InPoint Commercial Real Estate Income, Inc. - Quarter Report: 2019 September (Form 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, 2019

☐	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 000-55782

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

(Exact name of registrant as specified in its charter)

Maryland

32-0506267

(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: (800) 826-8228

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 13, 2019, the Registrant had the following shares outstanding: 10,235,980 shares of Class P common stock, 95,474 shares of Class T common stock, 57,412 shares of Class I common stock, 195,230 shares of Class A common stock, 20,986 shares of Class D common stock and no shares of Class S common stock.

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018	2

	Unaudited Consolidated Statements of Operations for the three and nine-months ended September 30, 2019 and 2018	3

	Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the three-months ended September 30, 2019 and 2018	4

	Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine-months ended September 30, 2019 and 2018	5

	Unaudited Consolidated Statements of Cash Flows for the nine-months ended September 30, 2019 and 2018	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

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	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

Signatures		38

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except share data)

	September 30, 2019 (unaudited)			December 31, 2018
ASSETS
Cash and cash equivalents	$	47,038		$	27,530
Restricted cash		477			967
Real estate securities at fair value		134,888			91,218
Commercial mortgage loans at cost, net of allowance for loan loss of $0		429,687			249,573
Deferred debt finance costs		1,246			518
Deferred offering costs		—			1,201
Accrued interest receivable		1,446			994
Other assets		226			22
Total assets	$	615,008		$	372,023
LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements—real estate securities	$	90,964		$	61,871
Repurchase agreements—commercial mortgage loans		270,564			164,333
Payable for securities purchased		1,500			—
Loan fees payable		100			100
Due to related parties		1,399			1,680
Interest payable		486			427
Distributions payable		1,650			941
Accrued expenses		634			399
Total liabilities		367,297			229,751
Stockholders’ Equity:
Class P common stock, $0.001 par value, 500,000,000 and 450,000,000 shares authorized, 10,237,093 and 5,940,744 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		10			6
Class A common stock, $0.001 par value, 500,000,000 and 0 shares authorized, 36,227 and 0 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		—			—
Class T common stock, $0.001 par value, 500,000,000 and 0 shares authorized, 43,296 and 0 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		—			—
Class S common stock, $0.001 par value, 500,000,000 and 0 shares authorized, 0 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		—			—
Class D common stock, $0.001 par value, 500,000,000 and 0 shares authorized, 8,961 and 0 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		—			—
Class I common stock, $0.001 par value, 500,000,000 and 0 shares authorized, 9,093 and 0 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		—			—
Additional paid in capital (net of offering costs of $21,841 and $11,724 at September 30, 2019 and December 31, 2018, respectively)		256,808			148,650
Accumulated deficit		(9,107	)		(6,384	)
Total stockholders’ equity		247,711			142,272
Total liabilities and stockholders’ equity	$	615,008		$	372,023

The accompanying notes are an integral part of these consolidated financial statements

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three-months ended September 30,						Nine-months ended September 30,
	2019			2018			2019			2018
Interest income:
Interest income	$	9,464		$	3,400		$	24,511		$	6,216
Less: Interest expense		(3,734	)		(1,271	)		(9,998	)		(2,079	)
Net interest income		5,730			2,129			14,513			4,137
Operating expenses:
Advisory fee		1,601			840			5,086			1,379
Debt finance costs		271			122			692			309
Directors compensation		22			21			66			63
Professional service fees		183			69			492			276
Other expenses		192			73			358			188
Total operating expenses		2,269			1,125			6,694			2,215
Other income (loss):
Unrealized gain (loss) in value of real estate securities		(205	)		336			1,585			457
Realized loss on the sale of real estate securities		—			—			(43	)		—
Total other income (loss)		(205	)		336			1,542			457
Net income	$	3,256		$	1,340		$	9,361		$	2,379
Net income per share basic and diluted	$	0.32		$	0.32		$	1.11		$	0.77
Weighted average number of shares
Basic		10,116,083			4,159,656			8,407,217			3,074,194
Diluted		10,116,516			4,159,839			8,407,450			3,074,311

The accompanying notes are an integral part of these consolidated financial statements

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited, dollar amounts in thousands)

For the three-months ended September 30, 2019	Par Value Common Stock
	Class P		Class A		Class T		Class S		Class D		Class I		Additional Paid in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance as of June 30, 2019	$	9	$	—	$	—	$	—	$	—	$	—	$	236,562		$	(7,427	)	$	229,144
Proceeds from issuance of common stock		1		—		—		—		—		—		24,487			—			24,488
Offering costs		—		—		—		—		—		—		(3,796	)		—			(3,796	)
Net income		—		—		—		—		—		—		—			3,256			3,256
Distributions declared		—		—		—		—		—		—		—			(4,936	)		(4,936	)
Distribution reinvestment		—		—		—		—		—		—		1			—			1
Redemptions		—		—		—		—		—		—		(451	)		—			(451	)
Equity based compensation		—		—		—		—		—		—		5			—			5
Balance as of September 30, 2019	$	10	$	—	$	—	$	—	$	—	$	—	$	256,808		$	(9,107	)	$	247,711

For the three-months ended September 30, 2018	Par Value Common Stock
	Class P		Class A		Class T		Class S		Class D		Class I		Additional Paid in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance as of June 30, 2018	$	3	$	—	$	—	$	—	$	—	$	—	$	86,603		$	(2,816	)	$	83,790
Proceeds from issuance of common stock		2		—		—		—		—		—		34,522			—			34,524
Offering costs		—		—		—		—		—		—		(2,745	)		—			(2,745	)
Net income		—		—		—		—		—		—		—			1,340			1,340
Distributions declared		—		—		—		—		—		—		—			(2,021	)		(2,021	)
Redemptions		—		—		—		—		—		—		—			—			—
Equity based compensation		—		—		—		—		—		—		3			—			3
Balance as of September 30, 2018	$	5	$	—	$	—	$	—	$	—	$	—	$	118,383		$	(3,497	)	$	114,891

The accompanying notes are an integral part of these consolidated financial statements

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited, dollar amounts in thousands)

For the nine-months ended September 30, 2019	Par Value Common Stock
	Class P		Class A		Class T		Class S		Class D		Class I		Additional Paid in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance as of December 31, 2018	$	6	$	—	$	—	$	—	$	—	$	—	$	148,650		$	(6,384	)	$	142,272
Proceeds from issuance of common stock		4		—		—		—		—		—		118,800			—			118,804
Offering costs		—		—		—		—		—		—		(10,117	)		—			(10,117	)
Net income		—		—		—		—		—		—		—			9,361			9,361
Distributions declared		—		—		—		—		—		—		—			(12,084	)		(12,084	)
Distribution reinvestment		—		—		—		—		—		—		1			—			1
Redemptions		—		—		—		—		—		—		(541	)		—			(541	)
Equity based compensation		—		—		—		—		—		—		15			—			15
Balance as of September 30, 2019	$	10	$	—	$	—	$	—	$	—	$	—		256,808			(9,107	)		247,711

For the nine-months ended September 30, 2018	Par Value Common Stock
	Class P		Class A		Class T		Class S		Class D		Class I		Additional Paid in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance as of December 31, 2017	$	2	$	—	$	—	$	—	$	—	$	—	$	43,428		$	(1,445	)	$	41,985
Proceeds from issuance of common stock		3		—		—		—		—		—		81,348			—			81,351
Offering costs		—		—		—		—		—		—		(6,399	)		—			(6,399	)
Net income		—		—		—		—		—		—		—			2,379			2,379
Distributions declared		—		—		—		—		—		—		—			(4,431	)		(4,431	)
Redemptions		—		—		—		—		—		—		—			—			—
Equity based compensation		—		—		—		—		—		—		6			—			6
Balance as of September 30, 2018		5		—		—		—		—		—		118,383			(3,497	)		114,891

The accompanying notes are an integral part of these consolidated financial statements

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, dollar amounts in thousands)

	For the nine-months ended September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	9,361		$	2,379
Adjustments to reconcile net income to cash provided by operations:
Net realized loss on real estate securities	43				—
Net unrealized gain on real estate securities		(1,585	)		(457	)
Amortization of equity based compensation		15			6
Amortization of debt finance costs to operating expense		692			309
Amortization of debt finance costs to interest expense		61			36
Amortization of bond discount		(594	)		(208	)
Amortization of origination fees		(1,411	)		(193	)
Amortization of deferred exit fees		(406	)		(69	)
Changes in assets and liabilities:
Accrued interest receivable		(452	)		(482	)
Accrued expenses		711			(44	)
Loan fees payable		—			110
Due to related parties		142			833
Other assets		13			—
Accrued interest payable		59			182
Net cash provided by operating activities		6,649			2,402
Cash flows from investing activities:
Origination of commercial loans		(254,725	)		(126,119	)
Origination fees received on commercial loans		1,951			1,243
Principal repayments of commercial loans		74,478			—
Purchase of real estate securities		(50,459	)		(61,341	)
Real estate securities sold		9,211			2,996
Real estate securities principal pay-down		1,215			385
Net cash used in investing activities		(218,329	)		(182,836	)
Cash flows from financing activities:
Proceeds from issuance of common stock		118,804			81,351
Redemptions of common stock		(541	)		—
Payment of offering costs		(10,035	)		(6,399	)
Proceeds from repurchase agreements		925,238			412,617
Principal repayments of repurchase agreements		(789,908	)		(287,507	)
Debt finance costs		(1,487	)		(979	)
Distributions paid		(11,373	)		(3,961	)
Net cash provided by financing activities		230,698			195,122
Net change in cash, cash equivalents and restricted cash		19,018			14,688
Cash, cash equivalents and restricted cash at beginning of period		28,497			1,406
Cash, cash equivalents and restricted cash at end of period	$	47,515		$	16,094
Supplemental disclosure of cash flow information:
Change in deferred offering costs and accrued offering expenses, included in due to related parties	$	(505	)	$	(730	)
Interest paid	$	9,939		$	1,897
Distributions payable	$	1,650		$	728
Payable for securities purchased	$	1,500		$	—
Purchase of real estate securities	$	(1,500	)	$	—
Accrued stockholder servicing fee due to related party	$	82		$	—
Distribution reinvestment	$	1		$	—

The accompanying notes are an integral part of these consolidated financial statements

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2019

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

Note 1 – Organization and Business Operations

InPoint Commercial Real Estate Income, Inc. (the “Company”) was incorporated in Maryland on September 13, 2016 to originate, acquire and manage a diversified portfolio of commercial real estate (“CRE”) investments primarily comprised of (i) CRE debt, including floating rate first mortgage loans, subordinate mortgage and mezzanine loans, and participations in such loans and (ii) floating rate CRE securities, such as commercial mortgage-backed securities (“CMBS”), and senior unsecured debt of publicly traded real estate investment trusts (“REITs”). The Company may also invest in select equity investments in single-tenant, net leased properties. Substantially all of the Company’s business is conducted through InPoint REIT Operating Partnership, LP (the “Operating Partnership”), a Delaware limited partnership. The Company is the sole general partner and directly or indirectly holds all of the limited partner interests in the Operating Partnership. The Company has elected to be taxed as a REIT for U.S. federal income tax purposes.

