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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____________ TO ____________

COMMISSION FILE NUMBER: 000-55146

Inland Real Estate Income Trust, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland

45-3079597

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2901 Butterfield Road, Oak Brook, Illinois

60523

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: 630-218-8000

Former name, former address and former fiscal year, if changed since last report: Not Applicable

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

None

 

None

 

None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐

 

Accelerated filer

☐

Non-accelerated filer

☒

 

Smaller reporting company

☐

Emerging growth company

☐

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of November 6, 2024, there were 36,108,936 shares of the registrant’s common stock, $.001 par value, outstanding.

 

 

INLAND REAL ESTATE INCOME TRUST, INC.

TABLE OF CONTENTS

 

 

 

Page

 

 

Part I - Financial Information

 

Item 1.

 

Financial Statements

 

 

 

 

Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023

3

 

 

 

Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2024 and 2023 (unaudited)

4

 

 

 

Consolidated Statements of Equity for the three months ended September 30, 2024 and 2023 (unaudited)

5

 

 

 

 

 

 

Consolidated Statements of Equity for the nine months ended September 30, 2024 and 2023 (unaudited)

6

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (unaudited)

7

 

 

 

Notes to Consolidated Financial Statements (unaudited)

9

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

31

 

 

Item 4.

 

Controls and Procedures

32

 

 

 

 

Part II - Other Information

 

Item 1.

 

Legal Proceedings

32

 

 

Item 1A.

 

Risk Factors

32

 

 

Item 2.

 

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Repurchases of Securities

33

 

 

Item 3.

 

Defaults Upon Senior Securities

34

 

 

Item 4.

 

Mine Safety Disclosures

34

 

 

Item 5.

 

Other Information

34

 

 

Item 6.

 

Exhibits

34

 

 

Signatures

35

 

 

2

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share amounts)

 

 

 

 

September 30, 2024
(unaudited)

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

Investment properties held and used:

 

 

 

 

 

 

Land

 

$

330,456

 

 

$

330,456

 

Building and other improvements

 

 

1,220,339

 

 

 

1,209,740

 

Total

 

 

1,550,795

 

 

 

1,540,196

 

Less accumulated depreciation

 

 

(371,608

)

 

 

(335,700

)

Net investment properties held and used

 

 

1,179,187

 

 

 

1,204,496

 

Cash and cash equivalents

 

 

10,911

 

 

 

5,975

 

Restricted cash

 

 

480

 

 

 

479

 

Accounts and rent receivable

 

 

22,940

 

 

 

23,645

 

Acquired lease intangible assets, net

 

 

52,368

 

 

 

61,827

 

Operating lease right-of-use asset, net

 

 

13,454

 

 

 

13,745

 

Other assets

 

 

23,809

 

 

 

33,873

 

Total assets

 

$

1,303,149

 

 

$

1,344,040

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Mortgages and credit facility payable, net

 

$

835,533

 

 

$

843,890

 

Accounts payable and accrued expenses

 

 

15,026

 

 

 

11,182

 

Operating lease liability

 

 

25,211

 

 

 

24,992

 

Distributions payable

 

 

4,896

 

 

 

4,905

 

Acquired intangible liabilities, net

 

 

34,872

 

 

 

37,420

 

Due to related parties

 

 

2,764

 

 

 

2,796

 

Other liabilities

 

 

10,839

 

 

 

10,500

 

Total liabilities

 

 

929,141

 

 

 

935,685

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $.001 par value, 40,000,000 shares authorized, none outstanding

 

 

—

 

 

 

—

 

Common stock, $.001 par value, 1,460,000,000 shares authorized, 36,099,468 and
  36,163,852 shares issued and outstanding as of September 30, 2024 and December
   31, 2023, respectively

 

 

36

 

 

 

36

 

Additional paid in capital

 

 

816,118

 

 

 

816,047

 

Accumulated distributions and net loss

 

 

(457,300

)

 

 

(432,854

)

Accumulated other comprehensive income

 

 

15,154

 

 

 

25,126

 

Total stockholders’ equity

 

 

374,008

 

 

 

408,355

 

Total liabilities and stockholders’ equity

 

$

1,303,149

 

 

$

1,344,040

 

 

See accompanying notes to consolidated financial statements.

3

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited, dollar amounts in thousands, except per share amounts)

 

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Income:

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

37,198

 

 

$

36,324

 

 

$

111,985

 

 

$

111,259

 

Other property income

 

 

141

 

 

 

93

 

 

 

321

 

 

 

235

 

Total income

 

 

37,339

 

 

 

36,417

 

 

 

112,306

 

 

 

111,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

7,582

 

 

 

6,960

 

 

 

22,318

 

 

 

21,031

 

Real estate tax expense

 

 

4,483

 

 

 

4,508

 

 

 

13,976

 

 

 

14,023

 

General and administrative expenses

 

 

1,332

 

 

 

1,168

 

 

 

4,310

 

 

 

3,927

 

Business management fee

 

 

2,236

 

 

 

2,306

 

 

 

6,722

 

 

 

7,322

 

Depreciation and amortization

 

 

14,610

 

 

 

14,535

 

 

 

43,763

 

 

 

44,675

 

Total expenses

 

 

30,243

 

 

 

29,477

 

 

 

91,089

 

 

 

90,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(10,402

)

 

 

(10,727

)

 

 

(31,218

)

 

 

(31,942

)

Interest and other income

 

 

99

 

 

 

77

 

 

 

253

 

 

 

152

 

Net loss

 

$

(3,207

)

 

$

(3,710

)

 

$

(9,748

)

 

$

(11,274

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.09

)

 

$

(0.10

)

 

$

(0.27

)

 

$

(0.31

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic and diluted

 

 

36,109,239

 

 

 

36,190,954

 

 

 

36,130,529

 

 

 

36,205,258

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(3,207

)

 

$

(3,710

)

 

$

(9,748

)

 

$

(11,274

)

Unrealized (loss) gain on derivatives

 

 

(10,230

)

 

 

7,969

 

 

 

3,023

 

 

 

17,594

 

Reclassification adjustment for amounts included in net loss

 

 

(4,336

)

 

 

(4,270

)

 

 

(12,995

)

 

 

(11,604

)

Comprehensive loss

 

$

(17,773

)

 

$

(11

)

 

$

(19,720

)

 

$

(5,284

)

 

See accompanying notes to consolidated financial statements.

4

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, dollar amounts in thousands, except per share amounts)

 

 

For the Three Months Ended September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

Number
of
Shares

 

Common
Stock

 

Additional
Paid in
Capital

 

Accumulated
Distributions
and
Net Loss

 

Accumulated
Other
Comprehensive
Income

 

Total

 

Balance at June 30, 2024

 

36,120,853

 

$

36

 

$

816,094

 

$

(449,196

)

$

29,720

 

$

396,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions declared ($0.135600 per share)

 

—

 

 

—

 

 

—

 

 

(4,897

)

 

—

 

 

(4,897

)

Proceeds from distribution reinvestment plan

 

85,651

 

 

—

 

 

1,642

 

 

—

 

 

—

 

 

1,642

 

Shares repurchased

 

(107,036

)

 

—

 

 

(1,642

)

 

—

 

 

—

 

 

(1,642

)

Unrealized loss on derivatives

 

—

 

 

—

 

 

—

 

 

—

 

 

(10,230

)

 

(10,230

)

Reclassification adjustment for amounts
   included in net loss

 

—

 

 

—

 

 

—

 

 

—

 

 

(4,336

)

 

(4,336

)

Equity-based compensation

 

—

 

 

—

 

 

24

 

 

—

 

 

—

 

 

24

 

Net loss

 

—

 

 

—

 

 

—

 

 

(3,207

)

 

—

 

 

(3,207

)

Balance at September 30, 2024

 

36,099,468

 

$

36

 

$

816,118

 

$

(457,300

)

$

15,154

 

$

374,008

 

 

For the Three Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Number
of
Shares

 

Common
Stock

 

Additional
Paid in
Capital

 

Accumulated
Distributions
and
Net Loss

 

Accumulated
Other
Comprehensive
Income

 

Total

 

Balance at June 30, 2023

 

36,196,116

 

$

36

 

$

815,874

 

$

(415,474

)

$

36,461

 

$

436,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions declared ($0.135600 per share)

 

—

 

 

—

 

 

—

 

 

(4,916

)

 

—

 

 

(4,916

)

Proceeds from distribution reinvestment plan

 

87,720

 

 

—

 

 

1,742

 

 

—

 

 

—

 

 

1,742

 

Shares repurchased

 

(101,505

)

 

—

 

 

(1,612

)

 

—

 

 

—

 

 

(1,612

)

Unrealized gain on derivatives

 

—

 

 

—

 

 

—

 

 

—

 

 

7,969

 

 

7,969

 

Reclassification adjustment for amounts
   included in net loss

 

—

 

 

—

 

 

—

 

 

—

 

 

(4,270

)

 

(4,270

)

Equity-based compensation

 

—

 

 

—

 

 

20

 

 

—

 

 

—

 

 

20

 

Net loss

 

—

 

 

—

 

 

—

 

 

(3,710

)

 

—

 

 

(3,710

)

Balance at September 30, 2023

 

36,182,331

 

$

36

 

$

816,024

 

$

(424,100

)

$

40,160

 

$

432,120

 

 

See accompanying notes to consolidated financial statements.

 

5

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, dollar amounts in thousands, except per share amounts)

 

 

For the Nine Months Ended September 30, 2024

 

 

 

 

 

 

 

 

Number
of
Shares

 

Common
Stock

 

Additional
Paid in
Capital

 

Accumulated
Distributions
and
Net Loss

 

Accumulated
Other
Comprehensive
Income

 

Total

 

Balance at December 31, 2023

 

36,163,852

 

$

36

 

$

816,047

 

$

(432,854

)

$

25,126

 

$

408,355

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions declared ($0.406800 per share)

 

—

 

 

—

 

 

—

 

 

(14,698

)

 

—

 

 

(14,698

)

Proceeds from distribution reinvestment plan

 

257,816

 

 

—

 

 

5,001

 

 

—

 

 

—

 

 

5,001

 

Shares repurchased

 

(322,200

)

 

—

 

 

(5,001

)

 

—

 

 

—

 

 

(5,001

)

Unrealized gain on derivatives

 

—

 

 

—

 

 

—

 

 

—

 

 

3,023

 

 

3,023

 

Reclassification adjustment for amounts
   included in net loss

 

—

 

 

—

 

 

—

 

 

—

 

 

(12,995

)

 

(12,995

)

Equity-based compensation

 

—

 

 

—

 

 

71

 

 

—

 

 

 

 

71

 

Net loss

 

—

 

 

—

 

 

—

 

 

(9,748

)

 

—

 

 

(9,748

)

Balance at September 30, 2024

 

36,099,468

 

$

36

 

$

816,118

 

$

(457,300

)

$

15,154

 

$

374,008

 

 

For the Nine Months Ended September 30, 2023

 

 

 

 

 

 

 

 

Number
of
Shares

 

Common
Stock

 

Additional
Paid in
Capital

 

Accumulated
Distributions
and
Net Loss

 

Accumulated
Other
Comprehensive
Income

 

Total

 

Balance at December 31, 2022

 

36,184,058

 

$

36

 

$

814,949

 

$

(398,097

)

$

34,170

 

$

451,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions declared ($0.406800 per share)

 

—

 

 

—

 

 

—

 

 

(14,729

)

 

—

 

 

(14,729

)

Proceeds from distribution reinvestment plan

 

263,598

 

 

—

 

 

5,264

 

 

—

 

 

—

 

 

5,264

 

Shares repurchased

 

(266,794

)

 

—

 

 

(4,253

)

 

—

 

 

—

 

 

(4,253

)

Unrealized gain on derivatives

 

—

 

 

—

 

 

—

 

 

—

 

 

17,594

 

 

17,594

 

Reclassification adjustment for amounts
   included in net loss

 

—

 

 

—

 

 

—

 

 

—

 

 

(11,604

)

 

(11,604

)

Equity-based compensation

 

1,469

 

 

—

 

 

64

 

 

—

 

 

—

 

 

64

 

Net loss

 

—

 

 

—

 

 

—

 

 

(11,274

)

 

—

 

 

(11,274

)

Balance at September 30, 2023

 

36,182,331

 

$

36

 

$

816,024

 

$

(424,100

)

$

40,160

 

$

432,120

 

See accompanying notes to consolidated financial statements.

6

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, dollar amounts in thousands)

 

 

Nine Months Ended
 September 30,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(9,748

)

 

$

(11,274

)

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

43,763

 

 

 

44,675

 

Amortization of debt issuance costs

 

 

897

 

 

 

921

 

Amortization of acquired market leases, net

 

 

(50

)

 

 

(2,375

)

Amortization of equity-based compensation

 

 

71

 

 

 

64

 

Reduction in the carrying amount of the right-of-use-asset

 

 

291

 

 

 

308

 

Straight-line income, net

 

 

(1,068

)

 

 

(699

)

Other non-cash adjustments

 

 

143

 

 

 

149

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

3,162

 

 

 

2,175

 

Accounts and rent receivable

 

 

1,773

 

 

 

363

 

Other assets

 

 

165

 

 

 

(12

)

Due to related parties

 

 

(102

)

 

 

(1,251

)

Operating lease liability

 

 

219

 

 

 

205

 

Other liabilities

 

 

(566

)

 

 

1,137

 

Net cash flows provided by operating activities

 

 

38,950

 

 

 

34,386

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(10,052

)

 

 

(7,031

)

Net cash flows used in investing activities

 

 

(10,052

)

 

 

(7,031

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Payment of credit facility

 

 

(11,000

)

 

 

(12,576

)

Proceeds from credit facility

 

 

2,000

 

 

 

44,576

 

Payment of mortgages payable

 

 

(254

)

 

 

(41,592

)

Proceeds from the distribution reinvestment plan

 

 

5,001

 

 

 

5,264

 

Shares repurchased

 

 

(5,001

)

 

 

(4,253

)

Distributions paid

 

 

(14,707

)

 

 

(14,729

)

Early termination of interest rate swap agreements, net

 

 

—

 

 

 

370

 

Net cash flows used in financing activities

 

 

(23,961

)

 

 

(22,940

)

 

 

 

 

 

 

 

Net increase in cash, cash equivalents and restricted cash

 

 

4,937

 

 

 

4,415

 

Cash, cash equivalents and restricted cash, at beginning of the period

 

 

6,454

 

 

 

5,334

 

Cash, cash equivalents and restricted cash, at end of period

 

$

11,391

 

 

$

9,749

 

 

See accompanying notes to consolidated financial statements.

7

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited, dollar amounts in thousands)

 

 

 

Nine Months Ended
 September 30,

 

 

 

2024

 

 

2023

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

31,113

 

 

$

30,133

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued capital expenditures

 

$

1,879

 

 

$

983

 

 

See accompanying notes to consolidated financial statements.

8

INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024

(Unaudited, dollar amounts in thousands, except per share amounts)

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report on Form 10-Q should refer to the audited consolidated financial statements of Inland Real Estate Income Trust, Inc. (which may be referred to herein as the “Company,” “we,” “us,” or “our”) for the year ended December 31, 2023, which are included in the Company’s 2023 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 13, 2024, as certain footnote disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report on Form 10-Q.

NOTE 1 – ORGANIZATION

The Company was formed on August 24, 2011 to acquire and manage a portfolio of commercial real estate investments located in the United States. The Company has been primarily focused on acquiring and owning retail properties and targets a portfolio substantially all of which would be comprised of grocery-anchored properties. The Company has invested in joint ventures and may continue to invest in additional joint ventures or acquire other real estate assets if its management believes the expected returns from those investments exceed that of retail properties. The Company 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.

The Company has no employees. The Company is managed by IREIT Business Manager & Advisor, Inc. (the “Business Manager”), an indirect wholly owned subsidiary of Inland Real Estate Investment Corporation (the “Sponsor”), pursuant to a business management agreement, dated October 18, 2012 (as amended, the “Business Management Agreement”) with the Business Manager. The Company entered into an agreement with Mark Zalatoris (the “CEO Agreement”) to, among other things, compensate him for performing services as the Company’s president and chief executive officer. In connection with entering into the CEO Agreement, the Company entered into the Fourth Amended and Restated Business Management Agreement, dated January 19, 2024 (the “Fourth Business Management Agreement”) effective February 1, 2024 with the Business Manager to, among other things, provide the Company with the authority to engage a person not affiliated with or employed by the Business Manager to serve as president and chief executive officer of the Company and to reduce the business management fee payable to the Business Manager by the amount of any payments made to Mr. Zalatoris under the CEO Agreement. Mr. Zalatoris is not an employee of the Company and is not an officer or director of the Business Manager but has the authority under the CEO Agreement and the Business Management Agreement to direct the day-to day operations of the Business Manager.

On September 18, 2024, the Company announced that its board of directors had decided to begin a review of strategic alternatives including sale of the Company. The outcome of this review and any potential transaction or event that may result from the review will depend on several factors, many of which will be beyond the Company’s control. The board may conclude that it is in the Company’s best interest to continue with its existing business plan and to not seek a transaction or event creating liquidity for stockholders.

On September 18, 2024, in connection with the process to review strategic alternatives, including the sale of the Company, the board of directors of the Company suspended both the DRP and the SRP effective as of October 1, 2024.

On March 5, 2024, as reported in the Company’s Form 8-K filed with the Securities and Exchange Commission on the same date, the Company announced that the Company’s board of directors unanimously approved: (i) an estimated per share net asset value (the “Estimated Per Share NAV”) as of December 31, 2023, which served as the per share purchase price for shares issued under the Company’s distribution reinvestment plan (as amended, the “DRP”) beginning with the first distribution payment to stockholders in April 2024 until the Company suspended the DRP, and (ii) that, in accordance with the share repurchase program (as amended, the “SRP”) as further described below in Note 3 – “Equity”, beginning with repurchases in April 2024 and until the Company suspended the SRP, any shares accepted for ordinary repurchases and “exceptional repurchases” were repurchased at 80% of the Estimated Per Share NAV.

As of September 30, 2024, the Company owned 52 retail properties, totaling 7,167,486 square feet. The properties are located in 24 states. As of September 30, 2024, the portfolio had a physical occupancy of 93.1% and economic occupancy of 93.6%.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Disclosures discussing all significant accounting policies are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on March 13, 2024, under the heading Note 2 – “Summary

9

of Significant Accounting Policies.” There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2024, except as noted below.

General

The consolidated financial statements have been prepared in accordance with GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In the opinion of management, all adjustments necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods are presented. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.

Restricted Cash

Amounts included in restricted cash represent those required to be set aside by lenders for real estate taxes, insurance, capital expenditures and tenant improvements on the Company's existing properties. These amounts also include post close escrows for tenant improvements, leasing commissions, master lease, general repairs and maintenance, and are classified as restricted cash on the Company’s consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Company’s consolidated balance sheets to such amounts shown on the Company’s consolidated statements of cash flows:

 

 

September 30,

 

 

 

2024

 

 

2023

 

Cash and cash equivalents

 

$

10,911

 

 

$

9,271

 

Restricted cash

 

 

480

 

 

 

478

 

Total cash, cash equivalents, and restricted cash

 

$

11,391

 

 

$

9,749

 

Accounting Pronouncements Recently Issued but Not Yet Effective

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Company has not early adopted ASU 2023-07. The Company continues to evaluate this guidance and expects the standard to impact its disclosures pertaining to having a single reportable segment but does not anticipate the guidance to have an impact on the Company’s financial position, results of operations, or cash flows.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 improves the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-07 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied prospectively, however retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on the Company’s consolidated financial statements.

NOTE 3 – EQUITY

The Company commenced an initial public “best efforts” offering (the “Offering”) on October 18, 2012, which concluded on October 16, 2015. The Company sold 33,534,022 shares of common stock generating gross proceeds of $834,399 from the Offering. As of September 30, 2024, there were 36,099,468 shares of common stock outstanding including 6,760,667 shares issued through the DRP, net of 4,213,670 shares repurchased through the SRP.

Prior to the suspension, the Company provided the following programs to facilitate additional investment in the Company’s shares and to provide limited liquidity for stockholders.

10

Distribution Reinvestment Plan

Through the DRP, the Company provided stockholders with the option to purchase additional shares from the Company by automatically reinvesting cash distributions, subject to certain share ownership restrictions. The Company did not pay any selling commissions, marketing contribution or due diligence expense reimbursement in connection with the DRP. Pursuant to the DRP, the price per share for shares of common stock purchased under the DRP was equal to the estimated value of one share, as determined by the Company’s board of directors and reported by the Company from time to time, until the shares become listed for trading, if a listing occurs, assuming that the DRP had not been terminated or suspended in connection with such listing.

During the suspension, stockholders participating in the DRP will not be permitted to reinvest distributions paid by the Company in additional shares. Any prior reinvested distributions will not be impacted.

There were $1,642 and $5,001 distributions reinvested through the DRP during the three and nine months ended September 30, 2024, respectively. There were $1,742 and $5,264 distributions reinvested through the DRP during the three and nine months ended September 30, 2023, respectively.

Share Repurchase Program

The Company adopted the SRP effective October 18, 2012, under which the Company was authorized to purchase shares from stockholders who purchased their shares from the Company or received their shares through a non-cash transfer and who had held their shares for at least one year. Purchases were in the Company’s sole discretion. In the case of repurchases made upon the death of a stockholder or qualifying disability (“Exceptional Repurchases”), as defined in the SRP, the one year holding period did not apply. The SRP has been amended several times. The currently effective version, entitled the “Fifth Amended and Restated Share Repurchase Program” (the “Fifth SRP”), was adopted by the board of directors on November 7, 2023 and became effective on December 27, 2023. Under the Fifth SRP, the board of directors had the discretion to establish the proceeds available to fund repurchases each quarter and could use proceeds from all sources available to the Company, in the board of directors’ sole discretion. The board of directors also had the discretion to determine the amount of repurchases, if any, to be made each quarter based on its evaluation of the Company’s business, cash needs and any other requirements of applicable law. The entirety of the Fifth SRP can be found on the Company’s website.

