InvenTrust Properties Corp. - Quarter Report: 2021 March (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 March 31, 2021
or
☐ 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: 000-51609
INVENTRUST PROPERTIES CORP.
(Exact name of registrant as specified in its charter)
| Maryland | 34-2019608 | ||||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| 3025 Highland Parkway, | Suite 350 | Downers Grove, | Illinois | 60515 | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
(855) | 377-0510 | ||||||||||||||||
| (Registrant’s telephone number, including area code) | |||||||||||||||||
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 the 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. ☐
Securities registered pursuant to Section 12(b) of the Exchange Act: None
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
| N/A | N/A | N/A | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 May 1, 2021, there were 719,462,786 shares of the registrant's common stock outstanding.
INVENTRUST PROPERTIES CORP.
Quarterly Report on Form 10-Q
For the quarterly period ended March 31, 2021
Table of Contents
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| Item 1A. | ||||||||
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-i-
INVENTRUST PROPERTIES CORP.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
| As of | |||||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Investment properties | |||||||||||
| Land | $ | 577,369 | $ | 577,750 | |||||||
| Building and other improvements | 1,643,334 | 1,640,693 | |||||||||
| Construction in progress | 4,204 | 3,246 | |||||||||
| Total | 2,224,907 | 2,221,689 | |||||||||
| Less accumulated depreciation | (308,231) | (292,248) | |||||||||
| Net investment properties | 1,916,676 | 1,929,441 | |||||||||
| Cash and cash equivalents | 175,120 | 222,610 | |||||||||
| Restricted cash | 919 | 1,160 | |||||||||
| Investment in unconsolidated entities | 106,566 | 109,051 | |||||||||
| Intangible assets, net | 90,604 | 95,722 | |||||||||
| Accounts and rents receivable | 25,426 | 28,983 | |||||||||
| Deferred costs and other assets, net | 22,978 | 20,372 | |||||||||
| Total assets | $ | 2,338,289 | $ | 2,407,339 | |||||||
| Liabilities | |||||||||||
| Debt, net | $ | 504,965 | $ | 555,109 | |||||||
| Accounts payable and accrued expenses | 24,520 | 28,284 | |||||||||
| Distributions payable | 14,065 | 13,642 | |||||||||
| Intangible liabilities, net | 33,165 | 34,872 | |||||||||
| Other liabilities | 32,552 | 36,569 | |||||||||
| Total liabilities | 609,267 | 668,476 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' Equity | |||||||||||
Preferred stock, $0.001 par value, 40,000,000 shares authorized, none outstanding | — | — | |||||||||
Common stock, $0.001 par value, 1,460,000,000 shares authorized, 719,462,786 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | 719 | 719 | |||||||||
| Additional paid-in capital | 5,567,638 | 5,566,255 | |||||||||
| Distributions in excess of accumulated net income | (3,829,827) | (3,815,662) | |||||||||
| Accumulated comprehensive loss | (9,508) | (12,449) | |||||||||
| Total stockholders' equity | 1,729,022 | 1,738,863 | |||||||||
| Total liabilities and stockholders' equity | $ | 2,338,289 | $ | 2,407,339 | |||||||
See accompanying notes to the condensed consolidated financial statements.
1
INVENTRUST PROPERTIES CORP.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(in thousands, except share and per share amounts)
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Income | |||||||||||
| Lease income, net | $ | 49,926 | $ | 51,284 | |||||||
| Other property income | 182 | 191 | |||||||||
| Other fee income | 1,013 | 963 | |||||||||
| Total income | 51,121 | 52,438 | |||||||||
| Operating expenses | |||||||||||
| Depreciation and amortization | 21,687 | 22,122 | |||||||||
| Property operating | 8,009 | 7,108 | |||||||||
| Real estate taxes | 8,133 | 8,489 | |||||||||
| General and administrative | 10,351 | 7,195 | |||||||||
| Total operating expenses | 48,180 | 44,914 | |||||||||
| Other (expense) income | |||||||||||
| Interest expense, net | (3,985) | (4,809) | |||||||||
| Provision for asset impairment | — | (9,002) | |||||||||
| Gain on sale of investment properties, net | 519 | 457 | |||||||||
| Equity in earnings of unconsolidated entities | 620 | 789 | |||||||||
| Other income and expense, net | (195) | 1,555 | |||||||||
| Total other (expense) income, net | (3,041) | (11,010) | |||||||||
| Net loss | $ | (100) | $ | (3,486) | |||||||
| Weighted-average number of common shares outstanding, basic | 719,462,786 | 720,825,864 | |||||||||
| Weighted-average number of common shares outstanding, diluted | 719,462,786 | 720,825,864 | |||||||||
| Net loss per common share, basic and diluted | $ | — | $ | — | |||||||
| Distributions declared per common share outstanding | $ | 0.02 | $ | 0.02 | |||||||
| Distributions paid per common share outstanding | $ | 0.02 | $ | 0.02 | |||||||
| Comprehensive income (loss) | |||||||||||
| Net loss | $ | (100) | $ | (3,486) | |||||||
| Unrealized gain (loss) on derivatives | 1,893 | (14,141) | |||||||||
| Reclassification to net loss | 1,048 | (145) | |||||||||
| Comprehensive income (loss) | $ | 2,841 | $ | (17,772) | |||||||
See accompanying notes to the condensed consolidated financial statements.
2
INVENTRUST PROPERTIES CORP.
Condensed Consolidated Statements of Equity
(Unaudited)
(in thousands, except share amounts)
| Number of Shares | Common Stock | Additional Paid-in Capital | Distributions in Excess of Accumulated Net Income | Accumulated Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||||
| Beginning balance, January 1, 2020 | 720,807,884 | $ | 721 | $ | 5,568,707 | $ | (3,750,884) | $ | 1,057 | $ | 1,819,601 | ||||||||||||||||||||||||
| Net loss | — | — | — | (3,486) | — | (3,486) | |||||||||||||||||||||||||||||
| Unrealized loss on derivatives | — | — | — | — | (14,141) | (14,141) | |||||||||||||||||||||||||||||
| Reclassification to interest expense, net | — | — | — | — | (145) | (145) | |||||||||||||||||||||||||||||
| Distributions declared | — | — | — | (13,678) | — | (13,678) | |||||||||||||||||||||||||||||
| Stock-based compensation, net | — | — | 201 | — | — | 201 | |||||||||||||||||||||||||||||
| Common stock issuance costs in excess of proceeds from distribution reinvestment plan | 21,249 | — | (229) | — | — | (229) | |||||||||||||||||||||||||||||
| Ending balance, March 31, 2020 | 720,829,133 | $ | 721 | $ | 5,568,679 | $ | (3,768,048) | $ | (13,229) | $ | 1,788,123 | ||||||||||||||||||||||||
| Number of Shares | Common Stock | Additional Paid-in Capital | Distributions in Excess of Accumulated Net Income | Accumulated Comprehensive Loss | Total | ||||||||||||||||||||||||||||||
| Beginning balance, January 1, 2021 | 719,462,786 | $ | 719 | $ | 5,566,255 | $ | (3,815,662) | $ | (12,449) | $ | 1,738,863 | ||||||||||||||||||||||||
| Net loss | — | — | — | (100) | — | (100) | |||||||||||||||||||||||||||||
| Unrealized gain on derivatives | — | — | — | — | 1,893 | 1,893 | |||||||||||||||||||||||||||||
| Reclassification to interest expense, net | — | — | — | — | 1,017 | 1,017 | |||||||||||||||||||||||||||||
| Reclassification to equity in earnings of unconsolidated entities | — | — | — | — | 31 | 31 | |||||||||||||||||||||||||||||
| Distributions declared | — | — | — | (14,065) | — | (14,065) | |||||||||||||||||||||||||||||
| Stock-based compensation, net | — | — | 1,383 | — | — | 1,383 | |||||||||||||||||||||||||||||
| Ending balance, March 31, 2021 | 719,462,786 | 719 | 5,567,638 | (3,829,827) | (9,508) | 1,729,022 | |||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
3
INVENTRUST PROPERTIES CORP.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | (100) | $ | (3,486) | |||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 21,687 | 22,122 | |||||||||
| Amortization of above and below-market leases and lease inducements, net | (1,243) | (1,542) | |||||||||
| Amortization of debt discounts and financing costs | 383 | 467 | |||||||||
| Straight-line rent adjustment, net | (640) | (541) | |||||||||
| Provision for estimated credit losses | 191 | 763 | |||||||||
| Provision for asset impairment | — | 9,002 | |||||||||
| Gain on sale of investment properties, net | (519) | (457) | |||||||||
| Equity in earnings of unconsolidated entities | (620) | (789) | |||||||||
| Distributions from unconsolidated entities | 3,300 | 2,299 | |||||||||
| Stock-based compensation, net | 2,496 | 528 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts and rents receivable | 4,006 | 4,423 | |||||||||
| Deferred costs and other assets, net | (2,263) | (3,627) | |||||||||
| Accounts payable and accrued expenses | (5,562) | (9,375) | |||||||||
| Other liabilities | (270) | (2,889) | |||||||||
| Net cash provided by operating activities | 20,846 | 16,898 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of investment properties | — | (32,377) | |||||||||
| Capital expenditures and tenant improvements | (2,953) | (4,169) | |||||||||
| Investment in development and re-development projects | (544) | (910) | |||||||||
| Proceeds from sale of investment properties, net | 899 | 650 | |||||||||
| Lease commissions and other leasing costs | (1,037) | (1,010) | |||||||||
| Other assets | (90) | (250) | |||||||||
| Other liabilities | (765) | (433) | |||||||||
| Net cash used in investing activities | (4,490) | (38,499) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from distribution reinvestment plan | — | 49 | |||||||||
| Distributions to shareholders | (13,642) | (13,252) | |||||||||
| Proceeds from debt | — | 150,000 | |||||||||
| Payoffs of debt | (50,000) | (41,000) | |||||||||
| Principal payments of mortgage debt | (329) | (457) | |||||||||
| Payment of finance lease liabilities | (116) | (100) | |||||||||
| Payment of loan fees and deposits | — | (25) | |||||||||
| Net cash (used in) provided by financing activities | (64,087) | 95,215 | |||||||||
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (47,731) | 73,614 | |||||||||
| Cash, cash equivalents, and restricted cash at the beginning of the period | 223,770 | 260,748 | |||||||||
| Cash, cash equivalents, and restricted cash at the end of the period | $ | 176,039 | $ | 334,362 | |||||||
4
INVENTRUST PROPERTIES CORP.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Reconciliation of cash, cash equivalents, and restricted cash to condensed consolidated balance sheets: | |||||||||||
| Cash and cash equivalents | $ | 175,120 | $ | 329,212 | |||||||
| Restricted cash | 919 | 5,150 | |||||||||
| Cash, cash equivalents, and restricted cash at the end of the period | $ | 176,039 | $ | 334,362 | |||||||
| Supplemental disclosure and schedules: | |||||||||||
| Cash flow disclosure, including non-cash activities: | |||||||||||
| Cash paid for interest, net of capitalized interest | $ | 3,732 | $ | 4,567 | |||||||
| Cash refunded for income taxes, net | $ | 107 | $ | 5 | |||||||
| Distributions payable to shareholders | $ | 14,065 | $ | 13,678 | |||||||
| Accrued capital expenditures and tenant improvements | $ | 1,682 | $ | 1,906 | |||||||
| Capitalized costs placed in service | $ | 1,287 | $ | 4,312 | |||||||
| Reclassification of registration statement costs incurred to equity issuance costs | $ | — | $ | 278 | |||||||
| Purchase of investment properties: | |||||||||||
| Net investment properties | $ | — | $ | 30,515 | |||||||
| Accounts and rents receivable, lease intangibles, and deferred costs and other assets | — | 3,770 | |||||||||
| Accounts payable and accrued expenses, lease intangibles, and other liabilities | — | (1,908) | |||||||||
| Cash outflow for purchase of investment properties, net | — | 32,377 | |||||||||
| Capitalized acquisition costs | — | (63) | |||||||||
| Credits and other changes in cash outflow, net | — | 890 | |||||||||
| Gross acquisition price of investment properties | $ | — | $ | 33,204 | |||||||
| Sale of investment properties: | |||||||||||
| Net investment properties | $ | 380 | $ | 193 | |||||||
| Gain on sale of investment properties, net | 519 | 457 | |||||||||
| Proceeds from sale of investment properties, net | 899 | 650 | |||||||||
| Gross disposition price of investment properties | $ | 899 | $ | 650 | |||||||
See accompanying notes to the condensed consolidated financial statements.
