Inland Real Estate Income Trust, Inc. - Quarter Report: 2023 September (Form 10-Q)

10-Q

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, 2023

☐ 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

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 7, 2023, there were 36,173,329 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, 2023 (unaudited) and December 31, 2022		3

	Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022 (unaudited)		4

	Consolidated Statements of Equity for the three months ended September 30, 2023 and 2022 (unaudited)		5

	Consolidated Statements of Equity for the nine months ended September 30, 2023 and 2022 (unaudited)		6

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)		7

	Notes to Consolidated Financial Statements (unaudited)		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32

Item 4.	Controls and Procedures		34

	Part II - Other Information
Item 1.	Legal Proceedings		34

Item 1A.	Risk Factors		34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		34

Item 3.	Defaults Upon Senior Securities		35

Item 4.	Mine Safety Disclosures		35

Item 5.	Other Information		35

Item 6.	Exhibits		35

Signatures		36

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share amounts)


	September 30, 2023 (unaudited)			December 31, 2022
ASSETS
Assets:
Investment properties held and used:
Land	$	330,456		$	330,456
Building and other improvements		1,206,070			1,198,309
Total		1,536,526			1,528,765
Less accumulated depreciation		(323,847	)		(288,863	)
Net investment properties held and used		1,212,679			1,239,902
Cash and cash equivalents		9,271			4,857
Restricted cash		478			477
Accounts and rent receivable		20,451			20,114
Acquired lease intangible assets, net		65,402			76,961
Operating lease right-of-use asset, net		13,845			14,153
Other assets		47,849			42,774
Total assets	$	1,369,975		$	1,399,238

LIABILITIES AND EQUITY
Liabilities:
Mortgages and credit facility payable, net	$	843,674		$	852,345
Accounts payable and accrued expenses		13,584			10,265
Operating lease liability		24,922			24,716
Distributions payable		4,907			4,907
Acquired intangible liabilities, net		38,268			43,339
Due to related parties		2,788			4,034
Other liabilities		9,712			8,574
Total liabilities		937,855			948,180

Commitments and contingencies (Note 10)

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, 36,182,331 and 36,184,058 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		36			36
Additional paid in capital		816,024			814,949
Accumulated distributions and net loss		(424,100	)		(398,097	)
Accumulated other comprehensive income		40,160			34,170
Total stockholders’ equity		432,120			451,058
Total liabilities and stockholders’ equity	$	1,369,975		$	1,399,238

See accompanying notes to consolidated financial statements.

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Income:
Rental income	$	36,324		$	35,900		$	111,259		$	97,114
Other property income		93			84			235			164
Total income		36,417			35,984			111,494			97,278

Expenses:
Property operating expenses		6,960			6,468			21,031			17,806
Real estate tax expense		4,508			4,721			14,023			12,694
General and administrative expenses		1,168			1,294			3,927			4,057
Business management fee		2,306			2,707			7,322			7,500
Depreciation and amortization		14,535			14,979			44,675			40,622
Total expenses		29,477			30,169			90,978			82,679

Other Income (Expense):
Interest expense		(10,727	)		(8,721	)		(31,942	)		(21,394	)
Interest and other income		77			6			152			5
Net loss	$	(3,710	)	$	(2,900	)	$	(11,274	)	$	(6,790	)

Net loss per common share, basic and diluted	$	(0.10	)	$	(0.08	)	$	(0.31	)	$	(0.19	)

Weighted average number of common shares outstanding, basic and diluted		36,190,954			36,151,908			36,205,258			36,117,579

Comprehensive income (loss):
Net loss	$	(3,710	)	$	(2,900	)	$	(11,274	)	$	(6,790	)
Unrealized gain on derivatives		7,969			21,971			17,594			41,112
Reclassification adjustment for amounts included in net loss		(4,270	)		(21	)		(11,604	)		2,819
Comprehensive (loss) income	$	(11	)	$	19,050		$	(5,284	)	$	37,141

See accompanying notes to consolidated financial statements.

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, dollar amounts in thousands)


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


For the Three Months Ended September 30, 2022
	Number of Shares			Common Stock		Additional Paid in Capital			Accumulated Distributions and Net Loss			Accumulated Other Comprehensive Income			Total
Balance at June 30, 2022		36,115,528		$	36	$	813,106		$	(379,559	)	$	14,512		$	448,095

Distributions declared ($0.135600 per share)		—			—		—			(4,902	)		—			(4,902	)
Proceeds from distribution reinvestment plan		89,849			—		1,814			—			—			1,814
Shares repurchased		(56,155	)		—		(908	)		—			—			(908	)
Unrealized gain on derivatives		—			—		—			—			21,971			21,971
Reclassification adjustment for amounts included in net loss		—			—		—			—			(21	)		(21	)
Equity-based compensation		—			—		15			—			—			15
Net loss		—			—		—			(2,900	)		—			(2,900	)
Balance at September 30, 2022		36,149,222		$	36	$	814,027		$	(387,361	)	$	36,462		$	463,164

See accompanying notes to consolidated financial statements.

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, dollar amounts in thousands)


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 (Loss)			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


For the Nine Months Ended September 30, 2022
	Number of Shares			Common Stock		Additional Paid in Capital			Accumulated Distributions and Net Loss			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2021		36,040,928		$	36	$	811,233		$	(365,877	)	$	(7,469	)	$	437,923

Distributions declared ($0.406800 per share)		—			—		—			(14,694	)		—			(14,694	)
Proceeds from distribution reinvestment plan		282,268			—		5,485			—			—			5,485
Shares repurchased		(176,445	)		—		(2,743	)		—			—			(2,743	)
Unrealized gain on derivatives		—			—		—			—			41,112			41,112
Reclassification adjustment for amounts included in net loss		—			—		—			—			2,819			2,819
Equity-based compensation		2,471			—		52			—			—			52
Net loss		—			—		—			(6,790	)		—			(6,790	)
Balance at September 30, 2022		36,149,222		$	36	$	814,027		$	(387,361	)	$	36,462		$	463,164

See accompanying notes to consolidated financial statements.

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, dollar amounts in thousands)


	Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities:
Net loss	$	(11,274	)	$	(6,790	)

Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		44,675			40,622
Amortization of debt issuance costs and mortgage premiums, net		921			1,239
Amortization of acquired lease intangibles, net		(2,375	)		(798	)
Amortization of equity-based compensation		64			52
Reduction in the carrying amount of the right-of-use-asset		308			317
Straight-line income, net		(699	)		(476	)
Other non-cash adjustments		149			82
Changes in assets and liabilities:
Accounts payable and accrued expenses		2,175			3,566
Accounts and rent receivable		363			91
Due to related parties		(1,251	)		645
Operating lease liability		205			254
Other liabilities		1,137			2,233
Other assets		(12	)		(715	)
Net cash flows provided by operating activities		34,386			40,322

Cash flows from investing activities:
Purchase of investment properties		—			(277,849	)
Capital expenditures		(7,031	)		(7,693	)
Other assets		—			(221	)
Net cash flows used in investing activities		(7,031	)		(285,763	)

Cash flows from financing activities:
Payment of credit facility		(12,576	)		(24,444	)
Proceeds from credit facility		44,576			422,444
Payment of mortgages payable		(41,592	)		(138,171	)
Payment of debt issuance costs		—			(5,913	)
Proceeds from the distribution reinvestment plan		5,264			5,485
Shares repurchased		(4,253	)		(2,743	)
Distributions paid		(14,729	)		(14,679	)
Early termination of interest rate swap agreements, net		370			(227	)
Net cash flows (used in) provided by financing activities		(22,940	)		241,752

Net increase (decrease) in cash, cash equivalents and restricted cash		4,415			(3,689	)
Cash, cash equivalents and restricted cash, at beginning of the period		5,334			13,383
Cash, cash equivalents and restricted cash, at end of period	$	9,749		$	9,694

See accompanying notes to consolidated financial statements.

