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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Inland Real Estate Income Trust Inc    ISTT

INLAND REAL ESTATE INCOME TRUST INC (ISTT)
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INLAND REAL ESTATE INCOME TRUST : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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11/08/2018 | 09:42pm CET
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Words such as
"may," "could," "should," "expect," "intend," "plan," "goal," "seek,"
"anticipate," "believe," "estimate," "predict," "variables," "potential,"
"continue," "expand," "maintain," "create," "strategies," "likely," "will,"
"would" and variations of these terms and similar expressions, or the negative
of these terms or similar expressions, are intended to identify forward-looking
statements.

These forward-looking statements are not historical facts but reflect the
intent, belief or current expectations of the management of Inland Real Estate
Income Trust, Inc. (which we refer to herein as the "Company," "we," "our" or
"us") based on their knowledge and understanding of the business and industry,
the economy and other future conditions. These statements are not guarantees of
future performance, and we caution stockholders not to place undue reliance on
forward-looking statements. Actual results may differ materially from those
expressed or forecasted in the forward-looking statements due to a variety of
risks, uncertainties and other factors, including but not limited to the factors
listed and described under "Risk Factors" in this Quarterly Report on Form 10-Q
and in our Annual Report on Form 10-K for the year ended December 31, 2017, as
filed with the Securities and Exchange Commission on March 16, 2018, and factors
described below:

• Market disruptions may adversely impact many aspects of our operating

results and operating condition;

• We have incurred net losses on a U.S. generally accepted accounting

        principles ("U.S. GAAP") basis for the three and nine months ended
        September 30, 2018 and 2017 and for the year ended December 31, 2017;

• There is no established public trading market for our shares, our

stockholders may not be able to sell their shares under our share

repurchase program ("SRP") and, if our stockholders are able to sell their

        shares under the SRP, or otherwise, they may not be able to recover the
        amount of their investment in our shares;

• Our charter generally limits the total amount we may borrow to 300% of our

net assets, equivalent to 75% of the costs of our assets;

Inland Real Estate Investment Corporation (our "Sponsor") may face a

conflict of interest in allocating personnel and resources between its

affiliates, our Business Manager (as defined below) and Inland Commercial

Real Estate Services LLC, referred to herein as our "Real Estate Manager";

• We do not have arm's-length agreements with our Business Manager, our Real

Estate Manager or any other affiliates of our Sponsor;

• We pay fees, which may be significant, to our Business Manager, Real

Estate Manager and other affiliates of our Sponsor;

• Our Business Manager and its affiliates face conflicts of interest caused

by their compensation arrangements with us, which could result in actions

        that are not in the long-term best interests of our stockholders;

• Our properties may compete with the properties owned by other programs

        sponsored by our Sponsor or Inland Private Capital Corporation for, among
        other things, tenants;

• Our Business Manager is under no obligation, and may not agree, to forgo

        or defer its business management fee or any acquisition fee; and


    •   If we fail to continue to qualify as a REIT, our operations and
        distributions to stockholders will be adversely affected.


Forward-looking statements in this Quarterly Report on Form 10-Q reflect our
management's view only as of the date of this Quarterly Report, and may
ultimately prove to be incorrect or false. We undertake no obligation to update
or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results except
as required by applicable law. We intend for these forward-looking statements to
be covered by the applicable safe harbor provisions created by Section 27A of
the Securities Act and Section 21E of the Exchange Act.

                                       22

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The following discussion and analysis relates to the three and nine months ended
September 30, 2018 and 2017 and as of September 30, 2018 and December 31, 2017.
You should read the following discussion and analysis along with our
consolidated financial statements and the related notes included in this report.

Overview


We were formed as a Maryland corporation on August 24, 2011 and elected to be
taxed as a real estate investment trust for U.S. federal income tax purposes
("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended, commencing with the year ended December 31, 2013. We are managed by our
business manager, IREIT Business Manager & Advisor, Inc., referred to herein as
our "Business Manager."



We have acquired retail properties, and we have invested in a joint venture to
develop three transitional care/rapid recovery centers in Texas. We may continue
to invest in additional joint ventures or acquire other real estate assets such
as office and medical office buildings, multi-family properties and
industrial/distribution and warehouse facilities if management believes the
expected returns from those investments exceed that of retail properties. We
also may invest in real estate-related equity securities of both publicly traded
and private real estate companies, as well as commercial mortgage-backed
securities.

At September 30, 2018, we had total assets of approximately $1.4 billion and
owned 59 properties located in 24 states containing approximately 6.9 million
square feet. A majority of our properties are multi-tenant, necessity-based
retail shopping centers primarily located in major regional markets and growing
secondary markets throughout the United States. The portfolio properties have
staggered lease maturity dates and anchor tenants generally with strong credit
ratings.

On January 16, 2018, we effected a 1-for-2.5 reverse stock split whereby every
2.5 shares of our issued and outstanding common stock were converted into one
share of our common stock (the "Reverse Stock Split"). As a result of the
Reverse Stock Split, the number of our outstanding shares was reduced from
approximately 88,746,109 to approximately 35,498,444. In accordance with U.S.
GAAP, all share information presented has been retroactively adjusted to reflect
the Reverse Stock Split.

We commenced our "best efforts" offering (the "Offering") on October 18, 2012,
which concluded on October 16, 2015. We sold 33,534,022 shares of common stock
generating gross proceeds of $834.4 million from the Offering. On March 20,
2018, our board of directors determined an estimated per share net asset value
of our common stock of $22.35.































