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, 2020 , as filed with theSecurities and Exchange Commission onMarch 18, 2021 , 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 pay, 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
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, 2021
and 2020 and for the year ended December 31, 2020 ;
• 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 has been suspended and may be amended
or terminated in our sole discretion, and even if the SRP is restarted,
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;
• Our charter generally limits the total amount we may borrow to 300% of our
net assets, equivalent to 75% of the costs of our assets;
•
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;
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• 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 anddistributions to stockholders, if any, will be adversely affected; and
• The strategic plan adopted by our board of directors on
which is discussed further below, may 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 or listing our common stock, within the timeframe
we expected or would prefer or at all.
• 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 the way they lease retail
center space; 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, 2021 and 2020 and as of March 31, 2021 and December 31, 2020 . 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 are primarily focused on owning retail properties and have targeted a portfolio of 100% 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 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 5, 2021 , our board of directors determined an estimated per share net asset value of our common stock of$18.08 as ofDecember 31, 2020 . AtMarch 31, 2021 , we had total assets of$1.2 billion on our balance sheet and owned 44 properties located in 21 states containing 6.5 million square feet. A majority of our properties are multi-tenant, necessity-based retail shopping centers primarily located in major regional markets and growing secondary markets throughoutthe United States . As ofMarch 31, 2021 , 86% 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 15.5% of our annualized base rent as ofMarch 31, 2021 ("ABR"). 21 --------------------------------------------------------------------------------
COVID-19 Pandemic
We are closely monitoring 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. In the first quarter of 2021, we recognized
bad debt recoveries of $1.1 million , based on favorable trends in collections
from our tenants impacted by the pandemic. See Note 5 - "Leases" for additional
information. 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.
In addition, we cannot predict the entire impact that COVID-19 will have on our tenants and other business partners, such as vendors and service providers; however, any material further effect on these parties would continue to adversely impact us.
As ofMay 10, 2021 , many tenants continue to operate in a reduced capacity. The chart below shows (1) cash rent payments received as a percentage of the tenant's rental obligations before deferrals agreed upon following the onset of the pandemic, and (2) cash rents received in each month, in each case beginning withMarch 2020 , which is the month theWorld Health Organization declared the outbreak of COVID-19 a pandemic, through the most recent month for which meaningful data was available. SinceSeptember 2020 , the Company has not granted a material amount of new deferrals, and collections of amounts due since that time have been at levels consistent with collections before the onset of the pandemic. Cash rent payments Cash rent payments collected as a percentage of received
during the
rent that would have been owed before deferrals month (without
negotiated since the onset of the COVID-19 applying the cash to
pandemic, applying cash received to the amounts any particular
before deferrals that would have been amount due) (in
outstanding for the longest period of time millions of $'s)
As of March 15, 2021 As of May 5, 2021 As of May 5, 2021
March 2020 95% 95% $8.4
April 2020 86% 92% $5.7
May 2020 80% 90% $6.8
June 2020 80% 87% $8.5
July 2020 90% 92% $10.0
August 2020 93% 93% $9.6
September 2020 98% 98% $8.5
October 2020 99% 99% $10.2
November 2020 97% 98% $10.8
December 2020 96% 97% $10.0
January 2021 96% 98% $8.9
February 2021(1) 91% 97% $11.3
March 2021(1) N/A 98% $12.2
April 2021 N/A 95% $10.0 (1) Cash collections in February and
part because of the payment by tenants of real estate tax reconciliations
that tenants typically have one to three months to pay at the beginning of
the year and which were paid primarily during these two months.
Payment plans mostly in the form of rent deferrals have been agreed upon since
the onset of the pandemic on March 11, 2020 , with respect to leases comprising
8.9% of ABR. Deferred amounts represented $5.9 million in total rent, or
approximately 6.5% of ABR, and modifications and rent abatements represented
$2.2 million in total rent, or 2.4% of ABR, in each case at the time they were
granted. Deferrals and abatements agreed upon with anchor tenants represented
$4.7 million in rent, versus $3.4 million agreed upon with junior box and
small-shop tenants. As of March 31, 2021 and December 31, 2020 , the deferred
rent receivable related to COVID-19 agreements negotiated with tenants was $3.3
million and $4.5 million , respectively. We have sent some tenants notices of
default, including to one of our ten largest tenants by ABR, which has since
resumed paying rent and with which we have settled with respect to unpaid
amounts we believed we were owed, recognizing only an immaterial write-off for
the unpaid amount we did not receive. March and April collections and rent
relief requests to-date may not be indicative of collections or requests in any
future period.
