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, our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2022 , as filed with theSecurities and Exchange Commission onMay 11, 2022 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 agreed in 2020 and 2021 to defer a significant amount of rent owed
to us, which tenants were obligated to pay over time in addition to their
regular rent. If there is a resurgence of COVID-19, we may agree again to
defer rent owed to us, and our tenants may not be able or willing to pay
the deferred amounts on top of their regular rent, particularly if theirresults 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 ("
2022 and 2021 and for the year ended December 31, 2021 ;
• There is no established public trading market for our shares, ourstockholders 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
21--------------------------------------------------------------------------------
• 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 could 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 and six months ended
June 30, 2022 and 2021 and as of June 30, 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 , compared to the previous estimated value of$18.08 as ofDecember 31, 2020 . AtJune 30, 2022 , we had total assets of$1.4 billion on our balance sheet and owned 52 properties located in 24 states containing 7.2 million square feet. OnMay 17, 2022 , we acquired eight retail shopping center properties (the "IRPF Properties ") from certain subsidiaries ofInland Retail Property Fund, LP .The IRPF Properties are located across seven states and aggregate approximately 686,851 square feet. As seven of the eight properties are grocery-anchored, this acquisition increases our portfolio of grocery-anchored properties, which is our focus as described above. We acquired theIRPF Properties for an aggregate purchase price of$278 million , excluding closing costs. 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 ofJune 30, 2022 , 88% 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 we believe generates traffic for our shopping center. The portfolio properties have staggered lease maturity dates. Grocery tenants accounted for 17% of our annualized base rent ("ABR") as ofJune 30, 2022 . 22 --------------------------------------------------------------------------------
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 June 30, 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 June 30, 2022 , except for one
1,144 square foot tenant, 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 and six months ended June 30, 2022 . See Note 5 - "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 refinancing 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 948 leasable spaces, there are 118 occupied non-grocery big box (anchor spaces of at least 10,000 square feet) and five vacant big box spaces in the portfolio as ofJuly 31, 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 17, 2022 , the Company acquired, in the aggregate, theIRPF Properties from certain subsidiaries ofInland Retail Property Fund, LP , for approximately$278 million . 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 extended beyond our original expectations and cannot be predicted with certainty. There is no assurance that the Company will be able 23 -------------------------------------------------------------------------------- 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 June 30, 2022 Number of properties 52 Purchase price $ 1,624,667 Total square footage 7,167,822 Weighted average physical occupancy 92.8 % Weighted average economic occupancy 93.0 % Weighted average remaining lease term (years) 4.7 24 -------------------------------------------------------------------------------- The table below presents information for each of our investment properties as ofJune 30, 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 97.9 % 100.0 % - - Park Avenue (a) Little Rock, AR 79,131 66.7 % 66.7 % - - North Hills Square (a) Coral Springs, FL 63,829 97.5 % 97.5 % - -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 187,468 81.7 % 81.7 % - - 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 256,244 95.5 % 95.5 % - - 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 90.6 % 90.6 % - -Plaza at Prairie Ridge (a) Pleasant Prairie,WI 9,035 100.0 % 100.0 % - - Green Tree Shopping Center (a) Katy, TX 147,621 98.3 % 98.3 % - - 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 95.6 % 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 88.9 % 88.9 % 17,244 4.25 % Milford Marketplace Milford, CT 111,959 89.2 % 89.2 % 18,727 4.02 % Settlers Ridge Pittsburgh, PA 473,763 91.2 % 91.2 % 76,532 3.70 % Blossom Valley Plaza (a) Turlock, CA 111,435 100.0 % 100.0 % - - Oquirrh Mountain South Jordan, UT Marketplace (a) 75,950 97.2 % 97.2 % - - Marketplace at Tech Newport News, VA Center 210,505 74.9 % 79.9 % 36,089 3.15 % Coastal North Town Center Myrtle Beach, SC 304,662 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 311,030 100.0 % 100.0 % - - Pentucket Shopping Center Plaistow, NH (a) 198,469 98.0 % 98.0 % - - Hickory Tavern (a) Myrtle Beach, SC 6,588 100.0 % 100.0 % - - New Town (a) Owings Mill, MD 117,593 45.7 % 45.7 % - - Olde Ivy Village (a) Smyrna, GA 46,500 93.7 % 93.7 % - - Northpark Village Square Santa Clarita, CA (a) 87,103 97.2 % 97.2 % - - Lower Makefield Shopping Lower Makefield, PA Center (a) 74,953 94.9 % 94.9 % - - Denton Village (a) Denton, TX 48,280 100.0 % 100.0 % - - Rusty Leaf Plaza (a) Orange, CA 59,188 95.7 % 97.0 % - - Northville Park Place (a) Northville, MI 78,421 100.0 % 100.0 % - - CityPlace (a) Woodbury, MN 174,813 95.1 % 95.1 % - - Portfolio total 7,167,822 92.8 % 93.0 %$ 229,640 3.65 %
(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 ofJune 30, 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 Base Rent Foot Footage Footage The Kroger Co 5$ 4,735 4.3 %$ 15.99 296,150 4.1 % The TJX Companies, Inc. 13 3,730 3.4 % 11.34 329,067 4.6 % Albertsons/Jewel/Shaw's 2 2,436 2.2 % 19.05 127,892 1.8 % Ulta Salon, Cosmetics & Fragrance Inc. 11 2,428 2.2 % 21.88 110,958 1.5 %Amazon/Whole Foods Market Group, Inc. 3 2,340 2.1 % 20.27 115,410 1.6 % Ross Dress for Less, Inc. 10 2,340 2.1 % 8.93 262,080 3.7 % Sprouts Farmers Market, LLC 4 2,159 2.0 % 19.09 113,092 1.6 % PetSmart 7 2,032 1.9 % 14.67 138,578 1.9 % Dicks Sporting Goods, Inc. 4 2,012 1.8 % 11.13 180,766 2.5 % LA Fitness (Fitness International) 2 1,966 1.8 % 21.94 89,600 1.3 % Top ten tenants 61$ 26,178 23.8 %$ 14.84 1,763,593 24.6 %
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 1,359,536 20.4 % 10.2 %
Grocery 1,331,589 20.0 % 17.4 %
Home Goods 925,070 13.9 % 7.4 %
Lifestyle, Health Clubs, Books & Phones 813,192 12.2 % 15.3 %
Restaurant 641,990 9.6 % 18.4 %
Apparel & Accessories 424,407 6.3 % 8.3 %
Consumer Services, Salons, Cleaners, Banks 345,783 5.2 % 9.2 %
Pet Supplies 258,889 3.9 % 4.0 %
Sporting Goods 219,387 3.3 % 2.6 %
Health, Doctors & Health Foods 212,900 3.2 % 5.4 %
Other 136,740 2.0 % 1.8 %
Total 6,669,483 100.0 % 100.0 %
The following table sets forth a summary, as of June 30, 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 50 % 5.6
Junior Box 5,000-9,999 13 % 4.5
Small Shop Less than 5,000 37 % 3.7
Total 100 % 4.7
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Lease Expirations
The following table sets forth a summary, as ofJune 30, 2022 , of lease expirations scheduled to occur during the remainder of 2022 and each of the calendar years from 2023 to 2031 and thereafter, assuming no exercise of renewal options or early termination rights for leases commenced on or prior toJune 30, 2022 . Annualized base rent represents the rent in-place of the applicable property atJune 30, 2022 . The table below includes ground leases. If ground leases are excluded, annualized base rent would equal$100,040 or$19.19 per square foot for total expiring leases. Gross Leasable Percent of Percent of Area of Total Gross Total Total Expiring Leasable Annualized Annualized Annualized Number of Leases - Area of Base Rent Base Rent Base Rent Expiring Square Expiring of Expiring of Expiring per Leased Lease Expiration Year Leases Footage Leases Leases Leases Square Foot 2022 (including month-to-month) 73 270,246 4.0 %$ 4,663 4.3 %$ 17.26 2023 119 814,583 12.2 % 12,212 11.1 % 14.99 2024 128 874,428 13.1 % 16,055 14.6 % 18.36 2025 135 854,267 12.8 % 16,997 15.5 % 19.90 2026 107 595,905 8.9 % 10,985 10.0 % 18.43 2027 105 838,729 12.6 % 15,161 13.8 % 18.08 2028 45 758,961 11.4 % 8,502 7.7 % 11.20 2029 22 210,161 3.2 % 3,410 3.1 % 16.23 2030 23 230,283 3.5 % 4,366 4.0 % 18.96 2031 20 191,813 2.9 % 3,662 3.3 % 19.09 Thereafter 47 1,030,107 15.4 % 13,803 12.6 % 13.40 Leased Total 824 6,669,483 100.0 %$ 109,816 100.0 %$ 16.47 27
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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. Because the Company's common stock is not listed on a securities
exchange, its ability to access the public or private securities markets is
likely to be very limited, particularly for equity capital.