                                       23
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Company Highlights - Three Months Ended September 30, 2018

On August 1, 2018, we amended and restated our credit facility ("Credit Facility") to among other things:

• Increase the facility from $110.0 million to $350.0 million including a

$200.0 million revolving credit facility (the "Revolving Credit Facility")

and $150.0 million term loan (the "Term Loan"), with an accordion feature

that allows for an increase in available borrowings up to $700.0 million,

      subject to certain conditions;



• Extend the maturity date of the current revolving credit facility to August

      1, 2022 with one 12-month extension;




  • Provide a Term Loan with a maturity date of August 1, 2023.




As a result of the additional liquidity available under the amended Credit
Facility, we paid-off twelve mortgage loans with a principal balance of $184.7
million and ten interest rate swap agreements with a notional amount of $131.3
million. We realized a loss on extinguishment of debt in the consolidated
statements of operations and comprehensive income (loss) of $0.4 million due to
the write-off of the unamortized balance of debt issuance costs associated with
ten loans that were repaid prior to maturity.

We recorded a loss of $0.4 million for the write-off of debt issuance costs and
a gain of $1.2 million related to the early termination of certain interest rate
swap agreements that had corresponding early mortgage pay-offs.

SELECT PROPERTY INFORMATION (All dollar amounts in thousands, except per square
foot amounts)

Investment Properties



                                                     As of September 30, 2018
    Number of properties                                                    59
    Purchase price                                  $                1,414,253
    Total square footage                                             6,870,124
    Weighted average physical occupancy                                   

94.1 %

    Weighted average economic occupancy                                   

94.7 %

    Weighted average remaining lease term (years)                          6.1




                                       24
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The table below presents information for each of our investment properties as of
September 30, 2018.



                                                     Square         Physical        Economic       Mortgage       Interest
Property                          Location           Footage        Occupancy       Occupancy       Balance       Rate (b)
Dollar General (12
properties)                 Various                    111,890           100.0 %         100.0 %   $   7,447           4.33 %
Newington Fair (a)          Newington, CT              186,205           100.0 %         100.0 %           -              -
Wedgewood Commons (a)       Olive Branch, MS           159,258            98.1 %          98.1 %           -              -
Park Avenue (a)             Little Rock, AR             79,131            66.7 %         100.0 %           -              -
North Hills Square (a)      Coral Springs, FL           63,829           100.0 %         100.0 %           -              -
Mansfield Shopping Center
(a)                         Mansfield, TX              148,529            72.0 %          72.0 %           -              -
Lakeside Crossing (a)       Lynchburg, VA               67,034           100.0 %         100.0 %           -              -
MidTowne Shopping Center
(a)                         Little Rock, AR            126,288            88.6 %          88.6 %           -              -
Dogwood Festival (a)        Flowood, MS                187,610            91.6 %          91.6 %           -              -
Pick N Save Center (a)      West Bend, WI               94,000            91.0 %          91.0 %           -              -
Harris Plaza (a)            Layton, UT                 125,965            84.7 %          84.7 %           -              -
Dixie Valley                Louisville, KY             119,981            90.9 %          92.4 %       6,798           3.62 %
The Landings at Ocean
Isle (a)                    Ocean Isle, NC              53,203            92.2 %          92.2 %           -              -
Shoppes at Prairie Ridge
(a)                         Pleasant Prairie, WI       232,606            96.0 %          96.0 %           -              -
Harvest Square              Harvest, AL                 70,590            91.2 %          91.2 %       6,627           4.65 %
Heritage Square             Conyers, GA                 22,385            93.4 %          93.4 %       4,460           5.10 %
The Shoppes at Branson
Hills (a)                   Branson, MO                256,329            92.9 %          92.9 %           -              -
Branson Hills Plaza (a)     Branson, MO                210,201           100.0 %         100.0 %           -              -
Copps Grocery Store (a)     Stevens Point, WI           69,911           100.0 %         100.0 %           -              -
Fox Point Plaza (a)         Neenah, WI                 171,121            98.1 %          98.1 %           -              -
Shoppes at Lake Park (a)    W. Valley City, UT          52,997            93.2 %          93.2 %           -              -
Plaza at Prairie Ridge
(a)                         Pleasant Prairie,WI          9,035           100.0 %         100.0 %           -              -
Green Tree Shopping
Center                      Katy, TX                   147,621            97.3 %          97.3 %      13,100           3.23 %
Eastside Junction           Athens, AL                  79,700            85.7 %          85.7 %       6,150           4.60 %
Fairgrounds Crossing        Hot Springs, AR            155,127            98.5 %          98.5 %      13,453           5.21 %
Prattville Town Center      Prattville, AL             168,842           100.0 %         100.0 %      15,930           5.48 %
Regal Court                 Shreveport, LA             363,061            94.9 %          94.9 %      26,000           4.50 %
Shops at Hawk Ridge (a)     St. Louis, MO               75,951           100.0 %         100.0 %           -              -
Walgreens Plaza             Jacksonville, NC            42,219            83.5 %          95.6 %       4,650           5.30 %
Whispering Ridge (a)        Omaha, NE                   69,676            39.8 %          39.8 %           -              -
Frisco Marketplace (a)      Frisco, TX                 112,024            96.4 %          96.4 %           -              -
White City                  Shrewsbury, MA             257,121            93.4 %          94.7 %      49,400           3.24 %
Treasure Valley (a)         Nampa, ID                  133,292           100.0 %         100.0 %           -              -
Yorkville Marketplace (a)   Yorkville, IL              111,591            75.2 %          75.2 %           -              -
Shoppes at Market Pointe    Papillion, NE              253,903            98.2 %          98.2 %      13,700           3.30 %
2727 Iowa Street (a)        Lawrence, KS                85,044           100.0 %         100.0 %           -              -
Settlers Ridge              Pittsburgh, PA             473,821            98.6 %          98.6 %      76,532           3.70 %
Milford Marketplace         Milford, CT                111,720            96.1 %          96.1 %      18,727           4.02 %
Marketplace at El Paseo     Fresno, CA                 224,683            97.2 %          97.9 %      38,000           2.95 %
Blossom Valley Plaza (a)    Turlock, CA                111,435            97.5 %          97.5 %           -              -
The Village at Burlington   Kansas City, MO            158,049
Creek                                                                     78.6 %          78.6 %      17,723           4.25 %
Oquirrh Mountain            South Jordan, UT            75,950
Marketplace (a)                                                          100.0 %         100.0 %           -              -
Marketplace at Tech         Newport News, VA           210,297
Center                                                                    97.2 %          97.2 %      47,550           3.16 %
Coastal North Town Center   Myrtle Beach, SC           304,662            95.1 %          95.1 %      43,680           3.17 %
Oquirrh Mountain            South Jordan, UT            10,150
Marketplace II (a)                                                       100.0 %         100.0 %           -              -
Wilson Marketplace (a)      Wilson, NC                 311,030            99.1 %          99.1 %           -              -
Pentucket Shopping Center   Plaistow, NH               198,469            98.0 %          98.0 %      14,700           3.65 %
Coastal North Town Center   Myrtle Beach, SC             6,588
- Phase II                                                               100.0 %         100.0 %           -              -
Portfolio total                                      6,870,124            94.1 %          94.7 %   $ 424,627           3.71 %