The SRP will immediately terminate if the Company’s shares become listed for trading on a national securities exchange. In addition, the Company’s board of directors, in its sole discretion, may, at any time, amend or terminate the SRP.

As noted herein, the Company’s board suspended the SRP in connection with the decision to review strategic alternatives. During the suspension, the Company will not repurchase shares under the SRP. Any existing unfulfilled repurchase requests will automatically roll over for processing under the terms and conditions of the SRP if the Company restarts the plan, unless a stockholder withdraws the request for repurchase. Any prior redeemed shares will not be impacted.

Repurchases through the SRP were $1,642 and $5,001 for the three and nine months ended September 30, 2024, respectively. Repurchases through the SRP were $1,612 and $4,253 for the three and nine months ended September 30, 2023, respectively. There was zero liability related to the SRP as of September 30, 2024 and December 31, 2023.

NOTE 4 – LEASES

The Company is lessor under approximately 830 retail operating leases. The remaining lease terms for the Company’s leases range from less than one year to 14 years. The Company considers the date on which it makes a leased space available to a lessee as the commencement date of the lease. At commencement, the Company determines the lease classification utilizing the classification tests under ASC 842. Options to extend a lease are included in the lease term when it is reasonably certain that the tenant will exercise its option to extend. Termination penalties are included in income when there is a termination agreement, all the conditions of the agreement have been met and amounts due are considered collectable. Such termination fees are recognized on a straight-line basis over the remaining lease term in rental income. If an operating lease is modified and the modification is not accounted for as a separate contract, the Company accounts for the modification as if it were a termination of the existing lease and the creation of a new lease. The Company considers any prepaid or accrued rentals relating to the original lease as part of the lease payments for the modified lease. The Company includes options to modify the original lease term when it is reasonably certain that the tenant will exercise its option to extend.

Most of the revenue from the Company’s properties consists of rents received under long-term operating leases. Most leases require the tenant to pay fixed base rent paid monthly in advance, and to reimburse the Company for the tenant’s pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the Company and recoverable under the terms of the lease. Under these leases, the Company pays all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid.

11

Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed base rent as well as all costs and expenses associated with occupancy. Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included in the consolidated statements of operations and comprehensive loss. Under leases where all expenses are paid by the Company, subject to reimbursement by the tenant, the expenses are included within property operating expenses. Reimbursements for common area maintenance are considered non-lease components that are permitted to be combined with rental income. The combined lease component and reimbursements for insurance and taxes are reported as rental income on the consolidated statements of operations and comprehensive loss.

Rental income related to the Company's operating leases is comprised of the following:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Rental income - fixed payments

 

$

29,648

 

 

$

28,943

 

 

$

88,847

 

 

$

86,380

 

Rental income - variable payments (a)

 

 

7,491

 

 

 

7,427

 

 

 

23,088

 

 

 

22,504

 

Amortization of acquired lease intangibles, net

 

 

59

 

 

 

(46

)

 

 

50

 

 

 

2,375

 

Rental income

 

$

37,198

 

 

$

36,324

 

 

$

111,985

 

 

$

111,259

 

 

(a) Primarily includes tenant recovery income for real estate taxes, common area maintenance and insurance.

As of September 30, 2024, the Company’s accounts and rent receivable, net balance was $22,940, which was net of an allowance for bad debts of $978. As of December 31, 2023, the Company’s accounts and rent receivable, net balance was $23,645, which was net of an allowance for bad debts of $871.

NOTE 5 – ACQUIRED INTANGIBLE ASSETS AND LIABILITIES

The following table summarizes the Company’s identified intangible assets and liabilities as of September 30, 2024 and December 31, 2023:

 

 

September 30, 2024

 

 

December 31, 2023

 

Intangible assets:

 

 

 

 

 

 

Acquired in-place lease value

 

$

183,305

 

 

$

183,305

 

Acquired above market lease value

 

 

52,640

 

 

 

52,640

 

Accumulated amortization

 

 

(183,577

)

 

 

(174,118

)

Acquired lease intangibles, net

 

$

52,368

 

 

$

61,827

 

Intangible liabilities:

 

 

 

 

 

 

Acquired below market lease value

 

$

79,914

 

 

$

79,914

 

Accumulated amortization

 

 

(45,042

)

 

 

(42,494

)

Acquired below market lease intangibles, net

 

$

34,872

 

 

$

37,420

 

The portion of the purchase price allocated to acquired above market lease value and acquired below market lease value is amortized on a straight-line basis over the term of the related lease as an adjustment to rental income. For below market lease values, the amortization period includes any renewal periods with fixed rate renewals. The portion of the purchase price allocated to acquired in-place lease value is amortized on a straight-line basis over the acquired leases’ weighted average remaining term.

Amortization pertaining to acquired in-place lease value, above market lease value and below market lease value is summarized below:

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Amortization recorded as amortization expense:

 

 

 

 

 

 

 

 

 

 

 

Acquired in-place lease value

$

2,249

 

 

$

2,651

 

 

$

6,961

 

 

$

8,863

 

Amortization recorded as a (reduction) increase to rental income:

 

 

 

 

 

 

 

 

 

 

 

Acquired above market leases

$

(828

)

 

$

(900

)

 

$

(2,498

)

 

$

(2,696

)

Acquired below market leases

 

887

 

 

 

854

 

 

 

2,548

 

 

 

5,071

 

Net rental income (reduction) increase

$

59

 

 

$

(46

)

 

$

50

 

 

$

2,375

 

 

12

Estimated amortization of the respective intangible lease assets and liabilities as of September 30, 2024 for each of the five succeeding years and thereafter is as follows:

 

 

Acquired
In-Place
Leases

 

 

Above Market Leases

 

 

Below
Market
Leases

 

2024 (remainder of year)

 

$

2,142

 

 

$

813

 

 

$

816

 

2025

 

 

6,741

 

 

 

2,929

 

 

 

3,058

 

2026

 

 

5,017

 

 

 

2,503

 

 

 

2,920

 

2027

 

 

3,609

 

 

 

1,858

 

 

 

2,717

 

2028

 

 

2,909

 

 

 

1,612

 

 

 

2,581

 

Thereafter

 

 

13,699

 

 

 

8,536

 

 

 

22,780

 

Total

 

$

34,117

 

 

$

18,251

 

 

$

34,872

 

 

NOTE 6 – DEBT AND DERIVATIVE INSTRUMENTS

As of September 30, 2024 and December 31, 2023, the Company had the following mortgages and credit facility payable:

 

September 30, 2024

 

 

December 31, 2023

 

Type of Debt

Principal Amount

 

 

Weighted
Average
Interest Rate

 

 

Principal
Amount

 

 

Weighted
Average
Interest Rate

 

Fixed rate mortgages payable

$

111,765

 

 

 

3.83

%

 

$

112,019

 

 

 

3.84

%

Variable rate mortgages payable with swap agreements

 

26,000

 

 

 

4.55

%

 

 

26,000

 

 

 

4.55

%

Mortgages payable

 

137,765

 

 

 

3.97

%

 

 

138,019

 

 

 

3.97

%

Credit facility payable

 

700,000

 

 

 

4.80

%

 

 

709,000

 

 

 

4.95

%

Total debt before unamortized debt issuance costs including impact of interest rate swaps

 

837,765

 

 

 

4.66

%

 

 

847,019

 

 

 

4.79

%

(Less): Unamortized debt issuance costs

 

(2,232

)

 

 

 

 

 

(3,129

)

 

 

 

Total debt

$

835,533

 

 

 

 

 

$

843,890

 

 

 

 

The Company’s indebtedness bore interest at a weighted average interest rate of 4.66% per annum as of September 30, 2024, which includes the effects of interest rate swaps. The Company estimates the fair value of its total debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by the Company’s lenders using Level 3 inputs. The carrying value of the Company’s debt excluding unamortized debt issuance costs was $837,765 and $847,019 as of September 30, 2024 and December 31, 2023, respectively, and its estimated fair value was $834,803 and $841,313 as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024, scheduled principal payments and maturities on the Company’s debt were as follows:

 

 

September 30, 2024

 

Scheduled Principal Payments and Maturities by Year:

 

Scheduled
Principal
Payments

 

 

Maturities of Mortgage Loans

 

 

Maturity of Credit Facility

 

 

Total

 

2024 (remainder of the year)

 

$

87

 

 

$

—

 

 

$

—

 

 

$

87

 

2025

 

 

295

 

 

 

92,656

 

 

 

—

 

 

 

92,951

 

2026

 

 

—

 

 

 

44,727

 

 

 

125,000

 

 

 

169,727

 

2027

 

 

—

 

 

 

—

 

 

 

575,000

 

 

 

575,000

 

2028

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Thereafter

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

382

 

 

$

137,383

 

 

$

700,000

 

 

$

837,765

 

Credit Facility Payable

On February 3, 2022, the Company entered into a second amended and restated credit agreement (the “Credit Agreement”) with KeyBank National Association, individually and as administrative agent, KeyBanc Capital Markets Inc., PNC Capital Markets LLC and BofA Securities, Inc., as joint lead arrangers, and other lenders from time to time parties to the Credit Agreement (the “Credit Facility”).

13

Pursuant to the Credit Agreement, the aggregate total commitments under the Credit Facility were increased from $350,000 to $475,000. The Credit Facility consists of the “Revolving Credit Facility” providing revolving credit commitments in an aggregate amount of $200,000 and a term loan facility (the term loans funded under such commitments, the “Term Loan”) providing term loan commitments in an aggregate amount of $275,000 (increased from $150,000). On May 17, 2022, the Company entered into a First Amendment to Credit Agreement Regarding Incremental Term Loans (the “First Amendment”), amending the terms of the Credit Agreement primarily to draw an additional $300,000. The Credit Agreement provides the Company with the ability from time to time to increase the size of the Credit Facility up to a total of $1,200,000, subject to certain conditions.

The Revolving Credit Facility matures on February 3, 2026, and the Company has the option to extend the maturity date for one additional year subject to the payment of an extension fee and certain other conditions. The Term Loan matures on February 3, 2027. Borrowings under the Credit Facility bear interest equal to one-month Term Secured Overnight Financing Rate (“SOFR”) plus a margin, the amount of which depends on the Company’s leverage ratio.

As of September 30, 2024, the Company had $125,000 outstanding under the Revolving Credit Facility and $575,000 outstanding under the Term Loan. As of September 30, 2024, the interest rates on the Revolving Credit Facility and the Term Loan were 6.86% and 4.35%, respectively. As of September 30, 2024, the Company had a maximum amount of $75,000 available for borrowing under the Revolving Credit Facility, subject to the terms and conditions of the Credit Agreement that governs the Credit Facility, including compliance with the covenants which could further limit the amount available. Although all of the amount available under the Revolving Credit Facility is available to pay off existing mortgages, due to the covenant limitations, the Company expects to have substantially less than all $75,000 available to draw or otherwise undertake as additional debt.

The Company’s performance of the obligations under the Credit Facility, including the payment of any outstanding indebtedness under the Credit Facility, is guaranteed by certain subsidiaries of the Company, including each of the subsidiaries of the Company which owns or leases any of the properties included in the pool of unencumbered properties comprising the borrowing base. Additional properties will be added to and removed from the pool from time to time to support amounts borrowed under the Credit Facility so long as at any time there are at least fifteen unencumbered properties with an unencumbered pool value of $300,000 or more. As of September 30, 2024, there were 47 properties included in the pool of unencumbered properties.

The Credit Facility requires compliance with certain covenants, including a minimum tangible net worth requirement, a limitation on the use of leverage, a distribution limitation, restrictions on indebtedness and investment restrictions, as defined. It also contains customary default provisions including the failure to comply with the Company's covenants and the failure to pay when amounts outstanding under the Credit Facility become due. As of September 30, 2024, the Company was in compliance with all financial covenants related to the Credit Facility as amended.

Mortgages Payable

The Company’s mortgage loans require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations. As of September 30, 2024, the Company was current on all of its debt service payments and in compliance with all financial covenants. All of the Company’s mortgage loans are secured by first mortgages on the respective real estate assets. As of September 30, 2024, the weighted average years to maturity for the Company’s mortgages payable was 1.2 years.

As of November 7, 2024, the Company has one mortgage loan maturing in the next twelve months. The mortgage loan had an aggregate principal balance of $16,506 as of September 30, 2024. The Company intends to repay amounts due with cash flows from operating activities, cash on hand or proceeds available under the Revolving Credit Facility.

Interest Rate Swap Agreements

The Company entered into interest rate swaps to fix certain of its floating SOFR based debt under variable rate loans to a fixed rate to manage its risk exposure to interest rate fluctuations. The Company will generally match the maturity of the underlying variable rate debt with the maturity date on the interest swap. See Note 13 – “Fair Value Measurements” for further information.

14

As of September 30, 2024, the Company had hedged its variable rate mortgage loan of $26,000 and $525,000 of the Term Loan using interest rate swap contracts. The following table summarizes the Company’s interest rate swap contracts outstanding as of September 30, 2024.

Date
Entered

Effective
Date

Maturity
Date

Receive Floating Rate Index (a)

Pay
Fixed
Rate

 

Notional
Amount

 

Fair Value as of September 30, 2024

 

Assets

 

 

 

 

 

 

 

 

 

December 5, 2022

December 1, 2022

January 1, 2026

One-month Term SOFR

 

2.25

%

 

26,000

 

 

443

 

February 3, 2022

March 1, 2022

February 3, 2027

One-month Term SOFR

 

1.69

%

 

90,000

 

 

3,353

 

February 3, 2022

March 1, 2022

February 3, 2027

One-month Term SOFR

 

1.85

%

 

100,000

 

 

3,362

 

February 3, 2022

March 1, 2022

February 3, 2027

One-month Term SOFR

 

1.72

%

 

85,000

 

 

3,126

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.71

%

 

60,000

 

 

849

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.71

%

 

60,000

 

 

849

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.71

%

 

75,000

 

 

1,064

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.77

%

 

55,000

 

 

715

 

 

 

 

 

 

 

$

551,000

 

$

13,761

 

 

(a)
As of September 30, 2024, the one-month term SOFR was 4.85%.

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023.

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

Derivatives in Cash Flow Hedging Relationships

2024

 

 

2023

 

 

2024

 

 

2023

 

Effective portion of derivatives

$

(10,230

)

 

$

7,969

 

 

$

3,023

 

 

$

17,594

 

Reclassification adjustment for amounts included in net loss (effective portion)

$

(4,336

)

 

$

(4,270

)

 

$

(12,995

)

 

$

(11,604

)

The total amount of interest expense presented on the consolidated statements of operations and comprehensive loss was $10,402 and $10,727, for the three months ended September 30, 2024 and 2023, respectively. The total amount of interest expense presented on the consolidated statements of operations and comprehensive loss was $31,218 and $31,942, for the nine months ended September 30, 2024 and 2023, respectively. The net gain or loss reclassified into income from accumulated other comprehensive income is reported in interest expense on the consolidated statements of operations and comprehensive loss. The amount that is expected to be reclassified from accumulated other comprehensive income into income (loss) in the next 12 months is $9,098.

NOTE 7 – DISTRIBUTIONS

The table below presents the distributions paid and declared during the three and nine months ended September 30, 2024 and 2023.

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Distributions paid

$

4,900

 

 

$

4,910

 

 

$

14,707

 

 

$

14,729

 

Distributions declared

$

4,897

 

 

$

4,916

 

 

$

14,698

 

 

$

14,729

 

 

15

 

NOTE 8 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the “common shares”). Diluted EPS is computed by dividing net income (loss) by the common shares plus common share equivalents. The Company excludes antidilutive restricted shares and units from the calculation of weighted-average shares for diluted EPS. As a result of a net loss in the three and nine months ended September 30, 2024, 5,911 and 4,722 shares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive. As a result of a net loss in the three and nine months ended September 30, 2023, 4,433 and 4,809 shares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

The Company may be subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material adverse effect on the consolidated financial statements of the Company.

NOTE 10 – EQUITY-BASED COMPENSATION

Under the Company’s Employee and Director Restricted Share Plan (“RSP”), restricted shares generally vest over a one to three year vesting period from the date of the grant, subject to the specific terms of the grant. In accordance with the RSP, restricted shares are issued to non-employee directors as compensation. Restricted shares are included in common stock outstanding on the date of the vesting. The grant-date value of the restricted shares is amortized over the vesting period representing the requisite service period. Compensation expense associated with the restricted shares issued to the non-employee directors was $24 and $71, in the aggregate, for the three and nine months ended September 30, 2024, respectively. Compensation expense associated with the restricted shares issued to the non-employee directors was $20 and $64, in the aggregate, for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, the Company had $57 of unrecognized compensation expense related to the unvested restricted shares, in the aggregate. The weighted average remaining period that compensation expense related to unvested restricted shares will be recognized is 1.38 years. There were no restricted shares that vested during the three and nine months ended September 30, 2024. The total fair value at the vesting date for restricted shares that vested during the three and nine months ended September 30, 2023 was $0 and $29, respectively.

A summary table of the status of the restricted shares is presented below:

 

 

Restricted Shares

 

Outstanding at December 31, 2023

 

 

9,477

 

Granted

 

 

—

 

Vested

 

 

—

 

Outstanding at September 30, 2024

 

 

9,477

 

 

NOTE 11 – SEGMENT REPORTING

The Company has one reportable segment as defined by GAAP, retail real estate, for the nine months ended September 30, 2024 and 2023.

16

NOTE 12 – TRANSACTIONS WITH RELATED PARTIES

The following table summarizes the Company’s related party transactions for the three and nine months ended September 30, 2024 and 2023. Certain compensation and fees payable to the Business Manager for services provided to the Company are limited to maximum amounts.

 

 

Three Months Ended
September 30,

 

Nine Months Ended
 September 30,

 

Unpaid amounts as of

 

 

 

2024

 

2023

 

2024

 

2023

 

September 30, 2024

 

December 31, 2023

 

General and administrative reimbursements

(a)

$

391

 

$

420

 

$

1,219

 

$

1,362

 

$

270

 

$

268

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate management fees

 

$

1,467

 

$

1,357

 

$

4,371

 

$

4,233

 

$

—

 

$

—

 

Property operating expenses

 

 

500

 

 

456

 

 

1,430

 

 

1,457

 

 

21

 

 

15

 

Construction management fees

 

 

153

 

 

213

 

 

341

 

 

312

 

 

144

 

 

74

 

Leasing fees

 

 

79

 

 

93

 

 

303

 

 

249

 

 

93

 

 

128

 

Total real estate management related costs

(b)

$

2,199

 

$

2,119

 

$

6,445

 

$

6,251

 

$

258

 

$

217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business management fees

(c)

 

2,236

 

$

2,306

 

$

6,722

 

$

7,322

 

$

2,236

 

$

2,311

 

 

(a)
The Business Manager and its related parties are entitled to reimbursement for certain general and administrative expenses incurred by the Business Manager or its related parties relating to the Company’s administration. Such costs are included in general and administrative expenses in the consolidated statements of operations and comprehensive loss. Unpaid amounts are included in due to related parties on the consolidated balance sheets.
(b)
For each property that is managed by Inland Commercial Real Estate Services LLC (the “Real Estate Manager”), the Company pays a monthly real estate management fee of up to 1.9% of the gross income from any single-tenant, net-leased property, and up to 3.9% of the gross income from any other property type. The Real Estate Manager determines, in its sole discretion, the amount of the fee with respect to a particular property, subject to the limitations. For each property that is managed directly by the Real Estate Manager or its affiliates, the Company pays the Real Estate Manager a separate leasing fee. Further, in the event that the Company engages its Real Estate Manager to provide construction management services for a property, the Company pays a separate construction management fee. Leasing fees are included in deferred costs, net and construction management fees are included in building and other improvements in the consolidated balance sheets. The Company also reimburses the Real Estate Manager and its affiliates for property-level expenses that they pay or incur on the Company’s behalf, including the salaries, bonuses and benefits of persons performing services for the Real Estate Manager and its affiliates except for the salaries, bonuses and benefits of persons who also serve as an executive officer of the Real Estate Manager or the Company. Real estate management fees and reimbursable expenses are included in property operating expenses in the consolidated statements of operations and comprehensive loss.
(c)
Prior to April 1, 2023, the Company paid the Business Manager an annual business management fee equal to 0.65% of its “average invested assets.” The fee was payable quarterly in an amount equal to 0.1625% of its average invested assets as of the last day of the immediately preceding quarter. Effective April 1, 2023, the Company began paying the Business Manager an annual business management fee equal to 0.55% of its “averaged invested assets.” The fee is payable quarterly in an amount equal to 0.1375% of its average invested assets as of the last day of the immediately preceding quarter. “Average invested assets” means, for any period, the average of the aggregate book value of the Company’s assets, including all intangibles and goodwill, invested, directly or indirectly, in equity interests in, and loans secured by, properties, as well as amounts invested in securities and consolidated and unconsolidated joint ventures or other partnerships, before reserves for amortization and depreciation or bad debts, impairments or other similar non-cash reserves, computed by taking the average of these values at the end of each month during the relevant calendar quarter. Unpaid amounts are included in due to related parties on the consolidated balance sheets. The Business Management Agreement terminates on March 31, 2027.

On January 19, 2024, the Company entered into the Fourth Business Management Agreement with the Business Manager effective February 1, 2024, to, among other things, provide the Company with the authority to engage a person not affiliated with or employed by the Business Manager to serve as president and chief executive officer of the Company and to reduce the business management fee payable to the Business Manager by the amount of any payment made to any third-party person as compensation for service as the Company’s president and chief executive officer. In connection with the CEO Agreement entered into with Mr. Zalatoris, the Business Management Fee is reduced by the amount of any payments made to Mr. Zalatoris under the CEO Agreement. The foregoing description is qualified by reference to the Fourth Business Management Agreement in its entirety. During the three and nine months ended

17

September 30, 2024, total costs incurred under the CEO Agreement were $88 and $235, respectively. These costs are included in general and administrative expenses in the consolidated statements of operations and comprehensive loss.

