INLAND REAL ESTATE INCOME TRUST, INC. 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 ofInland 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 endedDecember 31, 2021 , as filed with theSecurities and Exchange Commission onMarch 16, 2022 , some of which are summarized below:
• We are subject to risks associated with a pandemic, epidemic or outbreak
of a contagious disease, such as the ongoing global COVID-19 pandemic,
including negative impacts on our tenants and their respective businesses,
and we have agreed to defer a significant amount of rent owed to us, which
tenants will be obligated to pay over time in addition to their regular
rent but which they may not be able or willing to do, particularly those
whose results of operations or future prospects have been materially
adversely affected by the COVID-19 pandemic or become so affected;
• Market disruptions resulting from the economic effects of the COVID-19
pandemic have adversely impacted many aspects of our operating results and
financial condition, and ongoing or future disruptions from the pandemic,
the war in
or otherwise may again adversely impact our results and financial
condition, including our ability to service our debt obligations, borrow
additional monies or pay distributions;
• We have incurred net losses on a
principles ("U.S. GAAP") basis for the three months ended March 31, 2022
and 2021 and for the year ended December 31, 2021 ;
• There is no established public trading market for our shares, our
stockholders cannot currently sell their shares under our share repurchase
program (as amended, "SRP"), which was suspended during the COVID-19
pandemic and may be suspended again, amended or terminated in our sole
discretion, and even when repurchases are made pursuant to the SRP, theSRP is subject to limits, and stockholders may not be able to sell all of
the shares they would like to sell;
• Even 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;
• There is no assurance our board of directors will pursue a listing or
other liquidity event at any time in the future, particularly in light of
the COVID-19 pandemic;
•
conflict of interest in allocating personnel and resources between its
affiliates, our Business Manager (as defined below) and Inland Commercial
• 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, among other things, 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 or other
affiliates for, among other things, tenants;
• Our Business Manager is under no obligation, and may not agree, to forgo
or defer its business management fee;
• If we fail to continue to qualify as a REIT, our operations and
distributions to stockholders, if any, will be adversely affected; and
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• The Company's strategic plan may continue to evolve or change over time,
and there is no assurance we will be able to successfully achieve our
board's objectives under the strategic plan, including making strategic
sales or purchases of properties, redeveloping properties or listing our
common stock, within the timeframe we expect or would prefer or at all;
• We may pursue redevelopment activities, which are subject to a number of
risks, including, but not limited to: expending resources to determine the
feasibility of the project or projects that are then not pursued or
completed; construction delays or cost overruns; failure to meet
anticipated occupancy or rent levels within the projected time frame, if
at all; exposure to fluctuations in the general economy due to the
significant time lag between commencing and completing the project; and
reduced rental income during the period of time we are redeveloping an
asset or assets;
• The use of the internet by consumers to shop is expected to continue to
expand, and this expansion has likely been accelerated by the effects of
the COVID-19 pandemic, which would result in a further downturn in the
business of our current tenants in their "brick and mortar" locations and
could affect their ability to pay rent and their demand for space at our
retail properties; and
• We are subject to risks associated with any dislocations or liquidity
disruptions that may exist or occur in credit markets of the United States
from time to time, including disruptions and dislocations caused by the
ongoing COVID-19 pandemic.
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.
The following discussion and analysis relates to the three months ended March
31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021 . You should
read the following discussion and analysis along with our consolidated financial
statements and the related notes included in this report.
We routinely post important information about us and our business, including
financial and other information for investors, on our website. We encourage
investors to visit our website at inland-investments.com/inland-income-trust
from time to time, as information is updated and new information is posted.
