Maryland | 81-0862795 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
332 S Michigan Avenue, Ninth Floor Chicago, Illinois | 60604 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Part I - Financial Information | ||
Item 1. | Condensed Combined Consolidated Financial Statements (unaudited) | |
Condensed Combined Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 | ||
Condensed Combined Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 | ||
Condensed Combined Consolidated Statements of Equity for the nine months ended September 30, 2016 and 2015 | ||
Condensed Combined Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 | ||
Notes to Condensed Combined Consolidated Financial Statements | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
Part II - Other Information | ||
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
Signatures |
September 30, 2016 | December 31, 2015 | ||||||
(unaudited) | |||||||
Assets | |||||||
Investment properties | |||||||
Land | $ | 121,832 | $ | 153,646 | |||
Building and other improvements | 417,100 | 711,262 | |||||
Construction in progress | 126 | — | |||||
Total | 539,058 | 864,908 | |||||
Less accumulated depreciation | (80,738 | ) | (185,100 | ) | |||
Net investment properties | 458,320 | 679,808 | |||||
Cash and cash equivalents | 34,181 | 26,972 | |||||
Restricted cash and escrows | 3,152 | 3,647 | |||||
Accounts and rents receivable (net of allowance of $363 and $104) | 10,769 | 12,554 | |||||
Intangible assets, net | 7,343 | 12,547 | |||||
Deferred costs and other assets | 4,247 | 3,626 | |||||
Total assets | $ | 518,012 | $ | 739,154 | |||
Liabilities | |||||||
Debt, net | $ | 389,955 | $ | 437,032 | |||
Accounts payable and accrued expenses | 31,138 | 28,298 | |||||
Intangible liabilities, net | 3,931 | 5,074 | |||||
Other liabilities | 2,269 | 1,897 | |||||
Total liabilities | $ | 427,293 | $ | 472,301 | |||
Commitments and contingencies | |||||||
Stockholder’s Equity | |||||||
Preferred stock, $0.01 par value, 50,000,000 shares authorized, zero shares issued and outstanding as of September 30, 2016 | — | — | |||||
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 864,890,967 shares issued and outstanding as of September 30, 2016 | 8,649 | — | |||||
Additional paid in capital | 1,405,504 | 1,534,018 | |||||
Accumulated distributions in excess of net income (loss) | (1,323,434 | ) | (1,267,165 | ) | |||
Total stockholders’ equity | 90,719 | 266,853 | |||||
Total liabilities and equity | $ | 518,012 | $ | 739,154 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenues | |||||||||||||||
Rental income | $ | 17,272 | $ | 23,918 | $ | 62,987 | $ | 72,126 | |||||||
Tenant recovery income | 2,917 | 3,094 | 8,352 | 10,939 | |||||||||||
Other property income | 168 | 381 | 449 | 747 | |||||||||||
Total revenues | $ | 20,357 | $ | 27,393 | $ | 71,788 | $ | 83,812 | |||||||
Expenses | |||||||||||||||
Property operating expenses | 3,023 | 2,000 | 7,124 | 7,728 | |||||||||||
Real estate taxes | 2,886 | 2,525 | 7,149 | 8,156 | |||||||||||
Depreciation and amortization | 6,168 | 9,034 | 21,413 | 27,261 | |||||||||||
General and administrative expenses | 3,508 | 3,075 | 10,590 | 9,212 | |||||||||||
Provision for asset impairment | 18,967 | — | 61,582 | — | |||||||||||
Total expenses | $ | 34,552 | $ | 16,634 | $ | 107,858 | $ | 52,357 | |||||||
Operating (loss) income | $ | (14,195 | ) | $ | 10,759 | $ | (36,070 | ) | $ | 31,455 | |||||
Loss on sale of investment properties | — | (197 | ) | — | (197 | ) | |||||||||
Other loss | — | (1 | ) | (113 | ) | (10 | ) | ||||||||
Interest expense | (7,143 | ) | (7,238 | ) | (19,847 | ) | (21,062 | ) | |||||||
(Loss) income before income taxes | $ | (21,338 | ) | $ | 3,323 | $ | (56,030 | ) | $ | 10,186 | |||||
Income tax expense | (2 | ) | (9 | ) | (239 | ) | (24 | ) | |||||||
Net (loss) income | $ | (21,340 | ) | $ | 3,314 | $ | (56,269 | ) | $ | 10,162 | |||||
Less: Net income attributable to non-controlling interests | — | (8 | ) | — | (16 | ) | |||||||||
Net (loss) income attributable to Company | $ | (21,340 | ) | $ | 3,306 | $ | (56,269 | ) | $ | 10,146 | |||||
Net (loss) income per common share, basic and diluted | $ | (0.02 | ) | $ | 0.00 | $ | (0.07 | ) | $ | 0.01 | |||||
Weighted average number of common shares outstanding, basic and diluted | 864,890,967 | 862,014,421 | 864,515,587 | 862,014,421 |
Common Stock | ||||||||||||||||||||||
Shares | Amount | Additional Paid in Capital | Accumulated Distributions in Excess of Net (Loss) Income | Non- Controlling Interests | Total | |||||||||||||||||
Balance at January 1, 2016 | — | $ | — | $ | 1,534,018 | $ | (1,267,165 | ) | $ | — | $ | 266,853 | ||||||||||
Net loss | — | — | — | (56,269 | ) | — | (56,269 | ) | ||||||||||||||
Issuance of common shares and reduction in carryover basis in connection with separation from InvenTrust | 862,205,672 | 8,622 | (85,205 | ) | — | — | (76,583 | ) | ||||||||||||||
Repurchase of common shares, net | (191,251 | ) | (2 | ) | (67 | ) | — | — | (69 | ) | ||||||||||||
Share-based compensation | 2,876,546 | 29 | 1,253 | — | — | 1,282 | ||||||||||||||||
Distributions to InvenTrust | — | — | (129,853 | ) | — | — | (129,853 | ) | ||||||||||||||
Contributions from InvenTrust | — | — | 85,358 | — | — | 85,358 | ||||||||||||||||
Balance at September 30, 2016 | 864,890,967 | $ | 8,649 | $ | 1,405,504 | $ | (1,323,434 | ) | $ | — | $ | 90,719 | ||||||||||
Common Stock | ||||||||||||||||||||||
Shares | Amount | Additional Paid in Capital | Accumulated Distributions in Excess of Net (Loss) Income | Non- Controlling Interests | Total | |||||||||||||||||
Balance at January 1, 2015 | — | $ | — | $ | 1,593,858 | $ | (1,276,875 | ) | $ | 125 | $ | 317,108 | ||||||||||
Net income | — | — | — | 10,146 | 16 | 10,162 | ||||||||||||||||
Dividends paid | — | (4,620 | ) | — | (4,620 | ) | ||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | (16 | ) | (16 | ) | ||||||||||||||
Distributions to InvenTrust | — | — | (132,459 | ) | — | — | (132,459 | ) | ||||||||||||||
Contributions from InvenTrust | — | — | 93,459 | — | — | 93,459 | ||||||||||||||||
Balance at September 30, 2015 | — | $ | — | $ | 1,554,858 | $ | (1,271,349 | ) | $ | 125 | $ | 283,634 |
Nine months ended September 30, | |||||||
2016 | 2015 | ||||||
Cash flows from operating activities: | |||||||
Net (loss) income | $ | (56,269 | ) | $ | 10,162 | ||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 21,354 | 27,280 | |||||
Amortization of above and below market leases, net | (728 | ) | (312 | ) | |||
Amortization of debt discounts and financing costs | 160 | 166 | |||||
Straight-line rental income | 2,361 | 1,927 | |||||
Loss on sale of investment properties, net | — | 197 | |||||
Provision for asset impairment | 61,582 | — | |||||
Non-cash stock-based compensation expense | 2,319 | — | |||||
Changes in assets and liabilities: | |||||||
Accounts and rents receivable | (933 | ) | (153 | ) | |||
Deferred costs and other assets | (2,676 | ) | 593 | ||||
Accounts payable and accrued expenses | 4,464 | 556 | |||||
Other liabilities | 775 | (214 | ) | ||||
Net cash flows provided by operating activities | $ | 32,409 | $ | 40,202 | |||
Cash flows from investing activities: | |||||||
Capital expenditures and tenant improvements | (548 | ) | (1,985 | ) | |||
Proceeds from sale of investment properties, net | — | 7,860 | |||||
Payment of leasing fees | (624 | ) | (2,021 | ) | |||
Restricted escrows and other assets | 1,941 | (552 | ) | ||||
Net cash flows provided by investing activities | $ | 769 | $ | 3,302 | |||
Cash flows from financing activities: | |||||||
Distributions to InvenTrust | (63,206 | ) | (77,893 | ) | |||
Contributions from InvenTrust | 67,444 | 67,773 | |||||
Payoff of note payable | (15,062 | ) | — | ||||
Principal payments of mortgage debt | (14,192 | ) | (15,464 | ) | |||
Payment of loan fees and deposits | (70 | ) | — | ||||
Dividends paid | — | (4,620 | ) | ||||
Distributions paid to non-controlling interests | — | (16 | ) | ||||
Repurchase of common shares | (69 | ) | — | ||||
Payment for tax withholding for share-based compensation | (814 | ) | — | ||||
Net cash flows used in financing activities | $ | (25,969 | ) | $ | (30,220 | ) | |
Net increase in cash and cash equivalents | 7,209 | 13,284 | |||||
Cash and cash equivalents, at beginning of period | 26,972 | 10,291 | |||||
Cash and cash equivalents, at end of period | $ | 34,181 | $ | 23,575 |
Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest | $ | 15,078 | $ | 23,220 | |||
Supplemental schedule of non-cash investing and financing activities: | |||||||
Change in allocation of InvenTrust unsecured credit facility | $ | (17,914 | ) | $ | (25,686 | ) | |
Distribution of assets and liabilities of four and three assets, respectively, to InvenTrust, net | $ | 66,647 | $ | 54,566 | |||
Reduction in carryover basis in connection with separation from InvenTrust | $ | 76,583 | $ | — |
Property | Date | Gross Disposition Price | Square Feet (unaudited) | |||||||
Citizens Manchester | 7/9/2015 | $ | 8,200 | 148,000 | Square Feet |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