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited, dollar amounts in thousands)


	Nine Months Ended September 30,
	2023		2022
Supplemental disclosure of cash flow information:
In conjunction with the purchase of investment properties, the Company acquired assets and assumed liabilities as follows:
Land	$	—	$	62,510
Building and improvements		—		192,690
Acquired lease intangible assets		—		33,285
Acquired intangible liabilities		—		(9,654	)
Assumed liabilities, net		—		(982	)
Purchase of investment properties	$	—	$	277,849

Cash paid for interest	$	30,133	$	18,174

Supplemental schedule of non-cash investing and financing activities:

Accrued capital expenditures	$	983	$	672

See accompanying notes to consolidated financial statements.

INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(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 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, 2022, which are included in the Company’s 2022 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 23, 2023, as certain footnote disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report.

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 is 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 with the Business Manager.

The Business Management Agreement with the Business Manager was amended and restated on February 11, 2019 to, among other things, eliminate all acquisition and disposition fees. On March 23, 2023, the Company entered into a Third Amended and Restated Business Management Agreement (the “Third Business Management Agreement”) with the Business Manager effective April 1, 2023, which amended and restated the Business Management Agreement. See Note 13 - "Transactions with related parties" for a summary of the changes made in the Third Business Management Agreement.

On March 6, 2023, 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 NAV as of December 31, 2022, which serves 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 2023 until the Company announces a new Estimated Per Share NAV, 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 2023 and until the Company announces a new Estimated Per Share NAV, any shares accepted for ordinary repurchases and “exceptional repurchases” will be repurchased at 80% of the Estimated Per Share NAV.

At September 30, 2023, the Company owned 52 retail properties, totaling 7,166,282 square feet. The properties are located in 24 states. At September 30, 2023, the portfolio had a physical occupancy of 91.3% and economic occupancy of 91.9%.

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, 2022, as filed with the Securities and Exchange Commission on March 23, 2023, 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, 2023, 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.

Recently Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to the probability and assessments of the effectiveness for future London Interbank Offered Rate (“LIBOR”) indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

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 in the Company’s consolidated statements of cash flows:


	September 30,
	2023		2022
Cash and cash equivalents	$	9,271	$	9,217
Restricted cash		478		477
Total cash, cash equivalents, and restricted cash	$	9,749	$	9,694

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, 2023, there were 36,182,331 shares of common stock outstanding including 6,416,644 shares issued through the DRP, net of 3,783,724 shares repurchased through the SRP.

The Company provides 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 provides stockholders with the option to purchase additional shares from the Company by automatically reinvesting cash distributions, subject to certain share ownership restrictions. The Company does 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 is 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 has not been terminated or suspended in connection with such listing.

There were $1,742 and $5,264 distributions reinvested through the DRP during the three and nine months ended September 30, 2023, respectively. There were $1,814 and $5,485 distributions reinvested through the DRP during the three and nine months ended September 30, 2022, respectively.

Share Repurchase Program

The Company adopted the SRP effective October 18, 2012, under which the Company is authorized to purchase shares from stockholders who purchased their shares from the Company or received their shares through a non-cash transfer and who have held their shares for at least one year. Purchases are 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 does not apply. On March 3, 2020 the Company’s board of directors adopted the Third Amended and Restated Share Repurchase Program (“Third SRP”). Under the Third SRP, the Company is authorized to make ordinary repurchases and Exceptional Repurchases at a price equal to 80.0% of the “share price,” which is defined in the Third SRP as an amount equal to the lesser of: (A) $25, as adjusted under certain circumstances, including, among other things, if the applicable shares were purchased from the Company at a discounted price; of (B) the most recently disclosed

estimated value per share. Prior to the amendment, the Company was authorized to make Exceptional Repurchases at a price equal to 100% of the “share price.”

The Third SRP provides the Company’s board of directors with the discretion to set the funding limit for share repurchases. The Third SRP limits the dollar amount for any repurchases made by the Company each calendar quarter to an amount equal to a percentage determined in the sole discretion of the board on a quarterly basis that will not be less than 50% of the net proceeds from the DRP during the applicable quarter. The Company continues to limit the number of shares repurchased during any calendar year to 5% of the number of shares outstanding on December 31st of the previous calendar year, as adjusted for any stock splits or other combinations.

On June 29, 2021, the Company announced its adoption of the Fourth Amended and Restated Share Repurchase Program (the “Fourth SRP”) effective August 12, 2021.

Pursuant to the Fourth SRP, any written request for treatment as an Exceptional Repurchase due to the death or qualifying disability of an owner that occurred between June 1, 2019 and May 31, 2020 (inclusive) was timely if received by the Company no later than January 31, 2022, and any written request for treatment as an Exceptional Repurchase due to the death or qualifying disability of an owner that occurred between June 1, 2020 and July 31, 2021, (inclusive) was timely received if received by the Company no later than July 31, 2022.

If either or both of the aforementioned funding or repurchase limitations prevent the Company from repurchasing all of the shares offered for repurchase during a calendar quarter, the Company will repurchase shares on a pro rata basis within each of the following categories up to the repurchase limitations in the following order: (a) first, all Exceptional Repurchases and (b) second, all ordinary repurchases. 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, suspend or terminate the SRP.

Repurchases through the SRP were $1,612 and $4,253 for the three and nine months ended September 30, 2023, respectively. Repurchases through the SRP were $908 and $2,743 for the three and nine months ended September 30, 2022, respectively. There was zero liability related to the SRP as of September 30, 2023 and December 31, 2022.

NOTE 4 – ACQUISITIONS

On May 17, 2022, the Company acquired a portfolio of eight properties (the “IRPF Properties”) from certain subsidiaries of Inland Retail Property Fund, LP (the “Seller”). The acquisition of the IRPF Properties is referred to herein as the “IRPF Transaction.” The IRPF Properties are leased primarily to grocery, retail and restaurant tenants. More specifically, seven of the IRPF Properties are grocery-anchored. The IRPF Properties are located across seven states and aggregate approximately 686,851 square feet. The Seller was a fund managed by an affiliate of the Company’s sponsor and business manager. Because the IRPF Transaction was a related party transaction, it was required by the Company’s Related Party Transactions Policy to be approved by at least a majority of the Company’s independent directors and was approved by all of the Company’s independent directors.

The following table provides further details of the properties acquired during the year ended December 31, 2022:


Date Acquired	Property Name	Number of Transactions	Number of Properties	Square Footage		Purchase Price (a)
5/17/2022	IRPF Properties	1	8		686,851	$	278,153
					686,851	$	278,153

(a)

Contractual purchase price excluding closing credits.

The above acquisition was accounted for as an asset acquisition. For the year ended December 31, 2022, the Company incurred $710 of total acquisition costs. All of the acquisition costs are capitalized in the accompanying consolidated balance sheets. These costs include third party due diligence costs such as appraisals, environmental studies, and legal fees as well as time and travel expense reimbursements to the Sponsor and its affiliates.

During the nine months ended September 30, 2023, the Company recorded total income of $18,016 and property net income of $11,664 from the properties acquired. During the nine months ended September 30, 2022, the Company recorded total income of $8,682 and property net income of $5,586 from the properties acquired.

The following table presents certain additional information regarding the Company’s acquisitions during the year ended December 31, 2022. The amounts recognized for major assets acquired and liabilities assumed as of the acquisition date are as follows:


	Year Ended December 31,
	2022
Land	$	62,510
Building and improvements		192,722
Acquired lease intangible assets		33,285
Acquired intangible liabilities		(9,654	)
Assumed liabilities, net		(983	)
Total	$	277,880

NOTE 5 – LEASES

The Company is lessor under approximately 810 retail operating leases. The remaining lease terms for the Company’s leases range from less than one year to 15 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 collectible. 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.

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 income (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 income (loss).