Overview
We were formed as aMaryland corporation onAugust 24, 2011 and elected to be taxed as a real estate investment trust forU.S. federal income tax purposes ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the year endedDecember 31, 2013 . We have no employees. We are managed by our business manager,IREIT Business Manager & Advisor, Inc. , referred to herein as our "Business Manager." We are primarily focused on acquiring and owning retail properties and intend to target a portfolio substantially comprised of grocery-anchored properties as described below. We have invested in joint ventures and 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. OnMarch 4, 2022 , our board of directors determined an estimated per share net asset value of our common stock of$20.20 as ofDecember 31, 2021 . AtMarch 31, 2022 , we had total assets of$1.1 billion on our balance sheet and owned 44 properties located in 21 states containing 6.5 million square feet. OnMay 5, 2022 , we entered into a definitive purchase and sale agreement to acquire a portfolio of eight retail shopping center properties located in seven states containing 686,851 square feet from certain subsidiaries ofInland Retail Property Fund, LP for approximately$278 million (the "Purchase Price"). A majority of our properties are multi-tenant, necessity-based retail shopping centers primarily located in major regional markets and growing secondary markets throughoutthe United States . As ofMarch 31, 2022 , 87% of our annualized base rental income was generated from grocery-anchored or grocery shadow-anchored shopping centers. A grocery shadow-anchored shopping center is a shopping center which we own that is located near a grocery store that we do not own but that generates traffic for our shopping center. The portfolio properties have staggered lease maturity dates. Grocery tenants accounted for 18% of our annualized base rent ("ABR") as ofMarch 31, 2022 . 20 --------------------------------------------------------------------------------
COVID-19 Pandemic
We continue to monitor the impact of the novel coronavirus ("COVID-19") pandemic
on all aspects of our business and locations, including how it is impacting our
tenants and vendors. The Company's deferrals, modifications and rent abatements
have proven effective helping our tenants endure the economic impacts of the
pandemic. As of March 31, 2022 , our deferred rent balance was $0.1 million , down
from $0.4 million at December 31, 2021 and $4.5 million at December 31, 2020 ,
due primarily to collections of such rent. As of March 31, 2022 , we have not
received any notice of, and are not otherwise aware of any of our tenants being
in bankruptcy, voluntarily or otherwise. Tenants with which we have agreed to
defer rent have generally been paying both their regular rental obligations as
well as the amounts of deferred rent during the three months ended March 31,
2022 . See Note 4 - "Leases" for additional information.
However, we are unable to predict with certainty the future impact that the
COVID-19 pandemic will have on our financial condition, results of operations
and cash flows due to numerous uncertainties, including the effects of the
Omicron variant or of the emergence and potential and actual spreading of any
other variant of COVID-19 in the U.S. or any place from which our tenants may
receive goods or services.
We rely on the Business Manager to manage our day-to-day operations. Though many
people have been able to work remotely effectively, the business and operations
of our Business Manager and its affiliates may also be adversely impacted by
further coronavirus outbreaks, including illness or quarantine of members of its
workforce, which may negatively impact on its ability to provide us services to
the same degree as it had prior to the outbreak.
Inflation and Interest Rates
Inflationary pressures and rising interest rates could result in reductions in consumer spending and retailer profitability which could impact the Company's ability to grow rents and tenant demand for new and existing store locations. Regardless of accelerating inflation levels, base rent under most of the Company's long-term anchor leases will remain constant (subject to tenants' exercise of renewal options at pre-negotiated rent increases) until the expiration of their lease terms. While many of these leases require tenants to pay their share of shopping center operating expenses (including common area maintenance, real estate tax and insurance expenses), the Company's ability to collect the passed-through expense increases to tenants is dependent on their ability to absorb and pay these increases. Inflation may also impact other aspects of the Company's operating costs, including fees paid to service providers, the cost to complete redevelopments and build-outs of recently leased vacancies and interest rate costs relating to variable rate loans and refinancings of lower fixed-rate indebtedness. While the Company has not been significantly impacted by any of these items to date, no assurances can be provided that these inflationary pressures will not have a material adverse effect on the Company's business in the future.