NOTE 13 – FAIR VALUE MEASUREMENTS

Fair Value Hierarchy

The Company defines fair value based on the price that it believes would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

Level 1 −

 

Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

 

 

 

Level 2 −

 

Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

 

 

Level 3 −

 

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company has estimated the fair value of its financial and non-financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes.

Recurring Fair Value Measurements

For assets and liabilities measured at fair value on a recurring basis, the table below presents the fair value of the Company’s cash flow hedges as well as their classification on the consolidated balance sheets as of September 30, 2024 and December 31, 2023.

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements - Other assets

$

—

 

 

$

13,761

 

 

$

—

 

 

$

13,761

 

Interest rate swap agreements - Other liabilities

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements - Other assets

$

—

 

 

$

23,285

 

 

$

—

 

 

$

23,285

 

Interest rate swap agreements - Other liabilities

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

The fair value of derivative instruments was estimated based on data observed in the forward yield curve which is widely observed in the marketplace. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the counterparty's nonperformance risk in the fair value measurements which utilize Level 3 inputs, such as estimates of current credit spreads. The Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative interest rate swap agreements and therefore has classified these in Level 2 of the hierarchy.

NOTE 14 – SUBSEQUENT EVENTS

In connection with the preparation of its consolidated financial statements, the Company has evaluated events that occurred subsequent to September 30, 2024 through the date on which these consolidated financial statements were issued to determine whether any of these events required disclosure in the consolidated financial statements.

Director Stock Awards

Pursuant to the RSP, on November 6, 2024, the Company granted each of its four independent directors 2,086.59 restricted shares for a total of 8,346 restricted shares with a total value of $160. The restricted shares will vest in equal one-third increments on November 6, 2025, 2026 and 2027.

18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of the management of Inland Real Estate Income Trust, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on March 13, 2024, some of which are summarized below:

•
Our board is reviewing strategic alternatives, including sale of the Company. There is no assurance this review will result in a transaction or event creating liquidity for stockholders, or the value that may be generated by any transaction or event;
•
During the pendency of our board’s review of strategic alternatives, we do not expect to acquire new properties or engage in redevelopment activities which may negatively impact our ability to grow our assets and income;
•
The use of the internet by consumers to shop continues to expand which could result in a further downturn in the businesses of certain 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;
•
If our board does not pursue a sale of the Company, 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;
•
Our Business Manager and its affiliates face conflicts of interest caused by, among other things, their compensation arrangements with us, and the simultaneous overlapping leadership roles certain of our executive officers have at the Business Manager and its affiliates, which could result in actions that are not in the long-term best interests of our stockholders;
•
Market disruptions resulting from any future disruptions from a global pandemic, the war in Ukraine and the Israeli-Hamas war, inflation, volatility in interest rates, supply chain shortages that affect our tenants or other disruptions caused by events beyond our control may 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 GAAP basis for the three and nine months ended September 30, 2024 and 2023, and for the year ended December 31, 2023, and future net losses could have a material adverse impact on our financial condition, operations, cash flow, and our ability to service our indebtedness or pay distributions to our stockholders;
•
Our Sponsor may face a conflict of interest in allocating personnel and resources between its affiliates, our Business Manager and our Real Estate Manager;
•
We do not have arm’s-length agreements with our Business Manager, our Real Estate Manager or any other affiliates of our Sponsor;
•
We pay fees, which may be significant, to our Business Manager, Real Estate Manager and other affiliates of our Sponsor;
•
Our properties may compete with the properties owned by other programs sponsored by our Sponsor or Inland Private Capital Corporation for, among other things, tenants;
•
Our Business Manager is under no obligation, and may not agree, to forgo or defer its business management fee; and
•
If we fail to continue to qualify as a REIT, our operations and distributions to stockholders, if any, will be adversely affected.

Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report, and may ultimately prove to be incorrect or false. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results except as required by

19

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 nine months ended September 30, 2024 and 2023 and as of September 30, 2024 and December 31, 2023. Our stockholders should read the following discussion and analysis along with our consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q.

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 a Maryland corporation on August 24, 2011 and elected to be taxed as a real estate investment trust for U.S. federal income tax purposes (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the year ended December 31, 2013. We have no employees. We are managed by our business manager, IREIT Business Manager & Advisor, Inc., referred to herein as our “Business Manager.” We have also entered into an agreement with Mark Zalatoris (the “CEO Agreement”) to, among other things, compensate him for performing services as our president and chief executive officer. In connection with entering into the CEO Agreement, we entered into the Fourth Amended and Restated Business Management Agreement, dated January 19, 2024 (“Fourth Business Management Agreement”) with the Business Manager to, among other things, reduce the business management fee payable to the Business Manager by the amount of any payments made to Mr. Zalatoris under the CEO Agreement. Mr. Zalatoris is not an employee of the Company and is not an officer or director of the Business Manager but has the authority under the CEO Agreement and the Fourth Business Management Agreement to direct the day-to day operations of the Business Manager.

Historically, we have been operating pursuant to a strategic plan that included the goals of providing a future liquidity event to investors and creating long-term stockholder value. We have been primarily focused on acquiring and owning retail properties targeting a portfolio substantially all of which would be comprised of grocery-anchored properties. We have invested in joint ventures and, may invest again 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. There were no acquisitions or dispositions in the three and nine months ended September 30, 2024.

The strategic plan has centered around owning a portfolio of grocery-anchored properties with lower exposure to big box retailers. Our management team has continually evaluated the opportunistic sale of certain assets with the goal of redeploying capital into the acquisition of strategically located grocery-anchored centers. We have not been actively marketing any properties for sale or seeking any acquisitions, however. We have also considered 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 uses. On September 18, 2024, we announced that our board had decided to begin a review of strategic alternatives including sale of the Company. There is no assurance as to how long the review will take or the outcome of the process. The outcome of any potential transaction or event will depend on several factors many of which will be beyond our control. Further, our board may conclude that it is in our best interest to continue operating pursuant to our existing strategic plan. During the pendency of this review, we do not expect to acquire any properties or redevelop existing properties although we may sell properties on an individual basis. We will continue to be impacted by: (i) evolving retail market conditions 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, and (iv) changes in general economic conditions such as high interest rates, among other factors.

On March 4, 2024, our board of directors determined an estimated per share net asset value of our common stock of $19.17 as of December 31, 2023, compared to the previous estimated value of $19.86 as of December 31, 2022. As of September 30, 2024, we had total assets of $1.3 billion on our balance sheet and owned 52 properties located in 24 states containing 7.2 million square feet. A majority of our properties are multi-tenant, necessity-based retail shopping centers primarily located in major regional markets and growing secondary markets throughout the United States. As of September 30, 2024, grocery-anchored or grocery shadow-anchored shopping center properties represented 87% of our annualized base rent. 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 the shopping center. As of September 30, 2024, the portfolio properties have an economic occupancy of 93.6% and staggered lease maturity dates. Grocery tenants accounted for 17% of our annualized base rent (“ABR”) as of September 30, 2024.

20

Inflation and Interest Rates

Inflationary pressures and volatility in interest rates could result in reductions in consumer spending and retailer profitability, particularly if rates rise which may impact our ability to increase rents as well as tenant demand for new and existing store locations. Regardless of high inflation levels, base rent under most of our long-term anchor leases remain constant (subject to tenants’ exercise of renewal options at pre-negotiated rent increases) until the expiration of their lease terms, regardless of the inflation rate for any particular period. While many of our leases require tenants to pay their share of shopping center operating expenses (including common area maintenance, real estate tax and insurance expenses), our ability to collect the expense increases passed through to tenants is dependent on their ability to absorb and pay these increases. Inflation may also impact other aspects of our 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 we have 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 our business in the future.

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

Investment Properties

 

 

As of September 30, 2024

 

Number of properties

 

52

 

Purchase price

 

$

1,624,667

 

Total square footage

 

 

7,167,486

 

Physical occupancy

 

 

93.1

%

Economic occupancy

 

 

93.6

%

Weighted average remaining lease term (years) (a)

 

 

4.7

 
(a)
Weighted average remaining lease term is based on a weighting by ABR as of September 30, 2024.

21

The table below presents information for each of our investment properties as of September 30, 2024.

Property

Location

Square
Footage

 

Physical
Occupancy

 

Economic
Occupancy

 

Mortgage
Balance

 

Interest
Rate (b)

 

Newington Fair (a)

Newington, CT

 

186,205

 

 

100.0

%

 

100.0

%

$

—

 

 

—

 

Wedgewood Commons (a)

Olive Branch, MS

 

169,558

 

 

92.8

%

 

94.9

%

 

—

 

 

—

 

Park Avenue (a)

Little Rock, AR

 

78,702

 

 

95.6

%

 

95.6

%

 

—

 

 

—

 

North Hills Square (a)

Coral Springs, FL

 

63,829

 

 

100.0

%

 

100.0

%

 

—

 

 

—

 

Mansfield Shopping Center (a)

Mansfield, TX

 

148,529

 

 

93.5

%

 

93.5

%

 

—

 

 

—

 

Lakeside Crossing (a)

Lynchburg, VA

 

67,034

 

 

100.0

%

 

100.0

%

 

—

 

 

—

 

MidTowne Shopping Center (a)

Little Rock, AR

 

126,288

 

 

74.6

%

 

74.6

%

 

—

 

 

—

 

Dogwood Festival (a)

Flowood, MS

 

187,468

 

 

85.4

%

 

85.4

%

 

—

 

 

—

 

Pick N Save Center (a)

West Bend, WI

 

94,446

 

 

98.9

%

 

98.9

%

 

—

 

 

—

 

Harris Plaza (a)

Layton, UT

 

125,814

 

 

96.6

%

 

96.6

%

 

—

 

 

—

 

Dixie Valley (a)

Louisville, KY

 

119,981

 

 

81.2

%

 

81.2

%

 

—

 

 

—

 

The Landings at Ocean Isle (a)

Ocean Isle, NC

 

53,203

 

 

97.4

%

 

97.4

%

 

—

 

 

—

 

Shoppes at Prairie Ridge (a)

Pleasant Prairie, WI

 

232,606

 

 

98.7

%

 

100.0

%

 

—

 

 

—

 

Harvest Square (a)

Harvest, AL

 

70,590

 

 

98.0

%

 

98.0

%

 

—

 

 

—

 

Heritage Square (a)

Conyers, GA

 

22,510

 

 

84.9

%

 

84.9

%

 

—

 

 

—

 

The Shoppes at Branson Hills (a)

Branson, MO

 

256,244

 

 

97.2

%

 

97.2

%

 

—

 

 

—

 

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

 

 

99.1

%

 

99.1

%

 

—

 

 

—

 

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

 

 

97.5

%

 

97.5

%

 

—

 

 

—

 

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

 

 

98.2

%

 

98.2

%

 

—

 

 

—

 

Regal Court

Shreveport, LA

 

363,061

 

 

97.4

%

 

97.4

%

 

26,000

 

 

4.55

%

Shops at Hawk Ridge (a)

St. Louis, MO

 

75,951

 

 

96.9

%

 

96.9

%

 

—

 

 

—

 

Walgreens Plaza (a)

Jacksonville, NC

 

42,219

 

 

52.8

%

 

52.8

%

 

—

 

 

—

 

Frisco Marketplace (a)

Frisco, TX

 

112,024

 

 

90.6

%

 

90.6

%

 

—

 

 

—

 

White City (a)

Shrewsbury, MA

 

256,974

 

 

84.3

%

 

84.3

%

 

—

 

 

—

 

Yorkville Marketplace (a)

Yorkville, IL

 

111,591

 

 

94.7

%

 

94.7

%

 

—

 

 

—

 

Shoppes at Market Pointe (a)

Papillion, NE

 

253,903

 

 

95.9

%

 

95.9

%

 

—

 

 

—

 

Marketplace at El Paseo (a)

Fresno, CA

 

224,683

 

 

98.9

%

 

98.9

%

 

—

 

 

—

 

The Village at Burlington Creek

Kansas City, MO

 

157,937

 

 

84.6

%

 

87.7

%

 

16,506

 

 

4.25

%

Milford Marketplace

Milford, CT

 

111,959

 

 

95.9

%

 

95.9

%

 

18,727

 

 

4.02

%

Settlers Ridge

Pittsburgh, PA

 

473,871

 

 

89.9

%

 

92.1

%

 

76,532

 

 

3.70

%

Blossom Valley Plaza (a)

Turlock, CA

 

111,435

 

 

89.2

%

 

89.2

%

 

—

 

 

—

 

Oquirrh Mountain Marketplace (a)

South Jordan, UT

 

75,950

 

 

100.0

%

 

100.0

%

 

—

 

 

—

 

Marketplace at Tech Center (a)

Newport News, VA

 

210,666

 

 

89.0

%

 

94.1

%

 

—

 

 

—

 

Coastal North Town Center (a)

Myrtle Beach, SC

 

304,662

 

 

98.2

%

 

98.2

%

 

—

 

 

—

 

Oquirrh Mountain Marketplace II (a)

South Jordan, UT

 

10,150

 

 

100.0

%

 

100.0

%

 

—

 

 

—

 

Wilson Marketplace (a)

Wilson, NC

 

311,030

 

 

100.0

%

 

100.0

%

 

—

 

 

—

 

Pentucket Shopping Center (a)

Plaistow, NH

 

198,469

 

 

86.4

%

 

86.4

%

 

—

 

 

—

 

Hickory Tavern

Myrtle Beach, SC

 

6,588

 

 

100.0

%

 

100.0

%

 

—

 

 

—

 

New Town (a)

Owings Mill, MD

 

117,593

 

 

43.8

%

 

43.8

%

 

—

 

 

—

 

Olde Ivy Village (a)

Smyrna, GA

 

46,500

 

 

96.7

%

 

96.7

%

 

—

 

 

—

 

Northpark Village Square (a)

Santa Clarita, CA

 

87,103

 

 

79.4

%

 

79.4

%

 

—

 

 

—

 

Lower Makefield Shopping Center (a)

Lower Makefield, PA

 

74,953

 

 

97.6

%

 

97.6

%

 

—

 

 

—

 

Denton Village (a)

Denton, TX

 

48,280

 

 

96.9

%

 

96.9

%

 

—

 

 

—

 

Rusty Leaf Plaza (a)

Orange, CA

 

59,188

 

 

97.0

%

 

97.0

%

 

—

 

 

—

 

Northville Park Place (a)

Northville, MI

 

78,421

 

 

92.6

%

 

98.4

%

 

—

 

 

—

 

CityPlace (a)

Woodbury, MN

 

174,788

 

 

98.4

%

 

98.4

%

 

—

 

 

—

 

Portfolio total

 

 

7,167,486

 

 

93.1

%

 

93.6

%

$

137,765

 

 

3.97

%
(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.

22

Tenancy Highlights

The following table presents information regarding the top ten tenants in our portfolio based on annualized base rent for leases in-place as of September 30, 2024.

Tenant Name

 

Number
of
Leases

 

 

Annualized
Base Rent

 

 

Percent of
Total
Portfolio
Annualized
Base Rent

 

 

Annualized
Base Rent
Per Square
Foot

 

 

Square
Footage

 

 

Percent of
Total
Portfolio
Square
Footage

 

The Kroger Co

 

 

5

 

 

$

4,899

 

 

 

4.3

%

 

$

16.54

 

 

 

296,150

 

 

 

4.1

%

The TJX Companies, Inc.

 

 

14

 

 

 

3,809

 

 

 

3.4

%

 

 

10.76

 

 

 

354,070

 

 

 

4.9

%

Ross Dress for Less, Inc.

 

 

10

 

 

 

2,772

 

 

 

2.5

%

 

 

10.58

 

 

 

262,080

 

 

 

3.7

%

Ulta Salon, Cosmetics & Fragrance Inc.

 

 

11

 

 

 

2,391

 

 

 

2.1

%

 

 

21.55

 

 

 

110,958

 

 

 

1.6

%

Amazon/Whole Foods Market Group, Inc.

 

 

3

 

 

 

2,340

 

 

 

2.1

%

 

 

20.27

 

 

 

115,396

 

 

 

1.6

%

Sprouts Farmers Market, LLC

 

 

4

 

 

 

2,159

 

 

 

1.9

%

 

 

19.09

 

 

 

113,092

 

 

 

1.6

%

PetSmart

 

 

7

 

 

 

2,103

 

 

 

1.9

%

 

 

15.17

 

 

 

138,578

 

 

 

1.9

%

Albertsons/Jewel/Shaw's

 

 

2

 

 

 

2,090

 

 

 

1.8

%

 

 

16.34

 

 

 

127,892

 

 

 

1.8

%

Dicks Sporting Goods, Inc.

 

 

4

 

 

 

1,959

 

 

 

1.7

%

 

 

10.84

 

 

 

180,766

 

 

 

2.5

%

Five Below

 

 

12

 

 

 

1,946

 

 

 

1.7

%

 

 

17.02

 

 

 

114,369

 

 

 

1.6

%

Top ten tenants

 

 

72

 

 

$

26,468

 

 

 

23.4

%

 

$

14.60

 

 

 

1,813,351

 

 

 

25.3

%

The following table sets forth a summary of our tenant diversity for our entire portfolio and is based on leases in-place as of September 30, 2024.

Tenant Type

Gross Leasable
Area –
Square Footage

 

 

Percent of
Total Gross
Leasable Area

 

 

Percent of
Total Annualized
Base Rent

 

Discount and Department Stores

 

1,430,281

 

 

 

21.3

%

 

 

10.8

%

Grocery

 

1,331,575

 

 

 

19.8

%

 

 

16.9

%

Lifestyle, Health Clubs, Books & Phones

 

871,329

 

 

 

13.0

%

 

 

15.3

%

Home Goods

 

823,941

 

 

 

12.3

%

 

 

6.8

%

Restaurant

 

649,337

 

 

 

9.7

%

 

 

18.7

%

Apparel & Accessories

 

461,275

 

 

 

6.9

%

 

 

9.2

%

Consumer Services, Salons, Cleaners, Banks

 

348,970

 

 

 

5.2

%

 

 

9.5

%

Pet Supplies

 

261,509

 

 

 

3.9

%

 

 

4.0

%

Sporting Goods

 

202,067

 

 

 

3.0

%

 

 

2.2

%

Health, Doctors & Health Foods

 

192,313

 

 

 

2.9

%

 

 

5.0

%

Other

 

137,677

 

 

 

2.0

%

 

 

1.6

%

Total

 

6,710,274

 

 

 

100.0

%

 

 

100.0

%

The following table sets forth a summary, as of September 30, 2024, of the percent of total annualized base rent and the weighted average lease expiration by size of tenant.

Size of Tenant

 

Description –
Square Footage

 

Percent of Total Annualized Base Rent

 

 

Weighted Average Lease Expiration – Years

 

Anchor

 

10,000 and over

 

 

48

%

 

 

5.8

 

Junior Box

 

5,000-9,999

 

 

14

%

 

 

4.1

 

Small Shop

 

Less than 5,000

 

 

38

%

 

 

3.5

 

Total

 

 

 

 

100

%

 

 

4.7

 

 

23

With respect to our locations affected by the Bed Bath and Beyond bankruptcy, we have executed a lease for three out of our four locations that closed and are in active lease negotiations with a national tenant to re-lease the last remaining space.

With respect to our locations affected by the Rite Aid bankruptcy, one of our two locations closed and that lease was rejected. We are currently working with a national retailer to backfill this location. Our other location is still open and operating and was not included on the closing list. This lease was assumed at the end of August 2024 and Rite Aid exited bankruptcy in early September 2024.

Lease Expirations

The following table sets forth a summary, as of September 30, 2024, of lease expirations scheduled to occur during the remainder of 2024 and each of the calendar years from 2025 to 2033 and thereafter, assuming no exercise of renewal options or early termination rights for leases commenced on or prior to September 30, 2024. Annualized base rent represents the rent in-place of the applicable property as of September 30, 2024. The table below includes ground leases. If ground leases are excluded, annualized base rent would equal $103,130 or $19.61 per square foot for total expiring leases.

Lease Expiration Year

 

Number of
Expiring
Leases

 

 

Gross Leasable Area of Expiring Leases – Square Footage

 

 

Percent of
Total Gross
Leasable
Area of
Expiring
Leases

 

 

Total
Annualized
Base Rent
of Expiring
Leases

 

 

Percent of
Total
Annualized
Base Rent
of Expiring
Leases

 

 

Annualized Base Rent per Leased Square Foot

 

2024 (including month-to-month)

 

 

42

 

 

 

160,669

 

 

 

2.4

%

 

$

3,614

 

 

 

3.2

%

 

$

22.49

 

2025

 

 

107

 

 

 

440,012

 

 

 

6.5

%

 

 

10,931

 

 

 

9.7

%

 

 

24.84

 

2026

 

 

106

 

 

 

485,011

 

 

 

7.2

%

 

 

10,550

 

 

 

9.3

%

 

 

21.75

 

2027

 

 

129

 

 

 

903,903

 

 

 

13.5

%

 

 

15,442

 

 

 

13.7

%

 

 

17.08

 

2028

 

 

146

 

 

 

1,421,626

 

 

 

21.2

%

 

 

18,806

 

 

 

16.6

%

 

 

13.23

 

2029

 

 

120

 

 

 

889,217

 

 

 

13.2

%

 

 

15,879

 

 

 

14.1

%

 

 

17.86

 

2030

 

 

57

 

 

 

594,082

 

 

 

8.9

%

 

 

10,772

 

 

 

9.5

%

 

 

18.13

 

2031

 

 

24

 

 

 

201,917

 

 

 

3.0

%

 

 

4,013

 

 

 

3.6

%

 

 

19.87

 

2032

 

 

30

 

 

 

200,551

 

 

 

3.0

%

 

 

4,765

 

 

 

4.2

%

 

 

23.76

 

2033

 

 

28

 

 

 

200,064

 

 

 

3.0

%

 

 

3,728

 

 

 

3.3

%

 

 

18.63

 

Thereafter

 

 

38

 

 

 

1,213,222

 

 

 

18.1

%

 

 

14,482

 

 

 

12.8

%

 

 

11.94

 

Leased Total

 

 

827

 

 

 

6,710,274

 

 

 

100.0

%

 

$

112,982

 

 

 

100.0

%

 

$

16.84

 

Refer to “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Leasing Activity” for details regarding the leasing activity during the nine months ended September 30, 2024.

