Attached files

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EX-10.3 - EX-10.3 - Inland Real Estate Income Trust, Inc.ck0001528985-ex103_649.htm
EX-10.5 - EX-10.5 - Inland Real Estate Income Trust, Inc.ck0001528985-ex105_648.htm
EX-31.1 - EX-31.1 - Inland Real Estate Income Trust, Inc.ck0001528985-ex311_18.htm
EX-32.1 - EX-32.1 - Inland Real Estate Income Trust, Inc.ck0001528985-ex321_15.htm
EX-32.3 - EX-32.3 - Inland Real Estate Income Trust, Inc.ck0001528985-ex323_13.htm
EX-31.3 - EX-31.3 - Inland Real Estate Income Trust, Inc.ck0001528985-ex313_16.htm
EX-31.2 - EX-31.2 - Inland Real Estate Income Trust, Inc.ck0001528985-ex312_17.htm
EX-32.2 - EX-32.2 - Inland Real Estate Income Trust, Inc.ck0001528985-ex322_14.htm
EX-23.1 - EX-23.1 - Inland Real Estate Income Trust, Inc.ck0001528985-ex231_650.htm
EX-21.1 - EX-21.1 - Inland Real Estate Income Trust, Inc.ck0001528985-ex211_12.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015

o

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

COMMISSION FILE NUMBER: 000-55146

 

Inland Real Estate Income Trust, Inc.

(Exact name of registrant as specified in its charter)

 

 

Maryland

 

45-3079597

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2901 Butterfield Road, Oak Brook, Illinois

 

60523

(Address of principal executive offices)

 

(Zip Code)

630-218-8000

(Registrant’s telephone number, including area code)

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

None

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

Common Stock, $0.001 par value per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  o    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  o    No  x

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

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

 

Large accelerated filer

 

o

Accelerated filer

 

o

 

 

 

 

 

 

Non-accelerated filer

 

x

Smaller reporting company

 

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

There is no established public market for the registrant’s shares of common stock. The registrant completed its initial public offering of its shares of common stock pursuant to a registration statement on Form S-11 on October 16, 2015, which shares were sold at a purchase price of $10.00 per share, with discounts available for certain categories of purchasers. The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2015 (the last business day of the registrant’s most recently completed second fiscal quarter) was $710,989,778 based on a per share price of $10.00.  As of March 4, 2016, there were 86,808,619 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant incorporates by reference portions of its Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders, which is expected to be filed no later than 120 days after the end of the fiscal year, into Part III of this Form 10-K to the extent stated herein.

 

 

 

 

 


 

INLAND REAL ESTATE INCOME TRUST, INC.

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

Part I

 

 

 

 

 

 

 

Item 1.

 

Business

 

1

Item 1A.

 

Risk Factors

 

4

Item 1B.

 

Unresolved Staff Comments

 

27

Item 2.

 

Properties

 

27

Item 3.

 

Legal Proceedings

 

30

Item 4.

 

Mine Safety Disclosures

 

30

 

 

 

 

 

 

 

Part II

 

 

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

31

Item 6.

 

Selected Financial Data

 

34

Item 7.

 

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

 

36

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

50

Item 8.

 

Financial Statements and Supplementary Data

 

52

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

81

Item 9A.

 

Controls and Procedures

 

81

Item 9B.

 

Other Information

 

81

 

 

 

 

 

 

 

Part III

 

 

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

82

Item 11.

 

Executive Compensation

 

82

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

82

Item 13.

  

Certain Relationships and Related Transactions, and Director Independence

 

82

Item 14.

  

Principal Accounting Fees and Services

 

82

 

 

 

 

 

 

  

Part IV

 

 

 

 

 

 

 

Item 15.

  

Exhibits and Financial Statement Schedules

 

83

 

 

 

 

 

 

  

Signatures

 

84

 

 

 

 


 

PART I

Item 1.

Business

General

 

Inland Real Estate Income Trust, Inc. (which we refer to herein as the “Company”, “we”, “our” or “us”) was incorporated on August 24, 2011 as a Maryland corporation.  We were formed to acquire, directly or indirectly, a diversified portfolio of commercial real estate located throughout the United States. We are permitted to acquire retail properties, office buildings, multi-family properties and industrial/distribution and warehouse facilities. To date, we have focused on acquiring retail properties. We may acquire these properties directly or through joint ventures.  We also may invest in real estate-related equity securities as well as commercial mortgage-backed securities.  Our sponsor, Inland Real Estate Investment Corporation, referred to herein as our “Sponsor” or “IREIC,” is an indirect subsidiary of The Inland Group, Inc.  Various affiliates of our Sponsor are involved in our business. We are externally managed and advised by IREIT Business Manager & Advisor, Inc., referred to herein as our “Business Manager,” an indirect wholly owned subsidiary of our Sponsor. Our Business Manager is responsible for overseeing and managing our day-to-day operations.  Our properties are managed by Inland National Real Estate Services, LLC and, subsequent to the end of the year, are being managed by Inland Commercial Real Estate Services LLC, referred to herein as our “Real Estate Managers,” indirect wholly owned subsidiaries of our Sponsor.

On October 18, 2012, we commenced our initial public offering, referred to herein as the “Offering,” and it concluded on October 16, 2015. We offered 150,000,000 shares of our common stock at a price of $10.00 per share on a “best efforts” basis through Inland Securities Corporation, or “Inland Securities,” our dealer manager, a wholly owned subsidiary of our Sponsor. “Best efforts” means that Inland Securities was not obligated to purchase any specific number or dollar amount of shares. We also offered up to 30,000,000 shares of our common stock at a price of $9.50 per share to stockholders who elected to participate in our distribution reinvestment plan (as amended, the “DRP”). We subsequently filed a new Registration Statement pursuant to which we are offering up to 25,000,000 shares of our common stock to existing stockholders who elect to participate in the DRP.

At December 31, 2015, we owned 54 retail properties, totaling approximately 6.0 million square feet. At December 31, 2015, our portfolio had weighted average physical and economic occupancy of 96.2% and 97.2%, respectively. Economic occupancy excludes square footage that we own but which is not occupied by a tenant and which is subject to an earnout component on the original purchase price. Specifically, at the time of acquisition, in some cases, a portion of the purchase price was contingent on the seller leasing certain vacant space by certain applicable times. We are not obligated to pay this contingent purchase price unless the seller obtains leases for the vacant space within the time limits and parameters set forth in the acquisition agreement. As of December 31, 2015 and 2014, annualized base rent (“ABR”) per square foot averaged $17.05 and $14.48, respectively, for all properties owned. ABR is calculated by annualizing the current, in place monthly base rent for leases, including any tenant concessions, such as rent abatement or allowances, which may have been granted and excluding ground leases. ABR including ground leases averaged $14.90 and $13.08, as of December 31, 2015 and 2014, respectively.

We provide the following programs to facilitate additional investment in our shares and to provide limited liquidity for stockholders.

Distribution Reinvestment Plan

We provide existing stockholders with the option to purchase additional shares from us by automatically reinvesting cash distributions through the DRP, subject to certain share ownership restrictions. We do not pay any selling commissions or a marketing contribution and due diligence expense allowance in connection with the DRP. Shares are sold at a price equal to $9.50 per share until such time as we report an estimated value of our shares (the “Valuation Date”). On and after the Valuation Date, the price per share under the DRP will be equal to the estimated value of a share, as determined by our board of directors and reported by us from time to time.  We intend to publish an estimated value of our shares no later than April 2016.

Distributions reinvested through the DRP were approximately $20.8 million, $5.4 million and $0.5 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Share Repurchase Program

Under the share repurchase program (“SRP”), we are authorized to purchase shares from stockholders who purchased their shares from us or received their shares through a non-cash transfer and who have held their shares for at least one year, if requested, if we choose to repurchase them. Subject to funds being available, we limit the number of shares repurchased during any calendar year to 5% of the number of shares outstanding on December 31st of the previous calendar year. Funding for the SRP comes from proceeds we receive from the DRP. In the case of repurchases made because of the death of a stockholder or qualifying disability, as defined in the SRP, neither the one year holding period, the limit regarding funds available from the DRP nor the 5% limit applies. The SRP will

1


 

immediately terminate if our shares become listed for trading on a national securities exchange. In addition, our board of directors, in its sole direction, may, at any time, amend, suspend or terminate the SRP.

Pursuant to the SRP, we may repurchase shares at prices ranging from 92.5% of the “share price,” as defined in the SRP, for stockholders who have owned shares for at least one year to 100% of the “share price” for stockholders who have owned shares for at least four years. For repurchases sought upon a stockholder’s death or qualifying disability, we may repurchase shares at a price equal to 100% of the “share price.” As used in the SRP, “share price” means: (1) prior to the Valuation Date, the offering price of our shares in our Offering (unless the shares were purchased at a discount from that price, and then that purchase price), reduced by any distributions of net sale proceeds that we designate as constituting a return of capital; and (2) on and after the Valuation Date, the lesser of: (A) the share price determined in (1); or (B) the most recently disclosed estimated value per share.

Repurchases through the SRP were approximately $3.8 million, $0.3 million and $0 for the years ended December 31, 2015, 2014 and 2013, respectively.

Segment Data

We currently view our real estate portfolio as one business segment in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).  Accordingly, we did not report any other segment disclosure for the years ended December 31, 2015, 2014 and 2013.  Information related to our business segment for the years ended December 31, 2015, 2014 and 2013 is set forth in Note 10 – “Segment Reporting” to our accompanying consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

Tax Status

We have elected to be taxed as a Real Estate Investment Trust (“REIT”) for federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), beginning with the tax year ended December 31, 2013. Because we qualify for taxation as a REIT, we generally are not subject to federal income tax on taxable income that is distributed to stockholders. If we fail to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, we will be subject to federal (including any applicable alternative minimum tax) and state income tax on our taxable income at regular corporate tax rates. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property or net worth, respectively, and to federal income and excise taxes on our undistributed income.  

Competition

The commercial real estate market is highly competitive. We compete in all of our markets with other owners and operators of commercial properties. We compete based on a number of factors that include location, rental rates, security, suitability of the property’s design to tenants’ needs and the manner in which the property is operated and marketed. The number of competing properties in a particular market could have a material effect on a property’s occupancy levels, rental rates and operating expenses.

We are subject to significant competition in seeking real estate investments and tenants. We compete with many third parties engaged in real estate investment activities including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies and other entities. Some of these competitors, including larger REITs, have substantially greater financial resources than we do and generally enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies.

Employees

We do not have any employees. In addition, all of our executive officers are officers of IREIC or one or more of its affiliates and are compensated by those entities, in part, for their services rendered to us. We neither separately compensate our executive officers for their service as officers, nor do we reimburse either our Business Manager or Real Estate Managers for any compensation paid to individuals who also serve as our executive officers, or the executive officers of our Business Manager or its affiliates or our Real Estate Managers; provided that, for these purposes, the corporate secretaries of our Company and the Business Manager are not considered “executive officers.”

Conflicts of Interest

Certain persons performing services for our Business Manager and Real Estate Managers are employees of IREIC or its affiliates, and may also perform services for its affiliates and other IREIC-sponsored entities. These individuals face competing demands for their

2


 

time and services and may have conflicts in allocating their time between our business and assets and the business and assets of these other entities. IREIC also may face a conflict of interest in allocating personnel and resources among these entities. In addition, conflicts exist to the extent that we acquire properties in the same geographic areas where properties owned by other IREIC-sponsored programs are located. In these cases, a conflict may arise in the acquisition or leasing of properties if we and another IREIC-sponsored program are competing for the same properties or tenants in negotiating leases, or a conflict may arise in connection with the resale of properties if we and another IREIC-sponsored program are selling similar properties at the same time.

Our charter contains provisions setting forth our ability to engage in certain related party transactions. Our board of directors reviews all of these transactions and, as a general rule, any related party transactions must be approved by a majority of the directors, including a majority of the independent directors, not otherwise interested in the transaction. Further, we may not engage in certain transactions with entities sponsored by, or affiliated with, IREIC unless a majority of our board of directors, including a majority of our independent directors, finds the transaction to be fair and reasonable and on terms no less favorable to us than those from an unaffiliated party under the same circumstances. Our board has adopted a conflicts of interest policy prohibiting us from engaging in the following types of transactions with IREIC-affiliated entities:

 

·

purchasing real estate assets from, or selling real estate assets to, any IREIC-affiliated entities (excluding circumstances where an entity affiliated with IREIC, such as Inland Real Estate Acquisitions, Inc. (“IREA”), who from time to time may enter into a purchase agreement to acquire a property and then assign the purchase agreement to us);

 

·

making loans to, or borrowing money from, any IREIC-affiliated entities (this excludes expense advancements under existing agreements and the deposit of monies in any banking institution affiliated with IREIC); and

 

·

investing in joint ventures with any IREIC-affiliated entities.

This policy does not impact agreements or relationships between us and IREIC and its affiliates, including, for example, agreements with our Business Manager or Real Estate Managers that relate to the day-to-day management of our business.

Environmental Matters

As an owner of real estate, we are subject to various environmental laws, rules and regulations adopted by various governmental bodies or agencies. Compliance with these laws, rules and regulations has not had a material adverse effect on our business, assets, or results of operations, financial condition and ability to pay distributions. We do not believe that our existing portfolio as of December 31, 2015 will require us to incur material expenditures to comply with these laws and regulations.

Access to Company Information

We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (“SEC”). The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800)-SEC-0330. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.

We make available, free of charge, on our website, www.inlandincometrust.com, or by responding to requests addressed to our investor relations group, the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports. These reports are available as soon as reasonably practicable after such material is electronically filed or furnished to the SEC.

Certifications

We have filed with the SEC the certifications required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, which are attached as Exhibits 31.1, 31.2 and 31.3 to this Annual Report on Form 10-K.

 

 

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Item 1A.

Risk Factors  

The factors described below represent our principal risks. Other factors may exist that we do not consider to be significant based on information that is currently available or that we are not currently able to anticipate. The occurrence of any of the risks discussed below could have a material adverse effect on our business, financial condition, results of operations and ability to pay distributions to our stockholders.

Risks Related to Our Business

 

We have a limited operating history, and the prior performance of programs sponsored by IREIC should not be used to predict our future results.

We have a limited operating history and are subject to all of the risks, uncertainties and difficulties frequently encountered by other similarly-situated companies.  We and our Business Manager must, among other things, continue to:

 

·

identify and acquire real estate assets consistent with our investment strategies;

 

·

attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations; and

 

·

build and expand our operations structure to support our business.

We have incurred net losses on a U.S. GAAP basis for the years ended December 31, 2015, 2014 and 2013.

We have incurred net losses on a U.S. GAAP basis for the years ended December 31, 2015, 2014 and 2013 of approximately $13.4 million, $4.4 million and $2.5 million, respectively.  Our losses can be attributed, in part, to increased acquisition related expenses and depreciation and amortization. We may incur net losses in the future, which could have a material adverse impact on our financial condition, operations, cash flow, and our ability to service our indebtedness and pay distributions to our stockholders. We are subject to all of the business risks and uncertainties associated with any business, including the risk that the value of a stockholder’s investment could decline substantially. We cannot assure our stockholders that, in the future, we will be profitable or that we will realize growth in the value of our assets.

The amount and timing of distributions, if any, may vary.  We may pay distributions from sources other than cash flow from operations, including the net offering proceeds of our Offering and DRP.

There are many factors that can affect the availability and timing of distributions paid to our stockholders such as our ability to buy, and earn positive yields on, assets, our operating expense levels, as well as many other variables. We may not generate sufficient cash flow from operations to fund any distributions to our stockholders.  The actual amount and timing of distributions, if any, will be determined by our board of directors in its discretion, based on its analysis of our actual and expected cash flow, capital expenditures and investments, as well as general financial conditions. Actual cash available for distribution may vary substantially from estimates made by our board. In addition, to the extent we invest in development or redevelopment projects, or in real estate assets that have significant capital requirements, our ability to make distributions may be negatively impacted, especially while we are acquiring real estate assets.

If we cannot generate sufficient cash flow from operations, determined in accordance with U.S. GAAP, to fully fund distributions during any given period, we may pay all or a substantial portion of our cash distributions from retained cash flow, from borrowings, from cash flow from investing activities, including the net proceeds from the sale of our assets, or from the net proceeds of our Offering or DRP. Moreover, we may pay distributions that exceed our Funds From Operations or FFO.  Distributions in excess of FFO may indicate that the level of distributions may not be sustainable going forward.  Distributions funded from offering proceeds are a return of capital to stockholders. We have not limited the amount of monies from any of these sources that may be used to fund distributions except as limited by Maryland law.

Funding distributions from the proceeds of our Offering, DRP, borrowings or asset sales will result in us having fewer funds available to acquire properties or other real estate-related investments. As a result, the return our stockholders realize on their investment may be reduced. Doing so may negatively impact our ability to generate cash flows.  Likewise, funding distributions from the sale of additional securities will dilute our stockholders interest in us on a percentage basis and may impact the value of their investment especially if we sell these securities at prices less than the price our stockholder paid for their shares.

 

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We began declaring distributions to stockholders of record during December 2012.  Approximately 37% ($20.2 million) of the distributions paid to stockholders through December 31, 2015, were paid from the net proceeds of our initial Offering and the DRP, which reduces the proceeds available for other purposes, including investing in real estate assets. Our initial Offering was closed on October 16, 2015; accordingly, we will not raise any additional proceeds from the Offering, which would then be available to pay distributions.

Our Business Manager is under no obligation, and may not agree, to continue to forgo or defer its business management fee and acquisition fee.

From time to time, IREIC or its affiliates have forgone or deferred a portion of the business management fee due them from the other REITs previously sponsored by IREIC to ensure that the particular REIT generated sufficient cash from operating activities to pay distributions.  Through December 31, 2015, affiliates of IREIC have forgone our business management fees and acquisition fees of $0.7 million and $4.8 million, respectively.

We have funded and may continue to fund distributions from, among other things, advances or contributions from our Business Manager or IREIC or from the cash retained by us in the case that our Business Manager defers, accrues or waives all, or a portion, of its business management fee, acquisition fee, or waives its right to be reimbursed for certain expenses.  Neither our Business Manager nor IREIC has any obligation to provide us with advances or contributions, and our Business Manager is not obligated to defer, accrue or waive any portion of its business management fee, acquisition fee or reimbursements.  Further, there is no assurance that any of these other sources will be available to fund distributions.

There is no established public trading market for our shares, and our stockholders may not be able to sell their shares under our SRP, or otherwise.

There is no established public trading market for our shares and no assurance that one may develop. This may inhibit the transferability of our shares.  Our charter does not require our directors to seek stockholder approval to liquidate our assets by a specified date, nor does our charter require our directors to list our shares for trading by a specified date.  There is no assurance the board will pursue a listing or other liquidity event at any time in the future.  In addition, even if our board decides to seek a listing of our shares of common stock, there is no assurance that we will satisfy the listing requirements or that our shares will be approved for listing.  Thus, investors in our common stock should be prepared to hold their shares for an unlimited period of time. Our charter also prohibits the ownership of more than 9.8% in value of the aggregate of the outstanding shares of our stock or more than 9.8% (in value or numbers whichever is more restrictive) of any class or series of shares of our stock by any single investor unless exempted by our board.  

Moreover, our SRP contains numerous restrictions that limit our stockholders' ability to sell their shares, including those relating to the number of shares of our common stock that we can repurchase at any time and the funds we may use to repurchase shares pursuant to the program. Under the SRP, we are authorized to purchase shares from stockholders who purchased their shares from us or received their shares through a non-cash transfer and who have held their shares for at least one year, if requested, if we choose to repurchase them. Subject to funds being available, we limit the number of shares repurchased during any calendar year to 5% of the number of shares outstanding at December 31st of the previous calendar year. Funding for the SRP comes from proceeds we receive from the DRP. In the case of repurchases made because of the death of a stockholder or qualifying disability, as defined in the SRP, neither the one year holding period, the limit regarding funds available from the DRP nor the 5% limit applies. The SRP will immediately terminate if our shares become listed for trading on a national securities exchange.

Our board of directors, in its sole discretion, may amend, suspend (in whole or in part), or terminate our SRP. Further, our board reserves the right in its sole discretion to change the repurchase prices or reject any requests for repurchases. Any amendments to, or suspension or termination of, the SRP may restrict or eliminate our stockholders’ ability to have us repurchase their shares and otherwise prevent our stockholders from liquidating their investment. Therefore, our stockholders may not have the opportunity to make a repurchase request prior to a potential termination of the SRP and our stockholders may not be able to sell any of their shares of common stock back to us. As a result of these restrictions and circumstances, the ability of our stockholders to sell their shares should they require liquidity is significantly restricted. Moreover, if our stockholders do sell their shares of common stock back to us pursuant to the SRP, they may be forced to do so at a discount to the purchase price such stockholders paid for their shares.

The estimated value per share of our common stock will be based on a number of assumptions and estimates that may not be accurate or complete and is also subject to a number of limitations.

We intend to publish an estimated value of our shares no later than April 2016. The board of directors approved the engagement of an independent third party real estate advisory firm to assist the board of directors in estimating the per share value of our common stock. As with any methodology used to estimate value, the methodology employed by the third party will be based upon a number of

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estimates and assumptions that may not be accurate or complete. Further, different parties using different assumptions and estimates could derive a different estimated value per share, which could be significantly different from our estimated value per share. The estimated per share value will fluctuate over time and will not represent: (i) the price at which our shares would trade on a national securities exchange, (ii) the amount per share a stockholder would obtain if he, she or it tried to sell his, her or its shares or (iii) the amount per share stockholders would receive if we liquidated our assets and distributed the proceeds after paying all our expenses and liabilities.

There is also no assurance that the methodology used to estimate our value per share will be acceptable to broker dealers for customer account purposes or to the Financial Industry Regulatory Authority (“FINRA”) or that the estimated value per share will satisfy the applicable annual valuation requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the Internal Revenue Code with respect to employee benefit plans subject to ERISA and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code.

 

Our charter authorizes us to issue additional shares of stock, which may reduce the percentage of our common stock owned by our other stockholders, subordinate stockholders’ rights or discourage a third party from acquiring us.

Existing stockholders do not have preemptive rights to purchase any shares issued by us in the future. Our charter authorizes us to issue up to 1,500,000,000 shares of capital stock, of which 1,460,000,000 shares are classified as common stock and 40,000,000 shares are classified as preferred stock.  We may, in the sole discretion of our board:

 

·

sell additional shares in any future offerings including pursuant to the DRP;

 

·

issue equity interests in a private offering of securities;

 

·

classify or reclassify any unissued shares of common or preferred stock by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications, or terms or conditions of redemption of the stock;

 

·

amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series that we have authority to issue; or

 

·

issue shares of our capital stock in exchange for properties.

Future issuances of common stock will reduce the percentage of our outstanding shares owned by our other stockholders.  Further, our board of directors could authorize the issuance of stock with terms and conditions that could subordinate the rights of the holders of our current common stock or have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for our stockholders.

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

The availability of debt financing secured by commercial real estate is subject to tightened underwriting standards when compared to pre-recession standards.  Further, after a period of near zero interest rates, the U.S. Federal Reserve raised interest rates by 0.25%, in December 2015, which may affect U.S. economic conditions as a whole, or real estate industry conditions such as:  

 

·

an increase in the number of bankruptcies or insolvency proceedings of our tenants and lease guarantors, which could delay our efforts to collect rent and any past balances due under the relevant leases and ultimately could preclude collection of these sums;

 

·

our ability to borrow on terms and conditions that we find acceptable may be limited, which could result in our investment operations (real estate assets) generating lower overall economic returns and a reduced level of cash flow from what was anticipated at the time we acquired the asset, which could potentially impact our ability to make distributions to our stockholders, or pursue acquisition opportunities, among other things, and increase our interest expense;

 

·

a reduction in the amount of capital that is available to finance real estate, which, in turn, could lead to a decline in real estate values generally, slow real estate transaction activity, and reduce the loan to value ratio upon which lenders are willing to lend;

 

·

the value of certain of our real estate assets may decrease below the amounts we pay for them, which would limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by these assets and could reduce the availability of unsecured loans;

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·

the value and liquidity of short-term investments, if any, could be reduced as a result of the dislocation of the markets for our short-term investments and increased volatility in market rates for these investments or other factors; and  

 

·

one or more counterparties to derivative financial instruments that we have entered into, or may enter into, could default on their obligations to us, or could fail, increasing the risk that we may not realize the benefits of these instruments.

For these and other reasons, we cannot assure our stockholders that we will be profitable or that we will realize growth in the value of our investments.

We may suffer from delays in selecting, acquiring and developing suitable assets.

We may experience delays in deploying our capital into assets or in realizing a return on the capital we invest.  We could suffer from delays in locating suitable investments as a result of competition in the relevant market, regulatory requirements such as those imposed by the SEC which require us to provide audited financial statements for certain significant acquisitions and our reliance on IREA and other affiliates of IREIC to locate suitable investments for us at times when those entities are simultaneously seeking to locate suitable investments for other IREIC-sponsored programs.  We also may experience delays as a result of negotiating or obtaining the necessary purchase documentation to close an acquisition.  Further, our investments may not yield immediate returns, if at all.

We also invest the net proceeds we received from our Offering in short-term, highly-liquid but very low yield investments.  These yields will be less than the distribution yield paid to stockholders, requiring us to earn a greater return from our other investments to make up for this “negative spread.”  There is no assurance we will be able to do so.  Further, we may use the principal amount of these investments, and any returns generated on these investments, to pay expenses or to acquire real estate assets instead of funding distributions with these amounts.

Our board of directors may change our investment policies without stockholder approval, which could alter the nature of our stockholders’ investment.

Our charter requires our independent directors to review our investment policies at least annually to determine that the policies we are following are in the best interest of our stockholders. These policies may change over time. The methods of implementing our investment policies may also vary, as new investment techniques are developed.  Our investment policies, the methods for implementing them, and our other objectives, policies and procedures may be altered by a majority of the directors (which must include a majority of the independent directors), without the approval of our stockholders.  As a result, the nature of our stockholders’ investment could change without their consent.  A change in our investment strategy may, among other things, increase our exposure to interest rate risk, default risk and commercial real property market fluctuations, all of which could materially adversely affect our ability to achieve our investment objectives.

Actions of our joint venture partners could negatively impact our performance.

We may enter into joint ventures with third parties. Our organizational documents do not limit the amount of funds that we may invest in these joint ventures.  We intend to develop and acquire properties through joint ventures with other persons or entities when warranted by the circumstances. The venture partners may share certain approval rights over major decisions and these investments may involve risks not otherwise present with other methods of investment in real estate, including, but not limited to:

 

·

the current economic conditions make it more likely that our partner in an investment may become bankrupt, which would mean that we and any other remaining partner would generally remain liable for the entity’s liabilities;

 

·

that our partner may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals, and we may not agree on all proposed actions to certain aspects of the venture;

 

·

that our partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our objective to qualify as a REIT;

 

·

that, if our partners fail to fund their share of any required capital contributions, we may be required to contribute that capital;

 

·

that venture agreements often restrict the transfer of a partner’s interest or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms;

 

·

that our relationships with our partners are contractual in nature and may be terminated or dissolved under the terms of the agreements and, in each event, we may not continue to own or operate the interests or assets underlying the relationship or may need to purchase these interests or assets at an above-market price to continue ownership;

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·

that disputes between us and our partners may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business; and 

 

·

that we may in certain circumstances be liable for our partner’s actions.

The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to fund our capital and operating needs and distributions.

The Federal Deposit Insurance Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank.  The FDIC insures up to $250,000 per depositor per insured bank account.  At December 31, 2015, we had cash and cash equivalents exceeding these federally insured levels.  If any of the banking institutions in which we have deposited funds ultimately fail, we may lose our deposits over the federally insured levels.  The loss of our deposits would reduce the amount of cash we have available to fund our capital and operating needs and distributions.

We rely on IREIC and its affiliates and subsidiaries to manage and conduct our operations. Any material adverse change in IREIC’s financial condition or our relationship with IREIC could have a material adverse effect on our business and ability to achieve our investment objectives.

We depend on IREIC and its affiliates and subsidiaries to manage and conduct our operations. IREIC, through one or more of its affiliates or subsidiaries, owns and controls our Business Manager and Real Estate Managers.  IREIC has sponsored numerous public and private programs and through its affiliates or subsidiaries has provided offering, asset, property and other management and ancillary services to these entities. From time to time, IREIC or the applicable affiliate or subsidiary has waived fees or made capital contributions to support these public or private programs. IREIC or its applicable affiliates or subsidiaries may waive fees or make capital contributions in the future. Further, IREIC and its affiliates or subsidiaries may from time to time be parties to litigation or other claims arising from sponsoring these entities or providing these services. As such, IREIC and these other entities may incur  costs, liabilities or other expenses arising from litigation or claims that are either not reimbursable or not covered by insurance. Future waivers of fees, additional capital contributions or costs, liabilities or other expenses arising from litigation or claims could have a material adverse effect on IREIC’s financial condition and ability to fund our Business Manager or Real Estate Managers to the extent necessary.

If our Business Manager or Real Estate Managers lose or are unable to obtain key personnel, our ability to implement our investment strategies could be hindered.

Our success depends to a significant degree upon the contributions of certain of our executive officers and other key personnel of our Business Manager and Real Estate Managers.  Neither we nor our Business Manager or Real Estate Managers has employment agreements with these persons, and we cannot guarantee that all, or any particular one, will continue to be available to provide services to us. If any of the key personnel of our Business Manager or Real Estate Managers were to cease their employment or other relationship with our Business Manager or Real Estate Managers, respectively, our results and ability to pursue our business plan could suffer.  Further, we do not intend to separately maintain “key person” life insurance that would provide us with proceeds in the event of death or disability of these persons. We believe our future success depends, in part, upon the ability of our Business Manager or Real Estate Managers to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure our stockholders that our Business Manager or Real Estate Managers will be successful in attracting and retaining skilled personnel. If our Business Manager or Real Estate Managers lose or are unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the value of our stockholders’ investment could decline.