The Company is externally managed by Inland InPoint Advisor, LLC (the “Advisor”), a Delaware limited liability company formed in August 2016 that is a wholly owned indirect subsidiary of Inland Real Estate Investment Corporation, a member of The Inland Real Estate Group of Companies, Inc. The Advisor is responsible for coordinating the management of the day-to-day operations and originating, acquiring and managing the Company’s CRE investment portfolio, subject to the supervision of the Company’s board of directors. The Advisor performs its duties and responsibilities as the Company’s fiduciary pursuant to an amended and restated advisory agreement dated April 29, 2019 among the Company, the Advisor and the Operating Partnership (the “Advisory Agreement”), which supersedes and replaces the advisory agreement dated October 25, 2016 (the “Prior Advisory Agreement”).

The Advisor has delegated certain of its duties to SPCRE InPoint Advisors, LLC (the “Sub-Advisor”), a Delaware limited liability company formed in September 2016 that is a wholly owned subsidiary of Sound Point CRE Management, LP, pursuant to an amended and restated sub-advisory agreement between the Advisor and the Sub-Advisor dated April 29, 2019, which supersedes and replaces the sub-advisory agreement dated October 25, 2016. Among other duties, the Sub-Advisor has the authority to identify, negotiate, acquire and originate the Company’s investments and provide portfolio management, disposition, property management and leasing services to the Company. Notwithstanding such delegation to the Sub-Advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the Advisory Agreement, including those duties which the Advisor has not delegated to the Sub-Advisor such as (i) valuation of the Company’s assets and calculation of the Company’s net asset value (“NAV”); (ii) management of the Company’s day-to-day operations; (iii) preparation of stockholder reports and communications and arrangement of the Company’s annual stockholder meeting; and (iv) advising the Company regarding its initial qualification as a REIT for U.S. federal income tax purposes and monitoring its ongoing compliance with the REIT qualification requirements thereafter.

On October 25, 2016, the Company commenced a private offering (the “Private Offering”) of up to $500,000 in shares of Class P common stock (“Class P Shares”). Inland Securities Corporation, an affiliate of the Advisor (the “Dealer Manager”), was the dealer manager for the Private Offering. On June 28, 2019, the Company terminated the Private Offering in anticipation of selling shares in the IPO (described below). The Company continued to accept Private Offering subscription proceeds through July 16, 2019 from subscription agreements executed no later than June 28, 2019. As of July 16, 2019, the Company had received and accepted investors’ subscriptions for and issued 10,258,094 Class P Shares in the Private Offering, resulting in gross proceeds of $276,681.

On March 22, 2019, the Company filed a Registration Statement on Form S-11 (File No. 333-230465) (the “Registration Statement”) to register up to $2,350,000 in shares of common stock (the “IPO”). On May 3, 2019, the Securities and Exchange Commission (the “SEC”) declared effective the Registration Statement. On April 29, 2019, the Company entered into a dealer manager agreement (the “Dealer Manager Agreement”) with the Dealer Manager pursuant to which the Dealer Manager serves as the exclusive dealer manager for the IPO on a best efforts basis.

On April 29, 2019, the Company filed articles of amendment with the State Department of Assessments and Taxation of the State of Maryland (the “SDAT”) (i) to modify the number of shares of capital stock the Company has authority to issue under its charter from 500,000,000 to 3,050,000,000, consisting of 3,000,000,000 Class P common shares and 50,000,000 shares of preferred stock, and (ii) to modify the aggregate par value of all authorized shares of stock from $500 to $3,050.

On April 29, 2019, the Company also filed articles supplementary with SDAT to reclassify and designate: (i) 500,000,000 authorized but unissued Class P common shares as Class A common shares; (ii) 500,000,000 authorized but unissued Class P common shares as

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2019

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

Class D common shares; (iii) 500,000,000 authorized but unissued Class P common shares as Class I common shares; (iv) 500,000,000 authorized but unissued Class P common shares as Class S common shares; and (v) 500,000,000 authorized but unissued Class P common shares as Class T common shares.

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, 2018 (the “Annual Report”), as filed with the SEC on March 12, 2019, under the heading Note 2 – Summary of Significant Accounting Policies. There have been no changes to the Company’s significant accounting policies for the nine-months ended September 30, 2019.

Basis of Accounting

The accompanying consolidated financial statements and related footnotes have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reported periods. Actual results could differ from such estimates.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

Certain amounts in prior period consolidated financial statements have been reclassified to conform with the current period presentation.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include funds on deposit with financial institutions, including demand deposits with financial institutions with original maturities of three months or less. The account balance may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage limits and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage limits. The Company believes that the risk will not be significant, as the Company does not anticipate the financial institutions’ non-performance.

Restricted cash represents cash the Company is required to hold in a segregated account. As of September 30, 2019 and December 31, 2018, the restricted cash was held as additional collateral on real estate securities repurchase agreements.

The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Company’s consolidated balance sheets to the total amount shown in the Company’s consolidated statements of cash flows:

	September 30,		December 31,
	2019		2018
Cash and cash equivalents	$	47,038	$	27,530
Restricted cash		477		967
Total cash, cash equivalents, and restricted cash	$	47,515	$	28,497

Accounting Pronouncements Recently Issued but Not Yet Effective

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes how entities measure credit losses for financial assets carried at amortized cost. ASU 2016-13 eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. ASU 2016-13 is effective for SEC filers for reporting periods beginning after December 15, 2019. The amendments may be adopted early for reporting periods beginning after December 15, 2018. In October 2019, the FASB tentatively agreed to a proposed Accounting Standards Update that would grant certain small public companies (such as smaller reporting companies as defined by the SEC) until reporting periods commencing after December 15, 2022 to implement ASU 2016-13. Although the Company continues to evaluate the impact

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2019

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

ASU 2016-13 will have on its allowance for loan losses estimate, the Company anticipates utilizing the extension if the proposal is adopted.

Note 3 – Commercial Mortgage Loans Held for Investment

The tables below show the Company’s commercial mortgage loans held for investment as of September 30, 2019 and December 31, 2018:

September 30, 2019

	Number of Loans		Principal Balance		Unamortized (fees)/costs, net			Carrying Value		Weighted Average Interest Rate			Weighted Average Years to Maturity
First mortgage loans		26	$	421,472	$	(2,285	)	$	419,187		5.8	%		2.1
Credit loans		2		10,500		—			10,500		9.2	%		6.7
Total and average		28	$	431,972	$	(2,285	)	$	429,687		5.9	%		2.2

December 31, 2018

	Number of Loans		Principal Balance		Unamortized (fees)/costs, net			Carrying Value		Weighted Average Interest Rate			Weighted Average Years to Maturity
First mortgage loans		16	$	241,225	$	(2,152	)	$	239,073		6.4	%		2.2
Credit loans		2		10,500		—			10,500		9.2	%		7.5
Total and average		18	$	251,725	$	(2,152	)	$	249,573		6.5	%		2.5

Credit Characteristics

As part of the Company’s process for monitoring the credit quality of its investments, it performs a quarterly asset review of the investment portfolio and assigns risk ratings to each of its loans and CMBS. Risk factors include payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographic location, as well as national and regional economic factors. To determine the likelihood of loss, the loans are rated on a 5-point scale as follows:

Investment Grade	Investment Grade Definition
1	Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable.
2	Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.
3	Performing investment requiring closer monitoring. Trends and risk factors show some deterioration. Collection of principal and interest is still expected.
4	Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative.
5	Underperforming investment with expected loss of interest and some principal.

All investments are assigned an initial risk rating of 2 at origination or acquisition.

As of September 30, 2019, 26 loans had a risk rating of 2 and two had a risk rating of 3. As of December 31, 2018, 17 loans had a risk rating of 2 and one had a risk rating of 3. The Company has not recorded any allowance for loan losses as the Company did not consider a loan loss to be probable.

Note 4 – Real Estate Securities

The Company classified its real estate securities as available-for-sale. These investments are reported at fair value in the consolidated balance sheets with changes in fair value recorded in other income or loss in the consolidated statements of operations.