We are closely monitoring the impact of the COVID-19 pandemic on the
collectability of lease payments. The full impact of the COVID-19 pandemic on
our future rental revenue cannot, however, be determined at present. The
deferral periods for tenants averaged four months, and almost all deferral
periods have ended. While some payments from tenants of deferred amounts began
during the fourth quarter of 2020, the vast majority will be due throughout
2021. If tenants cannot or will not pay these deferred amounts of rent in
addition to their normal rent due, they may request additional deferrals, breach
their lease agreements with us, cease doing business, file for bankruptcy or
some combination of the foregoing, any of which may have adverse effects on our
operating results or financial position. Although vaccinations have begun, the
situation surrounding the COVID-19 pandemic remains fluid, and
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we are actively managing our response in collaboration with tenants, government
officials and business partners and assessing potential impacts to our financial
position and operating results, as well as potential adverse developments in our
business.
Of our bad debt reserve as of March 31, 2021 and December 31, 2020 , we estimated
that 28% and 56%, respectively, was from tenants significantly affected by the
pandemic, especially apparel and restaurant tenants, and several of the apparel
tenants had filed for bankruptcy. Tenants representing 11 locations and $2.2
million ABR (2.4% of total ABR) were receiving bankruptcy protection during the
fourth quarter 2020. These bankruptcies had no material impact on our results of
operations, and as of March 31, 2021 , we have no tenants in bankruptcy.
Despite our best efforts, to the extent that the effects of the pandemic
continue for a prolonged period of time or become more severe, the effects of
the pandemic, including governmental restrictions imposed to combat the
pandemic, would be likely to result in additional tenant requests for deferrals
or other lease modifications, failures to pay rent, bad debt expense or
vacancies in the future. Conversely, if the ongoing vaccination effort is
successful in allowing for retail business to operate at increased or
pre-pandemic levels, or an affordable effective treatment for COVID-19 is
developed, pent-up demand may follow for products and services such as those
provided by restaurants, health, wellness and personal care service providers
and apparel and accessory retailers.
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.
For further information regarding the potential impact of COVID-19 on the Company, see Part II, Item 1A titled "Risk Factors."
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."
Company Update - Strategic Plan
OnFebruary 11, 2019 , our board of directors approved a strategic plan with the goal of providing a future liquidity to investors and creating long-term stockholder value. The strategic plan has centered around owning a portfolio of 100% 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 682 leased spaces, there are 109 non-grocery big box (anchor spaces of at least 10,000 square feet) and five vacant big box spaces in the portfolio as ofApril 30, 2021 . We plan to move toward a liquidity event in the future, market conditions permitting, most likely through a listing on a public securities exchange. As part of the strategic plan, we preliminarily identified a select number of properties we would consider selling and marketed them. As further described in Note 4 - "Dispositions", we have completed the sale of three of the selected properties in the first quarter of 2020. We are not actively marketing any properties as of the date of this quarterly report on Form 10-Q. The strategic plan may evolve or change over time. For example, we may decide to focus more on redeveloping existing properties relative to investing in new grocery-anchored centers, depending on such factors, including, but not limited to, market prices for our properties, availability of capital for redevelopment and construction costs. There is no assurance we will be able to successfully implement the strategic plan, including making strategic sales or purchases of properties or listing our common stock, and we believe that no liquidity event or strategic sales will occur before the adverse effects of the COVID-19 pandemic on the economy and the retail commercial real estate market subside. 23