We are not currently actively marketing any properties.
AtJune 30, 2022 , we had$58 million outstanding under the Revolving Credit Facility and$575 million outstanding under the Term Loan. AtJune 30, 2022 the interest rates on the Revolving Credit Facility and the Term Loan were 2.65% and 3.62%, respectively. OnFebruary 3, 2022 , we extended the Revolving Credit Facility maturity date toFebruary 3, 2026 plus a twelve month extension, at the Company's option. We also increased the Term Loan outstanding balance to$275 million which now matures onFebruary 3, 2027 . OnMay 17, 2022 , we amended our Credit Agreement to increase the size of the Term Loan by$300 million to$575 million and modify several covenants in each case to fund our acquisition of a portfolio of eight retail shopping center properties fromInland Retail Property Fund, LP , aDelaware limited partnership. As ofAugust 10, 2022 , we had$138 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$138 million is the maximum available, covenant limitations affect what we can actually draw, and we expect to have substantially less than$138 million actually available to draw or otherwise undertake as additional debt as a result of, among other things, 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 ofJune 30, 2022 , we had total debt outstanding of$862.6 million , excluding mortgage premiums and unamortized debt issuance costs, which bore interest at a weighted average interest rate of 3.56% per annum. As ofJune 30, 2022 , the weighted average years to maturity for our debt was 4.2 years. As ofJune 30, 2022 andDecember 31, 2021 , our borrowings were 53% and 44%, respectively, of the purchase price of our investment properties. AtJune 30, 2022 our cash and cash equivalents balance was$2.6 million . As ofAugust 10, 2022 , in the next twelve months, we have three mortgage loans maturing with an aggregate principal balance of$91.1 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 six months endedJune 30, 2022 , we repurchased$1.8 million of shares of common stock. 28 -------------------------------------------------------------------------------- We have delayed making non-essential capital improvements and other non-essential capital expenditures at our properties since the onset of the pandemic in 2020, 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 funding capital expenditures at our properties, and we do not expect the prior delay in making these capital expenditures to have any material effect on our tenants or our ability to lease space. In the six months endedJune 30, 2022 , we spent$1.8 million (76%) more on capital expenditures than we did in the six months endedJune 30, 2021 . Additionally, we do not anticipate a material effect on our liquidity from returning to pre-pandemic levels of capital expenditures, assuming the businesses of our tenants negatively affected by the COVID-19 pandemic continue to improve or they otherwise pay their rent. As ofJune 30, 2022 , we have paid all interest and principal amounts when due, and are in compliance with all financial covenants under the Credit Facility as amended. Cash Flow Analysis Six Months Ended June 30, Change 2022 2021 2022 vs. 2021 (Dollar amounts in thousands) Net cash flows provided by operating activities$ 27,428 $ 23,698 $ 3,730 Net cash flows used in investing activities$ (282,080 ) $ (2,317 ) $ (279,763 ) Net cash flows provided by (used in) financing activities$ 250,817 $ (19,806 ) $ 270,623 Operating activities The increase in cash from operating activities during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 was primarily due to the fact that during the six months endedJune 30, 2021 , we paid amounts due to the business manager for Q3 2020 business management fees that had been deferred by the business manager offset partially by reduced collections of deferred rent from our tenants during the six months endedJune 30, 2022 as the vast majority of outstanding deferred rent was collected by the end of 2021. Investing activities Six Months Ended June 30, Change 2022 2021 2022 vs. 2021 (Dollar amounts in thousands) Purchase of investment properties$ (277,772 ) $ -$ (277,772 ) Capital expenditures (4,087 ) (2,317 ) (1,770 ) Other assets (221 ) -
(221 )
Net cash used in investing activities
The increase in cash used for investing activities during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 was primarily due to the acquisition of theIRPF Properties . Financing activities Six Months Ended June 30, Change 2022 2021 2022 vs. 2021 (Dollar amounts in thousands) Total changes related to debt$ 259,784 $ (19,806 ) $ 279,590 Proceeds from the distribution reinvestment plan, net of shares repurchased 1,836 - 1,836 Distributions paid (9,782 ) - (9,782 ) Early termination of interest rate swap agreements (1,021 ) - (1,021 ) Net cash provided by (used in) financing activities$ 250,817 $ (19,806 ) $ 270,623 29