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2019

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

The tables below show the Company’s real estate securities as of September 30, 2019 and December 31, 2018:

September 30, 2019

Number of Positions		External Credit Rating	Collateral	Weighted Average Interest Rate			Weighted Average Years to Maturity	Par Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
3		AAA	Hospitality, Office		2.9	%	0.5	$	20,043	$	19,987	$	31	$	(12	)	$	20,006
1		AA-	Hospitality		3.0	%	0.6		2,000		1,999		—		(3	)		1,996
8		BB-	Retail, Hospitality, Mixed Use, Multifamily, Office		4.6	%	1.2		57,810		57,772		252		(40	)		57,984
3		Unrated	Hospitality		7.3	%	0.9		55,275		54,788		130		(16	)		54,902
	15				5.4	%	1.0	$	135,128	$	134,546	$	413	$	(71	)	$	134,888

December 31, 2018

Number of Positions		External Credit Rating	Collateral	Weighted Average Interest Rate			Weighted Average Years to Maturity	Par Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
2		AAA	Hospitality		3.4	%	0.7	$	20,310	$	20,310	$	—	$	(277	)	$	20,033
1		AA-	Hospitality		3.5	%	1.4		2,000		1,998		—		(31	)		1,967
5		BB-	Retail, Hospitality		5.3	%	1.6		38,512		38,438		—		(460	)		37,978
2		Unrated	Hospitality		7.7	%	1.4		32,700		31,715		—		(475	)		31,240
	10				5.7	%	1.3	$	93,522	$	92,461	$	—	$	(1,243	)	$	91,218

At September 30, 2019, the Company held 15 CMBS with a total carrying value of $134,888 including a total unrealized gain of $413 and a total unrealized loss of $71. As of September 30, 2019, the amortized cost was $582 less than the par value of $135,128 due to five real estate securities purchased at a discount. At December 31, 2018, the Company held 10 CMBS with a total carrying value of $91,218 including a total unrealized loss of $1,243. As of December 31, 2018, the amortized cost was $1,061 less than the par value of $93,522 due to three real estate securities purchased at a discount. As of September 30, 2019 and December 31, 2018, no position had an unrealized loss for a period greater than 12 months. During the three and nine-months ended September 30, 2019, the Company sold real estate securities for $0 and $9,211 that resulted in realized losses of $0 and $43, respectively. The Company did not have any realized gains or losses during the three and nine-months ended September 30, 2018.

As of September 30, 2019 and December 31, 2018, each CMBS was assigned an internal risk rating of 2.

Note 5 – Repurchase Agreements

Commercial Mortgage Loans

On February 15, 2018, the Company, through a wholly owned subsidiary, entered into a master repurchase agreement (the “CF Repo Facility”) with Column Financial, Inc. as administrative agent for certain of its affiliates. The CF Repo Facility had an initial advance amount of $100,000 subject to a maximum advance amount of $250,000. The Company increased the advance amount in August 2018 to $175,000, and in January 2019 to the maximum of $250,000. The initial term of the CF Repo Facility was 12 months and the Company extended the maturity date in September 2019 to August 2020. Advances under the CF Repo Facility accrue interest at a per annum rate equal to the London Interbank Offered Rate (“LIBOR”) plus 2.25%. The CF Repo Facility is subject to certain financial covenants. The Company was in compliance with all financial covenant requirements as of September 30, 2019 and December 31, 2018.

On May 6, 2019, the Company, through a wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association. The JPM Repo Facility provides up to $150,000 in advances

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2019

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

that the Company expects to use to finance the acquisition or origination of eligible loans and participation interests therein. Advances under the JPM Repo Facility accrue interest at per annum rates equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of between 1.75% to 2.25%, depending on the attributes of the purchased assets. The initial maturity date of the JPM Repo Facility is May 6, 2021, with two successive one-year extensions at the Company’s option, which may be exercised upon the satisfaction of certain conditions. The JPM Repo Facility is subject to certain financial covenants. The Company was in compliance with all financial covenant requirements as of September 30, 2019.

The JPM Repo Facility and CF Repo Facility (collectively, the “Repo Facilities”) are used to finance eligible loans and each act in the manner of a revolving credit facility that can be repaid as the Company’s assets are paid off and re-drawn as advances against new assets.

The tables below show the Company’s Repo Facilities as of September 30, 2019 and December 31, 2018:

September 30, 2019									Weighted Average
	Committed Financing		Amount Outstanding⁽¹⁾		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity
CF Repo Facility	$	250,000	$	193,026	$	298	$	268,909		4.28	%		318
JPM Repo Facility		150,000		77,620		91		107,663		3.92	%		584
	$	400,000	$	270,646	$	389	$	376,572		4.17	%		394

December 31, 2018									Weighted Average
	Committed Financing		Amount Outstanding⁽¹⁾		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity

CF Repo Facility	$	175,000	$	164,410	$	299	$	225,075		4.71	%		317
JPM Repo Facility		—		—		—		—		—			—
	$	175,000	$	164,410	$	299	$	225,075		4.71	%		317

(1)	Excluding $82 and $77 of unamortized debt issuance costs at September 30, 2019 and December 31, 2018, respectively.

Real Estate Securities

The Company entered into two master repurchase agreements for real estate securities with separate counterparties and had the following balances outstanding as described in the table below:

							Weighted Average
	Amount Outstanding		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity
As of September 30, 2019	$	90,964	$	97	$	125,721		3.46	%		17
As of December 31, 2018	$	61,871	$	128	$	84,646		3.79	%		9

The total amount outstanding as of September 30, 2019 and December 31, 2018 was with JP Morgan Securities LLC. In addition, the master repurchase agreements are subject to certain financial covenants. The Company was in compliance with all financial covenant requirements as of September 30, 2019 and December 31, 2018.

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2019

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

Note 6 – Stockholders’ Equity

The following tables detail the change in the Company’s outstanding shares of all classes of common stock, including restricted common stock:

	Common Stock
Nine-months ended September 30, 2019	Class P			Class A		Class T		Class S		Class D		Class I
Beginning balance		5,940,744			—		—		—		—		—
Issuance of shares		4,315,524			36,227		43,296		—		8,961		9,093
Issuance of restricted shares		2,400			—		—		—		—		—
Redemptions		(21,575	)		—		—		—		—		—
Ending balance		10,237,093			36,227		43,296		—		8,961		9,093

	Common Stock
Nine-months ended September 30, 2018	Class P			Class A		Class T		Class S		Class D		Class I
Beginning balance		1,733,392			—		—		—		—		—
Issuance of shares		2,997,558			—		—		—		—		—
Issuance of restricted shares		—			—		—		—		—		—
Redemptions		—			—		—		—		—		—
Ending balance		4,730,950			—		—		—		—		—

Distributions

From January 1, 2019 to July 31, 2019, the Company paid distributions on Class P Shares based on daily record dates, payable in arrears the following month, equal to a daily amount of 1/365^th of $1.92 per share. Distributions declared on or after August 1, 2019 on Class P Shares are based on monthly record dates, payable in arrears the following month equal to a monthly amount of 1/12^th of $1.92 per share. Distributions on Class A, Class T, Class D and Class I are based on monthly record dates, payable in arrears the following month equal to a monthly amount of 1/12^th of $1.62 per share. The table below presents the aggregate distributions declared for each applicable class of common stock during the nine-months ended September 30, 2019. The table excludes from dividend declaration any month when there were no outstanding shares for a class of stock.

	Common Stock
	Class P		Class A		Class T		Class S		Class D		Class I
Aggregate gross distributions declared per share	$	1.4400	$	0.1350	$	0.2700	$	—	$	0.1350	$	0.2700
Stockholder servicing fee per share	N/A		N/A			0.0355		—		0.0052	N/A
Net distributions declared per share	$	1.4400	$	0.1350	$	0.2345	$	—	$	0.1298	$	0.2700

As of September 30, 2019 and December 31, 2018, distributions declared but not yet paid amounted to $1,650 and $941, respectively. As of December 31, 2018, the Company had not declared or paid any distributions on Class A, Class T, Class S, Class D or Class I common stock.

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2019

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

Note 7 – Net Income Per Share

The following table is a summary of the basic and diluted net income per share computation for the three and nine-months ended September 30, 2019 and 2018:

	Three-months ended September 30,				Nine-months ended September 30,
	2019		2018		2019		2018
Net income	$	3,256	$	1,340	$	9,361	$	2,379
Weighted average shares outstanding, basic		10,116,083		4,159,656		8,407,217		3,074,194
Weighted average shares outstanding, diluted		10,116,516		4,159,839		8,407,450		3,074,311
Net income per share, basic and diluted	$	0.32	$	0.32	$	1.11	$	0.77

Note 8 – Commitments and Contingencies

In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.

The Company has made a commitment to advance additional funds under certain of its CRE loans if the borrower meets certain conditions. As of September 30, 2019 and December 31, 2018, the Company had 19 and 13 of such loans, respectively, with a total remaining future funding commitment of $46,982 and $30,343, respectively. The Company may advance future funds at its discretion if requested by the borrower and the borrower meets certain requirements as specified in individual loan agreements.

Note 9 – Transactions with Related Parties

As of September 30, 2019, the Advisor had invested $1,000 in the Company through the purchase of 40,040 Class P Shares. The purchase price per Class P Share for the Advisor’s investment was $25.00, with no payment of selling commissions, dealer manager fees or organization and offering expenses. The Advisor has agreed pursuant to its subscription agreement that, for so long as it or its affiliate is serving as the Company’s advisor, (i) it will not sell or transfer at least 8,000 of the Class P Shares that it has purchased, accounting for $200 of its investment, to an unaffiliated third party; (ii) it will not be eligible to submit a request for these 40,040 Class P Shares pursuant to the Company’s share repurchase program prior to the fifth anniversary of the date on which such Class P Shares were purchased (November 2021); and (iii) repurchase requests made for these Class P Shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.

As of September 30, 2019, Sound Point Capital Management, LP (“Sound Point”), an affiliate of the Sub-Advisor, had invested $3,000 in the Company through the purchase of 120,000 Class P Shares. The purchase price per Class P Share for this investment was $25.00, with no payment of selling commissions, dealer manager fees or organization and offering expenses. Sound Point has agreed pursuant to its subscription agreement that, for so long as the Sub-Advisor or its affiliate is serving as the Company’s sub-advisor, (i) it will not be eligible to submit a request for the repurchase of these 120,000 Class P Shares pursuant to the Company’s share repurchase program prior to the fifth anniversary of the date on which such Class P Shares were purchased (November 2021); and (ii) repurchase requests made for these Class P Shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2019

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

The following table summarizes the Company’s related party transactions for the three and nine-months ended September 30, 2019 and 2018 and the amount due to related parties at September 30, 2019 and December 31, 2018:

	Three-months ended September 30,				Nine-months ended September 30,				Payable as of September 30,		Payable as of December 31,
	2019		2018		2019		2018		2019		2018
Organization and offering expense reimbursement⁽¹⁾	$	61	$	113	$	328	$	389	$	24	$	512
Selling commissions and dealer manager fee⁽²⁾		1,243		2,236		6,860		5,280		—		—
Advisory fee⁽³⁾⁽⁴⁾		2,671		840		6,156		1,379		1,293		1,161
Accrued stockholder servicing fee⁽⁵⁾		82		—		82		—		82		—
Operating expense reimbursement⁽⁶⁾		—		3		5		8		—		7
Total	$	4,057	$	3,192	$	13,431	$	7,056	$	1,399	$	1,680

(1)

The Company reimburses the Advisor, the Sub-Advisor and their respective affiliates for costs and other expenses related to the Private Offering, provided that aggregate reimbursements of such costs and expenses shall not exceed the organization and offering expenses paid by investors in connection with the sale of Class P Shares in the Private Offering. The Company also reimburses the Advisor, the Sub-Advisor and their respective affiliates for costs and other expenses related to the IPO, provided the Advisor has agreed to reimburse the Company to the extent that the organization and offering expenses that the Company incurs exceeds 15% of its gross proceeds from the IPO. For the Private Offering, offering costs were offset against stockholders’ equity when paid. Unpaid amounts were recorded as deferred offering costs and included in due to related parties in these consolidated balance sheets. For the IPO, offering costs are offset against stockholders’ equity when incurred.