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SELECT PROPERTY INFORMATION (All dollar amounts in thousands, except per square
foot amounts)
Investment Properties
As of March 31, 2021
Number of properties 44
Purchase price $ 1,346,514
Total square footage 6,469,300
Weighted average physical occupancy 91.9 %
Weighted average economic occupancy 92.4 %
Weighted average remaining lease term (years) 4.8
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-------------------------------------------------------------------------------- The table below presents information for each of our investment properties as ofMarch 31, 2021 . 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 159,258 96.1 % 96.1 % - - Park Avenue (a) Little Rock, AR 79,131 66.7 % 89.9 % - - 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 67,034 100.0 % 100.0 % - -MidTowne Shopping Center (a) Little Rock, AR 126,288 82.9 % 82.9 % - - Dogwood Festival (a) Flowood, MS 187,610 80.7 % 80.7 % - - Pick N Save Center (a) West Bend, WI 94,446 98.4 % 98.4 % - - Harris Plaza (a) Layton, UT 125,965 61.6 % 61.6 % - - Dixie Valley Louisville, KY 119,981 92.5 % 92.5 % 6,798 3.43 % The Landings at Ocean Isle (a) Ocean Isle, NC 53,203 94.9 % 94.9 % - - Shoppes atPrairie Ridge (a) Pleasant Prairie, WI 232,606 97.2 % 97.2 % - - Harvest Square Harvest, AL 70,590 92.1 % 92.1 % 6,339 4.65 % Heritage Square Conyers, GA 22,510 95.8 % 95.8 % 4,460 5.10 % The Shoppes atBranson Hills (a) Branson, MO 256,329 86.6 % 86.6 % - - 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 86.1 % 86.1 % - - 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 Athens, AL 79,675 85.7 % 85.7 % 5,889 4.60 % Fairgrounds Crossing Hot Springs, AR 155,127 98.5 % 98.5 % 13,453 5.21 %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 Jacksonville, NC 42,219 79.0 % 79.0 % 4,650 5.30 % Frisco Marketplace (a) Frisco, TX 112,024 89.7 % 93.6 % - - White City Shrewsbury, MA 256,974 93.9 % 93.9 % 48,501 3.24 % Yorkville Marketplace (a) Yorkville, IL 111,591 93.6 % 93.6 % - - Shoppes at Market Pointe Papillion, NE 253,903 98.2 % 98.2 % 13,700 3.30 % Marketplace at El Paseo Fresno, CA (a) 224,683 92.6 % 93.4 % - - The Village at Burlington Kansas City, MO Creek 157,937 76.4 % 76.4 % 17,625 4.25 % Milford Marketplace Milford, CT 111,720 79.8 % 79.8 % 18,727 4.02 % Settlers Ridge Pittsburgh, PA 473,763 91.7 % 91.7 % 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 88.7 % 88.7 % - - Marketplace at Tech Newport News, VA Center 210,501 72.9 % 77.9 % 47,550 3.15 % Coastal North Town Center Myrtle Beach, SC 303,307 95.3 % 95.3 % 43,680 3.17 % Oquirrh Mountain South Jordan, UT Marketplace II (a) 10,150 100.0 % 100.0 % - - Wilson Marketplace (a) Wilson, NC 311,030 98.1 % 98.1 % - - Pentucket Shopping Center Plaistow, NH 198,469 98.0 % 98.0 % 14,700 3.65 % Coastal North Town Center Myrtle Beach, SC - Phase II 6,588 100.0 % 100.0 % - - Portfolio total 6,469,300 91.9 % 92.4 %$ 361,704 3.69 %
(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, 2021 . 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 $ 3,374 3.7 %$ 13.52 249,493 3.9 % The TJX Companies, Inc. 12 3,072 3.4 % 9.97 308,253 4.8 % Ross Dress for Less, Inc. 10 2,673 3.0 % 10.20 262,080 4.0 % Albertsons/Jewel/Shaw's 2 2,304 2.5 % 18.02 127,892 2.0 % Ulta Salon, Cosmetics & Fragrance Inc. 9 2,178 2.4 % 23.00 94,658 1.5 % 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 1,966 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 55$ 23,304 25.7 %$ 12.18 1,913,121 29.6 %
(a) We have entered into rent deferral agreements with the 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 1,295,596 21.7 % 11.2 %
Grocery 1,084,647 18.1 % 15.5 %
Home Goods 952,502 15.9 % 9.1 %
Lifestyle, Health Clubs, Books & Phones 735,294 12.3 % 16.4 %
Restaurant 516,776 8.6 % 16.7 %
Apparel & Accessories 384,179 6.4 % 8.9 %
Pet Supplies 245,245 4.1 % 4.3 %
Consumer Services, Salons, Cleaners, Banks 243,312 4.1 % 7.4 %
Sporting Goods 206,270 3.5 % 2.9 %
Health, Doctors & Health Foods 168,504 2.8 % 5.3 %
Other 147,307 2.5 % 2.3 %
Total 5,979,632 100.0 % 100.0 %
The following table sets forth a summary, as of March 31, 2021 , of the percent
of total annualized base rent and the weighted average lease expiration by size
of tenant.