5
INVENTRUST PROPERTIES CORP.
Notes to Condensed Consolidated Financial Statements
March 31, 2021 and 2020
(Unaudited)
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Readers of these interim condensed consolidated financial statements (the "Quarterly Report") should refer to the audited consolidated financial statements of InvenTrust Properties Corp. (the "Company") as of and for the year ended December 31, 2020, which are included in the Company's Annual Report on Form 10-K (the "Annual Report") as certain note disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report. In the opinion of management, all adjustments necessary (consisting of normal recurring accruals, except as otherwise noted) for a fair presentation have been included in these condensed consolidated financial statements. Unless otherwise noted, all dollar amounts are stated in thousands, except per share amounts. Number of properties and square feet are unaudited.
1. Organization
On October 4, 2004, InvenTrust Properties Corp. (the "Company") was incorporated as Inland American Real Estate Trust, Inc. as a Maryland corporation and has elected to be taxed, and currently qualifies, as a real estate investment trust ("REIT") for federal tax purposes. The Company changed its name to InvenTrust Properties Corp. in April of 2015 and is focused on owning, managing, acquiring and developing a multi-tenant retail platform.
The Company is taxed and operates in a manner that will allow the Company to continue to qualify as a REIT for U.S. federal income tax purposes. So long as it maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed to stockholders. If the Company fails to continue to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and will not be able to re-elect REIT status during the four years following the year of the failure.
The accompanying condensed consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries. Subsidiaries generally consist of limited liability companies ("LLCs") and limited partnerships ("LPs"). All significant intercompany balances and transactions have been eliminated.
Each retail property is owned by a separate legal entity that maintains its own books and financial records. Each separate legal entity's assets are not available to satisfy the liabilities of other affiliated entities, except as otherwise disclosed in "Note 6. Investment in Unconsolidated Entities". As of March 31, 2021 and 2020, the Company had an investment in one unconsolidated real estate joint venture, as disclosed in "Note 6. Investment in Unconsolidated Entities".
The Company determined it has a single reportable segment, multi-tenant retail, for disclosure purposes in accordance with GAAP. The following table summarizes the Company's retail portfolio as of March 31, 2021 and 2020:
| Wholly-Owned Retail Properties | Unconsolidated Retail Properties at 100% | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| No. of properties | 55 | 56 | 10 | 10 | |||||||||||||||||||
| Gross Leasable Area | 8,394,757 | 8,488,479 | 2,470,193 | 2,470,134 | |||||||||||||||||||
Impact of the COVID-19 Pandemic on the Company's Financial Statements
The Company's business has been, and continues to be, disrupted by the coronavirus disease 2019 ("COVID-19") pandemic. The Company continues to assess the ongoing impact of the COVID-19 pandemic on all aspects of its business, including the impact on its tenants and their ability to make future rental payments in a timely fashion or at all and the possible impairment in value of our investment properties.
During the three months ended March 31, 2021, deferred rental payments of $2,899 became due; the Company has collected $2,655 of such deferred rental payments as of March 31, 2021. During the year ended December 31, 2020 and the three months ended March 31, 2021, the Company granted approximately $6,460 and $129, respectively, of rental payment deferrals, with contractual payment terms through the year ending December 31, 2023.
6
2. Basis of Presentation and Recently Issued Accounting Pronouncements
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates, judgments and assumptions are required in a number of areas, including, but not limited to, evaluating the impairment of long-lived assets, allocating the purchase price of acquired retail properties, determining the fair value of debt and evaluating the collectibility of accounts receivable. The Company bases these estimates, judgments and assumptions on historical experience and various other factors that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates.
Recently Issued Accounting Pronouncements Adopted
| Standard | Description | Date of adoption | Effect on the financial statements or other significant matters | |||||||||||||||||
| ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope | ASU 2021-01 is intended to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Topic 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. Application of these expedients, which may be elected over time as reference rate reform activities occur, preserves the presentation of derivatives consistent with past presentation. | January 2021 | The Company's adoption of ASU No. 2021-01 did not result in any incremental elections under Topic 848 regarding cash flow hedges. The Company is continuing to evaluate the guidance of Topic 848 and may apply other elections as applicable as additional changes in the market occur. The Company expects the application of Topic 848 to assist in preserving the Company's presentation of derivatives as cash flow hedges. | |||||||||||||||||
Other recently issued accounting standards or pronouncements not disclosed in the foregoing table have been excluded because they are either not relevant to the Company, or are not expected to have, or did not have, a material effect on the condensed consolidated financial statements of the Company.
3. Revenue Recognition
Operating Leases
Minimum lease payments to be received under long-term operating leases and short-term specialty leases, excluding additional percentage rent based on tenants' sales volume and tenant reimbursements of certain operating expenses, and assuming no exercise of renewal options or early termination rights, are as follows:
| Minimum lease payments, by year | As of March 31, 2021 | ||||
| Remaining 2021 | $ | 109,270 | |||
| 2022 | 129,682 | ||||
| 2023 | 115,896 | ||||
| 2024 | 100,499 | ||||
| 2025 | 83,365 | ||||
| Thereafter | 288,175 | ||||
| Total | $ | 826,887 | |||
The table above includes payments from tenants who have taken possession of their space and tenants who have been moved to the cash basis of accounting for revenue recognition purposes. The remaining lease terms range from less than one year to seventy-seven years.
7
The following table reflects the disaggregation of lease income, net:
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Minimum lease payments | $ | 34,886 | $ | 36,177 | |||||||
| Real estate tax recoveries | 6,994 | 7,884 | |||||||||
| Common area maintenance, insurance, and other recoveries | 5,938 | 5,396 | |||||||||
| Amortization of above and below-market leases and lease inducements, net | 1,243 | 1,542 | |||||||||
| Short-term, termination fee and other lease income | 1,056 | 1,048 | |||||||||
| Uncollectible straight-line rent | (123) | (163) | |||||||||
| Uncollectible billed rent and recoveries | (68) | (600) | |||||||||
| Lease income, net | $ | 49,926 | $ | 51,284 | |||||||
Other Fee Income
The following table reflects the disaggregation of other fee income:
| Timing of Satisfaction of Performance Obligations | Three months ended March 31, | ||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Property management fees | Over time | $ | 587 | $ | 577 | ||||||||||||
| Asset management fees | Over time | 271 | 285 | ||||||||||||||
| Leasing commissions and other fees | Point in time | 155 | 101 | ||||||||||||||
| Other fee income | $ | 1,013 | $ | 963 | |||||||||||||
The Company had receivables of $329 and $327 as of March 31, 2021 and December 31, 2020, respectively, which are included in deferred costs and other assets, net on the condensed consolidated balance sheets.
4. Acquired Properties
There were no retail properties acquired during the three months ended March 31, 2021.
The following table reflects the retail properties acquired, accounted for as asset acquisitions, during the three months ended March 31, 2020:
| Acquisition Date | Property | Metropolitan Area | Gross Acquisition Price | Square Feet | ||||||||||||||||||||||
| February 25, 2020 | Trowbridge Crossing | Atlanta, GA | $ | 10,950 | 62,600 | |||||||||||||||||||||
| March 10, 2020 | Antoine Town Center (a) | Houston, TX | 22,254 | 110,500 | ||||||||||||||||||||||
| $ | 33,204 | 173,100 | ||||||||||||||||||||||||
(a)This retail property was acquired from the Company's unconsolidated joint venture, as disclosed in "Note 6. Investment in Consolidated and Unconsolidated Entities".
Transaction costs of $63 were capitalized during the three months ended March 31, 2020.
8
5. Disposed Properties
The following table reflects the completion of partial condemnations at three retail properties and the related gain or loss on sale recognized for each during the three months ended March 31, 2021:
| Disposition Date | Property | Metropolitan Area | Gross Disposition Price | Gain (Loss) on Sale | ||||||||||||||||||||||
| February 28, 2021 | Sonterra Village | San Antonio, TX | $ | 616 | $ | 436 | ||||||||||||||||||||
| March 14, 2021 | Eldridge Town Center | Houston, TX | 133 | 104 | ||||||||||||||||||||||
| March 31, 2021 | Windward Commons | Alpharetta, GA | 150 | (21) | ||||||||||||||||||||||
| $ | 899 | $ | 519 | |||||||||||||||||||||||
The following table reflects the completion of partial condemnations at two retail properties and the related gain on sale recognized for each during the three months ended March 31, 2020:
| Disposition Date | Property | Metropolitan Area | Gross Disposition Price | Gain on Sale | ||||||||||||||||||||||
| February 10, 2020 | University Oaks Shopping Center | Round Rock, TX | $ | 527 | $ | 357 | ||||||||||||||||||||
| February 12, 2020 | Centerplace of Greeley | Greeley, CO | 123 | 100 | ||||||||||||||||||||||
| $ | 650 | $ | 457 | |||||||||||||||||||||||
6. Investment in Unconsolidated Entities
Joint Venture Interests
IAGM Retail Fund I, LLC
As of March 31, 2021 and December 31, 2020, the Company owned a 55% interest in one unconsolidated entity, IAGM Retail Fund I, LLC ("IAGM"), a retail joint venture partnership between the Company and PGGM Private Real Estate Fund ("PGGM"). As of March 31, 2021 and December 31, 2020, the carrying value of the Company's investment in IAGM was $106,566 and $109,051, respectively.
During the three months ended March 31, 2020, the Company purchased Antoine Town Center from IAGM for $22,254, a fair value determined by independent appraisal, which resulted in IAGM recognizing a gain on sale of $1,741. The Company deferred its share of IAGM's gain on sale of $958 and began amortizing the gain over 30 years as an increase to equity in earnings of unconsolidated entities. Subsequent to purchasing Antoine Town Center, the Company completed a sale of an outparcel at this retail property to an unrelated third party which resulted in recognizing $54 of previously deferred gain.
During the three months ended March 31, 2021 and 2020, IAGM prepaid mortgages payable of $23,150 and $14,872, respectively, with cash on hand.
During the three months ended March 31, 2020, IAGM entered into two interest rate swap agreements to achieve fixed interest rates on its senior secured term loan facility previously subject to variability in the London Inter-bank Offered Rate ("LIBOR"). Each of the interest rate swaps have an effective date of April 1, 2020 and a termination date of November 2, 2023. One interest rate swap has a notional amount of $45,000 and achieves a fixed interest rate of 1.979%. The other interest rate swap has a notional amount of $30,000 and achieves a fixed interest rate of 1.956%. The Company recognizes its share of gains or losses resulting from IAGM's interest rate swaps as an adjustment to the Company's investment in IAGM and an increase or decrease in comprehensive income. As of March 31, 2021, the interest rate swaps were recorded as a liability with a fair value of $171 on IAGM's condensed consolidated balance sheet, of which the Company's share was $94.
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Condensed Financial Information
The following table presents condensed balance sheet information for IAGM:
| As of | |||||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||
| Assets: | |||||||||||
| Net investment properties | $ | 385,505 | $ | 387,394 | |||||||
| Other assets | 40,707 | 72,453 | |||||||||
| Total assets | 426,212 | 459,847 | |||||||||
| Liabilities and equity: | |||||||||||
| Mortgages debt, net | 219,389 | 242,388 | |||||||||
| Other liabilities | 13,051 | 19,144 | |||||||||
| Equity | 193,772 | 198,315 | |||||||||
| Total liabilities and equity | 426,212 | 459,847 | |||||||||
| Company's share of equity | 107,436 | 109,928 | |||||||||
| Outside basis difference, net (a) | (870) | (877) | |||||||||
| Carrying value of investments in unconsolidated entities | $ | 106,566 | $ | 109,051 | |||||||
(a)The outside basis difference relates to the unamortized deferred gain on sale of Antoine Town Center.