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


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2023			2022		2023		2022
Rental income - fixed payments	$	28,943		$	28,545	$	86,380	$	78,114
Rental income - variable payments (a)		7,427			7,086		22,504		18,202
Amortization of acquired lease intangibles, net		(46	)		269		2,375		798
Rental income	$	36,324		$	35,900	$	111,259	$	97,114

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

As of September 30, 2023, the Company’s accounts and rent receivable, net balance was $20,451, which was net of an allowance for bad debts of $1,185. As of December 31, 2022, the Company’s accounts and rent receivable, net balance was $20,114, which was net of an allowance for bad debts of $1,119.

NOTE 6 – ACQUIRED INTANGIBLE ASSETS AND LIABILITIES

The following table summarizes the Company’s identified intangible assets and liabilities as of September 30, 2023 and December 31, 2022:


	September 30, 2023			December 31, 2022
Intangible assets:
Acquired in-place lease value	$	183,305		$	183,305
Acquired above market lease value		52,640			52,640
Accumulated amortization		(170,543	)		(158,984	)
Acquired lease intangibles, net	$	65,402		$	76,961
Intangible liabilities:
Acquired below market lease value	$	79,914		$	79,914
Accumulated amortization		(41,646	)		(36,575	)
Acquired below market lease intangibles, net	$	38,268		$	43,339

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,
	2023			2022			2023			2022
Amortization recorded as amortization expense:
Acquired in-place lease value	$	2,651		$	3,224		$	8,863		$	8,183
Amortization recorded as a (reduction) increase to rental income:
Acquired above market leases	$	(900	)	$	(947	)	$	(2,696	)	$	(2,491	)
Acquired below market leases		854			1,216			5,071			3,289
Net rental income increase	$	(46	)	$	269		$	2,375		$	798

Estimated amortization of the respective intangible lease assets and liabilities as of September 30, 2023 for each of the five succeeding years and thereafter is as follows:


	Acquired In-Place Leases		Above Market Leases		Below Market Leases
2023 (remainder of year)	$	2,554	$	879	$	847
2024		9,168		3,321		3,301
2025		6,772		2,935		3,065
2026		5,041		2,507		2,926
2027		3,609		1,858		2,724
Thereafter		16,609		10,149		25,405
Total	$	43,753	$	21,649	$	38,268

NOTE 7 – DEBT AND DERIVATIVE INSTRUMENTS

As of September 30, 2023 and December 31, 2022, the Company had the following mortgages and credit facility payable:


	September 30, 2023						December 31, 2022
Type of Debt	Principal Amount			Weighted Average Interest Rate			Principal Amount			Weighted Average Interest Rate
Fixed rate mortgages payable	$	112,102			3.84	%	$	112,345			3.84	%
Variable rate mortgages payable with swap agreements		26,000			4.55	%		67,348			3.71	%
Mortgages payable		138,102			3.97	%		179,693			3.79	%
Credit facility payable		709,000			4.94	%		677,000			4.56	%
Total debt before unamortized debt issuance costs including impact of interest rate swaps		847,102			4.79	%		856,693			4.40	%
(Less): Unamortized debt issuance costs		(3,428	)					(4,348	)
Total debt	$	843,674					$	852,345

The Company's indebtedness bore interest at a weighted average interest rate of 4.79% per annum at September 30, 2023, 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 $847,102 and $856,693 as of September 30, 2023 and December 31, 2022, respectively, and its estimated fair value was $837,819 and $847,652 as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, scheduled principal payments and maturities on the Company’s debt were as follows:


	September 30, 2023
Scheduled Principal Payments and Maturities by Year:	Scheduled Principal Payments		Maturities of Mortgage Loans		Maturity of Credit Facility		Total
2023 (remainder of the year)	$	83	$	—	$	—	$	83
2024		341		—		—		341
2025		295		92,656		—		92,951
2026		—		44,727		134,000		178,727
2027		—		—		575,000		575,000
Thereafter		—		—		—		—
Total	$	719	$	137,383	$	709,000	$	847,102

Credit Facility

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 to fund the IRPF Transaction discussed in Note 4 – “Acquisitions.” 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.

At September 30, 2023, the Company had $134,000 outstanding under the Revolving Credit Facility and $575,000 outstanding under the Term Loan. At September 30, 2023, the interest rates on the Revolving Credit Facility and the Term Loan were 7.33% and 4.39%,

respectively. As of September 30, 2023, the Company had a maximum amount of $66,000 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 $66,000 available to draw or otherwise undertake additional debt as a result of, among other things, completing the aforementioned IRPF Transaction and increasing the amount of the Term Loan.

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. At September 30, 2023, 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. 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, 2023, 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, 2023, 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, 2023, the weighted average years to maturity for the Company’s mortgages payable was 2.3 years. There are no mortgage loans maturing in the next twelve months.

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 14 – "Fair Value Measurements" for further information.

The following table summarizes the Company’s interest rate swap contracts outstanding as of September 30, 2023.


Date Entered	Effective Date	Maturity Date	Receive Floating Rate Index (a)	Pay Fixed Rate			Notional Amount		Fair Value at September 30, 2023
Assets
December 5, 2022	December 1, 2022	January 1, 2026	One-month Term SOFR		2.25	%		26,000		1,404
February 3, 2022	March 1, 2022	February 3, 2027	One-month Term SOFR		1.69	%		90,000		7,767
February 3, 2022	March 1, 2022	February 3, 2027	One-month Term SOFR		1.85	%		100,000		8,118
February 3, 2022	March 1, 2022	February 3, 2027	One-month Term SOFR		1.72	%		85,000		7,282
May 17, 2022	June 1, 2022	February 3, 2027	One-month Term SOFR		2.71	%		60,000		3,286
May 17, 2022	June 1, 2022	February 3, 2027	One-month Term SOFR		2.71	%		60,000		3,279
May 17, 2022	June 1, 2022	February 3, 2027	One-month Term SOFR		2.71	%		75,000		4,109
May 17, 2022	June 1, 2022	February 3, 2027	One-month Term SOFR		2.77	%		55,000		2,925
							$	551,000	$	38,170

(a)

At September 30, 2023, the one-month term SOFR was 5.32%.

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022.


	Three Months Ended September 30,						Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships	2023			2022			2023			2022
Effective portion of derivatives	$	7,969		$	21,971		$	17,594		$	41,112
Reclassification adjustment for amounts included in net gain or loss (effective portion)	$	(4,270	)	$	(21	)	$	(11,604	)	$	2,819

The total amount of interest expense presented on the consolidated statements of operations and comprehensive income (loss) was $10,727 and $8,721, for the three months ended September 30, 2023 and 2022, respectively. The total amount of interest expense presented on the consolidated statements of operations and comprehensive income (loss) was $31,942 and $21,394 for the nine months ended September 30, 2023 and 2022, respectively. The net gain or loss reclassified into income from accumulated other comprehensive income (loss) is reported in interest expense on the consolidated statements of operations and comprehensive income (loss). The amount that is expected to be reclassified from accumulated other comprehensive income into income (loss) in the next twelve months is $17,312.

NOTE 8 – DISTRIBUTIONS

The table below presents the distributions paid and declared during the three and nine months ended September 30, 2023 and 2022.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Distributions paid	$	4,910	$	4,897	$	14,729	$	14,679
Distributions declared	$	4,916	$	4,902	$	14,729	$	14,694

NOTE 9 – 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, 2023, 4,433 and 4,809 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, 2022, 3,300 shares and 4,754 shares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive.