(2)	The Dealer Manager received selling commissions up to 5%, and a dealer manager fee up to 3%, of the transaction price for each Class P Share sold in the Private Offering, the majority of which was paid to third-party broker-dealers.

(3)

The Company pays the Advisor an advisory fee comprised of (1) a fixed component and (2) a performance component. Pursuant to the Prior Advisory Agreement, (1) the fixed component of the advisory fee was paid quarterly in arrears in an amount equal to 1/4th of 1.5% of the average aggregate value of the Company’s assets over such quarter, where the value of each asset shall be the value determined in accordance with the Company’s valuation policies or, if such value has not yet been determined, the book value of the asset; and (2) the performance component of the advisory fee was calculated and paid annually with respect to the Class P Shares, such that for any year in which the Company’s total return per Class P Share exceeds 7% per annum, the Advisor received 20% of the excess total return allocable to the Class P Shares; provided that in no event did the performance component of the advisory fee exceed 15% of the aggregate total return allocable to Class P Shares for such year. The Advisor waived the advisory fee for all periods prior to April 1, 2018. On April 29, 2019, the Company, the Advisor and the Operating Partnership entered into the Advisory Agreement, which supersedes and replaces the Prior Advisory Agreement. Pursuant to the Advisory Agreement, (1) the fixed component of the advisory fee is paid in an amount equal to (i) prior to July 17, 2019 (the “NAV Pricing Date”), 1/4th of 1.5% per annum of the gross value of the Company’s assets, paid quarterly in arrears, and (ii) following the NAV Pricing Date, 1/12th of 1.25% per annum of the gross value of the Company’s assets, paid monthly in arrears, provided that any such monthly payment shall not exceed 1/12th of 2.5% of the Company’s NAV; and (2) the performance component of the advisory fee is calculated and paid annually, such that for any year in which the Company’s total return per share exceeds 7% per annum, the Advisor will receive 20% of the excess total return allocable to shares of the Company’s common stock; provided that in no event will the performance fee exceed 15% of the aggregate total return allocable to shares of the Company’s common stock for such year.

(4)

Effective July 17, 2019, the Company pays the Advisor all new loan origination and administrative fees (collectively, the “Fees”) related to CRE loans held for investment, to the extent that such Fees are paid by the borrower. The Fees passed along to the Advisor for both the three and nine-months ended September 30, 2019 were $1,070.

(5)

Stockholder servicing fees only apply to Class T, Class S, and Class D shares. The Company accrues the full cost of the stockholder servicing fee as an offering cost at the time the Company sells Class T, Class S, and Class D shares. The Dealer Manager does not retain any of these fees, all of which are retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers for ongoing stockholder services performed by such broker-dealers.

(6)	The Company reimburses the Advisor for expenses that it (or the Sub-Advisor acting on the Advisor’s behalf) incurs in connection with providing services to the Company, provided that the Company does not reimburse overhead costs, including

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2019

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

rent and utilities or personnel costs (including salaries, bonuses, benefits and severance payments) and the Company will only reimburse the Advisor for fees payable to its affiliates if they are incurred for legal or marketing services rendered on the Company’s behalf.

Note 10 – Equity-Based Compensation

Under the Company’s Independent Director Restricted Share Plan, restricted shares generally vest over a three-year vesting period from the date of the grant, subject to the specific terms of the grant. Restricted shares are included in common stock outstanding on the date of vesting. The grant-date value of the restricted shares is amortized over the vesting period representing the requisite service period. On January 7, 2019, the Company granted 400 restricted Class P Shares to each of its three independent directors for a total of 1,200 Class P Shares with a total value of $30. These restricted Class P Shares vest in equal one-third increments on January 7, 2020, 2021 and 2022. On March 1, 2018, the Company granted 400 restricted Class P Shares to each of its three independent directors for a total of 1,200 Class P Shares with a total value of $30. These restricted Class P Shares vest in equal one-third increments on March 1, 2019, 2020 and 2021.

Compensation expense associated with the restricted shares issued to the independent directors was $5 and $15, in the aggregate, for the three and nine-months ended September 30, 2019, respectively. Compensation expense associated with the restricted shares issued to the independent directors was $3 and $6 for the three and nine-months ended September 30, 2018, respectively. As of September 30, 2019, the Company had $37 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 1.84 years.

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

	Restricted Shares			Weighted Average Grant Date Fair Value			Aggregate Intrinsic Value
Outstanding at December 31, 2018		1,200		$	30		$	30
Granted		1,200			30			30
Vested		(400	)		(10	)		(10	)
Converted		—			—			—
Forfeited		—			—			—
Outstanding at September 30, 2019		2,000		$	50		$	50

Note 11 – Fair Value of Financial Instruments

The following table presents the Company’s financial instruments carried at fair value in the consolidated balance sheets by their level in the fair value hierarchy (see Note 2 – Summary of Significant Accounting Policies included in the Annual Report) as of September 30, 2019 and December 31, 2018:

	September 30, 2019								December 31, 2018
	Total		Level I		Level II		Level III		Total		Level I		Level II		Level III
Real estate securities	$	134,888		—	$	134,888		—	$	91,218		—	$	91,218		—

The Company did not transfer any assets within fair value levels during the three and nine months ended September 30, 2019 and December 31, 2018.

GAAP requires the disclosure of fair value information about financial instruments, whether or not they are recognized at fair value in the consolidated balance sheets, for which it is practicable to estimate that value. The following table details the carrying amount and estimated fair value of the Company’s financial instruments at the dates below:

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2019

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

	September 30, 2019				December 31, 2018
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets
Cash and cash equivalents	$	47,038	$	47,038	$	27,530	$	27,530
Restricted cash		477		477		967		967
Commercial mortgage loans, net		429,687		435,750		249,573		250,156
Total	$	477,202	$	483,265	$	278,070	$	278,653
Financial liabilities
Repurchase agreements - real estate securities	$	90,964	$	90,964	$	61,871	$	61,871
Repurchase agreements - commercial mortgage loans		270,564		270,564		164,333		164,333
Total	$	361,528	$	361,528	$	226,204	$	226,204

The following describes the Company’s methods for estimating the fair value for financial instruments:

•	The estimated fair value of cash and cash equivalents and restricted cash was based on the bank balance and was a Level 1 fair value measurement.

•

The estimated fair value of commercial mortgage loans, net is a Level 3 fair value measurement. The Sub-Advisor estimates the fair values of commercial loans by analyzing interest rate spreads on loans based on various factors including capitalization rates, occupancy rates, sponsorship, geographic concentration, collateral type, market conditions and actions of other lenders.

•

The estimated fair value of repurchase agreements is a Level 3 fair value measurement based on an expected present value technique. This method discounts future estimated cash flows using rates the Company determined best reflect current market interest rates that would be offered for repurchase agreements with similar characteristics and credit quality.

Note 12 – Subsequent Events

The Company has evaluated subsequent events through November 14, 2019, the date the financial statements were issued, and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements except for the following transactions:

Sale of Common Stock

As of November 13, 2019, the Company had received gross proceeds of $286,326 from the issuance of its common stock, including through the distribution reinvestment plan.

Renewal of Advisory Agreement

On November 13, 2019, the Company’s board of directors, including a majority of the independent directors, approved the renewal of the Advisory Agreement for a term of one year, commencing on December 31, 2019.

Distributions

On October 30, 2019, the Company declared distributions for each class of its common stock in the amount per share set forth below:

	Common Stock
	Class P		Class A		Class T		Class S		Class D		Class I
Aggregate gross distributions declared per share	$	0.1600	$	0.1350	$	0.1350	$	—	$	0.1350	$	0.1350
Stockholder servicing fee per share	N/A		N/A			0.0177		—		0.0052	N/A
Net distributions declared per share	$	0.1600	$	0.1350	$	0.1173	$	—	$	0.1298	$	0.1350

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2019

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

The net distributions for each class of common stock (which represents the gross distributions less stockholder servicing fees for the applicable class of common stock) are payable to stockholders of record as of the close of business on October 31, 2019 and will be paid on or about November 19, 2019. These distributions will be paid in cash or, for stockholders participating in the Company’s distribution reinvestment plan, reinvested in shares of the Company’s common stock.

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 InPoint Commercial Real Estate Income, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on March 12, 2019, and the factors described below:

•	Market disruptions may adversely impact many aspects of our operating results and operating condition;

•	If we cannot generate sufficient cash flow from operations to fully fund distributions, some or all of our distributions may be paid from other sources, including from the proceeds from sales of our common stock, which will reduce the amount of cash we ultimately have to invest in assets;

•

There is no current public trading market for our common stock, and we do not expect that such a market will ever develop. Therefore, repurchase of shares by us will likely be the only way for stockholders to dispose of their shares and even if our stockholders are able to sell their shares by our share repurchase program, or otherwise, they may not be able to recover the amount of their investment in our shares;

•	Our charter generally limits the total amount we may borrow to 300% of our net assets, equivalent to 75% of the costs of our assets;

•	Inland InPoint Advisor, LLC (our “Advisor”) and SPCRE InPoint Advisors, LLC (our “Sub-Advisor”) may face conflicts of interest in allocating personnel and resources between their affiliates;

•	We do not have arm’s-length agreements with our Advisor, our Sub-Advisor or any affiliates of our Advisor or Sub-Advisor; and

•	If we fail to continue to qualify as a real estate investment trust (“REIT”), our operations and distributions to stockholders 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 relate to the three and nine-months ended September 30, 2019 and 2018 and as of September 30, 2019 and December 31, 2018. You should read the following discussion and analysis along with our consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q. Unless otherwise stated, all dollar amounts are stated in thousands, except share data.