Percent of Weighted
Total Average Lease
Description - Annualized Base Expiration -
Size of Tenant Square Footage Rent Years
Anchor 10,000 and over 52 % 5.6
Junior Box 5,000-9,999 14 % 4.8
Small Shop Less than 5,000 34 % 3.5
Total 100 % 4.8
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Lease Expirations The following table sets forth a summary, as ofMarch 31, 2021 , of lease expirations scheduled to occur during the remainder of 2021 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, 2021 . Annualized base rent represents the rent in-place of the applicable property atMarch 31, 2021 . The table below includes ground leases. If ground leases are excluded, annualized base rent would equal$81,575 or$17.59 per square foot for total expiring leases. Gross Leasable Percent of Percent of Area of Total Gross Total Total Expiring Leasable Annualized Annualized Annualized Number of Leases - Area of Base Rent Base Rent Base Rent Expiring Square Expiring of Expiring of Expiring per Leased Lease Expiration Year Leases Footage Leases Leases Leases Square Foot 2021 (including month-to-month) 72 225,378 3.8 %$ 4,386 4.8 %$ 19.46 2022 96 585,673 9.8 % 10,536 11.6 % 17.99 2023 111 943,397 15.8 % 12,860 14.2 % 13.63 2024 109 785,061 13.1 % 14,723 16.3 % 18.75 2025 121 830,098 13.9 % 15,115 16.7 % 18.21 2026 61 447,181 7.5 % 7,050 7.8 % 15.77 2027 29 393,969 6.6 % 5,250 5.8 % 13.33 2028 31 599,878 10.0 % 6,268 6.9 % 10.45 2029 13 171,691 2.9 % 2,471 2.7 % 14.39 2030 14 135,038 2.3 % 2,126 2.4 % 15.74 Thereafter 25 862,268 14.4 % 9,754 10.8 % 11.31 Leased Total 682 5,979,632 100.0 %$ 90,539 100.0 %$ 15.14 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 (when
distributions are paid and reinvested)
• • Proceeds from new or refinanced
General and administrative expenses mortgage loans
• Distributions to stockholders (none • Borrowing on our Credit Facility
paid since
and Real Estate
Manager
• Repurchases of shares under the SRP • Proceeds from sales of securities (if
(only if there are DRP proceeds) any) other than through the DRP • Acquisitions of real estate directly or through joint ventures • Capital expenditures, tenant
improvements and leasing commissions
AtMarch 31, 2021 , we had$109 million outstanding under the Revolving Credit Facility and$150 million outstanding under the Term Loan. AtMarch 31, 2021 the interest rate on the Revolving Credit Facility and the Term Loan was 2.15% and 4.65%, respectively. The Revolving Credit Facility matures onAugust 1, 2022 , and we have the option to extend the maturity date for one additional year subject to the payment of an extension fee and certain other conditions. The Term Loan matures onAugust 1, 2023 . As ofMarch 31, 2021 , we had$91 million available for borrowing under the Revolving Credit Facility, subject to the terms and conditions, and assuming compliance with the covenants, of the Amended and Restated Credit Agreement that governs the Credit Facility. Although$91 million is the maximum available, covenant limitations, particularly the leverage ratio, affect what we can actually draw, and we expect to have substantially less than$91 million actually available to draw or otherwise undertake as additional debt in the second quarter of 2021, and we will likely have less than$91 million actually available to draw or undertake as additional debt through 2021, depending on the future effects of the pandemic on our tenants, among other things. By "additional debt," we mean debt in addition to existing debt such as existing mortgages. Our leverage ratio generally cannot exceed 60%, provided however that two times during the term of our Revolving Credit Facility our leverage ratio may be 62.5% for two consecutive quarters. Our leverage ratio was 55.2% as ofMarch 31, 2021 , as defined in the Revolving Credit Facility agreement. DuringJanuary 2020 , we completed the sale of three properties generating net proceeds of$37.3 million . We are not currently actively marketing any properties and do not expect any strategic sales to occur until the effects of the COVID-19 pandemic on retail commercial real estate have subsided. As ofMarch 31, 2021 , we had total debt outstanding of$620.7 million , excluding mortgage premiums and unamortized debt issuance costs, which bore interest at a weighted average interest rate of 3.65% per annum. As ofMarch 31, 2021 , the weighted average years to maturity for our debt was 2.4 years. As ofMarch 31, 2021 andDecember 31, 2020 , our borrowings were 46% and 47%, respectively, of the purchase price of our investment properties. AtMarch 31, 2021 our cash and cash equivalents balance was$11.6 million .