   (a)   Property is included in the pool of unencumbered properties under our
         Credit Facility.


  (b) Portfolio total is equal to the weighted average interest rate.


                                       25
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Tenancy Highlights

The following table presents information regarding the top ten tenants in our
portfolio based on annualized base rent for leases in-place as of September 30,
2018.



                                                                        Percent of                                       Percent of
                                                                           Total         Annualized                         Total
                                          Number                         Portfolio       Base Rent                        Portfolio
                                            of          Annualized      Annualized       Per Square        Square          Square
             Tenant Name                  Leases        Base Rent        Base Rent          Foot           Footage         Footage
Dicks Sporting Goods, Inc                        6     $      3,511             3.6 %   $      12.72         276,038             4.0 %
The Kroger Co                                    4            3,374             3.5 %          13.52         249,493             3.6 %
TJ Maxx/HomeGoods/Marshalls                     13            3,182             3.3 %           9.66         329,253             4.8 %
Petsmart                                        10            2,830             2.9 %          14.58         194,077             2.8 %
Ross Dress for Less, Inc                         9            2,409             2.5 %          10.16         237,165             3.5 %
Albertsons/Jewel/Shaws                           2            2,304             2.4 %          18.02         127,892             1.9 %
Ulta Salon, Cosmetics & Fragrance               10            2,261             2.3 %          21.69         104,276             1.5 %
Kohl's Department Stores                         4            1,888             1.9 %           5.68         332,461             4.8 %
Ascena Retail Group                             14            1,829             1.9 %          22.97          79,635             1.2 %
LA Fitness (Fitness International)               2            1,810             1.9 %          20.20          89,600             1.3 %
Top ten tenants                                 74     $     25,398            26.2 %   $      12.57       2,019,890            29.4 %



The following table sets forth a summary of our tenant diversity for our entire portfolio and is based on leases in-place at September 30, 2018.



                                                  Gross Leasable        Percent of            Percent of
                                                      Area -            Total Gross        Total Annualized
                 Tenant Type                      Square Footage       Leasable Area          Base Rent
Discount and Department Stores                          1,541,604                23.7 %                 12.1 %
Home Goods                                                989,768                15.2 %                  9.2 %
Grocery                                                   950,042                14.6 %                 13.9 %
Lifestyle, Health Clubs, Books & Phones                   800,070                12.3 %                 15.2 %
Restaurant                                                545,947                 8.4 %                 15.9 %
Apparel & Accessories                                     463,408                 7.1 %                 10.5 %
Sporting Goods                                            333,719                 5.1 %                  4.9 %
Pet Supplies                                              288,642                 4.4 %                  4.6 %
Consumer Services, Salons, Cleaners, Banks                281,811                 4.3 %                  7.3 %
Health, Doctors & Health Foods                            162,526                 2.5 %                  4.6 %
Other                                                     145,643                 2.4 %                  1.8 %
Total                                                   6,503,180               100.0 %                100.0 %




The following table sets forth a summary, as of September 30, 2018, of the
percent of total annualized base rent and the weighted average lease expiration
by size of tenant.



                                                            Percent of           Weighted
                                                               Total           Average Lease
                                         Description -    Annualized Base      Expiration -
           Size of Tenant               Square Footage         Rent                Years
Anchor                                  10,000 and over                52 %               7.2
Junior Box                                5,000-9,999                  15 %               5.9
Small Shop                              Less than 5,000                33 %               4.6
Total                                                                 100 %               6.1




Lease Expirations

The following table sets forth a summary, as of September 30, 2018, of lease
expirations scheduled to occur during the remainder of 2018 and each of the
calendar years from 2019 to 2027 and thereafter, assuming no exercise of renewal
options or early termination

                                       26
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rights for leases commenced on or prior to September 30, 2018. Annualized base
rent represents the rent in-place of the applicable property at September 30,
2018. The table below includes ground leases. If ground leases are excluded,
annualized base rent would equal $87,633, or $17.32 per square foot for total
expiring leases.