NOTE 10 – 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 11 – 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 and restricted share units are issued to non-employee directors as compensation. Each restricted share and restricted share unit entitles the holder to receive one common share when it vests. Restricted shares are included in common stock outstanding on the date of vesting. Restricted share units are included in common stock outstanding on the date they are transferred to the non-employee director or their beneficiary. The grant-date value of the restricted shares and restricted share units 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 $20 and $64, in the aggregate, for the three and nine months ended September 30, 2023, respectively. As of September 30, 2023, the Company had $55 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 1.41 years. The total fair value at the vesting date for restricted shares that vested during the three and nine months ended September 30, 2023 was zero and $29, respectively. The total fair value at the vesting date for restricted shares and restricted share units that vested during the three and nine months ended September 30, 2022 was zero and $47, respectively. As of December 31, 2022, there were no remaining unvested restricted share units and the Company has only been granting restricted shares to non-employee directors in recent years.

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


	Restricted Shares
Outstanding at December 31, 2022		9,172
Granted		—
Vested		(1,469	)
Outstanding at September 30, 2023		7,703

NOTE 12 – SEGMENT REPORTING

The Company has one reportable segment as defined by GAAP, retail real estate, for the nine months ended September 30, 2023 and 2022.

NOTE 13 – TRANSACTIONS WITH RELATED PARTIES

On May 17, 2022, the Company acquired the IRPF Properties from the Seller, a fund managed by an affiliate of the Company’s sponsor and business manager. See Note 4 – "Acquisitions" for further information.

The following table summarizes the Company’s related party transactions for the three and nine months ended September 30, 2023 and 2022. 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 (f) as of
		2023		2022		2023		2022		September 30, 2023		December 31, 2022
General and administrative reimbursements	(a)	$	420	$	479	$	1,362	$	1,282	$	315	$	241
Loan costs	(b)	$	—	$	—	$	—	$	42	$	—	$	—
Acquisition related costs	(c)	$	—	$	—	$	—	$	19	$	—	$	—

Real estate management fees		$	1,357	$	1,393	$	4,233	$	3,753	$	—	$	—
Property operating expenses			456		363		1,457		1,042		10		24
Construction management fees			213		22		312		37		51		45
Leasing fees			93		108		249		313		106		132
Total real estate management related costs	(d)	$	2,119	$	1,886	$	6,251	$	5,145	$	167	$	201

Business management fees	(e)		2,306	$	2,707	$	7,322	$	7,500	$	2,306	$	2,713

(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 income (loss). Unpaid amounts are included in due to related parties on the consolidated balance sheets.

(b)

The Business Manager and its related parties are entitled to reimbursement for certain legal costs related to securing financing for the Company. Such costs are capitalized as debt issuance costs on the consolidated balance sheets and amortized into interest expense on the consolidated statements of operations and comprehensive income (loss) over the term of the related financing. Unpaid amounts are included in due to related parties in the consolidated balance sheets.

(c)

The Business Manager and its related parties are reimbursed for acquisition and transaction related costs of the Business Manager and its related parties relating to the Company's acquisition activities, regardless of whether the Company acquires the real estate assets. All of the $19 related party acquisition costs incurred during the nine months ended September 30, 2022 are capitalized in the accompanying consolidated balance sheets. See Note 4 - "Acquisitions" for further information.

(d)

For each property that is managed by Inland Commercial Real Estate Services LLC (the “Real Estate Manager”) (and its predecessor), 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 income (loss).

(e)

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 is 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 paid 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.

(f)

In this table, unpaid amounts as of December 31, 2022 does not reflect $879 due to IRPF related to tenant reconciliations for the eight properties acquired during 2022.

On March 23, 2023, the Company entered into a Third Amended and Restated Business Management Agreement (the “Third Business Management Agreement”) with the Business Manager effective April 1, 2023, which amends and restates the existing Second Amended and Restated Business Management Agreement dated October 15, 2021 (the “Second Business Management Agreement”) to make the following changes, among others:

•

decrease the annual business management fee (the “Business Management Fee”) payable to the Business Manager by the Company from 0.65% of Average Invested Assets to 0.55% of Average Invested Assets;

•

change the termination date of the agreement to March 31, 2027, and remove the provisions regarding one-year renewal terms;

•

delete the provision, formerly included to conform to provisions in the Company’s Second Articles of Amendment and Restatement, which has since been amended and restated, requiring the Business Manager to reimburse the Company, subject to certain exceptions, for any amount by which the Total Operating Expenses (including the Business Management Fee and other fees payable hereunder) of the Company for the Fiscal Year just ended exceeded the greater of (i) two percent (2%) of the total of the Average Invested Assets for the just ended Fiscal Year; or (ii) twenty-five percent (25%) of the Net Income for the just ended Fiscal Year;

•

amend the indemnification section to remove certain conditions to, and limitations on, the Company’s ability to indemnify the Business Manager and the Business Manager’s officers, directors, employees and agents, which conditions and limitations were formerly included to conform to provisions in the Company’s Second Articles of Amendment and Restatement that has since been amended and restated, and to provide that indemnification will be provided to the full extent permitted by law;

•

add a definition for “Cause Event” that includes, for example, certain bad acts by, or the insolvency of, the Business Manager and provide that the Third Business Management Agreement may be terminated by the Company with the affirmative vote of a majority of its Independent Directors;

•

provide that if the Third Business Management Agreement is terminated pursuant to Section 14(b) (Termination by Company for a Cause Event), the Business Manager will not be entitled to compensation after the date of termination, provided that the Business Manager will be paid the Business Management Fee payable under Section 7(a) through the date of termination; and

•

provide that if the Third Business Management Agreement is terminated pursuant to any of Sections 14(c) (Termination by the Company for Convenience), 14(d) (Termination by the Business Manager) or 14(e) (Termination Pursuant to a Qualifying Internalization), the Business Manager will be entitled to payment of the Business Management Fee payable under Section 7(a) for the remainder of the Term using the calculations made for the quarter in which the agreement was terminated, which payment will be made within 30 days of the termination.

Capitalized terms used above but not defined in this Quarterly Report have the definitions ascribed to them in the applicable business management agreement. The above description is qualified by reference to the Third Business Management Agreement in its entirety, a copy of which is included with this Quarterly Report as exhibit 10.1.

NOTE 14 – 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, 2023 and December 31, 2022, respectively.


	Fair Value
	Level 1		Level 2		Level 3		Total
September 30, 2023
Interest rate swap agreements - Other assets	$	—	$	38,170	$	—	$	38,170
Interest rate swap agreements - Other liabilities	$	—	$	—	$	—	$	—
December 31, 2022
Interest rate swap agreements - Other assets	$	—	$	33,274	$	—	$	33,274
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 15 – SUBSEQUENT EVENTS

In connection with the preparation of its consolidated financial statements, the Company has evaluated events that occurred subsequent to September 30, 2023 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

On November 7, 2023, the Company granted each of its four independent directors 1,208.46 restricted shares for a total of 4,834 restricted shares with a total value of $96. The restricted shares will vest in equal one-third increments on November 7, 2024, 2025 and 2026.

SRP Amendment

On November 7, 2023, the Company’s board of directors approved certain amendments to the SRP to remove the DRP proceeds limitation. These changes will be effective after required publication and notice is provided to stockholders.

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, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, as filed with the Securities and Exchange Commission on August 9, 2023, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, as filed with the Securities and Exchange Commission on May 10, 2023 and in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on March 23, 2023, some of which are summarized below:

•

Our strategic plan, which is discussed further below, may continue to evolve or change over time, and there is no assurance we will be able to successfully achieve our board's objectives under the strategic plan as it exists at any given time, including making strategic sales or purchases of properties, redeveloping properties or completing a liquidity event, within the timeframe we expect or would prefer or at all;

•

The use of the internet by consumers to shop may continue to expand which could result in a further downturn in the business 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;

•

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 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, high inflation, increases in interest rates, banking crises, 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 incurred net losses on a GAAP basis for the three and nine months ended September 30, 2023 and 2022, and for the year ended December 31, 2022, 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 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, 2023 and 2022 and as of September 30, 2023 and December 31, 2022. You should read the following discussion and analysis along with our consolidated financial statements and the related notes included in this report.