In the next twelve months, we have five mortgage loans maturing with an
aggregate principal balance of
To preserve cash for the payment of operating and other expenses, such as debt payments, our board of directors has suspended distributions. Our board of directors has also suspended our DRP and SRP until further notice. The suspension of the DRP was effective onJune 6, 2020 and the suspension of the SRP was effective onJune 26, 2020 . Any unfulfilled repurchase requests will automatically roll over for processing under the terms and conditions of the SRP when we restart our plan, unless a stockholder withdraws the request for repurchase. We have also delayed making non-essential capital improvements and other non-essential capital expenditures at our properties since the onset of the pandemic, where possible, to reduce expenses and preserve cash and expect to continue to delay non-essential capital expenditures until they become essential or until the adverse effects of the COVID-19 pandemic on our tenants subside or there is better clarity on our tenants' ability and willingness to pay rent and meet other lease 28
-------------------------------------------------------------------------------- obligations and, ultimately, the performance of our shopping centers. As we have seen rent collections increasing during 2021, we have been gradually returning to 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 first quarter of 2021, we spent$496 less (44% less) on capital expenditures than we did in the first quarter of 2020. Because we intend to gradually increase capital expenditures as rent collections increase, we do not anticipate a material effect on our liquidity from returning to pre-pandemic levels of capital expenditures, assuming the businesses of our tenants negatively affected by the COVID-19 pandemic continue to improve or they otherwise pay their rent. OnSeptember 29, 2020 , we entered into a first amendment to the Company's Amended and Restated Credit Agreement dated as ofAugust 1, 2018 withKeyBank National Association individually and as administrative agent,KeyBanc Capital Markets Inc. ,PNC Capital Markets LLC andMerrill Lynch Pierce, Fenner & Smith Incorporated (nowBofA Securities, Inc. ) as joint lead arrangers, and other lenders from time to time parties to the agreement. This amendment provides a waiver of the minimum tangible net worth requirement for three consecutive quarters beginning with the quarter endedSeptember 30, 2020 . In exchange, we agreed that our leverage ratio may be increased only to 62.5% (formerly 65%) for two consecutive fiscal quarters two times prior to the facility termination date, that we are restricted, during this waiver period, from making any share repurchases or distributions without lender approval, and that a LIBOR floor of 25 basis points will remain in effect for the remainder of the term. As ofMarch 31, 2021 , we have paid all interest and principal amounts when due, and are in compliance with all financial covenants related to the Credit Facility as amended. See the Risk Factors section of our Annual Report on Form 10-K for discussion of risks stemming from our use of debt and a potential failure to comply with a covenant under the Credit Facility. Cash Flow Analysis Three Months Ended March 31, Change 2021 2020 2021 vs. 2020 (Dollar amounts in thousands) Net cash flows provided by operating activities$ 10,616 $ 9,555 $ 1,061 Net cash flows (used in) provided by investing activities$ (622 ) $ 36,137 $ (36,759 ) Net cash flows used in financing activities$ (10,313 ) $ (44,752 ) $ 34,439 Operating activities The increase in cash from operating activities during the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 was primarily due to an increase in tenant collections during 2021. Investing activities Three Months Ended March 31, Change 2021 2020 2021 vs. 2020 (Dollar amounts in thousands) Capital expenditures$ (622 ) $ (1,118 ) $ 496 Proceeds from sale of investment properties - 37,255 (37,255 ) Net cash (used in) provided by investing activities$ (622 ) $ 36,137