An estimated value of our shares of common stock may not exceed the price at which we are offering shares under the DRP.

Under rules published by FINRA, registered broker-dealers must disclose a per share estimated value of a REIT’s securities.  Due to uncertainties in the marketplace and other factors which could impact our results of operations and financial condition, the future per share estimated value of our shares may be greater or less than the price at which stockholders purchased shares in the Offering or the price of our shares currently offered through our DRP.  On and after the Valuation Date, the price per share under the DRP will be equal to the estimated value of a share as determined by our board and reported by us from time to time.

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If we become self-managed by internalizing our management functions, we may be unable to retain key personnel, and our ability to achieve our investment objectives could be delayed or hindered, which could adversely affect our ability to pay distributions to our stockholders and the value of their investments.

At some point in the future, we may consider becoming self-managed by internalizing the functions performed for us by our Business Manager. Even if we become self-managed, we may not be able to hire certain key employees of the Business Manager and its affiliates, even if we are allowed to offer them positions with our Company. Although we are generally restricted from soliciting these persons pursuant to certain provisions set forth in the business management agreement, during the one-year period after the Business Manager’s receipt of an internalization notice the Business Manager will permit us to solicit for hire the “key” employees of the Business Manager and its affiliates, including all of the persons serving as the executive officers of our Company or the Business Manager who do not also serve as directors or officers of any other IREIC-sponsored REITs. However, at any given moment, many or all of the executive officers of the Company and the Business Manager may also be serving as a director or officer of one or more other IREIC-sponsored REITs. Failure to hire or retain key personnel could result in increased costs and deficiencies in our disclosure controls and procedures or our internal control over financial reporting. These deficiencies could cause us to incur additional costs and divert management’s attention from most effectively managing our investments, which could result in us being sued and incurring litigation-associated costs in connection with the internalization transaction.

If we seek to internalize our management functions other than as provided for under our business management agreement, we could incur greater costs and lose key personnel.

Our board may decide that we should pursue an internalization by hiring our own group of executives and other employees or entering into an agreement with a third party, such as a merger, instead of by transitioning the services performed by, and hiring the persons providing services for, our Business Manager. The costs that we would incur in this case are uncertain and may be substantial.  Further, we would lose the benefit of the experience of our Business Manager.

Further, if we seek to internalize the functions performed for us by our Real Estate Managers, the purchase price will be separately negotiated by our independent directors, or a committee thereof, and will not be subject to the transition procedures described in our business management agreement.

As an “emerging growth company,” we are permitted to rely on exemptions from certain reporting and disclosure requirements, which may make our future public filings different than that of other public companies.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting and disclosure requirements that are applicable to public companies that are not emerging growth companies. We will remain an emerging growth company for up to five years, or until the earliest of: (1) the last date of the fiscal year during which we had total annual gross revenues of $1 billion or more; (2) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; or (3) the date on which we are deemed to be a “large accelerated filer” as defined under Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  For so long as we remain an emerging growth company, we will not be required to:

 

·

have an auditor attestation report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

·

submit certain executive compensation matters to stockholder advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding stockholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding stockholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; and

 

·

disclose certain executive compensation related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

If we choose to take advantage of any or all of these provisions, the information that we provide our stockholders in our future public filings may be different than that of other public companies.  The exact implications of the JOBS Act for us are still subject to interpretations and guidance by the SEC and other regulatory agencies.  In addition, as our business grows, we may no longer satisfy the conditions of an emerging growth company.  We continue to evaluate and monitor developments with respect to these rules and we cannot assure our stockholders that we will be able to take advantage of all of the benefits of the JOBS Act.

In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies.  This means

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that an emerging growth company can delay adopting certain accounting standards until such standards are otherwise applicable to private companies.  We elected to opt out of this transition period, and will therefore comply with new or revised accounting standards on the applicable dates on which the adoption of these standards is required for non-emerging growth companies.  This election is irrevocable.

Our stockholders’ return on investment in our common stock may be reduced if we are required to register as an investment company under the Investment Company Act.

The Company is not registered, and does not intend to register itself or any of its subsidiaries, as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).  If we become obligated to register the Company or any of its subsidiaries as an investment company, the registered entity would have to comply with regulation under the Investment Company Act with respect to capital structure (including the registered entity’s ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act) and portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration, and other matters.  Compliance with the Investment Company Act would limit our ability to make certain investments and require us to significantly restructure our operations and business plan.  The costs we would incur and the limitations that would be imposed on us as a result of such compliance and restructuring would negatively affect the value of our common stock, our ability to make distributions and the sustainability of our business and investment strategies.

We believe that neither we nor any subsidiaries we own fall within the definition of an investment company under Section 3(a)(1) of the Investment Company Act because we primarily engage in the business of investing in real property, through our wholly or majority-owned subsidiaries, each of which has at least 60% of their assets in real property.  The Company conducts its operations, directly and through wholly or majority-owned subsidiaries, so that none of the Company and its subsidiaries is registered or will be required to register as an investment company under the Investment Company Act.  Section 3(a)(1) of the Investment Company Act, in relevant part, defines an investment company as (i) any issuer that is, or holds itself out as being, engaged primarily in the business of investing, reinvesting or trading in securities, or (ii) any issuer that is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns, or proposes to acquire, “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of government securities and cash items) on an unconsolidated basis, which we refer to as the “40% test.”  The term “investment securities” generally includes all securities except government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exemption from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.  We and our subsidiaries are primarily engaged in the business of investing in real property and, as such, fall outside of the definition of an investment company under Section 3(a)(1)(A) of the Investment Company Act.  We also conduct our operations and the operations of our subsidiaries so that each complies with the 40% test.

Accordingly, we believe that neither the Company nor any of its wholly and majority-owned subsidiaries are considered investment companies under either Section 3(a)(1)(A) or Section 3(a)(1)(C) of the Investment Company Act.  If the Company or any of its wholly or majority-owned subsidiaries would ever inadvertently fall within one of the definitions of “investment company,” we intend to rely on the exemption provided by Section 3(c)(5)(C) of the Investment Company Act.  To rely upon Section 3(c)(5)(C) of the Investment Company Act as it has been interpreted by the SEC staff, an entity would have to invest at least 55% of its total assets in “mortgage and other liens on and interests in real estate,” which we refer to as “qualifying real estate investments” and maintain an additional 25% of its total assets in qualifying real estate investments or other real estate-related assets.  The remaining 20% of the entity’s assets can consist of miscellaneous assets.  These criteria may limit what we buy, sell and hold.

We classify our assets for purposes of Section 3(c)(5)(C) based in large measure upon no-action letters issued by the SEC staff and other interpretive guidance provided by the SEC and its staff.  The no-action positions are based on factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than twenty years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage-backed securities, other mortgage-related instruments, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets, and therefore, we may limit our investments in these types of assets.  The SEC or its staff may not concur with the way we classify our assets. Future revisions to the Investment Company Act or further guidance from the SEC or its staff may cause us to no longer be in compliance with the exemption from the definition of an “investment company” provided by Section 3(c)(5)(C) and may force us to re-evaluate our portfolio and our investment strategy.  For example, on August 31, 2011 the SEC issued a concept release and request for comments regarding the Section 3(c)(5)(C) exemption (Release No. IC-29778) in which it contemplated the possibility of issuing new rules or providing new interpretations of the exemption that might, among other things, define the phrase “liens on and other interests in real estate” or consider sources of income in determining a company’s “primary business.”  To the extent that the SEC or its staff provides more specific or different guidance, we may be required to adjust our strategy accordingly. Any additional guidance from the SEC or its staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the strategies we have chosen.

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A change in the value of any of our assets could cause us to fall within the definition of “investment company” and negatively affect our ability to be free from registration and regulation under the Investment Company Act.  To avoid being required to register the Company or any of its subsidiaries as an investment company under the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain.  Sales may be required during adverse market conditions, and we could be forced to accept a price below that which we would otherwise consider appropriate.  In addition, we may have to acquire additional income- or loss-generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy.  Any such selling, acquiring or holding of assets driven by Investment Company Act considerations could negatively affect the value of our common stock, our ability to make distributions and the sustainability of our business and investment strategies, which may have a material adverse effect on our business, results of operations and financial condition.

If we were required to register the Company or any of its subsidiaries as an investment company but failed to do so, we or the applicable subsidiary would be prohibited from engaging in our or its business, and criminal and civil actions could be brought against us or the applicable subsidiary. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

The occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Our three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure. We have implemented processes, procedures and controls to help mitigate these risks, but these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident.

A failure of our information technology (IT) infrastructure could adversely impact our business and operations.

We rely upon the capacity, reliability and security of our information technology infrastructure and our ability to expand and continually update this infrastructure in response to changing needs of our business. We face the challenge of supporting older systems and hardware and implementing necessary upgrades to our IT infrastructure.  We may not be able to successfully implement these upgrades in an effective manner.  In addition, we may incur significant increases in costs and extensive delays in the implementation and rollout of any upgrades or new systems.  If there are technological impediments, unforeseen complications, errors or breakdowns in implementation, the disruptions could have an adverse effect on our business and financial condition.

Risks Related to Investments in Real Estate

There are inherent risks with real estate investments.

Investments in real estate assets are subject to varying degrees of risk. For example, an investment in real estate cannot generally be quickly sold, limiting our ability to promptly vary our portfolio in response to changing economic, financial and investment conditions. Investments in real estate assets also are subject to adverse changes in general economic conditions which, for example, reduce the demand for rental space.

Among the factors that could impact our real estate assets and the value of an investment in us are:

 

·

local conditions such as an oversupply of space or reduced demand for properties of the type that we seek to acquire;

 

·

inability to collect rent from tenants;

 

·

vacancies or inability to rent space on favorable terms;

 

·

inflation and other increases in operating costs, including insurance premiums, utilities and real estate taxes;

 

·

adverse changes in the federal, state or local laws and regulations applicable to us, including those affecting rents, zoning, prices of goods, fuel and energy consumption, water and environmental restrictions;

 

·

the relative illiquidity of real estate investments;

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·

changing market demographics; 

 

·

an inability to acquire and finance real estate assets on favorable terms, if at all;

 

·

acts of God, such as earthquakes, floods or other uninsured losses; and

 

·

changes or increases in interest rates and availability of financing.

In addition, periods of economic slowdown or recession, or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or increased defaults under existing leases.

Economic conditions may adversely affect our income and we could be subject to risks associated with acquiring discounted real estate assets.

U.S. and international financial markets have been volatile, particularly over the last several years. The effects of this volatility may persist particularly as financial institutions continue to restructure their business and capital structures in response to new, or enhanced, regulation requirements, all of which could impact the availability of credit and overall economic activity as a whole.

In addition, we are subject to the risks generally incident to the ownership of real estate assets.  For example, even though we may purchase assets at a discount from historical cost or market value due to, among other things, substantial deferred maintenance, abandonment, undesirable location or market, or poorly structured financing of the real estate or debt instruments underlying the assets, there is no assurance that we will be able to overcome these factors.  All of these factors could further decrease the value of real estate assets.

Further, the fluctuation in market conditions makes judging the future performance of these assets difficult. The real estate assets we acquire may substantially decline in value, which would, among other things, negatively impact our ability to finance or refinance debt secured by these assets or earn positive returns on these assets, and may require us to write down or impair the value of these assets, which would have a negative impact on our results of operations and ability to pay or sustain distributions.

Economic conditions in the United States have had, and may continue to have, an adverse impact on the retail industry generally. Slow or negative growth in the retail industry could result in defaults by retail tenants which could have an adverse impact on our financial operations.

Economic conditions in the United States have had an adverse impact on the retail industry generally. As a result, the retail industry is facing reductions in sales revenues and increased bankruptcies throughout the United States. The continuation of adverse economic conditions may result in an increase in distressed or bankrupt retail companies, which in turn would result in an increase in defaults by tenants at our commercial properties. Additionally, slow economic growth is likely to hinder new entrants into the retail market which may make it difficult for us to fully lease space at our retail properties or retail properties we plan to acquire. Tenant defaults and decreased demand for retail space would have an adverse impact on the value of our retail properties and any additional retail properties we acquire and our results of operations.

We face significant competition in the leasing market, which may decrease or prevent increases in the occupancy and rental rates of our properties.

As of December 31, 2015, we owned 54 properties located in 22 states. We compete with numerous developers, owners and operators of commercial properties, many of which own properties similar to, and in the same market areas as, our properties. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates below those we currently charge in order to attract new tenants or retain existing tenants when their leases expire. To the extent we are unable to renew leases or re-let space as leases expire, it would result in decreased cash flow from tenants and reduce the income produced by our properties. Excessive vacancies (and related reduced shopper traffic) at one of our properties may hurt sales of other tenants at that property and may discourage them from renewing leases. Also, if our competitors develop additional properties in locations near our properties, there may be increased competition for creditworthy tenants, which may require us to make capital improvements to properties that we would not have otherwise made.

 

Acts of God, such as earthquakes, floods or other uninsured losses, may make us susceptible to adverse climate developments from the effects of these natural disasters in those areas.

 

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Because our properties are concentrated in certain geographic areas, our operating results are likely to be impacted by climate changes affecting the real estate markets in those areas. Adverse events such as hurricanes, floods, wildfires, earthquakes, blizzards or other natural disasters, could cause a loss of revenues at our real estate properties. These losses may not be insured or insurable at an acceptable cost. Elements such as water, wind, hail, or fire damage can increase or accelerate wear on our properties' weatherproofing, and mechanical, electrical and other systems, and cause mold issues. As a result, we may incur additional operating costs and expenditures for capital improvements at these properties

We depend on tenants for our revenue, and accordingly lease terminations, tenant default, and bankruptcies could adversely affect the income produced by our properties.

The success of our investments depends on the financial stability of our tenants. Certain economic conditions may adversely affect one or more of our tenants. For example, business failures and downsizings may contribute to reduced consumer demand for retail products and services which would impact tenants of our retail properties. In addition, our retail shopping center properties typically are anchored by large, nationally recognized tenants, any of which may experience a downturn in their business that may weaken significantly their financial condition. Further, mergers or consolidations among large retail establishments could result in the closure of existing stores or duplicate or geographically overlapping store locations, which could include tenants at our retail properties.

As a result of these factors, our tenants may delay lease commencements, decline to extend or renew their leases upon expiration, fail to make rental payments, or declare bankruptcy. Any of these actions could result in the termination of the tenants' leases, the expiration of existing leases without renewal, or the loss of rental income attributable to the terminated or expired leases. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment and re-leasing our property.

Our revenue is impacted by the success and economic viability of our anchor retail tenants. Our reliance on single or significant tenants in certain buildings may decrease our ability to lease vacated space and adversely affect the returns on our stockholders’ investment.

In the retail sector, a tenant occupying all or a large portion of the gross leasable area of a retail center, commonly referred to as an anchor tenant, may become insolvent, may suffer a downturn in business, or may decide not to renew its lease. Any of these events would result in a reduction or cessation in rental payments to us and would adversely affect our financial condition. A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases may permit cancellation or rent reduction if another tenant’s lease is terminated. Similarly, the leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer. The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. A lease transfer to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases in accordance with lease terms. In the event that we are unable to release the vacated space to a new anchor tenant, we may incur additional expenses in order to remodel the space to be able to re-lease the space to more than one tenant.

If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases.

Any of our tenants or any guarantor of a tenant’s lease obligations could be subject to a bankruptcy proceeding in pursuit of Title 11 of the bankruptcy laws of the United States.  A bankruptcy filing of our tenants or any guarantor of a tenant’s lease obligations would bar all efforts to collect pre-bankruptcy debts from these entities or their properties, unless we receive an enabling order from the bankruptcy court.  Post bankruptcy debts would be paid currently.  If a lease is assumed, all pre-bankruptcy balances owing under it must be paid in full.  If a lease is rejected by a tenant in bankruptcy, we would only have a general unsecured claim for damages.  If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid.  This claim could be paid only if the funds were available, and then only in the same percentages as that realized on other unsecured claims.

A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums.  A tenant or lease guarantor bankruptcy could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the amount available for distributions to our stockholders.  In the event of a bankruptcy there can be no assurance that the tenant or its trustee will assume our lease.  If a given lease or guaranty of a lease is not assumed, our cash flow and the amounts available for distributions to our stockholders may be adversely affected.

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Geographic concentration of our portfolio may make us particularly susceptible to adverse economic developments in the real estate markets of those areas.

For the year ended December 31, 2015, approximately 37% of our base rental income of our consolidated portfolio was generated by properties located in the Southeastern United States.  Our operations and business are subject to greater risk to the extent that we lack a geographically diversified portfolio of properties.

Inflation may adversely affect our financial condition and results of operations.

Increases in the rate of inflation may adversely affect our net operating income from leases with stated rent increases or limits on the tenant’s obligation to pay its share of operating expenses, which could be lower than the increase in inflation at any given time.  Inflation could also have an adverse effect on consumer spending, which may impact our tenants’ sales and, with respect to those leases including percentage rent clauses, our average rents.

We may be restricted from re-leasing space at our retail properties.

Leases with retail tenants may contain provisions giving the particular tenant the exclusive right to sell particular types of merchandise or provide specific types of services within the particular retail center. These provisions may limit the number and types of prospective tenants interested in leasing space in a particular retail property.

We have entered into long-term leases with some of our retail tenants, and those leases may not result in fair value over time, which could adversely affect our revenues and ability to make distributions.

We have entered into long-term leases with some of our retail tenants. Long-term leases do not allow for significant changes in rental payments and do not expire in the near term. If we do not accurately judge the potential for increases in market rental rates when negotiating these long-term leases, significant increases in future property operating costs could result in receiving less than fair value from these leases. These circumstances would adversely affect our revenues and funds available for distribution.

Retail conditions may adversely affect our income.

A retail property’s revenues and value may be adversely affected by a number of factors, many of which apply to real estate investment generally, but which also include trends in the retail industry and perceptions by retailers or shoppers of the safety, convenience and attractiveness of the retail property. Our properties are located in public places, and any incidents of crime or violence, including acts of terrorism, would result in a reduction of business traffic to tenant stores in our properties. Any such incidents may also expose us to civil liability. In addition, to the extent that the investing public has a negative perception of the retail sector, the value of our retail properties may be negatively impacted.

A number of our retail leases are based on tenant gross sales.  Under those leases which are based on the gross sales of our tenants, our revenue from tenants may increase as the sales of our tenants increase.  Generally, retailers face declining revenues during downturns in the economy.  As a result, the portion of our revenue which may derive from percentage rent leases could be adversely affected by a general economic downturn.  

Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.

From time to time, we have acquired multiple properties in a single transaction. Portfolio acquisitions typically are more complex and expensive than single property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions may also result in us owning investments in geographically dispersed markets, placing additional demands on our Business Manager and Real Estate Managers in managing the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate or attempt to dispose of these properties.  We also may be required to accumulate a large amount of cash to fund such acquisitions. We would expect the returns that we earn on such cash to be less than the returns on real property.  Therefore, acquiring multiple properties in a single transaction may reduce the overall yield on our portfolio.

Short-term leases may expose us to the effects of declining market rent.

Some of our properties have short-term leases with tenants.  There is no assurance that we will be able to renew these leases as they expire or attract replacement tenants on comparable terms, if at all.  Therefore, the returns we earn on this type of investment may be more volatile than the returns generated by properties with longer term leases.

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We do not own or control the land in any ground lease properties that we have or may acquire.

We have and may continue to acquire property on land owned by a third party known as a “leasehold interest.” Although we have a right to use the property, we do not retain fee ownership in the underlying land. Accordingly, we will have no economic interest in the land or building at the expiration of the leasehold interest. As a result, we will not share in any increase in value of the land associated with the underlying property. Further, because we do not control the underlying land, the lessor could take certain actions to disrupt our rights in the property or our tenants’ operation of the properties.

We may be unable to sell assets if or when we decide to do so.

Maintaining our REIT qualification and continuing to avoid registration under the Investment Company Act as well as many other factors, such as general economic conditions, the availability of financing, interest rates and the supply and demand for the particular asset type, may limit our ability to sell real estate assets. Many of these factors are beyond our control. We cannot predict whether we will be able to sell any real estate asset on favorable terms and conditions, if at all, or the length of time needed to sell an asset.

Sale leaseback transactions may be re-characterized in a manner unfavorable to us.

We may from time to time enter into a sale leaseback transaction where we purchase a property and then lease the property to the seller. The transaction may, however, be characterized as a financing instead of a sale in the case of the seller’s bankruptcy. In this case, we would not be treated as the owner of the property but rather as a creditor with no interest in the property itself. The seller may have the ability in a bankruptcy proceeding to restructure the financing by imposing new terms and conditions. The transaction also may be re-characterized as a joint venture. In this case, we would be treated as a joint venture with liability, under some circumstances, for debts incurred by the seller relating to the property.

Operating expenses may increase in the future and to the extent these increases cannot be passed on to our tenants, our cash flow and our operating results would decrease.

Operating expenses, such as expenses for fuel, utilities, labor, building materials and insurance, are not fixed and may increase in the future.  Unless specifically provided for in a lease, there is no guarantee that we will be able to pass these increases on to our tenants. To the extent these increases cannot be passed on to our tenants, any increases would cause our cash flow and our operating results to decrease, which could have a material adverse effect on our ability to pay or sustain distributions.

 

We may incur costs associated with the termination of our membership interest in the insurance association captive and may incur increased costs for property and general liability insurance costs.

 

We are a member of an insurance association captive (“Captive”), which is owned by us, Inland Real Estate Corporation (“IRC”), InvenTrust Properties Corp. (“InvenTrust”) and Retail Properties of America, Inc. (“RPAI”). In March 2016, the Captive was notified by IRC of its intention to dissociate. Previously, InvenTrust and RPAI terminated their future participation effective December 1, 2015 and December 1, 2014, respectively.  Based upon this notice and regulatory requirements, it is expected the Captive will terminate its operations in accordance with the applicable rules and regulations for an insurance association captive in 2016. We will need to obtain separate property and general liability insurance once the Captive is unable to provide coverage to us.  We cannot assure our stockholders that we will be able to obtain insurance coverage based upon the same terms and conditions currently provided by the Captive.  As a result, we may incur additional costs to obtain insurance.  In addition, we may be liable for costs associated with the termination of the Captive.

We depend on the availability of public utilities and services, especially for water and electric power. Any reduction, interruption or cancellation of these services may adversely affect us.

Public utilities, especially those that provide water and electric power, are fundamental for the operation of our assets. The delayed delivery or any material reduction or prolonged interruption of these services could allow certain tenants to terminate their leases or result in an increase in our costs, as we may be forced to use backup generators, which also could be insufficient to fully operate our facilities and could result in our inability to provide services.  Accordingly, any interruption or limitation in the provision of these essential services may adversely affect us.

An increase in real estate taxes may decrease our income from properties.

Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisition of the property. Generally, from time to time our property taxes will increase as property values or assessment rates change or for other reasons deemed relevant by the assessors.  In fact, property taxes may increase even if the value of the underlying property declines.  An

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increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. Although some tenant leases may permit us to pass through the tax increases to the tenants for payment, there is no assurance that renewal leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will adversely affect our cash flow from operations and our ability to pay distributions.

Potential development and construction delays and resulting increased costs and risks may reduce cash flow from operations.

From time to time we may acquire unimproved real property or properties that are under development or construction. Investments in these properties will be subject to the uncertainties generally associated with real estate development and construction, including those related to re-zoning land for development, environmental concerns of governmental entities or community groups and the developers’ ability to complete the property in conformity with plans, specifications, budgeted costs and timetables. If a developer fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A developer’s performance may also be affected or delayed by conditions beyond the developer’s control. Delays in completing construction could also give tenants the right to terminate leases. We may incur additional risks when we make periodic progress payments or other advances to developers before they complete construction. These and other factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to lease-up risks associated with newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer.

If we contract with a development company for newly developed property, our earnest money deposit made to the development company may not be fully refunded.

We may enter into one or more contracts, either directly or indirectly through joint ventures with third parties, to acquire real property from a development company that is engaged in construction and development of commercial real estate. We may be required to pay a substantial earnest money deposit at the time of contracting with a development entity. At the time of contracting and the payment of the earnest money deposit by us, the development company typically will have only a contract to acquire land, a development agreement to develop a building on the land and an agreement with one or more tenants to lease all or part of the property upon its completion. If the development company fails to develop the property or all or a specified portion of the pre-leased tenants fail to take possession under their leases for any reason, we may not be able to obtain a refund of our earnest money deposit.

We may obtain only limited warranties when we purchase a property and would have only limited recourse in the event our due diligence did not identify any issues that lower the value of our property.

The seller of a property often sells the property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property, as well as the loss of rental income from that property.

Uninsured losses or premiums for insurance coverage may adversely affect our returns.

The nature of the activities at certain properties may expose us and our tenants or operators to potential liability for personal injuries and, in certain instances, property damage claims. In addition, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims.  These policies may or may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot provide any assurance that we will have adequate coverage for these losses. In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of the particular asset will likely be reduced by the uninsured loss. In addition, we cannot provide any assurance that we will be able to fund any uninsured losses.

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The costs of complying with environmental laws and other governmental laws and regulations may adversely affect us.

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. We also are required to comply with various local, state and federal fire, health, life-safety and similar regulations.  Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs of investigating or remediating contaminated properties.  These laws and regulations often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances.  The cost of removing or remediating could be substantial.  In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent a property or to use the property as collateral for borrowing.

Environmental laws and regulations also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures by us.  Environmental laws and regulations provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties.  Third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances.  Compliance with new or more stringent laws or regulations or stricter interpretations of existing laws may require material expenditures by us.  For example, various federal, regional and state laws and regulations have been implemented or are under consideration to mitigate the effects of climate change caused by greenhouse gas emissions.  Among other things, “green” building codes may seek to reduce emissions through the imposition of standards for design, construction materials, water and energy usage and efficiency, and waste management.  These requirements could increase the costs of maintaining or improving our existing properties or developing new properties.

We may acquire properties in regions that are particularly susceptible to natural disasters.

We may acquire properties located in geographical areas that are regularly impacted by severe storms, such as hurricanes or tornados, or other natural disasters such as flooding or earthquakes.  In addition, according to some experts, global climate change could result in heightened severe weather, thus further impacting these geographical areas.  Natural disasters in these areas may cause damage to our properties beyond the scope of our insurance coverage, thus requiring us to make substantial expenditures to repair these properties and resulting in a loss of revenues from these properties.  Any properties located near either coast will be exposed to more severe weather than properties located inland.  Elements such as salt water and humidity in these areas can increase or accelerate wear on the properties’ weatherproofing and mechanical, electrical and other systems, and cause mold issues over time. As a result, we may incur additional operating costs and expenditures for capital improvements at properties that we acquire in these areas.

Our properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.

The presence of mold at any of our properties could require us to undertake a costly program to remediate, contain or remove the mold. Mold growth may occur when moisture accumulates in buildings or on building materials. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing because exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. The presence of mold could expose us to liability from our tenants, their employees and others if property damage or health concerns arise.

We may incur significant costs to comply with the Americans With Disabilities Act or similar laws.

Our properties generally are subject to the Americans With Disabilities Act of 1990, as amended, which we refer to as the Disabilities Act. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. In addition, with respect to any apartment properties, we also must comply with the Fair Housing Amendment Act of 1988, or FHAA, which requires that apartment communities first occupied after March 13, 1991 be accessible to handicapped residents and visitors.

The requirements of the Disabilities Act or FHAA could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We attempt to acquire properties that comply with the Disabilities Act and the FHAA or place the burden on the seller or other third party, such as a tenant, to ensure compliance with these laws. However, we cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. We may incur significant costs to comply with these laws.

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Terrorist attacks and other acts of violence or war may affect the markets in which we operate our operations and our profitability.

We may acquire properties located in areas that are susceptible to attack. These attacks may directly impact the value of our assets through damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Further, certain losses resulting from these types of events are uninsurable or not insurable at reasonable costs.

More generally, any terrorist attack, other act of violence or war, including armed conflicts, could result in increased volatility in, or damage to, the United States and worldwide financial markets and economy.

Risks Associated with Investments in Securities

Through owning real estate-related equity securities, we will be subject to the risks impacting each entity’s assets.

We may invest in real estate-related securities. Equity securities are always unsecured and subordinated to other obligations of the issuer. Investments in real estate-related equity securities are subject to the risks associated with investing directly in real estate assets and numerous additional risks including: (1) limited liquidity in the secondary trading market in the case of unlisted or thinly traded securities; (2) substantial market price volatility resulting from, among other things, changes in prevailing interest rates in the overall market or related to a specific issuer, as well as changing investor perceptions of the market as a whole, REIT or real estate securities in particular or the specific issuer in question; (3) subordination to the liabilities of the issuer; (4) the possibility that earnings of the issuer may be insufficient to meet its debt service obligations or to pay distributions; and (5) with respect to investments in real estate-related preferred equity securities, the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to redeem the securities. In addition, investments in real estate-related securities involve special risks relating to the particular issuer of the securities, including the financial condition and business outlook of the issuer. Investing in real estate-related securities will expose our results of operations and financial condition to the factors impacting the trading prices of publicly-traded entities.

Recent market conditions and the risk of continued market deterioration may reduce the value of any real estate-related securities in which we may invest.

Mortgage loans have experienced higher than historical rates of delinquency, foreclosure and loss during the dislocations in the world credit markets over the last several years. These and other related events significantly impacted the capital markets associated not only with mortgage-backed securities, asset-backed securities and collateralized debt obligations, but also the world credit and financial markets as a whole. Investing significant amounts in real estate-related securities, including CMBS, will expose our results of operations and financial condition to the volatility of the credit markets.