General and administrative expense allocation (a) | $ | — | $ | 2,913 | $ | 3,324 | $ | 8,689 | |||||||
Transition services fees (b) | $ | 33 | $ | — | $ | 84 | $ | — |
(a) | Prior to the Distribution, general and administrative expense includes allocations of costs from certain corporate and shared functions provided to the Company by InvenTrust. InvenTrust allocated to the Company a portion of corporate overhead costs incurred by InvenTrust, which was based upon the Company’s percentage share of the average invested assets of InvenTrust. As InvenTrust managed various asset portfolios, the extent of services and benefits a portfolio received was based on the size of its assets. The Company believes that using average invested assets to allocate costs is a reasonable reflection of the services and other benefits received by the Company and complies with applicable accounting guidance. However, actual costs may have differed from allocated costs if the Company had operated as a standalone entity during such period and those differences may have been material. Subsequent to the Distribution, the Company was not allocated any costs. |
(b) | In connection with the Distribution, the Company entered into the Transition Services Agreement with InvenTrust, under which InvenTrust has agreed to provide certain transition services to the Company, including services related to information technology systems, financial reporting and accounting and legal services. There is a flat monthly fee per service and the total amount paid to InvenTrust will not be greater than approximately $100. The expiration date varies by service provided and the agreement will terminate on the earlier of December 31, 2016 or the termination of the last service provided under it. |
For the year ended December 31, | As of September 30, 2016 | Weighted average interest rate | ||||
2016 | $ | 202,790 | 6.51 | % | ||
2017 | 30,275 | 5.57 | % | |||
2018 | — | — | % | |||
2019 | — | — | % | |||
2020 | — | — | % | |||
Thereafter | 158,737 | 5.57 | % | |||
Total | $ | 391,802 | 6.05 | % |
• | Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. |
• | Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
• | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
Fair Value | ||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Provision for impairment | ||||||||||||||
September 30, 2016 | ||||||||||||||||||
Investment Properties | — | — | $ | 69,654 | (a) | $ | 69,654 | $ | 61,582 |
(a) | Represents the fair values of three net lease assets. The estimated fair value relating to the investment properties’ impairment analysis was based on 10-year discounted cash flow models, which includes contractual inflows and outflows over a specific holding period. The cash flows consist of observable inputs such as contractual revenues and unobservable inputs such as forecasted revenues and expenses. These unobservable inputs are based on market conditions and the Company’s expected growth rates. Capitalization rates were 7.50% and discount rates ranging from 7.50% to 9.50% were utilized in the model and are based upon observable rates that the Company believes to be within a reasonable range of current market rates. |
September 30, 2016 | December 31, 2015 | ||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||
Mortgages payable | $ | 391,802 | $ | 396,905 | $ | 405,994 | $ | 410,888 | |||||||
Unsecured credit facility | — | — | 17,914 | 17,914 | |||||||||||
Note payable | — | — | 15,062 | 15,062 |
Total | Net Lease | Retail | Multi-Tenant Office | Other | |||||||||||||||
Rental income | $ | 17,272 | $ | 12,299 | $ | 4,211 | $ | 762 | $ | — | |||||||||
Tenant recovery income | 2,917 | 904 | 1,936 | 77 | — | ||||||||||||||
Other property income | 168 | 143 | 18 | 1 | 6 | ||||||||||||||
Total income | 20,357 | 13,346 | 6,165 | 840 | 6 | ||||||||||||||
Operating expenses | 5,909 | 1,831 | 2,597 | 1,078 | 403 | ||||||||||||||
Net operating income (loss) | $ | 14,448 | $ | 11,515 | $ | 3,568 | $ | (238 | ) | $ | (397 | ) | |||||||
Non-allocated expenses (a) | (9,676 | ) | |||||||||||||||||
Other income and expenses (b) | (7,145 | ) | |||||||||||||||||
Provision for asset impairment (c) | (18,967 | ) | |||||||||||||||||
Net loss attributable to the Company | $ | (21,340 | ) |
(a) | Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. |
(b) | Other income and expenses consists of other loss, interest expense, and income tax expense. |
(c) | Provision for asset impairment includes $18,967 related to one net lease asset. |
Total | Net Lease | Retail | Multi-Tenant Office | Other | |||||||||||||||
Rental income | $ | 23,918 | $ | 15,294 | $ | 5,928 | $ | 2,696 | $ | — | |||||||||
Tenant recovery income | 3,094 | 865 | 2,030 | 199 | — | ||||||||||||||
Other property income | 381 | 123 | 199 | 57 | 2 | ||||||||||||||
Total income | 27,393 | 16,282 | 8,157 | 2,952 | 2 | ||||||||||||||
Operating expenses | 4,525 | 954 | 2,740 | 711 | 120 | ||||||||||||||
Net operating income (loss) | $ | 22,868 | $ | 15,328 | $ | 5,417 | $ | 2,241 | $ | (118 | ) | ||||||||
Non-allocated expenses (a) | (12,109 | ) | |||||||||||||||||
Other income and expenses (b) | (7,445 | ) | |||||||||||||||||
Net income | $ | 3,314 | |||||||||||||||||
Less: net income attributable to non-controlling interests | (8 | ) | |||||||||||||||||
Net income attributable to Company | $ | 3,306 |
(a) | Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. |
(b) | Other income and expenses consists of loss on sale of investment properties, other loss, interest expense, and income tax expense. |
Total | Net Lease | Retail | Multi-Tenant Office | Other | |||||||||||||||
Rental income | $ | 62,987 | $ | 42,791 | $ | 13,630 | $ | 6,566 | $ | — | |||||||||
Tenant recovery income | 8,352 | 2,452 | 5,466 | 434 | — | ||||||||||||||
Other property income | 449 | 421 | 79 | (75 | ) | 24 | |||||||||||||
Total income | 71,788 | 45,664 | 19,175 | 6,925 | 24 | ||||||||||||||
Operating expenses | 14,273 | 3,770 | 7,022 | 2,732 | 749 | ||||||||||||||
Net operating income (loss) | $ | 57,515 | $ | 41,894 | $ | 12,153 | $ | 4,193 | $ | (725 | ) | ||||||||
Non-allocated expenses (a) | (32,003 | ) | |||||||||||||||||
Other income and expenses (b) | (20,199 | ) | |||||||||||||||||
Provision for asset impairment (c) | (61,582 | ) | |||||||||||||||||
Net loss attributable to the Company | $ | (56,269 | ) | ||||||||||||||||
Balance Sheet Data | |||||||||||||||||||
Real estate assets, net (d) | $ | 465,663 | $ | 185,483 | $ | 155,063 | $ | 93,490 | $ | 31,627 | |||||||||
Non-segmented assets (e) | 52,349 | ||||||||||||||||||
Total assets | 518,012 | ||||||||||||||||||
Capital expenditures | $ | 548 | $ | — | $ | 422 | $ | 126 | $ | — |
(a) | Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. |
(b) | Other income and expenses consists of other loss, interest expense, and income tax expense. |
(c) | Provision for asset impairment includes $61,582 related to three net lease assets. |
(d) | Real estate assets include intangible assets, net of amortization. |
(e) | Non-segmented assets include cash and cash equivalents, restricted cash and escrows, accounts and rents receivable and deferred costs and other assets. |
Total | Net Lease | Retail | Multi-Tenant Office | Other | |||||||||||||||
Rental income | $ | 72,126 | $ | 46,051 | $ | 18,247 | $ | 7,828 | $ | — | |||||||||
Tenant recovery income | 10,939 | 2,754 | 7,599 | 586 | — | ||||||||||||||
Other property income | 747 | 415 | 229 | 89 | 14 | ||||||||||||||
Total income | 83,812 | 49,220 | 26,075 | 8,503 | 14 | ||||||||||||||
Operating expenses | 15,884 | 3,688 | 9,523 | 2,326 | 347 | ||||||||||||||
Net operating income (loss) | $ | 67,928 | $ | 45,532 | $ | 16,552 | $ | 6,177 | $ | (333 | ) | ||||||||
Non-allocated expenses (a) | (36,473 | ) | |||||||||||||||||
Other income and expenses (b) | (21,293 | ) | |||||||||||||||||
Net income | $ | 10,162 | |||||||||||||||||
Less: net income attributable to non-controlling interests | (16 | ) | |||||||||||||||||
Net income attributable to Company | $ | 10,146 |
(a) | Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. |
(b) | Other income and expenses consists of loss on sale of investment properties, other income, interest expense and income tax expense. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Numerator: | |||||||||||||||
Net (loss) income | $ | (21,340 | ) | $ | 3,314 | $ | (56,269 | ) | $ | 10,162 | |||||
Less: Net income attributable to non-controlling interests | — | (8 | ) | — | (16 | ) | |||||||||
Net (loss) income attributable to Company | $ | (21,340 | ) | $ | 3,306 | $ | (56,269 | ) | $ | 10,146 | |||||
Denominator: | |||||||||||||||
Weighted average shares outstanding - basic and diluted | 864,890,967 | 862,014,421 | 864,515,587 | 862,014,421 | |||||||||||
Basic and diluted (loss) income per share: | |||||||||||||||
Net (loss) income per common share | $ | (0.02 | ) | $ | 0.00 | $ | (0.07 | ) | $ | 0.01 |
Non-Vested stock awards | Stock Awards (#) | Weighted Average Grant Date Fair Value | |||||
Balance at January 1, 2016 | — | — | |||||
Granted | 8,055,556 | $ | 0.36 | ||||