Company Update - Strategic Plan
The Company has a strategic plan that includes the goals of providing a future liquidity event to investors and creating long-term stockholder value. The strategic plan centers around owning a portfolio of grocery-anchored properties with lower exposure to big box retailers. As part of this strategy, our management team continually evaluates possibilities for the opportunistic sale of certain assets with the goal of redeploying capital into the acquisition of strategically located grocery-anchored centers. Of the Company's 824 leasable spaces, there are 110 occupied non-grocery big box (anchor spaces of at least 10,000 square feet) and six vacant big box spaces in the portfolio as ofApril 30, 2022 . As part of the strategic plan, we sold three properties in the first quarter of 2020. We used the proceeds to pay down the Revolving Credit Facility. We are not actively marketing any properties as of the date of this quarterly report on Form 10-Q. We believe increasing the size and profitability of the Company would enhance our ability to complete a successful liquidity event, and to that end we seek and evaluate potential acquisitions and may, for example, opportunistically acquire a portfolio of retail properties that we believe complements our existing portfolio in terms of relevant characteristics such as tenant mix, demographics and geography and is consistent with our plan to own a portfolio substantially all of which is comprised of grocery-anchored or shadow-anchored properties. OnMay 5, 2022 , the Company entered into a definitive purchase and sale agreement to acquire, in the aggregate, eight retail shopping center properties from certain subsidiaries ofInland Retail Property Fund, LP , for approximately$278 million . For additional detail regarding this expected acquisition, please see Note 14 - "Subsequent Events," which is included in ourMarch 31, 2022 Notes to Consolidated Financial Statements in Item 1. We may also consider other transactions, such as redeveloping certain of our properties or portions of certain of our properties, for example, big-box spaces, to repurpose them for alternative commercial or multifamily residential uses. We expect to consider liquidity events, including listing our common stock on a national securities exchange, but given our intention to opportunistically grow the portfolio, execute redevelopment opportunities, and execute strategic sales and acquisitions all in the context of (i) changes in retail market conditions resulting from the effects of the COVID-19 pandemic and other complex factors such as (ii) competition for our tenants from evolving internet businesses, (iii) the state of the commercial real estate market and financial markets, (iv) our ability to raise capital or borrow on terms that are acceptable to the Company in light of the use of the proceeds and (v) general economic conditions, among other factors, we do not know when we will complete a liquidity event. The timing of the completion of the strategic plan has already 21 -------------------------------------------------------------------------------- extended beyond our original expectations and cannot be predicted with certainty. There is no assurance that the Company will be able to successfully implement its strategic plan, for example by making strategic sales or purchases of properties or listing the Company's common stock, within the timeframe we would prefer or at all. SELECT PROPERTY INFORMATION (All dollar amounts in thousands, except per square foot amounts) Investment Properties As of March 31, 2022 Number of properties 44 Purchase price $ 1,346,514 Total square footage 6,481,262 Weighted average physical occupancy 92.8 % Weighted average economic occupancy 93.0 % Weighted average remaining lease term (years) 4.5 22 -------------------------------------------------------------------------------- The table below presents information for each of our investment properties as ofMarch 31, 2022 . Square Physical Economic Mortgage Interest Property Location Footage Occupancy Occupancy Balance Rate (b) Newington Fair (a) Newington, CT 186,205 100.0 % 100.0 % - - Wedgewood Commons (a) Olive Branch, MS 169,558 100.0 % 100.0 % - - Park Avenue (a) Little Rock, AR 79,131 66.7 % 66.7 % - - North Hills Square (a) Coral Springs, FL 63,829 95.6 % 95.6 % - -Mansfield Shopping Center (a) Mansfield, TX 148,529 95.0 % 95.0 % - - Lakeside Crossing (a) Lynchburg, VA 67,034 97.8 % 97.8 % - -MidTowne Shopping Center (a) Little Rock, AR 126,288 70.3 % 70.3 % - - Dogwood Festival (a) Flowood, MS 187,610 81.6 % 81.6 % - - Pick N Save Center (a) West Bend, WI 94,446 98.9 % 98.9 % - - Harris Plaza (a) Layton, UT 125,965 75.1 % 75.1 % - - Dixie Valley (a) Louisville, KY 119,981 76.8 % 76.8 % - - The Landings at Ocean Isle (a) Ocean Isle, NC 53,203 94.9 % 94.9 % - - Shoppes atPrairie Ridge (a) Pleasant Prairie, WI 232,606 98.8 % 98.8 % - - Harvest Square (a) Harvest, AL 70,590 92.1 % 92.1 % - - Heritage Square (a) Conyers, GA 22,510 95.8 % 95.8 % - - The Shoppes atBranson Hills (a) Branson, MO 256,329 92.5 % 92.5 % - - 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 171,121 100.0 % 100.0 % - - Shoppes at Lake Park (a) W. Valley City, UT 52,997 86.7 % 86.7 % - -Plaza at Prairie Ridge (a) Pleasant Prairie,WI 9,035 100.0 % 100.0 % - - Green Tree Shopping Center Katy, TX 147,621 98.3 % 98.3 % 13,100 3.24 % Eastside Junction (a) Athens, AL 79,675 91.0 % 91.0 % - - Fairgrounds Crossing (a) Hot Springs, AR 155,127 100.0 % 100.0 % - -Prattville Town Center (a) Prattville, AL 168,842 100.0 % 100.0 % - - Regal Court Shreveport, LA 363,061 96.2 % 96.2 % 26,000 4.50 % Shops at Hawk Ridge (a) St. Louis, MO 75,951 100.0 % 100.0 % - -Walgreens Plaza (a) Jacksonville, NC 42,219 79.0 % 79.0 % - - Frisco Marketplace (a) Frisco, TX 112,024 89.7 % 89.7 % - - White City (a) Shrewsbury, MA 256,974 94.7 % 94.7 % - - Yorkville Marketplace (a) Yorkville, IL 111,591 94.7 % 94.7 % - - Shoppes at Market Pointe Papillion, NE 253,903 95.0 % 95.6 % 13,700 3.30 % Marketplace at El Paseo Fresno, CA (a) 224,683 95.1 % 95.9 % - - The Village at Burlington Kansas City, MO Creek 157,937 86.8 % 86.8 % 17,322 4.25 % Milford Marketplace Milford, CT 111,995 89.1 % 89.1 % 18,727 4.02 % Settlers Ridge Pittsburgh, PA 473,763 91.2 % 91.2 % 76,532 3.70 % Blossom Valley Plaza (a) Turlock, CA 111,435 97.8 % 97.8 % - - Oquirrh Mountain South Jordan, UT Marketplace (a) 75,950 91.6 % 91.6 % - - Marketplace at Tech Newport News, VA Center 210,505 74.4 % 79.4 % 36,089 3.15 % Coastal North Town Center Myrtle Beach, SC 304,690 95.3 % 95.3 % 41,348 3.17 % Oquirrh Mountain South Jordan, UT Marketplace II (a) 10,150 100.0 % 100.0 % - - Wilson Marketplace (a) Wilson, NC 311,030 96.8 % 96.8 % - - Pentucket Shopping Center Plaistow, NH (a) 198,469 93.5 % 93.5 % - - Hickory Tavern Myrtle Beach, SC 6,588 100.0 % 100.0 % - - Portfolio total 6,481,262 92.8 % 93.0 %$ 242,818 3.63 %
(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.
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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 ofMarch 31, 2022 . Percent of Percent of Total Annualized Total Number Portfolio Base Rent Portfolio of Annualized Annualized Per Square Square Square Tenant Name Leases Base Rent (a) Base Rent Foot Footage Footage The Kroger Co 4 $ 3,444 3.8 %$ 13.80 249,493 3.9 % The TJX Companies, Inc. 12 3,108 3.4 % 10.08 308,253 4.8 % Ross Dress for Less, Inc. 10 2,340 2.6 % 8.93 262,080 4.0 % Ulta Salon, Cosmetics & Fragrance Inc. 10 2,316 2.5 % 22.06 104,958 1.6 % Albertsons/Jewel/Shaw's 2 2,304 2.5 % 18.02 127,892 2.0 % PetSmart 7 2,032 2.2 % 14.67 138,578 2.1 % Dicks Sporting Goods, Inc. 4 2,012 2.2 % 11.13 180,766 2.8 % LA Fitness (Fitness International) 2 1,965 2.2 % 21.94 89,600 1.4 % Kohl's Department Stores 4 1,888 2.1 % 5.68 332,461 5.1 % Giant Eagle 1 1,805 2.0 % 13.96 129,340 2.0 % Top ten tenants 56$ 23,214 25.5 %$ 12.07 1,923,421 29.7 %
(a) We have entered into rent deferral agreements with certain tenants above
that have generally been heavily impacted by the effects of the COVID-19
pandemic, which is a majority of the top ten tenants. To the extent we have
agreed with a tenant to defer rent due in the base year to a later period,
that deferred rent is still reflected in the annualized base rent amount
above.