Because there may be significant uncertainty in the valuation of, or in the stability of the value of, certain securities holdings, the fair values of these investments might not reflect the prices that we would obtain if we sold these investments. Furthermore, these investments are subject to rapid changes in value caused by sudden developments that could have a material adverse effect on the value of these investments, and cause us to incur impairment charges or unrealized losses.

Investments in CMBS are subject to all of the risks of the underlying mortgage loans and the risks of the securitization process.

Commercial mortgage-backed securities (“CMBS”) are securities that evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, these securities are subject to all of the risks of the underlying mortgage loans. In a changing interest rate environment, the value of CMBS may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of CMBS may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities market as a whole. In addition, CMBS are subject to the credit risk associated with the performance of the underlying mortgage properties. In certain instances, third-party guarantees or other forms of credit support designed to reduce credit risk may not be effective due, for example, to defaults by third party guarantors.

CMBS are also subject to several risks created through the securitization process. Generally, CMBS are issued in classes or tranches similar to mortgage loans. To the extent that we invest in a subordinate class or tranche, we will be paid interest only to the extent that there are funds available after paying the senior class. To the extent the collateral pool includes delinquent loans, subordinate classes will likely not be fully paid. Subordinate CMBS are also subject to greater credit risk than those CMBS that are more highly rated. Further, the ratings assigned to any particular class of CMBS may prove to be inaccurate. Thus, any particular class of CMBS may be riskier and more volatile than the rating may suggest, all of which may cause the returns on any CMBS investment to be less than anticipated.

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Risks Associated with Debt Financing

Volatility in the financial markets and challenging economic conditions could adversely affect our ability to secure debt financing on attractive terms and our ability to service any future indebtedness that we may incur.

The domestic and international commercial real estate debt markets continue to be challenging resulting in, among other things, the tightening of underwriting standards by lenders and credit rating agencies, which could limit the availability of credit and increase costs for what is available.  If the overall cost of borrowing increases, either by increases in the index rates or by increases in lender spreads, the increased costs may result in existing or future acquisitions generating lower overall economic returns and potentially reducing future cash flow available for distribution. If these disruptions in the debt markets persist, our ability to borrow monies to finance the purchase of, or other activities related to, real estate assets will be negatively impacted. If we are unable to borrow monies on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase, and the return on the properties we do purchase may be lower. In addition, we may find it difficult, costly or impossible to refinance indebtedness which is maturing.

Further, economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio and in the collateral securing any loan investments we may make, which could have various negative impacts.  Specifically, the value of collateral securing any loan investment we may make could decrease below the outstanding principal amounts of such loans, requiring us to pledge more collateral.

Borrowings may reduce the funds available for distribution and increase the risk of loss since defaults may cause us to lose the properties securing the loans.

We have acquired properties by either borrowing monies or, in some instances, by assuming existing financing.  We typically borrow money to finance a portion of the purchase price of assets we acquire.  In some instances, we have acquired properties by borrowing monies in an amount equal to the purchase price of the acquired properties. We may also borrow money for other purposes to, among other things, satisfy the requirement that we distribute at least 90% of our “REIT annual taxable income,” subject to certain adjustments and excluding any net capital gain, or as is otherwise necessary or advisable to assure that we continue to qualify as a REIT for federal income tax purposes. Over the long term, however, payments required on any amounts we borrow reduce the funds available for, among other things, acquisitions, capital expenditures for existing properties or distributions to our stockholders because cash otherwise available for these purposes is used to pay principal and interest on this debt.

If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt secured by a property, then the amount of cash flow from operations available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In such a case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders’ investment. For tax purposes, a foreclosure is treated as a sale of the property or properties for a purchase price equal to the outstanding balance of the debt secured by the property or properties. If the outstanding balance of the debt exceeds our tax basis in the property or properties, we would recognize taxable gain on the foreclosure action and we would not receive any cash proceeds. We also may fully or partially guarantee any monies that subsidiaries borrow to purchase or operate properties. In these cases, we will likely be responsible to the lender for repaying the loans if the subsidiary is unable to do so. If any mortgage contains cross-collateralization or cross-default provisions, more than one property may be affected by a default.

If we are unable to borrow at favorable rates, we may not be able to acquire new properties.

If we are unable to borrow money at favorable rates, we may be unable to acquire additional real estate assets or refinance existing loans at maturity. Further, we have obtained and may continue to enter into loan agreements or other credit arrangements that require us to pay interest on amounts we borrow at variable or “adjustable” rates. Increases in interest rates will increase our interest costs. If interest rates are higher when we refinance our loans, our expenses will increase and we may not be able to pass on this added cost in the form of increased rents, thereby reducing our cash flow and the amount available for distribution to our stockholders.  Further, during periods of rising interest rates, we may be forced to sell one or more of our properties in order to repay existing loans, which may not permit us to maximize the return on the particular properties being sold. At December 31, 2015, we had approximately $83.7 million or 14.2% of our total debt that bore interest at variable rates with a weighted average interest rate equal to 2.98%. We had variable rate debt subject to swap agreements of $238.6 million or 40.5% of our total debt at December 31, 2015.

Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders.

We have obtained, and may continue to enter into, mortgage indebtedness that does not require us to pay principal for all or a portion of the life of the debt instrument. During the period when no principal payments are required, the amount of each scheduled payment

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is less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan is not reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal required during this period. After the interest-only period, we may be required either to make scheduled payments of principal and interest or to make a lump-sum or “balloon” payment at or prior to maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan if we do not have funds available or are unable to refinance the obligation.

Our loan documents may restrict certain aspects of our operations, which could, among other things, limit our ability to make distributions to our stockholders.

The terms and conditions contained in certain of our loan documents require us to maintain cash reserves, limit the aggregate amount we may borrow on a secured and unsecured basis, require us to satisfy restrictive financial covenants, prevent us from entering into certain business transactions, such as a merger, sale of assets or other business combination, restrict our leasing operations, require us to obtain consent from the lender to complete transactions or make investments that are ordinarily approved only by our board of directors or impose limits on our ability to pay distributions. In addition, secured lenders may restrict our ability to discontinue insurance coverage on a mortgaged property even though we may believe that the insurance premiums paid to insure against certain losses, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, are greater than the potential risk of loss.

The financial covenants under our credit agreement may restrict our ability to make distributions and our operating and acquisition activities. If we breach the financial covenants we could be held in default under the credit agreement, which could accelerate our repayment date and materially adversely affect our liquidity and financial condition.

On September 30, 2015, we entered into a credit agreement with KeyBanc Capital Markets Inc. for a $100 million revolving credit facility (the “Credit Facility”). The credit agreement provides us with the ability from time to time to increase the size of the revolving Credit Facility, subject to certain conditions. Our performance of the obligations under the credit agreement, including the payment of any outstanding indebtedness, is secured by a minimum pool of five unencumbered properties with an unencumbered pool value of $100 million or above and by a guaranty by certain of our subsidiaries. Upon closing, we borrowed $100 million, the full amount of the Credit Facility. On January 21, 2016, the aggregate commitment under the Credit Facility was increased by $10 million to $110 million.

The credit agreement requires compliance with certain financial covenants, including, among other conditions, a minimum tangible net worth requirement, restrictions on indebtedness, a distribution limitation and other material covenants. These covenants could inhibit our ability to make distributions to our stockholders and to pursue certain business initiatives or effect certain transactions that might otherwise be beneficial to us. For example, without lender consent, we may not declare and pay distributions or honor any redemption requests if any default under the agreement then exists or if distributions, excluding any distributions reinvested through our DRP, for the then-current quarter and the three immediately preceding quarters would exceed 95% of our FFO, excluding acquisition expenses, or adjusted FFO, for that period.

The credit agreement also provides for several customary events of default, including, among other things, the failure to comply with our covenants and the failure to pay when amounts outstanding under the credit agreement become due. Declaration of a default by the lenders under the credit agreement could restrict our ability to borrow additional monies and could cause all amounts to become immediately due and payable, which would materially adversely affect our liquidity and financial condition.

We may acquire or finance properties with lock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.

The terms and conditions contained in certain of our loan documents preclude us from pre-paying the principal amount of the loan or could restrict us from selling or otherwise disposing of or refinancing properties. For example, lock-out provisions prohibit us from reducing the outstanding indebtedness secured by certain of our properties, refinancing this indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness secured by our properties. Lock-out provisions could impair our ability to take other actions during the lock-out period. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.

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To date, we have not generated sufficient cash flow from operations to pay distributions, and, therefore, we have paid, and may continue to pay, distributions from the net proceeds of our Offering and DRP, which reduces the amount of cash we ultimately have to invest in assets, negatively impacting the value of our stockholders’ investment and is dilutive to our stockholders.

We have not yet generated sufficient cash flow from operations to cover distribution payments. Our organizational documents permit us to pay distributions from sources other than cash flow from operations. Specifically, some or all of our distributions may be paid from retained cash flow, from borrowings and from cash flow from investing activities, including the net proceeds from the sale of our assets, or from the net proceeds of our Offering and DRP. Accordingly, until such time as we are generating cash flow from operations sufficient to cover distributions, we have and will likely continue to pay distributions from the net proceeds of our Offering and DRP. We have not established any limit on the extent to which we may use alternate sources, including borrowings or proceeds of the Offering and DRP, to pay distributions. There is no assurance we will generate sufficient cash flow from operations to cover distributions.  

To hedge against interest rate fluctuations, we may use derivative financial instruments that may be costly and ineffective.

From time to time, we have used, and may continue to use, derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions will be determined in light of the facts and circumstances existing at the time of the hedge and may differ from our currently anticipated hedging strategy.  There is no assurance that our hedging strategy will achieve our objectives.  We may be subject to costs, such as transaction fees or breakage costs, if we terminate these arrangements.

To the extent that we use derivative financial instruments to hedge against interest rate fluctuations, we will be exposed to credit risk, basis risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Basis risk occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective. Finally, legal enforceability risks encompass general contractual risks including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract, increasing the risk that we may not realize the benefits of these instruments.  As a result of the global credit crisis, there is a risk that counterparties could fail, shut down, file for bankruptcy or be unable to pay out contracts. The failure of a counterparty that holds collateral that we post in connection with an interest rate swap agreement could result in the loss of that collateral.

We may be contractually obligated to purchase property even if we are unable to secure financing for the acquisition.

We expect to finance a portion of the purchase price for each property that we acquire. However, to ensure that our offers are as competitive as possible, we do not expect to enter into contracts to purchase property that include financing contingencies. Thus, we may be contractually obligated to purchase a property even if we are unable to secure financing for the acquisition. In this event, we may choose to close on the property by using cash on hand, which would result in less cash available for our operations and distributions to stockholders. Alternatively, we may choose not to close on the acquisition of the property and default on the purchase contract. If we default on any purchase contract, we could lose our earnest money and become subject to liquidated or other contractual damages and remedies.

The total amount we may borrow is limited by our charter.

We may borrow up to 300% of our net assets, equivalent to 75% of the cost of our assets. We may exceed this limit only if our board of directors (including a majority of our independent directors) determines that a higher level is appropriate. This limit could adversely affect our business, including:

 

·

limiting our ability to purchase real estate assets;

 

·

causing us to lose our REIT status if we cannot borrow to fund the monies needed to satisfy the REIT distribution requirements;

 

·

causing operational problems if there are cash flow shortfalls for working capital purposes; and

 

·

causing the loss of a property if, for example, financing is necessary to cure a default on a mortgage.

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Risks Related to Conflicts of Interest

IREIC may face a conflict of interest in allocating personnel and resources between its affiliates, our Business Manager and our Real Estate Managers.

We do not have any employees.  We rely on persons performing services for our Business Manager and Real Estate Managers and their affiliates to manage our day-to-day operations. Some of these persons also provide services to one or more investment programs currently or previously sponsored by IREIC. These individuals face competing demands for their time and service, and are required to allocate their time between our business and assets and the business and assets of IREIC, its affiliates and the other programs formed and organized by IREIC.  Certain of these individuals have fiduciary duties to both us and our stockholders.  If these persons are unable to devote sufficient time or resources to our business due to the competing demands of the other programs, they may violate their fiduciary duties to us and our stockholders, which could harm our business and we may be unable to maintain or increase the value of our assets, and our operating cash flows and ability to pay distributions could be adversely affected.

In addition, if another investment program sponsored by IREIC decides to internalize its management functions in the future, it may do so by hiring and retaining certain of the persons currently performing services for our Business Manager and Real Estate Managers, and if it did so, would likely not allow these persons to perform services for us.

We do not have arm’s-length agreements with our Business Manager, our Real Estate Managers or any other affiliates of IREIC.

The agreements and arrangements with our Business Manager, our Real Estate Managers and any other affiliates of IREIC were not negotiated at arm’s-length.  These agreements may contain terms and conditions that are not in our best interest or would not be present if we entered into arm’s-length agreements with third parties.

Our Business Manager, our Real Estate Managers and other affiliates of IREIC face conflicts of interest caused by their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our stockholders.

We pay fees, which may be significant, to our Business Manager, Real Estate Managers and other affiliates of IREIC for services provided to us.  Our Business Manager receives fees based on the aggregate book value, including acquired intangibles, of our invested assets and the contract purchase price of our assets.  Further, our Real Estate Managers receive fees based on the gross income from properties under management and may also receive leasing and construction management fees.  Other parties related to, or affiliated with, our Business Manager or Real Estate Managers may also receive fees or cost reimbursements from us.  These compensation arrangements may cause these entities to take or not take certain actions.  For example, these arrangements may provide an incentive for our Business Manager to: (1) borrow more money than prudent to increase the amount we can invest; or (2) retain instead of sell assets, even if our stockholders may be better served by a sale or other disposition of the assets.  Further, the fact that we pay the Business Manager an acquisition fee based on the contract purchase price of an asset may cause our Business Manager to negotiate a higher price for an asset than we otherwise would, or to purchase assets that may not otherwise be in our best interests.  Ultimately, the interests of these parties in receiving fees may conflict with the interest of our stockholders in earning income on their investment in our common stock.

We rely on entities affiliated with IREIC to identify real estate assets.

We rely on the real estate professionals employed by IREA and other affiliates of our Sponsor to source potential investments in properties, real estate-related assets and other investments in which we may be interested. Our Sponsor and its affiliates maintain an investment committee (“Investment Committee”) that reviews each potential investment and determines whether an investment is acceptable for acquisition. In determining whether an investment is suitable, the Investment Committee considers investment objectives, portfolio and criteria of all programs currently advised by our Sponsor or its affiliates (collectively referred to as the “Programs”). Other factors considered by the Investment Committee may include cash flow, the effect of the acquisition on portfolio diversification, the estimated income or unrelated business tax effects of the purchase, policies relating to leverage, regulatory restrictions and the capital available for investment. Our Business Manager will not recommend any investments for us unless the investment is approved for consideration in advance by the Investment Committee. Once an investment has been approved for consideration by the Investment Committee, the Programs are advised and provided an opportunity to elect to acquire the investment. If more than one Program is interested in acquiring an investment, then the Program that has had the longest period of time elapse since it was allocated and invested in a contested investment is awarded the investment by the allocation committee. We may not, therefore, be able to acquire properties that we otherwise would be interested in acquiring.

Our properties may compete with the properties owned by other programs sponsored by IREIC or IPCC.

Certain programs sponsored by IREIC or Inland Private Capital Corporation (“IPCC”) own and manage the type of properties that we own or seek to acquire, including in the same geographical areas. Therefore, our properties, especially those located in the same

22


 

geographical area, may compete for tenants or purchasers with other properties owned and managed by other IREIC- or IPCC-sponsored programs. Persons performing services for our Real Estate Managers may face conflicts of interest when evaluating tenant leasing opportunities for our properties and other properties owned and managed by IREIC- or IPCC-sponsored programs, and these conflicts of interest may have an adverse impact on our ability to attract and retain tenants.  In addition, a conflict could arise in connection with the resale of properties in the event that we and another IREIC- or IPCC-sponsored program were to attempt to sell similar properties at the same time, including in particular in the event another IREIC- or IPCC-sponsored program engages in a liquidity event at approximately the same time as us, thus impacting our ability to sell the property or complete a proposed liquidity event.

Risks Related to Our Corporate Structure

Our rights, and the rights of our stockholders, to recover claims against our officers, directors, Business Manager and Real Estate Managers are limited.

Under our charter, no director or officer will be liable to us or to any stockholder for money damages to the extent that Maryland law permits the limitation of the liability of directors and officers of a corporation.  We may generally indemnify our directors, officers, employees, Business Manager, Real Estate Managers and their respective affiliates for any losses or liabilities suffered by any of them as long as: (1) the directors have determined in good faith that the course of conduct that caused the loss or liability was in our best interest; (2) these persons or entities were acting on our behalf or performing services for us; (3) the loss or liability was not the result of the negligence or misconduct of the directors (gross negligence or willful misconduct of the independent directors), officers, employees, Business Manager, the Real Estate Managers or their respective affiliates; and (4) the indemnity or agreement to hold harmless is recoverable only out of our net assets and not from our stockholders.  As a result, we and our stockholders may have more limited rights against our directors, officers and employees, our Business Manager, the Real Estate Managers and their respective affiliates, than might otherwise exist under common law.  In addition, we may be obligated to fund the defense costs incurred by our directors, officers and employees or our Business Manager and the Real Estate Managers and their respective affiliates in some cases.

Our board of directors may, in the future, adopt certain measures under Maryland law without stockholder approval that may have the effect of making it less likely that a stockholder would receive a “control premium” for his or her shares.

Corporations organized under Maryland law with a class of registered securities and at least three independent directors are permitted to protect themselves from unsolicited proposals or offers to acquire the company by electing to be subject, by a charter or bylaw provision or a board of directors resolution and notwithstanding any contrary charter or bylaw provision, to any or all of five provisions:

 

·

staggering the board of directors into three classes;

 

·

requiring a two-thirds vote of stockholders to remove directors;

 

·

providing that only the board can fix the size of the board;

 

·

providing that all vacancies on the board, regardless of how the vacancy was created, may be filled only by the affirmative vote of a majority of the remaining directors in office and for the remainder of the full term of the class of directors in which the vacancy occurred; and

 

·

requiring that special stockholders meetings be called only by holders of shares entitled to cast a majority of the votes entitled to be cast at the meeting.

These provisions may discourage an extraordinary transaction, such as a merger, tender offer or sale of all or substantially all of our assets, all of which might provide a premium price for stockholders’ shares.  Our charter does not prohibit our board from opting into any of the above provisions.

23


 

Further, under the Maryland Business Combination Act, we may not engage in any merger or other business combination with an “interested stockholder” or any affiliate of that interested stockholder for a period of five years after the most recent date on which the interested stockholder became an interested stockholder. After the five-year period ends, any merger or other business combination with the interested stockholder must be recommended by our board of directors and approved by the affirmative vote of at least:

 

·

80% of all votes entitled to be cast by holders of outstanding shares of our voting stock; and

 

·

two-thirds of all of the votes entitled to be cast by holders of outstanding shares of our voting stock other than those shares owned or held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder unless, among other things, our stockholders receive a minimum payment for their common stock equal to the highest price paid by the interested stockholder for its common stock.

Our directors have adopted a resolution exempting any business combination involving us and The Inland Group or any affiliate of The Inland Group, including our Business Manager and Real Estate Managers, from the provisions of this law.

Our charter places limits on the amount of common stock that any person may own without the prior approval of our board of directors.

No more than 50% of the outstanding shares of our common stock may be beneficially owned, directly or indirectly, by five or fewer individuals at any time during the last half of each taxable year (other than the first taxable year for which an election to be a REIT has been made). Our charter prohibits any persons or groups from owning more than 9.8% in value of our outstanding stock or more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding common stock without the prior approval of our board of directors. These provisions may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction such as a merger, tender offer or sale of all or substantially all of our assets that might involve a premium price for holders of our common stock. Further, any person or group attempting to purchase shares exceeding these limits could be compelled to sell the additional shares and, as a result, to forfeit the benefits of owning the additional shares.

Maryland law limits, in some cases, the ability of a third party to vote shares acquired in a “control share acquisition.”

The Maryland Control Share Acquisition Act provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by stockholders by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by the acquirer, by officers or by employees who are directors of the corporation, are excluded from shares entitled to vote on the matter. “Control shares” are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer can exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A “control share acquisition” means the acquisition of issued and outstanding control shares. The control share acquisition statute does not apply: (1) to shares acquired in a merger, consolidation or share exchange if the Maryland corporation is a party to the transaction; or (2) to acquisitions approved or exempted by the charter or bylaws of the Maryland corporation. Our bylaws contain a provision exempting from the Control Share Acquisition Act any and all acquisitions of our stock by any person. There can be no assurance that this provision will not be amended or eliminated at any time in the future.

Federal Income Tax Risks

If we fail to remain qualified as a REIT, our operations and distributions to stockholders will be adversely affected.

If we were to fail to remain qualified as a REIT, without the benefit of certain relief provisions, in any taxable year:

 

·

we would not be allowed to deduct distributions paid to stockholders when computing our taxable income;

 

·

we would be subject to federal (including any applicable alternative minimum tax) and state income tax on our taxable income at regular corporate rates;

 

·

we would be disqualified from being taxed as a REIT for the four taxable years following the year during which we failed to qualify, unless entitled to relief under certain statutory provisions;

 

·

we would have less cash to pay distributions to stockholders; and

 

·

we may be required to borrow additional funds or sell some of our assets in order to pay corporate tax obligations we may incur as a result of being disqualified.

24


 

In addition, if we were to fail to qualify as a REIT, we would not be required to pay distributions to stockholders, and all distributions to stockholders that we did pay would be subject to tax as regular corporate dividends to the extent of our current and accumulated earnings and profits.  This means that our U.S. stockholders who are taxed as individuals generally would be taxed on our dividends at long-term capital gains rates and that our corporate stockholders would be entitled to the dividends received deduction with respect to such dividends, subject, in each case, to applicable limitations under the Internal Revenue Code.

The taxation of distributions to our stockholders can be complex; however, distributions that we make to our stockholders generally will be taxable as ordinary income.

Distributions that we make to our taxable stockholders out of current and accumulated earnings and profits (and not designated as capital gain dividends or qualified dividend income) generally will be taxable as ordinary income. However, a portion of our distributions may: (1) be designated by us as capital gain dividends generally taxable as long-term capital gain to the extent that they are attributable to net capital gain recognized by us; (2) be designated by us as qualified dividend income generally to the extent they are attributable to dividends we receive from any taxable REIT subsidiaries or certain other taxable C corporations in which we own shares of stock; or (3) constitute a return of capital generally to the extent that they exceed our current and accumulated earnings and profits as determined for U.S. federal income tax purposes. A return of capital is generally not taxable, but has the effect of reducing the basis of a stockholder’s investment in our common stock.  Distributions that exceed our current and accumulated earnings and profits and a stockholder’s basis in our common stock generally will be taxable as capital gain.

To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions to make distributions to our stockholders.

To qualify as a REIT, we must distribute to our stockholders each year 90% of our taxable income, subject to certain adjustments and excluding any net capital gain. At times, we may not have sufficient funds to satisfy these distribution requirements and may need to borrow funds to make these distributions and maintain our REIT status and avoid the payment of income and excise taxes. These borrowing needs could result from: (1) differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes; (2) the effect of non-deductible capital expenditures; (3) the creation of reserves; or (4) required debt amortization payments. We may need to borrow funds at times when market conditions are unfavorable. Further, if we are unable to borrow funds when needed for this purpose, we would have to find alternative sources of funding or risk losing our status as a REIT.

Certain of our business activities are potentially subject to the prohibited transaction tax.

Our ability to dispose of property during the first two years following acquisition is restricted to a substantial extent as a result of our REIT status. Under applicable provisions of the Internal Revenue Code regarding prohibited transactions by REITs, we will be subject to a 100% tax on any gain realized on the sale or other disposition of any property (other than foreclosure property) we own, directly or through any wholly owned subsidiary (or entity in which we are treated as a partner), excluding our taxable REIT subsidiaries, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of trade or business. Determining whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. We cannot provide assurance that any particular property we own, directly or through any wholly owned subsidiary (or entity in which we are treated as a partner), excluding our taxable REIT subsidiaries, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.  The Internal Revenue Code sets forth a safe harbor for REITs that wish to sell property without risking the imposition of the 100% tax; however, there is no assurance that we will be able to qualify for the safe harbor.  Even if we do not hold property for sale in the ordinary course of a trade or business, there is no assurance that our position will not be challenged by the Internal Revenue Service, especially if we make frequent sales or sales of property in which we have short holding periods.

Certain fees paid to us may affect our REIT status.

Income received in the nature of rental subsidies or rent guarantees, in some cases, may not qualify as rental income from real estate and could be characterized by the Internal Revenue Service as non-qualifying income for purposes of satisfying the 75% and 95% gross income tests required for REIT qualification. If the aggregate of non-qualifying income under the 95% gross income test in any taxable year ever exceeded 5% of our gross revenues for the taxable year or non-qualifying income under the 75% gross income test in any taxable year ever exceeded 25% of our gross revenues for the taxable year, we could lose our REIT status for that taxable year and the four taxable years following the year of losing our REIT status.

Complying with the REIT requirements may force us to liquidate otherwise attractive investments.

To qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, certain government securities and qualified real estate assets, including shares of stock in other REITs, certain mortgage

25


 

loans and mortgage-backed securities. The remainder of our investment in securities (other than qualified government securities, qualified real estate assets and taxable REIT subsidiaries) generally may not include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than qualified government securities, qualified real estate assets and taxable REIT subsidiaries) may consist of the securities of any one issuer, no more than 25% of the value of our total assets may be securities excluding government securities, stock issued by our qualified REIT subsidiaries and other securities that qualify as real estate assets and no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets may consist of stock or securities of one or more taxable REIT subsidiaries. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance.

If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within thirty days after the end of the calendar quarter, or otherwise qualify to cure the failure under a relief provision, to avoid losing our REIT status and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.

Our ability to dispose of some of our properties may be constrained by their tax attributes.

Our ability to dispose of some of our properties is constrained by their tax attributes. Properties which we own for a significant period of time often have low tax bases. If we dispose of low-basis properties outright in taxable transactions, we may recognize a significant amount of taxable gain that we must distribute to our stockholders in order to avoid tax, and potentially, if the gain does not qualify as a net capital gain, in order to meet the minimum distribution requirements of the Internal Revenue Code for REITs, which in turn would impact our cash flow. To dispose of low basis properties efficiently we may use like-kind exchanges, which qualify for non-recognition of taxable gain, but can be difficult to consummate and result in the property for which the disposed assets are exchanged inheriting their low tax bases and other tax attributes (including tax protection covenants).

Our stockholders may have tax liability on distributions that they elect to reinvest in our common stock.

If our stockholders participate in our DRP, they will be deemed to have received, and for income tax purposes will be taxed on, the fair market value of the share of our common stock that they receive in lieu of cash distributions. As a result, unless a stockholder is a tax-exempt entity, it will have to use funds from other sources to pay its tax liability.

In certain circumstances, we may be subject to federal and state income taxes as a REIT, which would reduce our cash available to pay distributions.

Even if we maintain our status as a REIT, we may become subject to federal income taxes and related state taxes. For example, if we have net income from a “prohibited transaction,” we will incur taxes equal to the full amount of the income from the prohibited transaction. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We also may decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on this income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have to file income tax returns to receive a refund of the income tax paid on their behalf. We also may be subject to state and local taxes on our income, property or net worth, either directly or at the level of the other companies through which we indirectly own our assets. Any federal or state taxes paid by us will reduce our cash available to pay distributions.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge the risks inherent to our operations. Under current law, any income that we generate from derivatives or other transactions intended to hedge risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made, or to be made, to acquire or carry real estate assets or in certain cases to hedge previously acquired hedges entered into to manage risks associated with property that has been disposed of or liabilities that have been extinguished, if properly identified under applicable Treasury Regulations, generally will not constitute gross income for purposes of the 75% and 95% income requirements applicable to REITs. However, we may be required to limit the use of hedging techniques that might otherwise be advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.

Legislative or regulatory action could adversely affect investors.

Changes to the tax laws are likely to occur, and these changes may adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Our

26


 

stockholders are urged to consult with their own tax advisors with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. 

The maximum tax rate on qualified dividends paid by corporations to individuals is 20%. REIT dividends, however, generally do not constitute qualified dividends and consequently are not eligible for the current reduced tax rates. Therefore, our stockholders pay federal income tax on distributions out of our current and accumulated earnings and profits (excluding distributions of amounts either subject to corporate-level taxation or designated as a capital gain dividend) at the applicable “ordinary income” rate, the maximum of which is 39.6%.  In addition, this income also may be subject to the 3.8% Medicare surtax on certain investment income.  However, as a REIT, we generally would not be subject to federal or state corporate income taxes on that portion of our ordinary income or capital gain that we distribute currently to our stockholders, and we thus expect to avoid the “double taxation” to which other corporations are typically subject.

Future legislation might result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be taxed, for federal income tax purposes, as a corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

 

 

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

As of December 31, 2015 and 2014, ABR per square foot averaged $17.05 and $14.48, respectively, for all properties owned. ABR is calculated by annualizing the current, in place monthly base rent for leases, including any tenant concessions, such as rent abatement or allowances, which may have been granted and excluding ground leases. ABR including ground leases averaged $14.90 and $13.08, as of December 31, 2015 and 2014, respectively. (All dollar amounts in thousands, except per square foot amounts)

 

The table below presents a summary of our investment properties as of December 31, 2015 and 2014.