The following table presents condensed income statement information of IAGM:
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Total income | $ | 11,429 | $ | 12,723 | |||||||
| Depreciation and amortization | (3,764) | (4,342) | |||||||||
| Property operating | (2,073) | (1,865) | |||||||||
| Real estate taxes | (2,372) | (2,426) | |||||||||
| Asset management fees | (271) | (285) | |||||||||
| Interest expense, net | (1,692) | (2,193) | |||||||||
| Other (expense) and income, net | (129) | (90) | |||||||||
| Loss on debt extinguishment | (14) | (8) | |||||||||
| Gain on sale of real estate | — | 1,741 | |||||||||
| Net income | $ | 1,114 | $ | 3,255 | |||||||
| Company's share of net income | $ | 612 | $ | 1,744 | |||||||
| Outside basis adjustment for investee's sale of real estate, net | 8 | (955) | |||||||||
| Equity in earnings of unconsolidated entities | $ | 620 | $ | 789 | |||||||
The following table summarizes the scheduled maturities of IAGM's mortgages payable as of March 31, 2021, for the remainder of 2021, each of the next four years and thereafter:
| Scheduled maturities by year: | As of March 31, 2021 | ||||
| 2021 | $ | — | |||
| 2022 | — | ||||
| 2023 | 180,125 | ||||
| 2024 | — | ||||
| 2025 | 22,880 | ||||
| Thereafter | 17,800 | ||||
| Total | $ | 220,805 | |||
As of March 31, 2021 and December 31, 2020, none of IAGM's mortgages payable are recourse to the Company. It is anticipated that the joint venture will be able to repay, refinance or extend all of its debt on a timely basis.
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7. Debt
As of March 31, 2021, the Company's total debt, net was $504,965, which consists of mortgages payable, net, of $106,437, and unsecured term loans, net, of $398,528. The Company believes it has the ability to repay, refinance or extend any of its debt, and that it has adequate sources of funds to meet short-term cash needs related to mortgages payable. It is anticipated that the Company will use proceeds from property sales, cash on hand and available capacity on credit agreements, if any, to repay, refinance or extend the mortgages payable maturing in the near term.
The Company's credit agreements and mortgage loans require compliance with certain covenants, such as debt service coverage ratios, investment restrictions and distribution limitations. As of March 31, 2021 and December 31, 2020, the Company was in compliance with all loan covenants.
Mortgages Payable
As of March 31, 2021 and December 31, 2020, the Company's mortgages payable, net were as follows:
| March 31, 2021 | December 31, 2020 | ||||||||||
| Mortgages payable (a) | $ | 106,932 | $ | 107,261 | |||||||
| Discount, net of accumulated amortization | (74) | (84) | |||||||||
| Issuance costs, net of accumulated amortization | (421) | (449) | |||||||||
| Total mortgages payable, net | $ | 106,437 | $ | 106,728 | |||||||
(a)Mortgages payable had fixed interest rates ranging from 3.49% to 4.58%, with a weighted average interest rate of 4.07% as of March 31, 2021 and December 31, 2020.
The following table summarizes the scheduled maturities of the Company's mortgages payable as of March 31, 2021 for the remainder of 2021, each of the next four years and thereafter.
| Scheduled maturities by year: | As of March 31, 2021 | ||||
| 2021 | $ | — | |||
| 2022 | 22,723 | ||||
| 2023 | 39,879 | ||||
| 2024 | 15,700 | ||||
| 2025 | 28,630 | ||||
| Thereafter | — | ||||
| Total mortgage payable maturities | $ | 106,932 | |||
Credit Agreements
Revolving Credit Agreement
On December 21, 2018, the Company entered into an unsecured revolving credit agreement, which amended and restated the Company's prior unsecured revolving credit agreement in its entirety, and provides for a $350,000 unsecured revolving line of credit (the "Revolving Credit Agreement"). As of March 31, 2021 and December 31, 2020, the Company had no outstanding borrowings and $50,000 of outstanding borrowings under the Revolving Credit Agreement, respectively, and a facility fee of 0.15%. As of March 31, 2021 and December 31, 2020, $350,000 and $300,000 of the facility was undrawn, respectively.
For general corporate purposes and to increase its financial flexibility in light of the COVID-19 pandemic, the Company drew $150,000 on the Revolving Credit Agreement at an interest rate reflecting 1-Month LIBOR plus 1.05% during the second quarter of 2020. The Company subsequently repaid $100,000 and $50,000 of that draw during the fourth quarter of 2020 and the first quarter of 2021, respectively. The Revolving Credit Agreement has a 4-year term maturing on December 21, 2022 with two six-month extension options.
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Unsecured term loans
As of March 31, 2021 and December 31, 2020, the Company had the following unsecured term loan tranches outstanding:
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
| Principal Balance | Interest Rate | Principal Balance | Interest Rate | Maturity Date | |||||||||||||||||||||||||
$250.0 million 5 year - swapped to fixed rate | $ | 100,000 | 2.6795% (a) | $ | 100,000 | 2.6795% (a) | December 21, 2023 | ||||||||||||||||||||||
$250.0 million 5 year - swapped to fixed rate | 100,000 | 2.6795% (a) | 100,000 | 2.6795% (a) | December 21, 2023 | ||||||||||||||||||||||||
$250.0 million 5 year - variable rate | 50,000 | 1.3151% (b) | 50,000 | 1.3548% (c) | December 21, 2023 | ||||||||||||||||||||||||
$150.0 million 5.5 year - swapped to fixed rate | 50,000 | 2.6915% (a) | 50,000 | 2.6915% (a) | June 21, 2024 | ||||||||||||||||||||||||
$150.0 million 5.5 year - swapped to fixed rate | 50,000 | 2.6990% (a) | 50,000 | 2.6990% (a) | June 21, 2024 | ||||||||||||||||||||||||
$150.0 million 5.5 year - variable rate | 50,000 | 1.3151% (b) | 50,000 | 1.3548% (c) | June 21, 2024 | ||||||||||||||||||||||||
| Total unsecured term loans | 400,000 | 400,000 | |||||||||||||||||||||||||||
| Issuance costs, net of accumulated amortization | (1,472) | (1,619) | |||||||||||||||||||||||||||
| Total unsecured term loans, net | $ | 398,528 | $ | 398,381 | |||||||||||||||||||||||||
(a)As of March 31, 2021, the Company has four interest rate swap agreements, of which two each have a notional amount of $100,000, an effective date of December 2, 2019, a termination date of December 21, 2023, and achieve a fixed interest rate of 2.68%. The other two interest rate swap agreements each have a notional amount of $50,000, an effective date of December 2, 2019, a termination date of June 21, 2024, and achieve fixed interest rates of 2.69% and 2.70%.
(b)Interest rate reflects 1-Month LIBOR plus 1.20% effective March 1, 2021.
(c)Interest rate reflects 1-Month LIBOR plus 1.20% effective December 1, 2020.
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8. Fair Value Measurements
Recurring Measurements
The following financial instruments are remeasured at fair value on a recurring basis:
| Fair Value Measurements as of | ||||||||||||||||||||||||||||||||||||||
| March 31, 2020 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||
Cash Flow Hedges: (a) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||
| Derivative interest rate liabilities (b) | $ | — | $ | (9,508) | $ | — | $ | — | $ | (12,449) | $ | — | ||||||||||||||||||||||||||
(a)During the twelve months subsequent to March 31, 2021, an estimated $4,179 of derivative interest rate liabilities recognized in accumulated comprehensive loss will be reclassified into earnings.
(b)The Company's and IAGM's derivative liabilities are recognized as a part of other liabilities and investment in unconsolidated entities, respectively, on the Company's condensed consolidated balance sheets.
Level 1
At March 31, 2021 and December 31, 2020, the Company had no Level 1 recurring fair value measurements.
Level 2
As of March 31, 2021 and December 31, 2020, the Company determined that the credit valuation adjustments associated with nonperformance risk are not significant to the overall valuation of its derivatives. As a result, the Company's derivative valuations in their entirety are classified as Level 2 of the fair value hierarchy.
Level 3
At March 31, 2021 and December 31, 2020, the Company had no Level 3 recurring fair value measurements.
Nonrecurring Measurements
Investment Properties
During the three months ended March 31, 2021, the Company had no Level 3 nonrecurring fair value measurements.
During the three months ended March 31, 2020, the Company identified one retail property that had a reduction in its expected holding period and recorded a provision for asset impairment of $9,002 on the condensed consolidated statement of operations and comprehensive income (loss) as a result of the fair value being lower than the property's carrying value. The Company's fair value was based on an executed sales contract. This property was disposed of on May 1, 2020.
Financial Instruments Not Measured at Fair Value
The table below summarizes the estimated fair value of financial instruments presented at carrying values in the Company's condensed consolidated financial statements as of March 31, 2021 and December 31, 2020:
| March 31, 2021 | December 31, 2020 | ||||||||||||||||
| Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||||
| Mortgages payable | $ | 106,932 | $ | 105,459 | $ | 107,261 | $ | 106,494 | |||||||||
| Term loans | $ | 400,000 | $ | 398,922 | $ | 400,000 | $ | 400,055 | |||||||||
| Revolving line of credit | $ | — | $ | — | $ | 50,000 | $ | 50,032 | |||||||||
The Company estimated the fair value of its mortgages payable using a weighted-average effective market interest rate of 4.52% and 4.25% as of March 31, 2021 and December 31, 2020, respectively. The fair value estimate of the term loans and line of credit approximate the carrying value. The assumptions reflect the terms currently available on similar borrowing terms to borrowers with credit profiles similar to that of the Company's. As a result, the Company used a weighted-average interest rate of 1.68% and 1.36% as of March 31, 2021 and December 31, 2020, respectively, to estimate the fair value of its term loans. The Company has determined that its debt instrument valuations are classified in Level 2 of the fair value hierarchy.
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9. Earnings Per Share and Equity Transactions
Basic earnings per share ("EPS") is computed using the two-class method by dividing net income by the weighted average number of common shares outstanding for the period (the "common shares") and participating securities. The restricted share awards issued pursuant to the InvenTrust Properties Corp. 2015 Incentive Award Plan (as amended, the "Incentive Award Plan") are deemed to be participating securities. Diluted EPS is generally computed using the treasury-stock method by dividing net income by the common shares plus potential common shares resulting from restricted share awards.
The following table reconciles the amounts used in calculating basic and diluted earnings per share:
| Three months ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Numerator: | ||||||||||||||
| Net loss | $ | (100) | $ | (3,486) | ||||||||||
| Earnings allocated to unvested restricted shares (a) | — | — | ||||||||||||
| Net loss attributed to common shareholders | $ | (100) | $ | (3,486) | ||||||||||
| Denominator: | ||||||||||||||
| Weighted average number of common shares outstanding - basic | 719,462,786 | 720,825,864 | ||||||||||||
| Effect of unvested restricted shares (b) | — | — | ||||||||||||
| Weighted average number of common shares outstanding - diluted | 719,462,786 | 720,825,864 | ||||||||||||
| Basic and diluted earnings per common share: | ||||||||||||||
| Net loss per common share | $ | — | $ | — | ||||||||||
(a)For the three months ended March 31, 2021 and 2020, there were no undistributed earnings to be allocated.
(b)For the three months ended March 31, 2021 and 2020, the anti-dilutive effect of unvested restricted shares has been excluded.
On November 1, 2019, the Company adopted a Second Amended and Restated Share Repurchase Program ("SRP"), authorizing redemption of the Company's shares of common stock, subject to certain conditions and limitations. The Company's obligation to repurchase any shares under the SRP was conditioned upon having sufficient funds available to complete the repurchase. The repurchase price per share for all stockholders was equal to a 25% discount to the most recent estimated Net Asset Value ('"NAV") per share of the Company's common stock established by the Company's Board of Directors (the "Board"), which was $3.14 per share as of May 1, 2019. During the three months ended March 31, 2020, no shares were repurchased in connection with the SRP.
On November 1, 2019, the Company began offering shares of the Company's common stock to existing stockholders pursuant to the Company's Amended and Restated Distribution Reinvestment Plan ("DRP"). Under the DRP, stockholders were able to elect to reinvest an amount equal to the distributions declared on their shares of common stock into additional shares of the Company's common stock in lieu of receiving cash distributions. In accordance with the DRP, participants were able to acquire shares of common stock at a 25% discount to the most recent estimated NAV per share of the Company's common stock established by the Board, which was $3.14 per share as of May 1, 2019. During the three months ended March 31, 2020, 21,249 shares were issued pursuant to the DRP.