24

Liquidity and Capital Resources

General

Our primary uses and sources of cash are as follows:

Uses

 

Sources

•

Interest and principal payments on mortgage loans and
Credit Facility

 

•

Cash receipts from our tenants

•

Property operating expenses

 

•

Sale of shares through the DRP

•

General and administrative expenses

 

•

Proceeds from new or refinanced mortgage loans

•

Distributions to stockholders

 

•

Borrowing on our Credit Facility

•

Fees payable to our Business Manager and Real Estate
Manager

 

•

Proceeds from sales of real estate (if any)

•

Repurchases of shares under the SRP

 

•

Proceeds from issuance of securities (if any) other than through the DRP

•

Capital expenditures, tenant improvements and leasing commissions

 

 

 

•

Acquisitions of real estate directly or through joint ventures

 

 

 

•

Redevelopments of entire properties or certain spaces within our properties

 

 

 

Historically, we have generated capital through the issuance of shares of our common stock and by borrowing monies on either a secured or unsecured basis. Since completing our public offering in 2015, however, we have generated the bulk of our capital through borrowings.

As of September 30, 2024, we had $125 million outstanding under the Revolving Credit Facility and $575 million outstanding under the Term Loan. As of September 30, 2024, the interest rates on the Revolving Credit Facility and the Term Loan were 6.86% and 4.35%, respectively. As of September 30, 2023, the interest rates on the Revolving Credit Facility and the Term Loan were 7.33% and 4.39%, respectively. The Revolving Credit Facility matures on February 3, 2026 subject to a twelve month extension, at the Company’s option. The Term Loan matures on February 3, 2027. As of November 7, 2024, we had $75 million available for borrowing under the Revolving Credit Facility, subject to the terms and conditions, including compliance with the covenants which could further limit the amount available, of the Credit Agreement that governs the Credit Facility. Although $75 million is the maximum available, covenant limitations affect what we can actually draw. As of November 7, 2024, approximately $40 million is available to draw as additional debt under the Revolving Credit Facility. 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 of September 30, 2024, we had total debt outstanding of $838 million, excluding unamortized debt issuance costs, which bore interest at a weighted average interest rate of 4.66% per annum. As of September 30, 2024, the weighted average years to maturity for our debt was 2.0 years. As of both September 30, 2024 and December 31, 2023, our borrowings were 52% of the purchase price of our investment properties. As of September 30, 2024, our cash and cash equivalents balance was $10.9 million.

As of November 7, 2024, in the next twelve months, we have one mortgage loan maturing with an aggregate principal balance of $16.5 million, which we intend to repay with cash flows from operating activities, cash on hand or by drawing on the Revolving Credit Facility.

During the nine months ended September 30, 2024, we repurchased an aggregate of $5.0 million of shares of common stock.

During the nine months ended September 30, 2024, we invested $10.1 million on capital expenditures and tenant improvements, which is approximately $3.0 million more than we did in the nine months ended September 30, 2023. We expected to increase spending on tenant improvements in connection with new or renewed leases and capital expenditures in 2024 compared to 2023 but did not anticipate a material effect on our liquidity from this increase, assuming the businesses of our tenants, including those that were negatively affected by the COVID-19 pandemic, remain steady or improve or they otherwise continue to pay their rent and fulfill their lease obligations.

As of September 30, 2024, we have paid all interest and principal amounts when due, and were in compliance with all financial covenants under the Credit Facility as amended.

During the nine months ended September 30, 2024, distributions reinvested through the DRP were approximately $5.0 million. The SRP was funded by the proceeds from the DRP.

25

On September 18, 2024, in connection with the process to review strategic alternatives, including the sale of the Company, the board of directors of the Company suspended both the DRP and the SRP effective as of October 1, 2024.

Cash Flow Analysis

 

 

Nine Months Ended
 September 30,

 

 

Change

 

 

 

2024

 

 

2023

 

 

2024 vs. 2023

 

 

 

(Dollar amounts in thousands)

 

Net cash flows provided by operating activities

 

$

38,950

 

 

$

34,386

 

 

$

4,564

 

Net cash flows used in investing activities

 

$

(10,052

)

 

$

(7,031

)

 

$

(3,021

)

Net cash flows used in financing activities

 

$

(23,961

)

 

$

(22,940

)

 

$

(1,021

)

Operating activities

The increase in cash from operating activities during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to an increase in property net operating income primarily due to higher base rent, a decrease in cash paid for interest due to lower average debt outstanding and a decrease in business management fees in 2024 resulting from a change in the fee that became effective April 1, 2023.

Investing activities

 

 

Nine Months Ended
 September 30,

 

 

Change

 

 

 

2024

 

 

2023

 

 

2024 vs. 2023

 

 

 

(Dollar amounts in thousands)

 

Capital expenditures

 

$

(10,052

)

 

$

(7,031

)

 

$

(3,021

)

Net cash used in investing activities

 

$

(10,052

)

 

$

(7,031

)

 

$

(3,021

)

The increase in cash used in investing activities during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was due to an increase in capital expenditures.

Financing activities

 

 

Nine Months Ended
 September 30,

 

 

Change

 

 

 

2024

 

 

2023

 

 

2024 vs. 2023

 

 

 

(Dollar amounts in thousands)

 

Total changes related to debt

 

$

(9,254

)

 

$

(9,592

)

 

$

338

 

Proceeds from the distribution reinvestment plan, net of shares repurchased

 

 

—

 

 

 

1,011

 

 

 

(1,011

)

Distributions paid

 

 

(14,707

)

 

 

(14,729

)

 

 

22

 

Early termination of interest rate swap agreements, net

 

 

—

 

 

 

370

 

 

 

(370

)

Net cash used in financing activities

 

$

(23,961

)

 

$

(22,940

)

 

$

(1,021

)

During the nine months ended September 30, 2024, changes in total debt decreased $0.3 million from the nine months ended September 30, 2023 primarily due to lower amounts of draws and repayments on the Credit Facility and mortgages payable in 2024 compared to 2023. During the nine months ended September 30, 2024, we generated proceeds from the sale of shares pursuant to the DRP of $5.0 million. For the nine months ended September 30, 2024, share repurchases were $5.0 million. During the nine months ended September 30, 2024, we paid $14.7 million in distributions. As noted herein, in connection with the board’s review of strategic alternatives, the DRP and SRP have both been suspended.

26

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 nine months ended September 30, 2024 and 2023 follows (dollar amounts in thousands except per share amounts):

 

 

 

 

 

 

 

 

Distributions Paid (1)

 

 

 

 

 

Nine Months Ended
 September 30,

 

Distributions
Declared

 

 

Distributions
Declared Per
Share

 

 

Cash

 

 

Reinvested
via DRP

 

 

Total

 

 

Cash Flows
From
Operating Activities

 

 

2024

 

$

14,698

 

 

$

0.406800

 

 

$

9,706

 

 

$

5,001

 

 

$

14,707

 

 

$

38,950

 

 

2023

 

$

14,729

 

 

$

0.406800

 

 

$

9,465

 

 

$

5,264

 

 

$

14,729

 

 

$

34,386

 

 

 

(1)
Distributions were funded by cash flows from operating activities during the nine months ended September 30, 2024 and 2023.

Share Repurchases

Refer to “Part II. Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Repurchases of Securities – Share Repurchase Program” for details regarding our SRP. The SRP was funded by the proceeds from the DRP. On September 18, 2024, in connection with the process to review strategic alternatives, including the sale of the Company, the board of directors of the Company suspended the SRP effective as of October 1, 2024. During the suspension, we will not repurchase shares under the SRP. Any existing unfulfilled repurchase requests will automatically roll over for processing under the terms and conditions of the SRP if we restart the plan, unless a stockholder withdraws the request for repurchase. Any prior redeemed shares will not be impacted.

Results of Operations

This section describes and compares our results of operations for the three and nine months ended September 30, 2024 and 2023. Dollar amounts are stated in thousands.

We generate primarily all of our net operating income from property operations. All 52 investment properties we currently own were held for the entirety of both the three and nine months ended September 30, 2024 and 2023.

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).

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 nine months ended September 30, 2024 and 2023, along with a reconciliation to net loss, calculated in accordance with GAAP.

27

Comparison of the three months ended September 30, 2024 and 2023

 

 

 

 

Three Months Ended
September 30,

 

 

2024

 

2023

 

Change

 

 

(Dollar amounts in thousands)

 

Rental income

$

36,863

 

$

36,007

 

$

856

 

Other property income

 

141

 

 

93

 

 

48

 

Total income

 

37,004

 

 

36,100

 

 

904

 

 

 

 

 

 

 

 

Property operating expenses

 

7,413

 

 

6,791

 

 

622

 

Real estate tax expense

 

4,483

 

 

4,508

 

 

(25

)

Total property operating expenses

 

11,896

 

 

11,299

 

 

597

 

 

 

 

 

 

 

 

Property net operating income

 

25,108

 

 

24,801

 

 

307

 

 

 

 

 

 

 

 

Straight-line income (expense), net

 

155

 

 

245

 

 

(90

)

Amortization of intangibles and lease incentives

 

11

 

 

(97

)

 

108

 

General and administrative expenses

 

(1,332

)

 

(1,168

)

 

(164

)

Business management fee

 

(2,236

)

 

(2,306

)

 

70

 

Depreciation and amortization

 

(14,610

)

 

(14,535

)

 

(75

)

Interest expense

 

(10,402

)

 

(10,727

)

 

325

 

Interest and other income

 

99

 

 

77

 

 

22

 

Net loss

$

(3,207

)

$

(3,710

)

$

503

 

Net loss. Net loss was $3,207 and $3,710 for the three months ended September 30, 2024 and 2023, respectively.

Total property net operating income. During the three months ended September 30, 2024, property net operating income increased $307, total property income increased $904, and total property operating expenses including real estate tax expense increased $597.

The increase in total property income is primarily due to an increase in base rent in new leases and step-up rent on existing leases and increased tenant recovery income due to an increase in recoverable expenses. The increase in property operating expenses is primarily due to an increase in repairs and maintenance expenses, increase in property management fees and an increase in insurance costs.

Straight-line income (expense), net. Straight-line income (expense), net decreased $90 in 2024 compared to 2023. The decrease is primarily due to step-up rent on existing leases in 2024.

Amortization of intangibles and lease incentives. Income from the amortization of intangibles and lease incentives increased $108 in 2024 compared to 2023. The increase is primarily due to lower write-offs in 2024.

General and administrative expenses. General and administrative expenses increased $164 in 2024 compared to 2023. The increase is primarily due to the amount paid to Mr. Zalatoris under the CEO Agreement and an increase in professional fees.

Business management fee. Business management fees decreased $70 in 2024 compared to 2023. The decrease is primarily due to the amount we pay Mr. Zalatoris under the CEO Agreement, which reduces our payment under the Business Management Agreement on a dollar-for-dollar basis. During the three months ended September 30, 2024, total costs incurred under the CEO Agreement were $88, which are included in general and administrative expenses.

Depreciation and amortization. Depreciation and amortization increased $75 in 2024 compared to 2023. The increase is primarily due to higher additions to fixed assets and leasing commissions during 2024 compared to 2023.

Interest expense. Interest expense decreased $325 in 2024 compared to 2023. The decrease is primarily due to lower average debt outstanding and a decrease in interest rate swap amortization.

Interest and other income. Interest and other income increased $22 in 2024 compared to 2023.

28

Comparison of the nine months ended September 30, 2024 and 2023

 

Total

 

 

Nine Months Ended
 September 30,

 

 

2024

 

2023

 

Change

 

Rental income

$

111,023

 

$

108,334

 

$

2,689

 

Other property income

 

321

 

 

235

 

 

86

 

Total income

 

111,344

 

 

108,569

 

 

2,775

 

 

 

 

 

 

 

 

Property operating expenses

 

21,809

 

 

20,521

 

 

1,288

 

Real estate tax expense

 

13,976

 

 

14,023

 

 

(47

)

Total property operating expenses

 

35,785

 

 

34,544

 

 

1,241

 

 

 

 

 

 

 

 

Property net operating income

 

75,559

 

 

74,025

 

 

1,534

 

 

 

 

 

 

 

 

Straight-line income (expense), net

 

558

 

 

189

 

 

369

 

Amortization of intangibles and lease incentives

 

(105

)

 

2,226

 

 

(2,331

)

General and administrative expenses

 

(4,310

)

 

(3,927

)

 

(383

)

Business management fee

 

(6,722

)

 

(7,322

)

 

600

 

Depreciation and amortization

 

(43,763

)

 

(44,675

)

 

912

 

Interest expense

 

(31,218

)

 

(31,942

)

 

724

 

Interest and other income

 

253

 

 

152

 

 

101

 

Net loss

$

(9,748

)

$

(11,274

)

$

1,526

 

Net loss. Net loss was $9,748 and $11,274 for the nine months ended September 30, 2024 and 2023, respectively.

Total property net operating income. During the nine months ended September 30, 2024, property net operating income increased $1,534, total property income increased $2,775, and total property operating expenses including real estate tax expense increased $1,241.

The increase in total property income is primarily due to an increase in base rent in new leases and step-up rent on existing leases, and an increase in tenant recovery income. The increase in property operating expenses is primarily due to an increase in snow removal costs, higher repairs and maintenance costs due to the timing of projects and an increase in insurance premium costs compared to 2023.

Straight-line income (expense), net. Straight-line income (expense), net increased $369 in 2024 compared to 2023. The increase is primarily due to lower straight-line write-offs in 2024 compared to 2023.

Amortization of intangibles and lease incentives. Income from the amortization of intangibles and lease incentives decreased $2,331 in 2024 compared to 2023. The decrease is primarily due to fully amortized intangibles and fewer write-offs for early terminations.

General and administrative expenses. General and administrative expenses increased $383 in 2024 compared to 2023. The increase is primarily due to the amount paid to Mr. Zalatoris under the CEO Agreement and an increase in professional fees. Amounts paid to Mr. Zalatoris reduce the amount paid by the Company to the Business Manager under the Business Management Agreement on a dollar-for-dollar basis.

Business management fee. Business management fees decreased $600 in 2024 compared to 2023. The decrease is primarily due to an amendment to the Business Management Agreement that reduced the base fee. As noted herein, the amount we pay Mr. Zalatoris under the CEO Agreement reduces our payment under the Business Management Agreement on a dollar-for-dollar basis. During the nine months ended September 30, 2024, total costs incurred under the CEO Agreement were $235, which are included in general and administrative expenses.

Depreciation and amortization. Depreciation and amortization decreased $912 in 2024 compared to 2023. The decrease is primarily due to a larger amount of fully amortized assets in 2024 compared to 2023.

Interest expense. Interest expense decreased $724 in 2024 compared to 2023. The decrease is primarily due to lower average debt outstanding and a decrease in interest rate swap amortization.

Interest and other income. Interest and other income increased $101 in 2024 compared to 2023.

29

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 nine months ended September 30, 2024. Leases with terms of less than 12 months have been excluded from the table.

 

 

Number of Leases Signed

 

 

Gross Leasable Area

 

 

New Contractual Rent per Square Foot

 

 

Prior Contractual Rent per Square Foot

 

 

% Change over Prior Annualized Base Rent

 

 

Weighted Average Lease Term

 

 

Tenant Allowances per Square Foot

 

Comparable Renewal Leases

 

 

102

 

 

 

694,274

 

 

$

21.10

 

 

$

19.95

 

 

 

5.8

%

 

 

5.0

 

 

$

0.41

 

Comparable New Leases

 

 

10

 

 

 

39,057

 

 

$

18.78

 

 

$

17.88

 

 

 

5.0

%

 

 

7.8

 

 

$

47.01

 

Non-Comparable New and Renewal Leases (a)

 

 

33

 

 

 

232,082

 

 

$

13.34

 

 

N/A

 

 

N/A

 

 

 

4.8

 

 

$

9.40

 

Total

 

 

145

 

 

 

965,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)
Includes leases signed on units that were vacant for over 12 months, leases signed without fixed rent amounts and leases signed where the previous and current lease do not have similar lease structures.

Non-GAAP Financial Measures

Accounting for real estate assets in accordance with GAAP assumes the value of real estate assets is reduced over time due primarily to non-cash depreciation and amortization expense. Because real estate values may rise and fall with market conditions, operating results from real estate companies that use GAAP accounting may not present a complete view of their performance. We use Funds from Operations, or “FFO”, a widely accepted metric to evaluate our performance. FFO provides a supplemental measure to compare our performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or “NAREIT”, has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT. On November 7, 2018, NAREIT’s Executive Board approved the White Paper restatement, effective December 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 with 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.

Under GAAP, acquisition related costs are treated differently if the acquisition is a business combination or an asset acquisition. An acquisition of a single property will likely be treated as an asset acquisition as opposed to a business combination and acquisition related costs will be capitalized rather than expensed when incurred. Publicly registered, non-listed REITs typically engage in a significant amount of acquisition activity in the early years of their operations, and thus incur significant acquisition related costs, during these initial years. Although other start up entities may engage in significant acquisition activity during their initial years, publicly registered, non-listed REITs are unique in that they typically have a limited timeframe during which they acquire a significant number of properties and thus incur significant acquisition related costs. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Institute for Portfolio Alternatives, or “IPA”, an industry trade group, published a standardized measure known as Modified Funds from Operations, or “MFFO”, which the IPA has promulgated as a supplemental measure for publicly registered non-listed REITs and which may be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that, when compared year-over-year, 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 by 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

30

loss as determined under 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-GAAP measure, is consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the “Practice Guideline,” issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of 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 by GAAP as a measure of our capacity to pay distributions. Management uses FFO and MFFO to compare our operating performance to that of other REITs and to assess our operating performance.

Our FFO and MFFO for the nine months ended September 30, 2024 and 2023 are calculated as follows:

 

 

 

 

Nine Months Ended
 September 30,

 

 

 

 

 

2024

 

 

2023

 

 

 

 

 

(Dollar amounts in thousands)

 

 

 

Net loss

 

$

(9,748

)

 

$

(11,274

)

Add:

 

Depreciation and amortization related to investment properties

 

 

43,763

 

 

 

44,675

 

 

 

Funds from operations (FFO)

 

 

34,015

 

 

 

33,401

 

 

 

 

 

 

 

 

 

 

Less:

 

Amortization of acquired lease intangibles, net

 

 

(50

)

 

 

(2,375

)

 

 

Straight-line income (expense), net

 

 

(558

)

 

 

(189

)

 

 

Modified funds from operations (MFFO)

 

$

33,407

 

 

$

30,837

 

Subsequent Events

For information related to subsequent events, reference is made to Note 14 – “Subsequent Events” which is included in our September 30, 2024 Notes to Consolidated Financial Statements in Item 1.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

We are exposed to various market risks, including those caused by changes in interest rates and commodity prices. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and commodity prices. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We have entered into, and may continue to enter into, financial instruments to manage and reduce the impact of changes in interest rates. The counterparties are, and are expected to continue to be, major financial institutions.

Interest Rate Risk

We are exposed to interest rate changes primarily as a result of long-term debt and the Revolving Credit Facility used to purchase properties or other real estate assets and to fund capital expenditures.

As of September 30, 2024, we had outstanding debt of $837.8 million, excluding unamortized debt issuance costs, bearing interest rates ranging from 3.70% to 6.86% per annum. The weighted average interest rate was 4.66%, which includes the effect of interest rate swaps. As of September 30, 2024, the weighted average years to maturity for our mortgages and Credit Facility payable was 2.0 years.

31

As of September 30, 2024, our fixed-rate debt consisted of secured mortgage financings with a carrying value of $111.8 million and a fair value of $108.3 million. Changes in interest rates do not affect interest expense incurred on our fixed-rate debt until their maturity or earlier repayment, but interest rates do affect the fair value of our fixed rate debt obligations. If market interest rates were to increase by 1% (100 basis points), the fair market value of our fixed-rate debt would decrease by $1.3 million as of September 30, 2024. If market interest rates were to decrease by 1% (100 basis points), the fair market value of our fixed-rate debt would increase by $1.3 million as of September 30, 2024.

As of September 30, 2024, we had $175 million of debt or 21% of our total debt, excluding unamortized debt issuance costs, bearing interest at variable rates with a weighted average interest rate equal to 6.14% per annum. We had additional variable rate debt subject to swap agreements of $551 million, or 66% of our total debt, excluding unamortized debt issuance costs, as of September 30, 2024.

If interest rates on all debt which bears interest at variable rates as of September 30, 2024 increased by 1% (100 basis points), the increase in interest expense would decrease earnings and cash flows by $1.8 million annually. If interest rates on all debt which bears interest at variable rates as of September 30, 2024 decreased by 1% (100 basis points), the decrease in interest expense would increase earnings and cash flows by the same amount.

With regard to variable rate financing, our management assesses our interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We utilize risk management control systems implemented by our Business Manager to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions.

We use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions are determined in light of the facts and circumstances existing at the time of the hedge. We have used derivative financial instruments, specifically interest rate swap contracts, to hedge against interest rate fluctuations on variable rate debt, which exposes us to both credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us because the counterparty may not perform. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We seek to manage the market risk associated with interest-rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. There is no assurance we will be successful.

Derivatives

For information related to derivatives, reference is made to Note 6 – “Debt and Derivative Instruments” which is included in our September 30, 2024 Notes to Consolidated Financial Statements in Item 1.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II - Other Information

Item 1. Legal Proceedings

We are not a party to, and none of our properties are subject to, any material pending legal proceedings.