Vested | (5,138,889 | ) | 0.36 | ||||
Forfeited | — | — | |||||
Balance at September 30, 2016 | 2,916,667 | $ | — |
As of September 30, | |||||||
2016 | 2015 | ||||||
Economic occupancy (a) | 66.3 | % | 94.4 | % | |||
Rent per square foot (b) | $ | 13.54 | $ | 13.88 |
(a) | Economic occupancy is defined as the percentage of total gross leasable area for which a tenant is obligated to pay rent under the terms of its lease agreement, regardless of the actual use or occupation by the tenant of the area being leased. Actual use may be less than economic square footage. |
(b) | Rent per square foot is computed as annualized rent divided by the total occupied square footage at the end of the period. Annualized rent is computed as revenue for the last month of the period multiplied by twelve months. Annualized rent includes the effect of rent abatements, lease inducements and straight-line rent GAAP adjustments. |
(in thousands) | (in thousands) | ||||||||||||||||||||||
For the Three months ended September 30, | For the Nine months ended September 30, | ||||||||||||||||||||||
2016 | 2015 | Decrease | 2016 | 2015 | Decrease | ||||||||||||||||||
Net (loss) income | $ | (21,340 | ) | $ | 3,314 | $ | (24,654 | ) | $ | (56,269 | ) | $ | 10,162 | $ | (66,431 | ) | |||||||
Net (loss) income attributable to Company | (21,340 | ) | 3,306 | (24,646 | ) | (56,269 | ) | 10,146 | (66,415 | ) |
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||
For the Three months ended September 30, | Increase | For the Nine months ended September 30, | Increase | ||||||||||||||||||||||||||
2016 | 2015 | (Decrease) | Variance | 2016 | 2015 | (Decrease) | Variance | ||||||||||||||||||||||
Income: | |||||||||||||||||||||||||||||
Rental income | $ | 17,272 | $ | 23,918 | $ | (6,646 | ) | (27.8 | )% | $ | 62,987 | $ | 72,126 | $ | (9,139 | ) | (12.7 | )% | |||||||||||
Tenant recovery income | 2,917 | 3,094 | (177 | ) | (5.7 | )% | 8,352 | 10,939 | (2,587 | ) | (23.6 | )% | |||||||||||||||||
Other property income | 168 | 381 | (213 | ) | (55.9 | )% | 449 | 747 | (298 | ) | (39.9 | )% | |||||||||||||||||
Operating Expenses: | |||||||||||||||||||||||||||||
Property operating expenses | 3,023 | 2,000 | 1,023 | 51.2 | % | 7,124 | 7,728 | (604 | ) | (7.8 | )% | ||||||||||||||||||
Real estate taxes | 2,886 | 2,525 | 361 | 14.3 | % | 7,149 | 8,156 | (1,007 | ) | (12.3 | )% | ||||||||||||||||||
Depreciation and amortization | 6,168 | 9,034 | (2,866 | ) | (31.7 | )% | 21,413 | 27,261 | (5,848 | ) | (21.5 | )% | |||||||||||||||||
General and administrative expenses | 3,508 | 3,075 | 433 | 14.1 | % | 10,590 | 9,212 | 1,378 | 15.0 | % | |||||||||||||||||||
Provision for asset impairment | 18,967 | — | 18,967 | — | % | 61,582 | — | 61,582 | — | % |
(in thousands) | (in thousands) | |||||||||||||||||||||||
For the Three months ended September 30, | For the Nine months ended September 30, | Increase | ||||||||||||||||||||||
2016 | 2015 | Decrease | Variance | 2016 | 2015 | (Decrease) | Variance | |||||||||||||||||
Non-operating income and expenses: | ||||||||||||||||||||||||
Loss on sale of investment properties | — | (197 | ) | (197 | ) | 100.0 | % | — | (197 | ) | (197 | ) | 100.0 | % | ||||||||||
Other loss | — | (1 | ) | (1 | ) | 100.0 | % | (113 | ) | (10 | ) | 103 | (1,030.0 | )% | ||||||||||
Interest expense | (7,143 | ) | (7,238 | ) | (95 | ) | 1.3 | % | (19,847 | ) | (21,062 | ) | (1,215 | ) | 5.8 | % |
Lease Expiration Year | Number of Expiring Leases | Gross Leasable Area (GLA) of Expiring Leases (Sq. Ft.) | Annualized Rent of Expiring Leases (in thousands) | Percent of Total GLA | Percent of Total Annualized Rent | Expiring Rent/Square Foot | |||||||||||||
2016 | 5 | 116,872 | $ | 2,111 | 2.5 | % | 3.0 | % | $ | 18.06 | |||||||||
2017 | 16 | 1,715,020 | 22,019 | 37.4 | % | 31.3 | % | 12.84 | |||||||||||
2018 | 16 | 192,406 | 2,342 | 4.2 | % | 3.3 | % | 12.17 | |||||||||||
2019 | 23 | 603,174 | 10,316 | 13.1 | % | 14.7 | % | 17.10 | |||||||||||
2020 | 37 | 533,995 | 13,783 | 11.6 | % | 19.6 | % | 25.81 | |||||||||||
2021 | 31 | 513,454 | 10,619 | 11.2 | % | 15.1 | % | 20.68 | |||||||||||
2022 | 7 | 170,698 | 2,565 | 3.7 | % | 3.7 | % | 15.03 | |||||||||||
2023 | 5 | 49,984 | 1,295 | 1.1 | % | 1.8 | % | 25.91 | |||||||||||
2024 | 2 | 63,200 | 493 | 1.4 | % | 0.7 | % | 7.80 | |||||||||||
2025 | 8 | 41,830 | 592 | 0.9 | % | 0.8 | % | 14.15 | |||||||||||
Month to Month | 3 | 11,700 | 232 | 0.3 | % | 0.3 | % | 19.83 | |||||||||||
Thereafter | 17 | 577,187 | 3,896 | 12.6 | % | 5.5 | % | 6.75 | |||||||||||
170 | 4,589,520 | $ | 70,263 | 100.0 | % | 100.0 | % | $ | 15.31 |
# of Leases | Gross Leasable Area | Rent per square foot | Weighted Average Lease Term | |||||||||
New | 6 | 22,087 | $ | 19.01 | 4.58 | |||||||
Renewals | 15 | 413,086 | $ | 16.39 | 3.24 | |||||||
Total | 21 | 435,173 | $ | 16.52 | 3.31 |
• | to pay the operating expenses of our assets; |
• | to pay our general and administrative expenses; |
• | to make distributions to our stockholders; |
• | to service or pay-down our debt; and |
• | to fund capital expenditures and leasing related costs. |
• | cash flows from our investment assets; |
• | proceeds from sales of assets; and |
• | proceeds from debt. |
Fixed rate mortgage debt maturing during the year ended December 31, | As of September 30, 2016 | Weighted average interest rate, fixed | ||||
2016 | $ | 202,790 | 6.51 | % | ||
2017 | 30,275 | 5.57 | % | |||
2018 | — | — | % | |||
2019 | — | — | % | |||
2020 | — | — | % | |||
Thereafter | 158,737 | 5.57 | % | |||
Total | $ | 391,802 | 6.05 | % |
(in thousands) | |||||||
For the Nine months ended September 30, | |||||||
2016 | 2015 | ||||||
Cash provided by operating activities | $ | 32,409 | $ | 40,202 | |||
Cash provided by investing activities | 769 | 3,302 | |||||
Cash used in financing activities | (25,969 | ) | (30,220 | ) | |||
Increase in cash and cash equivalents | 7,209 | 13,284 | |||||
Cash and cash equivalents, at beginning of period | 26,972 | 10,291 | |||||
Cash and cash equivalents, at end of period | $ | 34,181 | $ | 23,575 |
As of | |||||||
September 30, 2016 | December 31, 2015 | ||||||
Balance Sheet Data: | |||||||
Total assets | $ | 518,012 | $ | 739,154 | |||
Debt, net | 389,955 | 437,032 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||
Operating Data: | ||||||||||||||
Total revenues | $ | 20,357 | $ | 27,393 | $ | 71,788 | $ | 83,812 | ||||||
Net (loss) income | $ | (21,340 | ) | $ | 3,314 | $ | (56,269 | ) | $ | 10,162 | ||||
Net (loss) income attributable to Company | $ | (21,340 | ) | $ | 3,306 | $ | (56,269 | ) | $ | 10,146 | ||||
Supplemental Measures: | ||||||||||||||
Funds from operations (a) | $ | 3,720 | $ | 12,544 | $ | 26,667 | $ | 37,623 | ||||||
Cash Flow Data: | ||||||||||||||
Net cash flows provided by operating activities | $ | 11,010 | $ | 12,772 | $ | 32,409 | $ | 40,202 | ||||||
Net cash flows provided by investing activities | $ | 1,868 | $ | 6,434 | $ | 769 | $ | 3,302 | ||||||
Net cash flows used in financing activities | $ | (3,199 | ) | $ | (14,317 | ) | $ | (25,969 | ) | $ | (30,220 | ) |
(a) | The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trader group, has promulgated a standard known as FFO, or Funds from Operations. As defined by NAREIT, FFO is net income (loss) in accordance with GAAP excluding gains (or losses) resulting from dispositions of properties, plus depreciation and amortization and impairment charges on depreciable property. We have adopted the NAREIT definition in our calculation of FFO as management considers FFO a widely accepted and appropriate measure of performance for REITs. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net (loss) income | $ | (21,340 | ) | $ | 3,314 | $ | (56,269 | ) | $ | 10,162 | |||||
Less: Net income attributable to non-controlling interests | — | (8 | ) | — | (16 | ) | |||||||||
Net (loss) income attributable to Company | $ | (21,340 | ) | $ | 3,306 | $ | (56,269 | ) | $ | 10,146 | |||||
Depreciation and amortization related to investment properties | 6,093 | 9,041 | 21,354 | 27,280 | |||||||||||
Impairment of investment properties | 18,967 | — | 61,582 | — | |||||||||||
Loss on sale of investment properties, net | — | 197 | — | 197 | |||||||||||
Funds from operations | $ | 3,720 | $ | 12,544 | $ | 26,667 | $ | 37,623 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Amortization of mark to market debt discounts and financing costs | $ | 52 | $ | 54 | $ | 160 | $ | 166 |
Date: | November 10, 2016 | By: | /s/ Richard Vance |
Richard Vance | |||
President and Chief Executive Officer (Principal Executive Officer) | |||
Date: | November 10, 2016 | By: | /s/ Joseph Giannini |
Joseph Giannini | |||
Senior Vice President, Principal Accounting Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) | |||
EXHIBIT NO. | DESCRIPTION | |
3.1 | Articles of Amendment and Restatement of Highlands REIT, Inc. (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on April 27, 2016) | |
3.2 | Amended and Restated Bylaws of Highlands REIT, Inc. (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 28, 2016) | |