Effective July 11, 2020, the Company suspended the SRP and the DRP. On April 12, 2021, the Company announced the reinstatement of the SRP, effective May 14, 2021, for qualifying shareholders through the Third Amended and Restated Share Repurchase Program authorizing redemption of the Company's shares of common stock, subject to certain conditions and limitations. The Company's obligation to repurchase any shares under the SRP is conditioned upon having sufficient funds available to complete the repurchase. The repurchase price per share of $2.17 for eligible stockholders is equal to a 25% discount to the most recent estimated NAV per share of the Company's common stock established by the Company's Board, which was $2.89 per share as of December 21, 2020. The DRP remains suspended.
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10. Stock-Based Compensation
Effective as of June 19, 2015, the Company's Board adopted the Incentive Award Plan, under which the Company may grant
cash and equity incentive awards to eligible employees, directors, and consultants. Time-based restricted stock units ("RSU") awards granted to employees vest equally on each of the first anniversaries of the applicable vesting commencement date, subject to the employees' continued service to the Company. The time-based RSU awards granted to directors vest on the earlier of the one-year anniversary of the applicable grant date or the date of the Company's next annual meeting of its shareholders following the grant date, subject to the directors' continued service to the Company. Performance-based RSU awards granted to employees vest at the conclusion of the performance period, subject to the recipients' continued service to the Company and achievement of the specified performance levels. Under the Incentive Award Plan, the Company is authorized to grant up to 30,000,000 shares of the Company's common stock pursuant to awards under the Incentive Award Plan. As of March 31, 2021, 15,192,719 shares were available for future issuance under the Incentive Award Plan.
On February 18, 2021, the Board approved grants of time-based and performance-based RSUs under the Company's Incentive Award Plan at the most recent estimated NAV per share of $2.89 as of December 1, 2020.
On February 23, 2021, the Company announced the expected retirement of its President and Chief Executive Officer in August 2021, which resulted in the acceleration of certain stock-based compensation expenses. The Company also announced the appointment of certain executives in establishing a plan of succession. In connection with the appointments, the Board approved grants of time-based RSUs under the Company's Incentive Award Plan at the most recent estimated NAV per share of $2.89 as of December 1, 2020.
The following table summarizes the Company's RSU activity during the three months ended March 31, 2021:
| Unvested Time- Based RSUs | Unvested Performance- Based RSUs | Weighted-Average Grant Date Price Per Share | |||||||||||||||
| Outstanding as of January 1, 2021 | 1,103,816 | 3,320,954 | $ | 3.14 | |||||||||||||
| Shares granted | 1,674,172 | 1,894,256 | $ | 2.89 | |||||||||||||
| Shares forfeited | — | (431,246) | $ | 3.14 | |||||||||||||
| Outstanding as of March 31, 2021 | 2,777,988 | 4,783,964 | $ | 3.01 | |||||||||||||
As of March 31, 2021, there was $9,755 of total unrecognized compensation expense related to unvested stock-based compensation arrangements that will vest through December 2023. The Company recognized stock-based compensation expense of $2,496 and $528 for the three months ended March 31, 2021 and 2020, respectively.
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11. Commitments and Contingencies
The Company is subject, from time to time, to various types of third-party legal claims or litigation that arise in the ordinary course of business, including, but not limited to, property loss claims, personal injury or other damages resulting from contact with the Company's properties. These claims and lawsuits and any resulting damages are generally covered by the Company's insurance policies. The Company accrues for legal costs associated with loss contingencies when these costs are probable and reasonably estimable. While the resolution of these matters cannot be predicted with certainty, based on currently available information, management does not expect that the final outcome of any pending claims or legal proceedings will have a material adverse effect on the financial condition, results of operations or cash flows of the Company.
Operating and Finance Lease Commitments
The Company has non-cancelable contracts of property improvements that have been deemed to contain finance leases. In addition, the Company has non-cancelable operating leases for office space used in its business.
Future minimum lease obligations as of March 31, 2021, were as follows:
| Minimum Lease Payments | |||||||||||
| Operating Leases | Finance Leases | ||||||||||
| Remaining 2021 | $ | 383 | $ | 291 | |||||||
| 2022 | 522 | 279 | |||||||||
| 2023 | 536 | 21 | |||||||||
| 2024 | 550 | — | |||||||||
| 2025 | 53 | — | |||||||||
| Thereafter | — | — | |||||||||
| Total expected minimum lease obligation | 2,044 | 591 | |||||||||
| Less: Amount representing interest (a) | (198) | (34) | |||||||||
| Present value of net minimum lease payments | $ | 1,846 | $ | 557 | |||||||
(a)Interest includes the amount necessary to reduce to present value the total expected minimum lease obligations calculated at the Company's incremental borrowing rate.
12. Subsequent Events
In preparing its condensed consolidated financial statements, the Company has evaluated events and transactions occurring after March 31, 2021, through the date the financial statements were issued for recognition and disclosure purposes.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in these interim condensed consolidated financial statements for the quarter ended March 31, 2021 (the "Quarterly Report"), other than purely historical information, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements about InvenTrust Properties Corp.'s (the "Company") plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events; and they involve known and unknown risks that are difficult to predict.
As a result, our actual financial results, performance, achievements, or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, forward-looking statements can be identified by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "guidance," "predict," "potential," "continue," "likely," "will," "would," "illustrative," and "should" and variations of these terms and similar expressions, or the negatives of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while we consider reasonable based on our knowledge and understanding of the business and industry, are inherently uncertain. These statements are expressed in good faith and are not guarantees of future performance or results. Our actual results could differ materially from those expressed in the forward-looking statements and stockholders should not rely on forward-looking statements in making investment decisions.
There are a number of risks, uncertainties and other important factors, many of which are beyond our control, and should be interpreted as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic and socio-economic environment, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report. Such risks, uncertainties and other important factors, include, among others, the risks, uncertainties and factors set forth in our filings with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2020 (the "Annual Report"), and as updated in this Quarterly Report and other quarterly and current reports, which are on file with the SEC and are available at the SEC's website (www.sec.gov). Such risks and uncertainties are related to, among others, the following:
•the effects of the COVID-19 pandemic in the markets where we own and operate properties, including the effect on our tenants' operations and ability to pay rent;
•the duration of the COVID-19 pandemic and the timing and nature of an economic recovery from the pandemic, including the effects of any future resurgence of COVID-19, the existence and prevalence of variants of the virus, the distribution of available vaccines and the public's acceptance of such vaccines;
•market, political and economic volatility experienced by the United States ("U.S.") economy or real estate industry as a whole, including as a result of the COVID-19 pandemic, and the regional and local political and economic conditions in the markets in which our retail properties are located;
•our ability to collect rent from tenants or to rent space on favorable terms or at all;
•the consummation of lease amendments on the agreed-upon terms and/or if consummated, payments as required by the terms of the respective agreements;
•declaration of bankruptcy by our retail tenants;
•the economic success and viability of our anchor retail tenants;
•the continued impact of the COVID-19 pandemic on our cash flows and our ability to satisfy certain covenants required by our mortgage loans and credit agreements;
•our ability to execute on a potential strategic transaction intended to enhance stockholder value and provide investment liquidity to stockholders, and the impact of the COVID-19 pandemic on our ability to execute on, and the timing of such a potential strategic transaction;
•our ability to identify, execute and complete disposition opportunities and at expected valuations;
•our ability to identify, execute and complete acquisition opportunities and to integrate and successfully operate any retail properties acquired in the future and manage the risks associated with such retail properties;
•our ability to manage the risks of expanding, developing or re-developing our retail properties;
•loss of members of our senior management team or other key personnel;
•changes in governmental regulations and U.S. accounting standards or interpretations thereof;
•our ability to access capital for development, re-development and acquisitions on terms and at times that are acceptable to us;
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•changes in the competitive environment in the leasing market and any other market in which we operate;
•shifts in consumer retail shopping from brick and mortar stores to e-commerce;
•our ability to re-lease spaces with forthcoming lease expirations and terminations, and increasing costs associated with leasing activities;
•the impact of leasing and capital expenditures to improve our retail properties to retain and attract tenants;
•events beyond our control, such as war, terrorist attacks, including acts of domestic terrorism, civil unrest, natural disasters and severe weather incidents, and any uninsured or under-insured loss resulting therefrom;
•actions or failures by our joint venture partner;
•the cost of compliance with and liabilities under environmental, health and safety laws;
•changes in real estate and zoning laws and increases in real property tax rates;
•our debt financing, including risk of default, loss and other restrictions placed on us;
•our ability to refinance or repay maturing debt or to obtain new financing on attractive terms;
•future increases in interest rates;
•the availability of cash flow from operating activities to fund capital and other expenditures, service our debt and other obligations, and to fund distributions;
•our status as a real estate investment trust ("REIT") for federal tax purposes; and
•changes in federal, state or local tax law, including legislative, administrative, regulatory or other actions affecting REITs.
These factors are not necessarily all of the important factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our business, financial condition, results of operations, cash flows and overall value. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements are only as of the date they are made; we do not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information, future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
The following discussion and analysis relates to the three months ended March 31, 2021 and 2020 and as of March 31, 2021 and December 31, 2020. It should be read in conjunction with our condensed consolidated financial statements and the related notes included in this Quarterly Report. All dollar amounts are stated in thousands, except per share amounts and per square foot metrics, unless otherwise noted.
Overview
InvenTrust Properties Corp. is a premier multi-tenant retail REIT that acquires, owns, leases, redevelops, and manages grocery-anchored neighborhood centers, and select power centers that often have a grocery component, in Sun Belt markets with favorable demographics. We seek to continue to execute our strategy to enhance our retail platform by further investing in grocery-anchored centers with essential retail in our current markets, while exhibiting focused and disciplined capital allocation.
Evaluation of Financial Condition
Historically, management has evaluated our financial condition and operating performance by focusing on the following financial and nonfinancial indicators, discussed in further detail herein:
•Net Operating Income ("NOI"), a supplemental non-GAAP measure;
•Funds From Operations ("FFO") Applicable to Common Shares and Dilutive Securities, a supplemental non-GAAP measure;
•Adjusted FFO ("AFFO") Applicable to Common Shares and Dilutive Securities, a supplemental non-GAAP measure;
•Cash flow from operations as determined in accordance with GAAP;
•Economic and physical occupancy and rental rates;
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•Leasing activity and lease rollover;
•Operating expense levels and trends;
•General and administrative expense levels and trends;
•Debt maturities and leverage ratios; and
•Liquidity levels.
Impact of the COVID-19 Pandemic on Our Business and Financial Statements
Our business has been, and continues to be, disrupted by the COVID-19 pandemic. We continue to assess the impact of the COVID-19 pandemic on all aspects of our business, including the impact on our tenants and their ability to make future rental payments in a timely fashion or at all and the possible impairment in value of our investment properties. The states in which our retail properties are located are in varying stages of restrictions and re-openings in response to the pandemic. At this time, we are unable to predict whether cases of COVID-19 in our markets will decrease, increase, or remain the same, whether the approved COVID-19 vaccines will be efficiently distributed in our markets and widely accepted by the public, and whether local governments will mandate closures of our tenants' businesses or implement other restrictive measures on their and our operations in response to a resurgence of the pandemic. We have taken and will continue to consider a number of measures to mitigate the impact of the pandemic on our business and financial condition.
Tenant Assistance Efforts and Deferred Rental Payments
We continue to evaluate our tenants' requests and are negotiating the terms of potential lease amendments on an individual basis. We do not expect all tenant requests will result in amended agreements, nor do we intend to forgo our contractual rights under our lease agreements. There can be no assurance that all amendments will be consummated on the agreed-upon terms and/or if consummated, amounts due will be collected as required by terms of the agreement.