We routinely post important information about us and our business, including financial and other information for investors, on our website. We encourage investors to visit our website at inland-investments.com/inland-income-trust from time to time, as information is updated and new information is posted.

Overview

We were formed as 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 are primarily focused on acquiring and owning retail properties and intend to target a portfolio substantially all of which would be comprised of grocery-anchored properties as described below. We have invested in joint ventures and, to the extent we have available capital, 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.

On March 2, 2023, our board of directors determined an estimated per share net asset value of our common stock of $19.86 as of December 31, 2022, compared to the previous estimated value of $20.20 as of December 31, 2021. At September 30, 2023, we had total assets of $1.4 billion on our balance sheet and owned 52 properties located in 24 states containing 7.2 million square feet. On May 17, 2022, we acquired eight retail shopping center properties (the “IRPF Properties”) from certain subsidiaries of Inland Retail Property Fund, LP. The IRPF Properties are located across seven states and aggregate approximately 686,851 square feet. We acquired the IRPF Properties for an aggregate purchase price of $278 million, excluding closing costs. A majority of our properties are multi-tenant, necessity-based retail shopping centers primarily located in major regional markets and growing secondary markets throughout the United States. At September 30, 2023, grocery-anchored or grocery shadow-anchored shopping center properties represented 88% 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, 2023, the portfolio properties have an economic occupancy of 91.9% and staggered lease maturity dates. Grocery tenants accounted for 17% of our annualized base rent (“ABR”) as of September 30, 2023.

Inflation and Interest Rates

Inflationary pressures and rising interest rates could result in reductions in consumer spending and retailer profitability that impacts the Company’s ability to grow rents and tenant demand for new and existing store locations. Regardless of accelerating inflation levels, base rent under most of the Company’s long-term anchor leases will remain constant (subject to tenants’ exercise of renewal options at pre-negotiated rent increases) until the expiration of their lease terms. While many of these leases require tenants to pay their share of shopping center operating expenses (including common area maintenance, real estate tax and insurance expenses), the Company’s ability to collect the expense increases passed through to tenants is dependent on their ability to absorb and pay these increases. Inflation may also impact other aspects of the Company’s operating costs, including fees paid to service providers, the cost to complete redevelopments and build-outs of recently leased vacancies and interest rate costs relating to variable rate loans and refinancing of lower fixed-rate indebtedness. While the Company has not been significantly impacted by any of these items to date, no assurances can be provided that these inflationary pressures will not have a material adverse effect on the Company’s business in the future.

Company Update – Strategic Plan

The Company has a strategic plan that includes the goals of providing a future liquidity event to investors and creating long-term stockholder value. The strategic plan centers around owning a portfolio of grocery-anchored properties with lower exposure to big box retailers. As part of this strategy, our management team continually evaluates possibilities for the opportunistic sale of certain assets with the goal of redeploying capital into the acquisition of strategically located grocery-anchored centers. Of the Company’s 953 leasable spaces, there are 122 non-grocery big box (anchor spaces of at least 10,000 square feet) in the portfolio, and of those twelve are vacant, and zero are dark (meaning that the tenant is still obligated by their lease to pay rent but has vacated the space and left it unused) as of

October 31, 2023. We are not actively marketing any properties for sale as of the date of this quarterly report on Form 10-Q. We believe increasing the size and profitability of the Company would enhance our ability to complete a successful liquidity event. On May 17, 2022, we acquired seven grocery-anchored retail shopping center properties and one additional retail shopping center, collectively referred to as the IRPF Properties, from certain subsidiaries of Inland Retail Property Fund, LP, for approximately $278 million. Although we are not actively pursuing any new acquisitions as of the date of this Quarterly Report, we may seek and evaluate potential acquisitions and, if we have the requisite capital and financing available to us, opportunistically acquire retail properties that we believe complement our existing portfolio in terms of relevant characteristics such as tenant mix, demographics and geography and are consistent with our plan to try to own a portfolio substantially all of which is comprised of grocery-anchored or shadow-anchored properties. We may also consider other transactions, such as redeveloping certain of our properties or portions of certain of our properties, for example, big-box spaces, to repurpose them for alternative commercial or multifamily residential uses. We expect to consider liquidity events, such as listing our common stock on a national securities exchange, but given current market conditions, we do not know when we will complete such a transaction. Our consideration of a liquidity event is influenced by our intention to opportunistically grow the portfolio, execute redevelopment opportunities and execute strategic sales and acquisitions. Likewise, we are continually 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, (iv) our ability to raise capital or borrow on terms that are acceptable to the Company in light of the use of the proceeds and (v) changes in general economic conditions such as high interest rates, among other factors. The timing of the completion of the strategic plan has already extended beyond our original expectations and cannot be predicted with certainty. There is no assurance that the Company will be able to successfully implement its strategic plan, for example by making strategic sales or purchases of properties or listing the Company’s common stock, within the timeframe we would prefer or at all.

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

Investment Properties


	As of September 30, 2023
Number of properties	52
Purchase price	$	1,624,667
Total square footage		7,166,282
Physical occupancy		91.3	%
Economic occupancy		91.9	%
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, 2023.

The table below presents information for each of our investment properties as of September 30, 2023.


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		90.7	%		92.8	%		—		—
Park Avenue (a)	Little Rock, AR		78,648		85.4	%		85.4	%		—		—
North Hills Square (a)	Coral Springs, FL		63,829		97.5	%		97.5	%		—		—
Mansfield Shopping Center (a)	Mansfield, TX		148,529		77.8	%		77.8	%		—		—
Lakeside Crossing (a)	Lynchburg, VA		67,034		97.8	%		97.8	%		—		—
MidTowne Shopping Center (a)	Little Rock, AR		126,288		70.3	%		70.3	%		—		—
Dogwood Festival (a)	Flowood, MS		187,468		83.8	%		83.8	%		—		—
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		81.1	%		81.1	%		—		—
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		99.3	%		99.3	%		—		—
Harvest Square (a)	Harvest, AL		70,590		93.2	%		93.2	%		—		—
Heritage Square (a)	Conyers, GA		22,510		75.5	%		80.7	%		—		—
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		96.4	%		96.4	%		—		—
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		84.9	%		84.9	%		—		—
Prattville Town Center (a)	Prattville, AL		168,842		89.0	%		89.0	%		—		—
Regal Court	Shreveport, LA		363,061		96.4	%		96.4	%		26,000		4.55	%
Shops at Hawk Ridge (a)	St. Louis, MO		75,951		100.0	%		100.0	%		—		—
Walgreens Plaza (a)	Jacksonville, NC		42,219		52.8	%		52.8	%		—		—
Frisco Marketplace (a)	Frisco, TX		112,024		84.1	%		84.1	%		—		—
White City (a)	Shrewsbury, MA		256,974		85.2	%		85.2	%		—		—
Yorkville Marketplace (a)	Yorkville, IL		111,591		94.7	%		94.7	%		—		—
Shoppes at Market Pointe (a)	Papillion, NE		253,903		95.3	%		95.3	%		—		—
Marketplace at El Paseo (a)	Fresno, CA		224,683		97.4	%		98.6	%		—		—
The Village at Burlington Creek	Kansas City, MO		156,773		82.3	%		82.3	%		16,842		4.25	%
Milford Marketplace	Milford, CT		111,959		87.8	%		87.8	%		18,727		4.02	%
Settlers Ridge	Pittsburgh, PA		473,871		92.1	%		92.1	%		76,533		3.70	%
Blossom Valley Plaza (a)	Turlock, CA		111,435		89.4	%		89.4	%		—		—
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		97.1	%		97.7	%		—		—
Oquirrh Mountain Marketplace II (a)	South Jordan, UT		10,150		100.0	%		100.0	%		—		—
Wilson Marketplace (a)	Wilson, NC		311,030		93.6	%		93.6	%		—		—
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	%		45.1	%		—		—
Olde Ivy Village (a)	Smyrna, GA		46,500		93.7	%		93.7	%		—		—
Northpark Village Square (a)	Santa Clarita, CA		87,103		78.1	%		97.2	%		—		—
Lower Makefield Shopping Center (a)	Lower Makefield, PA		74,953		97.6	%		97.6	%		—		—
Denton Village (a)	Denton, TX		48,280		100.0	%		100.0	%		—		—
Rusty Leaf Plaza (a)	Orange, CA		59,188		95.7	%		95.7	%		—		—
Northville Park Place (a)	Northville, MI		78,421		94.4	%		100.0	%		—		—
CityPlace (a)	Woodbury, MN		174,802		98.5	%		98.5	%		—		—
Portfolio total			7,166,282		91.3	%		91.9	%	$	138,102		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.