10.10 | Highlands REIT, Inc. Retention Bonus Plan (incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q, filed with the Securities Exchange Commission on August 12, 2016) | |
10.11 | Change in Control Severance Agreement between Highlands REIT, Inc. and Joseph Giannini, dated as of August 9, 2016 (incorporated by reference to Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q, filed with the Securities Exchange Commission on August 12, 2016) | |
31.1* | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2* | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1* | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2* | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Link Document |
* | Filed as part of this Quarterly Report on Form 10-Q. |
1. | I have reviewed this Quarterly Report on Form 10-Q of Highlands REIT, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(c) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 10, 2016 | /s/ Richard Vance |
Name: Richard Vance | ||
Title: President and Chief Executive Officer (Principal Executive Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Highlands REIT, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(c) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 10, 2016 | /s/ Joseph Giannini |
Name: Joseph Giannini | ||
Title: Senior Vice President, Principal Accounting Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | November 10, 2016 | /s/ Richard Vance |
Name: Richard Vance | ||
Title: President and Chief Executive Officer (Principal Executive Officer) |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | November 10, 2016 | /s/ Joseph Giannini |
Name: Joseph Giannini | ||
Title: Senior Vice President, Principal Accounting Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
Document and Entity Information |
9 Months Ended |
---|---|
Sep. 30, 2016
shares
| |
Document and Entity Information [Abstract] | |
Entity Registrant Name | Highlands REIT, Inc. |
Entity Central Index Key | 0001661458 |
Document Type | 10-Q |
Document Period End Date | Sep. 30, 2016 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Non-accelerated Filer |
Entity Common Stock, Shares Outstanding | 864,890,967 |
Document Fiscal Year Focus | 2016 |
Document Fiscal Period Focus | Q3 |
Condensed Combined Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for accounts and rent receivables | $ 363 | $ 104 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0 |
Common Stock, Shares Authorized | 1,000,000,000 | 0 |
Common Stock, Shares Issued | 864,890,967 | 0 |
Common Stock, Shares Outstanding | 864,890,967 | 0 |
Preferred Stock, par value (in dollars per share) | $ 0.01 | |
Preferred Stock, Shares Authorized | 50,000,000 | |
Preferred Stock, Shares Issued | 0 | |
Preferred Stock, Shares Outstanding | 0 |
Condensed Combined Consolidated Statements of Operations - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Revenues | ||||
Rental income | $ 17,272 | $ 23,918 | $ 62,987 | $ 72,126 |
Tenant recovery income | 2,917 | 3,094 | 8,352 | 10,939 |
Other property income | 168 | 381 | 449 | 747 |
Total revenues | 20,357 | 27,393 | 71,788 | 83,812 |
Expenses | ||||
Property operating expenses | 3,023 | 2,000 | 7,124 | 7,728 |
Real estate taxes | 2,886 | 2,525 | 7,149 | 8,156 |
Depreciation and amortization | 6,168 | 9,034 | 21,413 | 27,261 |
General and administrative expenses | 3,508 | 3,075 | 10,590 | 9,212 |
Provision for asset impairment | 18,967 | 0 | 61,582 | 0 |
Total expenses | 34,552 | 16,634 | 107,858 | 52,357 |
Operating (loss) income | (14,195) | 10,759 | (36,070) | 31,455 |
Loss on sale of investment properties, net | 0 | (197) | 0 | (197) |
Other loss | 0 | (1) | (113) | (10) |
Interest expense | (7,143) | (7,238) | (19,847) | (21,062) |
(Loss) income before income taxes | (21,338) | 3,323 | (56,030) | 10,186 |
Income tax expense | (2) | (9) | (239) | (24) |
Net (loss) income | (21,340) | 3,314 | (56,269) | 10,162 |
Less: Net income attributable to non-controlling interests | 0 | (8) | 0 | (16) |
Net (loss) income attributable to Company | $ (21,340) | $ 3,306 | $ (56,269) | $ 10,146 |
Net (loss) income per share (in dollars per share) | $ (0.02) | $ 0.00 | $ (0.07) | $ 0.01 |
Weighted average shares outstanding - Basic and Diluted (in shares) | 864,890,967 | 862,014,421 | 864,515,587 | 862,014,421 |
Condensed Combined Consolidated Statements of Cash Flow - Supplemental - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | $ 15,078 | $ 23,220 |
Supplemental schedule of non-cash investing and financing activities: | ||
Change in allocation of InvenTrust unsecured credit facility | (17,914) | (25,686) |
Distribution of assets and liabilities of four and three assets, respectively, to InvenTrust, net | 66,647 | 54,566 |
Reduction in Basis of Real Estate Investment Properties | $ 76,583 | $ 0 |
Condensed Combined Consolidated Statements of Cash Flow - Parenthetical - property |
Feb. 19, 2016 |
Jan. 28, 2015 |
---|---|---|
Disposal Group, Disposed of by Means Other than Sale, Not Discontinued Operations, Spinoff | ||
Number of retail assets distributed (in property) | 4 | 3 |
Organization |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | Organization Highlands REIT, Inc. ("Highlands") is a Maryland corporation with a portfolio of single- and multi-tenant office assets, industrial assets, retail assets, correctional facilities, unimproved land and a bank branch. Prior to April 28, 2016, Highlands was a wholly owned subsidiary of InvenTrust Properties Corp. ("InvenTrust" and formerly known as Inland American Real Estate Trust, Inc.), its former parent. On April 28, 2016, Highlands was spun-off from InvenTrust through a pro rata distribution by InvenTrust of 100% of the outstanding shares of common stock, $0.01 par value per share (the "Common Stock"), of Highlands to holders of record of InvenTrust's common stock as of the close of business on April 25, 2016 (the "Record Date"). Each holder of record of InvenTrust's common stock received one share of Common Stock for every one share of InvenTrust's common stock held at the close of business on the Record Date (the "Distribution"). As a result, Highlands became an independent, self-advised, non-traded public company. Highlands intends to be taxed as, and operate in a manner that will allow it to qualify as, a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code") for U.S. federal income tax purposes commencing with Highlands' short taxable year ending December 31, 2016. In connection with the Distribution, Highlands entered into a Separation and Distribution Agreement, Transition Services Agreement and Employee Matters Agreement with InvenTrust. Refer to Notes 4 and 11 for more details. Prior to the Distribution, Highlands had not conducted any business as a separate company and had no material assets or liabilities. The operations transferred to Highlands by InvenTrust are presented as if the transferred business was Highlands’ business for all historical periods presented in the accompanying condensed combined consolidated financial statements and at the carrying value of such assets and liabilities reflected in InvenTrust’s books and records. Upon the Distribution, Highlands recorded the assets acquired and liabilities assumed based on InvenTrust's basis as of the date of the Distribution. Accordingly, Highlands recorded a reduction in the basis of investment properties of $76,583. The reduction in basis was related to an impairment loss that InvenTrust recorded upon the disposal of Highlands as part of the Distribution. The accompanying condensed combined consolidated financial statements include the accounts of Highlands and its predecessors, as well as all of Highlands' wholly owned subsidiaries (collectively, the “Company”). Wholly owned subsidiaries generally consist of limited liability companies (LLCs) and limited partnerships (LPs). The effects of all significant intercompany transactions have been eliminated. Each asset is owned by a separate legal entity, which maintains its own books and financial records, and each entity’s assets are not available to satisfy the liabilities of other affiliated entities, except as otherwise disclosed in Note 5. As of September 30, 2016, the Company owned 18 assets and four parcels of unimproved land, for which the operating activity is reflected on the condensed combined consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015. As of December 31, 2015, the Company owned 22 assets and four parcels of land. |
Summary of Significant Accounting Policies |
9 Months Ended |
---|---|