Item 1A. Risk Factors

The following risk factors amend and supplement the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.

32

Our DRP has been suspended and thus is no longer a source of capital.

In connection with the board’s review of strategic alternatives, we suspended the DRP. While we expect to continue paying distributions during the pendency of the review of strategic alternatives, because the DRP was suspended, it will no longer be a source of capital. During the nine months ended September 30, 2024, distributions reinvested through the DRP generated capital of approximately $5.0 million.

Our SRP has been suspended and may be terminated in our Board’s sole discretion.

In connection with the board’s review of strategic alternatives, we suspended the SRP. During the suspension, we will not repurchase shares under the SRP. There is no assurance of when, or if, the suspension will be lifted if the review of strategic alternatives does not result in a transaction or event that results in a liquidity event for stockholders.

The outcome of the review of strategic alternatives is uncertain.

On September 18, 2024, we announced that our board had decided to begin a review of strategic alternatives, including sale of the Company. There is no assurance as to how long the review will take or the outcome of the process, including whether a transaction or event occurs at a price equal to or greater than our estimated per share NAV. The outcome of any potential transaction or event will depend on several factors many of which will be beyond our control. The process of reviewing strategic alternatives may be time consuming, distracting and disruptive to our business operations. In addition, given that reviewing strategic alternatives may result in a sale, merger or other strategic transaction, any perceived uncertainty regarding our future operations or needs may limit the ability of our business manager or real estate manager to retain or hire qualified personnel and may impact our ability to attract or retain tenants at our properties. Our board may conclude that it is in our best interest to continue with our existing business plan and not seek a transaction or event that would provide stockholders with liquidity.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Repurchases of Securities

Recent Sales of Unregistered Equity Securities

During the quarter covered by this report, we did not sell any equity securities that were not registered under the Securities Act.

Share Repurchase Program

On September 18, 2024, in connection with beginning the process to review strategic alternatives, including the sale of the Company, the Company’s board suspended the SRP effective as of October 1, 2024. During the suspension, we will not repurchase shares under the SRP. Any existing unfulfilled repurchase requests will automatically roll over for processing under the terms and conditions of the SRP if the suspension is lifted unless a stockholder withdraws the request for repurchase. Any prior redeemed shares will not be impacted.

The table below sets forth the number of shares we repurchased pursuant to our SRP during the three months ended September 30, 2024 (Dollar amounts in thousands except per share amounts):

Period

Total Shares
Requested
 to be
Repurchased

 

 

Total Number
of Shares
Repurchased

 

 

Average
Price Paid
per Share

 

 

Amount of Shares Repurchased

 

 

Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs(2)

 

 

Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs

 

July 1, 2024 – July 31, 2024

2,407,960 (1)

 

 

 

107,036

 

 

$

15.34

 

 

$

1,642

 

 

 

107,036

 

 

 

1,485,993

 

August 1 2024 – August 31, 2024

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,485,993

 

September 1, 2024 – September 30, 2024

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,485,993

 

Total

 

2,407,960

 

 

 

107,036

 

 

$

15.34

 

 

$

1,642

 

 

 

107,036

 

 

 

 
(1)
Includes requests that rolled over from the prior period.
(2)
Our SRP was announced on October 18, 2012.

33

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Trading Arrangements

During the three months ended September 30, 2024, none of the Company’s directors or officers adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

Item 6. Exhibits

The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto and are incorporated herein by reference.

Exhibit Index

 

Exhibit

No.

 

Description

 

 

 

3.1

 

Third Articles of Amendment and Restatement of Inland Real Estate Income Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on January 10, 2022 (file number 000-55146))

 

 

 

3.2

 

Articles Supplementary relating to the Company’s election to be subject to Section 3-803 of the MGCL (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 28, 2022 (file number 000-55146))

 

 

 

3.3

 

Fourth Amended and Restated Bylaws of Inland Real Estate Income Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on March 6, 2023 (file number 000-55146))

 

 

 

31.1*

 

Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2*

 

Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1*

 

Certification by Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2*

 

Certification by Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema with Embedded Linkbases Document

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed herewith.

34

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

INLAND REAL ESTATE INCOME TRUST, INC.

 

 

 

/s/ Mark E. Zalatoris

By:

Mark E. Zalatoris

President and Chief Executive Officer

(principal executive officer)

Date:

November 7, 2024

/s/ Catherine L. Lynch

By:

Catherine L. Lynch

 

Chief Financial Officer and Treasurer

(principal financial officer)

Date:

November 7, 2024

 

 

 

 

 

 

 

 

35

 

Exhibit 31.1

CERTIFICATION

I, Mark E. Zalatoris, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Inland Real Estate Income Trust, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

/s/Mark E. Zalatoris

Name:

 

Mark E. Zalatoris

Title:

 

President and Chief Executive Officer

(Principal Executive Officer)

Date:

 

November 7, 2024

 

 

 

Exhibit 31.2

CERTIFICATION

I, Catherine L. Lynch, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Inland Real Estate Income Trust, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

 

/s/ Catherine L. Lynch

Name:

 

Catherine L. Lynch

Title:

 

Chief Financial Officer and Treasurer

 

 

(Principal Financial Officer)

Date:

 

November 7, 2024

 

 

 

Exhibit 32.1

Certification Pursuant to

18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Inland Real Estate Income Trust, Inc. (the “Company”) for the fiscal quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Mark E. Zalatoris, President and Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 7, 2024

By:

 

/s/ Mark E. Zalatoris

 

Name:

 

Mark E. Zalatoris

 

Title:

 

President and Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

Exhibit 32.2

Certification Pursuant to

18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Inland Real Estate Income Trust, Inc. (the “Company”) for the fiscal quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Catherine L. Lynch, Chief Financial Officer and Treasurer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of her knowledge:

1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: November 7, 2024

By:

 

/s/ Catherine L. Lynch

 

Name:

 

Catherine L. Lynch

 

Title:

 

Chief Financial Officer and Treasurer

 

 

 

(Principal Financial Officer)

 

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

v3.24.3
Document and Entity Information - shares
 9 Months Ended
Sep. 30, 2024
Nov. 06, 2024
Cover [Abstract]    
Entity Registrant Name Inland Real Estate Income Trust, Inc.  
Entity Central Index Key 0001528985  
Document Type 10-Q  
Document Period End Date Sep. 30, 2024  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   36,108,936
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2024  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity Interactive Data Current Yes  
Entity File Number 000-55146  
Entity Tax Identification Number 45-3079597  
Entity Address, Address Line One 2901 Butterfield Road  
Entity Address, City or Town Oak Brook  
Entity Address, State or Province IL  
Entity Address, Country US  
Entity Incorporation, State or Country Code MD  
Entity Address, Postal Zip Code 60523  
City Area Code 630  
Local Phone Number 218-8000  
Document Quarterly Report true  
Document Transition Report false  
v3.24.3
CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Investment properties held and used:    
Land $ 330,456 $ 330,456
Building and other improvements 1,220,339 1,209,740
Total 1,550,795 1,540,196
Less accumulated depreciation (371,608) (335,700)
Net investment properties held and used 1,179,187 1,204,496
Cash and cash equivalents 10,911 5,975
Restricted cash 480 479
Accounts and rent receivable 22,940 23,645
Acquired lease intangible assets, net 52,368 61,827
Operating lease right-of-use asset, net 13,454 13,745
Other assets 23,809 33,873
Total assets 1,303,149 1,344,040
Liabilities:    
Mortgages and credit facility payable, net 835,533 843,890
Accounts payable and accrued expenses 15,026 11,182
Operating lease liability 25,211 24,992
Distributions payable 4,896 4,905
Acquired intangible liabilities, net 34,872 37,420
Due to related parties 2,764 2,796
Other liabilities 10,839 10,500
Total liabilities 929,141 935,685
Commitments and contingencies (Note 9)
Stockholders’ equity:    
Preferred stock, $.001 par value, 40,000,000 shares authorized, none outstanding
Common stock, $.001 par value, 1,460,000,000 shares authorized, 36,099,468 and 36,163,852 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively 36 36
Additional paid in capital 816,118 816,047
Accumulated distributions and net loss (457,300) (432,854)
Accumulated other comprehensive income 15,154 25,126
Total stockholders’ equity 374,008 408,355
Total liabilities and stockholders’ equity $ 1,303,149 $ 1,344,040
v3.24.3
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
Sep. 30, 2024
Dec. 31, 2023
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 40,000,000 40,000,000
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 1,460,000,000 1,460,000,000
Common stock, shares issued 36,099,468 36,163,852
Common stock, shares outstanding 36,099,468 36,163,852
v3.24.3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Income:        
Rental income $ 37,198 $ 36,324 $ 111,985 $ 111,259
Other property income 141 93 321 235
Total income 37,339 36,417 112,306 111,494
Cost and Expenses:        
Property operating expenses 7,582 6,960 22,318 21,031
Real estate tax expense 4,483 4,508 13,976 14,023
General and administrative expenses 1,332 1,168 4,310 3,927
Business management fee 2,236 2,306 6,722 7,322
Depreciation and amortization 14,610 14,535 43,763 44,675
Total expenses 30,243 29,477 91,089 90,978
Other Income (Expense):        
Interest expense (10,402) (10,727) (31,218) (31,942)
Interest and other income 99 77 253 152
Net loss $ (3,207) $ (3,710) $ (9,748) $ (11,274)
Net loss per common share, basic $ (0.09) $ (0.1) $ (0.27) $ (0.31)
Net loss per common share, diluted $ (0.09) $ (0.1) $ (0.27) $ (0.31)
Weighted average number of common shares outstanding, basic 36,109,239 36,190,954 36,130,529 36,205,258
Weighted average number of common shares outstanding, diluted 36,109,239 36,190,954 36,130,529 36,205,258
Comprehensive loss:        
Net Income (Loss) $ (3,207) $ (3,710) $ (9,748) $ (11,274)
Unrealized (loss) gain on derivatives (10,230) 7,969 3,023 17,594
Reclassification adjustment for amounts included in net loss (4,336) (4,270) (12,995) (11,604)
Comprehensive loss $ (17,773) $ (11) $ (19,720) $ (5,284)
v3.24.3
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid In Capital [Member]
Accumulated Distributions and Net Loss [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Balance at Dec. 31, 2022 $ 451,058 $ 36 $ 814,949 $ (398,097) $ 34,170
Balance, shares at Dec. 31, 2022   36,184,058      
Distributions declared (14,729)     (14,729)  
Proceeds from distribution reinvestment plan 5,264   5,264    
Proceeds from distribution reinvestment plan, shares   263,598      
Shares repurchased (4,253)   (4,253)    
Shares repurchased, shares   (266,794)      
Unrealized gain on derivatives 17,594       17,594
Reclassification adjustment for amounts included in net loss (11,604)       (11,604)
Equity-based compensation 64   64    
Equity based compensation, shares   1,469      
Net Income (Loss) (11,274)     (11,274)  
Balance at Sep. 30, 2023 432,120 $ 36 816,024 (424,100) 40,160
Balance, shares at Sep. 30, 2023   36,182,331      
Balance at Jun. 30, 2023 436,897 $ 36 815,874 (415,474) 36,461
Balance, shares at Jun. 30, 2023   36,196,116      
Distributions declared (4,916)     (4,916)  
Proceeds from distribution reinvestment plan 1,742   1,742    
Proceeds from distribution reinvestment plan, shares   87,720      
Shares repurchased (1,612)   (1,612)    
Shares repurchased, shares   (101,505)      
Unrealized gain on derivatives 7,969       7,969
Reclassification adjustment for amounts included in net loss (4,270)       (4,270)
Equity-based compensation 20   20    
Equity based compensation, shares   0      
Net Income (Loss) (3,710)     (3,710)  
Balance at Sep. 30, 2023 432,120 $ 36 816,024 (424,100) 40,160
Balance, shares at Sep. 30, 2023   36,182,331      
Balance at Dec. 31, 2023 $ 408,355 $ 36 816,047 (432,854) 25,126
Balance, shares at Dec. 31, 2023 36,163,852 36,163,852      
Distributions declared $ (14,698)     (14,698)  
Proceeds from distribution reinvestment plan 5,001   5,001    
Proceeds from distribution reinvestment plan, shares   257,816      
Shares repurchased (5,001)   (5,001)    
Shares repurchased, shares   (322,200)      
Unrealized gain on derivatives 3,023       3,023
Reclassification adjustment for amounts included in net loss (12,995)       (12,995)
Equity-based compensation 71   71    
Net Income (Loss) (9,748)     (9,748)  
Balance at Sep. 30, 2024 $ 374,008 $ 36 816,118 (457,300) 15,154
Balance, shares at Sep. 30, 2024 36,099,468 36,099,468      
Balance at Jun. 30, 2024 $ 396,654 $ 36 816,094 (449,196) 29,720
Balance, shares at Jun. 30, 2024   36,120,853      
Distributions declared (4,897)     (4,897)  
Proceeds from distribution reinvestment plan 1,642   1,642    
Proceeds from distribution reinvestment plan, shares   85,651      
Shares repurchased (1,642)   (1,642)    
Shares repurchased, shares   (107,036)      
Unrealized gain on derivatives (10,230)       (10,230)
Reclassification adjustment for amounts included in net loss (4,336)       (4,336)
Equity-based compensation 24   24    
Net Income (Loss) (3,207)     (3,207)  
Balance at Sep. 30, 2024 $ 374,008 $ 36 $ 816,118 $ (457,300) $ 15,154
Balance, shares at Sep. 30, 2024 36,099,468 36,099,468      
v3.24.3
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Parenthetical) - $ / shares
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Statement of Stockholders' Equity [Abstract]        
Distributions declared per share $ 0.1356 $ 0.1356 $ 0.4068 $ 0.4068
v3.24.3
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands
 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Cash flows from operating activities:    
Net loss $ (9,748) $ (11,274)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 43,763 44,675
Amortization of debt issuance costs 897 921
Amortization of acquired market leases, net (50) (2,375)
Amortization of equity-based compensation 71 64
Reduction in the carrying amount of the right-of-use-asset 291 308
Straight-line income, net (1,068) (699)
Other non-cash adjustments 143 149
Changes in assets and liabilities:    
Accounts payable and accrued expenses 3,162 2,175
Accounts and rent receivable 1,773 363
Other assets 165 (12)
Due to related parties (102) (1,251)
Operating lease liability 219 205
Other liabilities (566) 1,137
Net cash flows provided by operating activities 38,950 34,386
Cash flows from investing activities:    
Capital expenditures (10,052) (7,031)
Net cash flows used in investing activities (10,052) (7,031)
Cash flows from financing activities:    
Payment of credit facility (11,000) (12,576)
Proceeds from credit facility 2,000 44,576
Payment of mortgages payable (254) (41,592)
Proceeds from the distribution reinvestment plan 5,001 5,264
Shares repurchased (5,001) (4,253)
Distributions paid (14,707) (14,729)
Early termination of interest rate swap agreements, net   370
Net cash flows used in financing activities (23,961) (22,940)
Net increase in cash, cash equivalents and restricted cash 4,937 4,415
Cash, cash equivalents and restricted cash, at beginning of the period 6,454 5,334
Cash, cash equivalents and restricted cash, at end of period 11,391 9,749
In conjunction with the purchase of investment properties, the Company acquired assets and assumed liabilities as follows:    
Cash paid for interest 31,113 30,133
Supplemental schedule of non-cash investing and financing activities:    
Accrued capital expenditures $ 1,879 $ 983
v3.24.3
Pay vs Performance Disclosure - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Pay vs Performance Disclosure        
Net Income (Loss) $ (3,207) $ (3,710) $ (9,748) $ (11,274)
v3.24.3
Insider Trading Arrangements
 3 Months Ended
Sep. 30, 2024
Trading Arrangements, by Individual  
Rule 10b5-1 Arrangement Adopted false
Non-Rule 10b5-1 Arrangement Adopted false
Rule 10b5-1 Arrangement Terminated false
Non-Rule 10b5-1 Arrangement Terminated false
Rule 10b5-1 Arrangement Modified false
Non-Rule 10b5-1 Arrangement Modified false
v3.24.3
Organization
 9 Months Ended
Sep. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization

NOTE 1 – ORGANIZATION

The Company was formed on August 24, 2011 to acquire and manage a portfolio of commercial real estate investments located in the United States. The Company has been primarily focused on acquiring and owning retail properties and targets a portfolio substantially all of which would be comprised of grocery-anchored properties. The Company has invested in joint ventures and may continue to invest in additional joint ventures or acquire other real estate assets if its management believes the expected returns from those investments exceed that of retail properties. The Company 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.

The Company has no employees. The Company is managed by IREIT Business Manager & Advisor, Inc. (the “Business Manager”), an indirect wholly owned subsidiary of Inland Real Estate Investment Corporation (the “Sponsor”), pursuant to a business management agreement, dated October 18, 2012 (as amended, the “Business Management Agreement”) with the Business Manager. The Company entered into an agreement with Mark Zalatoris (the “CEO Agreement”) to, among other things, compensate him for performing services as the Company’s president and chief executive officer. In connection with entering into the CEO Agreement, the Company entered into the Fourth Amended and Restated Business Management Agreement, dated January 19, 2024 (the “Fourth Business Management Agreement”) effective February 1, 2024 with the Business Manager to, among other things, provide the Company with the authority to engage a person not affiliated with or employed by the Business Manager to serve as president and chief executive officer of the Company and to reduce the business management fee payable to the Business Manager by the amount of any payments made to Mr. Zalatoris under the CEO Agreement. Mr. Zalatoris is not an employee of the Company and is not an officer or director of the Business Manager but has the authority under the CEO Agreement and the Business Management Agreement to direct the day-to day operations of the Business Manager.

On September 18, 2024, the Company announced that its board of directors had decided to begin a review of strategic alternatives including sale of the Company. The outcome of this review and any potential transaction or event that may result from the review will depend on several factors, many of which will be beyond the Company’s control. The board may conclude that it is in the Company’s best interest to continue with its existing business plan and to not seek a transaction or event creating liquidity for stockholders.

On September 18, 2024, in connection with the process to review strategic alternatives, including the sale of the Company, the board of directors of the Company suspended both the DRP and the SRP effective as of October 1, 2024.

On March 5, 2024, as reported in the Company’s Form 8-K filed with the Securities and Exchange Commission on the same date, the Company announced that the Company’s board of directors unanimously approved: (i) an estimated per share net asset value (the “Estimated Per Share NAV”) as of December 31, 2023, which served as the per share purchase price for shares issued under the Company’s distribution reinvestment plan (as amended, the “DRP”) beginning with the first distribution payment to stockholders in April 2024 until the Company suspended the DRP, and (ii) that, in accordance with the share repurchase program (as amended, the “SRP”) as further described below in Note 3 – “Equity”, beginning with repurchases in April 2024 and until the Company suspended the SRP, any shares accepted for ordinary repurchases and “exceptional repurchases” were repurchased at 80% of the Estimated Per Share NAV.

As of September 30, 2024, the Company owned 52 retail properties, totaling 7,167,486 square feet. The properties are located in 24 states. As of September 30, 2024, the portfolio had a physical occupancy of 93.1% and economic occupancy of 93.6%.
v3.24.3
Summary of Significant Accounting Policies
 9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Disclosures discussing all significant accounting policies are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on March 13, 2024, under the heading Note 2 – “Summary

of Significant Accounting Policies.” There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2024, except as noted below.

General

The consolidated financial statements have been prepared in accordance with GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In the opinion of management, all adjustments necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods are presented. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.

Restricted Cash

Amounts included in restricted cash represent those required to be set aside by lenders for real estate taxes, insurance, capital expenditures and tenant improvements on the Company's existing properties. These amounts also include post close escrows for tenant improvements, leasing commissions, master lease, general repairs and maintenance, and are classified as restricted cash on the Company’s consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Company’s consolidated balance sheets to such amounts shown on the Company’s consolidated statements of cash flows:

 

 

September 30,

 

 

 

2024

 

 

2023

 

Cash and cash equivalents

 

$

10,911

 

 

$

9,271

 

Restricted cash

 

 

480

 

 

 

478

 

Total cash, cash equivalents, and restricted cash

 

$

11,391

 

 

$

9,749

 

Accounting Pronouncements Recently Issued but Not Yet Effective

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Company has not early adopted ASU 2023-07. The Company continues to evaluate this guidance and expects the standard to impact its disclosures pertaining to having a single reportable segment but does not anticipate the guidance to have an impact on the Company’s financial position, results of operations, or cash flows.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 improves the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-07 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied prospectively, however retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on the Company’s consolidated financial statements.
v3.24.3
Equity
 9 Months Ended
Sep. 30, 2024
Equity [Abstract]  
Equity

NOTE 3 – EQUITY

The Company commenced an initial public “best efforts” offering (the “Offering”) on October 18, 2012, which concluded on October 16, 2015. The Company sold 33,534,022 shares of common stock generating gross proceeds of $834,399 from the Offering. As of September 30, 2024, there were 36,099,468 shares of common stock outstanding including 6,760,667 shares issued through the DRP, net of 4,213,670 shares repurchased through the SRP.

Prior to the suspension, the Company provided the following programs to facilitate additional investment in the Company’s shares and to provide limited liquidity for stockholders.

Distribution Reinvestment Plan

Through the DRP, the Company provided stockholders with the option to purchase additional shares from the Company by automatically reinvesting cash distributions, subject to certain share ownership restrictions. The Company did not pay any selling commissions, marketing contribution or due diligence expense reimbursement in connection with the DRP. Pursuant to the DRP, the price per share for shares of common stock purchased under the DRP was equal to the estimated value of one share, as determined by the Company’s board of directors and reported by the Company from time to time, until the shares become listed for trading, if a listing occurs, assuming that the DRP had not been terminated or suspended in connection with such listing.

During the suspension, stockholders participating in the DRP will not be permitted to reinvest distributions paid by the Company in additional shares. Any prior reinvested distributions will not be impacted.