The following table sets forth a summary of our tenant diversity for our entire
portfolio and is based on leases in-place at
Gross Leasable Percent of Percent of
Area - Total Gross Total Annualized
Tenant Type Square Footage Leasable Area Base Rent
Discount and Department Stores 1,329,910 22.1 % 11.1 %
Grocery 1,084,647 18.0 % 15.5 %
Home Goods 901,984 15.0 % 8.0 %
Lifestyle, Health Clubs, Books & Phones 750,113 12.4 % 16.7 %
Restaurant 536,177 8.9 % 17.4 %
Apparel & Accessories 393,177 6.5 % 9.2 %
Consumer Services, Salons, Cleaners, Banks 276,866 4.6 % 7.7 %
Pet Supplies 245,245 4.1 % 4.3 %
Sporting Goods 205,596 3.4 % 2.8 %
Health, Doctors & Health Foods 174,590 2.9 % 5.4 %
Other 127,216 2.1 % 1.9 %
Total 6,025,521 100.0 % 100.0 %
The following table sets forth a summary, as of March 31, 2022 , 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 51 % 5.3
Junior Box 5,000-9,999 13 % 4.3
Small Shop Less than 5,000 36 % 3.5
Total 100 % 4.5
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Lease Expirations
The following table sets forth a summary, as ofMarch 31, 2022 , of lease expirations scheduled to occur during the remainder of 2022 and each of the calendar years from 2022 to 2030 and thereafter, assuming no exercise of renewal options or early termination rights for leases commenced on or prior toMarch 31, 2022 . Annualized base rent represents the rent in-place of the applicable property atMarch 31, 2022 . The table below includes ground leases. If ground leases are excluded, annualized base rent would equal$82,507 or$17.96 per square foot for total expiring leases. Gross Leasable Percent of Percent of Area of Total Gross Total Total Expiring Leasable Annualized Annualized Annualized Number of Leases - Area of Base Rent Base Rent Base Rent Expiring Square Expiring of Expiring of Expiring per Leased Lease Expiration Year Leases Footage Leases Leases Leases Square Foot 2022 (including month-to-month) 99 324,661 5.4 %$ 6,427 7.0 %$ 19.80 2023 111 846,547 14.1 % 11,881 13.0 % 14.03 2024 115 834,524 13.8 % 14,889 16.3 % 17.84 2025 113 793,574 13.2 % 14,522 15.9 % 18.30 2026 86 509,434 8.5 % 8,762 9.6 % 17.20 2027 63 664,095 11.0 % 9,998 11.0 % 15.06 2028 37 695,470 11.5 % 7,332 8.0 % 10.54 2029 15 175,184 2.9 % 2,535 2.8 % 14.47 2030 15 138,400 2.3 % 2,241 2.5 % 16.20 2031 17 156,546 2.6 % 2,835 3.1 % 18.11 Thereafter 33 887,086 14.7 % 9,864 10.8 % 11.12 Leased Total 704 6,025,521 100.0 %$ 91,287 100.0 %$ 15.15 25
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Liquidity and Capital Resources
General
Our primary uses and sources of cash are as follows:
Uses Sources
• Interest and principal payments on • Cash receipts from our tenants
mortgage loans and
Credit Facility • Property operating expenses • Sale of shares through the DRP • • Proceeds from new or
refinanced
General and administrative expenses mortgage loans • Distributions to stockholders
• Borrowing on our Credit Facility
• Fees payable to our Business Manager • Proceeds from sales of real estate (if
and Real Estate any)*
Manager
• Repurchases of shares under the SRP • Proceeds from issuance of securities
(if any) other than through the DRP*
• Acquisitions of real estate directly
or through joint ventures*
• Capital expenditures, tenant
improvements and leasing commissions
• Redevelopments of entire properties
or certain spaces within our
properties*
*We cannot provide any assurance that we will be able to sell properties or
issue new securities to raise capital when we would like, for example, to
increase the proportion of grocery-anchored or shadow-anchored properties or
increase the size of our portfolio of properties, or under terms that would be
acceptable to us considering factors such as the anticipated use of the
proceeds.
We are not currently actively marketing any properties.