Sep. 30, 2016 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies The accompanying condensed combined consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“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 condensed combined consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Refer to the Company’s audited combined consolidated financial statements for the year ended December 31, 2015 included in the Company's Registration Statement on Form 10-12G, as amended, filed with the U.S. Securities and Exchange Commission on April 13, 2016 (the "Registration Statement"), as certain note disclosures contained in such audited financial statements have been omitted from these interim condensed combined consolidated financial statements. Basis of Presentation As described in Note 1, on April 28, 2016, Highlands was spun off from InvenTrust. Prior to the Distribution, the accompanying historical condensed combined consolidated financial statements did not represent the financial position and results of a single legal entity, but rather a combination of entities under common control that had been “carved out” of InvenTrust’s consolidated financial statements and reflected significant assumptions and allocations. The condensed combined consolidated financial statements reflect the operations of certain assets and liabilities that had been historically held by InvenTrust, but which were specifically identifiable or attributable to the Company. Prior to the Distribution, the accompanying condensed combined consolidated financial statements included allocations of costs from certain corporate and shared functions provided to the Company by InvenTrust. InvenTrust allocated to the Company a portion of corporate overhead costs incurred by InvenTrust based upon the Company’s percentage share of the average invested assets of InvenTrust, which is reflected in general and administrative expense. As InvenTrust managed various asset portfolios, the extent of services and benefits a portfolio received was based on the size of its assets. Therefore, using average invested assets to allocate costs was a reasonable reflection of the services and other benefits received by the Company and complied with applicable accounting guidance. InvenTrust also allocated to the Company a portion of InvenTrust’s unsecured credit facility and the related interest expense. The unsecured credit facility was subject to a borrowing base consisting of a pool of unencumbered assets. To the extent the Company’s assets were included within the pool of unencumbered assets, the Company was allocated a portion of the unsecured credit facility. However, actual costs may have differed from allocated costs if the Company had operated as a standalone entity during such period and those differences may have been material. Prior to the Distribution, the condensed combined consolidated financial statements included transactions in which ordinary course cash transactions were processed by InvenTrust due to InvenTrust’s centralized cash management process on behalf of the Company, such as the repayment of debt, rental receipts and payables in the ordinary course of business, resulting in intercompany transactions between the Company and InvenTrust. These ordinary course intercompany transactions are considered to be effectively settled at the time of the Company’s separation from InvenTrust. Accordingly, these transactions are reflected as distributions to and contributions from InvenTrust in the condensed combined consolidated statements of cash flow as a financing activity. For the period subsequent to the spin-off from InvenTrust, the condensed consolidated financial statements reflect the Company's financial position, results of operations and cash flows in conformity with GAAP. Share Based Compensation In accordance with FASB ASC Topic 718, Accounting for Share Based Compensation, companies are required to recognize in the income statement the grant-date fair value of stock options and other equity based compensation issued to employees. Under Topic 718, the way an award is classified will affect the measurement of compensation cost. Equity classified awards are measured at grant date fair value, and amortized on a straight-line basis over the vesting period of the stock and are not subsequently re-measured. The cost of the share based payments that are fully vested at the grant date are measured and recognized at that date. Liability classified awards are measured at the grant date and are subsequently re-measured at the end of each period. The fair value of the stock awards for the purposes of recognizing stock-based compensation expense is based on the estimated fair value per share of Highlands’ Common Stock as determined by the Highlands' board of directors on the grant date. Earnings Per Share Basic earnings per share (“EPS”) is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period plus any additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Any anti-dilutive securities are excluded from the diluted earnings per-share calculation. Recently Issued Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective, although it will not affect the accounting for rental related revenues. In April 2015, the FASB approved an amendment to the ASU, deferring the effective date one year to annual reporting periods beginning after December 15, 2017 for public entities. The standard permits the use of either the retrospective or cumulative effect transition method. Early adoption is prohibited. The Company is evaluating the effect that ASU No. 2014-09 will have on its condensed combined consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. In February 2016, the FASB issued ASU 2016-02, Leases, amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted as of the standard’s issuance date. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company does not expect that its adoption will have a material effect on its condensed combined consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing diversity in practice. The cash flow issues include debt prepayment or debt extinguishment costs and proceeds from the settlement of insurance claims. The ASU is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We are currently evaluating the impact the new standard may have on our condensed combined consolidated financial statements. Recently Adopted Accounting Pronouncements In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. The Company adopted ASU 2015-03 effective as of January 1, 2016 with retrospective application to the Company's December 31, 2015 combined consolidated balance sheet. The effect of the adoption of ASU 2015-03 was to reclassify debt issuance costs of approximately $1,938 as of December 31, 2015 from deferred costs and other assets in the condensed combined consolidated balance sheets to a contra account as a deduction from debt in the condensed combined consolidated balance sheets. In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Accounting, which requires that all excess tax benefits and tax deficiencies related to stock based compensation arrangements must be recognized in the income statement as they occur as opposed to the current guidance where excess tax benefits are recorded in equity. ASU 2016-09 also allows entities to make an accounting policy election to either continue to estimate forfeitures on stock based compensation arrangements or to account for forfeitures as they occur. ASU 2016-09 also allows an employer with statutory income tax withholding obligations to withhold shares with a fair value up to the amount of tax owed using the maximum statutory tax rate in the employee’s applicable jurisdiction. The Company adopted ASU 2016-09 effective as of April 1, 2016. |
Disposed Assets |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||
Disposed Assets | Disposed Assets During the three and nine months ended September 30, 2016, the Company did not sell any assets. On February 19, 2016, the Company distributed the assets and liabilities associated with four retail assets to InvenTrust. The distribution was recorded at carrying value due to common control, and the Company did not realize any gain or loss on disposal. The distribution is reflected as a non-cash distribution in the condensed combined consolidated statements of cash flow for the nine months ended September 30, 2016. The Company sold one net lease asset during the nine months ended September 30, 2015 for an aggregate gross disposition price of $8,200. The table below reflects sales activity for the nine months ended September 30, 2015 for the one asset included in continuing operations on the condensed combined consolidated statements of operations.
On January 28, 2015, the Company distributed the assets and liabilities associated with three retail assets to InvenTrust. The distribution was recorded at carrying value due to common control, and the Company did not realize any gain or loss on disposal. The distribution is reflected as a non-cash distribution in the condensed combined consolidated statements of cash flow for the nine months ended September 30, 2015. There were no assets that qualified as discontinued operations during the nine months ended September 30, 2015 and 2016. All asset dispositions and asset distributions to Inventrust are included as a component of income from continuing operations. |
Transactions with Related Parties |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with Related Parties | Transactions with Related Parties The following table summarizes the Company’s related party transactions for the three and nine months ended September 30, 2016 and 2015.