                                                        Gross
                                                      Leasable        Percent of                          Percent of
                                                       Area of        Total Gross          Total             Total
                                                      Expiring         Leasable         Annualized        Annualized        Annualized
                                      Number of       Leases -          Area of          Base Rent         Base Rent        Base Rent
                                      Expiring         Square          Expiring         of Expiring       of Expiring       per Leased
Lease Expiration Year                  Leases          Footage          Leases            Leases            Leases         Square Foot
2018 (including month-to-month)               28         103,243               1.6 %   $       1,488               1.5 %   $      14.41
2019                                          64         276,800               4.3 %           4,981               5.1 %          17.99
2020                                          99         530,020               8.2 %           8,803               9.1 %          16.61
2021                                          92         358,887               5.5 %           7,253               7.5 %          20.21
2022                                          92         578,442               8.9 %          10,867              11.2 %          18.79
2023                                         103         811,349              12.5 %          12,141              12.5 %          14.96
2024                                          66         663,400              10.2 %          11,416              11.7 %          17.21
2025                                          71         631,259               9.7 %          11,448              11.8 %          18.14
2026                                          39         445,879               6.9 %           6,091               6.3 %          13.66
2027                                          37         380,622               5.9 %           4,793               4.9 %          12.59
Thereafter                                    59       1,723,279              26.5 %          17,925              18.4 %          10.40
Leased Total                                 750       6,503,180             100.0 %   $      97,206             100.0 %   $      14.95

LIQUIDITY AND CAPITAL RESOURCES

General

Our primary uses and sources of cash are as follows:


                   Uses                                            Sources
Short-term liquidity and capital needs
such as:                                        •  Cash receipts from our 

tenants

• Interest & principal payments on

   mortgage loans and                           •  Sale of shares through the DRP
   Credit Facility
                                                   Proceeds from new or refinanced mortgage
•  Property operating expenses                  •  loans

• General and administrative expenses • Borrowing on our Credit Facility • Distributions to stockholders

                •  Interest on mezzanine loans
•  Fees payable to our Business Manager

and Real Estate

Manager

•  Repurchases of shares under the SRP
•  Commitments under joint venture

agreements


Long-term liquidity and capital needs such
as:
•  Acquisitions of real estate directly or
   through joint ventures
•  Interest & principal payments on

mortgage loans and

   Credit Facility
•  Capital expenditures, tenant
   improvements and leasing commissions
•  Repurchases of shares under the SRP



At September 30, 2018, we had $128.5 million outstanding under the Revolving
Credit Facility and $150.0 million outstanding under the Term Loan. At September
30, 2018 the interest rate on the Revolving Credit Facility and the Term Loan
was 3.82% and 4.29%, respectively. The Revolving Credit Facility matures on
August 1, 2022, and we have the option to extend the maturity date for one
additional year subject to the payment of an extension fee and certain other
conditions. The Term Loan matures on August 1, 2023. As of September 30, 2018,
we had $71.5 million available for borrowing under the Revolving Credit
Facility.

As of September 30, 2018, we had total debt outstanding of approximately $703.2
million, excluding mortgage premiums and unamortized debt issuance costs, which
bore interest at a weighted average interest rate of 3.85% per annum. As of
September 30, 2018, the weighted average years to maturity for our debt was 4.66
years. As of September 30, 2018 and December 31, 2017, our

                                       27

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borrowings were 50% and 49%, respectively, of the purchase price of our investment properties. At September 30, 2018 our cash and cash equivalents balance is $16.6 million.


For information related to our debt maturities reference is made to Note 7 -
"Debt and Derivative Instruments" which is included in our September 30, 2018
Notes to Consolidated Financial Statements in Item 1.



Cash Flow Analysis



                                                    Nine Months Ended
                                                      September 30,               Change
                                                   2018           2017         2018 vs. 2017
                                                        (Dollar amounts in thousands)
Net cash flows provided by operating
activities                                      $   38,040$   42,799$        (4,759 )
Net cash flows used in investing activities     $  (15,090 )$  (79,864 )$        64,774
Net cash flows (used in) provided by
financing activities                            $  (22,144 )$   36,200$       (58,344 )




Operating activities

The decrease in cash from operating activities during the nine months ended
September 30, 2018 compared to the nine months ended September 30, 2017 was
primarily due to the timing of real estate tax payments, a decrease in prepaid
rent and the payment of a deferred investment property acquisition obligation.

Investing activities

                                                 Nine Months Ended
                                                   September 30,              Change
                                                2018          2017         2018 vs. 2017
                                                     (Dollar amounts in thousands)
Purchases of investment properties            $       -     $ (69,953 )   $ 

69,953

Capital expenditures                             (6,825 )      (4,042 )            (2,783 )
Investment in unconsolidated joint ventures      (2,464 )      (5,602 )     

3,138

Other assets and restricted escrows              (5,801 )        (267 )            (5,534 )
Net cash used in investing activities         $ (15,090 )$ (79,864 )   $ 

64,774



We used less cash in our investing activities in the nine months ended
September 30, 2018 compared to the nine months ended September 30, 2017. The
decrease is primarily due to the purchase of three properties in the nine months
ended September 30, 2017 and no purchases of investment properties in 2018. The
decrease in cash used in investing activities in 2018 is partially offset with
an increase in capital improvements at certain of our properties and funding of
notes receivable.