Overview

We are a Maryland corporation formed on September 13, 2016 to originate, acquire and manage an investment portfolio of commercial real estate (“CRE”) investments primarily comprised of (i) CRE debt, including floating-rate first mortgage loans, subordinate mortgage and mezzanine loans, and participations in such loans and (ii) floating-rate CRE securities such as commercial mortgage-backed securities (“CMBS”) and senior unsecured debt of publicly traded REITs. We may also invest in select equity investments in single-tenant, net leased properties. Substantially all of our business is conducted through InPoint Operating Partnership, LP (our “Operating Partnership”), of which we are the sole general partner. We are externally managed by our Advisor,

an indirect subsidiary of Inland Real Estate Investment Corporation. Our Advisor has engaged the Sub-Advisor, a subsidiary of Sound Point CRE Management, LP, to perform certain services on behalf of the Advisor for us.

We have operated in a manner that allows us to qualify as a REIT for U.S. federal income tax purposes commencing with the taxable year ending December 31, 2017. Among other requirements, REITs are required to distribute to stockholders at least 90% of their annual REIT taxable income (computed without regard to the dividends-paid deduction and excluding net capital gain).

On October 25, 2016, we commenced a private offering (the “Private Offering”) of up to $500,000 in shares of our Class P common stock (“Class P Shares”). Inland Securities Corporation, an affiliate of our Advisor (the “Dealer Manager”), was our dealer manager for the Private Offering. On June 28, 2019, we terminated the Private Offering in anticipation of selling shares in the IPO (described below). We continued to accept Private Offering subscription proceeds through July 16, 2019 from subscription agreements executed no later than June 28, 2019. As of July 16, 2019, we had received and accepted investors’ subscriptions for and issued 10,258,094 Class P Shares in the Private Offering, resulting in gross proceeds of $276,681.

On May 3, 2019, we commenced an initial public offering of up to $2,350,000 in shares of our Class A, Class T, Class S, Class D and Class I common stock (the “IPO”) pursuant to our Registration Statement on Form S-11 (File No. 333-230465). Prior to July 17, 2019 (the “NAV Pricing Date”), the purchase price for each class of our common stock in our primary offering was $25.00 per share, plus applicable upfront selling commissions and dealer manager fees, and the per share purchase price for shares of our common stock in our distribution reinvestment plan was $25.00. Following the NAV Pricing Date, the purchase price per share for each class of common stock will vary and will generally equal our prior month’s net asset value (“NAV”) per share, as determined monthly, plus applicable upfront selling commissions and dealer manager fees. The Dealer Manager serves as our exclusive dealer manager for the IPO on a best efforts basis. As of November 13, 2019, we had received and accepted investors’ subscriptions for and issued 195,230 Class A shares, 95,474 Class T shares, 20,986 Class D shares and 57,412 of Class I shares of common stock, respectively, in the IPO, resulting in gross proceeds of $9,645. As of November 13, 2019, $2,340,355 of our shares of common stock remained to be sold in the IPO.

Significant Accounting Policies and Use of Estimates

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, 2018 (the “Annual Report”), as filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2019, under the heading “Note 2 – Summary of Significant Accounting Policies.” There have been no changes to the Company’s significant accounting policies for the nine-months ended September 30, 2019.

Portfolio

We began operations in October 2016 and our objective is to originate, acquire and manage an investment portfolio of CRE debt and CRE securities that is primarily floating rate and diversified based on the type and location of collateral securing the underlying CRE debt and CRE securities. We anticipate our investment portfolio will be less diversified and have higher concentrations in asset class, collateral type and geographic location until our capital raise reaches levels that will allow for greater diversification.

The charts below summarize our portfolio as a percentage of par value by type of rate, loan type, collateral type and geographical region as of September 30, 2019 and December 31, 2018:

An investment’s region is defined according to the below map based on the location of underlying property.

The changes in our portfolio as of September 30, 2019 compared to December 31, 2018 were primarily due to the new loans originated and real estate securities purchased during the period. Due to the small number of investments in our portfolio, the changes in the portfolio composition may be significant. We anticipate that these changes will become less significant as our portfolio increases in size.

Commercial Mortgage Loans Held for Investment

	As of September 30, 2019			As of December 31, 2018

Principal balance of first mortgage loans	$	421,472		$	241,225
Number of first mortgage loans		26			16
Principal balance of credit loans	$	10,500		$	10,500
Number of credit loans		2			2
Total balance of loans	$	431,972		$	251,725
Total number of loans		28			18
All-in yield		5.9	%		6.5	%

The increase in the size of our portfolio is due to investing capital received from the Private Offering and from increased leverage as we executed on our business strategy. The change in weighted average interest rate was due to change in portfolio composition through the additional loans originated and due to changes in the London Interbank Offered Rate (“LIBOR”). Due to the small number of loans in our portfolio, the weighted average interest rate may change significantly as we continue to originate loans in the future.

The table below presents information for each of our commercial mortgage loans as of September 30, 2019:

	Origination Date	Loan Type ⁽¹⁾	Principal Balance		Cash Coupon ⁽²⁾	All-in Yield ⁽²⁾	Original Maturity ⁽³⁾	Maximum Maturity ⁽³⁾	State	Property Type	LTV ⁽⁴⁾	Risk Rating ⁽⁵⁾
1	12/12/17	First mortgage	$	14,650	L+4.70%	6.7%	01/09/21	01/09/23	HI	Office	67%		2
2	12/13/17	First mortgage		15,561	L+4.50%	6.5%	12/09/20	12/09/22	VA	Office	55%		2
3	03/22/18	First mortgage		11,829	L+3.75%	5.8%	04/09/21	04/09/23	CO	Retail	74%		2
4	05/04/18	First mortgage		31,000	L+4.00%	6.0%	05/09/21	05/09/23	PA	Industrial	64%		2
5	05/17/18	First mortgage		6,806	L+4.50%	6.5%	06/09/21	06/09/23	NC	Multifamily	54%		2
6	08/21/18	First mortgage		16,180	L+3.65%	5.7%	09/09/21	09/09/23	AZ	Multifamily	80%		2
7	09/07/18	First mortgage		23,541	L+3.75%	5.8%	09/09/21	09/09/23	TX	Office	73%		2
8	09/19/18	First mortgage		8,531	L+3.70%	5.7%	10/09/21	10/09/23	TX	Multifamily	69%		2
9	10/12/18	First mortgage		19,228	L+4.00%	6.0%	10/09/20	10/09/23	TX	Multifamily	76%		2
10	10/30/18	First mortgage		6,643	L+3.85%	5.9%	11/09/21	11/09/23	TX	Multifamily	76%		2
11	11/16/18	First mortgage		5,200	L+3.90%	5.9%	12/09/21	12/09/23	CA	Multifamily	64%		2
12	11/20/18	First mortgage		26,486	L+3.30%	5.4%	12/09/20	12/09/23	FL	Multifamily	78%		2
13	12/13/18	First mortgage		24,500	L+5.05% ⁽⁶⁾	7.2%	12/09/20	12/09/21	IL	Hospitality	72%		3
14	12/20/18	First mortgage		16,150	L+4.20%	6.2%	01/09/22	01/09/24	AL	Hospitality	64%		2
15	01/24/19	First mortgage		14,200	L+3.40%	5.7%	02/09/22	02/09/24	NV	Multifamily	76%		2
16	01/25/19	First mortgage		9,923	L+3.45%	5.5%	02/09/22	02/09/24	IL	Multifamily	78%		2
17	04/11/19	First mortgage		15,761	L+3.30%	5.7%	04/09/22	04/09/24	CA	Industrial	79%		2
18	04/25/19	First mortgage		6,184	L+4.00%	6.4%	05/09/21	05/09/24	TX	Multifamily	58%		2
19	05/29/19	First mortgage		24,000	L+3.25%	5.7%	06/09/22	06/09/24	TX	Multifamily	68%		2
20	05/31/19	First mortgage		12,130	L+3.25%	5.6%	06/09/22	06/09/24	CA	Multifamily	70%		2
21	06/18/19	First mortgage		40,719	L+2.75%	4.8%	07/09/22	07/09/24	TX	Office	72%		2
22	06/18/19	First mortgage		6,350	L+3.60%	5.7%	07/09/22	07/09/24	CA	Mixed Use	54%		2
23	07/24/19	First mortgage		14,000	L+3.95%	6.0%	08/09/21	08/09/22	CA	Office	77%		2
24	08/15/19	First mortgage		7,000	L+4.20%	6.6%	09/09/22	09/09/24	TN	Office	45%		2
25	09/27/19	First mortgage		14,900	L+3.10%	5.1%	10/09/23	10/09/24	CA	Office	75%		2
26	09/30/19	First mortgage		30,000	L+3.30%	5.3%	10/09/22	10/09/24	TX	Multifamily	77%		2
27	09/29/17	Credit		7,500	9.20%	9.2%	10/11/27	10/11/27	NJ	Office	80%		2
28	03/27/18	Credit		3,000	9.35%	9.3%	04/01/23	04/01/23	FL	Hospitality	68%		3
			$	431,972		5.9%					71%		2

(1)	First mortgage loans are first position mortgage loans and credit loans are mezzanine and subordinated loans.

(2)	Cash coupon is the stated rate on the loan. All-in yield is the present value of all future principal and interest payments on the loan and does not include any origination fees or deferred commitment fees. The total is the weighted average rate as of September 30, 2019 using LIBOR of 2.0315%.

(3)	Original maturity is the first maturity on the loan and maximum maturity assumes all extension options are exercised.

(4)	Loan-to-value (“LTV”) was determined at loan origination and is not updated for subsequent property valuations or loan modifications. The total is the weighted average LTV.