 

 

 

As of December 31,

2015

 

 

As of December 31,

2014

 

Number of properties

 

 

54

 

 

 

31

 

Purchase price

 

$

1,249,345

 

 

$

450,032

 

Total square footage

 

 

6,025,330

 

 

 

2,546,808

 

Weighted average physical occupancy

 

 

96.2

%

 

 

96.4

%

Weighted average economic occupancy

 

 

97.2

%

 

 

97.7

%

Weighted average remaining lease term

 

7.1 years

 

 

7.5 years

 

 

27


 

The table below presents information for each of our investment properties as of December 31, 2015.

 

 

 

 

 

As of December 31, 2015

 

Property

 

Location

 

Square

Footage

 

 

Physical

Occupancy

 

 

Economic

Occupancy

 

 

Mortgage

Principal

Balance

 

 

Interest

Rate (b)

 

Dollar General (12 properties)

 

Various

 

 

111,890

 

 

 

100.0

%

 

 

100.0

%

 

$

7,480

 

 

 

4.33

%

Newington Fair (a)

 

Newington, CT

 

 

186,205

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

Wedgewood Commons

 

Olive Branch, MS

 

 

159,258

 

 

 

100.0

%

 

 

100.0

%

 

 

15,260

 

 

 

2.24

%

Park Avenue

 

Little Rock, AR

 

 

79,131

 

 

 

70.5

%

 

 

95.2

%

 

 

11,684

 

 

 

3.90

%

North Hills Square

 

Coral Springs, FL

 

 

63,829

 

 

 

98.1

%

 

 

98.1

%

 

 

5,525

 

 

 

4.02

%

Mansfield Shopping Center

 

Mansfield, TX

 

 

148,529

 

 

 

96.7

%

 

 

96.7

%

 

 

14,200

 

 

 

3.90

%

Lakeside Crossing

 

Lynchburg, VA

 

 

67,034

 

 

 

100.0

%

 

 

100.0

%

 

 

9,911

 

 

 

3.87

%

MidTowne Shopping Center

 

Little Rock, AR

 

 

126,288

 

 

 

95.6

%

 

 

95.6

%

 

 

20,725

 

 

 

4.06

%

Dogwood Festival

 

Flowood, MS

 

 

187,610

 

 

 

94.2

%

 

 

94.2

%

 

 

24,352

 

 

 

3.60

%

Pick N Save Center

 

West Bend, WI

 

 

86,800

 

 

 

92.9

%

 

 

100.0

%

 

 

9,561

 

 

 

3.54

%

Harris Plaza (a)

 

Layton, UT

 

 

123,890

 

 

 

90.2

%

 

 

90.2

%

 

 

 

 

 

 

Dixie Valley

 

Louisville, KY

 

 

119,981

 

 

 

92.5

%

 

 

92.5

%

 

 

6,798

 

 

 

3.44

%

The Landings at Ocean Isle (a)

 

Ocean Isle, NC

 

 

53,220

 

 

 

89.4

%

 

 

89.4

%

 

 

 

 

 

 

Shoppes at Prairie Ridge

 

Pleasant Prairie, WI

 

 

232,606

 

 

 

95.2

%

 

 

95.2

%

 

 

15,591

 

 

 

3.50

%

Harvest Square

 

Harvest, AL

 

 

70,590

 

 

 

93.2

%

 

 

93.2

%

 

 

6,800

 

 

 

4.65

%

Heritage Square

 

Conyers, GA

 

 

22,385

 

 

 

82.6

%

 

 

88.8

%

 

 

4,460

 

 

 

5.10

%

The Shoppes at Branson Hills

 

Branson, MO

 

 

256,329

 

 

 

94.3

%

 

 

94.3

%

 

 

26,678

 

 

 

3.30

%

Branson Hills Plaza

 

Branson, MO

 

 

210,201

 

 

 

100.0

%

 

 

100.0

%

 

 

2,955

 

 

 

5.78

%

Copps Grocery Store (a)

 

Stevens Point, WI

 

 

69,911

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

Fox Point Plaza

 

Neenah, WI

 

 

171,121

 

 

 

96.7

%

 

 

96.7

%

 

 

10,836

 

 

 

3.35

%

Shoppes at Lake Park (a)

 

West Valley City, UT

 

 

52,997

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

Plaza at Prairie Ridge (a)

 

Pleasant Prairie, WI

 

 

9,035

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

Green Tree Center

 

Katy, TX

 

 

147,621

 

 

 

97.5

%

 

 

99.1

%

 

 

13,100

 

 

 

3.24

%

Eastside Junction

 

Athens, AL

 

 

79,700

 

 

 

89.0

%

 

 

89.0

%

 

 

6,270

 

 

 

4.60

%

Fairgrounds Crossing

 

Hot Springs, AR

 

 

155,127

 

 

 

98.7

%

 

 

98.7

%

 

 

13,453

 

 

 

5.21

%

Prattville Town Center

 

Prattville, AL

 

 

168,842

 

 

 

98.2

%

 

 

98.2

%

 

 

15,930

 

 

 

5.48

%

Regal Court

 

Shreveport, LA

 

 

362,961

 

 

 

98.4

%

 

 

98.4

%

 

 

26,000

 

 

 

4.50

%

Shops at Hawk Ridge (a)

 

St. Louis, MO

 

 

75,951

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

Walgreens Plaza

 

Jacksonville, NC

 

 

42,219

 

 

 

64.9

%

 

 

64.9

%

 

 

4,650

 

 

 

5.30

%

Whispering Ridge (a)

 

Omaha, NE

 

 

69,676

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

Frisco Marketplace (a)

 

Frisco, TX

 

 

112,024

 

 

 

94.9

%

 

 

94.9

%

 

 

 

 

 

 

White City

 

Shrewsbury, MA

 

 

257,080

 

 

 

98.7

%

 

 

98.7

%

 

 

49,400

 

 

 

3.24

%

Treasure Valley (a)

 

Nampa, ID

 

 

133,292

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

Yorkville Marketplace (a)

 

Yorkville, IL

 

 

111,591

 

 

 

92.5

%

 

 

92.5

%

 

 

 

 

 

 

Shoppes at Market Pointe

 

Papillion, NE

 

 

253,903

 

 

 

99.4

%

 

 

99.4

%

 

 

13,700

 

 

 

3.30

%

2727 Iowa Street (a)

 

Lawrence, KS

 

 

84,981

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

Settlers Ridge

 

Pittsburgh, PA

 

 

472,572

 

 

 

99.6

%

 

 

99.6

%

 

 

76,533

 

 

 

3.70

%

Milford Marketplace

 

Milford, CT

 

 

112,257

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

Marketplace at El Paseo

 

Fresno, CA

 

 

224,683

 

 

 

96.0

%

 

 

96.0

%

 

 

 

 

 

 

Blossom Valley Plaza

 

Turlock, CA

 

 

111,558

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

The Village at Burlington Creek

 

Kansas City, MO

 

 

158,118

 

 

 

92.7

%

 

 

92.7

%

 

 

17,723

 

 

 

4.25

%

Oquirrh Mountain Marketplace

 

South Jordan, UT

 

 

71,750

 

 

 

100.0

%

 

 

100.0

%

 

 

11,920

 

 

 

5.15

%

Marketplace at Tech Center

 

Newport News, VA

 

 

210,584

 

 

 

86.1

%

 

 

100.0

%

 

 

43,500

 

 

 

2.92

%

Portfolio total

 

 

 

 

6,025,330

 

 

 

96.2

%

 

 

97.2

%

 

$

484,995

 

 

 

3.77

%

 

(a)

These properties serve as security for our Credit Facility.

 

(b)

Portfolio total is equal to the weighted average interest rate.

28


 

Lease Expirations

The following table sets forth a summary, as of December 31, 2015, of lease expirations scheduled to occur during each of the calendar years from 2016 to 2025 and thereafter, assuming no exercise of renewal options or early termination rights for leases commenced on or prior to December 31, 2015.

 

Lease Expiration Year

 

Number of

Expiring

Leases

 

 

Gross

Leasable

Area of

Expiring

Leases -

Square

Footage(a)

 

 

Percent of

Total Gross

Leasable

Area of

Expiring

Leases

 

 

Total

Annualized

Base Rent

of Expiring

Leases (b)

 

 

Percent of

Total

Annualized

Base Rent

of Expiring

Leases

 

 

Annualized

Base Rent

per Leased

Square Foot (a)

 

Month-to-month

 

 

11

 

 

 

28,046

 

 

 

0.5

%

 

$

577

 

 

 

0.6

%

 

$

20.58

 

2016

 

 

62

 

 

 

212,072

 

 

 

3.7

%

 

 

4,075

 

 

 

4.5

%

 

 

19.22

 

2017

 

 

63

 

 

 

253,147

 

 

 

4.3

%

 

 

5,466

 

 

 

6.0

%

 

 

21.59

 

2018

 

 

88

 

 

 

443,089

 

 

 

7.6

%

 

 

7,772

 

 

 

8.5

%

 

 

17.54

 

2019

 

 

80

 

 

 

625,780

 

 

 

10.8

%

 

 

9,568

 

 

 

10.5

%

 

 

15.29

 

2020

 

 

92

 

 

 

472,376

 

 

 

8.1

%

 

 

7,976

 

 

 

8.8

%

 

 

16.89

 

2021

 

 

40

 

 

 

222,887

 

 

 

3.8

%

 

 

4,398

 

 

 

4.8

%

 

 

19.73

 

2022

 

 

30

 

 

 

334,075

 

 

 

5.7

%

 

 

5,825

 

 

 

6.4

%

 

 

17.44

 

2023

 

 

44

 

 

 

435,063

 

 

 

7.5

%

 

 

6,347

 

 

 

7.0

%

 

 

14.59

 

2024

 

 

41

 

 

 

369,278

 

 

 

6.4

%

 

 

7,838

 

 

 

8.6

%

 

 

21.23

 

2025

 

 

57

 

 

 

512,971

 

 

 

8.8

%

 

 

10,799

 

 

 

11.8

%

 

 

21.05

 

Thereafter

 

 

60

 

 

 

1,911,146

 

 

 

32.8

%

 

 

20,547

 

 

 

22.5

%

 

 

10.75

 

Leased Total

 

 

668

 

 

 

5,819,930

 

 

 

100.0

%

 

$

91,188

 

 

 

100.0

%

 

$

15.67

 

 

(a)

Includes ground leases. Annualized base rent excluding ground leases is $18.02 per square foot for total expiring leases.

(b)

Represents the base rent in place for the applicable property at the time of the lease expiration.

Tenancy Highlights

The following table presents information regarding the top ten tenants in our portfolio based on annualized base rent for leases in place as of December 31, 2015.

 

 

Tenant Name

 

Number of

Leases

 

 

Annualized

Base Rent

 

 

Percent of Total Portfolio Annualized Base Rent

 

 

Annualized

Base Rent

Per Square

Foot

 

 

Square

Footage

 

 

Percent of Total Portfolio Square Footage

 

Dicks Sporting Goods, Inc

 

 

5

 

 

$

3,002

 

 

 

3.4

%

 

$

13.03

 

 

 

230,392

 

 

 

4.1

%

The Kroger Co

 

 

3

 

 

 

2,959

 

 

 

3.4

%

 

 

14.74

 

 

 

200,737

 

 

 

3.4

%

TJ Maxx/HomeGoods/Marshalls

 

 

11

 

 

 

2,579

 

 

 

3.0

%

 

 

9.30

 

 

 

277,222

 

 

 

4.8

%

Petsmart

 

 

8

 

 

 

2,336

 

 

 

2.7

%

 

 

14.62

 

 

 

159,811

 

 

 

2.7

%

Albertsons/Jewel/Shaws

 

 

2

 

 

 

2,115

 

 

 

2.4

%

 

 

16.54

 

 

 

127,892

 

 

 

2.2

%

Ulta Salon, Cosmetics & Fragrance

 

 

9

 

 

 

1,981

 

 

 

2.3

%

 

 

21.04

 

 

 

94,187

 

 

 

1.6

%

Kohl's Department Stores

 

 

4

 

 

 

1,889

 

 

 

2.2

%

 

 

5.68

 

 

 

332,461

 

 

 

5.7

%

Ross Dress for Less, Inc

 

 

7

 

 

 

1,818

 

 

 

2.1

%

 

 

9.98

 

 

 

182,077

 

 

 

3.1

%

LA Fitness (Fitness International)

 

 

2

 

 

 

1,810

 

 

 

2.1

%

 

 

20.20

 

 

 

89,600

 

 

 

1.5

%

Giant Eagle

 

 

1

 

 

 

1,805

 

 

 

2.1

%

 

 

13.96

 

 

 

129,340

 

 

 

2.2

%

Top ten tenants

 

 

52

 

 

$

22,294

 

 

 

25.7

%

 

$

12.22

 

 

 

1,823,719

 

 

 

31.3

%

29


 

The following table sets forth a summary of our tenant diversity for our entire portfolio and is based on leases in place at December 31, 2015.

 

Tenant Type

 

Gross Leasable

Area –

Square

Footage

 

 

Percent of

Total Gross

Leasable Area

 

 

Percent of

Total Annualized

Base Rent

 

Discount and Department Stores

 

 

1,337,667

 

 

 

23.0

%

 

 

11.4

%

Grocery

 

 

852,188

 

 

 

14.7

%

 

 

14.2

%

Home Goods

 

 

746,728

 

 

 

12.8

%

 

 

7.9

%

Lifestyle, Health Clubs, Books & Phones

 

 

699,594

 

 

 

12.0

%

 

 

15.0

%

Restaurant

 

 

501,715

 

 

 

8.6

%

 

 

15.3

%

Apparel & Accessories

 

 

467,106

 

 

 

8.0

%

 

 

11.3

%

Sporting Goods

 

 

421,857

 

 

 

7.3

%

 

 

6.8

%

Consumer Services, Salons, Cleaners, Banks

 

 

257,982

 

 

 

4.4

%

 

 

7.1

%

Pet Supplies

 

 

253,367

 

 

 

4.4

%

 

 

4.5

%

Other

 

 

147,476

 

 

 

2.5

%

 

 

2.3

%

Health, Doctors & Health Foods

 

 

134,250

 

 

 

2.3

%

 

 

4.2

%

Total

 

 

5,819,930

 

 

 

100.0

%

 

 

100.0

%

 

The following table sets forth a summary, as of December 31, 2015, of the percent of total annualized base rent and the weighted average lease expiration by size of tenant.

 

Size of Tenant

 

Description -

Square

Footage

 

Percent of

Total

Annualized

Base Rent

 

 

Weighted

Average

Lease

Expiration –

Years

 

Anchor

 

10,000 and over

 

 

53

%

 

 

8.8

 

Junior Box

 

5,000-9,999

 

 

16

%

 

 

6.9

 

Small Shop

 

Less than 5,000

 

 

31

%

 

 

4.6

 

Total

 

 

 

 

100

%

 

 

7.1

 

 

Item 3.

Legal Proceedings

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

Item 4.

Mine Safety Disclosures

Not applicable.

 

 

30


 

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

There is no established public trading market for our shares of common stock. Our board will determine when, and if, to apply to have our shares of common stock listed for trading on a national securities exchange, subject to satisfying existing listing requirements. There is no assurance that we will list our shares. Further, there is no assurance that stockholders will be able to sell their shares at a time or price acceptable to them.

FINRA requires registered broker-dealers, including the soliciting dealers who had sold shares in an unlisted REIT, to disclose in a customer’s account statement an estimated value for the unlisted REIT’s securities if the annual report of that REIT discloses a per share estimated value. In October 2014, the SEC granted FINRA approval to amend provisions addressing per share estimated valuations for unlisted REITs on account statements.  The amendments require, among other things, a broker to include in customer account statements a per share value for an unlisted REIT security.  The amended rule provides two methodologies for calculating per share estimated values under which reported values are to be presumed reliable and included on customer account statements.  The two methods are:

 

(i)

Net investment – which is based upon the amount available for investment, as defined. The net investment may be used no longer than two years plus 150 days after breaking escrow in the offering.

 

(ii)

Independent Valuation - which requires an independent third-party valuation expert to perform or provide material assistance in the valuation of the security. The independent third-party valuation must be accompanied by a written opinion or report by the issuer.

The amended rule also imposes various enhanced disclosure obligations, as defined and the amendments become effective on April 11, 2016.

 

We have engaged an independent third party to perform appraisals of our properties and report a range of possible net asset values per share for our common stock. The board of directors will establish an estimated value of our shares based on the information provided by the third party. We intend to publish an estimated value of our shares no later than April 2016.

As of March 4, 2016, we had 17,064 stockholders of record.

Distributions

We currently pay distributions based on daily record dates, payable in arrears the following month. During the years ended December 31, 2015 and 2014, we declared distributions totaling approximately $44.9 million and $12.3 million, respectively, and paid distributions of approximately $42.5 million and $10.6 million, respectively. The distributions that we declared for such periods were equal to a daily amount of $0.001643836 per share based upon a 365-day period.  

31


 

The following table shows the sources for the payment of distributions to common stockholders for the periods indicated (Dollar amounts in thousands):

 

 

 

Year Ended

December 31, 2015

 

 

Year Ended

December 31, 2014

 

 

Year Ended

December 31, 2013

 

 

 

 

 

 

 

% of

Distributions

 

 

 

 

 

 

% of

Distributions

 

 

 

 

 

 

% of

Distributions

 

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions paid in cash

 

$

21,709

 

 

 

 

 

 

$

5,202

 

 

 

 

 

 

$

517

 

 

 

 

 

Distributions reinvested through DRP

 

 

20,828

 

 

 

 

 

 

 

5,395

 

 

 

 

 

 

 

481

 

 

 

 

 

Total distributions

 

$

42,537

 

 

 

 

 

 

$

10,597

 

 

 

 

 

 

$

998

 

 

 

 

 

Source of distribution coverage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows provided by operating activities

 

$

27,080

 

 

 

63

%

 

$

2,927

 

 

 

28

%

 

$

 

 

 

%

Sponsor contributions

 

 

3,283

 

 

 

8

%

 

 

640

 

 

 

6

%

 

 

 

 

 

%

Proceeds from issuances of common stock

 

 

12,174

 

 

 

29

%

 

 

7,030

 

 

 

66

%

 

 

998

 

 

 

100

%

Total source of distribution coverage

 

$

42,537

 

 

 

100

%

 

$

10,597

 

 

 

100

%

 

$

998

 

 

 

100

%

Cash flows provided by (used in) operating

   activities  ( U.S. GAAP basis)

 

$

27,080

 

 

 

 

 

 

$

2,922

 

 

 

 

 

 

$

(961

)

 

 

 

 

Net loss (in accordance with U.S. GAAP) (1)

 

$

(13,436

)

 

 

 

 

 

$

(4,356

)

 

 

 

 

 

$

(2,527

)

 

 

 

 

 

(1)

For the years ended December 31, 2015, 2014 and 2013, net loss includes acquisition related costs of $13,903, $5,139 and $666, respectively.

The following table compares cumulative distributions paid to cumulative net loss (in accordance with U.S. GAAP) for the period from August 24, 2011 (date of inception) through December 31, 2015 (Dollar amounts in thousands):

 

 

 

For the Period from

August 24, 2011 (Date of Inception)

to December 31, 2015

 

Distributions paid:

 

 

 

 

Common stockholders in cash

 

$

27,428

 

Common stockholders reinvested through DRP

 

 

26,704

 

Total distributions paid

 

$

54,132

 

Reconciliation of net loss:

 

 

 

 

Revenues

 

$

98,416

 

Acquisition and transaction related expenses

 

 

(20,441

)

Depreciation and amortization

 

 

(43,297

)

Other operating expenses

 

 

(41,889

)

Other non-operating expenses

 

 

(14,267

)

Net loss (in accordance with U.S. GAAP) (1)

 

$

(21,478

)

Funds from operations (2)

 

$

21,819

 

Cash flows provided by operating activities

 

$

28,495

 

 

 

 

 

 

 

 

(1)

Net loss as defined by U.S. GAAP includes the non-cash impact of depreciation and amortization expense as well as costs incurred relating to acquisitions and related transactions.

 

(2)

Funds from operations is computed by adding back depreciation and amortization expense equal to $43,297 from net loss. For further information related to the calculation of funds from operations, see “Non-U.S. GAAP Financial Measures” in Item 7.

Our organizational documents permit us to pay distributions from sources other than cash flow from operations. Specifically, some or all of our distributions may be paid from retained cash flow, from borrowings and from cash flow from investing activities, including the net proceeds from the sale of our assets, or from the net proceeds of the Offering and DRP. Accordingly, until such time as we are generating cash flow from operations sufficient to cover distributions, we have and will likely continue to pay distributions from the net proceeds of the Offering and DRP. We have not established any limit on the extent to which we may use alternate sources, including borrowings or Offering and DRP proceeds, to pay distributions. Thirty seven (37%) of the distributions paid to stockholders,

32


 

or $20.2 million through December 31, 2015, were paid from the net proceeds of our initial Offering and DRP. Our initial Offering concluded on October 16, 2015.  Thus, we will not raise any additional proceeds from the Offering which would then be available to pay distributions. To the extent we continue to pay cash distributions, or a portion thereof, from sources other than cash flow from operations, we will have less capital available to invest in properties and other real estate-related assets, the book value per share may decline, and there is no assurance that we will be able to sustain distributions at that level.

Share Repurchase Program

We adopted a share repurchase program effective October 18, 2012.  Under the SRP, we are authorized to purchase shares from stockholders who purchased their shares from us or received their shares through a non-cash transfer and who have held their shares for at least one year, if requested, if we choose to repurchase them.  Under the SRP, we may make “ordinary repurchases,” which are defined as all repurchases other than “exceptional repurchases,” which are defined as repurchases upon the death or qualifying disability of a stockholder, at prices ranging from 92.5% of the “share price,” as defined in the SRP, for stockholders who have owned their shares continuously for at least one year, but less than two years, to 100% of the “share price” for stockholders who have owned their shares continuously for at least four years. In the case of “exceptional repurchases,” we may repurchase shares at a repurchase price equal to 100% of the “share price.”

As used in the SRP, “share price” means: (1) prior to the Valuation Date, the offering price of our shares in our Offering (unless the shares were purchased at a discount from that price, and then that purchase price), reduced by any distributions of net sale proceeds that we designate as constituting a return of capital; and (2) on and after the Valuation Date, the lesser of: (A) the share price determined in (1); or (B) the most recently disclosed estimated value per share.

With respect to ordinary repurchases, we may make repurchases only if we have sufficient funds available to complete the repurchase. In any given calendar month, we are authorized to use only the proceeds generated from our DRP during that month to fund ordinary repurchases under the SRP; provided that, if we have excess funds during any particular month, we may, but are not obligated to, carry those excess funds to the subsequent calendar month for the purpose of making ordinary repurchases. Subject to funds being available, in the case of ordinary repurchases, we further limit the number of shares repurchased during any calendar year to 5% of the number of shares of common stock outstanding on December 31st of the previous calendar year. With respect to exceptional repurchases, we are authorized to use all available funds to repurchase shares. In addition, the one-year holding period and 5% limit described herein does not apply to exceptional repurchases.

The SRP will immediately terminate if our shares are listed on any national securities exchange. In addition, our board of directors, in its sole discretion, may amend, suspend (in whole or in part), or terminate our SRP. In the event that we amend, suspend or terminate the SRP, however, we will send stockholders notice of the change at least thirty days prior to the change, and we will disclose the change in a report filed with the SEC on either Form 8-K, Form 10-Q or Form 10-K, as appropriate. Further, our board reserves the right in its sole discretion, at any time, and from time to time to reject any requests for repurchases.  The following table summarizes the repurchases of shares under the SRP during the fourth quarter of the year ended December 31, 2015:

 

Period

 

Total Shares

Requested

to be

Repurchased

 

 

Total Number

of Shares

Repurchased

 

 

Average

Price Paid

per Share

 

 

Total Number

of Shares

Repurchased

as Part of

Publicly

Announced

Plans or

Programs

 

 

Maximum Number

(or Approximate

Dollar Value) of

Shares (or Units)

that May Yet be

Purchased Under

the Plans

or Programs

 

October 2015

 

 

34,353

 

 

 

34,353

 

 

$

9.83

 

 

 

34,353

 

 

 

1,811,274

 

November 2015

 

 

51,207

 

 

 

51,207

 

 

$

9.47

 

 

 

51,207

 

 

 

1,760,067

 

December 2015

 

 

48,882

 

 

 

48,882

 

 

$

9.77

 

 

 

48,882

 

 

 

1,711,185

 

Total

 

 

134,442

 

 

 

134,442

 

 

$

9.67

 

 

 

134,442

 

 

 

 

 

 

Securities Authorized for Issuance under Equity Compensation Plans

None.

Use of Proceeds from Registered Securities

On October 18, 2012, our Registration Statement on Form S-11 (File No. 333-176775), covering a public offering of up to 180,000,000 shares of common stock, was declared effective under the Securities Act. The Offering commenced on October 18, 2012 and concluded on October 16, 2015.

33


 

Pursuant to the Offering, we sold 83,835,055 shares on a “best efforts” basis, equal to $834.4 million in aggregate gross proceeds, and 2,326,376 shares under the DRP, equal to $22.1 million in aggregate gross proceeds, as of the termination date.

On October 19, 2015, we registered an additional 25,000,000 shares of common stock to be issued under the DRP on Form S-3D (File No. 333-207519).  From October 19, 2015 through December 31, 2015, we sold 484,599 shares under the DRP equal to $4.6 million in aggregate gross proceeds.

From the effective date of the Offering through December 31, 2015, we have paid the following costs in connection with the issuance and distribution of the registered securities (Dollar amount in thousands):

 

Type of Costs

 

Amount

 

Offering costs paid to related parties (1)

 

$

75,823

 

Offering costs paid to non-related parties

 

 

9,221

 

Total offering costs paid

 

$

85,044

 

 

(1)

“Offering costs to related parties” include selling commissions, marketing contributions and due diligence expense reimbursements paid to Inland Securities Corporation, the dealer manager of the Offering, which reallowed all or a portion of these amounts to soliciting dealers.

From the effective date of the Offering through December 31, 2015, the net offering proceeds to us from the Offering, after deducting the total costs incurred described above, were approximately $749.4 million. As of December 31, 2015, we had used approximately $637.9 million of these net proceeds to purchase interests in real estate and pay related costs, of which $5.9 million was paid to related parties, approximately $25.2 million for repayment of indebtedness used to purchase interests in real estate, approximately $5.7 million to pay loan origination costs, approximately $20.2 million to pay distributions, $0.1 million to fund our investment in the Captive, and approximately $1.1 million to fund our operations. The remaining net proceeds were held as cash at December 31, 2015.

Recent Sale of Unregistered Equity Securities

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

 

 

Item 6.

Selected Financial Data

The following table shows our selected financial data relating to our consolidated historical financial condition and results of operations. This selected data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes appearing elsewhere in this report (Dollar amounts in thousands, except per share amounts):

 

 

 

December 31, 2015

 

 

December 31, 2014

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

Total assets

 

$

1,405,835

 

 

$

571,486

 

Mortgages payable and credit facility payable (b)

 

$

588,966

 

 

$

186,034

 

 

 

 

For the year ended December 31

 

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

 

2011 (a)

 

Total income

 

$

76,542

 

 

$

18,946

 

 

$

2,825

 

 

$

102

 

 

$

 

Net loss

 

$

(13,436

)

 

$

(4,356

)

 

$

(2,527

)

 

$

(1,140

)

 

$

(20

)

Net loss per common share, basic and diluted (c)

 

$

(0.19

)

 

$

(0.21

)

 

$

(1.18

)

 

$

(18.04

)

 

$

(0.99

)

Distributions paid to common stockholders

 

$

42,537

 

 

$

10,597

 

 

$

998

 

 

$

 

 

$

 

Distributions declared to common stockholders

 

$

44,908

 

 

$

12,318

 

 

$

1,289

 

 

$

14

 

 

$

 

Distributions per common share (c)

 

$

0.63

 

 

$

0.60

 

 

$

0.60

 

 

$

0.22

 

 

$

 

Cash flows provided by (used in) operating activities

 

$

27,080

 

 

$

2,922

 

 

$

(961

)

 

$

(524

)

 

$

(20

)

Cash flows used in investing activities

 

$

(740,542

)

 

$

(310,485

)

 

$

(30,375

)

 

$

(32,164

)

 

$

(1

)

Cash flows provided by financing activities

 

$

691,434

 

 

$

386,800

 

 

$

55,733

 

 

$

34,891

 

 

$

55

 

Weighted average number of common shares outstanding, basic and diluted

 

 

69,343,253

 

 

 

20,565,940

 

 

 

2,147,947

 

 

 

63,198

 

 

 

20,000

 

34


 

 

(a)

For the period from August 24, 2011 (inception) through December 31, 2011.

(b)

Mortgages and notes payable as of December 31, 2015 and 2014 includes mortgage premiums, net of amortization, of approximately $3,971 and $1,297, respectively.

(c)

The net loss per common share, basic and diluted is based upon the weighted average number of common shares outstanding for the period ended. The distributions per common share are based upon the weighted average number of common shares outstanding for the period ended.

 

35


 

Item 7.