As of December 31, 2015, the Company was allocated a portion of InvenTrust's unsecured credit facility of $17,914. Subsequent to the Distribution, the Company is no longer allocated any portion of Inventrust's debt. In addition, as of September 30, 2016 and December 31, 2015, the Company had a note payable with InvenTrust of $0 and $15,062, respectively. Refer to Note 5 for additional detail. |
Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | Debt Mortgages Payable Mortgage loans outstanding as of September 30, 2016 and December 31, 2015 were $391,802 and $405,994, respectively, and had a weighted average interest rate of 6.05% and 6.09% per annum, respectively. Deferred financing costs, net, as of September 30, 2016 and December 31, 2015 were $1,847 and $1,938, respectively. As of September 30, 2016, scheduled maturities for the Company’s outstanding mortgage indebtedness had various due dates through May 2037, as follows:
The amount maturing in 2016 represents four mortgage loans, two of which relate to retail assets and mature in December 2016, the third relates to our Dulles Executive Plaza asset, and the fourth relates to the AT&T-Hoffman Estates asset. The Company's ability to pay off mortgages when they become due is dependent upon the Company's ability either to refinance the related mortgage debt or to sell the related asset. With respect to each loan, if the applicable wholly owned property-owning subsidiary is unable to refinance or sell the related asset, or in the event that the estimated asset value is less than the mortgage balance, the applicable wholly owned property-owning subsidiary may, if appropriate, satisfy a mortgage obligation by transferring title of the asset to the lender or permitting a lender to foreclose. As of September 30, 2016 and December 31, 2015, no debt is recourse to the Company, although Highlands or its subsidiaries may act as guarantor under customary, non-recourse carveout clauses in our wholly owned property-owning subsidiaries' mortgage loans. Some of the mortgage loans require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations. As of September 30, 2016 and December 31, 2015, other than otherwise disclosed in this Note 5, the company is in compliance with such covenants in all material respects. As of September 30, 2016, the mortgage loan on the AT&T-Cleveland asset is in “hyper-amortization,” and, as a result, all net operating income from this asset, less management operating expenses, is used to pay down the principal amount of the loan. Net cash generated is not available for general use of the Company and is classified as restricted. The loan on the Company's Dulles Executive Plaza asset matured on September 1, 2016. On August 23, 2016, we received notice from the special servicer that loan went into maturity default. The Company is having further discussions with the special servicer regarding the future of the asset. In addition, all rental payments, less certain expenses, for Dulles Executive Plaza are currently being “swept” and held by the lender pursuant to the loan agreement; as a result, net cash generated is not available for general use of the Company and is classified as restricted. For Sherman Plaza, all rental payments are being “swept” and held by the lender; however, the lender remits excess cash to the Company for its general use after the debt service payment has been paid. On October 1, 2016, the Company's AT&T-St. Louis property went into "cash trap." All income from the asset is being "swept" by the lender, used to pay debt service and other charges, and to the extent income exceeds such charges the Company receives a lender-approved reimbursement for operating expenses associated with the property. Additional funds, if any, are held by the lender as additional collateral for the loan. On June 29, 2016, the Company received notice that the loan in respect of the AT&T-Hoffman Estates asset had been transferred to the special servicer, C-III Asset Management, LLC. On August 9, 2016, the Company received written notice from the lender that an event of default has occurred under the loan agreement relating to the AT&T-Hoffman Estates asset for failure to pay required installments of principal and interest, and that, as a result, the entire loan amount is now due and payable. On August 19, 2016, C-III Asset Management LLC filed a foreclosure complaint in respect of AT&T-Hoffman Estates in the Circuit Court of Cook County, Illinois. On September 12, 2016, the Circuit Court entered an order appointing a receiver to manage the property during the pendency of the foreclosure proceedings. As of September 30, 2016, AT&T-Hoffman Estates is unoccupied. The Company intends to satisfy its mortgage obligations for AT&T-Hoffman Estates of $113,810 by permitting the lender to foreclose on the property, which would result in a gain on the extinguishment of debt. In January 2015, the assets and liabilities associated with three retail assets were distributed to InvenTrust. Two of these assets were encumbered by a mortgage. As part of the distribution of these assets to InvenTrust, the mortgage payables of $19,893 were also distributed at carrying value due to common control. Unsecured credit facility On November 5, 2015, InvenTrust entered into a term loan credit agreement for a $300,000 unsecured credit facility. The term loan credit facility consists of two tranches: a five-year tranche maturing on January 15, 2021, and a seven-year tranche maturing on November 5, 2022. Based upon InvenTrust's total leverage ratio at December 31, 2015, the five-year tranche bears an interest rate of LIBOR plus 1.30% and the seven-year tranche bears an interest rate of LIBOR plus 1.60%. The term loan credit facility is subject to a borrowing base consisting of a pool of unencumbered assets. To the extent the Company’s assets were included within the pool of unencumbered assets, the Company was allocated a portion of the unsecured credit facility. As of the Distribution, the Company no longer has an allocated portion of the unsecured credit facility; therefore, as of September 30, 2016, the Company’s allocated portion of the term loan was $0. As of December 31, 2015, the Company’s allocated portion of the term loan was $17,914 and the interest rate was 1.59%. On February 3, 2015, InvenTrust entered into an amended and restated credit agreement for a $300,000 unsecured revolving line of credit, which matures on February 2, 2019. The unsecured revolving line of credit bears interest at a rate equal to LIBOR plus 1.40% and requires the maintenance of certain financial covenants. The unsecured credit facility is subject to a borrowing base consisting of a pool of unencumbered assets. To the extent the Company’s assets were included within the pool of unencumbered assets, the Company was allocated its proportionate share of the revolving line of credit. As of December 31, 2015, the Company’s allocated portion of the revolving line of credit was $0. As of the Distribution, the Company no longer has an allocated portion of the unsecured credit facility. Note Payable On May 1, 2014, the Company entered into a note payable in the amount of $32,908 with InvenTrust, which matured on demand. The note payable was non-amortizing with an interest rate of 8.50%. Such interest was payable on demand or, until such time as demand was made, monthly in arrears, beginning on June 1, 2014 and continuing on the first day of each month thereafter until the note had been paid in full. On March 25, 2016, the outstanding principal balance of $15,062 and accrued interest of $89 was repaid in full. As of December 31, 2015, the balance of this note payable was $15,062. |
Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements In accordance with ASC 820, Fair Value Measurement and Disclosures, the Company defines fair value based on the price that 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 uses 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:
The Company has estimated fair value using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that would be realized upon disposition. Non-Recurring Measurements During the three and nine months ended September 30, 2016, the Company identified certain assets which may have a reduction in the expected holding period, or a major tenant moving out or not renewing an expiring lease, which represented an impairment trigger, and recorded an impairment of investment properties of $18,967 on one net lease asset and $61,582 on three net lease assets, respectively. The following table presents these assets measured at fair value on a nonrecurring basis for the nine months ended September 30, 2016 aggregated by the level within the fair value hierarchy in which those measurements fall. Methods and assumptions used to estimate the fair value of these assets are described after the table.
The Company did not have any assets measured at fair value on a nonrecurring basis as of December 31, 2015. During the three and nine months ended September 30, 2015, the Company recognized no provision for asset impairment. Financial Instruments Not Measured at Fair Value The table below represents the fair value of financial instruments presented at carrying values in the condensed combined consolidated financial statements as of September 30, 2016 and as of December 31, 2015.
The Company estimates the fair value of its debt instruments using a weighted average market effective interest rate of 4.68% and 4.52% per annum as of September 30, 2016 and December 31, 2015. The Company estimates the fair value of its mortgages payable by discounting the anticipated future cash flows of each instrument at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are based on credit spreads observed in the marketplace during the quarter for similar debt instruments, and a floor rate that the Company has derived using its subjective judgment for each asset segment. Based on this, the Company determines the appropriate rate for each of its individual mortgages payable based upon the specific terms of the agreement, including the term to maturity, the quality and nature of the underlying property and its leverage ratio. The weighted average market effective interest rates used range from 4.10% to 5.58% and 3.99% to 4.99% as of September 30, 2016 and December 31, 2015, respectively. The fair value estimate of the unsecured credit facility approximated the carrying value due to limited market volatility in pricing. The assumptions reflect the terms currently available on similar borrowing terms to borrowers with credit profiles similar to the Company’s. The Company has determined that its debt instrument valuations are classified in Level 2 of the fair value hierarchy. |
Income Taxes |
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Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes The Company intends to be taxed as, and operate in a manner that will allow the Company to qualify as a REIT for U.S. federal income tax purposes beginning with the Company’s short taxable year commencing immediately prior to the Company’s separation from InvenTrust and ending on December 31, 2016. So long as it qualifies as a REIT, the Company generally will not be subject to federal income tax on taxable income that is distributed currently to stockholders. A REIT is subject to a number of organizational and operational requirements including a requirement that it currently distribute at least 90% of its REIT taxable income (excluding capital gains) to its stockholders each year. If the Company fails to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will be subject to federal and state income tax on its taxable income at regular corporate tax rates and would not be able to re-elect REIT status during the four years following the year of the failure. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and federal income and excise taxes on its undistributed income. Prior to the Distribution, the Company was a qualified REIT subsidiary (“QRS”) of InvenTrust, which had elected to be taxed as a REIT and had operated in a manner intended to qualify as a REIT under the Code. As a QRS, the Company was disregarded as a separate entity from InvenTrust for U.S. federal income tax purposes. All assets, liabilities and items of income, deduction and credit of the Company were treated for federal income tax purposes as those of InvenTrust. The Company’s subsidiary, MB REIT (Florida), Inc. (“MB REIT”), previously elected and operated so as to qualify to be taxed as a REIT under the Code. On December 15, 2015, MB REIT redeemed all of the outstanding shares of its Series B Preferred Stock and became a wholly owned subsidiary of InvenTrust. At that time, MB REIT became a QRS of InvenTrust and ceased to be treated as a separate REIT for U.S. federal income tax purposes. As a result of certain pre-Distribution reorganization transactions, following the Distribution, MB REIT is currently disregarded as a separate entity from the Company for federal income tax purposes and is a QRS of the Company. All assets, liabilities and items of income, deduction and credit of MB REIT are treated for federal income tax purposes as those of the Company. During the three months ended September 30, 2016 and 2015, an income tax expense of $2 and $9, respectively, was included on the condensed combined consolidated statements of operations. During the nine months ended September 30, 2016 and 2015, an income tax expense of $239 and $24, respectively, was included on the condensed combined consolidated statements of operations. |
Segment Reporting |
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Segment Reporting | Segment Reporting The Company currently has three business segments, consisting of (i) Net Lease, (ii) Retail and (iii) Multi-Tenant Office. The net lease segment consists of single-tenant office and industrial assets, as well as the Company’s correctional facilities. The Company’s unimproved land is presented in Other. For the nine months ended September 30, 2016, approximately 45% of the Company’s revenue from continuing operations was generated by three net lease assets leased to AT&T, Inc. As a result of the concentration of revenue generated from these assets, if AT&T, Inc. were to cease paying rent or fulfilling its other monetary obligations, the Company would have significantly reduced revenues and/or higher expenses until the defaults were cured or the assets were leased to a new tenant or tenants, if at all. Approximately 21% of the Company’s revenue from continuing operations for the nine months ended September 30, 2016 was generated by the Company’s AT&T-Hoffman Estates asset. The term of the lease on the AT&T-Hoffman Estates asset expired on August 15, 2016 and the asset is no longer generating revenue for the Company. As of September 30, 2016, the asset is unoccupied. Approximately 17% of the Company’s revenue from continuing operations for the nine months ended September 30, 2016 was generated by the Company’s AT&T-St. Louis asset. The term of the lease on the AT&T-St. Louis asset is scheduled to expire on September 30, 2017 and the Company did not receive notice that the tenant intends to renew the lease during the contractual renewal period, which expired September 1, 2016. The following table summarizes net property operations income by segment for the three months ended September 30, 2016.