Cash was used by our investing activities in the three months endedMarch 31, 2021 compared to the cash provided in the three months endedMarch 31, 2020 . The primary reason for the change from the prior year was our receipt of$37.3 million of proceeds from the sale of three properties duringJanuary 2020 . 29 --------------------------------------------------------------------------------
Financing activities
Three Months Ended
March 31, Change
2021 2020 2021 vs. 2020
(Dollar amounts in thousands)
Total changes related to debt $ (10,313 ) $ (36,078 ) $ 25,765
Proceeds from the distribution reinvestment
plan, net of shares repurchased - 2,167 (2,167 )
Distributions paid - (10,841 ) 10,841
Net cash used in financing activities $ (10,313 ) $ (44,752 ) $ 34,439
During the three months ended March 31, 2021 , cash used by debt decreased
$25.8 million from the three months ended March 31, 2020 primarily due to higher
net paydowns of debt in the three months ended March 31, 2020 . During the three
months ended March 31, 2020 , we generated proceeds from the sale of shares
pursuant to the DRP of $4.5 million . For the three months ended March 31, 2020 ,
share repurchases were $2.4 million . During the three months ended March 31,
2020 , we paid $10.8 million in distributions. The decreases in distributions
paid, proceeds from DRP and share repurchases in 2021 compared to 2020 are due
to the suspensions of the authorization and payment of distributions, the DRP
and the SRP, respectively.
Distributions
For 2021 and 2020, distributions were payable quarterly in arrears. A summary of
the distributions declared, distributions paid and cash flows provided by
operations for the three months ended March 31, 2021 and 2020 follows (Dollar
amounts in thousands except per share amounts):
Distributions Paid (2)
Three
Months Distributions Cash Flows
Ended Distributions Declared Per Reinvested From
March 31, Declared (1) Share Cash via DRP Total Operations
2021 $ - $ - $ - $ - $ - $ 10,616
2020 $ 8,173 $ 0.226875 $ 6,294 $ 4,547 $ 10,841 $ 9,555 (1) The distribution declared during the first quarter of 2020 was rescinded
during the second quarter.
(2) Distributions were funded by cash flow from operations and cash on hand
during the three months ended
was declared in the fourth quarter of 2019.
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, our board of directors suspended distributions until further notice.
Results of Operations
The following discussions are based on our consolidated financial statements for the three months endedMarch 31, 2021 and 2020. Dollar amounts are stated in thousands. This section describes and compares our results of operations for the three months endedMarch 31, 2021 and 2020. We generate almost all of our net operating income from property operations. In order to evaluate our overall portfolio, management analyzes the net operating income of properties that we have owned and operated for both periods presented, which is a supplemental non-GAAP performance measure. A total of 44 investment properties (which are all of the properties we currently own) that were acquired on or beforeJanuary 1, 2020 represent our "same store" properties during the three months endedMarch 31, 2021 and 2020. "Non-same store," as reflected in the table below, consists of properties sold afterJanuary 1, 2020 . For the three months endedMarch 31, 2021 and 2020, three properties that were sold constituted non-same store properties. We believe that net operating income 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 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. 30 -------------------------------------------------------------------------------- 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, 2021 and 2020, along with a reconciliation to net loss, calculated in accordance withU.S. GAAP.