The status of our recurring tenant billings across our entire portfolio, including our proportionate share of the properties in our unconsolidated joint venture, is reflected in the following tables, which shows disaggregated gross rent billed by quarter since we began offering payment deferral plans related to the COVID-19 pandemic.
| Disaggregation of Gross Rent Billed | |||||||||||||||||||||||||||||
| Gross Rent Billed | Collected | Payment Deferral Plan | Estimated Credit Loss | Remaining Accounts Receivable | |||||||||||||||||||||||||
| Quarter end June 30, 2020 | $ | 52,387 | $ | 45,149 | $ | 3,100 | $ | 4,062 | $ | 76 | |||||||||||||||||||
| Quarter end Sept. 30, 2020 | $ | 52,522 | $ | 49,596 | $ | 828 | $ | 1,891 | $ | 207 | |||||||||||||||||||
| Quarter end Dec. 31, 2020 | $ | 53,562 | $ | 52,901 | $ | (1,053) | $ | 1,393 | $ | 321 | |||||||||||||||||||
| Quarter end Mar. 31, 2021 | $ | 52,217 | $ | 50,863 | $ | (1,161) | $ | 1,587 | $ | 928 | |||||||||||||||||||
| Disaggregation of Gross Rent Billed | |||||||||||||||||||||||||||||
| Gross Rent Billed | Collected | Payment Deferral Plan | Estimated Credit Loss | Remaining Accounts Receivable | |||||||||||||||||||||||||
| Quarter end June 30, 2020 | 100% | 86.2% | 5.9% | 7.8% | 0.1% | ||||||||||||||||||||||||
| Quarter end Sept. 30, 2020 | 100% | 94.4% | 1.6% | 3.6% | 0.4% | ||||||||||||||||||||||||
| Quarter end Dec. 31, 2020 | 100% | 98.8% | (2.0)% | 2.6% | 0.6% | ||||||||||||||||||||||||
| Quarter end Mar. 31, 2021 | 100% | 97.4% | (2.2)% | 3.0% | 1.8% | ||||||||||||||||||||||||
During the three months ended March 31, 2021, deferred rental payments of $3.4 million, including our proportionate share of our unconsolidated joint venture, became due; we have collected $3.1 million of such deferred rental payments as of March 31, 2021. As of March 31, 2021, we have granted approximately $6.6 million on a cumulative basis since the start of the pandemic, including our proportionate share of our unconsolidated joint venture, of rental payment deferrals, with contractual payment terms through the year ended December 31, 2023.
Current Strategy and Outlook
InvenTrust focuses on grocery-anchored neighborhood centers, and select power centers that often have a grocery component, in markets with favorable demographics, including above average growth in population, employment and income. We believe these conditions create favorable demand characteristics for grocery-anchored and necessity-based retail centers which will position us to capitalize on potential future rent increases while enjoying sustained occupancy at our centers. Using these criteria, we have focused our strategy on 15 to 20 markets, including, but not limited to, the metropolitan areas of Atlanta,
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Austin, Charlotte, Dallas-Fort Worth-Arlington, Houston, the greater Los Angeles and San Diego areas, Miami, Orlando, Raleigh- Durham, San Antonio and Tampa.
Our portfolio of grocery-anchored centers is open and our grocery tenants are continuing to serve their communities. These properties play a critical role in the communities they serve, often providing essential retail and services such as groceries and healthcare products and services.
Our strategically located regional field offices are within a two-hour drive of 90% of our properties which affords us the ability to respond to the needs and requests of our tenants as they maneuver through this crisis with the intent to minimize disruption. In an effort to assist our tenants during this time, we have launched portfolio-wide initiatives aimed at providing designated common areas for outdoor dining and increasing signage at a number of properties to improve traffic flow to ease online order pick up and contactless transactions. However, as a result of the COVID-19 pandemic: some of our tenants have not been able to make rent payments to us in a timely fashion or at all, it has taken and we expect it will continue to take longer to collect rent from a portion of our tenants, and retailer bankruptcies, failures, and store closings have increased and are expected to continue to increase, leading to an increase in vacancies at our properties.
We believe the continued refinement of our retail platform has positioned us for future success and will allow us to evaluate, and execute on, a potential strategic transaction to achieve liquidity for and provide a return of capital to our stockholders. However, we may be unable to execute on such a transaction on terms we would find attractive for our stockholders and our ability to do so will be influenced by external and macroeconomic factors including, among others, the effects and duration of the COVID-19 pandemic, interest rate movements, local, regional, national and global economic performance, competitive factors, the impact of e-commerce on the retail industry, future retailer store closings, retailer consolidation, retailers reducing store size, retailer bankruptcies, and government policy changes. At this time, the COVID-19 pandemic and related uncertainties have delayed our process for exploring and executing upon a potential strategic transaction.
Our Retail Portfolio
Our wholly-owned, consolidated and managed retail properties include grocery-anchored community and neighborhood centers and power centers, including those classified as necessity-based, as defined in our Annual Report. As of March 31, 2021, we owned or had an interest in 65 retail properties with a total gross leasable area ("GLA") of approximately 10.9 million square feet, which includes 10 retail properties with a GLA of approximately 2.5 million square feet owned through the Company's 55% ownership interest in an unconsolidated joint venture, IAGM Retail Fund I, LLC ("IAGM").
Where appropriate, we have included results from the IAGM properties at 55% ("at share") when combined with our wholly-owned properties, defined as "Pro Rata Combined Retail Portfolio". The following table summarizes our retail portfolio as of March 31, 2021 and 2020.
| Wholly-Owned Retail Properties | IAGM Retail Properties | IAGM Retail Properties (at share) | Pro Rata Combined Retail Portfolio | ||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||
| No. of properties | 55 | 56 | 10 | 10 | 10 | 10 | 65 | 66 | |||||||||||||||||||||||||||||||||||||||
| GLA (square feet) | 8,394,757 | 8,488,479 | 2,470,193 | 2,470,134 | 1,358,606 | 1,358,573 | 9,753,363 | 9,847,052 | |||||||||||||||||||||||||||||||||||||||
| Economic occupancy (a) | 95.0% | 95.9% | 86.5% | 92.3% | 86.5% | 92.3% | 93.8% | 95.4% | |||||||||||||||||||||||||||||||||||||||
| ABR PSF (b) | $18.63 | $18.73 | $17.10 | $17.44 | $17.10 | $17.44 | $18.44 | $18.56 | |||||||||||||||||||||||||||||||||||||||
(a)Economic occupancy is defined as the percentage of total GLA for which a tenant is obligated to pay rent under the terms of its lease agreement, regardless of the actual use or occupancy by that tenant of the area being leased. Actual use may be less than economic occupancy.
(b)Annualized Base Rent ("ABR") is computed as revenue for the last month of the period multiplied by 12 months. ABR includes the effect of rent abatements, lease inducements, straight-line rent GAAP adjustments and ground rent income. ABR per square foot ("ABR PSF") is computed as ABR divided by the total leased square footage at the end of the period. Specialty leasing represents leases of less than one year in duration for inline space and includes any term length for a common area space, and is excluded from the ABR and leased square footage figures when computing the ABR PSF.
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Retail Portfolio Summary by Center Type
The following tables summarize our retail portfolio, by center type, as defined in our Annual Report, as of March 31, 2021 and 2020.
| Community and neighborhood centers | |||||||||||||||||||||||||||||||||||||||||||||||
| Wholly-Owned Retail Properties | IAGM Retail Properties | IAGM Retail Properties (at share) | Pro Rata Combined Retail Portfolio | ||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||
| No. of properties | 44 | 44 | 5 | 5 | 5 | 5 | 49 | 49 | |||||||||||||||||||||||||||||||||||||||
| GLA (square feet) | 5,051,334 | 4,986,165 | 1,386,308 | 1,386,308 | 762,469 | 762,469 | 5,813,803 | 5,748,634 | |||||||||||||||||||||||||||||||||||||||
| Economic occupancy | 95.0% | 95.7% | 88.5% | 94.4% | 88.5% | 94.4% | 94.1% | 95.5% | |||||||||||||||||||||||||||||||||||||||
| ABR PSF | $19.67 | $19.90 | $16.64 | $17.48 | $16.64 | $17.48 | $19.30 | $19.58 | |||||||||||||||||||||||||||||||||||||||
| Power centers | |||||||||||||||||||||||||||||||||||||||||||||||
| Wholly-Owned Retail Properties | IAGM Retail Properties | IAGM Retail Properties (at share) | Pro Rata Combined Retail Portfolio | ||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||
| No. of properties | 11 | 12 | 5 | 5 | 5 | 5 | 16 | 17 | |||||||||||||||||||||||||||||||||||||||
| GLA (square feet) | 3,343,423 | 3,502,314 | 1,083,885 | 1,083,826 | 596,137 | 596,104 | 3,939,560 | 4,098,418 | |||||||||||||||||||||||||||||||||||||||
| Economic occupancy | 95.0% | 96.2% | 83.8% | 89.5% | 83.8% | 89.5% | 93.3% | 95.2% | |||||||||||||||||||||||||||||||||||||||
| ABR PSF | $17.01 | $17.01 | $17.74 | $17.37 | $17.74 | $17.37 | $17.11 | $17.06 | |||||||||||||||||||||||||||||||||||||||
Same-Property Retail Portfolio Summary
The following tables summarize the GLA, economic occupancy and ABR PSF of the properties included in our retail portfolio classified as same-property for the three ended March 31, 2021 and 2020. The properties classified as same-property were owned for the entirety of both periods presented.
| Wholly-Owned Retail Properties | IAGM Retail Properties | IAGM Retail Properties (at share) | Pro Rata Combined Retail Portfolio | ||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||
| No. of properties | 53 | 53 | 10 | 10 | 10 | 10 | 63 | 63 | |||||||||||||||||||||||||||||||||||||||
| GLA (square feet) | 8,156,109 | 8,155,739 | 2,470,193 | 2,470,134 | 1,358,606 | 1,358,573 | 9,514,715 | 9,514,312 | |||||||||||||||||||||||||||||||||||||||
| Economic occupancy | 94.9% | 96.3% | 86.5% | 92.3% | 86.5% | 92.3% | 93.7% | 95.7% | |||||||||||||||||||||||||||||||||||||||
| ABR PSF | $18.85 | $18.85 | $17.10 | $17.44 | $17.10 | $17.44 | $18.62 | $18.67 | |||||||||||||||||||||||||||||||||||||||
Market Summary
The following table represents the geographical diversity of our Retail Portfolio by property count and GLA as of March 31, 2021.
| GLA | ||||||||||||||||||||||||||||||||||||||
| State | Region | No. of Properties | Wholly-Owned Retail Properties | IAGM Retail Properties | IAGM Retail Properties (at share) | Pro Rata Combined Retail Portfolio | ||||||||||||||||||||||||||||||||
| Texas | Southwest | 25 | 2,462,252 | 2,470,193 | 1,358,606 | 3,820,858 | ||||||||||||||||||||||||||||||||
| Florida | South Atlantic | 10 | 1,981,512 | — | — | 1,981,512 | ||||||||||||||||||||||||||||||||
| Georgia | South Atlantic | 10 | 1,057,602 | — | — | 1,057,602 | ||||||||||||||||||||||||||||||||
| California | West | 7 | 1,050,623 | — | — | 1,050,623 | ||||||||||||||||||||||||||||||||
| North Carolina | South Atlantic | 7 | 1,015,870 | — | — | 1,015,870 | ||||||||||||||||||||||||||||||||
| Colorado | West | 3 | 466,639 | — | — | 466,639 | ||||||||||||||||||||||||||||||||
| Maryland | East | 2 | 183,348 | — | — | 183,348 | ||||||||||||||||||||||||||||||||
| Virginia | South Atlantic | 1 | 176,911 | — | — | 176,911 | ||||||||||||||||||||||||||||||||
| 65 | 8,394,757 | 2,470,193 | 1,358,606 | 9,753,363 | ||||||||||||||||||||||||||||||||||
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Lease Expirations
The following table presents the lease expirations of our economic occupied Pro Rata Combined Retail Portfolio as of March 31, 2021.
| Lease Expiration Year | No. of Expiring Leases (a) | GLA of Expiring Leases (square feet) | Percent of Total GLA of Expiring Leases | ABR of Expiring Leases | Percent of Total ABR | Expiring ABR PSF | ||||||||||||||||||||||||||||||||
| 2021 | 98 | 211,404 | 2.3% | $ | 5,712 | 3.4% | $ | 27.02 | ||||||||||||||||||||||||||||||
| 2022 | 218 | 1,347,036 | 14.7% | 22,877 | 13.7% | 16.98 | ||||||||||||||||||||||||||||||||
| 2023 | 207 | 954,827 | 10.4% | 17,520 | 10.6% | 18.35 | ||||||||||||||||||||||||||||||||
| 2024 | 191 | 1,061,434 | 11.6% | 20,269 | 12.1% | 19.10 | ||||||||||||||||||||||||||||||||
| 2025 | 182 | 1,104,179 | 12.1% | 18,817 | 11.3% | 17.04 | ||||||||||||||||||||||||||||||||
| 2026 | 146 | 705,758 | 7.7% | 14,622 | 8.7% | 20.72 | ||||||||||||||||||||||||||||||||
| 2027 | 117 | 900,940 | 9.9% | 18,466 | 11.0% | 20.50 | ||||||||||||||||||||||||||||||||
| 2028 | 82 | 446,442 | 4.9% | 9,061 | 5.4% | 20.30 | ||||||||||||||||||||||||||||||||
| 2029 | 90 | 509,290 | 5.6% | 10,177 | 6.1% | 19.98 | ||||||||||||||||||||||||||||||||
| 2030 | 72 | 364,674 | 4.0% | 8,350 | 5.0% | 22.90 | ||||||||||||||||||||||||||||||||
| Thereafter | 86 | 1,376,920 | 15.1% | 20,482 | 12.2% | 14.88 | ||||||||||||||||||||||||||||||||
| Other (b) | 261 | 155,278 | 1.7% | 858 | 0.5% | 22.60 | ||||||||||||||||||||||||||||||||
| 1,750 | 9,138,182 | 100.0% | $ | 167,211 | 100.0% | $ | 18.30 | |||||||||||||||||||||||||||||||
(a)No. of expiring leases includes IAGM at 100%.