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, 2023.


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	$	4,770		4.3	%	$	16.11		296,150		4.1	%
The TJX Companies, Inc.		14		3,772		3.4	%		10.65		354,070		4.9	%
Ross Dress for Less, Inc.		10		2,411		2.2	%		9.20		262,080		3.7	%
Ulta Salon, Cosmetics & Fragrance Inc.		11		2,370		2.2	%		21.36		110,958		1.6	%
Amazon/Whole Foods Market Group, Inc.		3		2,340		2.1	%		20.27		115,410		1.6	%
Sprouts Farmers Market, LLC		4		2,159		2.0	%		19.09		113,092		1.6	%
Albertsons/Jewel/Shaw's		2		2,090		1.9	%		16.34		127,892		1.8	%
PetSmart		7		2,069		1.9	%		14.93		138,578		1.9	%
Dicks Sporting Goods, Inc.		4		2,012		1.8	%		11.13		180,766		2.5	%
LA Fitness (Fitness International)		2		1,966		1.8	%		21.94		89,600		1.3	%
Top ten tenants		62	$	25,959		23.6	%	$	14.51		1,788,596		25.0	%

The following table sets forth a summary of our tenant diversity for our entire portfolio and is based on leases in-place at September 30, 2023.


Tenant Type	Gross Leasable Area – Square Footage		Percent of Total Gross Leasable Area			Percent of Total Annualized Base Rent
Discount and Department Stores		1,411,881		21.4	%		10.4	%
Grocery		1,331,589		20.2	%		17.3	%
Lifestyle, Health Clubs, Books & Phones		843,255		12.8	%		15.7	%
Home Goods		809,748		12.3	%		6.8	%
Restaurant		633,218		9.6	%		18.5	%
Apparel & Accessories		440,719		6.7	%		8.9	%
Consumer Services, Salons, Cleaners, Banks		343,139		5.2	%		9.6	%
Pet Supplies		256,913		3.9	%		4.0	%
Sporting Goods		202,067		3.1	%		2.3	%
Health, Doctors & Health Foods		196,805		3.0	%		5.2	%
Other		113,891		1.8	%		1.3	%
Total		6,583,225		100.00	%		100.00	%

The following table sets forth a summary, as of September 30, 2023, 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		49	%		5.8
Junior Box	5,000-9,999		14	%		4.2
Small Shop	Less than 5,000		37	%		3.6
Total			100	%		4.7

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

With respect to our locations affected by the Rite Aid bankruptcy, one of our two locations was already dark and is included on the initial closure list from Rite Aid. Our other location is still open and operating and is not on the initial closure list.

Lease Expirations

The following table sets forth a summary, as of September 30, 2023, of lease expirations scheduled to occur during the remainder of 2023 and each of the calendar years from 2024 to 2032 and thereafter, assuming no exercise of renewal options or early termination rights for leases commenced on or prior to September 30, 2023. Annualized base rent represents the rent in-place of the applicable property at September 30, 2023. The table below includes ground leases. If ground leases are excluded, annualized base rent would equal $99,991 or $19.48 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
2023 (including month-to-month)		41		130,771		2.0	%	$	2,604		2.4	%	$	19.91
2024		107		539,186		8.2	%		12,058		11.0	%		22.36
2025		136		785,998		11.9	%		16,935		15.4	%		21.55
2026		109		462,264		7.0	%		10,510		9.6	%		22.74
2027		124		881,881		13.4	%		14,919		13.6	%		16.92
2028		123		1,353,614		20.6	%		16,983		15.5	%		12.55
2029		49		532,200		8.1	%		7,511		6.8	%		14.11
2030		26		283,659		4.3	%		5,182		4.7	%		18.27
2031		20		191,328		2.9	%		3,577		3.3	%		18.70
2032		30		200,551		3.0	%		4,754		4.3	%		23.70
Thereafter		46		1,221,773		18.6	%		14,748		13.4	%		12.07
Leased Total		811		6,583,225		100.0	%	$	109,781		100.0	%	$	16.68

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*

*We cannot provide any assurance that we will be able to sell properties or issue new securities to raise capital when we would like, for example, to increase the proportion of grocery-anchored or shadow-anchored properties or increase the size of our portfolio of properties, or under terms that would be acceptable to us considering factors such as the anticipated use of the proceeds. Because the Company's common stock is not listed on a national securities exchange, our ability to access the public or private market, particularly for equity capital, is limited.

At September 30, 2023, we had $134 million outstanding under the Revolving Credit Facility and $575 million outstanding under the Term Loan. During the nine months ended September 30, 2023, the net borrowings from the Revolving Credit Facility were $32 million, which we used to fund the payoff of the Coastal North Town Center property mortgage. At September 30, 2023 the interest rates on the Revolving Credit Facility and the Term Loan were 7.33% and 4.39%, respectively. At September 30, 2022 the interest rates on the Revolving Credit Facility and the Term Loan were 4.56% and 4.11%, respectively. On February 3, 2022, we extended the Revolving Credit Facility maturity date to February 3, 2026 plus a twelve month extension, at the Company’s option. We also increased the Term Loan outstanding balance to $275 million which now matures on February 3, 2027. On May 17, 2022, we amended our Credit Agreement to increase the size of the Term Loan to $575 million and modify several covenants to fund our acquisition of a portfolio of eight retail shopping center properties from Inland Retail Property Fund, LP, a Delaware limited partnership. As of November 8, 2023, we had $66 million available for borrowing under the Revolving Credit Facility, subject to the terms and conditions, including compliance with the covenants, of the Credit Agreement that governs the Credit Facility. Although $66 million is the maximum available, covenant limitations affect what we can actually draw, and we expect to have substantially less than $66 million actually available to draw or otherwise undertake as additional debt as a result of, among other things, completing the aforementioned acquisition of the eight properties and increasing the amount of the Term Loan. By “additional debt,” we mean debt in addition to existing debt such as existing mortgages. The properties comprising the borrowing base for the Credit Facility are not available to be used as collateral for other debt unless removed from the borrowing base, which would shrink availability under the Credit Facility.

As of September 30, 2023, we had total debt outstanding of $847 million, excluding unamortized debt issuance costs, which bore interest at a weighted average interest rate of 4.79% per annum. As of September 30, 2023, the weighted average years to maturity for our debt was 3.0 years. As of September 30, 2023 and December 31, 2022, our borrowings were 52% and 53%, respectively, of the purchase price of our investment properties. At September 30, 2023, our cash and cash equivalents balance was $9.3 million.

As of November 8, 2023, in the next twelve months, we do not have any mortgage loans maturing.

During the nine months ended September 30, 2023, we repurchased $4.3 million of shares of common stock.

We delayed making non-essential capital improvements and other non-essential capital expenditures at our properties at the onset of the pandemic in 2020 and into 2021, where possible, to preserve cash. As rent collections increased during 2021 and 2022, we increased our funding of capital expenditures at our properties to levels similar to pre-pandemic periods, and we do not expect the prior delay in making these capital expenditures to have any material effect on our tenants or our ability to lease space. In the nine months ended September 30, 2023, we spent $7.0 million on capital expenditures and tenant improvements, which is approximately $0.7 million less than we did in the nine months ended September 30, 2022. Additionally, we expect to materially increase spending on tenant improvements in connection with new or renewed leases and capital expenditures during 2023 but do 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, 2023, we have paid all interest and principal amounts when due, and are in compliance with all financial covenants under the Credit Facility as amended.