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

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in this Annual Report on Form 10-K and the factors described below:

 

·

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

 

·

We may suffer from delays in selecting, acquiring and developing suitable assets;

 

·

To date, we have not generated sufficient cash flow from operations to pay distributions, and, therefore, we have paid, and may continue to pay, distributions from the net proceeds of our Offering and DRP, which reduces the amount of cash we ultimately have to invest in assets, negatively impacting the value of our stockholders’ investment and is dilutive to our stockholders;  

 

·

We have incurred net losses on a U.S. GAAP basis for the years ended December 31, 2015, 2014 and 2013;

 

·

There is no established public trading market for our shares, our stockholders may not be able to sell their shares under our SRP and, if our stockholders are able to sell their shares under the SRP, or otherwise, they may not be able to recover the amount of their investment in our shares;

 

·

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

 

·

IREIC may face a conflict of interest in allocating personnel and resources between its affiliates, our Business Manager and our Real Estate Managers;

 

·

We do not have arm’s-length agreements with our Business Manager, our Real Estate Managers or any other affiliates of IREIC;

 

·

We pay fees, which may be significant, to our Business Manager, Real Estate Managers and other affiliates of our Sponsor;

 

·

Our Business Manager and its affiliates face conflicts of interest caused by their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our stockholders;

 

·

Our properties may compete with the properties owned by other programs sponsored by IREIC or IPCC for, among other things, tenants;

 

·

Our Business Manager is under no obligation, and may not agree, to continue to forgo or defer its business management fee or any acquisition fee; and

 

·

If we fail to continue to qualify as a REIT, our operations and distributions to stockholders will be adversely affected.

Forward-looking statements in this Annual Report on Form 10-K reflect our management’s view only as of the date of this Report, and may ultimately prove to be incorrect or false. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

36


 

The following discussion and analysis is based on the consolidated financial statements for the years ended December 31, 2015, 2014 and 2013.  Our stockholders should read the following discussion and analysis along with our accompanying consolidated financial statements and the related notes thereto.

Overview

We are an externally managed Maryland corporation formed in August 2011 to acquire a portfolio of commercial real estate located throughout the United States. We are managed by our business manager, IREIT Business Manager & Advisor, Inc., referred to herein as our “Business Manager.” While we may acquire retail properties, office buildings, multi-family properties and industrial/distribution and warehouse facilities, within these property types, we focus primarily on “core” real estate assets. To date, we have focused on acquiring retail properties. We will continue to focus on retail properties unless and until the returns from other properties exceed those that we believe are available from investing in retail.

Core real estate assets are those assets that typically satisfy some, but not necessarily all, of the following criteria:

 

·

properties located within major regional markets or accelerating secondary markets;

 

·

properties with above-market occupancy rates, with leases that provide for market rental rates and that have staggered maturity dates; and

 

·

properties that have anchor tenants with strong credit ratings.

Core real estate assets also typically generate predictable, steady cash flow and have a lower risk profile than non-core real estate assets. We have purchased single-tenant, net-leased retail properties and may continue to purchase single-tenant, net-leased properties within any of the four property types listed above.  We may purchase existing or newly-constructed properties as well as properties that are under development or construction, including those where development has not commenced. In addition, in all cases, we may acquire properties directly, by purchasing the property, also known as a “fee interest,” or through joint ventures, including joint ventures in which we do not own a controlling interest. We also may invest in real estate-related equity securities of both publicly traded and private real estate companies, as well as commercial mortgage-backed securities.

On October 18, 2012, we commenced our Offering and it concluded on October 16, 2015. We offered 150,000,000 shares of our common stock at a price of $10.00 per share on a “best efforts” basis through Inland Securities Corporation, or “Inland Securities,” our dealer manager, a wholly owned subsidiary of our Sponsor. “Best efforts” means that Inland Securities was not obligated to purchase any specific number or dollar amount of shares. We also offered up to 30,000,000 shares of our common stock at a price of $9.50 per share to stockholders who elected to participate in our DRP. We subsequently filed a new Registration Statement pursuant to which we are offering up to 25,000,000 shares of our common stock to existing stockholders who elect to participate in the DRP.  We qualified and elected to be taxed as a REIT commencing with the tax year ended December 31, 2013 for federal income tax purposes. As of December 31, 2015, we issued 83,835,055 shares of common stock generating gross proceeds of $834.4 million, excluding the DRP.

At December 31, 2015, we owned 54 retail properties, totaling approximately 6.0 million square feet. At December 31, 2015, our portfolio had weighted average physical and economic occupancy of 96.2% and 97.2%, respectively. Economic occupancy excludes square footage that we own but which is not occupied by a tenant and which is subject to an earnout component on the original purchase price. Specifically, at the time of acquisition, in some cases, a portion of the purchase price was contingent on the seller leasing certain vacant space by certain applicable times. We are not obligated to pay this contingent purchase price unless the seller obtains leases for the vacant space within the time limits and parameters set forth in the acquisition agreement. As of December 31, 2015 and 2014, ABR per square foot averaged $17.05 and $14.48, respectively, for all properties owned. ABR is calculated by annualizing the current, in place monthly base rent for leases, including any tenant concessions, such as rent abatement or allowances, which may have been granted and excluding ground leases. ABR including ground leases averaged $14.90 and $13.08, as of December 31, 2015 and 2014, respectively.

Company Highlights - Year Ended December 31, 2015

Acquisitions

We acquired 23 retail properties totaling approximately 3.5 million square feet for approximately $741.3 million, net of debt assumed.

Financings

37


 

We financed 13 properties through borrowing $242.4 million and assuming $58.0 million in secured first mortgages with a weighted average stated interest rate of 3.83% per annum and a weighted average maturity of 7.0 years.  In addition, we secured a $100 million Credit Facility with the ability to expand to $400 million. Subsequent to December 31, 2015, we amended our Credit Facility to, among other matters, increase the aggregate commitment under the credit facility by $10.0 million to $110.0 million.

Capital

We generated gross proceeds (excluding DRP proceeds) totaling $422.9 million from our "best-efforts" Offering which concluded on October 16, 2015.

Outlook

We believe that the current reduced market for acquisition opportunities will present a challenge in 2016. With approximately $200 million to deploy, comprised of cash and assumed financing, our Business Manager and IREA are working diligently to find the types of properties that meet our investment strategy, and that offer the best growth potential.

The amount paid for real estate assets is generally influenced by, among other things, market interest rates. However, the movements are not simultaneous and pricing generally lags behind interest rate adjustments for a period of time. Since part of our business strategy is to utilize debt to finance a portion of our real estate assets, we may be challenged in finding appropriately priced real estate assets in the event of a rising interest rate environment.

We concluded our Offering in October 2015 and continue to seek investment opportunities to expand our portfolio by acquiring multi-tenant necessity-based retail shopping centers.  Based upon the growth of our portfolio over the past several years, we anticipate  overall property operating performance to increase in 2016 due to the increased number of retail properties owned and future acquisitions.  

LIQUIDITY AND CAPITAL RESOURCES

General

Our principal demand for funds is to acquire real estate assets, to pay operating expenses, to pay interest on our outstanding indebtedness, to pay distributions to our stockholders and to fund our SRP.  We generally seek to fund our cash needs for items other than asset acquisitions and offering costs from operations. Our cash needs for acquisitions have historically been funded primarily from the sale of our shares, including those offered for sale through our DRP, as well as debt financings. As our Offering concluded on October 16, 2015, potential future sources of liquidity include property operations, proceeds raised through our DRP, proceeds from secured or unsecured financings including draws on our Credit Facility, and proceeds from the sale of assets, if any. There may be a delay between the sale of our shares and our purchase of assets, which could result in a delay in generating returns, if any, from our investment operations. Our Business Manager and IREA evaluate potential acquisitions and engage in negotiations with sellers and lenders on our behalf. Pending investment in real estate assets, we may decide to invest our cash in investments that yield lower returns than those earned on real estate assets.

Although we entered into a Credit Facility agreement on September 30, 2015, our financing strategy will remain consistent with previous acquisitions. Management expects overall debt to be at approximately 50% of the purchase price of the properties, including any proceeds from the Credit Facility. For information concerning transactions with related parties, see Note 11 – “Transactions with related parties” to our accompanying consolidated audited financial statements.

From our formation through December 31, 2015, we used offering proceeds to purchase 54 retail properties, to pay operating, organization and offering costs and to pay a portion of our distributions. During 2015, we funded the purchase of 23 retail properties with mortgage debt of approximately $300.4 million, proceeds from the Offering of approximately $398.9 million and proceeds from our Credit Facility of $100 million.

As of December 31, 2015, we had total debt outstanding of approximately $585.0 million, excluding net mortgage premiums, which bore interest at a weighted average interest rate of 3.41% per annum, of which approximately $58.5 million is due in 2016, $6.5 million is due in 2017, $15.5 million is due in 2018, $142.8 million is due in 2019, $100.9 million is due in 2020 and the remaining amount of approximately $260.8 million is due after 2020. As of December 31, 2015 and December 31, 2014, our borrowings equaled approximately 47% and 42%, respectively, of the purchase price of our properties.

38


 

Cash Flow Analysis

 

 

 

For the year ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

 

 

(Dollar amounts in thousands)

 

Net cash flows provided by (used in) operating activities

 

$

27,080

 

 

$

2,922

 

 

$

(961

)

Net cash flows used in investing activities

 

$

(740,542

)

 

$

(310,485

)

 

$

(30,375

)

Net cash flows provided by financing activities

 

$

691,434

 

 

$

386,800

 

 

$

55,733

 

 

Cash provided by operating activities increased approximately $24.2 million during 2015. For 2015 and 2014, funds generated from rental and tenant recovery income were partially offset by property operating, interest, acquisition and general and administrative expenses. The increase from 2014 to 2015 is due primarily to the growth of our real estate portfolio.

Cash used in investing activities increased approximately $430.0 million to $740.5 million during 2015 from $310.5 million during 2014.  The increase was primarily attributable to:

 

·

$424.2 million increase in purchase of investment properties,

 

·

$1.6 million increase in other assets and restricted escrows, and

 

·

$4.2 million increase in capital expenditures and tenant improvements.

Cash provided by financing activities increased $304.6 million during 2015.  The increase was primarily attributable to:

 

·

$77.4 million increase in offering proceeds, $15.4 million increase in proceeds from the DRP, partially offset by an increase in share repurchases of $3.0 million,

 

·

$147.8 million increase in proceeds from mortgages payable, $100.0 million increase in proceeds from our Credit Facility and a reduction of $9.6 million in payments towards mortgages payable, partially offset with an increase of payment of loan costs of $1.9 million, and

 

·

$2.6 million increase in Sponsor contributions.

partially offset by:

 

·

$31.9 million increase in distributions paid,

 

·

$9.5 million increase in payment of offering costs,

 

·

$1.6 million repayment in due to related parties, and

 

·

$0.3 million increase in the payment of deferred investment property acquisition obligations (earnout liability).

A summary of the distributions declared, distributions paid and cash flows provided by operations for the years ended December 31, 2015, 2014 and 2013 follows (Dollar amounts in thousands, except per share amounts):

 

Year

Ended

December 31,

 

Distributions

Declared

 

 

Distributions

Declared Per

Share (1)

 

 

Cash

 

 

Reinvested

via DRP

 

 

Total (2)

 

 

Cash

Flows

From

Operations

 

 

Net

Offering

Proceeds (3) (4)

 

2015

 

$

44,908

 

 

$

0.63

 

 

$

21,709

 

 

$

20,828

 

 

$

42,537

 

 

$

27,080

 

 

$

379,131

 

2014

 

$

12,318

 

 

$

0.60

 

 

$

5,202

 

 

$

5,395

 

 

$

10,597

 

 

$

2,922

 

 

$

311,217

 

2013

 

$

1,289

 

 

$

0.60

 

 

$

517

 

 

$

481

 

 

$

998

 

 

$

(961

)

 

$

56,537

 

 

(1)

Assumes a share was issued and outstanding each day during the period. Per share amounts are based on weighted average number of common shares outstanding.

(2)

On February 19, 2015, our Sponsor contributed $3,283 to our capital.  For U.S. GAAP purposes, these monies have been treated as a contribution of capital from our Sponsor, although our Sponsor has not received, and will not receive, any additional shares of our common stock for this contribution.  We are treating this contribution as taxable income to us.

(3)

A portion of distributions paid for the years ended December 31, 2015 and 2014 were paid from the net proceeds of our Offering. All of our distributions for the year ended December 31, 2013 were paid from the net proceeds of our Offering.

(4)

The Offering commenced on October 18, 2012 and concluded on October 16, 2015.

39


 

Results of Operations

The following discussion is based on our consolidated financial statements for the years ended December 31, 2015, 2014 and 2013.  

These sections describe and compare our results of operations for the years ended December 31, 2015, 2014 and 2013.  We generate primarily all of our net operating income from property operations. In order to evaluate our overall portfolio, management analyzes the net operating income of properties that we have owned and operated for the periods presented, in their entirety, referred to herein as “same store” properties. By evaluating the property net operating income of our "same store" properties, management is able to monitor the operations of our existing properties for comparable periods to measure the performance of our current portfolio and determine the effects of our new acquisitions on net income. (Dollar amounts in thousands)

40


 

Comparison of the Years ended December 31, 2015 and 2014

A total of 14 investment properties that were acquired on or before January 1, 2014 represent our “same store” properties during the years ended December 31, 2015 and 2014.  “Non-same store,” as reflected in the table below, consists of properties acquired after January 1, 2014. For the year ended December 31, 2015, 40 properties constituted non-same store properties and for the year ended December 31, 2014, 17 properties were a non-same store property. The following table presents the property net operating income broken out between same store and non-same store, prior to straight-line income, net, amortization of intangibles, interest, and depreciation and amortization for the years ended December 31, 2015 and 2014, along with a reconciliation to net loss, calculated in accordance with U.S. GAAP.

 

 

 

For the year ended December 31,

 

 

 

2015

 

 

2014

 

Rental and tenant recovery income:

 

 

 

 

 

 

 

 

“Same store” investment properties, 14 properties

 

 

 

 

 

 

 

 

Rental income

 

$

4,776

 

 

$

4,667

 

Tenant recovery income

 

 

974

 

 

 

1,005

 

Other property income

 

 

 

 

 

 

“Non-same store” investment properties

 

 

 

 

 

 

 

 

Rental income

 

 

53,589

 

 

 

9,892

 

Tenant recovery income

 

 

14,460

 

 

 

2,953

 

Other property income

 

 

148

 

 

 

58

 

Total property income

 

$

73,947

 

 

$

18,575

 

Property operating expenses:

 

 

 

 

 

 

 

 

“Same store” investment properties

 

 

 

 

 

 

 

 

Property operating expenses

 

$

713

 

 

$

678

 

Real estate tax expense

 

 

566

 

 

 

567

 

“Non-same store” investment properties

 

 

 

 

 

 

 

 

Property operating expenses

 

 

10,954

 

 

 

2,022

 

Real estate tax expense

 

 

8,372

 

 

 

1,501

 

Total property operating expenses

 

$

20,605

 

 

$

4,768

 

Property net operating income

 

 

 

 

 

 

 

 

“Same store” investment properties

 

$

4,471

 

 

$

4,427

 

“Non-same store” investment properties

 

 

48,871

 

 

 

9,380

 

Total property net operating income

 

$

53,342

 

 

$

13,807

 

Other income:

 

 

 

 

 

 

 

 

Straight-line income, net

 

$

1,736

 

 

$

314

 

Amortization of intangibles, net

 

 

652

 

 

 

59

 

Amortization of ground lease

 

 

24

 

 

 

 

Interest income

 

 

205

 

 

 

95

 

Equity in (loss) earnings of unconsolidated entity

 

 

(118

)

 

 

10

 

Other expense:

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

4,961

 

 

 

2,427

 

Acquisition related expenses

 

 

13,903

 

 

 

5,140

 

Depreciation and amortization

 

 

34,573

 

 

 

7,679

 

Business management fee

 

 

5,501

 

 

 

773

 

Interest expense

 

 

10,339

 

 

 

2,622

 

Net loss calculated in accordance with U.S. GAAP

 

$

(13,436

)

 

$

(4,356

)

 

Total property net operating income.  On a “same store” basis, comparing the results of operations of investment properties owned during the year ended December 31, 2015, with the results of the same investment properties owned during the year ended December 31, 2014, property net operating income increased $44, total property income increased $78, and total property operating expenses including real estate tax expense increased $34 for the year ended December 31, 2015 compared to the year ended December 31, 2014.

The increase in “same store” total property income is primarily due to scheduled rent increases partially offset by decreased tenant recovery income due to a lower recovery percentage. 

41


 

The increase in “same store” total property operating expenses is primarily due to an increase in real estate tax expense and an increase in repairs and maintenance expense during 2015 as compared to 2014.

 

“Non-same store” total property net operating income increased $39,491 during 2015 as compared to 2014. The increase is a result of acquiring 40 retail properties after January 1, 2014. On a “non-same store” basis, total property income increased $55,294 and total property operating expenses increased $15,803 during the year ended December 31, 2015 as a result of these acquisitions.

Other income. Other income increased $1,997 in 2015 compared to 2014. This increase is due to the acquisition of investment properties throughout 2014 and 2015, which increased straight-line income, net by $1,422 and amortization of lease intangibles, net by $593. The increase is also due to an increase in interest income of $110 as a result of increased cash available to invest due to an increase in offering proceeds offset by a decrease of $128 in equity in earnings (loss) of unconsolidated entity.

Other expense. Other expense increased $50,636 in 2015, as compared to 2014. The increase is primarily due to an increase in depreciation and amortization, interest expense, business management fees and acquisition related expenses.

General and administrative expenses increased $2,534 in 2015 compared to 2014.  This increase is due to the growth in our real estate portfolio.

Depreciation and amortization increased $26,894 in 2015, as compared to 2014. This increase is due to the acquisition of 40 retail properties after January 1, 2014.

Interest expense increased $7,717 in 2015 compared to 2014. The increase is due to the financing of 27 properties after January 1, 2014 and amounts drawn under the Credit Facility.

Business management fees increased $4,728 in 2015 compared to 2014. The increase is due to the growth in our real estate portfolio. In 2014, the Business Manager was entitled to a business management fee of $1,433 of which $433 was permanently waived. During 2014, the Business Manager also permanently waived business management fees of $226 incurred for the year ended December 31, 2013.

Acquisition related expenses increased $8,763 in 2015 compared to 2014. These expenses include acquisition, dead deal and transaction related costs and relate to both closed and potential transactions. These costs include third party due diligence costs such as appraisals, environmental studies, and legal fees as well as acquisition fees and time and travel expense reimbursements to the Sponsor and its affiliates.

42


 

Comparison of the Years ended December 31, 2014 and 2013

A total of 13 investment properties that were acquired on or before January 1, 2013 represent our “same store” properties during the years ended December 31, 2014 and 2013.  “Non-same store,” as reflected in the table below, consists of properties acquired after January 1, 2013. For the year ended December 31, 2014, 18 properties constituted non-same store properties and for the year ended December 31, 2013, one property was a non-same store property. The following table presents the property net operating income broken out between same store and non-same store, prior to straight-line income, net, amortization of intangibles, interest, and depreciation and amortization for the years ended December 31, 2014 and 2013, along with a reconciliation to net loss, calculated in accordance with U.S. GAAP.

 

 

 

For the year ended December 31,

 

 

 

2014

 

 

2013

 

Rental and tenant recovery income:

 

 

 

 

 

 

 

 

“Same store” investment properties, 13 properties

 

 

 

 

 

 

 

 

Rental income

 

$

2,444

 

 

$

2,389

 

Tenant recovery income

 

 

429

 

 

 

338

 

Other property income

 

 

 

 

 

 

“Non-same store” investment properties

 

 

 

 

 

 

 

 

Rental income

 

 

12,114

 

 

 

54

 

Tenant recovery income

 

 

3,530

 

 

 

5

 

Other property income

 

 

58

 

 

 

 

Total property income

 

$

18,575

 

 

$

2,786

 

Property operating expenses:

 

 

 

 

 

 

 

 

“Same store” investment properties

 

 

 

 

 

 

 

 

Property operating expenses

 

$

258

 

 

$

178

 

Real estate tax expense

 

 

290

 

 

 

272

 

“Non-same store” investment properties

 

 

 

 

 

 

 

 

Property operating expenses

 

 

2,441

 

 

 

 

Real estate tax expense

 

 

1,779

 

 

 

5

 

Total property operating expenses

 

$

4,768

 

 

$

455

 

Property net operating income

 

 

 

 

 

 

 

 

“Same store” investment properties

 

$

2,325

 

 

$

2,277

 

“Non-same store” investment properties

 

 

11,482

 

 

 

54

 

Total property net operating income

 

$

13,807

 

 

$

2,331

 

Other income:

 

 

 

 

 

 

 

 

Straight-line income, net

 

$

314

 

 

$

15

 

Amortization of intangibles, net

 

 

59

 

 

 

24

 

Interest income

 

 

95

 

 

 

1

 

Equity in earnings of unconsolidated entity

 

 

10

 

 

 

7

 

Other expense:

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

2,427

 

 

 

1,601

 

Acquisition related expenses

 

 

5,140

 

 

 

666

 

Depreciation and amortization

 

 

7,679

 

 

 

1,004

 

Business management fee

 

 

773

 

 

 

226

 

Interest expense

 

 

2,622

 

 

 

1,408

 

Net loss calculated in accordance with U.S. GAAP

 

$

(4,356

)

 

$

(2,527

)

 

Total property net operating income.  On a “same store” basis, comparing the results of operations of investment properties owned during the year ended December 31, 2014, with the results of the same investment properties owned during the year ended December 31, 2013, property net operating income increased $48, total property income increased $146, and total property operating expenses including real estate tax expense increased $98 for the year ended December 31, 2014 compared to the year ended December 31, 2013.

The increase in “same store” total property income was primarily due to a scheduled rent increase for one tenant in June 2014 of $95 annually and a 3% increase in tenant recoveries at Newington Fair during the year ended December 31, 2014 as compared to the year ended December 31, 2013, which resulted in increased rental income and tenant recovery income. The increase in “same store” total property expenses is primarily due to an increase in repairs and maintenance expense during the year ended December 31, 2014 as

43


 

compared to the year ended December 31, 2013.  “Same store” total property net operating income primarily increased due to higher rental income and tenant recovery income for the year ended December 31, 2014 compared to the year ended December 31, 2013.

“Non-same store” total property net operating income increased $11,428 for the year ended December 31, 2014 as compared to the year ended December 31, 2013.  The increase is a result of acquiring 18 retail properties after January 1, 2013.  On a “non-same store” basis, total property income increased $15,643 and total property operating expenses increased $4,215 during the year ended December 31, 2014, as a result of these acquisitions.

Other income.  Other income increased $431 during the year ended December 31, 2014 as compared to the year ended December 31, 2013.  This increase is due to the acquisition of investment properties in December 2013 and throughout 2014, which increased straight-line income, net by $299 and amortization of lease intangibles, net by $35.  The increase is also due to an increase in interest income of $94 as a result of increased invested cash due to an increase in offering proceeds and an increase in equity in earnings of unconsolidated entity of $3.

Other expense.  Other expense increased $13,736 for the year ended December 31, 2014, as compared to the year ended December 31, 2013.  The increase is primarily due to an increase in acquisition related expenses, depreciation and amortization and interest expense.

Acquisition related expenses increased $4,474 for the year ended December 31, 2014, as compared to the year ended December 31, 2013.  These expenses include acquisition, dead deal and transaction related costs which relate to both closed and potential transactions.  These costs include third party due diligence costs such as appraisals, environmental studies, and legal fees as well as acquisition fees and time and travel expense reimbursements to the Sponsor and its affiliates.  The increase for the year ended December 31, 2014 is due to an increase in acquisition activity during 2014.

Depreciation and amortization increased $6,675 for the year ended December 31, 2014, as compared to the year ended December 31, 2013.  This increase is due to the acquisition of 18 retail properties which occurred in December 2013 and throughout 2014.

Business management fees increased $547 for the year ended December 31, 2014, as compared to the year ended December 31, 2013.  For the year ended December 31, 2014, the Business Manager was entitled to a business management fee in the amount equal to $1,433, of which $433 was permanently waived.  During 2014, the Business Manager also permanently waived business management fees of $226 incurred for the year ended December 31, 2013.  There is no assurance the Business Manager will waive all or a portion of business management fees in the future.

Interest expense increased $1,214 for the year ended December 31, 2014, as compared to the year ended December 31, 2013.  The increase in interest expense is due to an increase in outstanding indebtedness associated with financings of new acquisitions which occurred in December 2013 and throughout 2014.  The increase in interest expense was partially offset by the payoff of approximately $9,790 and $15,407 in mortgages and notes payable during 2014 and 2013, respectively.

Non-U.S. GAAP Financial Measures

Accounting for real estate assets in accordance with U.S. GAAP assumes the value of real estate assets is reduced over time. Because real estate values may rise and fall with market conditions, operating results from real estate companies that use U.S. GAAP accounting may not present a complete view of their performance. We use Funds from Operations, or FFO, a widely accepted metric to evaluate our performance. FFO provides a supplemental measure to compare our performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT. As defined by NAREIT, FFO means net income computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of operating property, plus depreciation and amortization and after adjustments for unconsolidated entities in which the REIT holds an interest. In addition, NAREIT has further clarified the FFO definition to add-back impairment write-downs of depreciable real estate or of investments in unconsolidated entities that are driven by measurable decreases in the fair value of depreciable real estate. We have adopted the NAREIT definition for computing FFO.

44


 

Under U.S. GAAP, acquisition related costs are treated as operating expenses reducing our income. Publicly registered, non-listed REITs typically engage in a significant amount of acquisition activity in the early years of their operations, and thus incur significant acquisition related costs, during these initial years. Although other start up entities may engage in significant acquisition activity during their initial years, REITs such as us that are not listed on an exchange are unique in that they typically have a limited timeframe during which they acquire a significant number of properties and thus incur significant acquisition related costs. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association, or “IPA,” an industry trade group, published a standardized measure known as Modified Funds from Operations, or “MFFO”, which the IPA has promulgated as a supplemental measure for publicly registered non-listed REITs and which may be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT.

MFFO excludes costs associated with investing activities, some of which are acquisition related costs that affect our operations only in periods in which properties are acquired, and other non-operating items that are included in FFO. By excluding acquisition related costs, the use of MFFO provides another measure of our operating performance. Because MFFO may be a recognized measure of operating performance within the non-listed REIT industry, MFFO and the adjustments used to calculate it may be useful in order to evaluate our performance against other non-listed REITs. Like FFO, MFFO is not equivalent to our net income or loss as determined under U.S. GAAP, as detailed in the table below, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we continue to acquire a significant amount of properties. MFFO should only be used as a measurement of our operating performance while we are acquiring a significant amount of properties because it excludes, among other things, acquisition costs incurred during the periods in which properties were acquired.

We believe our definition of MFFO, a non-U.S. GAAP measure, is consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the “Practice Guideline,” issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of U.S. GAAP net income: acquisition fees and expenses; amounts relating to straight-line rents and amortization of above and below market lease assets and liabilities, accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.

Our presentation of FFO and MFFO may not be comparable to other similarly titled measures presented by other REITs. We believe that the use of FFO and MFFO provides a more complete understanding of our operating performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs. Neither FFO nor MFFO is intended to be an alternative either to “net income” or to “cash flows from operating activities” as determined by U.S. GAAP as a measure of our capacity to pay distributions. Management uses FFO and MFFO to compare our operating performance to that of other REITs and to assess our operating performance.

Our FFO and MFFO for the years ended December 31, 2015, 2014 and 2013 are calculated as follows (Dollar amounts in thousands):

 

 

 

 

 

For the year ended December 31,

 

 

 

 

 

2015

 

 

2014

 

 

2013

 

 

 

Net loss

 

$

(13,436

)

 

$

(4,356

)

 

$

(2,527

)

Add:

 

Depreciation and amortization related to investment properties

 

 

34,573

 

 

 

7,679

 

 

 

1,004

 

 

 

Funds from operations (FFO)

 

 

21,137

 

 

 

3,323

 

 

 

(1,523

)

Add:

 

Acquisition related costs

 

 

13,903

 

 

 

5,139

 

 

 

666

 

Less:

 

Amortization of acquired market lease intangibles, net

 

 

(652

)

 

 

(59

)

 

 

(24

)

 

 

Straight-line income, net

 

 

(1,736

)

 

 

(314

)

 

 

(15

)

 

 

Modified funds from operations (MFFO)

 

$

32,652

 

 

$

8,089

 

 

$

(896

)

 

Critical Accounting Policies

Our accounting policies have been established to conform with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We consider these policies to be critical because they require our management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and

45


 

expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses.

Offering and Organizational Costs

Costs associated with the Offering are deferred and charged against the gross proceeds of the Offering upon the sale of shares. Formation and organizational costs are expensed as incurred.

Acquisitions

We are required to determine the total purchase price of each acquired investment property, which includes estimating any contingent consideration to be paid or received in future periods. We allocate the purchase price of each acquired business between tangible and intangible assets at full fair value at the date of the transaction. Such tangible and intangible assets include land, building and improvements, acquired above market and below market leases, in-place lease value, customer relationships (if any), and any assumed financing that is determined to be above or below market terms. Any additional amounts are allocated to goodwill as required, based on the remaining purchase price in excess of the fair value of the tangible and intangible assets acquired and liabilities assumed. The allocation of the purchase price is an area that requires judgment and significant estimates. We use the information contained in independent appraisals, valuation reports or other market sources as the basis for the allocation to land and building improvements.

The aggregate value of intangibles is measured based on the difference between the stated price and the property value calculation as if vacant. We determine whether any financing assumed is above or below market based upon comparison to similar financing terms for similar investment properties. We also allocate a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during assumed lease up period when calculating as if vacant fair values. We also evaluate each acquired lease based upon current market rates at the acquisition date and we consider various factors including geographical location, size and location of leased space within the investment property, tenant profile and the credit risk of the tenant in determining whether the acquired lease is above or below market.

After an acquired lease is determined to be above or below market, we allocate a portion of the purchase price to such above or below acquired leases based upon the present value of the difference between the contractual lease rate and the estimated market rate. The determination of the discount rate used in the present value calculation is based upon the “risk free rate.” This discount rate is a significant factor in determining the market valuation which requires our judgment of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property. The portion of the purchase price allocated to acquired above market lease value and acquired below market lease value is amortized on a straight-line basis over the term of the related lease as an adjustment to rental income. For below market lease values, the amortization period includes any renewal periods with fixed rate renewals.