-------------------------------------------------------------------------------- During the six months endedJune 30, 2022 , changes in total debt increased$279.6 million from the six months endedJune 30, 2021 primarily due to an increase of$300 million under our term loan that is part of our credit facility and the use of proceeds from the term loan for the acquisition of theIRPF Properties . During the six months endedJune 30, 2022 , we generated proceeds from the sale of shares pursuant to the DRP of$3.6 million . For the six months endedJune 30, 2022 , share repurchases were$1.8 million . During the six months endedJune 30, 2022 , we paid$9.8 million in distributions. The DRP and the SRP were both reinstated 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 six months ended
Distributions Paid (1)
Six Months Distributions Cash Flows
Ended Distributions Declared Per Reinvested From
June 30, Declared Share Cash via DRP Total Operations
2022 $ 9,792 $ 0.271200 $ 6,111 $ 3,671 $ 9,782 $ 27,428
2021 $ 4,886 $ 0.135600 $ - $ - $ - $ 23,698 (1) Distributions were funded by cash flow from operating activities and cash on
hand during the six 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 . Results of Operations
The following discussions are based on our consolidated financial statements for
the six months ended
This section describes and compares our results of operations for the three and six months endedJune 30, 2022 and 2021. We generate primarily 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. A total of 44 investment properties that were acquired on or beforeJanuary 1, 2021 represent our "same store" properties during the three and six months endedJune 30, 2022 and 2021. "Non-same store," as reflected in the table below, consists of properties acquired afterJanuary 1, 2021 . For the three and six months endedJune 30, 2022 , eight properties that were acquired onMay 17, 2022 constituted non-same store properties. 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 and six months endedJune 30, 2022 and 2021, along with a reconciliation to net loss, calculated in accordance withU.S. GAAP. 30
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Comparison of the three months ended
Total Same Store Non-Same Store
Three Months Ended Three Months Ended Three Months Ended
June 30, June 30, June 30,
2022 2021 Change 2022 2021 Change 2022 2021 Change Rental income
$ 31,587 $ 29,147 $ 2,440 $ 28,793
62 (11 ) 34 62 (28 ) 17 - 17
Total income $ 31,638 $ 29,209 $ 2,429 $ 28,827 Property operating expenses$ 5,545 $ 4,857 $ 688 $ 5,197
3,678 (35 ) 600 - 600
Total property
operating expenses $ 9,788 $ 8,535 $ 1,253 $ 8,840 Property net operating income$ 21,850 $ 20,674 $ 1,176 $ 19,987
Straight-line income (expense), net$ (23 ) $ (115 ) $ 92 Amortization of intangibles and lease incentives 336 139 197 General and administrative expenses (1,351 ) (918 ) (433 ) Business management fee (2,549 ) (2,236 ) (313 ) Depreciation and amortization (13,789 ) (12,218 ) (1,571 ) Interest expense (7,106 ) (5,801 ) (1,305 ) Interest and other (expense) income - 29 (29 ) Net loss$ (2,632 ) $ (446 ) $ (2,186 )
Net loss. Net loss was
Total property net operating income. On a "same store" basis, comparing the results of operations of investment properties owned during the three months endedJune 30, 2022 with the results of the same investment properties owned during the three months endedJune 30, 2021 , property net operating income decreased$687 , total property income decreased$382 , and total property operating expenses including real estate tax expense increased$305 .
The decrease in "same store" total property income is primarily due to a
decrease in recovery income due to a lower recovery percentage during the three
months ended
"Non-same store" total property net operating income increased$1,863 during the three months endedJune 30, 2022 as compared to 2021. The increase is a result of acquiring eight properties onMay 17, 2022 . On a "non-same store" basis, total property income increased$2,811 and total property operating expenses increased$948 during the three months endedJune 30, 2022 as compared to 2021 as a result of these acquisitions. Straight-line income (expense), net. Straight-line income (expense), net decreased$92 in 2022 compared to 2021. This decrease is primarily due to lower rent abatements during the three months endedJune 30, 2022 partially offset by the acquisition of eight properties onMay 17, 2022 . Amortization of intangibles and lease incentives. Income from the amortization of intangibles and lease incentives increased$197 in 2022 compared to 2021. The increase is primarily due to the acquisition ofIRPF Properties .
General and administrative expenses. General and administrative expenses
increased
Business management fee. Business management fees increased
31
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Depreciation and amortization. Depreciation and amortization increased $1,571 in
2022 compared to 2021. The increase is primarily due to the acquisition of eight
properties on May 17, 2022 , partially offset by fully amortized assets in 2022
compared to 2021.
Interest expense. Interest expense increased $1,305 in 2022 compared to 2021.