Cash Flow Analysis


	Nine Months Ended September 30,						Change
	2023			2022			2023 vs. 2022
	(Dollar amounts in thousands)
Net cash flows provided by operating activities	$	34,386		$	40,322		$	(5,936	)
Net cash flows used in investing activities	$	(7,031	)	$	(285,763	)	$	278,732
Net cash flows (used in) provided by financing activities	$	(22,940	)	$	241,752		$	(264,692	)

Operating activities

The decrease in cash from operating activities during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily due to higher interest payments, the timing of payments to related parties and a decrease in prepaid rent.

Investing activities


	Nine Months Ended September 30,						Change
	2023			2022			2023 vs. 2022
	(Dollar amounts in thousands)
Purchase of investment properties	$	—		$	(277,849	)	$	277,849
Capital expenditures		(7,031	)		(7,693	)	$	662
Other assets		—			(221	)		221
Net cash used in investing activities	$	(7,031	)	$	(285,763	)	$	278,732

The decrease in cash used for investing activities during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily due to the acquisition of the IRPF properties that occurred during the second quarter of 2022.

Financing activities


	Nine Months Ended September 30,						Change
	2023			2022			2023 vs. 2022
	(Dollar amounts in thousands)
Total changes related to debt	$	(9,592	)	$	253,916		$	(263,508	)
Proceeds from the distribution reinvestment plan, net of shares repurchased		1,011			2,742			(1,731	)
Distributions paid		(14,729	)		(14,679	)		(50	)
Early termination of interest rate swap agreements, net		370			(227	)		597
Net cash (used in) provided by financing activities	$	(22,940	)	$	241,752		$	(264,692	)

During the nine months ended September 30, 2023, changes in total debt decreased $263.5 million from the nine months ended September 30, 2022 primarily due to the acquisition of the IRPF properties during the nine months ended September 30, 2022. During the nine months ended September 30, 2023, we generated proceeds from the sale of shares pursuant to the DRP of $5.3 million. For the nine months ended September 30, 2023, share repurchases were $4.3 million. During the nine months ended September 30, 2023, we paid $14.7 million in distributions.

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, 2023 and 2022 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
2023	$	14,729	$	0.406800	$	9,465	$	5,264	$	14,729	$	34,386
2022	$	14,694	$	0.406800	$	9,194	$	5,485	$	14,679	$	40,322

(1)

Distributions were funded by cash flows from operating activities during the nine months ended September 30, 2023 and 2022.

Share Repurchases

Refer to “Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - Share Repurchase Program” for details regarding our SRP. The SRP is funded by the proceeds from the DRP.

Results of Operations

This section describes and compares our results of operations for the three and nine months ended September 30, 2023 and 2022. Dollar amounts are stated in thousands.

We generate primarily all of our net operating income from property operations. In order to evaluate our overall portfolio, management analyzes the net operating income of properties that we have owned and operated for both periods presented. All 52 investment properties we currently own were held for the entirety of both the three months ended September 30, 2023 and 2022. A total of 44 investment properties that were acquired on or before January 1, 2022 represent our “same store” properties during the nine months ended September 30, 2023 and 2022. “Non-same store,” as reflected in the table below, consists of properties acquired after January 1, 2022. For the nine months ended September 30, 2023 and 2022, eight properties that were acquired on May 17, 2022 constituted non-same store properties.

Net operating income is a supplemental non-GAAP performance measure that we believe is useful to investors in measuring the operating performance of our property portfolio because our primary business is the ownership of real estate, and net operating income excludes various items included in GAAP net income that do not relate to, or are not indicative of, our property operating performance, such as depreciation and amortization and parent-level corporate expenses (including general and administrative expenses). Same store net operating income is useful because it eliminates differences in net operating income resulting from the acquisition or disposition of properties during the periods presented and therefore provides a better comparison of the operating performance of our properties between periods.

The following tables present the property net operating income prior to straight-line income (expense), net, amortization of intangibles, interest, and depreciation and amortization for the three and nine months ended September 30, 2023 and 2022, along with a reconciliation to net loss, calculated in accordance with GAAP.

Comparison of the three months ended September 30, 2023 and 2022



	Three Months Ended September 30,
	2023			2022			Change
Rental income	$	36,007		$	35,312		$	695
Other property income		93			84			9
Total income		36,100			35,396			704

Property operating expenses		6,791			6,299			492
Real estate tax expense		4,508			4,721			(213	)
Total property operating expenses		11,299			11,020			279

Property net operating income		24,801			24,376			425

Straight-line income (expense), net		245			178			67
Amortization of intangibles and lease incentives		(97	)		241			(338	)
General and administrative expenses		(1,168	)		(1,294	)		126
Business management fee		(2,306	)		(2,707	)		401
Depreciation and amortization		(14,535	)		(14,979	)		444
Interest expense		(10,727	)		(8,721	)		(2,006	)
Interest and other income		77			6			71
Net loss	$	(3,710	)	$	(2,900	)	$	(810	)

Net loss. Net loss was $3,710 and $2,900 for the three months ended September 30, 2023 and 2022, respectively.

Total property net operating income. During the three months ended September 30, 2023, property net operating income increased $425, total property income increased $704, and total property operating expenses including real estate tax expense increased $279.

The increase in total property income is primarily due to an increase in base rent and an increase in tenant recovery income due to increased recoverable expenses in 2023.

Straight-line income (expense), net. Straight-line income (expense), net increased $67 in 2023 compared to 2022. This increase is primarily due to a decrease in write-offs of straight-line balances during the third quarter of 2023.

Amortization of intangibles and lease incentives. Income from the amortization of intangibles and lease incentives decreased $338 in 2023 compared to 2022. The decrease is primarily due to write-offs of below market lease intangibles from early lease terminations during the third quarter of 2022.

General and administrative expenses. General and administrative expenses decreased $126 in 2023 compared to 2022. The decrease is primarily due to lower legal and stock administration costs partially offset by an increase in reimbursements for salaries during the three months ended September 30, 2023.

Business management fee. Business management fees decreased $401 in 2023 compared to 2022. The decrease is primarily due to an amendment to the agreement that reduced the base fee.

Depreciation and amortization. Depreciation and amortization decreased $444 in 2023 compared to 2022. The decrease is primarily due to a larger amount of fully amortized assets in 2023 compared to 2022.

Interest expense. Interest expense increased $2,006 in 2023 compared to 2022. The increase is primarily due to rising interest rates on the unhedged variable portion of the credit facility.

Interest and other income. Interest and other income decreased $71 in 2023 compared to 2022.

Comparison of the nine months ended September 30, 2023 and 2022


	Total									Same Store							Non-Same Store
	Nine Months Ended September 30,									Nine Months Ended September 30,							Nine Months Ended September 30,
	2023			2022			Change			2023		2022		Change			2023		2022		Change
Rental income	$	108,334		$	95,924		$	12,410		$	90,438	$	87,305	$	3,133		$	17,896	$	8,619	$	9,277
Other property income		235			164			71			115		101		14			120		63		57
Total income		108,569			96,088			12,481			90,553		87,406		3,147			18,016		8,682		9,334

Property operating expenses		20,521			17,235			3,286			17,411		15,891		1,520			3,110		1,344		1,766
Real estate tax expense		14,023			12,694			1,329			10,781		10,942		(161	)		3,242		1,752		1,490
Total property operating expenses		34,544			29,929			4,615			28,192		26,833		1,359			6,352		3,096		3,256

Property net operating income		74,025			66,159			7,866		$	62,361	$	60,573	$	1,788		$	11,664	$	5,586	$	6,078

Straight-line income (expense), net		189			(96	)		285
Intangible amortization and inducement		2,226			715			1,511
General and administrative expenses		(3,927	)		(4,057	)		130
Business management fee		(7,322	)		(7,500	)		178
Depreciation and amortization		(44,675	)		(40,622	)		(4,053	)
Interest expense		(31,942	)		(21,394	)		(10,548	)
Interest and other income		152			5			147
Net loss	$	(11,274	)	$	(6,790	)	$	(4,484	)

Net loss. Net loss was $11,274 and $6,790 for the nine months ended September 30, 2023 and 2022, respectively.