(5)	Risk rating is the internal risk rating assigned by the Sub-Advisor. The total is the average rating for the portfolio. See “Note 3 – Commercial Mortgage Loans Held for Investment” which is included in our notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.

(6)	Interest rate increases to L+5.30% on the payment date in January 2020.

Real Estate Securities

The table below provides a summary of our real estate securities portfolio:

	As of September 30, 2019			As of December 31, 2018
Outstanding balance (fair market value)	$	134,888		$	91,218
Number of real estate securities	15			10
Weighted average interest rate ⁽¹⁾		5.4	%		5.7	%
Average years to maturity		1.0			1.3
Weighted average yield ⁽²⁾		6.4	%		5.6	%
Portfolio ratings % of total outstanding:
AAA		15.0	%		22.0	%
AA-		1.0	%		2.0	%
BB-		43.0	%		41.0	%
Unrated		41.0	%		35.0	%

(1)	The weighted average interest rate is based off the balance of the bonds outstanding and the applicable rates.

(2)	The weighted average yield is calculated as interest income divided by the average carrying value.

We entered into master repurchase agreements to fund our investment portfolio. As of September 30, 2019 and December 31, 2018, we had total borrowings of $361,528 (which is net of $82 of unamortized debt issuance costs) and $226,204 (which is net of $77 of unamortized debt issuance costs), respectively. During the nine-months ended September 30, 2019 and the year ended December 31, 2018, we had weighted average borrowings of $298,269 and $99,221 and weighted average borrowing costs of 4.4% and 4.1%, respectively. The increase in borrowings combined with the proceeds from the Private Offering and IPO (collectively, the “Offerings”) were used to fund the growth in our investment portfolio. The increase in the weighted average borrowing costs were primarily due to the change in LIBOR during the period.

The increase in the size of our portfolio is due to investing the proceeds of the Offerings on a levered basis to purchase additional real estate securities. The change in weighted average interest rate, weighted average yield and average years to maturity were due to the change in the portfolio composition.

The change in the ratings of our real estate securities was due to the change in the composition of our assets as we invested the capital from the Offerings. Our credit process evaluates the underlying quality of the loans securing the CMBS at the time of purchase and we continually review the credit performance while we own the CMBS. Our Sub-Advisor performs a quarterly asset review of all our investments and assigns an internal risk rating to each. Each real estate security had a credit rating of 2 as of September 30, 2019 and December 31, 2018. See “Note 4 – Real Estate Securities” which is included in our notes to consolidated financial statements included in this Quarterly Report on Form 10-Q for further information. Ratings by national rating agencies are subject to change and may not be continuously updated, and therefore we do not place reliance on these ratings.

Results of Operations

Comparison of the Three-Months Ended September 30, 2019 to the Three-Months Ended September 30, 2018

Net Interest Income

Net interest income is generated on our interest-earning assets less related interest-bearing liabilities. The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the periods indicated.

	Three-Months Ended September 30,
	2019						2018
	Average Carrying Value ⁽¹⁾			Interest Income/ Expense ⁽²⁾⁽³⁾		Weighted Average Yield/Financing Cost ⁽⁴⁾	Average Carrying Value ⁽¹⁾			Interest Income/ Expense ⁽²⁾		Weighted Average Yield/Financing Cost ⁽⁴⁾
Interest-earning assets:
Real estate securities	$	133,855		$	2,095	6.1%	$	74,039		$	1,152	6.1%
Commercial mortgage loans		406,057			7,169	6.9%		128,412			2,212	6.7%
Total/Weighted Average	$	539,912		$	9,264	6.7%	$	202,451		$	3,364	6.5%
Interest-bearing liabilities:
Repurchase agreements—securities	$	82,981		$	783	3.7%	$	46,365		$	413	3.5%
Repurchase agreements—commercial mortgage loans		256,397			2,951	4.5%		75,387			858	4.5%
Total/Weighted Average	$	339,378		$	3,734	4.3%	$	121,752		$	1,271	4.1%
Net interest income/spread				$	5,530	2.4%				$	2,093	2.4%
Average leverage %⁽⁵⁾		169.2	%					150.9	%
Weighted average levered yield⁽⁶⁾						10.8%						10.1%

(1)	Based on amortized cost for real estate securities and principal amount for repurchase agreements. Amounts are calculated based on the average daily balance.

(2)	Includes the effect of amortization of premium or accretion of discount.

(3)	Interest income excludes $201 and $36 for the three-months ended September 30, 2019 and 2018, respectively, related to bank deposits and Treasury bills not included in the investment portfolio.

(4)	Calculated as annualized interest income or expense divided by average carrying value.

(5)	Calculated by dividing total average interest-bearing liabilities by total average equity (total average interest-earning assets less total average liabilities).

(6)	Calculated by taking the sum of (i) the net interest spread multiplied by the average leverage and (ii) the weighted average yield on interest-earning assets.

The increase in our weighted average interest-earning assets and interest-bearing liabilities was due to the investment of proceeds from the Offerings and through increased leverage as we executed our business strategy. The change in the weighted average yield and finance cost was due to the change in the portfolio composition as we invest the proceeds from the Offerings and the changes in interest rates tied to LIBOR.

Operating Expenses

Operating expenses for the three-months ended September 30, 2019 and 2018 consisted of the following:

	Three-Months Ended September 30,
	2019		2018
Advisory fee	$	1,601	$	840
Debt finance costs		271		122
Directors compensation		22		21
Professional service fees		183		69
Other expenses		192		73
Total operating expenses	$	2,269	$	1,125

Total operating expenses for the three-months ended September 30, 2019 and 2018 were $2,269 and $1,125, respectively. The increase in the advisory fee during the three-months ended September 30, 2019, compared to the three-months ended September 30, 2018 was due to the increase in our assets upon which the advisory fee is based. We, through our wholly owned subsidiary, have entered into master repurchase agreements and incurred costs which are deferred over the loan term. The increase in debt finance costs were due to additional fees incurred to enter into a new repurchase agreement, and increase the maximum advance amount and extend the term of another agreement.

Other Income (Loss)

For the three-months ended September 30, 2019 and 2018, we had net unrealized (loss) gain of $(205) and $336, respectively. The changes were the result of the changes in market conditions that affected the price of our securities.

Net Income

For the three-months ended September 30, 2019 and 2018, our net income was $3,256 and $1,340, or $0.32 and $0.32 per share (basic and diluted), respectively. The increase in net income was primarily due to the increase in net interest income as our investment portfolio increased due to investing the proceeds from the Offerings and borrowings.

Comparison of the Nine-Months Ended September 30, 2019 to the Nine-Months Ended September 30, 2018

Net Interest Income

	Nine-Months Ended September 30,
	2019						2018
	Average Carrying Value ⁽¹⁾			Interest Income/ Expense ⁽²⁾⁽³⁾		Weighted Average Yield/Financing Cost ⁽⁴⁾	Average Carrying Value ⁽¹⁾			Interest Income/ Expense ⁽²⁾		Weighted Average Yield/Financing Cost ⁽⁴⁾
Interest-earning assets:
Real estate securities	$	111,965		$	5,404	6.4%	$	49,313		$	1,948	5.2%
Commercial mortgage loans		349,923			18,586	7.0%		81,620			4,232	6.8%
Total/Weighted Average	$	461,888		$	23,990	6.8%	$	130,933		$	6,180	6.2%
Interest-bearing liabilities:
Repurchase agreements—securities	$	75,283		$	2,157	3.8%	$	30,944		$	740	3.2%
Repurchase agreements—commercial mortgage loans		222,986			7,841	4.6%		40,222			1,339	4.4%
Total/Weighted Average	$	298,269		$	9,998	4.4%	$	71,166		$	2,079	3.9%
Net interest income/spread				$	13,992	2.4%				$	4,101	2.4%
Average leverage %⁽⁵⁾		182.3	%					119.1	%
Weighted average levered yield ⁽⁶⁾						11.3%						9.0%

(1)	Based on amortized cost for real estate securities and principal amount for repurchase agreements. Amounts are calculated based on the average daily balance.

(2)	Includes the effect of amortization of premium or accretion of discount.

(3)	Interest income excludes $522 and $36 for the nine-months ended September 30, 2019 and 2018, respectively, related to bank deposits and Treasury bills not included in the investment portfolio.

(4)	Calculated as annualized interest income or expense divided by average carrying value.

(5)	Calculated by dividing total average interest-bearing liabilities by total average equity (total average interest-earning assets less total average liabilities).

(6)	Calculated by taking the sum of (i) the net interest spread multiplied by the average leverage and (ii) the weighted average yield on interest-earning assets.

Operating Expenses

Operating expenses for the nine-months ended September 30, 2019 and 2018 consisted of the following:

	Nine-Months Ended September 30,
	2019		2018
Advisory fee	$	5,086	$	1,379
Debt finance costs		692		309
Directors compensation		66		63
Professional service fees		492		276
Other expenses		358		188
Total operating expenses	$	6,694	$	2,215

Total operating expenses for the nine-months ended September 30, 2019 and 2018 were $6,694 and $2,215, respectively. The increase in the advisory fee during the nine-months ended September 30, 2019, compared to the nine-months ended September 30, 2018 was due to the increase in our assets upon which the advisory fee is based. We, through a wholly owned subsidiary, entered into master repurchase agreements and incurred costs which are deferred over the loan term. The increase in debt finance costs was due to additional fees incurred to enter into a new repurchase agreement and increase the maximum advance amount and to extend the term of another agreement.

Other Income

For the nine-months ended September 30, 2019 and 2018, other income was $1,542 and $457, respectively, primarily due to net unrealized gains created by our real estate securities. The changes were the result of the changes in market conditions that affected the price of our securities.

Net Income

For the nine-months ended September 30, 2019 and 2018, our net income was $9,361 and $2,379, or $1.11 and $0.77 per share (basic and diluted), respectively. The increase in net income was primarily due to the increase in net interest income as our investment portfolio increased due to investing the proceeds from the Offerings and borrowings.

