as appropriate. Further, our board reserves the right in its sole discretion, at any time, and from time to time to reject any requests for repurchases.
The table below sets forth the number of shares we repurchased pursuant to our SRP during the three months ended March 31, 2024 (Dollar amounts in thousands except per share amounts):
Period |
Total Shares |
|
|
Total Number |
|
|
Average |
|
|
Amount of Shares Repurchased |
|
|
Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs(2) |
|
|
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
|
||||||
January 2024 |
|
2,238,244 |
|
|
|
106,452 |
|
|
$ |
15.89 |
|
|
$ |
1,691 |
|
|
|
106,452 |
|
|
|
1,701,741 |
|
February 2024 |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,701,741 |
|
March 2024 |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,701,741 |
|
Total |
|
2,238,244 |
|
|
|
106,452 |
|
|
$ |
15.89 |
|
|
$ |
1,691 |
|
|
|
106,452 |
|
|
|
|
|
30
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Trading Arrangements
During the three months ended March 31, 2024, none of the Company’s directors or officers
Item 6. Exhibits
The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto and are incorporated herein by reference.
Exhibit Index
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
INLAND REAL ESTATE INCOME TRUST, INC. |
|
|
|
|
|
|
/s/ Mark E. Zalatoris |
|
By: |
Mark E. Zalatoris |
|
|
President and Chief Executive Officer (principal executive officer) |
|
Date: |
May 8, 2024 |
|
|
|
|
|
/s/ Catherine L. Lynch |
|
By: |
Catherine L. Lynch |
|
|
Chief Financial Officer and Treasurer (principal financial officer) |
|
Date: |
May 8, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32