The following table summarizes net property operations income by segment for the three months ended September 30, 2015.
The following table summarizes net property operations income by segment for the nine months ended September 30, 2016.
The following table summarizes net property operations income by segment for the nine months ended September 30, 2015.
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Earnings Per Share | Earnings Per Share Basic earnings per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period, plus any additional common shares that would have been outstanding if the dilutive potential common shares had been issued. For periods prior to the Distribution, basic and diluted earnings per share was calculated by dividing net income attributable to the Company by the 862.0 million shares of Common Stock outstanding upon the completion of the Distribution. The following table reconciles net (loss) income attributable to the Company to basic and diluted EPS (in thousands, except share and per share data):
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Share Based Compensation |
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share Based Compensation | Share Based Compensation Incentive Award Plan On April 28, 2016, the board of directors adopted, ratified and approved the Highlands REIT, Inc. 2016 Incentive Award Plan (the "Incentive Award Plan"), under which the Company may grant cash and equity-based incentive awards to eligible employees, directors, and consultants. Prior to the Company’s spin-off from InvenTrust, the board of directors of the Company (then a wholly owned subsidiary of InvenTrust) adopted, and InvenTrust, as the sole stockholder of Highlands, approved, the Incentive Awards Plan. To date, the Company has granted 5,138,889 shares of fully vested stock awards. Additionally, pursuant to employment agreements with certain of its executive officers, the Company has granted shares with an aggregate value of $1.1 million that will fully vest on March 15, 2017, subject to applicable executives continued employment with the Company through the vest date. Under the Incentive Award Plan, the Company is authorized to grant up to 43,000,000 shares of the Company's common stock pursuant to awards under the plan. At September 30, 2016, 34,944,444 shares were available for future issuance under the Incentive Award Plan. A summary of the Company's stock awards activity as of September 30, 2016 is as follows:
For the three and nine months ended September 30, 2016, the Company recognized stock-based compensation expense of $469 and $2,319 related to the Incentive Award Plan, respectively. At September 30, 2016, there was approximately $581 of total unrecognized compensation expense related to these awards; that cost is expected to be recognized through March 15, 2017. No stock-based compensation expense was recognized for the three and nine months ended September 30, 2015. For the three and nine months ended September 30, 2016, the Company paid $814 related to tax withholding for share-based compensation. |
Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies The Company is 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 financial statements of the Company. In addition, in connection with the Company’s separation from InvenTrust, on April 14, 2016, the Company entered into a Separation and Distribution Agreement, and on April 28, 2016, the Company entered into a Transition Services Agreement and Employee Matters Agreement, each with InvenTrust. Pursuant to the Separation and Distribution Agreement, Highlands has agreed to indemnify, defend and hold harmless InvenTrust and its affiliates and each of their respective current or former stockholders, directors, officers, agents and employees and their respective heirs, executors, administrators, successors and assigns from and against all liabilities relating to, arising out of or resulting from (i) the liabilities assumed by Highlands in the Separation and Distribution Agreement, Transition Services Agreement and Employee Matters Agreement, (ii) any breach by Highlands or any of its subsidiaries of the Separation and Distribution Agreement, Transition Services Agreement and Employee Matters Agreement (iii) losses arising from third party claims relating to the separation and distribution and (iv) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in the Registration Statement, other than specified information relating to and provided by InvenTrust (the “Specified InvenTrust Information”). Similarly, InvenTrust has agreed to indemnify, defend and hold harmless Highlands and its affiliates and each of their respective current or former stockholders, directors, officers, agents and employees and their respective heirs, executors, administrators, successors and assigns from and against all liabilities relating to, arising out of or resulting from (i) the liabilities assumed by InvenTrust in the Separation and Distribution Agreement, Transition Services Agreement and Employee Matters Agreement, (ii) any breach by InvenTrust or any of its subsidiaries of the Separation and Distribution Agreement, Transition Services Agreement and Employee Matters Agreement and (iii) the Specified InvenTrust Information. InvenTrust and Highlands will not be deemed to be affiliates of the other for purposes of determining the above described indemnification obligations. Highlands has also agreed to indemnify InvenTrust against all taxes related to the Company, its subsidiaries and its assets, including taxes attributable to periods prior to the separation and distribution. InvenTrust has agreed to indemnify the Company for any taxes attributable to InvenTrust’s or MB REIT’s failure to qualify as a REIT for any taxable year ending on or before December 31, 2016. |
Subsequent Events |
9 Months Ended |
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Sep. 30, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events On November 4, 2016, the Company completed a $10,500 refinancing of a retail asset. The loan matures in November 2026, has a fixed rate of 4.35%, is interest only for the first year and amortizes based on a 30-year schedule beginning on November 4, 2017. The property was previously encumbered by a $9,071 mortgage with an interest rate of 5.99% maturing in December, 2016, which the company paid off in November of 2016. . |
Summary of Significant Accounting Policies (Policies) |
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Sep. 30, 2016 | |
Accounting Policies [Abstract] | |
Basis of Presentation | The accompanying condensed combined consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“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 condensed combined consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Refer to the Company’s audited combined consolidated financial statements for the year ended December 31, 2015 included in the Company's Registration Statement on Form 10-12G, as amended, filed with the U.S. Securities and Exchange Commission on April 13, 2016 (the "Registration Statement"), as certain note disclosures contained in such audited financial statements have been omitted from these interim condensed combined consolidated financial statements. Basis of Presentation As described in Note 1, on April 28, 2016, Highlands was spun off from InvenTrust. Prior to the Distribution, the accompanying historical condensed combined consolidated financial statements did not represent the financial position and results of a single legal entity, but rather a combination of entities under common control that had been “carved out” of InvenTrust’s consolidated financial statements and reflected significant assumptions and allocations. The condensed combined consolidated financial statements reflect the operations of certain assets and liabilities that had been historically held by InvenTrust, but which were specifically identifiable or attributable to the Company. Prior to the Distribution, the accompanying condensed combined consolidated financial statements included allocations of costs from certain corporate and shared functions provided to the Company by InvenTrust. InvenTrust allocated to the Company a portion of corporate overhead costs incurred by InvenTrust based upon the Company’s percentage share of the average invested assets of InvenTrust, which is reflected in general and administrative expense. As InvenTrust managed various asset portfolios, the extent of services and benefits a portfolio received was based on the size of its assets. Therefore, using average invested assets to allocate costs was a reasonable reflection of the services and other benefits received by the Company and complied with applicable accounting guidance. InvenTrust also allocated to the Company a portion of InvenTrust’s unsecured credit facility and the related interest expense. The unsecured credit facility was subject to a borrowing base consisting of a pool of unencumbered assets. To the extent the Company’s assets were included within the pool of unencumbered assets, the Company was allocated a portion of the unsecured credit facility. However, actual costs may have differed from allocated costs if the Company had operated as a standalone entity during such period and those differences may have been material. Prior to the Distribution, the condensed combined consolidated financial statements included transactions in which ordinary course cash transactions were processed by InvenTrust due to InvenTrust’s centralized cash management process on behalf of the Company, such as the repayment of debt, rental receipts and payables in the ordinary course of business, resulting in intercompany transactions between the Company and InvenTrust. These ordinary course intercompany transactions are considered to be effectively settled at the time of the Company’s separation from InvenTrust. Accordingly, these transactions are reflected as distributions to and contributions from InvenTrust in the condensed combined consolidated statements of cash flow as a financing activity. For the period subsequent to the spin-off from InvenTrust, the condensed consolidated financial statements reflect the Company's financial position, results of operations and cash flows in conformity with GAAP. |
Share Based Compensation | Share Based Compensation In accordance with FASB ASC Topic 718, Accounting for Share Based Compensation, companies are required to recognize in the income statement the grant-date fair value of stock options and other equity based compensation issued to employees. Under Topic 718, the way an award is classified will affect the measurement of compensation cost. Equity classified awards are measured at grant date fair value, and amortized on a straight-line basis over the vesting period of the stock and are not subsequently re-measured. The cost of the share based payments that are fully vested at the grant date are measured and recognized at that date. Liability classified awards are measured at the grant date and are subsequently re-measured at the end of each period. The fair value of the stock awards for the purposes of recognizing stock-based compensation expense is based on the estimated fair value per share of Highlands’ Common Stock as determined by the Highlands' board of directors on the grant date. |
Earnings Per Share | Earnings Per Share Basic earnings per share (“EPS”) is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period plus any additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Any anti-dilutive securities are excluded from the diluted earnings per-share calculation. |
Recently Issued Accounting Pronouncements and Recently Adopted Accounting Pronouncements | Recently Issued Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective, although it will not affect the accounting for rental related revenues. In April 2015, the FASB approved an amendment to the ASU, deferring the effective date one year to annual reporting periods beginning after December 15, 2017 for public entities. The standard permits the use of either the retrospective or cumulative effect transition method. Early adoption is prohibited. The Company is evaluating the effect that ASU No. 2014-09 will have on its condensed combined consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. In February 2016, the FASB issued ASU 2016-02, Leases, amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted as of the standard’s issuance date. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company does not expect that its adoption will have a material effect on its condensed combined consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing diversity in practice. The cash flow issues include debt prepayment or debt extinguishment costs and proceeds from the settlement of insurance claims. The ASU is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We are currently evaluating the impact the new standard may have on our condensed combined consolidated financial statements. Recently Adopted Accounting Pronouncements In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. The Company adopted ASU 2015-03 effective as of January 1, 2016 with retrospective application to the Company's December 31, 2015 combined consolidated balance sheet. The effect of the adoption of ASU 2015-03 was to reclassify debt issuance costs of approximately $1,938 as of December 31, 2015 from deferred costs and other assets in the condensed combined consolidated balance sheets to a contra account as a deduction from debt in the condensed combined consolidated balance sheets. In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Accounting, which requires that all excess tax benefits and tax deficiencies related to stock based compensation arrangements must be recognized in the income statement as they occur as opposed to the current guidance where excess tax benefits are recorded in equity. ASU 2016-09 also allows entities to make an accounting policy election to either continue to estimate forfeitures on stock based compensation arrangements or to account for forfeitures as they occur. ASU 2016-09 also allows an employer with statutory income tax withholding obligations to withhold shares with a fair value up to the amount of tax owed using the maximum statutory tax rate in the employee’s applicable jurisdiction. The Company adopted ASU 2016-09 effective as of April 1, 2016. |
Transactions with Related Parties (Tables) |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Related Party Transactions | The following table summarizes the Company’s related party transactions for the three and nine months ended September 30, 2016 and 2015.