(b)Other lease expirations include the GLA, ABR and ABR PSF of month-to-month leases and the GLA of specialty leases. Specialty leasing, which is not included in ABR or ABR PSF, is comprised of leases with original terms of less than one year for inline space and leases of any term for a common area space. Examples of specialty leasing include retail holiday stores, storage, short-term clothing and furniture consignment stores, tent sales, automated teller machines, cell towers, billboards, and vending.
For purposes of preparing the table, we have not assumed that unexercised contractual lease renewal or extension options contained in our leases will, in fact, be exercised. Our retail business is neither highly dependent on specific retailers nor subject to lease roll-over concentration. We believe this minimizes risk to our retail portfolio from significant revenue variances over time.
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Leasing Activity, Pro Rata Combined Retail Portfolio
The following table summarizes the leasing activity for leases that were executed during the three months ended March 31, 2021, compared with expiring or expired leases for the same or previous tenant for renewals and the same unit for new leases at the 65 properties in our Pro Rata Combined Retail Portfolio. Except for number of leases, all figures reflect results from our wholly owned and IAGM properties at share. These tables do not include rent deferral lease amendments executed as a result of the impact of the COVID-19 pandemic.
In our Pro Rata Combined Retail Portfolio, we had GLA totaling 516,365 square feet expiring during the three months ended March 31, 2021, of which 464,809 square feet was re-leased. This achieved a retention rate of approximately 90.0%.
| No. of Leases Executed for the Quarter Ended Mar. 31, 2021 | GLA SF | New Contractual Rent ($PSF) (b) | Prior Contractual Rent ($PSF) (b) | % Change over Prior Contract Rent (b) | Weighted Average Lease Term (Years) | Tenant Improvement Allowance ($PSF) | Lease Commissions ($PSF) | ||||||||||||||||||||||||||||||||||||||||
| All Tenants | |||||||||||||||||||||||||||||||||||||||||||||||
| Comparable Renewal Leases (a) | 45 | 199,364 | $19.62 | $19.86 | (1.2)% | 5.9 | $0.23 | $— | |||||||||||||||||||||||||||||||||||||||
| Comparable New Leases (a) | 7 | 10,592 | $31.35 | $31.30 | 0.2% | 7.9 | $25.14 | $10.67 | |||||||||||||||||||||||||||||||||||||||
| Non-Comparable Renewal and New Leases | 18 | 128,860 | $17.33 | N/A | N/A | 11.7 | $9.92 | $3.72 | |||||||||||||||||||||||||||||||||||||||
| Total | 70 | 338,816 | $20.15 | $20.37 | (1.1)% | 8.1 | $4.70 | $1.75 | |||||||||||||||||||||||||||||||||||||||
| Anchor Tenants (leases over 10,000 square feet) | |||||||||||||||||||||||||||||||||||||||||||||||
| Comparable Renewal Leases (a) | 4 | 105,848 | $13.77 | $13.31 | 3.5% | 7.1 | $— | $— | |||||||||||||||||||||||||||||||||||||||
| Comparable New Leases (a) | — | — | $— | $— | —% | — | $— | $— | |||||||||||||||||||||||||||||||||||||||
| Non-Comparable Renewal and New Leases | 2 | 84,387 | $12.12 | N/A | N/A | 14.1 | $6.40 | $1.56 | |||||||||||||||||||||||||||||||||||||||
| Total | 6 | 190,235 | $13.77 | $13.31 | 3.5% | 10.2 | $2.84 | $0.69 | |||||||||||||||||||||||||||||||||||||||
| Small Shop Tenants (leases under 10,000 square feet) | |||||||||||||||||||||||||||||||||||||||||||||||
| Comparable Renewal Leases (a) | 41 | 93,516 | $26.35 | $27.39 | (3.8)% | 4.5 | $0.49 | $— | |||||||||||||||||||||||||||||||||||||||
| Comparable New Leases (a) | 7 | 10,592 | $31.35 | $31.30 | 0.2% | 7.9 | $25.14 | $10.67 | |||||||||||||||||||||||||||||||||||||||
| Non-Comparable Renewal and New Leases | 16 | 44,473 | $28.27 | N/A | N/A | 7.1 | $16.61 | $7.80 | |||||||||||||||||||||||||||||||||||||||
| Total | 64 | 148,581 | $26.81 | $27.75 | (3.4)% | 5.5 | $7.07 | $3.10 | |||||||||||||||||||||||||||||||||||||||
(a)Comparable leases are leases that meet all of the following criteria: terms greater than one year, unit was vacant one year or less prior to occupancy, square footage of unit remains unchanged or within 10% of prior unit square footage, and has a rent structure consistent with the previous tenant.
(b)Non-comparable leases are not included in totals.
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Results of Operations
Comparison of results for the three months ended March 31, 2021 and 2020
The following section describes and compares our consolidated results of operations for the three months ended March 31, 2021 and 2020. We generate substantially all of our earnings from property operations. Since January 1, 2020, we have acquired two retail properties and disposed of one retail property.
The following table presents the changes in our income for the three months ended March 31, 2021 and 2020.
| Three months ended March 31, | Composition of Total Decrease, net | ||||||||||||||||||||||||||||||||||
| 2021 | 2020 | Total Increase (Decrease), net | Acquisition Increase | Disposition Decrease | Same Property Increase (Decrease), net | ||||||||||||||||||||||||||||||
| Income | |||||||||||||||||||||||||||||||||||
| Lease income, net | $ | 49,926 | $ | 51,284 | $ | (1,358) | $ | 724 | $ | (395) | $ | (1,687) | |||||||||||||||||||||||
| Other property income | 182 | 191 | (9) | 3 | (23) | 11 | |||||||||||||||||||||||||||||
| Other fee income | 1,013 | 963 | 50 | — | — | 50 | |||||||||||||||||||||||||||||
| Total income | $ | 51,121 | $ | 52,438 | $ | (1,317) | $ | 727 | $ | (418) | $ | (1,626) | |||||||||||||||||||||||
Lease income, net, for the three months ended March 31, 2021, decreased by $1.7 million on a same property basis when compared to the same period in 2020, primarily as a result of decreased minimum rent of $1.0 million, increased rent abatements of $0.5 million, decreased recovery revenue of $0.5 million, and increased non-recoverable expenses of $0.5 million, which were partially offset by decreased estimated credit losses of $0.5 million and net decreased GAAP rent adjustments of $0.3 million. We believe that the foregoing fluctuations in lease income, net were directly attributable to the effects of the COVID-19 pandemic on our tenants.
The following table presents the changes in our operating expenses for the three months ended March 31, 2021 and 2020.
| Three months ended March 31, | Composition of Total Decrease, net | ||||||||||||||||||||||||||||||||||
| 2021 | 2020 | Total Increase (Decrease), net | Acquisition Increase | Disposition Decrease | Same Property Increase (Decrease), net | ||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 21,687 | $ | 22,122 | $ | (435) | $ | 420 | $ | (190) | $ | (665) | |||||||||||||||||||||||
| Property operating | 8,009 | 7,108 | 901 | 131 | (138) | 908 | |||||||||||||||||||||||||||||
| Real estate taxes | 8,133 | 8,489 | (356) | 69 | (130) | (295) | |||||||||||||||||||||||||||||
| General and administrative | 10,351 | 7,195 | 3,156 | — | — | 3,156 | |||||||||||||||||||||||||||||
| Total operating expenses | $ | 48,180 | $ | 44,914 | $ | 3,266 | $ | 620 | $ | (458) | $ | 3,104 | |||||||||||||||||||||||
Depreciation and amortization, for the three months ended March 31, 2021, decreased $0.7 million on a same property basis when compared to the same period in 2020 primarily as a result of decreased in-place lease amortization and tenant improvement depreciation of $1.7 million. This decrease was partially offset by increased building depreciation of $1.0 million pertaining to the demolition of a building at one retail property.
Property operating expenses, for the three months ended March 31, 2021, increased $0.9 million on a same property basis when compared to the same period in 2020 primarily as a result of increased non-recoverable expenses of $0.5 million and net increases in all other property operating expenses of $0.4 million.
General and administrative expenses for the three months ended March 31, 2021, increased $3.2 million when compared to the same period in 2020, primarily as a result of increased long-term incentive plan costs of $2.0 million and other increased compensation costs of $1.2 million. The increase in long-term incentive plan costs was primarily driven by the expected retirement of our President and Chief Executive Officer in August 2021 and the appointment of certain executives in establishing a plan of succession.
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The following table presents the changes in our other income and expenses.
| Three months ended March 31, | |||||||||||||||||
| 2021 | 2020 | Change, net | |||||||||||||||
| Other (expense) income | |||||||||||||||||
| Interest expense, net | $ | (3,985) | $ | (4,809) | $ | 824 | |||||||||||
| Provision for asset impairment | — | (9,002) | 9,002 | ||||||||||||||
| Gain on sale of investment properties, net | 519 | 457 | 62 | ||||||||||||||
| Equity in earnings of unconsolidated entities | 620 | 789 | (169) | ||||||||||||||
| Other income and expense, net | (195) | 1,555 | (1,750) | ||||||||||||||
| Total other (expense) income, net | $ | (3,041) | $ | (11,010) | $ | 7,969 | |||||||||||
Interest expense, net
Interest expense, net, for the three months ended March 31, 2021 decreased $0.8 million when compared to the same period in 2020, primarily as a result of repaying total mortgages payable of $67.5 million across three retail properties since January 1, 2020, resulting in interest savings of $0.4 million. The remaining $0.4 million decrease in interest expense, net is the result of declining 1-month LIBOR interest rates on our corporate credit facilities.
Provision for asset impairment
During the three months ended March 31, 2020, we identified one retail property that had a reduction in its expected hold period. We recorded a provision for asset impairment of $9.0 million as a result of the executed sales contract price being lower than the property's carrying value. This property was sold on May 1, 2020.
Gain on sale of investment properties, net
During the three months ended March 31, 2021, we recognized a net gain of $0.5 million on the completion of partial condemnations at three retail properties. During the three months ended March 31, 2020, we recognized a gain of $0.5 million on the completion of partial condemnations at two retail properties.
Equity in earnings of unconsolidated entities
Equity in earnings of unconsolidated entities for the three months ended March 31, 2021, decreased $0.2 million when compared to the same period in 2020, primarily as a result of our share of lower net income of IAGM. The $0.2 million decrease is primarily the result of the effects of the COVID-19 pandemic on IAGM's tenants.