The increase is primarily due to an increase in average debt outstanding driven
by the acquisition of IRPF Properties .
Interest and other income. Interest and other income decreased
Comparison of the six months ended
Total Same Store Non-Same Store
Six Months Ended Six Months Ended Six Months Ended
June 30, June 30, June 30,
2022 2021 Change 2022 2021 Change 2022 2021 Change Rental income
$ 60,612 $ 58,821 $ 1,791 $ 57,818
110 (30 ) 63 110 (47 ) 17 - 17
Total income $ 60,692 $ 58,931 $ 1,761 $ 57,881 Property operating expenses$ 10,936 $ 10,375 $ 561 $ 10,588 $ 10,375 $ 213 $ 348 -$ 348
Real estate tax expense 7,973 7,348 625 7,373
7,348 25 600 - 600
Total property
operating expenses $ 18,909 $ 17,723 $ 1,186 $ 17,961 $ 17,723 $ 238 $ 948 $ - $ 948
Property net operating
income $ 41,783 $ 41,208 $ 575 $ 39,920 Straight-line income (expense), net$ (274 ) $ (136 ) $ (138 ) Intangible amortization and inducement 474 285 189 General and administrative expenses (2,763 ) (2,231 ) (532 ) Business management fee (4,793 ) (4,470 ) (323 ) Depreciation and amortization (25,643 ) (24,673 ) (970 ) Interest expense (12,673 ) (11,843 ) (830 ) Interest and other income (1 ) 86 (87 ) Net loss$ (3,890 ) $ (1,774 ) $ (2,116 )
Net loss. Net loss was
Total property net operating income. On a "same store" basis, comparing the results of operations of investment properties during the full six months endedJune 30, 2022 with the results of the same investment properties owned during the full six months endedJune 30, 2021 property net operating income decreased$1,288 , total property income decreased$1,050 , and total property operating expenses including real estate tax expense increased$238 .
The decrease in "same store" total property income is primarily due to a
decrease in recovery income due to a lower recovery percentage during the six
months ended
"Non-same store" total property net operating income increased$1,863 during 2022 as compared to 2021. The increase is a result of acquiring eight retail properties onMay 17, 2022 . On a "non-same store" basis, total property income increased$2,811 and total property operating expenses increased$948 during the six months endedJune 30, 2022 as compared to 2021 as a result of these acquisitions. Straight-line income (expense), net. Straight-line income (expense), net increased$138 in 2022 compared to 2021. This increase is primarily due to the acquisition of eight properties onMay 17, 2022 , partially offset by lower rent abatements during the six months endedJune 30, 2022 . Amortization of intangibles and lease incentives. Income from the amortization of intangibles and lease incentives increased$189 in 2022 compared to 2021. The increase is primarily due to the acquisition ofIRPF Properties . 32 --------------------------------------------------------------------------------
General and administrative expenses. General and administrative expenses
increased
Business management fee. Business management fees increased
Depreciation and amortization. Depreciation and amortization increased$970 in 2022 compared to 2021. The decrease is primarily due to the acquisition of eight properties onMay 17, 2022 , partially offset by fully amortized assets in 2022 compared to 2021. Interest expense. Interest expense increased$830 in 2022 compared to 2021. The increase is primarily due to an increase in average debt outstanding driven by the acquisition ofIRPF Properties .
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.
Leasing Activity
The following table sets forth leasing activity during the six months endedJune 30, 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 FootComparable Renewal Leases 49 293,310 $ 17.88 $ 17.00 5.2 % 5.1 $ 1.46 Comparable New Leases 4 6,031 $ 29.59 $ 25.86 14.4 % 6.3 $ 22.41 Non-Comparable New and Renewal Leases (a) 33 119,390 $ 16.68 N/A N/A 7.1 $ 13.80 Total 86 418,731
(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, 33 -------------------------------------------------------------------------------- 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. 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 six months endedJune 30, 2022 and 2021 are calculated as follows: Six Months Ended June 30, 2022 2021 (Dollar amounts in thousands) Net loss$ (3,890 ) $ (1,774 ) Depreciation and amortization related to Add: investment properties 25,643 24,673 Funds from operations (FFO) 21,753 22,899 Amortization of acquired market lease Less: intangibles, net (529 ) (334 ) Straight-line income (expense), net 274 136 Modified funds from operations (MFFO)$ 21,498 $ 22,701 Subsequent Events For information related to subsequent events, reference is made to Note 15 - "Subsequent Events" which is included in ourJune 30, 2022 Notes to Consolidated Financial Statements in Item 1. 34
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