There were $1,642 and $5,001 distributions reinvested through the DRP during the three and nine months ended September 30, 2024, respectively. There were $1,742 and $5,264 distributions reinvested through the DRP during the three and nine months ended September 30, 2023, respectively.

Share Repurchase Program

The Company adopted the SRP effective October 18, 2012, under which the Company was authorized to purchase shares from stockholders who purchased their shares from the Company or received their shares through a non-cash transfer and who had held their shares for at least one year. Purchases were in the Company’s sole discretion. In the case of repurchases made upon the death of a stockholder or qualifying disability (“Exceptional Repurchases”), as defined in the SRP, the one year holding period did not apply. The SRP has been amended several times. The currently effective version, entitled the “Fifth Amended and Restated Share Repurchase Program” (the “Fifth SRP”), was adopted by the board of directors on November 7, 2023 and became effective on December 27, 2023. Under the Fifth SRP, the board of directors had the discretion to establish the proceeds available to fund repurchases each quarter and could use proceeds from all sources available to the Company, in the board of directors’ sole discretion. The board of directors also had the discretion to determine the amount of repurchases, if any, to be made each quarter based on its evaluation of the Company’s business, cash needs and any other requirements of applicable law. The entirety of the Fifth SRP can be found on the Company’s website.

The SRP will immediately terminate if the Company’s shares become listed for trading on a national securities exchange. In addition, the Company’s board of directors, in its sole discretion, may, at any time, amend or terminate the SRP.

As noted herein, the Company’s board suspended the SRP in connection with the decision to review strategic alternatives. During the suspension, the Company will not repurchase shares under the SRP. Any existing unfulfilled repurchase requests will automatically roll over for processing under the terms and conditions of the SRP if the Company restarts the plan, unless a stockholder withdraws the request for repurchase. Any prior redeemed shares will not be impacted.

Repurchases through the SRP were $1,642 and $5,001 for the three and nine months ended September 30, 2024, respectively. Repurchases through the SRP were $1,612 and $4,253 for the three and nine months ended September 30, 2023, respectively. There was zero liability related to the SRP as of September 30, 2024 and December 31, 2023.
v3.24.3
Leases
 9 Months Ended
Sep. 30, 2024
Leases [Abstract]  
Leases

NOTE 4 – LEASES

The Company is lessor under approximately 830 retail operating leases. The remaining lease terms for the Company’s leases range from less than one year to 14 years. The Company considers the date on which it makes a leased space available to a lessee as the commencement date of the lease. At commencement, the Company determines the lease classification utilizing the classification tests under ASC 842. Options to extend a lease are included in the lease term when it is reasonably certain that the tenant will exercise its option to extend. Termination penalties are included in income when there is a termination agreement, all the conditions of the agreement have been met and amounts due are considered collectable. Such termination fees are recognized on a straight-line basis over the remaining lease term in rental income. If an operating lease is modified and the modification is not accounted for as a separate contract, the Company accounts for the modification as if it were a termination of the existing lease and the creation of a new lease. The Company considers any prepaid or accrued rentals relating to the original lease as part of the lease payments for the modified lease. The Company includes options to modify the original lease term when it is reasonably certain that the tenant will exercise its option to extend.

Most of the revenue from the Company’s properties consists of rents received under long-term operating leases. Most leases require the tenant to pay fixed base rent paid monthly in advance, and to reimburse the Company for the tenant’s pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the Company and recoverable under the terms of the lease. Under these leases, the Company pays all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid.

Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed base rent as well as all costs and expenses associated with occupancy. Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included in the consolidated statements of operations and comprehensive loss. Under leases where all expenses are paid by the Company, subject to reimbursement by the tenant, the expenses are included within property operating expenses. Reimbursements for common area maintenance are considered non-lease components that are permitted to be combined with rental income. The combined lease component and reimbursements for insurance and taxes are reported as rental income on the consolidated statements of operations and comprehensive loss.

Rental income related to the Company's operating leases is comprised of the following:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Rental income - fixed payments

 

$

29,648

 

 

$

28,943

 

 

$

88,847

 

 

$

86,380

 

Rental income - variable payments (a)

 

 

7,491

 

 

 

7,427

 

 

 

23,088

 

 

 

22,504

 

Amortization of acquired lease intangibles, net

 

 

59

 

 

 

(46

)

 

 

50

 

 

 

2,375

 

Rental income

 

$

37,198

 

 

$

36,324

 

 

$

111,985

 

 

$

111,259

 

 

(a) Primarily includes tenant recovery income for real estate taxes, common area maintenance and insurance.

As of September 30, 2024, the Company’s accounts and rent receivable, net balance was $22,940, which was net of an allowance for bad debts of $978. As of December 31, 2023, the Company’s accounts and rent receivable, net balance was $23,645, which was net of an allowance for bad debts of $871.
v3.24.3
Acquired Intangible Assets and Liabilities
 9 Months Ended
Sep. 30, 2024
Goodwill and Intangible Assets Disclosure [Abstract]  
Acquired Intangible Assets and Liabilities

NOTE 5 – ACQUIRED INTANGIBLE ASSETS AND LIABILITIES

The following table summarizes the Company’s identified intangible assets and liabilities as of September 30, 2024 and December 31, 2023:

 

 

September 30, 2024

 

 

December 31, 2023

 

Intangible assets:

 

 

 

 

 

 

Acquired in-place lease value

 

$

183,305

 

 

$

183,305

 

Acquired above market lease value

 

 

52,640

 

 

 

52,640

 

Accumulated amortization

 

 

(183,577

)

 

 

(174,118

)

Acquired lease intangibles, net

 

$

52,368

 

 

$

61,827

 

Intangible liabilities:

 

 

 

 

 

 

Acquired below market lease value

 

$

79,914

 

 

$

79,914

 

Accumulated amortization

 

 

(45,042

)

 

 

(42,494

)

Acquired below market lease intangibles, net

 

$

34,872

 

 

$

37,420

 

The portion of the purchase price allocated to acquired above market lease value and acquired below market lease value is amortized on a straight-line basis over the term of the related lease as an adjustment to rental income. For below market lease values, the amortization period includes any renewal periods with fixed rate renewals. The portion of the purchase price allocated to acquired in-place lease value is amortized on a straight-line basis over the acquired leases’ weighted average remaining term.

Amortization pertaining to acquired in-place lease value, above market lease value and below market lease value is summarized below:

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Amortization recorded as amortization expense:

 

 

 

 

 

 

 

 

 

 

 

Acquired in-place lease value

$

2,249

 

 

$

2,651

 

 

$

6,961

 

 

$

8,863

 

Amortization recorded as a (reduction) increase to rental income:

 

 

 

 

 

 

 

 

 

 

 

Acquired above market leases

$

(828

)

 

$

(900

)

 

$

(2,498

)

 

$

(2,696

)

Acquired below market leases

 

887

 

 

 

854

 

 

 

2,548

 

 

 

5,071

 

Net rental income (reduction) increase

$

59

 

 

$

(46

)

 

$

50

 

 

$

2,375

 

 

Estimated amortization of the respective intangible lease assets and liabilities as of September 30, 2024 for each of the five succeeding years and thereafter is as follows:

 

 

Acquired
In-Place
Leases

 

 

Above Market Leases

 

 

Below
Market
Leases

 

2024 (remainder of year)

 

$

2,142

 

 

$

813

 

 

$

816

 

2025

 

 

6,741

 

 

 

2,929

 

 

 

3,058

 

2026

 

 

5,017

 

 

 

2,503

 

 

 

2,920

 

2027

 

 

3,609

 

 

 

1,858

 

 

 

2,717

 

2028

 

 

2,909

 

 

 

1,612

 

 

 

2,581

 

Thereafter

 

 

13,699

 

 

 

8,536

 

 

 

22,780

 

Total

 

$

34,117

 

 

$

18,251

 

 

$

34,872

 
v3.24.3
Debt and Derivative Instruments
 9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
Debt and Derivative Instruments

NOTE 6 – DEBT AND DERIVATIVE INSTRUMENTS

As of September 30, 2024 and December 31, 2023, the Company had the following mortgages and credit facility payable:

 

September 30, 2024

 

 

December 31, 2023

 

Type of Debt

Principal Amount

 

 

Weighted
Average
Interest Rate

 

 

Principal
Amount

 

 

Weighted
Average
Interest Rate

 

Fixed rate mortgages payable

$

111,765

 

 

 

3.83

%

 

$

112,019

 

 

 

3.84

%

Variable rate mortgages payable with swap agreements

 

26,000

 

 

 

4.55

%

 

 

26,000

 

 

 

4.55

%

Mortgages payable

 

137,765

 

 

 

3.97

%

 

 

138,019

 

 

 

3.97

%

Credit facility payable

 

700,000

 

 

 

4.80

%

 

 

709,000

 

 

 

4.95

%

Total debt before unamortized debt issuance costs including impact of interest rate swaps

 

837,765

 

 

 

4.66

%

 

 

847,019

 

 

 

4.79

%

(Less): Unamortized debt issuance costs

 

(2,232

)

 

 

 

 

 

(3,129

)

 

 

 

Total debt

$

835,533

 

 

 

 

 

$

843,890

 

 

 

 

The Company’s indebtedness bore interest at a weighted average interest rate of 4.66% per annum as of September 30, 2024, which includes the effects of interest rate swaps. The Company estimates the fair value of its total debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by the Company’s lenders using Level 3 inputs. The carrying value of the Company’s debt excluding unamortized debt issuance costs was $837,765 and $847,019 as of September 30, 2024 and December 31, 2023, respectively, and its estimated fair value was $834,803 and $841,313 as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024, scheduled principal payments and maturities on the Company’s debt were as follows:

 

 

September 30, 2024

 

Scheduled Principal Payments and Maturities by Year:

 

Scheduled
Principal
Payments

 

 

Maturities of Mortgage Loans

 

 

Maturity of Credit Facility

 

 

Total

 

2024 (remainder of the year)

 

$

87

 

 

$

—

 

 

$

—

 

 

$

87

 

2025

 

 

295

 

 

 

92,656

 

 

 

—

 

 

 

92,951

 

2026

 

 

—

 

 

 

44,727

 

 

 

125,000

 

 

 

169,727

 

2027

 

 

—

 

 

 

—

 

 

 

575,000

 

 

 

575,000

 

2028

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Thereafter

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

382

 

 

$

137,383

 

 

$

700,000

 

 

$

837,765

 

Credit Facility Payable

On February 3, 2022, the Company entered into a second amended and restated credit agreement (the “Credit Agreement”) with KeyBank National Association, individually and as administrative agent, KeyBanc Capital Markets Inc., PNC Capital Markets LLC and BofA Securities, Inc., as joint lead arrangers, and other lenders from time to time parties to the Credit Agreement (the “Credit Facility”).

Pursuant to the Credit Agreement, the aggregate total commitments under the Credit Facility were increased from $350,000 to $475,000. The Credit Facility consists of the “Revolving Credit Facility” providing revolving credit commitments in an aggregate amount of $200,000 and a term loan facility (the term loans funded under such commitments, the “Term Loan”) providing term loan commitments in an aggregate amount of $275,000 (increased from $150,000). On May 17, 2022, the Company entered into a First Amendment to Credit Agreement Regarding Incremental Term Loans (the “First Amendment”), amending the terms of the Credit Agreement primarily to draw an additional $300,000. The Credit Agreement provides the Company with the ability from time to time to increase the size of the Credit Facility up to a total of $1,200,000, subject to certain conditions.

The Revolving Credit Facility matures on February 3, 2026, and the Company has the option to extend the maturity date for one additional year subject to the payment of an extension fee and certain other conditions. The Term Loan matures on February 3, 2027. Borrowings under the Credit Facility bear interest equal to one-month Term Secured Overnight Financing Rate (“SOFR”) plus a margin, the amount of which depends on the Company’s leverage ratio.

As of September 30, 2024, the Company had $125,000 outstanding under the Revolving Credit Facility and $575,000 outstanding under the Term Loan. As of September 30, 2024, the interest rates on the Revolving Credit Facility and the Term Loan were 6.86% and 4.35%, respectively. As of September 30, 2024, the Company had a maximum amount of $75,000 available for borrowing under the Revolving Credit Facility, subject to the terms and conditions of the Credit Agreement that governs the Credit Facility, including compliance with the covenants which could further limit the amount available. Although all of the amount available under the Revolving Credit Facility is available to pay off existing mortgages, due to the covenant limitations, the Company expects to have substantially less than all $75,000 available to draw or otherwise undertake as additional debt.

The Company’s performance of the obligations under the Credit Facility, including the payment of any outstanding indebtedness under the Credit Facility, is guaranteed by certain subsidiaries of the Company, including each of the subsidiaries of the Company which owns or leases any of the properties included in the pool of unencumbered properties comprising the borrowing base. Additional properties will be added to and removed from the pool from time to time to support amounts borrowed under the Credit Facility so long as at any time there are at least fifteen unencumbered properties with an unencumbered pool value of $300,000 or more. As of September 30, 2024, there were 47 properties included in the pool of unencumbered properties.

The Credit Facility requires compliance with certain covenants, including a minimum tangible net worth requirement, a limitation on the use of leverage, a distribution limitation, restrictions on indebtedness and investment restrictions, as defined. It also contains customary default provisions including the failure to comply with the Company's covenants and the failure to pay when amounts outstanding under the Credit Facility become due. As of September 30, 2024, the Company was in compliance with all financial covenants related to the Credit Facility as amended.

Mortgages Payable

The Company’s mortgage loans require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations. As of September 30, 2024, the Company was current on all of its debt service payments and in compliance with all financial covenants. All of the Company’s mortgage loans are secured by first mortgages on the respective real estate assets. As of September 30, 2024, the weighted average years to maturity for the Company’s mortgages payable was 1.2 years.

As of November 7, 2024, the Company has one mortgage loan maturing in the next twelve months. The mortgage loan had an aggregate principal balance of $16,506 as of September 30, 2024. The Company intends to repay amounts due with cash flows from operating activities, cash on hand or proceeds available under the Revolving Credit Facility.

Interest Rate Swap Agreements

The Company entered into interest rate swaps to fix certain of its floating SOFR based debt under variable rate loans to a fixed rate to manage its risk exposure to interest rate fluctuations. The Company will generally match the maturity of the underlying variable rate debt with the maturity date on the interest swap. See Note 13 – “Fair Value Measurements” for further information.

As of September 30, 2024, the Company had hedged its variable rate mortgage loan of $26,000 and $525,000 of the Term Loan using interest rate swap contracts. The following table summarizes the Company’s interest rate swap contracts outstanding as of September 30, 2024.

Date
Entered

Effective
Date

Maturity
Date

Receive Floating Rate Index (a)

Pay
Fixed
Rate

 

Notional
Amount

 

Fair Value as of September 30, 2024

 

Assets

 

 

 

 

 

 

 

 

 

December 5, 2022

December 1, 2022

January 1, 2026

One-month Term SOFR

 

2.25

%

 

26,000

 

 

443

 

February 3, 2022

March 1, 2022

February 3, 2027

One-month Term SOFR

 

1.69

%

 

90,000

 

 

3,353

 

February 3, 2022

March 1, 2022

February 3, 2027

One-month Term SOFR

 

1.85

%

 

100,000

 

 

3,362

 

February 3, 2022

March 1, 2022

February 3, 2027

One-month Term SOFR

 

1.72

%

 

85,000

 

 

3,126

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.71

%

 

60,000

 

 

849

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.71

%

 

60,000

 

 

849

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.71

%

 

75,000

 

 

1,064

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.77

%

 

55,000

 

 

715

 

 

 

 

 

 

 

$

551,000

 

$

13,761

 

 

(a)
As of September 30, 2024, the one-month term SOFR was 4.85%.

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023.

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

Derivatives in Cash Flow Hedging Relationships

2024

 

 

2023

 

 

2024

 

 

2023

 

Effective portion of derivatives

$

(10,230

)

 

$

7,969

 

 

$

3,023

 

 

$

17,594

 

Reclassification adjustment for amounts included in net loss (effective portion)

$

(4,336

)

 

$

(4,270

)

 

$

(12,995

)

 

$

(11,604

)

The total amount of interest expense presented on the consolidated statements of operations and comprehensive loss was $10,402 and $10,727, for the three months ended September 30, 2024 and 2023, respectively. The total amount of interest expense presented on the consolidated statements of operations and comprehensive loss was $31,218 and $31,942, for the nine months ended September 30, 2024 and 2023, respectively. The net gain or loss reclassified into income from accumulated other comprehensive income is reported in interest expense on the consolidated statements of operations and comprehensive loss. The amount that is expected to be reclassified from accumulated other comprehensive income into income (loss) in the next 12 months is $9,098.
v3.24.3
Distributions
 9 Months Ended
Sep. 30, 2024
Distributions [Abstract]  
Distributions

NOTE 7 – DISTRIBUTIONS

The table below presents the distributions paid and declared during the three and nine months ended September 30, 2024 and 2023.

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Distributions paid

$

4,900

 

 

$

4,910

 

 

$

14,707

 

 

$

14,729

 

Distributions declared

$

4,897

 

 

$

4,916

 

 

$

14,698

 

 

$

14,729

 

 
v3.24.3
Earnings (Loss) per Share
 9 Months Ended
Sep. 30, 2024
Earnings Per Share [Abstract]  
Earnings (Loss) per Share

NOTE 8 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the “common shares”). Diluted EPS is computed by dividing net income (loss) by the common shares plus common share equivalents. The Company excludes antidilutive restricted shares and units from the calculation of weighted-average shares for diluted EPS. As a result of a net loss in the three and nine months ended September 30, 2024, 5,911 and 4,722 shares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive. As a result of a net loss in the three and nine months ended September 30, 2023, 4,433 and 4,809 shares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive.
v3.24.3
Commitments and Contingencies
 9 Months Ended
Sep. 30, 2024
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 9 – COMMITMENTS AND CONTINGENCIES

The Company may be subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material adverse effect on the consolidated financial statements of the Company.
v3.24.3
Equity-Based Compensation
 9 Months Ended
Sep. 30, 2024
Share-Based Payment Arrangement [Abstract]  
Equity-Based Compensation

NOTE 10 – EQUITY-BASED COMPENSATION

Under the Company’s Employee and Director Restricted Share Plan (“RSP”), restricted shares generally vest over a one to three year vesting period from the date of the grant, subject to the specific terms of the grant. In accordance with the RSP, restricted shares are issued to non-employee directors as compensation. Restricted shares are included in common stock outstanding on the date of the vesting. The grant-date value of the restricted shares is amortized over the vesting period representing the requisite service period. Compensation expense associated with the restricted shares issued to the non-employee directors was $24 and $71, in the aggregate, for the three and nine months ended September 30, 2024, respectively. Compensation expense associated with the restricted shares issued to the non-employee directors was $20 and $64, in the aggregate, for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, the Company had $57 of unrecognized compensation expense related to the unvested restricted shares, in the aggregate. The weighted average remaining period that compensation expense related to unvested restricted shares will be recognized is 1.38 years. There were no restricted shares that vested during the three and nine months ended September 30, 2024. The total fair value at the vesting date for restricted shares that vested during the three and nine months ended September 30, 2023 was $0 and $29, respectively.

A summary table of the status of the restricted shares is presented below:

 

 

Restricted Shares

 

Outstanding at December 31, 2023

 

 

9,477

 

Granted

 

 

—

 

Vested

 

 

—

 

Outstanding at September 30, 2024

 

 

9,477

 
v3.24.3
Segment Reporting
 9 Months Ended
Sep. 30, 2024
Segment Reporting [Abstract]  
Segment Reporting

NOTE 11 – SEGMENT REPORTING

The Company has one reportable segment as defined by GAAP, retail real estate, for the nine months ended September 30, 2024 and 2023.
v3.24.3
Transactions with Related Parties
 9 Months Ended
Sep. 30, 2024
Related Party Transactions [Abstract]  
Transactions With Related Parties

NOTE 12 – TRANSACTIONS WITH RELATED PARTIES

The following table summarizes the Company’s related party transactions for the three and nine months ended September 30, 2024 and 2023. Certain compensation and fees payable to the Business Manager for services provided to the Company are limited to maximum amounts.