Other income and expense, net
Under the federal legislation enacted on March 27, 2020, known as the CARES Act, certain limitations on the deductibility of net operating losses ("NOLs") enacted under prior federal tax legislation have been temporarily rolled back. As a result of the anticipated NOL carryback claims for our taxable REIT subsidiaries, total additional tax benefits of $1.2 million were recognized during the three months ended March 31, 2020.
Net Operating Income
We evaluate the performance of our wholly-owned and consolidated retail properties based on NOI, which excludes general and administrative expenses, depreciation and amortization, provision for asset impairment, other income and expense, net, gains (losses) from sales of properties, gains (losses) on extinguishment of debt, interest expense, net, equity in earnings from unconsolidated entities, lease termination income and expense, and GAAP rent adjustments (such as straight-line rent, above/below market lease amortization and amortization of lease incentives). We bifurcate NOI into same-property NOI and NOI from other investment properties based on whether the underlying retail properties meet our same-property criteria.
We believe the supplemental non-GAAP financial measures of NOI, same-property NOI, and NOI from other investment properties provide added comparability across periods when evaluating our financial condition and operating performance that is not readily apparent from "Operating income" or "Net income" in accordance with GAAP.
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Comparison of same-property results for the three months ended March 31, 2021 and 2020
A total of 53 wholly-owned retail properties met our same-property criteria for the three months ended March 31, 2021 and 2020. NOI from other investment properties in the table below for the three months ended March 31, 2021 and 2020 includes retail properties that did not meet our same-property criteria.
The following table represents the reconciliation of net loss, the most directly comparable GAAP measure, to NOI and same-property NOI for the three months ended March 31, 2021 and 2020:
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net loss | $ | (100) | $ | (3,486) | |||||||
| Adjustments to reconcile to non-GAAP metrics: | |||||||||||
| Other income and expense, net | 195 | (1,555) | |||||||||
| Equity in earnings of unconsolidated entities | (620) | (789) | |||||||||
| Interest expense, net | 3,985 | 4,809 | |||||||||
| Gain on sale of investment properties, net | (519) | (457) | |||||||||
| Provision for asset impairment | — | 9,002 | |||||||||
| Depreciation and amortization | 21,687 | 22,122 | |||||||||
| General and administrative | 10,351 | 7,195 | |||||||||
| Other fee income | (1,013) | (963) | |||||||||
| Adjustments to NOI (a) | (1,880) | (2,006) | |||||||||
| NOI | 32,086 | 33,872 | |||||||||
| NOI from other investment properties | (645) | (300) | |||||||||
| Same-property NOI | $ | 31,441 | $ | 33,572 | |||||||
(a)Adjustments to NOI include termination fee income and expense and GAAP rent adjustments.
Comparison of the components of same-property NOI for the three months ended March 31, 2021 and 2020.
| Three months ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | Change | Var. | ||||||||||||||||||||
| Lease income, net | $ | 47,165 | $ | 48,650 | $ | (1,485) | (3.1) | % | |||||||||||||||
| Other property income | 183 | 173 | 10 | 5.8 | % | ||||||||||||||||||
| 47,348 | 48,823 | (1,475) | (3.0) | % | |||||||||||||||||||
| Property operating | 7,870 | 6,920 | 950 | 13.7 | % | ||||||||||||||||||
| Real estate taxes | 8,037 | 8,331 | (294) | (3.5) | % | ||||||||||||||||||
| 15,907 | 15,251 | 656 | 4.3 | % | |||||||||||||||||||
| Same-property NOI | $ | 31,441 | $ | 33,572 | $ | (2,131) | (6.3) | % | |||||||||||||||
Same-property NOI decreased by $2.1 million, or (6.3)%, when comparing the three months ended March 31, 2021 to the same period in 2020, and was primarily a result of:
•a decrease in minimum rent of $1.0 million,
•an increase in rent abatements of $0.5 million,
•a decrease in recovery revenue of $0.5 million,
•an increase in non-recoverable expenses of $0.6 million, and was offset by:
•a decrease in estimated credit losses of $0.5 million.
These fluctuations in same-property NOI were, in our judgment, attributable to the impact of the COVID-19 pandemic.
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Funds From Operations
The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a widely accepted non-GAAP financial measure of operating performance known as Funds From Operations ("FFO"). Our FFO is based on the NAREIT definition. Adjustments for unconsolidated joint ventures are calculated to reflect our proportionate share of the joint venture's funds from operations on the same basis.
Adjusted Funds From Operations ("AFFO") is an additional supplemental non-GAAP financial measure of our operating performance. In particular, AFFO provides an additional measure to compare the operating performance of different REITs without having to account for certain remaining amortization assumptions within FFO and other unique revenue and expense items which are not pertinent to measuring a particular company’s on-going operating performance. In that regard, we use AFFO as an input to our compensation plan to determine cash bonuses and measure the achievement of certain performance-based equity awards.
See our Annual Report on Form 10-K for expanded descriptions of FFO and AFFO. FFO Applicable to Common Shares and Dilutive Securities and AFFO Applicable to Common Shares and Dilutive Securities is calculated as follows:
| Three months ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Net loss | $ | (100) | $ | (3,486) | ||||||||||
| Depreciation and amortization related to investment properties | 21,447 | 21,546 | ||||||||||||
| Provision for asset impairment | — | 9,002 | ||||||||||||
| Gain on sale of investment properties, net | (519) | (457) | ||||||||||||
| Our share of IAGM's depreciation and amortization related to investment properties | 2,070 | 2,388 | ||||||||||||
| FFO Applicable to Common Shares and Dilutive Securities | $ | 22,898 | $ | 28,993 | ||||||||||
| Amortization of debt discounts and financing costs | 383 | 467 | ||||||||||||
| Amortization of above and below-market leases and lease inducements, net | (1,243) | (1,542) | ||||||||||||
| Depreciation and amortization related to corporate assets | 240 | 576 | ||||||||||||
| Straight-line rent adjustment, net | (640) | (541) | ||||||||||||
| Uncollectible straight-line rent | 123 | 163 | ||||||||||||
| Non-operating income and expense, net (a) | 196 | 118 | ||||||||||||
| Our share of IAGM's loss on extinguishment of debt | 8 | 5 | ||||||||||||
| Our share of IAGM's amortization of financing costs | 75 | 75 | ||||||||||||
| Our share of IAGM's amortization of above and below-market leases and lease inducements, net | 120 | 61 | ||||||||||||
| Our share of IAGM's straight-line rent adjustment, net | (29) | 12 | ||||||||||||
| Our share of IAGM's non-operating income and expense, net (a) | (6) | 44 | ||||||||||||
| AFFO Applicable to Common Shares and Dilutive Securities | $ | 22,125 | $ | 28,431 | ||||||||||
| Weighted average number of common shares outstanding - basic | 719,462,786 | 720,825,864 | ||||||||||||
| Effect of unvested restricted shares (b) | — | — | ||||||||||||
| Weighted average number of common shares outstanding - diluted | 719,462,786 | 720,825,864 | ||||||||||||
| Net loss per common share, diluted | $ | — | $ | — | ||||||||||
| Per share adjustments for FFO Applicable to Common Shares and Dilutive Securities | 0.03 | 0.04 | ||||||||||||
| FFO Applicable to Common Shares and Dilutive Securities per share | $ | 0.03 | $ | 0.04 | ||||||||||
| Per share adjustments for AFFO Applicable to Common Shares and Dilutive Securities | — | — | ||||||||||||
| AFFO Applicable to Common Shares and Dilutive Securities per share | $ | 0.03 | $ | 0.04 | ||||||||||
(a)Non-operating income and expense, net, includes other non-operating revenue and expense items which are not pertinent to measuring on-going operating performance, such as miscellaneous income and settlement income.
(b)For purposes of calculating non-GAAP per share metrics, the same denominator is used as that which would be used in calculating earnings per share under GAAP. For the three months ended March 31, 2021 and 2020, the effects of unvested restricted shares have been excluded from the denominator in the diluted net loss per share calculations under GAAP as they were antidilutive.
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Liquidity and Capital Resources
Development, Re-development, Capital Expenditures and Leasing Activities
The following table summarizes capital resources used through development and re-development, capital expenditures, and leasing activities at our retail properties owned during the year ended March 31, 2021. These costs are classified as cash used in capital expenditures and tenant improvements and investment in development and re-development projects on the condensed consolidated statements of cash flows during the three months ended March 31, 2021.
| Development and Re-development | Capital Expenditures | Leasing | Total | ||||||||||||||||||||
| Direct costs | $ | 398 | (a) | $ | 1,213 | $ | 1,380 | (c) | $ | 2,991 | |||||||||||||
| Indirect costs | 146 | (b) | 360 | — | 506 | ||||||||||||||||||
| Total | $ | 544 | $ | 1,573 | $ | 1,380 | $ | 3,497 | |||||||||||||||
(a)Direct development and re-development costs relate to construction of buildings at our retail properties.
(b)Indirect development and re-development costs relate to capitalized interest, real estate taxes, insurance, and payroll attributed to improvements at our retail properties.
(c)Direct leasing costs relate to improvements to a tenant space that are either paid directly by or reimbursed to the tenants.
Short-term Liquidity and Capital Resources
On a short-term basis, our principal uses for funds are to pay our operating and corporate expenses, interest and principal on our indebtedness, property capital expenditures, and to make distributions to our stockholders.
At this time, we do not expect the COVID-19 pandemic to impact our ability to meet our short-term liquidity requirements. However, our ability to maintain adequate liquidity for our operations in the future is dependent upon a number of factors, including our revenue, macroeconomic conditions, the length and severity of business disruptions caused by the COVID-19 pandemic, our ability to contain costs, including capital expenditures, and to collect rents and other receivables, and various other factors, many of which are beyond our control. We will continue to monitor our liquidity position and may seek to raise funds through debt or equity financing in the future to fund operations, significant investments or acquisitions that are consistent with our strategy. Our ability to raise these funds may also be diminished by the impact of the COVID-19 pandemic or other macroeconomic factors.
Long-term Liquidity and Capital Resources
Our objectives are to maximize revenue generated by our retail platform, to further enhance the value of our retail properties to produce attractive current yield and long-term returns for our stockholders, and to generate sustainable and predictable cash flow from our operations to distribute to our stockholders.
Any future determination to pay distributions will be at the discretion of our Board and will depend on our financial condition, capital requirements, restrictions contained in current or future financing instruments, and such other factors as our Board deems relevant. In December 2020, our Board approved an increase to our annual distribution rate effective for the quarterly distribution paid in April 2021. The Board will continue to evaluate our distribution rate and, if it deems appropriate, adjust the distribution to take into account all relevant factors, including the ongoing effects of the COVID-19 pandemic and our operating and capital needs.
Our primary sources and uses of capital are as follows:
Sources
•Operating cash flows from our real estate investments;
•Distributions from our joint venture investment;
•Proceeds from sales of properties;
•Proceeds from mortgage loan borrowings on properties;
•Proceeds from corporate borrowings; and
•Interest earned on cash and cash equivalents.
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Uses
•To pay our operating expenses;
•To make distributions to our stockholders;
•To service or pay down our debt;
•To invest in properties;
•To fund development, re-development, maintenance and capital expenditures or leasing investments; and
•To fund other general corporate uses.
We may, from time to time, seek to acquire additional amounts of our outstanding equity through cash purchases or exchanges for other securities. Such purchases or exchanges, if any, will depend on our liquidity requirements, contractual restrictions, and other factors.
Distributions
During the three months ended March 31, 2021, we declared distributions to our stockholders totaling $14.1 million and paid cash distributions of $13.6 million. As we execute on our retail strategy and evaluate the impact of the COVID-19 pandemic on our business, results of operations and cash flows, the Board will continue to evaluate our distribution on a periodic basis. See "Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Current Strategy and Outlook" for more information regarding our retail strategy.
Summary of Cash Flows
| Three months ended March 31, | Change | ||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Cash provided by operating activities | $ | 20,846 | $ | 16,898 | $ | 3,948 | |||||||||||
| Cash used in investing activities | (4,490) | (38,499) | 34,009 | ||||||||||||||
| Cash (used in) provided by financing activities | (64,087) | 95,215 | (159,302) | ||||||||||||||
| (Decrease) increase in cash, cash equivalents, and restricted cash | (47,731) | 73,614 | (121,345) | ||||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 223,770 | 260,748 | (36,978) | ||||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 176,039 | $ | 334,362 | $ | (158,323) | |||||||||||
Cash provided by operating activities of $20.8 million and $16.9 million for the three months ended March 31, 2021 and 2020, respectively, was generated primarily from income from property operations and operating distributions from unconsolidated entities. Cash provided by operating activities increased $3.9 million when comparing the three months ended March 31, 2021, to the same period in 2020 primarily as a result of general fluctuations in working capital and the acquisition of two retail properties since January 1, 2020, which was partially offset by the disposition of one retail property since January 1, 2020.