Financing activities

                                                    Nine Months Ended
                                                      September 30,               Change
                                                   2018           2017         2018 vs. 2017
                                                        (Dollar amounts in thousands)
Total changes related to debt                   $    7,570$   74,872$       (67,302 )
Proceeds from the distribution reinvestment
plan, net of shares repurchased                       (276 )        7,732              (8,008 )
Distributions paid                                 (28,388 )      (39,989 )            11,601
Other                                               (1,050 )       (6,415 )             5,365
Net cash (used in) provided by financing
activities                                      $  (22,144 )$   36,200$       (58,344 )




During the nine months ended September 30, 2018 and 2017, changes in total debt
decreased $67.3 million. The decrease is primarily due to the funding of
purchases of investment properties in the nine months ended September 30, 2017
and no purchases in 2018. During the nine months ended September 30, 2018
compared to the nine months ended September 30, 2017, proceeds from the
distribution reinvestment plan ("DRP") after shares repurchased decreased $8.0
million. During the nine months ended September 30, 2018 and 2017, we paid
approximately $28.4 million and $40.0 million, respectively, in distributions.



                                       28
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Distributions


For 2018, distributions are payable quarterly in arrears, and for 2017,
distributions were payable monthly in arrears. A summary of the distributions
declared, distributions paid and cash flows provided by operations for the nine
months ended September 30, 2018 and 2017 follows (Dollar amounts in thousands
except per share amounts):



                                                                       Distributions Paid (2)
                                         Distributions                                                        Cash Flows
Nine Months Ended    Distributions       Declared Per                        Reinvested                          From
  September 30,        Declared            Share (1)           Cash           via DRP           Total         Operations
      2018          $        35,776     $          1.01     $    14,668$     13,720$    28,388$     38,040
      2017          $        39,896     $          1.13     $    19,574$     20,415$    39,989$     42,799

(1) Per share amounts are based on weighted average number of common shares

outstanding.

(2) Distributions were funded by cash flow from operations during the nine months

ended September 30, 2018 and 2017.

Results of Operations


The following discussions are based on our consolidated financial statements for
the three and nine months ended September 30, 2018 and 2017. Dollar amounts are
stated in thousands. We are continuing to evaluate strategies to position the
Company for future growth, all with a view toward increasing stockholder value.
Our Board engaged Barclays to assist in this process.

This section describes and compares our results of operations for the three and
nine months ended September 30, 2018 and 2017. We generate almost all of our net
operating income from property operations. In order to evaluate our overall
portfolio, management analyzes the net operating income of properties that we
have owned and operated for both periods presented, in their entirety, referred
to herein as "same store" properties. By evaluating the property net operating
income of our "same store" properties, management is able to monitor the
operations of our existing properties for comparable periods to measure the
performance of our current portfolio and determine the effects of our new
acquisitions on net income.

                                       29

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Comparison of the three months ended September 30, 2018 and September 30, 2017


A total of 58 investment properties were acquired on or before July 1, 2017 and
represent our "same store" properties during the three months ended September
30, 2018 and 2017. "Non-same store," as reflected in the table below, consists
of properties acquired after July 1, 2017. For the three months ended
September 30, 2018, one property constituted a non-same store property. The
following table presents the property net operating income broken out between
same store and non-same store, prior to straight-line income, net, amortization
of intangibles, interest, and depreciation and amortization for the three months
ended September 30, 2018 and 2017, along with a reconciliation to net loss,
calculated in accordance with U.S. GAAP.



                                        Total                                Same Store                           Non-Same Store
                                  Three Months Ended                     Three Months Ended                     Three Months Ended
                                    September 30,                           September 30,                         September 30,
                           2018          2017         Change        2018         2017       Change       2018          2017        Change
Rental income            $  24,289$  23,951$    338$ 24,229$ 23,898$   331$    60            53     $      7

Tenant recovery income 7,062 7,248 (186 ) 7,062

       7,238        (176 )         -            10          (10 )
Other property income           84           179          (95 )         84          179         (95 )         -             -            -
Total income             $  31,435$  31,378$     57$ 31,375$ 31,315$    60$    60            63     $     (3 )

Property operating
expenses                 $   5,231$   5,355$   (124 )$  5,228$  5,351$  (123 )$     3             4     $     (1 )

Real estate tax expense 4,142 4,386 (244 ) 4,142

       4,378        (236 )         -             8           (8 )
Total property operating
expenses                 $   9,373$   9,741$   (368 )$  9,370$  9,729$  (359 )$     3            12     $     (9 )

Property net operating
income                   $  22,062$  21,637$    425$ 22,005$ 21,586$   419$    57            51     $      6

Straight-line income,
net                      $     279$     571$   (292 )
Intangible amortization
and inducement                 411            (3 )        414
General and
administrative expenses       (904 )        (875 )        (29 )
Acquisition related
costs                            -           (62 )         62

Business management fee (2,338 ) (2,311 ) (27 ) Depreciation and amortization

               (14,390 )     (15,492 )      1,102
Interest expense            (6,825 )      (6,361 )       (464 )
Gain on early
termination of interest
rate swap agreements         1,151             -        1,151
Loss on extinguishment
of debt                       (411 )           -         (411 )
Interest and other
income                         174            20          154
Provision for impairment
of investment in
unconsolidated entities     (5,000 )           -       (5,000 )
Equity in earnings of
unconsolidated entities          -            20          (20 )
Net loss                 $  (5,791 )$  (2,856 )$ (2,935 )

Net loss. Net loss was $5,791 and $2,856 for the three months ended September 30, 2018 and 2017, respectively.