AtMarch 31, 2022 , we had$79 million outstanding under the Revolving Credit Facility and$275 million outstanding under the Term Loan. AtMarch 31, 2022 the interest rates on the Revolving Credit Facility and the Term Loan were 1.84% and 3.26%, respectively. OnFebruary 3, 2022 , we extended the Revolving Credit Facility maturity date toFebruary 3, 2026 plus a twelve month extension option. We also increased the Term Loan outstanding balance to$275 million which now matures onFebruary 3, 2027 . The Company expects to enter into an amendment to its Credit Agreement to increase the size of the Term Loan to$575 million and modify several covenants to fund the Company's acquisition of a portfolio of eight retail shopping center properties fromInland Retail Property Fund, LP , aDelaware limited partnership, that is expected to occur onMay 17, 2022 . As ofMay 11, 2022 , we had$121 million available for borrowing under the Revolving Credit Facility, subject to the terms and conditions, including compliance with the covenants, of the Credit Agreement that governs the Credit Facility. Although$121 million is the maximum available, covenant limitations affect what we can actually draw, and we expect to have substantially less than$121 million actually available to draw or otherwise undertake as additional debt after completing the aforementioned acquisition of the eight properties and increasing the amount of the Term Loan. By "additional debt," we mean debt in addition to existing debt such as existing mortgages. The properties comprising the borrowing base for the Credit Facility are not available to be used as collateral for other debt unless removed from the borrowing base, which would shrink availability under the Credit Facility. As ofMarch 31, 2022 , we had total debt outstanding of$596.8 million , excluding mortgage premiums and unamortized debt issuance costs, which bore interest at a weighted average interest rate of 3.22% per annum. As ofMarch 31, 2022 , the weighted average years to maturity for our debt was 3.8 years. As of bothMarch 31, 2022 andDecember 31, 2021 , our borrowings were 44% of the purchase price of our investment properties. AtMarch 31, 2022 our cash and cash equivalents balance was$9.2 million . In the next twelve months, we have two mortgage loans maturing with an aggregate principal balance of$26.8 million , which we intend to repay with cash flows from operating activities or by drawing on the Revolving Credit Facility. To preserve cash for the payment of operating and other expenses, such as debt payments, during the second quarter of 2020 our board of directors rescinded the distribution that was declared in the first quarter of 2020, and we did not declare another distribution untilJune 29, 2021 . We also suspended our DRP and SRP. The suspension of the DRP was effective onJune 6, 2020 and the suspension of the SRP was effective onJune 26, 2020 . OnJune 29, 2021 , we reinstated the DRP and the SRP. The effective date of the DRP reinstatement wasJuly 22, 2021 . During the three months endedMarch 31, 2022 , we declared distributions on our common stock in the amount of$0.135600 per share to stockholders of record as ofMarch 31, 2022 that was paid on or aboutApril 7, 2022 . During the three months endedMarch 31, 2022 , we repurchased$0.9 million of shares of common stock. 26 -------------------------------------------------------------------------------- We have delayed making non-essential capital improvements and other non-essential capital expenditures at our properties since the onset of the pandemic, where possible, to preserve cash and expect to continue to delay non-essential capital expenditures until they become essential or until the risk of adverse effects of the COVID-19 pandemic on our tenants subsides and there is clarity on our tenants' ability and willingness to pay rent and meet other lease obligations and, ultimately, on the performance of our shopping centers. As we have seen rent collections increasing during 2021 and into 2022, we have been gradually funding capital expenditures at our properties, and we do not expect the delay in making these capital expenditures to have any material effect on our tenants or our ability to lease space. In the three months endedMarch 31, 2022 , we spent$0.3 million more (46% more) on capital expenditures than we did in the three months endedMarch 31, 2021 . Additionally, we do not anticipate a material effect on our liquidity from returning to pre-pandemic levels of capital expenditures, assuming the businesses of our tenants negatively affected by the COVID-19 pandemic continue to improve or they otherwise pay their rent. As ofMarch 31, 2022 , we have paid all interest and principal amounts when due, and are in compliance with all financial covenants related to the Credit Facility as amended. Cash Flow Analysis Three Months Ended March 31, Change 2022 2021 2022 vs. 2021 (Dollar amounts
in thousands)
Net cash flows provided by operating activities
846
Net cash flows used in investing activities
Operating activities The increase in cash from operating activities during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was primarily due to a payment during the three months endedMarch 31, 2021 for the Q3 and Q4 2020 business management fees offset partially by reduced collections of deferred rent from our tenants during the three months endedMarch 31, 2022 as the vast majority of outstanding deferred rent was collected by the end of 2021. Investing activities Three Months Ended March 31, Change 2022 2021 2022 vs. 2021 (Dollar amounts in thousands) Capital expenditures$ (907 ) $ (622 ) $ (285 ) Other assets (27 ) - (27 ) Net cash used in investing activities$ (934 ) $ (622 ) $
(312 )