Total property net operating income. On a “same store” basis, comparing the results of operations of investment properties during the nine months ended September 30, 2023 with the results of the same investment properties owned during the full nine months ended September 30, 2022 property net operating income increased $1,788, total property income increased $3,147, and total property operating expenses including real estate tax expense increased $1,359.

The increase in “same store” total property income is primarily due to an increase in rental income and an increase in recovery income due to higher recoverable expenses during the nine months ended September 30, 2023.

“Non-same store” total property net operating income increased $6,078 during 2023 as compared to 2022. The increase is a result of acquiring eight retail properties on May 17, 2022. On a “non-same store” basis, total property income increased $9,334 and total property operating expenses increased $3,256 during the nine months ended September 30, 2023 as compared to 2022 as a result of this acquisition.

Straight-line income (expense), net. Straight-line income (expense), net increased $285 in 2023 compared to 2022. This increase is primarily due to scheduled rent increases during the nine months ended September 30, 2023.

Amortization of intangibles and lease incentives. Income from the amortization of intangibles and lease incentives increased $1,511 in 2023 compared to 2022. The increase is primarily due to the acquisition of IRPF Properties and write-offs of below market lease intangibles from early lease terminations during the nine months ended September 30, 2023.

General and administrative expenses. General and administrative expenses decreased $130 in 2023 compared to 2022. The decrease is primarily due to lower legal and stock administration costs partially offset by an increase in reimbursements for salaries during the nine months ended September 30, 2023.

Business management fee. Business management fees decreased $178 in 2023 compared to 2022. The decrease is primarily due to an amendment to the agreement that reduced the base fee, partially offset by the acquisition of IRPF Properties which increased the amount on which the base fee is determined.

Depreciation and amortization. Depreciation and amortization increased $4,053 in 2023 compared to 2022. The increase is primarily due to the acquisition of eight properties on May 17, 2022, partially offset by fully amortized assets in 2023 compared to 2022.

Interest expense. Interest expense increased $10,548 in 2023 compared to 2022. The increase is primarily due to an increase in average debt outstanding driven by the acquisition of IRPF Properties completed in May 2022 and rising interest rates on the unhedged variable portion of the credit facility.

Interest and other income. Interest and other income increased $147 in 2023 compared to 2022.

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, 2023. 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		95		665,252	$	17.95	$	17.26		4.0	%		5.7	$	0.41
Comparable New Leases		8		39,537	$	21.33	$	13.95		52.9	%		9.2	$	26.29
Non-Comparable New and Renewal Leases (a)		26		100,893	$	17.06	N/A		N/A				5.7	$	20.01
Total		129		805,682

(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, both before and after we have deployed all of our Offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.

MFFO excludes expensed costs associated with investing activities, some of which are acquisition related costs that affect our operations only in periods in which properties are acquired, and other non-operating items that are included in FFO, such as straight-lining of rents as required 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 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, 2023 and 2022 are calculated as follows:


		Nine Months Ended September 30,
		2023			2022
		(Dollar amounts in thousands)
	Net loss	$	(11,274	)	$	(6,790	)
Add:	Depreciation and amortization related to investment properties		44,675			40,622
	Funds from operations (FFO)		33,401			33,832

Less:	Amortization of acquired lease intangibles, net		(2,375	)		(798	)
	Straight-line income (expense), net		(189	)		96
	Modified funds from operations (MFFO)	$	30,837		$	33,130

Subsequent Events

For information related to subsequent events, reference is made to Note 15 – “Subsequent Events” which is included in our September 30, 2023 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 used to purchase properties or other real estate assets and to fund capital expenditures.

As of September 30, 2023, we had outstanding debt of $847.1 million, excluding unamortized debt issuance costs, bearing interest rates ranging from 3.70% to 7.33% per annum. The weighted average interest rate was 4.79%, which includes the effect of interest rate swaps. As of September 30, 2023, the weighted average years to maturity for our mortgages and credit facility payable was 3.0 years.

As of September 30, 2023, our fixed-rate debt consisted of secured mortgage financings with a carrying value of $112.1 million and a fair value of $102.6 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 $2.1 million at September 30, 2023. If market interest rates were to decrease by 1% (100 basis points), the fair market value of our fixed-rate debt would increase by $2.1 million at September 30, 2023.

As of September 30, 2023, we had $184 million of debt or 21.7% of our total debt, excluding unamortized debt issuance costs, bearing interest at variable rates with a weighted average interest rate equal to 6.53% per annum. We had variable rate debt subject to swap agreements of $551 million, or 65.0% of our total debt, excluding unamortized debt issuance costs, at September 30, 2023.

If interest rates on all debt which bears interest at variable rates as of September 30, 2023 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, 2023 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 Business Manager 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. Our Business Manager maintains risk management control systems 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.

In July 2017, the Financial Conduct Authority, the authority which regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the SOFR as its preferred alternative to LIBOR in derivatives and other financial contracts. Subsequently, in November 2020, the Intercontinental Exchange (“ICE”) Benchmark Administration Limited (“IBA”), the administrator of LIBOR, announced that it would consult on its intention to cease the publication of the one-week and two-month USD LIBOR settings immediately following December 31, 2021 and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. The IBA has been compelled by the Financial Conduct Authority to publish the one-, three- and six-month USD LIBOR settings through September 30, 2024.

On February 3, 2022, we refinanced our Credit Facility and the interest rate benchmark used in this agreement changed from LIBOR to SOFR. On December 1, 2022, we amended our Credit Facility and the interest rate benchmark used in this agreement changed from LIBOR to SOFR. On the same date, we also amended the mortgage and associated interest swap agreements for one of the two remaining mortgages that was indexed to LIBOR to now be indexed to SOFR. The last remaining mortgage that was indexed to LIBOR was paid off on April 28, 2023 and the corresponding interest rate swap was also terminated on the same date.

Derivatives

For information related to our derivatives, reference is made to Note 7 – “Debt and Derivative Instruments” which is included in our September 30, 2023 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, 2023 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

There are no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023.

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

Our board of directors, in its sole discretion, may amend, suspend (in whole or in part), or terminate our SRP. In the event that we amend, suspend or terminate the SRP, however, we will send stockholders notice of the change at least thirty days prior to the change, and we will disclose the change in a report filed with the Securities and Exchange Commission on either Form 8-K, Form 10-Q or Form 10-K, as appropriate. Further, our board reserves the right in its sole discretion, at any time, and from time to time to reject any requests for repurchases. The SRP is funded by the proceeds from the DRP.

The table below sets forth the number of shares we repurchased pursuant to our SRP during the three months ended September 30, 2023.


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(1)		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
July 2023		1,929,735		101,505	$	15.88	$	1,612		101,505		1,542,409
August 2023		—		—		—		—		—		1,542,409
September 2023		—		—		—		—		—		1,542,409
Total		1,929,735		101,505	$	15.88	$	1,612		101,505

(1)

Our SRP was announced on October 18, 2012.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

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 Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

* Filed herewith.

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/ Mitchell A. Sabshon
	By:	Mitchell A. Sabshon
		President and Chief Executive Officer (principal executive officer)
	Date:	November 8, 2023

		/s/ Catherine L. Lynch
	By:	Catherine L. Lynch
		Chief Financial Officer and Treasurer (principal financial officer)
	Date:	November 8, 2023