Total property net operating income. On a "same store" basis, comparing the
results of operations of investment properties owned during the three months
ended September 30, 2018 with the results of the same investment properties
owned during the three months ended September 30, 2017, property net operating
income increased $419, total property income increased $60, and total property
operating expenses including real estate tax expense decreased $359. The
increase in "same store" total property operating income is primarily due to an
increase in rental income. The decrease in total property operating expenses is
primarily due to a decrease in current year real estate taxes and a decrease in
management fee expense.



                                       30
--------------------------------------------------------------------------------


"Non-same store" total property net operating income increased $6 during 2018 as
compared to 2017. The increase is a result of acquiring one retail property
after July 1, 2017. On a "non-same store" basis, total property income decreased
$3 and total property operating expenses decreased $9 during the three months
ended September 30, 2018 as compared to 2017.



Straight-line income, net. Straight-line rent income decreased by $292 during
the three months ended September 30, 2018 compared to 2017. This decrease is due
to certain tenant rent abatements in 2017 that increased straight-line rental
income.

Intangible amortization. Intangible amortization income increased $414 in 2018 compared to 2017. The increase is primarily attributable to intangible liabilities being written off in 2018.

General and administrative expenses. General and administrative expenses increased $29 in 2018 compared to 2017. The increase is primarily due to state tax estimates.


Acquisition related costs. Acquisition related expenses decreased $62 in 2018
compared to 2017. The decrease is attributable to the fact that there were no
acquisitions in 2018.

Business management fee. Business management fees increased $27 in 2018 compared
to 2017. The increase in the three months ended September 30, 2018 is due to the
2017 acquisitions of real estate which increased assets under management. There
have been no acquisitions in 2018.

Depreciation and amortization. Depreciation and amortization decreased $1,102 in
2018 compared to 2017. The decrease is primarily due to write-offs of replaced
assets in 2017.

Provision for impairment of investment in unconsolidated entities. During the
three months ended September 30, 2018, the Company recorded an impairment to its
investment in the Mainstreet JV of $5,000 to write down the investment to its
estimated fair value based on the Company's evaluations.

Interest expense. Interest expense increased $464 in 2018 compared to 2017. The
increase is primarily due to additional amounts drawn under the Credit Facility
and higher interest rates on our floating debt.

Gain on early termination of interest rate swap agreements. During the three
months ended September 30, 2018, the Company recorded a gain of $1,151 related
to the early termination of certain interest rate swap agreements that had
corresponding early mortgage pay-offs.

Loss on extinguishment of debt. During the three months ended September 30,
2018, the Company realized a loss on extinguishment of debt in the consolidated
statements of operations and comprehensive income (loss) of $411 due to the
write-off of the unamortized balance of debt issuance costs associated with ten
loans that were repaid prior to maturity.

Interest and other income. Interest and other income increased $154 in 2018
compared to 2017. The increase is primarily due to interest earned on our note
receivable and settlement income during the three months ended September 30,
2018.



                                       31
--------------------------------------------------------------------------------

Comparison of the nine months ended September 30, 2018 and September 30, 2017


A total of 56 investment properties were acquired on or before January 1, 2017
and represent our "same store" properties during the nine months ended September
30, 2018 and 2017. "Non-same store," as reflected in the table below, consists
of properties acquired after January 1, 2017. For the nine months ended
September 30, 2018 and 2017, three properties constituted non-same store
properties. The following table presents the property net operating income
broken out between same store and non-same store, prior to straight-line income,
net, amortization of intangibles, interest, and depreciation and amortization
for the nine months ended September 30, 2018 and 2017, along with a
reconciliation to net loss, calculated in accordance with U.S. GAAP.



                                        Total                                Same Store                          Non-Same Store
                                  Nine Months Ended                       Nine Months Ended                    Nine Months Ended
                                    September 30,                           September 30,                        September 30,
                           2018          2017         Change        2018         2017       Change       2018        2017        Change
Rental income            $  72,762$  71,582$  1,180$ 68,874

$ 68,590$ 284$ 3,888$ 2,992$ 896 Tenant recovery income 21,654 21,836 (182 ) 20,858

       21,099        (241 )       796         737           59
Other property income          261           352          (91 )        258          350         (92 )         3           2            1
Total income             $  94,677$  93,770$    907$ 89,990$ 90,039$   (49 )$ 4,687$ 3,731$    956

Property operating
expenses                 $  16,396$  15,866$    530$ 15,723

$ 15,299$ 424$ 673 567 $ 106 Real estate tax expense 12,331 12,384 (53 ) 11,902

       12,014        (112 )       429         370           59
Total property operating
expenses                 $  28,727$  28,250$    477$ 27,625

$ 27,313$ 312$ 1,102$ 937$ 165


Property net operating
income                   $  65,950$  65,520$    430$ 62,365

$ 62,726$ (361 )$ 3,585$ 2,794$ 791


Straight-line income,
net                      $     975$   1,276$   (301 )
Intangible amortization
and inducement                 663         1,058         (395 )
General and
administrative expenses     (3,303 )      (3,397 )         94
Acquisition related
costs                          (28 )      (1,262 )      1,234

Business management fee (7,000 ) (6,871 ) (129 ) Depreciation and amortization

               (43,612 )     (46,391 )      2,779
Interest expense           (19,970 )     (18,316 )     (1,654 )
Gain on early
termination of interest
rate swap agreements         1,151             -        1,151
Loss on extinguishment
of debt                       (411 )           -         (411 )
Interest and other
income                         380            72          308
Provision for impairment
of investment in
unconsolidated entities     (5,000 )           -       (5,000 )
Equity in earnings of
unconsolidated entities          -            20          (20 )
Net loss                 $ (10,205 )$  (8,291 )$ (1,914 )

Net loss. Net loss was $10,205 and $8,291 for the nine months ended September 30, 2018 and 2017, respectively.