The acquisition of certain properties includes earnout components to the purchase price, meaning a portion of the purchase price of the property is not paid at closing, although we own the entire property. We are not obligated to pay the contingent portion of the purchase prices unless space which was vacant at the time of acquisition is later leased by the seller within the time limits and parameters set forth in the acquisition agreements. The earnout payments are based on a predetermined formula applied to rental income to be received. The earnout agreements generally have a limited obligation period ranging from one to three years from the date of acquisition. If at the end of the time period certain space has not been leased, occupied and rent producing, we will have no further obligation to pay additional purchase price consideration and will retain ownership of that entire property. Based on our best estimate, we record a liability for the potential future earnout payments using estimated fair value measurements at the date of acquisition which include the lease-up periods, market rents, probability of occupancy and discount rate. This earnout amount is recorded as additional purchase price of the related properties and as a liability included in deferred investment property acquisition obligations on the accompanying consolidated balance sheets. Fair value adjustments may be deemed necessary but generally, the liability increases as the anticipated payment date draws near based on a present value; such increases in the liability are recorded as amortization expense on the accompanying consolidated statements of operations. We record changes in the underlying liability assumptions to acquisition related costs contained in acquisition costs on the accompanying consolidated statements of operations.

We expense acquisition costs of all transactions as incurred. All costs related to finding, analyzing and negotiating a transaction are expensed as incurred as acquisition related costs, whether or not the acquisition is completed. These expenses would include acquisition fees, if any, paid to our Business Manager.

46


 

Impairment

We assess the carrying values of the respective long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. If it is determined that the carrying value is not recoverable because the undiscounted cash flows do not exceed the carrying value, we will be required to record an impairment loss to the extent that the carrying value exceeds fair value. The valuation and possible subsequent impairment of investment properties will be a significant estimate that can change based on our continuous process of analyzing each property and reviewing assumptions about uncertain inherent factors, as well as the economic condition of the property at a particular point in time.

We also evaluate our equity method investments for impairment indicators. The valuation analysis considers the investment positions in relation to the underlying business and activities of our investment and identifies potential declines in fair value. An impairment loss should be recognized if a decline in value of the investment has occurred that is considered to be other than temporary, without ability to recover or sustain operations that would support the value of the investment.

Cost Capitalization and Depreciation Policies

Real estate acquisitions are recorded at cost less accumulated depreciation. Improvements and betterment costs are capitalized and ordinary repairs and maintenance are expensed as incurred.

Depreciation expense is computed using the straight-line method. Buildings and improvements are depreciated on a straight-line basis based upon estimated useful lives of thirty years for buildings and improvements, and five to fifteen years for furniture, fixtures and equipment and site improvements. Tenant improvements are amortized on a straight-line basis over the shorter of the life of the asset or the term of the related lease as a component of depreciation and amortization. Leasing fees are amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization. Loan fees are amortized on a straight-line basis, which approximates the effective interest method, over the life of the related loan as a component of interest expense. The portion of the purchase price allocated to acquired above market lease costs and acquired below market lease costs is amortized on a straight-line basis over the life of the related lease (including renewal periods for below market leases with fixed rate renewals) as an adjustment to net rental income. Acquired in-place lease costs and other leasing costs are amortized on a straight-line basis over the weighted-average remaining lease term as a component of amortization expense.

Cost capitalization and the estimate of useful lives require judgment and include significant estimates that can and do change.

Revenue Recognition

We commence revenue recognition on our leases based on a number of factors. In most cases, revenue recognition under a lease will begin when the lessee takes possession of or controls the physical use of the leased asset. Generally, this will occur on the lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins. If we are the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete.

If we conclude we are not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset will be the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives which reduces revenue recognized over the term of the lease. In these circumstances, we will begin revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements. We consider a number of different factors to evaluate whether we or the lessee is the owner of the tenant improvements for accounting purposes. The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment.

We recognize rental income on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rent receivable in the accompanying consolidated balance sheets. Due to the impact of the straight-line basis, rental income generally will be greater than the cash collected in the early years and decrease in the later years of a lease. We periodically review the collectability of outstanding receivables. Allowances are taken for those balances that we deem to be uncollectible, including any amounts relating to straight-line income receivables.

Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the applicable expenses are incurred. We make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. We do not expect the actual results to materially differ from the estimated reimbursement.

47


 

We recognize lease termination income if there is a signed termination letter agreement, all of the conditions of the agreement have been met, collectability is reasonably assured and the tenant is no longer occupying the property. Upon early lease termination, we provide for losses related to unrecovered intangibles and other assets.

As a lessor, we defer the recognition of contingent rental income, such as percentage rent, until the specified target that triggered the contingent rental income is achieved.

Partially-Owned Entities

We consolidate the operations of a joint venture if we determine that we are either the primary beneficiary of a variable interest entity (VIE) or have substantial influence and control of the entity. The primary beneficiary is the party that has the ability to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. There are significant judgments and estimates involved in determining the primary beneficiary of a VIE or the determination of who has control and influence of the entity. When we consolidate an entity, the assets, liabilities and results of operations will be included in our consolidated financial statements.

In instances where we determine that we are not the primary beneficiary of a VIE or we do not control the joint venture but we can exercise influence over the entity with respect to its operations and major decisions, we use the equity method of accounting. Under the equity method, the operations of a joint venture are not consolidated with our operations but instead our share of operations will be reflected as equity in earnings (loss) of unconsolidated entity on our consolidated statements of operations. Additionally, our net investment in the joint venture will be reflected as investment in unconsolidated entity on the consolidated balance sheets.

Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments. The amendments in the ASU eliminate the requirement of an acquirer to retrospectively account for provisional amounts that are identified during the measurement period after a business combination.  This ASU requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The ASU also requires the acquirer to disclose the amount recorded in current-period earnings, by line item, that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been issued and will be applied prospectively to adjustments to provisional amounts that occur after the effective date.  We do not expect adoption of this ASU to have a material impact on our consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The ASU requires that debt issuance costs be deducted from the carrying value of the financial liability and not recorded as separate assets, classified as deferred financing costs. The ASU is effective for public entities for financial statements issued for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued and will be applied on a retrospective basis. As of December 31, 2015, the amount of total debt issuance costs was approximately $4.4 million and was classified as deferred costs, net in our consolidated balance sheet. We will adopt this accounting standard update beginning January 2016. We will apply this accounting update retrospectively to all prior periods presented in the financial statements. We expect the adoption of this update to result in the reclassification of our debt issuance costs of approximately $4.4 million and $1.7 million as of December 31, 2015 and 2014, respectively, as a direct deduction to our outstanding mortgages and credit facility payable.

48


 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, although it will not affect the accounting for rental related revenues. The new standard is effective for us on January 1, 2018. Early adoption is permitted but not prior to the original effective date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU No. 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor determined the effect of the standard on our ongoing financial reporting.

Contractual Obligations

Our mortgages payable are generally non-recourse to us.  We have, however, guaranteed the full amount of each of the mortgages payable by our subsidiaries in the event that the applicable subsidiary fails to provide access or information to the properties or fails to obtain a lender’s prior written consent to any liens on or transfers of any of the properties, and in the event of any losses, costs or damages incurred by a lender as a result of fraud or intentional misrepresentation of the subsidiary borrower, gross negligence or willful misconduct, material waste of the properties and the breach of any representation or warranty concerning environmental laws, among other things.

From time to time, we acquire properties subject to the obligation to pay the seller additional monies depending on the future leasing and occupancy of the property. These earnout payments are based on a predetermined formula. Each earnout agreement has a time limit of generally one to three years and other parameters regarding the obligation to pay any additional monies. If at the end of the time period, certain space has not been leased and occupied, we will not have any further obligation. As of December 31, 2015 and 2014, we had liabilities of $18.9 million and $3.6 million, respectively, recorded on the consolidated balance sheets as deferred investment property acquisition obligations. The maximum potential payment is $23.2 million at December 31, 2015.

The table below presents, on a consolidated basis, our obligations and commitments to make future payments under debt obligations (including interest) as of December 31, 2015. Debt obligations under debt which is subject to variable rates reflect interest rates as of December 31, 2015 (Dollar amounts in thousands).

 

 

 

 

 

 

 

Payments due by period

 

 

 

Total

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

Thereafter

 

Principal payments on debt

 

$

584,995

 

 

$

58,468

 

 

$

6,503

 

 

$

15,465

 

 

$

242,840

 

 

$

897

 

 

$

260,822

 

Interest payments on debt

 

 

112,730

 

 

 

18,640

 

 

 

17,960

 

 

 

17,768

 

 

 

14,904

 

 

 

10,755

 

 

 

32,703

 

Payments for ground lease

 

 

27,264

 

 

 

1,108

 

 

 

1,140

 

 

 

1,140

 

 

 

1,140

 

 

 

1,140

 

 

 

21,596

 

Total

 

$

724,989

 

 

$

78,216

 

 

$

25,603

 

 

$

34,373

 

 

$

258,884

 

 

$

12,792

 

 

$

315,121

 

 

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Subsequent Events

Distributions

Our board of directors declared distributions payable to stockholders of record each day beginning on the close of business on January 1, 2016 through the close of business on April 30, 2016. Through that date, distributions were declared in a daily amount equal to $0.001639344 per share, based upon a 366-day period, which equates to $0.60 per share or a 6% annualized rate based on a purchase price of $10.00 per share.  Distributions were paid monthly in arrears, as follows (Dollar amounts in thousands):

 

Distribution

Month

 

Month

Distribution Paid

 

Gross Amount

of Distribution

Paid

 

 

Distribution

Reinvested

through DRP

 

 

Shares

Issued

 

 

Net Cash

Distribution

 

December 2015

 

January 2016

 

$

4,397

 

 

$

2,362

 

 

 

248,629

 

 

$

2,035

 

January 2016

 

February 2016

 

$

4,393

 

 

$

2,358

 

 

 

248,177

 

 

$

2,035

 

February 2016

 

March 2016

 

$

4,120

 

 

$

2,204

 

 

 

232,019

 

 

$

1,916

 

 

49


 

We entered into the following financings subsequent to December 31, 2015 (Dollar amounts in thousands):

 

Date

 

Property

 

Interest Rate (stated)

 

 

Principal

Amount

 

 

Maturity

Date

 

1/25/2016

 

Marketplace at El Paseo

 

 

2.95%

 

 

$

38,000

 

 

2/1/2021

 

1/28/2016

 

Milford Marketplace

 

 

4.02%

 

 

$

18,727

 

 

2/1/2026

 

 

In January 2016, we amended our Credit Facility to, among other matters, increase the aggregate commitment under the Credit Facility by $10.0 million to $110.0 million. In February 2016, we paid $85.0 million towards the principal on the Credit Facility reducing the outstanding balance to $15.0 million. Additionally, in January 2016, we paid in full the approximately $12.0 million mortgage principal plus accrued interest balance on the Oquirrh Mountain Marketplace short-term loan.

 

Real Estate Manager Contract Assignment

 

Due to a corporate reorganization, Inland National Real Estate Services, LLC (“Inland National”), our Real Estate Manager and an indirect wholly-owned subsidiary of our Sponsor, is transitioning its management responsibilities to Inland Commercial Real Estate Services LLC (“Inland Commercial”), which is also an indirect wholly-owned subsidiary of our Sponsor.  As part of the reorganization, Inland National assigned its interest in the master real estate management agreement with us to Inland Commercial on January 1, 2016.  All terms of the real estate management agreement remain the same.  Certain of our properties are managed by Inland Commercial, effective as of January 1, 2016.  The remaining properties are still managed by Inland National, and their property management functions are expected to be transferred to Inland Commercial, effective as of April 1, 2016. 

 

Investment in unconsolidated entity

 

In March 2016, the Captive was notified by IRC of its intention to dissociate. Previously, InvenTrust and RPAI. terminated their future participation effective December 1, 2015 and December 1, 2014, respectively. Based upon this notice and regulatory requirements, it is expected the Captive will terminate its operations in accordance with the applicable rules and regulations for an insurance association captive in 2016. As a result, we will need to obtain separate property and general liability insurance once the Captive is unable to provide us coverage.  As of the date of this report, we are unable to determine if we would be liable for any proportional cost associated with the termination of the Captive.

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Market Risk

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

Interest Rate Risk

We are exposed to interest rate changes primarily as a result of long-term debt used to purchase properties or other real estate assets and fund capital expenditures. At December 31, 2015, we had $83.7 million or 14.2% of our total debt that bore interest at variable rates with a weighted average interest rate equal to 2.98%. We had variable rate debt subject to swap agreements of $238.6 million or 40.5% of our total debt at December 31, 2015. As of December 31, 2015, we had outstanding debt, which is subject to fixed interest rates and variable rates, of approximately $585.0 million, excluding mortgage premiums, bearing interest rates in the range of 1.65% to 5.78% per annum and a weighted average interest rate of 3.41%, which includes the effect of interest rate swaps. As of December 31, 2015, the interest rate on the Credit Facility was 1.65%.

If interest rates on all debt which bears interest at variable rates as of December 31, 2015 permanently increased by 1% (100 basis points), the increase in interest expense on all debt would decrease earnings and cash flows by approximately $1.8 million annually. If interest rates on all debt which bears interest at variable rates as of December 31, 2015 permanently decreased by 1% (100 basis points), the decrease in interest expense would increase earnings and cash flows by the same amount.

We use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or

50


 

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

With regard to fixed rate financing, interest rate fluctuations generally affect the fair value, but not our earnings or cash flows. Therefore, interest rate risk does not have a significant impact on our fixed rate debt obligations until their maturity or earlier prepayment.

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

Derivatives

The following table summarizes our interest rate swap contracts outstanding as of December 31, 2015 (Dollar amounts in thousands):

 

Date

Entered

 

Effective

Date

 

Maturity

Date

 

Pay

Fixed

Rate

(a)

 

 

Notional

Amount

 

 

Fair Value at

December 31,

2015

 

March 28, 2014

 

March 1, 2015

 

March 28, 2019

 

 

2.22

%

 

$

5,525

 

 

$

(167

)

May 8, 2014

 

May 5, 2015

 

May 7, 2019

 

 

2.10

%

 

 

14,200

 

 

 

(379

)

May 23, 2014

 

May 1, 2015

 

May 22, 2019

 

 

2.00

%

 

 

8,484

 

 

 

(199

)

June 6, 2014

 

June 1, 2015

 

May 8, 2019

 

 

2.15

%

 

 

11,684

 

 

 

(332

)

June 26, 2014

 

July 5, 2015

 

July 5, 2019

 

 

2.11

%

 

 

20,725

 

 

 

(568

)

June 27, 2014

 

July 1, 2014

 

July 1, 2019

 

 

1.85

%

 

 

24,352

 

 

 

(446

)

July 31, 2014

 

July 31, 2014

 

July 31, 2019

 

 

1.94

%

 

 

9,561

 

 

 

(206

)

December 16, 2014

 

December 16, 2014

 

June 22, 2016

 

 

1.97

%

 

 

13,359

 

 

 

(92

)

December 16, 2014

 

December 16, 2014

 

October 21, 2016

 

 

1.50

%

 

 

10,837

 

 

 

(77

)

December 16, 2014

 

December 16, 2014

 

May 9, 2017

 

 

1.13

%

 

 

10,150

 

 

 

(46

)

February 11, 2015

 

March 2, 2015

 

March 1, 2022

 

 

2.02

%

 

 

6,114

 

 

 

(127

)

April 7, 2015

 

April 7, 2015

 

April 7, 2022

 

 

1.74

%

 

 

49,400

 

 

 

(209

)

July 8, 2015

 

August 1, 2015

 

May 22, 2019

 

 

1.43

%

 

 

1,426

 

 

 

(7

)

September 17, 2015

 

September 17, 2015

 

September 17, 2022

 

 

1.90

%

 

 

13,700

 

 

 

(143

)

October 2, 2015

 

November 1, 2015

 

November 1, 2015

 

 

1.79

%

 

 

13,100

 

 

 

(41

)

December 23, 2015

 

December 23, 2015

 

January 2, 2026

 

 

2.30

%

 

 

26,000

 

 

 

(752

)

 

 

 

 

 

 

 

 

 

 

$

238,617

 

 

$

(3,791

)

 

(a)

Receive floating rate index based upon one month LIBOR. At December 31, 2015, the one month LIBOR equaled 0.43%.

 

 

51


 

INLAND REAL ESTATE INCOME TRUST, INC.

INDEX

Item 8.

Financial Statements and Supplementary Data

 

 

Schedules not filed:

All schedules other than the one listed in the Index have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

 

52


 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Inland Real Estate Income Trust, Inc.:

We have audited the accompanying consolidated balance sheets of Inland Real Estate Income Trust, Inc. (the Company) and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive loss, equity, and cash flows for each of the years in the three‑year period ended December 31, 2015. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule III. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inland Real Estate Income Trust, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three‑year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Chicago, Illinois

March 15, 2016

 

 

53


 

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share amounts)

 

 

 

December 31,

2015

 

 

December 31,

2014

 

ASSETS

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Investment properties:

 

 

 

 

 

 

 

 

Land

 

$

247,082

 

 

$

83,250

 

Building and other improvements

 

 

914,355

 

 

 

331,213

 

Total

 

 

1,161,437

 

 

 

414,463

 

Less accumulated depreciation

 

 

(27,545

)

 

 

(6,236

)

Net investment properties

 

 

1,133,892

 

 

 

408,227

 

Cash and cash equivalents

 

 

83,843

 

 

 

105,871

 

Investment in unconsolidated entity

 

 

 

 

 

118

 

Accounts and rent receivable

 

 

7,313

 

 

 

1,977

 

Acquired lease intangible assets, net

 

 

164,773

 

 

 

51,691

 

Deferred costs, net

 

 

4,705

 

 

 

1,694

 

Other assets

 

 

11,309

 

 

 

1,908

 

Total assets

 

$

1,405,835

 

 

$

571,486

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Mortgages and credit facility payable

 

$

588,966

 

 

$

186,034

 

Accounts payable and accrued expenses

 

 

13,926

 

 

 

2,734

 

Distributions payable

 

 

4,397

 

 

 

2,025

 

Acquired intangible liabilities, net

 

 

65,194

 

 

 

18,676

 

Deferred investment property acquisition obligations

 

 

18,871

 

 

 

3,646

 

Due to related parties

 

 

8,595

 

 

 

2,694

 

Other liabilities

 

 

15,042

 

 

 

4,218

 

Total liabilities

 

 

714,991

 

 

 

220,027

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock, $.001 par value, 1,460,000,000 shares authorized, 86,229,018 and

   41,996,913 shares issued and outstanding as of December 31, 2015 and

   2014, respectively

 

 

86

 

 

 

42

 

Additional paid in capital (net of offering costs of $87,059 and $43,566 as of

   December 31, 2015 and 2014, respectively)

 

 

774,359

 

 

 

374,608

 

Accumulated distributions and net loss

 

 

(80,007

)

 

 

(21,663

)

Accumulated other comprehensive loss

 

 

(3,594

)

 

 

(1,528

)

Total stockholders’ equity

 

 

690,844

 

 

 

351,459

 

Total liabilities and stockholders’ equity

 

$

1,405,835

 

 

$

571,486

 

 

See accompanying notes to consolidated financial statements.

 

 

54


 

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Dollar amounts in thousands, except per share amounts)

For the years ended December 31, 2015, 2014 and 2013

 

 

 

2015

 

 

2014

 

 

2013

 

Income:

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

60,912

 

 

$

14,932

 

 

$

2,482

 

Tenant recovery income

 

 

15,482

 

 

 

3,959

 

 

 

343

 

Other property income

 

 

148

 

 

 

55

 

 

 

 

Total income

 

 

76,542

 

 

 

18,946

 

 

 

2,825

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

11,850

 

 

 

2,699

 

 

 

178

 

Real estate tax expense

 

 

8,938

 

 

 

2,068

 

 

 

277

 

General and administrative expenses

 

 

4,961

 

 

 

2,427

 

 

 

1,601

 

Acquisition related costs

 

 

13,903

 

 

 

5,139

 

 

 

666

 

Business management fee

 

 

5,501

 

 

 

773

 

 

 

226

 

Depreciation and amortization

 

 

34,573

 

 

 

7,679

 

 

 

1,004

 

Total expenses

 

 

79,726

 

 

 

20,785

 

 

 

3,952

 

Operating loss

 

 

(3,184

)

 

 

(1,839

)

 

 

(1,127

)

Interest expense

 

 

(10,339

)

 

 

(2,622

)

 

 

(1,408

)

Interest income

 

 

205

 

 

 

95

 

 

 

1

 

Equity in (loss) earnings of unconsolidated entity

 

 

(118

)

 

 

10

 

 

 

7

 

Net loss

 

$

(13,436

)

 

$

(4,356

)

 

$

(2,527

)

Net loss per common share,  basic and diluted

 

$

(0.19

)

 

$

(0.21

)

 

$

(1.18

)

Weighted average number of common shares outstanding, basic and diluted

 

 

69,343,253

 

 

 

20,565,940

 

 

 

2,147,947

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,436

)

 

$

(4,356

)

 

$

(2,527

)

Unrealized loss on derivatives

 

 

(4,612

)

 

 

(1,810

)

 

 

 

Reclassification adjustment for amounts recognized in net loss

 

 

2,546

 

 

 

282

 

 

 

 

Comprehensive loss

 

$

(15,502

)

 

$

(5,884

)

 

$

(2,527

)

 

See accompanying notes to consolidated financial statements.

 

 

55


 

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Dollar amounts in thousands)

For the years ended December 31, 2015, 2014 and 2013

 

 

 

Number

of

Shares

 

 

Common

Stock

 

 

Additional

Paid in

Capital

 

 

Accumulated

Distributions

and

Net Loss

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

 

Balance at January 1, 2013

 

 

276,239

 

 

$

 

 

$

193

 

 

$

(1,173

)

 

$

 

 

$

(980

)

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

(1,289

)

 

 

 

 

 

(1,289

)

Proceeds from offering

 

 

6,418,741

 

 

 

7

 

 

 

63,356

 

 

 

 

 

 

 

 

 

63,363

 

Offering costs

 

 

 

 

 

 

 

 

(6,664

)

 

 

 

 

 

 

 

 

(6,664

)

Proceeds from distribution reinvestment plan

 

 

50,635

 

 

 

 

 

 

481

 

 

 

 

 

 

 

 

 

481

 

Discount on shares to related parties

 

 

 

 

 

 

 

 

369

 

 

 

 

 

 

 

 

 

369

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,527

)

 

 

 

 

 

(2,527

)

Balance at December 31, 2013

 

 

6,745,615

 

 

$

7

 

 

$

57,735

 

 

$

(4,989

)

 

$

 

 

$

52,753

 

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

(12,318

)

 

 

 

 

 

(12,318

)

Proceeds from offering

 

 

34,711,753

 

 

 

35

 

 

 

345,519

 

 

 

 

 

 

 

 

 

345,554

 

Offering costs

 

 

 

 

 

 

 

 

(34,571

)

 

 

 

 

 

 

 

 

(34,571

)

Proceeds from distribution reinvestment plan

 

 

567,896

 

 

 

 

 

 

5,395

 

 

 

 

 

 

 

 

 

5,395

 

Shares repurchased

 

 

(28,351

)

 

 

 

 

 

(260

)

 

 

 

 

 

 

 

 

(260

)

Discount on shares to related parties

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

 

 

 

150

 

Unrealized loss on derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,810

)

 

 

(1,810

)

Reclassification adjustment for amounts

   included in net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

282

 

 

 

282

 

Sponsor contribution

 

 

 

 

 

 

 

 

640

 

 

 

 

 

 

 

 

 

640

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,356

)

 

 

 

 

 

(4,356

)

Balance at December 31, 2014

 

 

41,996,913

 

 

$

42

 

 

$

374,608

 

 

$

(21,663

)

 

$

(1,528

)

 

$

351,459

 

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

(44,908

)

 

 

 

 

 

(44,908

)

Proceeds from offering

 

 

42,428,322

 

 

 

42

 

 

 

422,917

 

 

 

 

 

 

 

 

 

422,959

 

Offering costs

 

 

 

 

 

 

 

 

(43,493

)

 

 

 

 

 

 

 

 

(43,493

)

Proceeds from distribution reinvestment plan

 

 

2,192,444

 

 

 

2

 

 

 

20,826

 

 

 

 

 

 

 

 

 

20,828

 

Shares repurchased

 

 

(388,661

)

 

 

 

 

 

(3,810

)

 

 

 

 

 

 

 

 

(3,810

)

Discount on shares to related parties

 

 

 

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

28

 

Unrealized loss on derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,612

)

 

 

(4,612

)

Reclassification adjustment for amounts

   included in net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,546

 

 

 

2,546

 

Sponsor contribution

 

 

 

 

 

 

 

 

3,283

 

 

 

 

 

 

 

 

 

3,283

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,436

)

 

 

 

 

 

(13,436

)

Balance at December 31, 2015

 

 

86,229,018

 

 

$

86

 

 

$

774,359

 

 

$

(80,007

)

 

$

(3,594

)

 

$

690,844

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

56


 

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

For the years ended December 31, 2015, 2014 and 2013

 

 

 

2015

 

 

2014

 

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,436

)

 

$

(4,356

)

 

$

(2,527

)

Adjustments to reconcile net loss to net cash provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

34,573

 

 

 

7,679

 

 

 

1,004

 

Amortization of loan fees and mortgage premiums, net

 

 

5

 

 

 

210

 

 

 

212

 

Amortization of acquired market leases, net

 

 

(652

)

 

 

(59

)

 

 

(24

)

Straight-line income, net

 

 

(1,736

)

 

 

(314

)

 

 

(15

)

Discount on shares issued to related parties

 

 

28

 

 

 

150

 

 

 

370

 

Equity in (losses) earnings of unconsolidated entity

 

 

118

 

 

 

(10

)

 

 

(7

)

Payment of leasing fees

 

 

(315

)

 

 

(5

)

 

 

 

Other non-cash adjustments

 

 

(385

)

 

 

5

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

3,723

 

 

 

869

 

 

 

(11

)

Accounts and rents receivable

 

 

(3,392

)

 

 

(1,521

)

 

 

(81

)

Due to related parties

 

 

7,559

 

 

 

(493

)

 

 

748

 

Other liabilities

 

 

2,185

 

 

 

1,072

 

 

 

(51

)

Other assets

 

 

(1,195

)

 

 

(305

)

 

 

(579

)

Net cash flows provided by (used in) operating activities

 

 

27,080

 

 

 

2,922

 

 

 

(961

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of investment properties

 

 

(734,331

)

 

 

(310,120

)

 

 

(29,982

)

Capital expenditures

 

 

(4,326

)

 

 

(131

)

 

 

(316

)

Investment in unconsolidated entity

 

 

 

 

 

 

 

 

(100

)

Other assets and restricted escrows

 

 

(1,885

)

 

 

(234

)

 

 

23

 

Net cash flows used in investing activities

 

 

(740,542

)

 

 

(310,485

)

 

 

(30,375

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from offering

 

 

422,959

 

 

 

345,554

 

 

 

63,363

 

Proceeds from the distribution reinvestment plan

 

 

20,828

 

 

 

5,395

 

 

 

481

 

Shares repurchased

 

 

(3,333

)

 

 

(260

)

 

 

 

Payment of offering costs

 

 

(43,828

)

 

 

(34,337

)

 

 

(6,826

)

Distributions paid

 

 

(42,537

)

 

 

(10,597

)

 

 

(998

)

Sponsor contribution

 

 

3,283

 

 

 

640

 

 

 

 

Due to related parties, net

 

 

(1,630

)

 

 

 

 

 

1

 

Deferred investment property acquisition obligation payments

 

 

(3,061

)

 

 

(2,728

)

 

 

 

Proceeds from credit facility payable

 

 

100,000

 

 

 

 

 

 

 

Proceeds from mortgages payable

 

 

242,377

 

 

 

94,531

 

 

 

15,260

 

Payment of mortgages payable

 

 

(145

)

 

 

(9,790

)

 

 

(15,407

)

Payment of loan fees

 

 

(3,479

)

 

 

(1,608

)

 

 

(141

)

Net cash flows provided by financing activities

 

 

691,434

 

 

 

386,800

 

 

 

55,733

 

Net (decrease) increase in cash and cash equivalents

 

 

(22,028

)

 

 

79,237

 

 

 

24,397

 

Cash and cash equivalents at beginning of the period

 

 

105,871

 

 

 

26,634

 

 

 

2,237

 

Cash and cash equivalents at end of the period

 

$

83,843

 

 

$

105,871

 

 

$

26,634

 

 

See accompanying notes to consolidated financial statements.

 

 

57


 

INLAND REAL ESTATE INCOME TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollar amounts in thousands)

For the years ended December 31, 2015, 2014 and 2013

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

In conjunction with the purchase of investment property, the Company

   acquired assets and assumed liabilities as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

$

163,832

 

 

$

70,828

 

 

$

2,220

 

Building and improvements

 

 

580,061

 

 

 

285,326

 

 

 

26,577

 

Acquired in place lease intangibles

 

 

98,062

 

 

 

43,067

 

 

 

2,438

 

Acquired above market lease intangibles

 

 

30,524

 

 

 

5,264

 

 

 

311

 

Acquired below market lease intangibles

 

 

(44,359

)

 

 

(18,386

)

 

 

(391

)

Acquired above market ground lease liability

 

 

(5,169

)

 

 

 

 

 

 

Other receivables

 

 

792

 

 

 

 

 

 

 

Assumption of mortgage debt at acquisition

 

 

(58,026

)

 

 

(67,466

)

 

 

 

Non-cash mortgage premium

 

 

(3,430

)

 

 

(1,297

)

 

 

 

Non-cash fair value of interest rate swaps

 

 

 

 

 

(528

)

 

 

 

Deferred investment property acquisition obligations

 

 

(18,211

)

 

 

(5,511

)

 

 

(723

)

Assumed liabilities

 

 

(9,745

)

 

 

(1,177

)

 

 

(450

)

Purchase of investment properties

 

$

734,331

 

 

$

310,120

 

 

$

29,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

9,397

 

 

$

2,346

 

 

$

1,235,597

 

Distributions payable

 

$

4,397

 

 

$

2,025

 

 

$

304,863

 

Accrued offering costs payable

 

$

252

 

 

$

535

 

 

$

300,807

 

 

See accompanying notes to consolidated financial statements.