Non-GAAP Financial Measures

Funds from Operations and Modified Funds from Operations

We use Funds from Operations (“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 (“NAREIT”) has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT. As defined by NAREIT, FFO means net income computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains (or losses) from sales of operating property, plus depreciation and amortization and after adjustments for unconsolidated entities. In addition, NAREIT has further clarified the FFO definition to add-back impairment write-downs of depreciable real estate or of investments in unconsolidated entities that are driven by measurable decreases in the fair value of depreciable real estate and to exclude the earnings impacts of cumulative effects of accounting changes. We have adopted the NAREIT definition for computing FFO.

Our business plan is to operate as a mortgage REIT with our portfolio consisting of CRE debt and CRE securities. We will typically have no FFO adjustments to our net income or loss computed in accordance with GAAP. Although we have the ability to acquire real property, we have not acquired any at this time and as such have not had any FFO adjustments to our net income or loss computed in accordance with GAAP.

Due to the unique features of publicly registered, non-listed REITs, the Institute for Portfolio Alternatives (“IPA”), an industry trade group, published a standardized measure known as Modified Funds from Operations (“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.

The IPA defines MFFO as FFO adjusted for acquisition fees and expenses, amounts relating to straight line rents and amortization of premiums on debt investments, non-recurring impairments of real estate-related investments, mark-to-market adjustments included in net income, non-recurring 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.

We define MFFO in accordance with the concepts established by the IPA and adjust FFO for certain items, such as amortization of premium and discounts on real estate securities. We purchase real estate securities at a premium or discount to par value, and in accordance with GAAP, record the amortization of premium/accretion of the discount to interest income. We believe that excluding the amortization of premiums and discounts provides better insight to the expected contractual cash flows. In addition, we adjust FFO for unrealized gains or losses on real estate securities. Any mark-to-market or fair value adjustments are based on general market or overall industry conditions and may be temporary in nature.

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 investments.

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 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.

Neither the SEC, any other regulatory body nor NAREIT has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, another regulatory body or NAREIT may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

Our FFO and MFFO are calculated as follows:

	Three-months ended September 30,						Nine-months ended September 30,
	2019			2018			2019			2018
GAAP net income	$	3,256		$	1,340		$	9,361		$	2,379
Funds from operations	$	3,256		$	1,340		$	9,361		$	2,379

Amortization of (discount) premium on real estate securities		(211	)		(157	)		(594	)		(208	)
Unrealized (gain) loss on real estate securities		205			(336	)		(1,585	)		(457	)
Amortization of debt financing costs		271			122			692			309
Modified funds from operations	$	3,521		$	969		$	7,874		$	2,023

Net Asset Value

Prior to the NAV Pricing Date, the purchase price for each class of our common stock was $25.00 per share, plus applicable upfront selling commissions and dealer manager fees. Following the NAV Pricing Date, the purchase price per share for each class of our common stock will generally equal our prior month’s NAV per share, as determined monthly, plus applicable selling commissions and dealer manager fees. Our NAV for each class of shares is based on the net asset values of our investments, the addition of any other assets (such as cash on hand) and the deduction of any liabilities, including the allocation/accrual of any performance participation and any stockholder servicing fees applicable to such class of shares.

The following table provides a breakdown of the major components of our NAV as of September 30, 2019 ($ and shares in thousands):

Components of NAV	As of September 30, 2019
Commercial mortgage loans	$	435,750
Real estate securities		134,888
Cash and cash equivalents and restricted cash		47,515
Other assets		7,515
Repurchase agreements - commercial mortgage loans		(270,564	)
Repurchase agreements - real estate securities		(90,964	)
Payable for securities purchased		(1,500	)
Due to related parties		(1,399	)
Distributions payable		(1,650	)
Interest payable		(486	)
Accrued stockholder servicing fees⁽¹⁾		(1	)
Other liabilities		(652	)
Net asset value	$	258,452
Number of outstanding shares		10,335

(1)

Stockholder servicing fees only apply to Class T, Class S, and Class D shares. For purposes of NAV, we recognize the stockholder servicing fee as a reduction of NAV on a monthly basis as such fee is paid. Under GAAP, we accrue the full cost of the stockholder servicing fee as an offering cost at the time we sell Class T, Class S, and Class D shares. As of September 30,

2019, we have accrued under GAAP $62 of stockholder servicing fees payable to the Dealer Manager related to the Class T shares sold and $20 of stockholder servicing fees payable to the Dealer Manager related to the Class D shares sold. As of September 30, 2019, we have not sold any Class S shares and, therefore, we have not accrued any stockholder servicing fees payable to the Dealer Manager related to Class S shares. The Dealer Manager does not retain any of these fees, all of which are retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers for ongoing stockholder services performed by such broker-dealers.

The table below outlines our total NAV and NAV per share by share class as of September 30, 2019 ($ and shares in thousands except for per share data):

	Common Stock
NAV Per Share	Class A		Class T		Class S		Class D		Class I
Monthly NAV	$	908	$	1,085	$	—	$	225	$	228
Number of outstanding shares		36		43		—		9		9
NAV per share as of September 30, 2019	$	25.0728	$	25.0554	$	—	$	25.0728	$	25.0643

The following table reconciles stockholders’ equity per our consolidated balance sheet to our NAV:

Reconciliation of Stockholders’ Equity to NAV	As of September 30, 2019
Stockholders' equity per GAAP	$	247,711
Adjustments:
Unamortized stockholder servicing fee		81
Unamortized offering costs		4,597
Fair market value loan adjustment		6,063
Net asset value	$	258,452

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay distributions to our stockholders, fund investments, originate loans, repay borrowings, and other general business needs including the payment of our operating and administrative expenses. Our primary sources of funds for liquidity consist of the net proceeds from the Offerings, net cash provided by operating activities, proceeds from repurchase agreements and other financing arrangements and future issuances of equity and/or debt securities.

We currently believe that we have sufficient liquidity and capital resources available for all anticipated uses, including the acquisition of additional investments, required debt service and the payment of distributions to stockholders.

Cash Flow Analysis

	Nine-months Ended September 30,						Change
	2019			2018			2019 vs. 2018
Net cash provided by operating activities	$	6,649		$	2,402		$	4,247
Net cash used in investing activities	$	(218,329	)	$	(182,836	)	$	(35,493	)
Net cash provided by financing activities	$	230,698		$	195,122		$	35,576

We held cash, cash equivalents and restricted cash of $47,515 and $28,497 as of September 30, 2019 and December 31, 2018, respectively. Our cash, cash equivalents and restricted cash increased due to normal fluctuations and were primarily related to the net proceeds from the Offerings and from the net proceeds from our repurchase agreements that were not used to purchase investments.

Our operating activities generated net cash of $6,649 and $2,402 for the nine-months ended September 30, 2019 and 2018, respectively. The increase in cash from operating activities was due to the increase in the size of our investment portfolio.

Our investing activities used net cash of $218,329 and $182,836 for the nine-months ended September 30, 2019 and 2018, respectively. The primary driver of the change was due to the origination of mortgage loans and purchase of real estate securities as we invested the proceeds of the Offerings on a levered basis.

Our financing activities provided net cash of $230,698 and $195,122 for the nine-months ended September 30, 2019 and 2018, respectively. The contributions came from $135,330 in net proceeds from our repurchase agreement financing and $108,769 in net proceeds from the issuance of our common stock for the nine-months ended September 30, 2019. For the nine-months ended September 30, 2018, the contributions came from $125,110 in net proceeds from our repurchase agreement financing and $74,952 in net proceeds from the issuance of our common stock.

Repurchase Agreements

Commercial Mortgage Loans

On February 15, 2018, we, through our wholly owned subsidiary, entered into a master repurchase agreement (the “CF Repo Facility”) with Column Financial, Inc. as administrative agent for certain of its affiliates. The CF Repo Facility had an initial advance amount of $100,000 subject to a maximum advance amount of $250,000. We increased the advance amount in August 2018 to $175,000, and in January 2019 to the maximum of $250,000. The initial term of the CF Repo Facility was 12 months and we extended the maturity date in September 2019 to August 2020. Advances under the CF Repo Facility accrue interest at a per annum rate equal to LIBOR plus 2.25%. The CF Repo Facility is generally subject to certain financial covenants. We were in compliance with all financial covenant requirements as of September 30, 2019 and December 31, 2018.

On May 6, 2019, we, through our wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association. The JPM Repo Facility provides up to $150,000 in advances that we expect to use to finance the acquisition or origination of eligible loans and participation interests therein. Advances under the JPM Repo Facility accrue interest at per annum rates equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of between 1.75% to 2.25%, depending on the attributes of the purchased assets. The initial maturity date of the JPM Repo Facility is May 6, 2021, with two successive one-year extensions at our option, which may be exercised upon the satisfaction of certain conditions. The JPM Repo Facility is subject to certain financial covenants. We were in compliance with all financial covenant requirements as of September 30, 2019.

The JPM Repo Facility and CF Repo Facility (collectively, the “Repo Facilities”) are used to finance eligible loans and act in the manner of a revolving credit facility that can be repaid as our assets are paid off and re-drawn as advances against new assets.

The tables below show our Repo Facilities as of September 30, 2019 and December 31, 2018:

September 30, 2019									Weighted Average
	Committed Financing		Amount Outstanding⁽¹⁾		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity
CF Repo Facility	$	250,000	$	193,026	$	298	$	268,909		4.28	%		318
JPM Repo Facility		150,000		77,620		91		107,663		3.92	%		584
	$	400,000	$	270,646	$	389	$	376,572		4.17	%		394

December 31, 2018									Weighted Average
	Committed Financing		Amount Outstanding⁽¹⁾		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity

CF Repo Facility	$	175,000	$	164,410	$	299	$	225,075		4.71	%		317
JPM Repo Facility		—		—		—		—		—			—
	$	175,000	$	164,410	$	299	$	225,075		4.71	%		317

(1)	Excluding $82 and $77 of unamortized debt issuance costs at September 30, 2019 and December 31, 2018, respectively.