The increase in cash used for investing activities during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was primarily due to an increase in capital expenditures. Financing activities Three Months Ended March 31, Change 2022 2021 2022 vs. 2021 (Dollar amounts in thousands) Total changes related to debt$ (3,686 ) $ (10,313 ) $ 6,627 Proceeds from the distribution reinvestment plan, net of shares repurchased 925 - 925 Distributions paid (4,888 ) - (4,888 ) Early termination of interest rate swap agreements (1,021 ) - (1,021 ) Net cash used in financing activities$ (8,670 ) $ (10,313 ) $ 1,643 27
-------------------------------------------------------------------------------- During the three months endedMarch 31, 2022 , cash used to fund debt obligations decreased$6.6 million from the three months endedMarch 31, 2021 primarily due to draws on the credit facility during the three months endedMarch 31, 2021 that did not recur in 2022, offset by$3.6 million of debt issuance costs paid related to the Credit Facility during the three months endedMarch 31, 2022 . During the three months endedMarch 31, 2022 , we generated proceeds from the sale of shares pursuant to the DRP of$1.8 million . For the three months endedMarch 31, 2022 , share repurchases were$0.9 million . During the three months endedMarch 31, 2022 , we paid$4.9 million in distributions. The increases in distributions paid, proceeds from DRP and share repurchases in 2022 compared to 2021 are due to the reinstatement of the authorization and payment of distributions, the DRP and the SRP, respectively, during the second half of 2021. Distributions Distributions when declared are paid quarterly in arrears. A summary of the distributions declared, distributions paid and cash flows provided by operations for the three months endedMarch 31, 2022 and 2021 follows (Dollar amounts in thousands except per share amounts): Distributions Paid (1) Three Months Distributions Cash Flows Ended Distributions Declared Per Reinvested From March 31, Declared Share Cash via DRP Total Operations 2022 $ 4,894$ 0.271200 $ 3,039 $ 1,849 $ 4,888 $ 11,462 2021 $ - $ - $ - $ - $ -$ 10,616
(1) Distributions were funded by cash flow from operating activities and cash on
hand during the three months ended
Due to the uncertainty surrounding the COVID-19 pandemic and the need to preserve cash for the payment of operating and other expenses, such as debt payments, we had not paid any distributions since the first quarter of 2020. On or aboutJuly 26, 2021 , we resumed paying distributions on our common stock with this first distribution in the amount of$0.135600 per share to stockholders of record as ofJune 30, 2021 . During the three months endedMarch 31, 2022 , we declared distributions on our common stock of$0.135600 per share to stockholders of record as ofMarch 31, 2022 that was paid on or aboutApril 7, 2022 . Results of Operations The following discussions are based on our consolidated financial statements for the three months endedMarch 31, 2022 and 2021. Dollar amounts are stated in thousands.
This section describes and compares our results of operations for the three
months ended
Net operating income is a supplemental non-GAAP performance measure that we believe is useful to investors in measuring the operating performance of our property portfolio because our primary business is the ownership of real estate, and net operating income excludes various items included in GAAP net income that do not relate to, or are not indicative of, our property operating performance, such as depreciation and amortization and parent-level corporate expenses (including general and administrative expenses). Same store net operating income is useful because it eliminates differences in net operating income resulting from the acquisition or disposition of properties during the periods presented and therefore provides a better comparison of the operating performance of our properties between periods. The following tables present the property net operating income prior to straight-line income (expense), net, amortization of intangibles, interest, and depreciation and amortization for the three months endedMarch 31, 2022 and 2021, along with a reconciliation to net loss, calculated in accordance withU.S. GAAP. 28
--------------------------------------------------------------------------------
Comparison of the three months ended
Three Months Ended
March 31,
2022 2021 Change
Rental income $ 29,025 $ 29,674 $ (649 )
Other property income 30 48 (18 )
Total income $ 29,055 $ 29,722 $ (667 )
Property operating expenses $ 5,393 $ 5,518 $ (125 )
Real estate tax expense 3,730 3,670 60
Total property operating expenses $ 9,123 $ 9,188 $ (65 )
Property net operating income $ 19,932 $ 20,534 $ (602 )
Straight-line income (expense), net $ (250 ) $ (21 ) $ (229 )
Amortization of intangibles and lease incentives 138 146 (8 )
General and administrative expenses (1,412 ) (1,313 ) (99 )
Business management fee (2,244 ) (2,234 ) (10 )
Depreciation and amortization (11,854 ) (12,455 ) 601
Interest expense (5,567 ) (6,042 ) 475
Interest and other (expense) income (1 ) 57 (58 )
Net loss $ (1,258 ) $ (1,328 ) $ 70 Net loss. Net loss was
Total property net operating income. During the three months endedMarch 31, 2022 , property net operating income decreased$602 , total property income decreased$667 , and total property operating expenses including real estate tax expense decreased$65 . The decrease in total property income is primarily due to a decrease in recovery income due to a lower recovery percentage and a slight increase in bad debt expense during the three months endedMarch 31, 2022 . See Note 4 - "Leases" for additional information regarding the effects of deferred rent and bad debt on rental income.