 

 

 

58


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

 

NOTE 1 – ORGANIZATION

Inland Real Estate Income Trust, Inc. (the “Company”) was formed on August 24, 2011 to acquire and manage a portfolio of commercial real estate investments located in the United States. To date, the Company has focused on acquiring retail properties. The Company entered into a Business Management Agreement with IREIT Business Manager & Advisor, Inc. (the “Business Manager”), an affiliate of Inland Real Estate Investment Corporation (the “Sponsor”), to be the Business Manager to the Company.

At December 31, 2015, the Company owned 54 retail properties, totaling 6,025,330 square feet.  The properties are located in 22 states.  At December 31, 2015, the portfolio had a weighted average physical occupancy of 96.2% and economic occupancy of 97.2%. Economic occupancy excludes square footage associated with an earnout component.

 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

The accompanying consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In the opinion of management, all adjustments necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods are presented. Actual results could differ from those estimates.

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

Information with respect to square footage and occupancy is unaudited.

Consolidation

The accompanying consolidated financial statements include the accounts of the Company, as well as all wholly owned subsidiaries. Wholly owned subsidiaries generally consist of limited liability companies (“LLCs”). All intercompany balances and transactions have been eliminated in consolidation.

Each property is owned by a separate legal entity which maintains its own books and financial records and each entity’s assets are not available to satisfy the liabilities of other affiliated entities.

The fiscal year-end of the Company is December 31.

Acquisitions

Upon acquisition, the Company determines the total purchase price of each property (see Note 4 – “Acquisitions”), which includes the estimated contingent consideration to be paid or received in future periods, if any. The Company allocates the total purchase price of properties based on the fair value of the tangible and intangible assets acquired and liabilities assumed based on Level 3 inputs, such as comparable sales values, discount rates, capitalization rates, revenue and expense growth rates and lease-up assumptions, from a third party appraisal or other market sources.

Assets and liabilities acquired typically include land, building and personal property and identified intangible assets and liabilities, consisting of the value of above market and below market leases and the value of in-place leases. The portion of the purchase price allocated to above market lease values are included in acquired lease intangible assets, net and is amortized on a straight-line basis over the term of the related lease as a reduction to rental income. The portion allocated to below market lease values are included in acquired intangible liabilities, net and is amortized as an increase to rental income over the term of the lease including any renewal periods with fixed rate renewals.  The portion of the purchase price allocated to acquired in-place lease value is included in acquired lease intangible assets, net and is amortized on a straight-line basis over the acquired leases’ weighted average remaining term.

59


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

Certain of the Company’s properties included earnout components to the purchase price, meaning the Company did not pay a portion of the purchase price of the property at closing, although the Company owns the entire property. The Company is not obligated to settle the contingent portion of the purchase price unless space which was vacant at the time of acquisition is later leased by the seller within the time limits and parameters set forth in the related acquisition agreements. The earnout payments are based on a predetermined formula applied to rental income to be received. The earnout agreements have a limited obligation period from the date of acquisition, as defined. If at the end of the time period certain space has not been leased, occupied and rent producing, the Company will have no further obligation to pay additional purchase price consideration and will retain ownership of that entire property. Based on its best estimate, the Company has recorded a liability for the potential future earnout payments using estimated fair value at the date of acquisition using Level 3 inputs including market rents ranging from $14.00 to $42.00 per square foot, probability of occupancy ranging from 0% to 100% based on leasing activity and utilizing a discount rate of 6.50% to 8.25%. The Company has recorded this earnout amount as additional purchase price of the related property and as a liability included in deferred investment property acquisition obligations on the accompanying consolidated balance sheets. Fair value adjustments may be deemed necessary but generally, the liability increases as the anticipated payment date draws near based on a present value; such increases in the liability are recorded as amortization expense on the accompanying consolidated statements of operations and comprehensive loss. The Company records the effect of changes in the underlying liability assumptions in acquisition related costs on the accompanying consolidated statements of operations and comprehensive loss.

Capitalization and Depreciation

Real estate acquisitions are recorded at cost less accumulated depreciation. Improvement and betterment costs are capitalized, and ordinary repairs and maintenance are expensed as incurred. Transaction costs in connection with the acquisition of real estate properties and businesses are expensed as incurred and included in acquisition related costs.

Cost capitalization and the estimate of useful lives require judgment and include significant estimates that can and do change.  Depreciation expense is computed using the straight-line method. The Company anticipates the estimated useful lives of its assets by class to be generally:

 

Building and other improvements

 

30 years

Site improvements

 

5-15 years

Furniture, fixtures and equipment

 

5-15 years

Tenant improvements

 

Shorter of the life of the asset or the term of the related lease

Leasing fees

 

Term of the related lease

 

Depreciation expense was approximately $21,319, $5,428 and $776 for the years ended December 31, 2015, 2014 and 2013, respectively.

Fair Value Measurements

The Company has estimated fair value using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that would be realized upon disposition.

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

 

Level 1 −

 

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

 

 

 

Level 2 −

 

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

 

 

 

60


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

Level 3 −

 

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

techniques that use significant unobservable inputs.

 

The Company’s cash equivalents, accounts receivable and payables and accrued expenses all approximate fair value due to the short term nature of these financial instruments. The Company’s financial instruments measured on a recurring basis include derivative interest rate instruments.

Derivatives

The Company uses derivative instruments, such as interest rate swaps, primarily to manage exposure to interest rate risks inherent in variable rate debt. The Company may also enter into forward starting swaps or treasury lock agreements to set the effective interest rate on a planned fixed-rate financing. The Company’s interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In a forward starting swap or treasury lock agreement that the Company cash settles in anticipation of a fixed rate financing or refinancing, the Company will receive or pay an amount equal to the present value of future cash flow payments based on the difference between the contract rate and market rate on the settlement date. The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging.

For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major category of assets and liabilities is presented below:

 

 

 

Fair Value Measurements at December 31, 2015

 

 

 

Quoted Prices in

Active Markets

for Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Description

 

 

 

 

 

 

 

 

 

 

 

 

Derivative interest rate swap agreements

 

$

 

 

$

(3,791

)

 

$

 

Total liabilities

 

$

 

 

$

(3,791

)

 

$

 

 

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

Partially-Owned Entities

The Company will consolidate the operations of a joint venture if the Company determines that it is either the primary beneficiary of a variable interest entity (VIE) or has substantial influence and control of the entity.  In instances where the Company determines that it is not the primary beneficiary of a VIE or the Company does not control the joint venture but can exercise influence over the entity with respect to its operations and major decisions, the Company will use the equity method of accounting. Under the equity method, the operations of a joint venture will not be consolidated with the Company’s operations but instead its share of operations will be reflected as equity in earnings (loss) of unconsolidated entity on its consolidated statements of operations and comprehensive loss. Additionally, the Company’s net investment in the joint venture will be reflected as investment in unconsolidated entity on the consolidated balance sheets.

Offering and Organization Costs

Costs associated with the Offering (as defined below) are deferred and charged against the gross proceeds of the Offering upon the sale of shares.  Formation and organizational costs were expensed as incurred.

61


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

Cash and Cash Equivalents

The Company considers all demand deposits, money market accounts and all short term investments with a maturity of three months or less, at the date of purchase, to be cash equivalents.  The Company maintains its cash and cash equivalents at financial institutions.  The account balance may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes that the risk will not be significant, as the Company does not anticipate the financial institutions’ non-performance.

REIT Status

The Company has qualified and elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ended December 31, 2013. As a result, the Company generally will not be subject to federal income tax on taxable income that is distributed to stockholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distributes at least 90% of its REIT taxable income (subject to certain adjustments and excluding any net capital gain) to its stockholders. The Company will monitor the business and transactions that may potentially impact its REIT status. If the Company fails to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will be subject to federal (including any applicable alternative minimum tax) and state income tax on its taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and federal income and excise taxes on its undistributed income.

Impairment of Investment Properties

The Company assesses the carrying values of its respective long-lived assets whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Recoverability of the assets is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows. In order to review its assets for recoverability, the Company considers current market conditions, as well as its intent with respect to holding or disposing of the asset. If the Company’s analysis indicates that the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, the Company recognizes an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the real estate property. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third party appraisals, where considered necessary (Level 3 inputs).

The Company estimates the future undiscounted cash flows based on management’s intent as follows: (i) for real estate properties that the Company intends to hold long-term, including land held for development, properties currently under development and operating buildings, recoverability is assessed based on the estimated future net rental income from operating the property and termination value; and (ii) for real estate properties that the Company intends to sell, including land parcels, properties currently under development and operating buildings, recoverability is assessed based on estimated proceeds, including net rental income during the holding period, from disposition that are estimated based on future net rental income of the property and expected market capitalization rates.

The use of projected future cash flows is based on assumptions that are consistent with our estimates of future expectations and the strategic plan the Company uses to manage its underlying business. However, assumptions and estimates about future cash flows, including comparable sales values, discount rates, capitalization rates, revenue and expense growth rates and lease-up assumptions which impact the discounted cash flow approach to determining value are complex and subjective. Changes in economic and operating conditions and the Company’s ultimate investment intent that occur subsequent to the impairment analysis could impact these assumptions and result in future impairment charges of the real estate properties.

During the years ended December 31, 2015, 2014 and 2013, the Company incurred no impairment charges.

Deferred Loan Fees

Direct financing costs are deferred and amortized on a straight-line basis, which approximates the effective interest method, over the term, or anticipated repayment date, of the related agreements as a component of interest expense. These costs are included in deferred costs, net.

62


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

Revenue Recognition

The Company commences revenue recognition on its leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession of, or controls the physical use of, the leased asset. Generally, this occurs on the lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins. If the Company is the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete. If the Company concludes it is not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded by the Company under the lease are treated as lease incentives which reduce revenue recognized over the term of the lease. In these circumstances, the Company begins revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements. The Company considers a number of different factors to evaluate whether it or the lessee is the owner of the tenant improvements for accounting purposes. The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment.

Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying consolidated balance sheets. Due to the impact of the straight-line basis, rental income generally will be greater than the cash collected in the early years and will decrease in the later years of a lease. The Company periodically reviews the collectability of outstanding receivables. Allowances are taken for those balances that the Company deems to be uncollectible, including any amounts relating to straight-line income receivables.

Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the applicable expenses are incurred. The Company makes certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. The Company does not expect the actual results to materially differ from the estimated reimbursement.

The Company records lease termination income if there is a signed termination agreement, all of the conditions of the agreement have been met, the tenant is no longer occupying the property and amounts due are considered collectible. Upon early lease termination, the Company provides for gains or losses related to unrecovered intangibles and other assets.

As a lessor, the Company defers the recognition of contingent rental income, such as percentage rent, until the specified target that triggered the contingent rental income is achieved.

Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of its pending adoption of the new standard on the Company’s consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments. The amendments in the ASU eliminate the requirement of an acquirer to retrospectively account for provisional amounts that are identified during the measurement period after a business combination.  This ASU requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The ASU also requires the acquirer to disclose the amount recorded in current-period earnings, by line item, that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been issued and will be applied prospectively to

63


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

adjustments to provisional amounts that occur after the effective date.  The Company does not expect adoption of this ASU to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The ASU requires that debt issuance costs be deducted from the carrying value of the financial liability and not recorded as separate assets, classified as deferred financing costs. The ASU is effective for public entities for financial statements issued for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued and will be applied on a retrospective basis. As of December 31, 2015, the amount of total debt issuance costs was approximately $4,400 and was classified as deferred costs, net in the Company’s consolidated balance sheet. Beginning January 2016, the Company will apply this accounting update retrospectively to all prior periods presented in the financial statements. The Company expects the adoption of this update to result in the reclassification of its debt issuance costs of approximately $4,400 and $1,700 as of December 31, 2015 and 2014, respectively, as a direct deduction to the Company’s outstanding mortgages and credit facility payable.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, although it will not affect the accounting for rental related revenues. The new standard is effective for the Company on January 1, 2018. Early adoption is permitted but not prior to the original effective date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

 

 

NOTE 3 – EQUITY

The Company was authorized to sell up to 150,000,000 shares of common stock at $10 each in an initial public “best efforts” offering (the “Offering”) which commenced on October 18, 2012 and to issue 30,000,000 shares at $9.50 each issuable pursuant to the Company’s distribution reinvestment plan (“DRP”).  The Offering concluded on October 16, 2015. Effective November 2, 2015, the Company amended its DRP. The Company is offering up to 25,000,000 shares of its common stock at a price of $9.50 per share to stockholders who elect to participate in the amended DRP.

As of December 31, 2015 the Company issued 83,835,055 shares of common stock generating gross proceeds of $834,399, excluding the DRP.

The Company provides the following programs to facilitate future investment in the Company’s shares and to provide limited liquidity for stockholders.

Distribution Reinvestment Plan

The Company provides existing stockholders with the option to purchase additional shares from the Company by automatically reinvesting cash distributions through the DRP, subject to certain share ownership restrictions. The Company does not pay any selling commissions or a marketing contribution and due diligence expense allowance in connection with the DRP. Shares are sold at a price equal to $9.50 per share until such time as the Company reports an estimated value of its shares (the “Valuation Date”). On and after the Valuation Date, the price per share under the DRP will be equal to the estimated value of a share, as determined by the Company’s board of directors and reported by the Company from time to time.

Distributions reinvested through the DRP were approximately $20,828, $5,395 and $481 for the years ended December 31, 2015, 2014 and 2013, respectively.

Share Repurchase Program

Under the share repurchase program (“SRP”), the Company is authorized to purchase shares from stockholders who purchased their shares from the Company or received their shares through a non-cash transfer and who have held their shares for at least one year, if requested, if the Company chooses to purchase them. Subject to funds being available, the Company limits the number of shares repurchased during any calendar year to 5% of the number of shares outstanding on December 31st of the previous calendar year. Funding for the SRP comes from proceeds the Company receives from the DRP. In the case of repurchases made because of the death

64


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

of a stockholder or qualifying disability, as defined in the SRP, neither the one year holding period, the limit regarding funds available from the DRP nor the 5% limit applies. The SRP will immediately terminate if the Company’s shares become listed for trading on a national securities exchange. In addition, the Company’s board of directors, in its sole direction, may, at any time, amend, suspend or terminate the SRP.

Pursuant to the SRP, the Company may repurchase shares at prices ranging from 92.5% of the “share price,” as defined in the SRP, for stockholders who have owned shares for at least one year to 100% of the “share price” for stockholders who have owned shares for at least four years. For repurchases sought upon a stockholder’s death or qualifying disability, the Company may repurchase shares at a price equal to 100% of the “share price.” As used in the SRP, “share price” means: (1) prior to the Valuation Date, the offering price of the Company’s shares in the Offering (unless the shares were purchased at a discount from that price, and then that purchase price), reduced by any distributions of net sale proceeds that the Company designates as constituting a return of capital; and (2) on and after the Valuation Date, the lesser of: (A) the share price determined in (1); or (B) the most recently disclosed estimated value per share.

Repurchases through the SRP were approximately $3,810, $260 and $0 for the years ended December 31, 2015, 2014 and 2013, respectively.

 

NOTE 4 – ACQUISITIONS

2015 Acquisitions

 

During the year ended December 31, 2015, the Company acquired, through its wholly owned subsidiaries, the properties listed below and financed a portion of these acquisitions by borrowing or assuming $300,403, proceeds from the Offering of approximately $398,900 and proceeds from our Credit Facility of $100,000.

 

65


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

Date

Acquired

 

Property Name

 

Location

 

Property

Type

 

Square

Footage

 

 

Purchase

Price

 

1st Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1/29/15

 

Shoppes at Lake Park

 

West Valley City, UT

 

Multi-Tenant Retail

 

 

52,997

 

 

$

11,559

 

2/19/15

 

Plaza at Prairie Ridge

 

Pleasant Prairie, WI

 

Multi-Tenant Retail

 

 

9,035

 

 

 

3,400

 

3/13/15

 

Green Tree Center

 

Katy, TX

 

Multi-Tenant Retail

 

 

147,621

 

 

 

26,244

 

3/16/15

 

Eastside Junction

 

Athens, AL

 

Multi-Tenant Retail

 

 

79,700

 

 

 

12,278

 

3/16/15

 

Fairgrounds Crossing

 

Hot Springs, AR

 

Multi-Tenant Retail

 

 

155,127

 

 

 

29,197

 

3/16/15

 

Prattville Town Center

 

Prattville, AL

 

Multi-Tenant Retail

 

 

168,842

 

 

 

33,329

 

3/16/15

 

Regal Court

 

Shreveport, LA

 

Multi-Tenant Retail

 

 

362,961

 

 

 

50,364

 

3/16/15

 

Shops at Hawk Ridge

 

St. Louis, MO

 

Multi-Tenant Retail

 

 

75,951

 

 

 

12,721

 

3/16/15

 

Walgreens Plaza

 

Jacksonville, NC

 

Multi-Tenant Retail

 

 

42,219

 

 

 

13,663

 

3/16/15

 

Whispering Ridge

 

Omaha, NE

 

Multi-Tenant Retail

 

 

69,676

 

 

 

15,803

 

3/31/15

 

Frisco Marketplace (a)

 

Frisco, TX

 

Multi-Tenant Retail

 

 

112,024

 

 

 

11,040

 

2nd Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4/08/15

 

White City

 

Shrewsbury, MA

 

Multi-Tenant Retail

 

 

257,080

 

 

 

96,750

 

4/21/15

 

Treasure Valley (b)

 

Nampa, ID

 

Multi-Tenant Retail

 

 

133,292

 

 

 

17,931

 

4/28/15

 

Yorkville Marketplace

 

Yorkville, IL

 

Multi-Tenant Retail

 

 

111,591

 

 

 

24,500

 

5/27/15

 

Shoppes at Market Pointe

 

Papillion, NE

 

Multi-Tenant Retail

 

 

253,903

 

 

 

27,200

 

3rd Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9/17/15

 

2727 Iowa Street

 

Lawrence, KS

 

Multi-Tenant Retail

 

 

84,981

 

 

 

18,622

 

4th Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10/1/15

 

Settlers Ridge

 

Pittsburgh, PA

 

Multi-Tenant Retail

 

 

472,572

 

 

 

139,054

 

10/1/15

 

Milford Marketplace

 

Milford, CT

 

Multi-Tenant Retail

 

 

112,257

 

 

 

33,971

 

10/16/15

 

Marketplace at El Paseo

 

Fresno, CA

 

Multi-Tenant Retail

 

 

224,683

 

 

 

70,000

 

10/19/15

 

Blossom Valley Plaza

 

Turlock, CA

 

Multi-Tenant Retail

 

 

111,558

 

 

 

21,704

 

10/22/15

 

The Village at Burlington Creek

 

Kansas City, MO

 

Multi-Tenant Retail

 

 

158,118

 

 

 

35,366

 

10/29/15

 

Oquirrh Mountain Marketplace

 

South Jordan, UT

 

Multi-Tenant Retail

 

 

71,750

 

 

 

22,092

 

12/24/15

 

Marketplace at Tech Center

 

Newport News, VA

 

Multi-Tenant Retail

 

 

210,584

 

 

 

72,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,478,522

 

 

$

799,313

 

 

 

(a)

Includes 4,481 square feet which was acquired on 4/1/15 for $2,080.

 

(b)

Includes 21,000 square feet which was acquired on 12/9/15 for $2,731.

2014 Acquisitions

During the year ended December 31, 2014, the Company acquired, through its wholly owned subsidiaries, the properties listed below and financed a portion of these acquisitions by borrowing or assuming $161,997.

 

66


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

Date

Acquired

 

Property Name

 

Location

 

Property

Type

 

Square

Footage

 

 

Purchase

Price

 

1st Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2/21/14

 

Park Avenue Shopping Center (a)

 

Little Rock, AR

 

Multi-Tenant Retail

 

 

69,381

 

 

$

23,368

 

2/27/14

 

North Hills Square

 

Coral Springs, FL

 

Multi-Tenant Retail

 

 

63,829

 

 

 

11,050

 

2nd Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4/8/14

 

Mansfield Pointe

 

Mansfield, TX

 

Multi-Tenant Retail

 

 

148,529

 

 

 

28,100

 

5/13/14

 

MidTowne Shopping Center

 

Little Rock, AR

 

Multi-Tenant Retail

 

 

126,288

 

 

 

41,450

 

5/23/14

 

Lakeside Crossing

 

Lynchburg, VA

 

Multi-Tenant Retail

 

 

62,706

 

 

 

16,967

 

6/27/14

 

Dogwood Festival

 

Flowood, MS

 

Multi-Tenant Retail

 

 

187,610

 

 

 

48,689

 

3rd Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7/11/14

 

Pick N Save Center

 

West Bend, WI

 

Multi-Tenant Retail

 

 

86,800

 

 

 

19,123

 

8/4/14

 

Harris Plaza

 

Layton, UT

 

Multi-Tenant Retail

 

 

123,890

 

 

 

27,019

 

4th Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11/5/14

 

Dixie Valley

 

Louisville, KY

 

Multi-Tenant Retail

 

 

119,981

 

 

 

12,220

 

11/21/14

 

Landing at Ocean Isle

 

Ocean Isle, NC

 

Multi-Tenant Retail

 

 

53,220

 

 

 

10,895

 

12/16/14

 

Shoppes at Prairie Ridge

 

Pleasant Prairie, WI

 

Multi-Tenant Retail

 

 

232,606

 

 

 

32,527

 

12/16/14

 

Harvest Square

 

Harvest, AL

 

Multi-Tenant Retail

 

 

70,590

 

 

 

13,018

 

12/16/14

 

Heritage Square

 

Conyers, GA

 

Multi-Tenant Retail

 

 

22,385

 

 

 

9,011

 

12/16/14 & 12/19/14

 

The Shoppes at Branson Hills

 

Branson, MO

 

Multi-Tenant Retail

 

 

256,017

 

 

 

42,803

 

12/16/14 & 12/22/14

 

Branson Hills Plaza

 

Branson, MO

 

Multi-Tenant Retail

 

 

210,201

 

 

 

9,667

 

12/16/14

 

Copps Grocery Store

 

Stevens Point, WI

 

Multi-Tenant Retail

 

 

69,911

 

 

 

15,544

 

12/16/14

 

Fox Point Plaza

 

Neenah, WI

 

Multi-Tenant Retail

 

 

171,121

 

 

 

17,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,075,065

 

 

$

378,763

 

 

 

(a)

Excludes 7,986 square feet which was acquired on 12/29/15 for $2,788.

The Company incurred $13,903, $5,139 and $666 for the years ended December 31, 2015, 2014 and 2013, respectively, of acquisition, dead deal and transaction related costs that were recorded in acquisition related costs in the consolidated statements of operations and comprehensive loss related to both closed and potential transactions and deferred obligation adjustments.  These costs include third party due diligence costs such as appraisals, environmental studies, and legal fees as well as acquisition fees and time and travel expense reimbursements to the Sponsor and its affiliates.  For the year ended December 31, 2015 and 2014, the Business Manager permanently waived acquisition fees of $2,510 and $2,262.

For properties acquired during the year ended December 31, 2015, the Company recorded total income of $33,687 and property net income of $5,640, which excludes expensed acquisition related costs.  For properties acquired during the year ended December 31, 2014, the Company recorded total income of $13,054 and property net income of $2,552, which excludes expensed acquisition related costs.  

The following table presents certain additional information regarding the Company’s acquisitions during the year ended December 31, 2015 and 2014.  The amounts recognized for major assets acquired and liabilities assumed as of the acquisition date are as follows:

 

67


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

 

 

For the Year Ended

December 31,

 

 

 

2015

 

 

2014

 

Land

 

$

163,832

 

 

$

70,828

 

Building and improvements

 

 

580,061

 

 

 

285,326

 

Acquired lease intangible assets, net

 

 

128,586

 

 

 

48,331

 

Acquired intangible liabilities, net

 

 

(49,528

)

 

 

(18,386

)

Fair value adjustment related to the assumption of mortgages payable

 

 

(3,430

)

 

 

(1,825

)

Deferred investment property acquisition obligations

 

 

(18,211

)

 

 

(5,511

)

Total (a)

 

$

801,310

 

 

$

378,763

 

 

(a)

Total for the year ended December 31, 2015 includes $2,788 for 7,986 square feet acquired at Park Avenue Shopping Center and excludes other assets of $791.

Pro Forma Disclosures (Unaudited)

The following condensed pro forma consolidated financial statements for the years ended December 31, 2015 and 2014 include pro forma adjustments related to the acquisitions and financings during 2015 and 2014. The 2015 acquisitions are presented assuming the acquisitions occurred as of January 1, 2014. The 2014 acquisitions are presented assuming the acquisitions occurred as of January 1, 2013. Acquisition expenses for the years ended December 31, 2015 and 2014 of $13,178 and $4,871, respectively, related to each acquisition are not expected to have a continuing impact and, therefore, have been excluded from these pro forma results.

 

 

 

For the Year Ended

December 31, (unaudited)

 

 

 

2015

 

 

2014

 

Pro forma total income

 

$

106,658

 

 

$

98,174

 

Pro forma net income

 

$

(2,674

)

 

$

5,451

 

Earnings per share (a)

 

$

(0.03

)

 

$

0.06

 

 

 

(a)

Based on number of common shares outstanding as of December 31, 2015.

 

 

NOTE 5 – ACQUIRED INTANGIBLE ASSETS AND LIABILITIES

The following table summarizes the Company’s identified intangible assets and liabilities as of December 31, 2015 and 2014: 

 

 

 

December 31, 2015

 

 

December 31, 2014

 

Intangible assets:

 

 

 

 

 

 

 

 

Acquired in place lease value

 

$

146,910

 

 

$

48,848

 

Acquired above market lease value

 

 

36,099

 

 

 

5,575

 

Accumulated amortization

 

 

(18,236

)

 

 

(2,732

)

Acquired lease intangibles, net

 

$

164,773

 

 

$

51,691

 

Intangible liabilities:

 

 

 

 

 

 

 

 

Acquired below market lease value

 

$

63,529

 

 

$

19,170

 

Above market ground lease

 

 

5,169

 

 

 

 

Accumulated amortization

 

 

(3,504

)

 

 

(494

)

Acquired below market lease intangibles, net

 

$

65,194

 

 

$

18,676

 

 

As of December 31, 2015, the weighted average amortization periods for acquired in place lease, above market lease intangibles, below market lease intangibles and above market ground lease are 10, 13, 18 and 55 years, respectively.

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

68


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

straight-line basis as an adjustment to property operating expense over the term of the lease and includes renewal periods. The portion of the purchase price allocated to acquired in place lease value is amortized on a straight-line basis over the acquired leases’ weighted average remaining term.

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

 

Amortization recorded as amortization expense:

 

2015

 

 

2014

 

 

2013

 

Acquired in place lease value

 

$

13,170

 

 

$

2,083

 

 

$

228

 

Amortization recorded as a reduction to property operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

Above market ground lease

 

$

24

 

 

$

 

 

$

 

Amortization recorded as a (reduction) increase to rental

   income:

 

 

 

 

 

 

 

 

 

 

 

 

Acquired above market leases

 

$

(2,334

)

 

$

(411

)

 

$

 

Acquired below market leases

 

 

2,986

 

 

 

470

 

 

 

24

 

Net rental income increase

 

$

652

 

 

$

59

 

 

$

24

 

 

Estimated amortization of the respective intangible lease assets and liabilities as of December 31, 2015 for each of the five succeeding years and thereafter is as follows:  

 

 

 

Acquired

In-Place

Leases

 

 

Above

Market

Leases

 

 

Below

Market

Leases

 

 

Above Market Ground Lease

 

2016

 

$

20,121

 

 

$

3,946

 

 

$

(4,540

)

 

$

(94

)

2017

 

 

19,181

 

 

 

3,742

 

 

 

(4,387

)

 

 

(94

)

2018

 

 

17,241

 

 

 

3,187

 

 

 

(4,205

)

 

 

(94

)

2019

 

 

15,430

 

 

 

2,751

 

 

 

(4,022

)

 

 

(94

)

2020

 

 

12,720

 

 

 

2,470

 

 

 

(3,789

)

 

 

(94

)

Thereafter

 

 

46,727

 

 

 

17,257

 

 

 

(39,105

)

 

 

(4,676

)

Total

 

$

131,420

 

 

$

33,353

 

 

$

(60,048

)

 

$

(5,146

)

 

 

NOTE 6 – DEBT AND DERIVATIVE INSTRUMENTS

As of December 31, 2015 and December 31, 2014, the Company had the following mortgages and credit facility payable:

 

 

 

December 31, 2015

 

 

December 31, 2014

 

Type of Debt

 

Principal

Amount

 

 

Weighted

Average

Interest

Rate

 

 

Principal

Amount

 

 

Weighted

Average

Interest

Rate

 

Fixed rate mortgages payable

 

$

162,692

 

 

 

4.37

%

 

$

28,279

 

 

 

5.06

%

Variable rate mortgages payable with swap agreements

 

 

238,617

 

 

 

3.64

%

 

 

128,876

 

 

 

2.79

%

Variable rate mortgages payable

 

 

83,686

 

 

 

2.99

%

 

 

27,582

 

 

 

2.01

%

Mortgages payable

 

$

484,995

 

 

 

3.77

%

 

$

184,737

 

 

 

3.02

%

Credit facility payable

 

$

100,000

 

 

 

1.65

%

 

$

 

 

 

 

Unamortized debt premiums

 

 

3,971

 

 

 

 

 

 

 

1,297

 

 

 

 

 

Total debt

 

$

588,966

 

 

 

 

 

 

$

186,034

 

 

 

 

 

 

The Company’s indebtedness bore interest at a weighted average interest rate of 3.41% per annum at December 31, 2015, which includes the effects of interest rate swaps. The Company estimates the fair value of its total debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by the Company’s lenders using

69


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

Level 3 inputs.  The carrying value of the Company’s debt was $588,966 and $186,034 as of December 31, 2015 and December 31, 2014, respectively, and its estimated fair value was $587,437 and $185,260 as of December 31, 2015 and December 31, 2014, respectively.