Real Estate Securities

As of September 30, 2019 and December 31, 2018, we had entered into two master repurchase agreements for real estate securities with separate counterparties and had the following balances outstanding as described in the table below:

							Weighted Average
	Amount Outstanding		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity
As of September 30, 2019	$	90,964	$	97	$	125,721		3.46	%		17
As of December 31, 2018	$	61,871	$	128	$	84,646		3.79	%		9

Distributions

For the nine-months ended September 30, 2018 and for the period from January 1, 2019 to July 31, 2019, we paid distributions on Class P Shares based on daily record dates, payable in arrears the following month, equal to a daily amount of 1/365^th of $1.92 per share. Distributions declared on or after August 1, 2019 on Class P Shares are based on monthly record dates, payable in arrears the following month, equal to a monthly amount of 1/12^th of $1.92 per share.

For each class of common stock offered in the IPO, we pay the same gross distribution based on monthly record dates, payable in arrears the following month, equal to a monthly amount of 1/12^th of $1.62 per share.

During the nine-months ended September 30, 2019, we paid a monthly gross distribution of 1/12^th of $1.62 per share on our Class A and Class D common stock to stockholders of record in the month of September and on our Class T and Class I common stock to shareholders of record in the months of August and September. During the nine-months ended September 30, 2018, we did not declare or pay any distributions on our Class A, Class T, Class S, Class D or Class I common stock.

	Nine-Months Ended September 30,
	2019		2018
Distributions
Paid in cash	$	11,373	$	3,961
Reinvested in shares		1		—
Total distributions	$	11,374	$	3,961
Cash flows from operating activities	$	6,649	$	2,402

(1)	For the nine-months ended September 30, 2019 and 2018, 41.5% and 39.4% of distributions were paid from the net combined proceeds of our Private Offering and IPO, respectively.

Contractual Obligations and Commitments

Our contractual obligations, excluding expected interest payments, as of September 30, 2019 and December 31, 2018 are summarized as follows:

As of September 30, 2019	Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years		Total
Borrowings under repurchase agreements - real estate securities	$	90,964		—		—		—	$	90,964
Borrowings under repurchase agreements - commercial mortgage loans (1)		270,646		—		—		—		270,646
Total	$	361,610		—		—		—	$	361,610

As of December 31, 2018
Borrowings under repurchase agreements - real estate securities	$	61,871		—		—		—	$	61,871
Borrowings under repurchase agreements - commercial mortgage loans (1)		164,410		—		—		—		164,410
Total	$	226,281		—		—		—	$	226,281

(1)	Excluding $82 and $77 of unamortized debt issuance costs at September 30, 2019 and December 31, 2018, respectively.

We have made a commitment to advance additional funds under certain of our CRE loans if the borrower meets certain conditions. As of September 30, 2019 and December 31, 2018, we had 19 and 13 of such loans, respectively, with a total remaining future funding commitment of $46,982 and $30,343, respectively. The future funding commitments are advanced at our discretion if the borrower has requested the advance and has met certain loan specific requirements.

Critical Accounting Policies

Disclosures discussing all critical accounting policies are set forth in our Annual Report under the heading “Summary of Critical Accounting Policies.” There have been no changes to our critical accounting policies during the nine-months ended September 30, 2019.

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.

Subsequent Events

For information related to subsequent events, reference is made to “Note 12 – Subsequent Events” which is included in our notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Credit Risk

Our investments are subject to a high degree of credit risk. Credit risk is the exposure to loss from loan defaults. Default rates are subject to a wide variety of factors, including, but not limited to, borrower financial condition, property performance, property management, supply/demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the U.S. economy, and other factors beyond our control. All loans are subject to a certain probability of default. We manage credit risk through the underwriting and investment structuring process, acquiring our investments at the appropriate discount to face value, if any, and establishing loss assumptions. We also carefully monitor the performance of the loans, as well as external factors that may affect their value.

Interest Rate Risk

Our market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we may borrow funds at fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. During the nine-months ended September 30, 2019 and 2018, we did not engage in interest rate hedging activities. We do not hold or issue derivative contracts for trading or speculative purposes. We do not have any foreign denominated investments, and thus, we are not exposed to foreign currency fluctuations.

As of September 30, 2019, and December 31, 2018, our investment portfolio was 98% variable rate investments based on LIBOR for various terms. Borrowings under our master services agreements were short-term and at a variable rate. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase or decrease by 25 or 50 basis points, assuming that our current balance sheet was to remain constant and no actions were taken to alter our existing interest rate sensitivity:

	Estimated Percentage Change in Interest Income Net of Interest Expense
Change in Rates	September 30, 2019			December 31, 2018
(-) 50 Basis Points		4.84	%		(3.98	)%
(-) 25 Basis Points		2.98	%		(2.32	)%
Base Interest Rate		0.00	%		0.00	%
(+) 25 Basis Points		3.28	%		2.32	%
(+) 50 Basis Points		5.42	%		4.64	%

Item 4. Controls and Procedures

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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q.

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, 2019 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

In the ordinary course of business, we may become subject to litigation. We have no knowledge of material legal proceedings pending or known to be contemplated against us at this time.

Item 1A. Risk Factors

Not applicable as we are a smaller reporting company.

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

Recent Sales of Unregistered Equity Securities (Dollar amounts in thousands)

On October 25, 2016, we commenced the Private Offering of up to $500,000 in our Class P Shares. The Class P Shares were offered and sold pursuant to an exemption from the registration requirements of the Securities Act, in accordance with Rule 506(b) of Regulation D, and in compliance with any applicable state securities laws. On June 28, 2019, we terminated the Private Offering. We continued to accept Private Offering subscription proceeds through July 16, 2019. During the three-months ended September 30, 2019, we received and accepted investors’ subscriptions for and issued 820,089 Class P Shares in the Private Offering resulting in gross offering proceeds of $21,948. As of July 16, 2019, we issued 10,258,094 Class P Shares resulting in gross offering proceeds of $276,681. Inland Securities Corporation served as our dealer manager for the Private Offering.

Except as set forth above, we have not sold any securities which were not registered under the Securities Act during the period covered by this report.

Use of Proceeds

On May 3, 2019, our Registration Statement on Form S-11 (File No. 333-230465), covering the IPO of up to $2,350,000 in shares of Class A, Class T, Class S, Class D and Class I common stock, was declared effective under the Securities Act. Inland Securities Corporation serves as our dealer manager for the IPO.

The offering price for each class of our common stock is determined monthly and is made available on our website and in prospectus supplement filings. As of September 30, 2019, we received net offering proceeds of $2,367 from the IPO. The following table summarizes certain information about the IPO proceeds ($ in thousands except for per share data):

	Class A Shares		Class T Shares		Class S Shares		Class D Shares		Class I Shares		Total
Primary shares sold		36,227		43,296		—		8,961		9,093		97,577
Gross proceeds from primary offering	$	965	$	1,122	$	—	$	225	$	228	$	2,540
Reinvestments of distributions		—		1		—		—		—		1
Total gross proceeds		965		1,123		—		225		228		2,541
Selling commissions and dealer manager fees		56		36		—		—		—		92
Stockholder servicing fees		—		62		—		20		—		82
Total expenses		56		98		—		20		—		174
Net offering proceeds⁽¹⁾	$	909	$	1,025	$	—	$	205	$	228	$	2,367

(1)	Excludes fund level offering costs of $2,401.

We primarily used the net offering proceeds from the IPO to originate commercial real estate loans and purchase real estate securities on a levered basis, subject to our investment guidelines and to the extent consistent with maintaining our REIT qualification, and other general corporate purposes.

Repurchases of Common Stock

We have adopted a share repurchase plan, whereby on a monthly basis, stockholders may request that we repurchase all or any portion of their shares. The total amount of aggregate repurchases of shares will be limited to no more than 2% of our aggregate NAV per month as of the last day of the previous calendar month and no more than 5% of our aggregate NAV per calendar quarter as of the last day of the previous calendar month. Stockholders may not request that we repurchase their shares for at least one year, provided we can waive the holding period in the event of death. As of the commencement of the IPO, holders of Class P common stock from the Private Offering could not submit requests to have their shares repurchased prior to the NAV Pricing Date, except in the event of a death or qualifying disability.

Due to the illiquid nature of investments in real estate, we may not have sufficient liquid resources to fund repurchase requests. We may choose to repurchase all, some or none of the shares that have been requested to be repurchased at the end of any particular month, in our discretion, subject to any limitations in the share repurchase plan. Further, our board of directors may modify, suspend or terminate the share repurchase plan.

During the three months ended September 30, 2019, we repurchased shares of our common stock in the following amounts, which represented all of the share repurchase requests received for the same period:

Period	Total Number of Shares Repurchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽¹⁾
July 1 — July 31, 2019		5,844	$	25.11		5,844	—
August 1 — August 31, 2019		4,440	$	25.11		4,440	—
September 1 — September 30, 2019		7,705	$	25.04		7,705	—
		17,989	$	25.08		17,989	—
________________
(1) Repurchases are limited as described above.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

Item 6. Exhibits

The representations, warranties and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties or covenants to, or with, you. Moreover, these representations, warranties and covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.

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 No.		Description

3.1		Articles of Amendment and Restatement of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form 10 filed May 2, 2017 and incorporated by reference)
3.2		Articles of Amendment of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed April 30, 2019 and incorporated by reference)
3.3		Articles Supplementary of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed April 30, 2019 and incorporated by reference)
3.4		Certificate of Correction of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q filed August 14, 2019 and incorporated by reference)
3.5		Bylaws of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.2 to the Registrant’s Registration Statement on Form 10 filed May 2, 2017 and incorporated by reference)
4.1		Distribution Reinvestment Plan (filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-11 filed April 30, 2019 and incorporated by reference)
31.1*		Certification of the Principal Executive Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
31.2*		Certification of the Principal Financial Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
32.1*		Certification of the Principal Executive Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
32.2*		Certification of the Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
101		The following financial information from our Quarterly Report on Form 10-Q for the period ended September 30, 2019, filed with the Securities and Exchange Commission on November 14, 2019 is formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Changes in Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements (tagged as blocks of text)

*	Filed as part of this Quarterly Report on Form 10-Q

SIGNATURES

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

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

By:	/s/ Mitchell A. Sabshon
Name:	Mitchell A. Sabshon
Title:	Chief Executive Officer and Chairman
	(principal executive officer)
Date:	November 14, 2019

By:	/s/ Catherine L. Lynch
Name:	Catherine L. Lynch
Title:	Chief Financial Officer
	(principal financial officer)
Date:	November 14, 2019