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Debt (Tables) |
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Scheduled Maturities of Mortgage Indebtedness | As of September 30, 2016, scheduled maturities for the Company’s outstanding mortgage indebtedness had various due dates through May 2037, as follows:
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Fair Value Measurements (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Assets Measured on a Non-Recurring Basis | The following table presents these assets measured at fair value on a nonrecurring basis for the nine months ended September 30, 2016 aggregated by the level within the fair value hierarchy in which those measurements fall. Methods and assumptions used to estimate the fair value of these assets are described after the table.
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Schedule of the Fair Value of Financial Instruments | The table below represents the fair value of financial instruments presented at carrying values in the condensed combined consolidated financial statements as of September 30, 2016 and as of December 31, 2015.
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Segment Reporting (Tables) |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Net Property Operations | The following table summarizes net property operations income by segment for the three months ended September 30, 2016.
The following table summarizes net property operations income by segment for the three months ended September 30, 2015.
The following table summarizes net property operations income by segment for the nine months ended September 30, 2016.
The following table summarizes net property operations income by segment for the nine months ended September 30, 2015.
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Net (Loss) Income per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Net (Loss) Income to Basic and Diluted EPS | The following table reconciles net (loss) income attributable to the Company to basic and diluted EPS (in thousands, except share and per share data):
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Share Based Compensation (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock Award Activity | A summary of the Company's stock awards activity as of September 30, 2016 is as follows:
|
Organization (Details) $ / shares in Units, $ in Thousands |
9 Months Ended | |||
---|---|---|---|---|
Apr. 28, 2016
$ / shares
shares
|
Sep. 30, 2016
USD ($)
parcel
property
$ / shares
|
Sep. 30, 2015
USD ($)
|
Dec. 31, 2015
parcel
property
$ / shares
|
|
Conversion of Stock [Line Items] | ||||
Common stock, par value (in dollars per share) | $ / shares | $ 0.01 | $ 0.01 | $ 0 | |
Reduction in Basis of Real Estate Investment Properties | $ | $ 76,583 | $ 0 | ||
Number of assets (in property) | property | 18 | 22 | ||
Parcels of land | parcel | 4 | 4 | ||
Common stock | ||||
Conversion of Stock [Line Items] | ||||
Shares issued for each share held at date of spin-off (in shares) | shares | 1 |
Summary of Significant Accounting Policies (Details) - Adjustments for Adoption of ASU $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Long-term debt | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Debt issuance costs | $ 1,938 |
Other assets | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Debt issuance costs | $ (1,938) |
Disposed Assets (Details) $ in Thousands |
Feb. 19, 2016
property
|
Jul. 09, 2015
USD ($)
ft²
property
|
Jan. 28, 2015
property
|
---|---|---|---|
Disposal Group, Disposed of by Means Other than Sale, Not Discontinued Operations, Spinoff | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Number of retail assets distributed (in property) | 4 | 3 | |
Citizens Manchester [Member] | Net Lease | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Number of retail assets distributed (in property) | 1 | ||
Disposal Group, Including Discontinued Operation, Consideration | $ | $ 8,200 | ||
Area of Real Estate Property | ft² | 148,000 |
Transactions with Related Parties (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Dec. 31, 2015 |
|
Related Party Transaction [Line Items] | |||||
Unsecured credit facility | $ 17,914,000 | ||||
InvenTrust | |||||
Related Party Transaction [Line Items] | |||||
General and administrative expense allocation | $ 0 | $ 2,913,000 | $ 3,324,000 | $ 8,689,000 | |
Notes payable | 0 | 0 | $ 15,062,000 | ||
Related Party Transaction, Expenses from Transactions with Related Party | $ 33,000 | $ 0 | 84,000 | ||
Maximum | InvenTrust | |||||
Related Party Transaction [Line Items] | |||||
Related Party Transaction, Expenses from Transactions with Related Party | $ 100,000 |
Debt - Scheduled Maturities (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Debt Instrument [Line Items] | ||
Total | $ 389,955 | $ 437,032 |
Mortgages | ||
Debt Instrument [Line Items] | ||
2016 | 202,790 | |
2017 | 30,275 | |
2018 | 0 | |
2019 | 0 | |
2020 | 0 | |
Thereafter | 158,737 | |
Total | $ 391,802 | $ 405,994 |
Weighted average interest rate | ||
2016 | 6.51% | |
2017 | 5.57% | |
2018 | 0.00% | |
2019 | 0.00% | |
2020 | 0.00% | |
Thereafter | 5.57% | |
Total | 6.05% | 6.09% |
Fair Value Measurements - Not Measured at Fair Value (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Carrying Value | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Mortgages payable | $ 391,802 | $ 405,994 |
Unsecured credit facility | 0 | 17,914 |
Carrying Value | InvenTrust | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Note payable | 0 | 15,062 |
Estimated Fair Value | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Mortgages payable | 396,905 | 410,888 |
Unsecured credit facility | 0 | 17,914 |
Estimated Fair Value | InvenTrust | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Note payable | $ 0 | $ 15,062 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Income Tax Disclosure [Abstract] | ||||
Income tax expense | $ 2 | $ 9 | $ 239 | $ 24 |
Segment Reporting - Narrative (Details) |
9 Months Ended |
---|---|
Sep. 30, 2016
segment
leased_asset
| |
Concentration Risk [Line Items] | |
Number of business segments (in segments) | segment | 3 |
Revenue | Customer concentration risk | AT&T, Inc. | |
Concentration Risk [Line Items] | |
Concentration risk of revenues | 45.00% |
Number of Leased Assets, as Lessor | leased_asset | 3 |
Revenue | Customer concentration risk | AT&T- Hoffman Estates [Member] | |
Concentration Risk [Line Items] | |
Concentration risk of revenues | 21.00% |
Revenue | Customer concentration risk | AT&T- St. Louis [Member] | |
Concentration Risk [Line Items] | |
Concentration risk of revenues | 17.00% |
Net (Loss) Income per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Numerator: | ||||
Net (loss) income | $ (21,340) | $ 3,314 | $ (56,269) | $ 10,162 |
Less: Net income attributable to non-controlling interests | 0 | 8 | 0 | 16 |
Net (loss) income attributable to Company | $ (21,340) | $ 3,306 | $ (56,269) | $ 10,146 |
Denominator: | ||||
Weighted average shares outstanding - Basic and Diluted (in shares) | 864,890,967 | 862,014,421 | 864,515,587 | 862,014,421 |
Basic and diluted (loss) income per share: | ||||
Net (loss) income per share (in dollars per share) | $ (0.02) | $ 0.00 | $ (0.07) | $ 0.01 |
Subsequent Events (Details) - USD ($) $ in Thousands |
Nov. 04, 2016 |
Nov. 03, 2016 |
Sep. 30, 2016 |
---|---|---|---|
Subsequent Event [Line Items] | |||
Notes and Loans Payable | $ 113,810 | ||
Mortgages | Subsequent Event [Member] | |||
Subsequent Event [Line Items] | |||
Debt Instrument, Face Amount | $ 10,500 | ||
Debt Instrument, Term | 30 years | ||
Debt Instrument, Interest Rate, Stated Percentage | 4.345% | 5.99% | |
Notes and Loans Payable | $ 9,071 |
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