Straight-line income (expense), net. Straight-line income (expense), net
decreased
Amortization of intangibles and lease incentives. Income from the amortization
of intangibles and lease incentives decreased
General and administrative expenses. General and administrative expenses
increased
Business management fee. Business management fees increased
Depreciation and amortization. Depreciation and amortization decreased$601 in 2022 compared to 2021. The decrease is primarily due to fully amortized assets in 2022 compared to 2021.
Interest expense. Interest expense decreased
Interest and other income. Interest and other income decreased
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.
29
--------------------------------------------------------------------------------Leasing Activity
The following table sets forth leasing activity during the three months endedMarch 31, 2022 . 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 18 161,502 $ 15.65 $ 14.75 6.1 % 5.6 $ 2.39 Comparable New Leases 1 1,200 $ 28.00 $ 24.97 12.1 % 5.3 $ - Non-Comparable New and Renewal Leases (a) 14 44,687 $ 17.89 N/A N/A 7.4 $ 19.02 Total 33 207,389
(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 withU.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 useU.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, theNational 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. OnNovember 7, 2018 , NAREIT's Executive Board approved the White Paper restatement, effectiveDecember 15, 2018 . The purpose of the restatement was not to change the fundamental definition of FFO but to clarify existing guidance. The restated definition of FFO by NAREIT is net income (loss) computed in accordance withU.S. GAAP, excluding depreciation and amortization related to real estate, excluding gains (or losses) from sales of certain real estate assets, excluding impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate and excluding gains and losses from change in control. We have adopted the restated NAREIT definition for computing FFO. Previously presented periods were not impacted. UnderU.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, publicly registered, non-listed REITs are unique in that they typically have a limited timeframe during which they acquire a significant number of properties and thus incur significant acquisition related costs. Due to the above factors and other unique features of publicly registered, non-listed REITs, theInstitute for Portfolio Alternatives , or "IPA", an industry trade group, published a standardized measure known as Modified Funds from Operations, or "MFFO", which the IPA has promulgated as a supplemental measure for publicly registered non-listed REITs and which may be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that, when compared year-over-year, both before and after we have deployed all of our Offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO excludes expensed costs associated with investing activities, some of which are acquisition related costs that affect our operations only in periods in which properties are acquired, and other non-operating items that are included in FFO, such as straight-lining of rents as required byU.S. GAAP. By excluding costs that we consider more reflective of acquisition activities and other non-operating items, the use of MFFO provides another measure of our operating performance once our portfolio is stabilized. Because MFFO may be a recognized measure of operating performance within the non-listed REIT industry, MFFO and the adjustments used to calculate it may be useful in order to evaluate our performance against other non-listed REITs. Like FFO, MFFO is not equivalent to our net income or loss as determined underU.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. 30 -------------------------------------------------------------------------------- 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 inNovember 2010 . The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination ofU.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 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 byU.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 three months endedMarch 31, 2022 and 2021 are calculated as follows: Three Months Ended March 31, 2022 2021 (Dollar amounts in thousands) Net loss $ (1,258 )$ (1,328 ) Depreciation and amortization related to Add: investment properties 11,854 12,455 Funds from operations (FFO) 10,596 11,127 Amortization of acquired market lease Less: intangibles, net (166 ) (170 ) Straight-line income (expense), net 250 21 Modified funds from operations (MFFO) $ 10,680$ 10,978 Subsequent Events
For information related to subsequent events, reference is made to Note 14 -
"Subsequent Events" which is included in our
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