 

 

Three Months Ended
September 30,

 

Nine Months Ended
 September 30,

 

Unpaid amounts as of

 

 

 

2024

 

2023

 

2024

 

2023

 

September 30, 2024

 

December 31, 2023

 

General and administrative reimbursements

(a)

$

391

 

$

420

 

$

1,219

 

$

1,362

 

$

270

 

$

268

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate management fees

 

$

1,467

 

$

1,357

 

$

4,371

 

$

4,233

 

$

—

 

$

—

 

Property operating expenses

 

 

500

 

 

456

 

 

1,430

 

 

1,457

 

 

21

 

 

15

 

Construction management fees

 

 

153

 

 

213

 

 

341

 

 

312

 

 

144

 

 

74

 

Leasing fees

 

 

79

 

 

93

 

 

303

 

 

249

 

 

93

 

 

128

 

Total real estate management related costs

(b)

$

2,199

 

$

2,119

 

$

6,445

 

$

6,251

 

$

258

 

$

217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business management fees

(c)

 

2,236

 

$

2,306

 

$

6,722

 

$

7,322

 

$

2,236

 

$

2,311

 

 

(a)
The Business Manager and its related parties are entitled to reimbursement for certain general and administrative expenses incurred by the Business Manager or its related parties relating to the Company’s administration. Such costs are included in general and administrative expenses in the consolidated statements of operations and comprehensive loss. Unpaid amounts are included in due to related parties on the consolidated balance sheets.
(b)
For each property that is managed by Inland Commercial Real Estate Services LLC (the “Real Estate Manager”), the Company pays a monthly real estate management fee of up to 1.9% of the gross income from any single-tenant, net-leased property, and up to 3.9% of the gross income from any other property type. The Real Estate Manager determines, in its sole discretion, the amount of the fee with respect to a particular property, subject to the limitations. For each property that is managed directly by the Real Estate Manager or its affiliates, the Company pays the Real Estate Manager a separate leasing fee. Further, in the event that the Company engages its Real Estate Manager to provide construction management services for a property, the Company pays a separate construction management fee. Leasing fees are included in deferred costs, net and construction management fees are included in building and other improvements in the consolidated balance sheets. The Company also reimburses the Real Estate Manager and its affiliates for property-level expenses that they pay or incur on the Company’s behalf, including the salaries, bonuses and benefits of persons performing services for the Real Estate Manager and its affiliates except for the salaries, bonuses and benefits of persons who also serve as an executive officer of the Real Estate Manager or the Company. Real estate management fees and reimbursable expenses are included in property operating expenses in the consolidated statements of operations and comprehensive loss.
(c)
Prior to April 1, 2023, the Company paid the Business Manager an annual business management fee equal to 0.65% of its “average invested assets.” The fee was payable quarterly in an amount equal to 0.1625% of its average invested assets as of the last day of the immediately preceding quarter. Effective April 1, 2023, the Company began paying the Business Manager an annual business management fee equal to 0.55% of its “averaged invested assets.” The fee is payable quarterly in an amount equal to 0.1375% of its average invested assets as of the last day of the immediately preceding quarter. “Average invested assets” means, for any period, the average of the aggregate book value of the Company’s assets, including all intangibles and goodwill, invested, directly or indirectly, in equity interests in, and loans secured by, properties, as well as amounts invested in securities and consolidated and unconsolidated joint ventures or other partnerships, before reserves for amortization and depreciation or bad debts, impairments or other similar non-cash reserves, computed by taking the average of these values at the end of each month during the relevant calendar quarter. Unpaid amounts are included in due to related parties on the consolidated balance sheets. The Business Management Agreement terminates on March 31, 2027.

On January 19, 2024, the Company entered into the Fourth Business Management Agreement with the Business Manager effective February 1, 2024, to, among other things, provide the Company with the authority to engage a person not affiliated with or employed by the Business Manager to serve as president and chief executive officer of the Company and to reduce the business management fee payable to the Business Manager by the amount of any payment made to any third-party person as compensation for service as the Company’s president and chief executive officer. In connection with the CEO Agreement entered into with Mr. Zalatoris, the Business Management Fee is reduced by the amount of any payments made to Mr. Zalatoris under the CEO Agreement. The foregoing description is qualified by reference to the Fourth Business Management Agreement in its entirety. During the three and nine months ended

September 30, 2024, total costs incurred under the CEO Agreement were $88 and $235, respectively. These costs are included in general and administrative expenses in the consolidated statements of operations and comprehensive loss.
v3.24.3
Fair Value Measurements
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements

NOTE 13 – FAIR VALUE MEASUREMENTS

Fair Value Hierarchy

The Company defines fair value based on the price that it believes would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

Level 1 −

 

Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

 

 

 

Level 2 −

 

Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

 

 

Level 3 −

 

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company has estimated the fair value of its financial and non-financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes.

Recurring Fair Value Measurements

For assets and liabilities measured at fair value on a recurring basis, the table below presents the fair value of the Company’s cash flow hedges as well as their classification on the consolidated balance sheets as of September 30, 2024 and December 31, 2023.

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements - Other assets

$

—

 

 

$

13,761

 

 

$

—

 

 

$

13,761

 

Interest rate swap agreements - Other liabilities

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements - Other assets

$

—

 

 

$

23,285

 

 

$

—

 

 

$

23,285

 

Interest rate swap agreements - Other liabilities

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

The fair value of derivative instruments was estimated based on data observed in the forward yield curve which is widely observed in the marketplace. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the counterparty's nonperformance risk in the fair value measurements which utilize Level 3 inputs, such as estimates of current credit spreads. The Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative interest rate swap agreements and therefore has classified these in Level 2 of the hierarchy.
v3.24.3
Subsequent Events
 9 Months Ended
Sep. 30, 2024
Subsequent Events [Abstract]  
Subsequent Events

NOTE 14 – SUBSEQUENT EVENTS

In connection with the preparation of its consolidated financial statements, the Company has evaluated events that occurred subsequent to September 30, 2024 through the date on which these consolidated financial statements were issued to determine whether any of these events required disclosure in the consolidated financial statements.

Director Stock Awards

Pursuant to the RSP, on November 6, 2024, the Company granted each of its four independent directors 2,086.59 restricted shares for a total of 8,346 restricted shares with a total value of $160. The restricted shares will vest in equal one-third increments on November 6, 2025, 2026 and 2027.
v3.24.3
Summary of Significant Accounting Policies (Policies)
 9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
General

General

The consolidated financial statements have been prepared in accordance with GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In the opinion of management, all adjustments necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods are presented. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.
Restricted Cash

Restricted Cash

Amounts included in restricted cash represent those required to be set aside by lenders for real estate taxes, insurance, capital expenditures and tenant improvements on the Company's existing properties. These amounts also include post close escrows for tenant improvements, leasing commissions, master lease, general repairs and maintenance, and are classified as restricted cash on the Company’s consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Company’s consolidated balance sheets to such amounts shown on the Company’s consolidated statements of cash flows:

 

 

September 30,

 

 

 

2024

 

 

2023

 

Cash and cash equivalents

 

$

10,911

 

 

$

9,271

 

Restricted cash

 

 

480

 

 

 

478

 

Total cash, cash equivalents, and restricted cash

 

$

11,391

 

 

$

9,749

 
Accounting Pronouncements Recently Issued but Not Yet Effective

Accounting Pronouncements Recently Issued but Not Yet Effective

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Company has not early adopted ASU 2023-07. The Company continues to evaluate this guidance and expects the standard to impact its disclosures pertaining to having a single reportable segment but does not anticipate the guidance to have an impact on the Company’s financial position, results of operations, or cash flows.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 improves the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-07 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied prospectively, however retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on the Company’s consolidated financial statements.
v3.24.3
Summary of Significant Accounting Policies (Tables)
 9 Months Ended
Sep. 30, 2024
Accounting Policies [Abstract]  
Reconciliation of Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Company’s consolidated balance sheets to such amounts shown on the Company’s consolidated statements of cash flows:

 

 

September 30,

 

 

 

2024

 

 

2023

 

Cash and cash equivalents

 

$

10,911

 

 

$

9,271

 

Restricted cash

 

 

480

 

 

 

478

 

Total cash, cash equivalents, and restricted cash

 

$

11,391

 

 

$

9,749

 
v3.24.3
Leases (Tables)
 9 Months Ended
Sep. 30, 2024
Leases [Abstract]  
Summary of Rental Income Related to Operating Leases

Rental income related to the Company's operating leases is comprised of the following:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Rental income - fixed payments

 

$

29,648

 

 

$

28,943

 

 

$

88,847

 

 

$

86,380

 

Rental income - variable payments (a)

 

 

7,491

 

 

 

7,427

 

 

 

23,088

 

 

 

22,504

 

Amortization of acquired lease intangibles, net

 

 

59

 

 

 

(46

)

 

 

50

 

 

 

2,375

 

Rental income

 

$

37,198

 

 

$

36,324

 

 

$

111,985

 

 

$

111,259

 

 

(a) Primarily includes tenant recovery income for real estate taxes, common area maintenance and insurance.
v3.24.3
Acquired Intangible Assets and Liabilities (Tables)
 9 Months Ended
Sep. 30, 2024
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Intangible Assets and Liabilities

The following table summarizes the Company’s identified intangible assets and liabilities as of September 30, 2024 and December 31, 2023:

 

 

September 30, 2024

 

 

December 31, 2023

 

Intangible assets:

 

 

 

 

 

 

Acquired in-place lease value

 

$

183,305

 

 

$

183,305

 

Acquired above market lease value

 

 

52,640

 

 

 

52,640

 

Accumulated amortization

 

 

(183,577

)

 

 

(174,118

)

Acquired lease intangibles, net

 

$

52,368

 

 

$

61,827

 

Intangible liabilities:

 

 

 

 

 

 

Acquired below market lease value

 

$

79,914

 

 

$

79,914

 

Accumulated amortization

 

 

(45,042

)

 

 

(42,494

)

Acquired below market lease intangibles, net

 

$

34,872

 

 

$

37,420

 
Schedule of Amortization of Acquired In Place Lease Value, Above Market and Below Market Lease Values

Amortization pertaining to acquired in-place lease value, above market lease value and below market lease value is summarized below:

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Amortization recorded as amortization expense:

 

 

 

 

 

 

 

 

 

 

 

Acquired in-place lease value

$

2,249

 

 

$

2,651

 

 

$

6,961

 

 

$

8,863

 

Amortization recorded as a (reduction) increase to rental income:

 

 

 

 

 

 

 

 

 

 

 

Acquired above market leases

$

(828

)

 

$

(900

)

 

$

(2,498

)

 

$

(2,696

)

Acquired below market leases

 

887

 

 

 

854

 

 

 

2,548

 

 

 

5,071

 

Net rental income (reduction) increase

$

59

 

 

$

(46

)

 

$

50

 

 

$

2,375

 

 
Schedule of Estimated Amortization of Intangible Lease Assets and Liabilities

Estimated amortization of the respective intangible lease assets and liabilities as of September 30, 2024 for each of the five succeeding years and thereafter is as follows:

 

 

Acquired
In-Place
Leases

 

 

Above Market Leases

 

 

Below
Market
Leases

 

2024 (remainder of year)

 

$

2,142

 

 

$

813

 

 

$

816

 

2025

 

 

6,741

 

 

 

2,929

 

 

 

3,058

 

2026

 

 

5,017

 

 

 

2,503

 

 

 

2,920

 

2027

 

 

3,609

 

 

 

1,858

 

 

 

2,717

 

2028

 

 

2,909

 

 

 

1,612

 

 

 

2,581

 

Thereafter

 

 

13,699

 

 

 

8,536

 

 

 

22,780

 

Total

 

$

34,117

 

 

$

18,251

 

 

$

34,872

 
v3.24.3
Debt and Derivative Instruments (Tables)
 9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
Schedule of Mortgages and Credit Facilities Payable

As of September 30, 2024 and December 31, 2023, the Company had the following mortgages and credit facility payable:

 

September 30, 2024

 

 

December 31, 2023

 

Type of Debt

Principal Amount

 

 

Weighted
Average
Interest Rate

 

 

Principal
Amount

 

 

Weighted
Average
Interest Rate

 

Fixed rate mortgages payable

$

111,765

 

 

 

3.83

%

 

$

112,019

 

 

 

3.84

%

Variable rate mortgages payable with swap agreements

 

26,000

 

 

 

4.55

%

 

 

26,000

 

 

 

4.55

%

Mortgages payable

 

137,765

 

 

 

3.97

%

 

 

138,019

 

 

 

3.97

%

Credit facility payable

 

700,000

 

 

 

4.80

%

 

 

709,000

 

 

 

4.95

%

Total debt before unamortized debt issuance costs including impact of interest rate swaps

 

837,765

 

 

 

4.66

%

 

 

847,019

 

 

 

4.79

%

(Less): Unamortized debt issuance costs

 

(2,232

)

 

 

 

 

 

(3,129

)

 

 

 

Total debt

$

835,533

 

 

 

 

 

$

843,890

 

 

 

 
Schedule of Principal Payments and Maturities of Company's Debt

As of September 30, 2024, scheduled principal payments and maturities on the Company’s debt were as follows:

 

 

September 30, 2024

 

Scheduled Principal Payments and Maturities by Year:

 

Scheduled
Principal
Payments

 

 

Maturities of Mortgage Loans

 

 

Maturity of Credit Facility

 

 

Total

 

2024 (remainder of the year)

 

$

87

 

 

$

—

 

 

$

—

 

 

$

87

 

2025

 

 

295

 

 

 

92,656

 

 

 

—

 

 

 

92,951

 

2026

 

 

—

 

 

 

44,727

 

 

 

125,000

 

 

 

169,727

 

2027

 

 

—

 

 

 

—

 

 

 

575,000

 

 

 

575,000

 

2028

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Thereafter

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

382

 

 

$

137,383

 

 

$

700,000

 

 

$

837,765

 
Summary of Interest Rate Swap Contracts Outstanding The following table summarizes the Company’s interest rate swap contracts outstanding as of September 30, 2024.

Date
Entered

Effective
Date

Maturity
Date

Receive Floating Rate Index (a)

Pay
Fixed
Rate

 

Notional
Amount

 

Fair Value as of September 30, 2024

 

Assets

 

 

 

 

 

 

 

 

 

December 5, 2022

December 1, 2022

January 1, 2026

One-month Term SOFR

 

2.25

%

 

26,000

 

 

443

 

February 3, 2022

March 1, 2022

February 3, 2027

One-month Term SOFR

 

1.69

%

 

90,000

 

 

3,353

 

February 3, 2022

March 1, 2022

February 3, 2027

One-month Term SOFR

 

1.85

%

 

100,000

 

 

3,362

 

February 3, 2022

March 1, 2022

February 3, 2027

One-month Term SOFR

 

1.72

%

 

85,000

 

 

3,126

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.71

%

 

60,000

 

 

849

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.71

%

 

60,000

 

 

849

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.71

%

 

75,000

 

 

1,064

 

May 17, 2022

June 1, 2022

February 3, 2027

One-month Term SOFR

 

2.77

%

 

55,000

 

 

715

 

 

 

 

 

 

 

$

551,000

 

$

13,761

 

 

(a)
As of September 30, 2024, the one-month term SOFR was 4.85%.
Schedule of Effect of Derivatives on Consolidated Statements of Operations and Comprehensive Loss

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023.

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

Derivatives in Cash Flow Hedging Relationships

2024

 

 

2023

 

 

2024

 

 

2023

 

Effective portion of derivatives

$

(10,230

)

 

$

7,969

 

 

$

3,023

 

 

$

17,594

 

Reclassification adjustment for amounts included in net loss (effective portion)

$

(4,336

)

 

$

(4,270

)

 

$

(12,995

)

 

$

(11,604

)
v3.24.3
Distributions (Tables)
 9 Months Ended
Sep. 30, 2024
Distributions [Abstract]  
Schedule of Distributions Paid and Declared

The table below presents the distributions paid and declared during the three and nine months ended September 30, 2024 and 2023.

 

Three Months Ended
September 30,

 

 

Nine Months Ended
 September 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Distributions paid

$

4,900

 

 

$

4,910

 

 

$

14,707

 

 

$

14,729

 

Distributions declared

$

4,897

 

 

$

4,916

 

 

$

14,698

 

 

$

14,729

 

 
v3.24.3
Equity-Based Compensation (Tables)
 9 Months Ended
Sep. 30, 2024
Share-Based Payment Arrangement [Abstract]  
Summary of Restricted Shares

A summary table of the status of the restricted shares is presented below:

 

 

Restricted Shares

 

Outstanding at December 31, 2023

 

 

9,477

 

Granted

 

 

—

 

Vested

 

 

—

 

Outstanding at September 30, 2024

 

 

9,477

 
v3.24.3
Transactions with Related Parties (Tables)
 9 Months Ended
Sep. 30, 2024
Related Party Transactions [Abstract]  
Schedule of Related Party Transactions

The following table summarizes the Company’s related party transactions for the three and nine months ended September 30, 2024 and 2023. Certain compensation and fees payable to the Business Manager for services provided to the Company are limited to maximum amounts.

 

 

Three Months Ended
September 30,

 

Nine Months Ended
 September 30,

 

Unpaid amounts as of

 

 

 

2024

 

2023

 

2024

 

2023

 

September 30, 2024

 

December 31, 2023

 

General and administrative reimbursements

(a)

$

391

 

$

420

 

$

1,219

 

$

1,362

 

$

270

 

$

268

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate management fees

 

$

1,467

 

$

1,357

 

$

4,371

 

$

4,233

 

$

—

 

$

—

 

Property operating expenses

 

 

500

 

 

456

 

 

1,430

 

 

1,457

 

 

21

 

 

15

 

Construction management fees

 

 

153

 

 

213

 

 

341

 

 

312

 

 

144

 

 

74

 

Leasing fees

 

 

79

 

 

93

 

 

303

 

 

249

 

 

93

 

 

128

 

Total real estate management related costs

(b)

$

2,199

 

$

2,119

 

$

6,445

 

$

6,251

 

$

258

 

$

217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business management fees

(c)

 

2,236

 

$

2,306

 

$

6,722

 

$

7,322

 

$

2,236

 

$

2,311

 

 

(a)
The Business Manager and its related parties are entitled to reimbursement for certain general and administrative expenses incurred by the Business Manager or its related parties relating to the Company’s administration. Such costs are included in general and administrative expenses in the consolidated statements of operations and comprehensive loss. Unpaid amounts are included in due to related parties on the consolidated balance sheets.
(b)
For each property that is managed by Inland Commercial Real Estate Services LLC (the “Real Estate Manager”), the Company pays a monthly real estate management fee of up to 1.9% of the gross income from any single-tenant, net-leased property, and up to 3.9% of the gross income from any other property type. The Real Estate Manager determines, in its sole discretion, the amount of the fee with respect to a particular property, subject to the limitations. For each property that is managed directly by the Real Estate Manager or its affiliates, the Company pays the Real Estate Manager a separate leasing fee. Further, in the event that the Company engages its Real Estate Manager to provide construction management services for a property, the Company pays a separate construction management fee. Leasing fees are included in deferred costs, net and construction management fees are included in building and other improvements in the consolidated balance sheets. The Company also reimburses the Real Estate Manager and its affiliates for property-level expenses that they pay or incur on the Company’s behalf, including the salaries, bonuses and benefits of persons performing services for the Real Estate Manager and its affiliates except for the salaries, bonuses and benefits of persons who also serve as an executive officer of the Real Estate Manager or the Company. Real estate management fees and reimbursable expenses are included in property operating expenses in the consolidated statements of operations and comprehensive loss.
(c)
Prior to April 1, 2023, the Company paid the Business Manager an annual business management fee equal to 0.65% of its “average invested assets.” The fee was payable quarterly in an amount equal to 0.1625% of its average invested assets as of the last day of the immediately preceding quarter. Effective April 1, 2023, the Company began paying the Business Manager an annual business management fee equal to 0.55% of its “averaged invested assets.” The fee is payable quarterly in an amount equal to 0.1375% of its average invested assets as of the last day of the immediately preceding quarter. “Average invested assets” means, for any period, the average of the aggregate book value of the Company’s assets, including all intangibles and goodwill, invested, directly or indirectly, in equity interests in, and loans secured by, properties, as well as amounts invested in securities and consolidated and unconsolidated joint ventures or other partnerships, before reserves for amortization and depreciation or bad debts, impairments or other similar non-cash reserves, computed by taking the average of these values at the end of each month during the relevant calendar quarter. Unpaid amounts are included in due to related parties on the consolidated balance sheets. The Business Management Agreement terminates on March 31, 2027.
v3.24.3
Fair Value Measurements (Tables)
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Schedule of Fair Value Assets and Liabilities Measured on a Recurring Basis

For assets and liabilities measured at fair value on a recurring basis, the table below presents the fair value of the Company’s cash flow hedges as well as their classification on the consolidated balance sheets as of September 30, 2024 and December 31, 2023.