Total property net operating income. On a "same store" basis, comparing the
results of operations of investment properties owned during the nine months
ended September 30, 2018 with the results of the same investment properties
owned during the nine months ended September 30, 2017, property net operating
income decreased $361, total property income decreased $49, and total property
operating expenses including real estate tax expense increased $312.



The decrease in "same store" total property income is primarily due to a decrease in tenant recovery income. The increase in "same store" total property operating expenses is primarily due to an increase in current year non-recoverable property expenses.

                                       32

--------------------------------------------------------------------------------


"Non-same store" total property net operating income increased $791 during 2018
as compared to 2017. The increase is a result of acquiring three retail
properties after January 1, 2017. On a "non-same store" basis, total property
income increased $956 and total property operating expenses increased $165
during the nine months ended September 30, 2018 as compared to 2017 as a result
of these acquisitions.

Straight-line income, net. Straight-line rent income decreased $301 in 2018 compared to 2017. This decrease is due to certain tenant rent abatements in 2017 that increased straight-line rental income.


Intangible amortization. Intangible amortization income decreased $395 in 2018
compared to 2017. The decrease is primarily attributable to intangible assets
and liabilities being written off or fully amortized.

General and administrative expenses. General and administrative expenses
decreased $94 in 2018 compared to 2017. This decrease is primarily due to lower
legal costs, lower salary expense and a decrease in conference costs, partially
offset by an increase in state tax estimates.

Acquisition related costs. Acquisition related expenses decreased $1,234 in 2018
compared to 2017. The decrease is attributable to the fact that there were no
acquisitions in 2018.

Business management fee. Business management fees increased $129 in 2018 compared to 2017. The increase in the nine months ended September 30, 2018 is due to the 2017 acquisitions of real estate which increased assets under management. There have been no acquisitions in 2018.


Depreciation and amortization. Depreciation and amortization decreased $2,779 in
2018 compared to 2017. The decrease is primarily due to write-offs of replaced
assets and Harris Plaza's redevelopment in 2017.

Interest expense. Interest expense increased $1,654 in 2018 compared to 2017.
The increase is primarily due to additional financing of properties after
January 1, 2017, increased amounts drawn under the Credit Facility and higher
interest rates on our floating debt.



Gain on early termination of interest rate swap agreements. During the nine months ended September 30, 2018, the Company recorded a gain of $1,151 related to the early termination of certain interest rate swap agreements that had corresponding early mortgage pay-offs.


Loss on extinguishment of debt. During the nine months ended September 30, 2018,
the Company realized a loss on extinguishment of debt in the consolidated
statements of operations and comprehensive income (loss) of $411 due to the
write-off of the unamortized balance of debt issuance costs associated with ten
loans that were repaid prior to maturity.

Provision for impairment of investment in unconsolidated entities. During the
nine months ended September 30, 2018, the Company recorded an impairment to its
investment in the Mainstreet JV of $5,000 to write down the investment to its
estimated fair value based on the Company's evaluations.

Interest and other income. Interest and other income increased $308 in 2018 compared to 2017. The increase is primarily due to interest earned on our note receivable and settlement income.

Critical Accounting Policies


Disclosures discussing all critical accounting policies are set forth in our
Annual Report on Form 10-K for the year ended December 31, 2017, as filed with
the Securities and Exchange Commission on March 16, 2018, under the heading
"Critical Accounting Policies." There have been no changes to our critical
accounting policies during the three months ended September 30, 2018.



Off-Balance Sheet Arrangements


We currently have no off-balance sheet arrangements that are reasonably likely
to have a material current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.

                                       33

--------------------------------------------------------------------------------

Leasing Activity


The following table sets forth leasing activity during the nine months ended
September 30, 2018. Leases with terms of less than 12 months have been excluded
from the table.



                                                                                                    % Change
                       Number of         Gross         New Contractual      Prior Contractual      over Prior         Weighted              Tenant
                         Leases        Leasable        Rent per Square       Rent per Square       Annualized       Average Lease       Allowances per
                         Signed          Area               Foot                   Foot             Base Rent           Term             Square Foot
Comparable Renewal
Leases                         57         291,909     $           18.17     $            18.13             0.2 %               4.6     $           0.90
Comparable New
Leases                         10          32,252     $           24.19     $            21.75            11.3 %               9.1     $          19.25
Non-Comparable New
and Renewal Leases
(a)                            18         128,996     $            8.75                    N/A             N/A                 5.6     $           7.51
Total                          85         453,157



(a) Includes leases signed on units that were vacant for over 12 months, leases

signed without fixed rent amounts and leases signed where the previous and

    current lease do not have similar lease structures.