Comparison of the three months ended
Total Same Store Non-Same Store
Three Months Ended Three Months Ended Three Months Ended
March 31, March 31, March 31,
2021 2020 Change 2021 2020 Change 2021 2020 Change Rental income
$ 29,674 $ 29,989 $ (315 ) $ 29,674
61 (13 ) 48 61 (13 ) - - -
Total income $ 29,722 $ 30,050 $ (328 ) $ 29,722 Property operating expenses$ 5,518 $ 5,296 $ 222 $ 5,518
3,600 70 - 38 (38 )
Total property
operating expenses $ 9,188 $ 8,934 $ 254 $ 9,188 Property net operating income$ 20,534 $ 21,116 $ (582 ) $ 20,534 $ 21,008 $ (474 ) $ - 108$ (108 ) Straight-line income (expense), net$ (21 ) $ (62 ) $ 41 Amortization of intangibles and lease incentives$ 146 572 (426 ) General and administrative expenses (1,313 ) (1,240 ) (73 ) Business management fee (2,234 ) (2,229 ) (5 ) Depreciation and amortization (12,455 ) (13,304 ) 849 Interest expense (6,042 ) (6,498 ) 456 Interest and other income 57 24 33 Net loss$ (1,328 ) $ (1,621 ) $ 293
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 endedMarch 31, 2021 with the results of the same investment properties owned during the three months endedMarch 31, 2020 , property net operating income decreased$474 , total property income decreased$145 , and total property operating expenses including real estate tax expense increased$329 . The decrease in "same store" total property income is primarily due to a decrease in base rent due to lower average occupancy and lower average rents due to the effects of the COVID-19 pandemic and a decrease in termination income, partially offset by an increase in tenant recovery income during the three months endedMarch 31, 2021 . See Note 5 - "Leases" for additional information regarding the effects of deferred rent and bad debt on rental income. "Non-same store" total property net operating income decreased$108 during 2021 compared to 2020. The decrease was due to three properties sold in the first quarter of 2020. On a "non-same store" basis, total property income decreased$183 and total property operating expenses decreased$75 during the three months endedMarch 31, 2021 . Straight-line income (expense), net. Straight-line income (expense), net increased$41 in 2021 compared to 2020. This increase is primarily due to an increase in buildout rent abatements during the three months endedMarch 31, 2021 . Amortization of intangibles and lease incentives. Income from the amortization of intangibles and lease incentives decreased$426 in 2021 compared to 2020. The decrease is primarily attributable to lower below market intangible write-offs during the three months endedMarch 31, 2021 .
General and administrative expenses. General and administrative expenses
increased
31
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Business management fee. Business management fees decreased
Depreciation and amortization. Depreciation and amortization decreased
Interest expense. Interest expense decreased
Interest and other income. Interest and other income increased
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Leasing Activity
The following table sets forth leasing activity during the three months endedMarch 31, 2021 . 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 15 68,453 $ 18.03 $ 18.36 (1.8 )% 3.8 $ - Comparable New Leases - - - - - - - Non-Comparable New and Renewal Leases (a) 11 53,266 $ 21.93 N/A N/A 3.1 $ 5.18 Total 26 121,719
(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.
Lease extensions are treated as renewals and included in the above table only if
the lease extension period exceeds any abatement period. Six leases comprising
26,701 square feet (27% of total renewal square footage) renewed during the
three months ended March 31, 2021 were extended early in connection with
COVID-19 related abatement or deferral agreements.
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, 32 -------------------------------------------------------------------------------- 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. 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, 2021 and 2020 are calculated as follows: Three Months Ended March 31, 2021 2020 (Dollar amounts in thousands) Net loss $ (1,328 )$ (1,621 ) Depreciation and amortization related to Add: investment properties 12,455 13,304 Funds from operations (FFO) 11,127 11,683 Amortization of acquired market lease Less: intangibles, net (170 ) (595 ) Straight-line income (expense), net 21 62 Modified funds from operations (MFFO) $ 10,978$ 11,150 33
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Subsequent Events
For information related to subsequent events, reference is made to Note 15 -
"Subsequent Events" which is included in our
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