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

September 30, 2024

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements - Other assets

$

—

 

 

$

13,761

 

 

$

—

 

 

$

13,761

 

Interest rate swap agreements - Other liabilities

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements - Other assets

$

—

 

 

$

23,285

 

 

$

—

 

 

$

23,285

 

Interest rate swap agreements - Other liabilities

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 
v3.24.3
Organization (Narrative) (Details)
Sep. 30, 2024
ft²
State
Property
Mar. 05, 2024
Organization [Line Items]    
Number of retail properties owned | Property 52  
Square footage of real estate properties owned | ft² 7,167,486  
Number of states in which company owns real estate properties | State 24  
Physical occupancy rate of properties portfolio 93.10%  
Economic occupancy rate of properties portfolio 93.60%  
Share Repurchase Program [Member]    
Organization [Line Items]    
Percentage of share price on repurchase of shares   80.00%
v3.24.3
Summary of Significant Accounting Policies (Reconciliation of Cash, Cash Equivalents and Restricted Cash) (Details) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Sep. 30, 2023
Dec. 31, 2022
Accounting Policies [Abstract]        
Cash and cash equivalents $ 10,911 $ 5,975 $ 9,271  
Restricted cash 480 479 478  
Total cash, cash equivalents, and restricted cash $ 11,391 $ 6,454 $ 9,749 $ 5,334
v3.24.3
Equity (Narrative) (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 36 Months Ended 143 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Oct. 16, 2015
Sep. 30, 2024
Dec. 31, 2023
Equity [Line Items]              
Common stock, shares sold         33,534,022    
Proceeds from offering         $ 834,399    
Common stock, shares outstanding 36,099,468   36,099,468     36,099,468 36,163,852
Distribution reinvested $ 1,642 $ 1,742 $ 5,001 $ 5,264      
Stock repurchase program, amount 1,642 1,612 5,001 4,253      
Other liabilities 10,839   10,839     $ 10,839 $ 10,500
Stock Repurchase Program [Member]              
Equity [Line Items]              
Shares repurchased through the share repurchase program           4,213,670  
Other liabilities 0   $ 0     $ 0 $ 0
Minimum [Member]              
Equity [Line Items]              
Stock repurchase program, to be held     1 year        
DRP [Member]              
Equity [Line Items]              
Distribution reinvestment plan, shares           6,760,667  
Distribution reinvested $ 1,642 $ 1,742 $ 5,001 $ 5,264      
v3.24.3
Leases - Additional Information (Detail)
$ in Thousands
Sep. 30, 2024
USD ($)
OperatingLease
Dec. 31, 2023
USD ($)
Operating Leased Assets [Line Items]    
Number of retail operating leases | OperatingLease 830  
Accounts and rent receivable $ 22,940 $ 23,645
Allowance for bad debts $ 978 $ 871
Minimum [Member]    
Operating Leased Assets [Line Items]    
Lessor, operating leases, remaining lease term 1 year  
Maximum [Member]    
Operating Leased Assets [Line Items]    
Lessor, operating leases, remaining lease term 14 years  
v3.24.3
Leases - Summary of Rental Income Related to Operating Leases (Detail) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Operating Lease, Lease Income [Abstract]        
Rental income - fixed payments $ 29,648 $ 28,943 $ 88,847 $ 86,380
Rental income - variable payments [1] 7,491 7,427 23,088 22,504
Amortization of acquired lease intangibles, net 59 (46) 50 2,375
Rental income $ 37,198 $ 36,324 $ 111,985 $ 111,259
[1] Primarily includes tenant recovery income for real estate taxes, common area maintenance and insurance.
v3.24.3
Acquired Intangible Assets and Liabilities (Schedule of Intangible Assets and Liabilities) (Details) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Intangible assets:    
Accumulated amortization $ (183,577) $ (174,118)
Acquired lease intangibles, net 52,368 61,827
Intangible liabilities:    
Acquired below market lease value 79,914 79,914
Accumulated amortization (45,042) (42,494)
Acquired below market lease intangibles, net 34,872 37,420
Acquired in-place lease value [Member]    
Intangible assets:    
Acquired intangible assets 183,305 183,305
Acquired lease intangibles, net 34,117  
Acquired above market lease value [Member]    
Intangible assets:    
Acquired intangible assets 52,640 $ 52,640
Acquired lease intangibles, net $ 18,251  
v3.24.3
Acquired Intangible Assets and Liabilities (Schedule of Amortization of Acquired In Place Lease Value, Above Market and Below Market Lease Values) (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Acquired Finite Lived Intangible Assets [Line Items]        
Amortization recorded as a (reduction) increase to rental income $ 59 $ (46) $ 50 $ 2,375
Acquired in-place lease value [Member]        
Acquired Finite Lived Intangible Assets [Line Items]        
Amortization recorded as amortization expense 2,249 2,651 6,961 8,863
Acquired above market lease value [Member]        
Acquired Finite Lived Intangible Assets [Line Items]        
Amortization recorded as a (reduction) increase to rental income (828) (900) (2,498) (2,696)
Acquired below market lease value [Member]        
Acquired Finite Lived Intangible Assets [Line Items]        
Amortization recorded as a (reduction) increase to rental income $ 887 $ 854 $ 2,548 $ 5,071
v3.24.3
Acquired Intangible Assets and Liabilities (Schedule of Estimated Amortization of Intangible Assets and Liabilities) (Details) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Future amortization for acquired in-place and above market lease assets:    
Acquired lease intangibles, net $ 52,368 $ 61,827
Future amortization for below market lease liabilities:    
2024 (remainder of year) 816  
2025 3,058  
2026 2,920  
2027 2,717  
2028 2,581  
Thereafter 22,780  
Total 34,872  
Acquired in-place lease value [Member]    
Future amortization for acquired in-place and above market lease assets:    
2024 (remainder of year) 2,142  
2025 6,741  
2026 5,017  
2027 3,609  
2028 2,909  
Thereafter 13,699  
Acquired lease intangibles, net 34,117  
Above Market Leases [Member]    
Future amortization for acquired in-place and above market lease assets:    
2024 (remainder of year) 813  
2025 2,929  
2026 2,503  
2027 1,858  
2028 1,612  
Thereafter 8,536  
Acquired lease intangibles, net $ 18,251  
v3.24.3
Debt and Derivative Instruments (Schedule of Mortgages and Credit Facility Payable) (Details) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Mortgage Loans On Real Estate [Line Items]    
Mortgages payable $ 137,765 $ 138,019
Credit facility payable 700,000 709,000
Total debt before unamortized debt issuance costs including impact of interest rate swaps 837,765 847,019
Less: Unamortized debt issuance costs (2,232) (3,129)
Total debt $ 835,533 $ 843,890
Mortgages Payable, Weighted Average Interest Rate 3.97% 3.97%
Credit Facilities Payable, Weighted Average Interest Rate 4.80% 4.95%
Total debt before unamortized debt issuance costs including impact of interest rate swaps, Weighted Average Interest Rate 4.66% 4.79%
Fixed rate mortgages payable [Member]    
Mortgage Loans On Real Estate [Line Items]    
Mortgages payable $ 111,765 $ 112,019
Mortgages Payable, Weighted Average Interest Rate 3.83% 3.84%
Variable rate mortgages payable with swap agreements [Member]    
Mortgage Loans On Real Estate [Line Items]    
Mortgages payable $ 26,000 $ 26,000
Mortgages Payable, Weighted Average Interest Rate 4.55% 4.55%
v3.24.3
Debt and Derivative Instruments (Narrative) (Details)
$ in Thousands
 3 Months Ended 9 Months Ended
May 17, 2022
USD ($)
Feb. 03, 2022
USD ($)
Sep. 30, 2024
USD ($)
Property
Sep. 30, 2023
USD ($)
Sep. 30, 2024
USD ($)
Property
Sep. 30, 2023
USD ($)
Nov. 07, 2024
MortgageLoan
Dec. 31, 2023
USD ($)
Debt Instrument [Line Items]                
Indebtedness includes effects of interest rate swap, weighted average interest rate     4.66%   4.66%     4.79%
Carrying value of debt     $ 837,765   $ 837,765     $ 847,019
Estimated fair value of debt     834,803   834,803     841,313
Outstanding line of credit     700,000   700,000     $ 709,000
Interest expense     $ 10,402 $ 10,727 31,218 $ 31,942    
Amount expected to be reclassified from accumulated other comprehensive income (loss) into income in the next twelve months         $ 9,098      
Mortgages Payable [Member]                
Debt Instrument [Line Items]                
Debt, covenant compliance         the Company was current on all of its debt service payments and in compliance with all financial covenants      
Weighted average maturity period     1 year 2 months 12 days   1 year 2 months 12 days      
Aggregate principal balance maturing in next 12 months     $ 16,506   $ 16,506      
Number of mortgage loans maturing in next twelve months | MortgageLoan             1  
Variable Rate Mortgage Loans [Member] | Interest Rate Swap Agreements [Member]                
Debt Instrument [Line Items]                
Variable rate mortgage loan     26,000   26,000      
Revolving Credit Facility [Member]                
Debt Instrument [Line Items]                
Outstanding line of credit     125,000   $ 125,000      
Credit facility, interest rate         6.86%      
Credit facility, maturity date   Feb. 03, 2026            
Line of credit facility, expiration date, extension period   1 year            
Credit facility available for borrowing     75,000   $ 75,000      
Revolving Credit Facility [Member] | Lenders [Member]                
Debt Instrument [Line Items]                
Aggregate amount of commitments   $ 200,000            
Term Loan [Member]                
Debt Instrument [Line Items]                
Incremental amount borrowed under the term loan $ 300,000              
Outstanding line of credit     575,000   $ 575,000      
Credit facility, interest rate         4.35%      
Credit facility, maturity date   Feb. 03, 2027            
Term Loan [Member] | Interest Rate Swap Agreements [Member]                
Debt Instrument [Line Items]                
Variable rate mortgage loan     525,000   $ 525,000      
Credit Facility [Member]                
Debt Instrument [Line Items]                
Carrying value of debt     $ 700,000   $ 700,000      
Number of properties included in pool of unencumbered properties | Property     47   47      
Debt, covenant compliance         the Company was in compliance with all financial covenants related to the Credit Facility as amended.      
Minimum [Member] | Revolving Credit Facility [Member] | Lenders [Member]                
Debt Instrument [Line Items]                
Aggregate amount of commitments   $ 350,000            
Number of unencumbered properties | Property         15      
Unencumbered pool value         $ 300,000      
Minimum [Member] | Term Loan [Member] | Lenders [Member]                
Debt Instrument [Line Items]                
Aggregate amount of term loan commitments   150,000            
Maximum [Member]                
Debt Instrument [Line Items]                
Credit facility available for borrowing     $ 75,000   $ 75,000      
Maximum [Member] | Revolving Credit Facility [Member] | Lenders [Member]                
Debt Instrument [Line Items]                
Aggregate amount of commitments   475,000            
Periodic aggregate commitment for credit facility   1,200,000            
Maximum [Member] | Term Loan [Member] | Lenders [Member]                
Debt Instrument [Line Items]                
Aggregate amount of term loan commitments   $ 275,000            
v3.24.3
Debt and Derivative Instruments (Schedule of Principal Payments and Maturities of Company's Debt) (Details) - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Debt Instrument [Line Items]    
2024 (remainder of the year) $ 87  
2025 92,951  
2026 169,727  
2027 575,000  
Total debt before unamortized debt issuance costs including impact of interest rate swaps 837,765 $ 847,019
Maturity of Credit Facility [Member]    
Debt Instrument [Line Items]    
2026 125,000  
2027 575,000  
Total debt before unamortized debt issuance costs including impact of interest rate swaps 700,000  
Scheduled Principal Payments [Member]    
Debt Instrument [Line Items]    
2024 (remainder of the year) 87  
2025 295  
Total debt before unamortized debt issuance costs including impact of interest rate swaps 382  
Maturities of Mortgage Loans [Member]    
Debt Instrument [Line Items]    
2025 92,656  
2026 44,727  
Total debt before unamortized debt issuance costs including impact of interest rate swaps $ 137,383  
v3.24.3
Debt and Derivative Instruments (Summary of Interest Rate Swap Contracts Outstanding) (Details)
$ in Thousands
 9 Months Ended
Sep. 30, 2024
USD ($)
Derivative [Line Items]  
Derivative instrument, receive floating rate index one-month term SOFR
Derivative assets, notional amount $ 551,000
Fair value of derivative assets measured on recurring basis $ 13,761
Interest Rate Swap One [Member]  
Derivative [Line Items]  
Derivative instrument, date entered Dec. 05, 2022
Derivative instrument, effective date Dec. 01, 2022
Derivative instrument, maturity date Jan. 01, 2026
Derivative instrument, receive floating rate index One-month Term SOFR [1]
Derivative instrument, pay fixed interest rate 2.25%
Derivative assets, notional amount $ 26,000
Fair value of derivative assets measured on recurring basis $ 443
Interest Rate Swap Two [Member]  
Derivative [Line Items]  
Derivative instrument, date entered Feb. 03, 2022
Derivative instrument, effective date Mar. 01, 2022
Derivative instrument, maturity date Feb. 03, 2027
Derivative instrument, receive floating rate index One-month Term SOFR [1]
Derivative instrument, pay fixed interest rate 1.69%
Derivative assets, notional amount $ 90,000
Fair value of derivative assets measured on recurring basis $ 3,353
Interest Rate Swap Three [Member]  
Derivative [Line Items]  
Derivative instrument, date entered Feb. 03, 2022
Derivative instrument, effective date Mar. 01, 2022
Derivative instrument, maturity date Feb. 03, 2027
Derivative instrument, receive floating rate index One-month Term SOFR [1]
Derivative instrument, pay fixed interest rate 1.85%
Derivative assets, notional amount $ 100,000
Fair value of derivative assets measured on recurring basis $ 3,362
Interest Rate Swap Four [Member]  
Derivative [Line Items]  
Derivative instrument, date entered Feb. 03, 2022
Derivative instrument, effective date Mar. 01, 2022
Derivative instrument, maturity date Feb. 03, 2027
Derivative instrument, receive floating rate index One-month Term SOFR [1]
Derivative instrument, pay fixed interest rate 1.72%
Derivative assets, notional amount $ 85,000
Fair value of derivative assets measured on recurring basis $ 3,126
Interest Rate Swap Five [Member]  
Derivative [Line Items]  
Derivative instrument, date entered May 17, 2022
Derivative instrument, effective date Jun. 01, 2022
Derivative instrument, maturity date Feb. 03, 2027
Derivative instrument, receive floating rate index One-month Term SOFR [1]
Derivative instrument, pay fixed interest rate 2.71%
Derivative assets, notional amount $ 60,000
Fair value of derivative assets measured on recurring basis $ 849
Interest Rate Swap Six [Member]  
Derivative [Line Items]  
Derivative instrument, date entered May 17, 2022
Derivative instrument, effective date Jun. 01, 2022
Derivative instrument, maturity date Feb. 03, 2027
Derivative instrument, receive floating rate index One-month Term SOFR [1]
Derivative instrument, pay fixed interest rate 2.71%
Derivative assets, notional amount $ 60,000
Fair value of derivative assets measured on recurring basis $ 849
Interest Rate Swap Seven [Member]  
Derivative [Line Items]  
Derivative instrument, date entered May 17, 2022
Derivative instrument, effective date Jun. 01, 2022
Derivative instrument, maturity date Feb. 03, 2027
Derivative instrument, receive floating rate index One-month Term SOFR [1]
Derivative instrument, pay fixed interest rate 2.71%
Derivative assets, notional amount $ 75,000
Fair value of derivative assets measured on recurring basis $ 1,064
Interest Rate Swap Eight [Member]  
Derivative [Line Items]  
Derivative instrument, date entered May 17, 2022
Derivative instrument, effective date Jun. 01, 2022
Derivative instrument, maturity date Feb. 03, 2027
Derivative instrument, receive floating rate index One-month Term SOFR [1]
Derivative instrument, pay fixed interest rate 2.77%
Derivative assets, notional amount $ 55,000
Fair value of derivative assets measured on recurring basis $ 715
[1] As of September 30, 2024, the one-month term SOFR was 4.85%.
v3.24.3
Debt and Derivative Instruments (Summary of Interest Rate Swap Contracts Outstanding) (Parenthetical) (Details)
 9 Months Ended
Sep. 30, 2024
Derivative [Line Items]  
Derivative instrument, receive floating rate index one-month term SOFR
SOFR  
Derivative [Line Items]  
One month floating rate 4.85%
v3.24.3
Debt and Derivative Instruments (Schedule of Effect of Derivatives on Consolidated Statements of Operations and Comprehensive Loss (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Derivative Instruments, Gain (Loss) [Line Items]        
Reclassification adjustment for amounts included in net loss (effective portion) $ (4,336) $ (4,270) $ (12,995) $ (11,604)
Designated as Hedging Instrument [Member] | Cash Flow Hedging [Member]        
Derivative Instruments, Gain (Loss) [Line Items]        
Effective portion of derivatives (10,230) 7,969 3,023 17,594
Reclassification adjustment for amounts included in net loss (effective portion) $ (4,336) $ (4,270) $ (12,995) $ (11,604)
v3.24.3
Distributions (Schedule of Distributions Paid and Declared) (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Distributions [Abstract]        
Distributions paid $ 4,900 $ 4,910 $ 14,707 $ 14,729
Distributions declared $ 4,897 $ 4,916 $ 14,698 $ 14,729
v3.24.3
Earnings (Loss) per Share (Details) - shares
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Earnings Per Share [Abstract]        
Additional shares excluded from the computation of diluted earnings per share 5,911 4,433 4,722 4,809
v3.24.3
Equity-Based Compensation - Narrative (Details) - Restricted Stock [Member] - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]        
Unrecognized compensation expense of unvested share-based awards $ 57   $ 57  
Weighted average remaining period unrecognized compensation expense related to non-vested     1 year 4 months 17 days  
Vested, Shares 0   0  
Total fair value at vesting date   $ 0   $ 29
Minimum [Member]        
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]        
Share-based compensation vesting period     1 year  
Maximum [Member]        
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]        
Share-based compensation vesting period     3 years  
Non-Employee Directors [Member]        
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]        
Share-based compensation expense $ 24 $ 20 $ 71 $ 4
v3.24.3
Equity-Based Compensation (Summary of the Restricted Shares) (Details) - Restricted Stock [Member] - shares
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2024
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]    
Outstanding, Shares   9,477
Vested, Shares 0 0
Outstanding, Shares 9,477 9,477
v3.24.3
Segment Reporting (Details) - Segment
 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Segment Reporting [Abstract]    
Number of reportable segments 1 1
v3.24.3
Transactions with Related Parties (Schedule of Related Party Transactions) (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Dec. 31, 2023
Related Party Transaction [Line Items]          
Due to related parties $ 2,764   $ 2,764   $ 2,796
General and Administrative Reimbursements [Member]          
Related Party Transaction [Line Items]          
General and administrative expenses incurred with related party [1] 391 $ 420 1,219 $ 1,362  
Due to related parties [1] 270   270   268
Real Estate Management Fees [Member]          
Related Party Transaction [Line Items]          
Real estate management related costs with related party 1,467 1,357 4,371 4,233  
Property Operating Expenses [Member]          
Related Party Transaction [Line Items]          
Real estate management related costs with related party 500 456 1,430 1,457  
Due to related parties 21   21   15
Construction Management Fees [Member]          
Related Party Transaction [Line Items]          
Real estate management related costs with related party 153 213 341 312  
Due to related parties 144   144   74
Leasing fees [Member]          
Related Party Transaction [Line Items]          
Real estate management related costs with related party 79 93 303 249  
Due to related parties 93   93   128
Real Estate Management Costs [Member]          
Related Party Transaction [Line Items]          
Real estate management related costs with related party [2] 2,199 2,119 6,445 6,251  
Due to related parties [2] 258   258   217
Business Management Fee [Member]          
Related Party Transaction [Line Items]          
Business management fees [3] 2,236 $ 2,306 6,722 $ 7,322  
Due to related parties [3] $ 2,236   $ 2,236   $ 2,311
[1] The Business Manager and its related parties are entitled to reimbursement for certain general and administrative expenses incurred by the Business Manager or its related parties relating to the Company’s administration. Such costs are included in general and administrative expenses in the consolidated statements of operations and comprehensive loss. Unpaid amounts are included in due to related parties on the consolidated balance sheets.
[2] For each property that is managed by Inland Commercial Real Estate Services LLC (the “Real Estate Manager”), the Company pays a monthly real estate management fee of up to 1.9% of the gross income from any single-tenant, net-leased property, and up to 3.9% of the gross income from any other property type. The Real Estate Manager determines, in its sole discretion, the amount of the fee with respect to a particular property, subject to the limitations. For each property that is managed directly by the Real Estate Manager or its affiliates, the Company pays the Real Estate Manager a separate leasing fee. Further, in the event that the Company engages its Real Estate Manager to provide construction management services for a property, the Company pays a separate construction management fee. Leasing fees are included in deferred costs, net and construction management fees are included in building and other improvements in the consolidated balance sheets. The Company also reimburses the Real Estate Manager and its affiliates for property-level expenses that they pay or incur on the Company’s behalf, including the salaries, bonuses and benefits of persons performing services for the Real Estate Manager and its affiliates except for the salaries, bonuses and benefits of persons who also serve as an executive officer of the Real Estate Manager or the Company. Real estate management fees and reimbursable expenses are included in property operating expenses in the consolidated statements of operations and comprehensive loss.
[3] Prior to April 1, 2023, the Company paid the Business Manager an annual business management fee equal to 0.65% of its “average invested assets.” The fee was payable quarterly in an amount equal to 0.1625% of its average invested assets as of the last day of the immediately preceding quarter. Effective April 1, 2023, the Company began paying the Business Manager an annual business management fee equal to 0.55% of its “averaged invested assets.” The fee is payable quarterly in an amount equal to 0.1375% of its average invested assets as of the last day of the immediately preceding quarter. “Average invested assets” means, for any period, the average of the aggregate book value of the Company’s assets, including all intangibles and goodwill, invested, directly or indirectly, in equity interests in, and loans secured by, properties, as well as amounts invested in securities and consolidated and unconsolidated joint ventures or other partnerships, before reserves for amortization and depreciation or bad debts, impairments or other similar non-cash reserves, computed by taking the average of these values at the end of each month during the relevant calendar quarter. Unpaid amounts are included in due to related parties on the consolidated balance sheets. The Business Management Agreement terminates on March 31, 2027.
v3.24.3
Transactions with Related Parties (Narrative) (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 18 Months Ended
Mar. 31, 2023
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Sep. 30, 2023
Sep. 30, 2024
Related Party Transaction [Line Items]            
Annual business management fee to its average invested assets, percentage 0.65%         0.55%
Quarterly payable business management fee to its average invested assets, percentage 0.1625%         0.1375%
Total costs incurred   $ 1,332 $ 1,168 $ 4,310 $ 3,927  
CEO Agreement [Member]            
Related Party Transaction [Line Items]            
Total costs incurred   $ 88   $ 235    
Monthly Real Estate Management Fee Of Single Tenant Property [Member] | Maximum [Member]            
Related Party Transaction [Line Items]            
Property management fee, percentage of gross income       1.90%    
Monthly Real Estate Management Fee Of Any Other Property [Member] | Maximum [Member]            
Related Party Transaction [Line Items]            
Property management fee, percentage of gross income       3.90%    
v3.24.3
Fair Value Measurements (Schedule of Fair Value Assets and Liabilities Measured on a Recurring Basis) (Details) - Recurring [Member] - Interest Rate Swap Agreements [Member] - Other Assets [Member] - USD ($)
$ in Thousands
Sep. 30, 2024
Dec. 31, 2023
Derivatives Fair Value [Line Items]    
Interest rate swap agreements - Other assets $ 13,761 $ 23,285
Level 2 [Member]    
Derivatives Fair Value [Line Items]    
Interest rate swap agreements - Other assets $ 13,761 $ 23,285
v3.24.3
Subsequent Events - Additional Information (Details) - USD ($)
$ in Thousands
 9 Months Ended
Nov. 06, 2024
Sep. 30, 2024
Subsequent Event [Line Items]    
Vesting description   The restricted shares will vest in equal one-third increments on November 6, 2025, 2026 and 2027.
Subsequent Event [Member] | Restricted Shares [Member]    
Subsequent Event [Line Items]    
Granted, Shares 8,346  
Granted value $ 160  
Subsequent Event [Member] | Restricted Shares [Member] | Each Independent Directors [Member]    
Subsequent Event [Line Items]    
Granted, Shares 2,086.59  
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