Non-GAAP Financial Measures

Accounting for real estate assets in accordance with U.S. GAAP assumes the value
of real estate assets is reduced over time due primarily to non-cash
depreciation and amortization expense. Because real estate values may rise and
fall with market conditions, operating results from real estate companies that
use U.S. GAAP accounting may not present a complete view of their performance.
We use Funds from Operations, or "FFO", a widely accepted metric to evaluate our
performance. FFO provides a supplemental measure to compare our performance and
operations to other REITs. Due to certain unique operating characteristics of
real estate companies, the National Association of Real Estate Investment
Trusts, or "NAREIT", has promulgated a standard known as FFO, which it believes
more accurately reflects the operating performance of a REIT. As defined by
NAREIT, FFO means net income (loss) computed in accordance with U.S. GAAP,
excluding gains (or losses) from sales of depreciable properties, plus
depreciation and amortization and impairment charges on depreciable property
after adjustments for unconsolidated entities in which the REIT holds an
interest. We have adopted the NAREIT definition for computing FFO.

Under U.S. GAAP, acquisition related costs are treated differently if the
acquisition is a business combination or an asset acquisition. An acquisition of
a single property will likely be treated as an asset acquisition as opposed to a
business combination and acquisition related costs will be capitalized rather
than expensed when incurred. Publicly registered, non-listed REITs typically
engage in a significant amount of acquisition activity in the early years of
their operations, and thus incur significant acquisition related costs, during
these initial years. Although other start up entities may engage in significant
acquisition activity during their initial years, REITs such as us that are not
listed on an exchange are unique in that they typically have a limited timeframe
during which they acquire a significant number of properties and thus incur
significant acquisition related costs. Due to the above factors and other unique
features of publicly registered, non-listed REITs, the Institute for Portfolio
Alternatives, or "IPA", an industry trade group, published a standardized
measure known as Modified Funds from Operations, or "MFFO", which the IPA has
promulgated as a supplemental measure for publicly registered non-listed REITs
and which may be another appropriate supplemental measure to reflect the
operating performance of a non-listed REIT.

MFFO excludes expensed costs associated with investing activities, some of which
are acquisition related costs that affect our operations only in periods in
which properties are acquired, and other non-operating items that are included
in FFO. By excluding acquisition related costs, the use of MFFO provides another
measure of our operating performance. Because MFFO may be a recognized measure
of operating performance within the non-listed REIT industry, MFFO and the
adjustments used to calculate it may be useful in order to evaluate our
performance against other non-listed REITs. Like FFO, MFFO is not equivalent to
our net income or loss as determined under U.S. GAAP, as detailed in the table
below, and MFFO may not be a useful measure of the impact of long-term operating
performance on value if we continue to acquire a significant amount of
properties. MFFO should only be used as a measurement of our operating
performance while we are acquiring a significant amount of properties because it
excludes, among other things, acquisition costs incurred during the periods in
which properties were acquired.

We believe our definition of MFFO, a non-U.S. GAAP measure, is consistent with
the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly
Registered, Non-Listed REITs: Modified Funds from Operations, or the "Practice
Guideline," issued by the IPA in November 2010. The Practice Guideline defines
MFFO as FFO further adjusted for the following items, as applicable, included in
the determination of U.S. GAAP net income: acquisition fees and expenses;
amounts relating to straight-line rents and amortization of above and below
market lease assets and liabilities, accretion of discounts and amortization of
premiums on

                                       34
--------------------------------------------------------------------------------


debt investments; mark-to-market adjustments included in net income;
nonrecurring gains or losses included in net income from the extinguishment or
sale of debt, hedges, foreign exchange, derivatives or securities holdings where
trading of such holdings is not a fundamental attribute of the business plan,
unrealized gains or losses resulting from consolidation from, or deconsolidation
to, equity accounting, and after adjustments for consolidated and unconsolidated
partnerships and joint ventures, with such adjustments calculated to reflect
MFFO on the same basis.

Our presentation of FFO and MFFO may not be comparable to other similarly titled
measures presented by other REITs. We believe that the use of FFO and MFFO
provides a more complete understanding of our operating performance to
stockholders and to management, and when compared year over year, reflects the
impact on our operations from trends in occupancy rates, rental rates, operating
costs, general and administrative expenses, and interest costs. Neither FFO nor
MFFO is intended to be an alternative to "net income" or to "cash flows from
operating activities" as determined by U.S. GAAP as a measure of our capacity to
pay distributions. Management uses FFO and MFFO to compare our operating
performance to that of other REITs and to assess our operating performance.

Our FFO and MFFO for the nine months ended September 30, 2018 and 2017 are
calculated as follows:



                                                                      Nine Months Ended
                                                                        September 30,
                                                                  2018                  2017
                                                                (Dollar amounts in thousands)
          Net loss                                           $      

(10,205 ) $ (8,291 )

Depreciation and amortization related to Add: investment properties

                                       43,612               46,391

Provision for impairment of investment in

          unconsolidated entities                                      5,000                    -
          Funds from operations (FFO)                        $       

38,407 $ 38,100


Add:      Acquisition related costs                                       28                1,262
          Loss on extinguishment of debt                                 411                    -
          Amortization of acquired market lease
Less:     intangibles, net                                              (700 )             (1,069 )
          Straight-line income, net                                     (975 )             (1,276 )

Gain on early termination of interest rate swap

          agreements                                                  (1,151 )                  -
          Modified funds from operations (MFFO)              $       
36,020       $       37,017


Subsequent Events

For information related to subsequent events, reference is made to Note 15 - "Subsequent Events" which is included in our September 30, 2018 Notes to Consolidated Financial Statements in Item 1.

© Edgar Online, source Glimpses

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