Cash used in investing activities of $4.5 million for the three months ended March 31, 2021, was primarily the result of:
•$3.0 million for capital expenditures and tenant improvements,
•$0.5 million for investment in development projects,
•$1.0 million for lease commissions and other leasing costs, and
•$0.9 million for cash outflows from other investing activities, which was partially offset by cash provided of
•$0.9 million from net proceeds received from the sale of investment properties.
Cash used in investing activities of $38.5 million for the three months ended March 31, 2020, was primarily the result of:
•$32.4 million for acquisitions of investment properties,
•$4.2 million for capital expenditures and tenant improvements,
•$0.9 million for investment in development projects,
•$1.0 million for lease commissions and other leasing costs, and
•$0.7 million for cash outflows from other investing activities, which was partially offset by cash provided of
•$0.7 million from net proceeds received from the sale of investment properties.
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Cash used in financing activities of $64.1 million for the three months ended March 31, 2021, was primarily the result of:
•$50.0 million for pay-offs of debt,
•$13.6 million to pay distributions, and
•$0.5 million for principal payments of mortgage debt, payment of finance lease liabilities, and payment of loan fees and other deposits.
Cash provided by financing activities of $95.2 million for the three months ended March 31, 2020, was primarily the result of:
•$150.0 million of proceeds received from our unsecured revolving credit agreement and distribution reinvestment plan, which was partially offset by cash used of
•$13.3 million to pay distributions,
•$41.0 million for pay-offs of debt, and
•$0.5 million for principal payments of mortgage debt, payment of finance lease liabilities, and payment of loan fees and other deposits.
We consider all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements with a maturity of three months or less, at the date of purchase, to be cash equivalents. We maintain our cash and cash equivalents at major financial institutions. The combined account balances at one or more institutions generally exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage. We periodically assess the credit risk associated with these financial institutions. As a result, there is what we believe to be insignificant credit risk related to amounts on deposit in excess of FDIC insurance coverage.
Off Balance Sheet Arrangements
The Company does not have off balance sheet arrangements other than its joint venture, IAGM, as disclosed in "Part I. Item 1. Financial Statements - Note 6. Investment in Unconsolidated Entities."
Contractual Obligations
We have obligations related to our mortgage loans, term loan, and revolving credit facility as described in "Note 7. Debt" in the condensed consolidated financial statements. The unconsolidated joint venture in which we have an investment has third-party mortgage debt of $220.8 million as of March 31, 2021, as described in "Note 6. Investment in Unconsolidated Entities" in the condensed consolidated financial statements. It is anticipated that our unconsolidated joint venture will be able to repay or refinance all of its debt on a timely basis.
The following table presents, on a consolidated basis, obligations and commitments to make future payments under debt obligations and lease agreements. It excludes third-party debt associated with our unconsolidated joint venture and debt discounts that are not future cash obligations as of March 31, 2021.
| Payments due by year ending December 31, | |||||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
| Long-term debt: | |||||||||||||||||||||||||||||||||||||||||
| Fixed rate debt, principal (a) | $ | — | $ | 22,723 | $ | 239,879 | $ | 115,700 | $ | 28,630 | $ | — | $ | 406,932 | |||||||||||||||||||||||||||
| Variable-rate debt, principal | — | — | 50,000 | 50,000 | — | — | 100,000 | ||||||||||||||||||||||||||||||||||
| Interest | 10,466 | 13,358 | 11,769 | 3,253 | 744 | — | 39,590 | ||||||||||||||||||||||||||||||||||
| Total long-term debt | 10,466 | 36,081 | 301,648 | 168,953 | 29,374 | — | 546,522 | ||||||||||||||||||||||||||||||||||
| Operating lease obligations (b) | 383 | 522 | 536 | 550 | 53 | — | 2,044 | ||||||||||||||||||||||||||||||||||
| Finance lease obligations (c) | 291 | 279 | 21 | — | — | — | 591 | ||||||||||||||||||||||||||||||||||
| Grand total | $ | 11,140 | $ | 36,882 | $ | 302,205 | $ | 169,503 | $ | 29,427 | $ | — | $ | 549,157 | |||||||||||||||||||||||||||
(a)Includes $300.0 million of variable-rate unsecured term loans that have been swapped to a fixed rate.
(b)Includes leases on corporate office spaces.
(c)Includes contracts for property improvements that have been deemed to contain finance leases.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risk associated with changes in interest rates both in terms of variable-rate debt and the price of new fixed-rate debt upon maturity of existing debt and for acquisitions.
Interest Rate Risk
Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. As of March 31, 2021, our debt included outstanding variable-rate term loans of $400.0 million, of which $300.0 million has been swapped to a fixed rate. If market rates of interest on all variable-rate debt as of March 31, 2021 permanently increased and decreased by 1%, the annual increase and decrease in interest expense on the variable-rate debt and future earnings and cash flows would be approximately $1.0 million. See our Annual Report on Form 10-K for expanded discussion regarding how we achieve our interest rate risk management objectives and how we often use financial instruments to hedge exposures to changes in interest rates on loans.
Our unsecured revolving line of credit, term loans, and interest rate swaps are indexed to USD-LIBOR. However, as our amended and restated line of credit and term loan agreements and interest rate swap agreements have provisions that allow for a transition to a new alternative rate, we believe that the transition from USD-LIBOR to the Secured Overnight Financing Rate ("SOFR") will not have a material impact on our condensed consolidated financial statements. See our Annual Report on Form 10-K for expanded discussion regarding recent SOFR announcements.
The following table summarizes our four effective interest rate swaps as of March 31, 2021:
| Interest Rate Swap | Effective Date | Termination Date | Bank Pays Variable Rate of | InvenTrust Pays Fixed Rate of | Notional Amount | Fair Value as of | ||||||||||||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||
| 5 year, fixed portion | Dec 2, 2019 | Dec 21, 2023 | 1-Month LIBOR | 1.4795% | $ | 100,000 | $ | (3,066) | $ | (3,856) | ||||||||||||||||||||||||||||||||||
| 5 year, fixed portion | Dec 2, 2019 | Dec 21, 2023 | 1-Month LIBOR | 1.4795% | 100,000 | (3,066) | (3,856) | |||||||||||||||||||||||||||||||||||||
| 5.5 year, fixed portion | Dec 2, 2019 | June 21, 2024 | 1-Month LIBOR | 1.4915% | 50,000 | (1,635) | (2,217) | |||||||||||||||||||||||||||||||||||||
| 5.5 year, fixed portion | Dec 2, 2019 | June 21, 2024 | 1-Month LIBOR | 1.4990% | 50,000 | (1,647) | (2,231) | |||||||||||||||||||||||||||||||||||||
| Total fixed of unsecured term loan | $ | 300,000 | $ | (9,414) | $ | (12,160) | ||||||||||||||||||||||||||||||||||||||
The following table summarizes the IAGM effective interest rate swaps as of March 31, 2021:
| Interest Rate Swap | Effective Date | Termination Date | Bank Pays Variable Rate of | InvenTrust Pays Fixed Rate of | Notional Amount | Fair Value as of | ||||||||||||||||||||||||||||||||||||||
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||
| Secured term loan | Apr 1, 2020 | Nov 2, 2023 | 1-Month LIBOR | 0.4290% | $ | 45,000 | $ | (113) | $ | (327) | ||||||||||||||||||||||||||||||||||
| Secured term loan | Apr 1, 2020 | Nov 2, 2023 | 1-Month LIBOR | 0.4060% | 30,000 | $ | (58) | $ | (198) | |||||||||||||||||||||||||||||||||||
| Total fixed of secured term loan | $ | 75,000 | $ | (171) | $ | (525) | ||||||||||||||||||||||||||||||||||||||
The gains or losses resulting from marking-to-market our derivatives each reporting period are recognized as an increase or decrease in comprehensive income on our condensed consolidated statements of operations and comprehensive income (loss).
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act, our management, including our Principal Executive Officer and our Principal Financial Officer, evaluated as of March 31, 2021, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our Principal Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures, as of March 31, 2021, were effective for the purpose of ensuring that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Principal Executive Officer and our Principal Financial Officer as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
We are subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, we believe, based on currently available information, that the final outcome of such matters will not have a material adverse effect on our financial condition, results of operations, or liquidity.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in response to Item 1A. to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit No. | Description | |||||||
| Master Modification Agreement, dated as of March 12, 2014, by and among Inland American Real Estate Trust, Inc., Inland American Business Manager & Advisor, Inc., Inland American Lodging Corporation, Inland American Holdco Management LLC, Inland American Retail Management LLC, Inland American Office Management LLC, Inland American Industrial Management LLC and Eagle I Financial Corp. (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on March 13, 2014) | ||||||||
| Asset Acquisition Agreement, dated as of March 12, 2014, by and among Inland American Real Estate Trust, Inc., Inland American Holdco Management LLC, Inland American Retail Management LLC, Inland American Office Management LLC, Inland American Industrial Management LLC and Eagle I Financial Corp. (incorporated by reference to Exhibit 2.2 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on March 13, 2014) | ||||||||
| Separation and Distribution Agreement by and between Inland American Real Estate Trust, Inc. and Xenia Hotels & Resorts, Inc., dated as of January 20, 2015 (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on January 23, 2015) | ||||||||
| Separation and Distribution Agreement by and between InvenTrust Properties Corp. and Highlands REIT, Inc., dated as of April 14, 2016 (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on April 14, 2016) | ||||||||
| Stock Purchase Agreement by and among InvenTrust Properties Corp., University House Communities Group, Inc. and UHC Acquisition Sub LLC, dated as of January 3, 2016 (incorporated by reference to Exhibit 2.1 to the Registrant's Form 10-Q, as filed by the Registrant on May 10, 2016) | ||||||||
| Amendment No. 1 to Stock Purchase Agreement, dated as of May 30, 2016, by and among InvenTrust Properties Corp., University House Communities Group, Inc. and UHC Acquisition Sub LLC (incorporated by reference to Exhibit 2.2 to the Registrant's Form 8-K, as filed by the Registrant on June 27, 2016) | ||||||||
| Amendment No. 2 to Stock Purchase Agreement, dated as of June 20, 2016, by and among InvenTrust Properties Corp., University House Communities Group, Inc. and UHC Acquisition Sub LLC (incorporated by reference to Exhibit 2.3 to the Registrant's Form 8-K, as filed by the Registrant on June 27, 2016) | ||||||||
| Seventh Articles of Amendment and Restatement of InvenTrust Properties Corp., as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q, as filed by the Registrant with the SEC on May 14, 2015) | ||||||||
| Second Amended and Restated Bylaws of the Company, dated as of November 9, 2017 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, as filed by the Registrant on November 9, 2017) | ||||||||
| Separation and Consulting Agreement, by and between InvenTrust Properties Corp. and Thomas McGuinness, dated as of February 18, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on February 23, 2021) | ||||||||
| Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Principal Financial Officer 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 March 31, 2021, filed with the SEC on May 7, 2021, is formatted in Extensible Business Reporting Language ("XBRL"): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) Condensed Consolidated Statements of Equity, (iv) Condensed Consolidated Statements of Cash Flows (v) Notes to Condensed Consolidated Financial Statements (tagged as blocks of text). | |||||||
| * Filed as part of this Quarterly Report on Form 10-Q | ||||||||
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
InvenTrust Properties Corp.
| Date: | May 7, 2021 | ||||
| By: | /s/ Thomas P. McGuinness | ||||
| Name: | Thomas P. McGuinness | ||||
| Title: | Chief Executive Officer (Principal Executive Officer) | ||||
| Date: | May 7, 2021 | ||||
| By: | /s/ Daniel J. Busch | ||||
| Name: | Daniel J. Busch | ||||
| Title: | President, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||
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