As of December 31, 2015, scheduled principal payments and maturities on the Company’s debt were as follows:

 

 

 

December 31, 2015

 

Scheduled Principal Payments and Maturities by Year:

 

Scheduled

Principal

Payments

 

 

Maturities of

Mortgage

Loans

 

 

Maturity

of Credit

Facility

 

 

Total

 

2016

 

$

108

 

 

$

58,359

 

 

$

 

 

$

58,467

 

2017

 

 

239

 

 

 

6,264

 

 

 

 

 

 

6,503

 

2018

 

 

205

 

 

 

15,260

 

 

 

 

 

 

15,465

 

2019

 

 

215

 

 

 

142,625

 

 

 

 

 

 

142,840

 

2020

 

 

898

 

 

 

 

 

 

100,000

 

 

 

100,898

 

Thereafter

 

 

3,108

 

 

 

257,714

 

 

 

 

 

 

260,822

 

Total

 

$

4,773

 

 

$

480,222

 

 

$

100,000

 

 

$

584,995

 

 

Credit Facility Payable

On September 30, 2015, the Company entered into a credit agreement (“Credit Facility”) with KeyBanc Capital Markets Inc. for a $100,000 revolving Credit Facility.  The Company has an accordion feature to increase available borrowings up to $400,000, subject to certain conditions.  The Credit Facility matures on September 30, 2019.  The Company has a one year extension option which it may exercise as long as there is no existing default, it is in compliance with all covenants and it pays an extension fee equal to 0.15% of the commitment amount being extended, as defined.  Upon closing, the Company borrowed $100,000, the full amount of the revolving Credit Facility. As of December 31, 2015, the interest rate on the Credit Facility was 1.65%.  

 

Subsequent to December 31, 2015, the Company amended its Credit Facility to, among other matters, increase the aggregate commitment under the Credit Facility by $10,000 to $110,000. In February 2016, the Company paid $85,000 towards the principal on the Credit Facility reducing the outstanding balance to $15,000.

 

As of December 31, 2015, the terms of the Credit Facility stipulate:

 

 

·

monthly interest-only payments at a rate of one month LIBOR plus a margin ranging from 1.40% to 2.25% on the outstanding balance of the Credit Facility depending on leverage levels or the alternative base rate plus a margin ranging from 0.40% to 1.25% of the outstanding balance of the Credit Facility depending on leverage levels,

 

·

quarterly unused fees based on an annual rate of 0.15% or 0.25%, depending on the undrawn amount, and

 

·

the requirement for a pool of unencumbered assets to support the Credit Facility, subject to certain covenants and minimum requirements related to the value and number of properties included in the collateral pool.

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

Mortgages Payable

The mortgage loans require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations. As of December 31, 2015, the Company was current on all of the payments and in compliance with all financial covenants. All of the Company’s mortgage loans are secured by first mortgages on the respective real estate assets or were guaranteed by the Sponsor. No fees were paid in connection with any guarantees issued by the Sponsor. As of December 31, 2015, the weighted average years to maturity for the Company’s mortgages payable was approximately 5 years.  

70


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

Interest Rate Swap Agreements

The following table summarizes the Company’s interest rate swap contracts outstanding as of December 31, 2015.

 

Date

Entered

 

Effective

Date

 

Maturity

Date

 

Pay

Fixed

Rate (a)

 

 

Notional

Amount

 

 

Fair Value at

December 31,

2015

 

March 28, 2014

 

March 1, 2015

 

March 28, 2019

 

 

2.22

%

 

$

5,525

 

 

$

(167

)

May 8, 2014

 

May 5, 2015

 

May 7, 2019

 

 

2.10

%

 

 

14,200

 

 

 

(379

)

May 23, 2014

 

May 1, 2015

 

May 22, 2019

 

 

2.00

%

 

 

8,484

 

 

 

(199

)

June 6, 2014

 

June 1, 2015

 

May 8, 2019

 

 

2.15

%

 

 

11,684

 

 

 

(332

)

June 26, 2014

 

July 5, 2015

 

July 5, 2019

 

 

2.11

%

 

 

20,725

 

 

 

(568

)

June 27, 2014

 

July 1, 2014

 

July 1, 2019

 

 

1.85

%

 

 

24,352

 

 

 

(446

)

July 31, 2014

 

July 31, 2014

 

July 31, 2019

 

 

1.94

%

 

 

9,561

 

 

 

(206

)

December 16, 2014

 

December 16, 2014

 

June 22, 2016

 

 

1.97

%

 

 

13,359

 

 

 

(92

)

December 16, 2014

 

December 16, 2014

 

October 21, 2016

 

 

1.50

%

 

 

10,837

 

 

 

(77

)

December 16, 2014

 

December 16, 2014

 

May 9, 2017

 

 

1.13

%

 

 

10,150

 

 

 

(46

)

February 11, 2015

 

March 2, 2015

 

March 1, 2022

 

 

2.02

%

 

 

6,114

 

 

 

(127

)

April 7, 2015

 

April 7, 2015

 

April 7, 2022

 

 

1.74

%

 

 

49,400

 

 

 

(209

)

July 8, 2015

 

August 1, 2015

 

May 22, 2019

 

 

1.43

%

 

 

1,426

 

 

 

(7

)

September 17, 2015

 

September 17, 2015

 

September 17, 2022

 

 

1.90

%

 

 

13,700

 

 

 

(143

)

October 2, 2015

 

November 1, 2015

 

November 1, 2015

 

 

1.79

%

 

 

13,100

 

 

 

(41

)

December 23, 2015

 

December 23, 2015

 

January 2, 2026

 

 

2.30

%

 

 

26,000

 

 

 

(752

)

 

 

 

 

 

 

 

 

 

 

$

238,617

 

 

$

(3,791

)

 

(a)

Receive floating rate index based upon one month LIBOR. At December 31, 2015, the one month LIBOR equaled 0.43%.

The table below presents the fair value of the Company’s cash flow hedges as well as their classification on the consolidated balance sheets as of December 31, 2015 and 2014, respectively.

 

 

 

December 31, 2015

 

 

December 31, 2014

 

 

 

Balance Sheet

Location

 

Fair

Value

 

 

Balance Sheet

Location

 

Fair

Value

 

Derivatives designated as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

Other liabilities

 

$

3,791

 

 

Other liabilities

 

$

2,089

 

 

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the unrealized gain or loss on the derivative is reported as a component of comprehensive loss (“OCL”).  The ineffective portion of the change in fair value, if any, is recognized directly in earnings. The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive loss for the years ended December 31, 2015, 2014, and 2013.

 

 

 

Year Ended December 31,

 

Derivatives in Cash Flow Hedging Relationships

 

2015

 

 

2014

 

 

2013

 

Amount of loss recognized in OCL on derivative

   (effective portion)

 

$

(4,612

)

 

$

(1,810

)

 

$

 

Amount of loss reclassified from accumulated OCL into

   income (effective portion)

 

$

2,546

 

 

$

282

 

 

$

 

Amount of loss recognized in income on derivative (ineffective portion)

 

$

365

 

 

$

 

 

$

 

 

 

 

Year Ended December 31,

 

Derivatives Not Designated as Hedging Instruments

 

2015

 

 

2014

 

 

2013

 

Amount of loss recognized in income on derivative

   (ineffective portion)

 

$

(1

)

 

$

(33

)

 

$

 

71


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

 

The amount that is expected to be reclassified from Accumulated OCL into income in the next twelve months is approximately $2,650.

 

 

NOTE 7 – DISTRIBUTIONS

The Company paid distributions based on daily record dates, payable in arrears the following month, equal to a daily amount of $0.001643836 per share based upon a 365-day period for 2015, 2014 and 2013, respectively.  The table below presents the distributions paid and declared for the years ended December 31, 2015, 2014 and 2013.

 

 

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Distributions paid

 

$

42,537

 

 

$

10,597

 

 

$

998

 

Distributions declared

 

$

44,908

 

 

$

12,318

 

 

$

1,289

 

 

For federal income tax purposes, distributions may consist of ordinary dividend income, non-taxable return of capital, capital gains or a combination thereof. Distributions to the extent of the Company’s current and accumulated earnings and profits for federal income tax purposes are taxable to the recipient as either ordinary dividend income or capital gain distributions. Distributions in excess of these earnings and profits (calculated for income tax purposes) constitute a non-taxable return of capital rather than ordinary dividend income or a capital gain distribution and reduce the recipient’s basis in the shares to the extent thereof. Distributions in excess of earnings and profits that reduce a recipient’s basis in the shares have the effect of deferring taxation of the amount of the distribution until the sale of the stockholder’s shares. If the recipient's basis is reduced to zero, distributions in excess of the aforementioned earnings and profits (calculated for income tax purposes) constitute taxable gain.

In order to maintain the Company’s status as a REIT, the Company must annually distribute at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, to its stockholders. For the years ended December 31, 2015, 2014 and 2013, the Company’s taxable income (loss) was $12,720 (unaudited), $3,283 (unaudited) and $(1,397) (unaudited), respectively.

The following table sets forth the taxability of distributions on common shares, on a per share basis, paid in 2015, 2014 and 2013:

 

 

 

2015 (a)

 

 

2014

 

 

2013

 

Ordinary income

 

$

0.20

 

 

$

0.19

 

 

$

 

Nontaxable return of capital

 

$

0.47

 

 

$

0.41

 

 

$

0.60

 

 

 

(a)

On February 19, 2015, the Company paid an aggregate special distribution of $3,283 to stockholders of record as of January 30, 2015 ($0.07 per share).

 

 

NOTE 8 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“EPS”) are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the “common shares”). Diluted EPS is computed by dividing net income (loss) by the common shares plus potential common shares issuable upon exercising options or other contracts. As of December 31, 2015, 2014 and 2013, the Company did not have any dilutive common share equivalents outstanding.

 

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

The acquisition of certain of the Company’s properties included an earnout component to the purchase price that was recorded as a deferred investment property acquisition obligation (“Earnout liability”). The maximum potential earnout payment was $23,243 at December 31, 2015.

72


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

The table below presents the change in the Company’s Earnout liability for the years ended December 31, 2015 and 2014.

 

 

 

December 31,

 

 

 

2015

 

 

2014

 

Earnout liability-beginning of period

 

$

3,646

 

 

$

723

 

Increases:

 

 

 

 

 

 

 

 

Acquisitions

 

 

18,211

 

 

 

5,511

 

Amortization expense

 

 

83

 

 

 

167

 

Decreases:

 

 

 

 

 

 

 

 

Earnout payments

 

 

(3,095

)

 

 

(2,790

)

Other:

 

 

 

 

 

 

 

 

Adjustments to acquisition related costs

 

 

26

 

 

 

35

 

Earnout liability – end of period

 

$

18,871

 

 

$

3,646

 

 

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

 

 

NOTE 10 – SEGMENT REPORTING

The Company has one reportable segment, retail real estate, as defined by U.S. GAAP for the years ended December 31, 2015, 2014 and 2013.

Concentration of credit risk with respect to accounts receivable currently exists due to the small number of tenants currently comprising the Company's rental revenue. The concentration of revenues for these tenants increases the Company’s risk associated with nonpayment by these tenants. In an effort to reduce risk, the Company performs ongoing credit evaluations of its larger tenants.

 

 

NOTE 11 – TRANSACTIONS WITH RELATED PARTIES

The Company is a member of a limited liability company formed as an insurance association captive (“Captive”), which is owned by the Company, Inland Real Estate Corporation, InvenTrust Properties Corp. and Retail Properties of America, Inc. This amount is recorded in investment in unconsolidated entity in the accompanying consolidated balance sheets.

The Company owns 1,000 shares of common stock in The Inland Real Estate Group of Companies, Inc. with a recorded value of $1 at December 31, 2015 and December 31, 2014. This amount is included in other assets in the accompanying consolidated balance sheets.

 

73


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

The following table summarizes the Company’s related party transactions for the years ended December 31, 2015, 2014 and 2013.  Certain compensation and fees payable to the Business Manager for services to be provided to the Company are limited to maximum amounts.

 

 

 

 

 

Year ended

December 31,

 

 

Unpaid amounts as of

 

 

 

 

 

2015

 

 

2014

 

 

2013

 

 

December 31,

2015

 

 

December 31,

2014

 

General and administrative reimbursements

 

(a)

 

$

1,367

 

 

$

466

 

 

$

268

 

 

$

287

 

 

$

139

 

Affiliate share purchase discounts

 

(b)

 

 

28

 

 

 

150

 

 

 

369

 

 

 

 

 

 

 

Total general and administrative expenses

 

 

 

$

1,395

 

 

$

616

 

 

$

637

 

 

$

287

 

 

$

139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition related costs

 

 

 

$

1,388

 

 

$

744

 

 

$

86

 

 

$

165

 

 

$

157

 

Acquisition fees

 

 

 

 

9,580

 

 

 

3,465

 

 

 

458

 

 

 

6,010

 

 

 

 

 

Total acquisition costs and fees

 

(c)

 

$

10,968

 

 

$

4,209

 

 

$

544

 

 

$

6,175

 

 

$

157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate management fees

 

 

 

$

2,762

 

 

$

631

 

 

$

81

 

 

$

 

 

$

 

Construction management fees

 

 

 

 

135

 

 

 

15

 

 

 

 

 

 

80

 

 

 

 

Leasing fees

 

 

 

 

40

 

 

 

 

 

 

 

 

 

40

 

 

 

 

Total real estate management related costs

 

(d)

 

$

2,937

 

 

$

646

 

 

$

81

 

 

$

120

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offering costs

 

(e)

 

$

41,180

 

 

$

33,141

 

 

$

5,785

 

 

$

63

 

 

$

210

 

Sponsor non-interest bearing advances

 

(f)

 

$

 

 

$

 

 

$

 

 

$

 

 

$

1,630

 

Business management fees

 

(g)

 

$

5,501

 

 

$

773

 

 

$

226

 

 

$

1,950

 

 

$

558

 

Sponsor contribution

 

(h)

 

$

3,283

 

 

$

640

 

 

$

 

 

$

 

 

$

 

 

(a)

The Business Manager and its related parties are entitled to reimbursement for certain general and administrative expenses of the Business Manager and its related parties relating to the Company’s administration. Such costs are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss. Unpaid amounts are included in due to related parties in the accompanying consolidated balance sheets.

(b)

The Company established a discount stock purchase policy for related parties and related parties of the Business Manager that enabled the related parties to purchase shares of common stock at $9.00 per share in the Offering. The Company sold 28,129, 150,426 and 369,526 shares to related parties during the years ended December 31, 2015, 2014 and 2013, respectively.

(c)

The Company pays the Business Manager or its affiliates a fee equal to 1.5% of the “contract purchase price,” as defined, of each asset acquired.  The Business Manager and its related parties are also reimbursed for acquisition and transaction related costs of the Business Manager and its related parties relating to the Company’s acquisition of real estate assets, regardless of whether the Company acquires the real estate assets.  Such costs are included in acquisition related costs in the accompanying consolidated statements of operations and comprehensive loss.  Unpaid amounts are included in due to related parties in the accompanying consolidated balance sheets.  For the years ended December 31, 2015 and 2014, the Business Manager permanently waived acquisition fees of $2,510 and $2,262, respectively.

74


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

(d)

For each property that is managed by Inland National Real Estate Services, LLC or Inland Commercial Real Estate Services LLC (collectively, the “Real Estate Managers”), the Company pays a monthly real estate management fee of up to 1.9% of the gross income from any single-tenant, net-leased property, and up to 3.9% of the gross income from any other property type. Each Real Estate Manager determines, in its sole discretion, the amount of the fee with respect to a particular property, subject to the limitations. For each property that is managed directly by one of the Real Estate Managers or its affiliates, the Company pays the Real Estate Manager a separate leasing fee. Further, in the event that the Company engages its Real Estate Managers to provide construction management services for a property, the Company pays a separate construction management fee.  Leasing fees are included in deferred costs, net and construction management fees are included in building and other improvements in the accompanying consolidated balance sheets. The Company also reimburses each Real Estate Manager and its affiliates for property-level expenses that they pay or incur on the Company’s behalf, including the salaries, bonuses and benefits of persons performing services for the Real Estate Managers and their affiliates except for the salaries, bonuses and benefits of persons who also serve as an executive officer of any of the Real Estate Managers.  Real estate management fees and reimbursable expenses are included in property operating expenses in the accompanying consolidated statements of operations and comprehensive loss. 

(e)

A related party of the Business Manager received selling commissions equal to 7.0% of the sale price for each share sold and a marketing contribution equal to 3.0% of the gross offering proceeds from shares sold in the Offering, the majority of which was re-allowed (paid) to third party soliciting dealers. The Company also reimbursed a related party of the Business Manager and the soliciting dealers for bona fide, out-of-pocket itemized and detailed due diligence expenses in amounts up to 0.5% of the gross offering proceeds. The expenses were reimbursed from amounts paid or re-allowed to these entities as a marketing contribution.  The Company reimbursed the Sponsor, its affiliates and third parties for costs and other expenses of the Offering that they paid on the Company’s behalf, in an amount not to exceed 1.5% of the gross offering proceeds from shares sold in the “best efforts” Offering. The Company does not pay selling commissions or the marketing contribution or reimburse issuer costs in connection with shares of common stock issued through the DRP. Offering costs are offset against the stockholders’ equity accounts. Unpaid amounts are included in due to related parties in the accompanying consolidated balance sheets.

(f)

As of December 31, 2014, the Sponsor advanced $1,630 to pay offering and organizational costs, all of which has been repaid as of December 31, 2015.

(g)

The Company pays the Business Manager an annual business management fee equal to 0.65% of its “average invested assets,” as defined in the business management agreement, payable quarterly in an amount equal to 0.1625% of its average invested assets as of the last day of the immediately preceding quarter. “Average invested assets” means, for any period, the average of the aggregate book value of the Company’s assets, including all intangibles and goodwill, invested, directly or indirectly, in equity interests in, and loans secured by, properties, as well as amounts invested in securities and consolidated and unconsolidated joint ventures or other partnerships, before reserves for amortization and depreciation or bad debts, impairments or other similar non-cash reserves, computed by taking the average of these values at the end of each month during the relevant calendar quarter. For the year ended December 31, 2014, the Business Manager was entitled to a business management fee in the amount equal to $1,433, of which $433 was permanently waived. The Business Manager also permanently waived business management fees of $226 incurred for the year ended December 31, 2013 which was included as a reduction of due to related parties in the accompanying balance sheets as of December 31, 2014. No fees were waived for the year ended December 31, 2015.

(h)

During the years ended December 31, 2015 and 2014, the Sponsor contributed $3,283 and $640, respectively, to the Company.  The Sponsor has not received, and will not receive, any additional shares of the Company’s common stock for making these contributions.  There is no assurance that the Sponsor will continue to contribute any additional monies.

 

 

75


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

NOTE 12 – OPERATING LEASES

Minimum lease payments to be received under operating leases including ground leases, as of December 31, 2015 for the years indicated, assuming no expiring leases are renewed, are as follows:

 

 

 

Minimum Lease

Payments

 

2016

 

$

83,080

 

2017

 

 

78,427

 

2018

 

 

71,229

 

2019

 

 

62,021

 

2020

 

 

55,550

 

Thereafter

 

 

278,524

 

Total

 

$

628,831

 

 

The remaining lease terms range from less than one year to 21 years. Most of the revenue from the Company’s properties consists of rents received under long-term operating leases. Most leases require the tenant to pay fixed base rent paid monthly in advance, and to reimburse the Company for the tenant’s pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the Company and recoverable under the terms of the lease. Under these leases, the Company pays all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid. Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed base rent as well as all costs and expenses associated with occupancy. Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included in the consolidated statements of operations and comprehensive loss. Under leases where all expenses are paid by the Company, subject to reimbursement by the tenant, the expenses are included within property operating expenses and reimbursements are included in tenant recovery income on the consolidated statements of operations and comprehensive loss.

 

 

NOTE 13 – QUARTERLY SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)

The following represents the results of operations, for each quarterly period, during 2015 and 2014.

 

 

 

2015

 

 

 

Dec 31

 

 

Sept 30

 

 

Jun 30

 

 

Mar 31

 

Total income

 

$

26,826

 

 

$

19,762

 

 

$

18,282

 

 

$

11,672

 

Net loss

 

$

(9,051

)

 

$

(262

)

 

$

(3,500

)

 

$

(623

)

Net loss per common share, basic and diluted (1)

 

$

(0.11

)

 

$

 

 

$

(0.05

)

 

$

(0.01

)

Weighted average number of common shares outstanding,

   basic and diluted (1)

 

 

85,564,146

 

 

 

76,111,571

 

 

 

66,130,000

 

 

 

49,092,127

 

 

 

 

2014

 

 

 

Dec 31

 

 

Sept 30

 

 

Jun 30

 

 

Mar 31

 

Total income

 

$

7,659

 

 

$

6,042

 

 

$

3,511

 

 

$

1,734

 

Net loss

 

$

(612

)

 

$

(817

)

 

$

(2,363

)

 

$

(564

)

Net loss per common share, basic and diluted (1)

 

$

(0.02

)

 

$

(0.03

)

 

$

(0.18

)

 

$

(0.06

)

Weighted average number of common shares outstanding,

   basic and diluted (1)

 

 

36,112,929

 

 

 

23,733,441

 

 

 

13,377,773

 

 

 

8,703,608

 

 

(1)

Quarterly net loss per common share amounts may not total the annual amounts due to rounding and the changes in the number of weighted common shares outstanding.

 

 

76


INLAND REAL ESTATE INCOME TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

(Dollar amounts in thousands, except per share amounts)

 

NOTE 14 – SUBSEQUENT EVENTS

Distributions

The Company’s board of directors declared distributions payable to stockholders of record each day beginning on the close of business on January 1, 2016 through the close of business on April 30, 2016. Through that date, distributions were declared in a daily amount equal to $0.001639344 per share, based upon a 366-day period, which equates to $0.60 per share or a 6% annualized rate based on a purchase price of $10.00 per share.   Distributions were paid monthly in arrears, as follows:

  

 

Distribution

Month

 

Month

Distribution Paid

 

Gross Amount

of Distribution

Paid

 

 

Distribution Reinvested

through DRP

 

 

Shares

Issued

 

 

Net Cash

Distribution

 

December 2015

 

January 2016

 

$

4,397

 

 

$

2,362

 

 

 

248,629

 

 

$

2,035

 

January 2016

 

February 2016

 

$

4,393

 

 

$

2,358

 

 

 

248,177

 

 

$

2,036

 

February 2016

 

March 2016

 

$

4,120

 

 

$

2,204

 

 

 

232,019

 

 

$

1,916

 

 

 

The Company entered into the following financings subsequent to December 31, 2015.

 

Date

 

Property

 

Interest Rate (stated)

 

 

Principal

Amount

 

 

Maturity

Date

1/25/2016

 

Marketplace at El Paseo

 

 

2.95%

 

 

$

38,000

 

 

2/1/2021

1/28/2016

 

Milford Marketplace

 

 

4.02%

 

 

$

18,727

 

 

2/1/2026

 

In January 2016, the Company amended its Credit Facility to, among other matters, increase the aggregate commitment under the Credit Facility by $10,000 to $110,000. In February 2016, the Company paid $85,000 towards the principal on the Credit Facility reducing the outstanding balance to $15,000.  Additionally, in January 2016, the Company paid in full the $11,926 mortgage principal plus accrued interest balance on the Oquirrh Mountain Marketplace short-term loan.

 

Real Estate Manager Contract Assignment

 

Due to a corporate reorganization, Inland National Real Estate Services, LLC (“Inland National”), the Company’s real estate manager and an indirect wholly-owned subsidiary of the Sponsor, is transitioning its management responsibilities to Inland Commercial Real Estate Services LLC (“Inland Commercial”), which is also an indirect wholly-owned subsidiary of the Sponsor.  As part of the reorganization, Inland National assigned its interest in the master real estate management agreement with the Company to Inland Commercial on January 1, 2016.  All terms of the real estate management agreement remain the same.  Certain of the Company’s properties are managed by Inland Commercial, effective as of January 1, 2016.  The remaining properties are still managed by Inland National, and their property management functions are expected to be transferred to Inland Commercial, effective as of April 1, 2016. 

 

Investment in unconsolidated entity

 

In March 2016, the Captive was notified by Inland Real Estate Corporation of its intention to dissociate. Previously, InvenTrust Properties Corp. and Retail Properties of America, Inc. terminated their future participation effective December 1, 2015 and December 1, 2014, respectively. Based upon this notice and regulatory requirements, it is expected the Captive will terminate its operations in accordance with the applicable rules and regulations for an insurance association captive in 2016. As a result, the Company will need to obtain separate property and general liability insurance once the Captive is unable to provide the Company coverage.  As of the date of this report, the Company is unable to determine if it would be liable for any proportional cost associated with the termination of the Captive.

 

 

 

 

 

77


 

INLAND REAL ESTATE INCOME TRUST, INC.

Schedule III

Real Estate and Accumulated Depreciation

December 31, 2015

(Dollar amounts in thousands)

 

 

 

 

 

 

 

Initial cost (A)

 

 

 

 

 

 

Gross amount carried

at end of period (B)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property Name

 

Encum-

brance

 

 

Land

 

 

Buildings

and

Improve-

ments

 

 

Cost

Capita-

lized

Subse-

quent to

Acquisi-

tions

 

 

Land(C)

 

 

Buildings

and

Improve-

ments

(C)

 

 

Total

(C)

 

 

Accumu-

lated

Deprecia-

tion

(E)

 

 

Date

Con-

structed

 

 

Date

Acquired

 

 

Depre-

ciable

Lives

2727 Iowa St (D)

 

$

 

 

$

2,154

 

 

$

16,079

 

 

$

(37

)

 

$

2,154

 

 

$

16,042

 

 

$

18,196

 

 

$

(145

)

 

2014-2015

 

 

 

2015

 

 

15-30

Lawrence, KS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Blossom Valley Plaza

 

 

 

 

 

9,515

 

 

 

11,142

 

 

 

 

 

 

9,515

 

 

 

11,142

 

 

 

20,657

 

 

 

(70

)

 

 

1988

 

 

 

2015

 

 

15-30

Turlock, CA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Branson Hills Plaza

 

 

2,955

 

 

 

3,787

 

 

 

6,039

 

 

 

 

 

 

3,787

 

 

 

6,039

 

 

 

9,826

 

 

 

(231

)

 

 

2005

 

 

 

2014

 

 

15-30

Branson, MO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dixie Valley

 

 

6,798

 

 

 

2,807

 

 

 

9,053

 

 

 

454

 

 

 

2,807

 

 

 

9,507

 

 

 

12,314

 

 

 

(405

)

 

 

1988

 

 

 

2014

 

 

15-30

Louisville, KY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dogwood Festival

 

 

24,352

 

 

 

4,500

 

 

 

41,865

 

 

 

142

 

 

 

4,500

 

 

 

42,007

 

 

 

46,507

 

 

 

(2,263

)

 

 

2002

 

 

 

2014

 

 

5-30

Flowood, MO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General

 

 

592

 

 

 

159

 

 

 

857

 

 

 

 

 

 

159

 

 

 

857

 

 

 

1,016

 

 

 

(96

)

 

 

2012

 

 

 

2012

 

 

15-30

Brooks, GA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General

 

 

482

 

 

 

69

 

 

 

761

 

 

 

 

 

 

69

 

 

 

761

 

 

 

830

 

 

 

(85

)

 

 

2012

 

 

 

2012

 

 

15-30

Daleville, AL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General

 

 

521

 

 

 

148

 

 

 

780

 

 

 

 

 

 

148

 

 

 

780

 

 

 

928

 

 

 

(92

)

 

 

2012

 

 

 

2012

 

 

15-30

East Brewton, AL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General (Hamilton)

 

 

621

 

 

 

100

 

 

 

986

 

 

 

 

 

 

100

 

 

 

986

 

 

 

1,086

 

 

 

(110

)

 

 

2012

 

 

 

2012

 

 

15-30

LaGrange, GA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General (Wares

   Cross)

 

 

681

 

 

 

248

 

 

 

943

 

 

 

 

 

 

248

 

 

 

943

 

 

 

1,191

 

 

 

(106

)

 

 

2012

 

 

 

2012

 

 

15-30

LaGrange, GA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General

 

 

695

 

 

 

273

 

 

 

939

 

 

 

 

 

 

273

 

 

 

939

 

 

 

1,212

 

 

 

(111

)

 

 

2012

 

 

 

2012

 

 

15-30

Madisonville, TN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General

 

 

631

 

 

 

249

 

 

 

841

 

 

 

 

 

 

249

 

 

 

841

 

 

 

1,090

 

 

 

(94

)

 

 

2012

 

 

 

2012

 

 

15-30

Maryville, TN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General

 

 

601

 

 

 

208

 

 

 

836

 

 

 

 

 

 

208

 

 

 

836

 

 

 

1,044

 

 

 

(94

)

 

 

2012

 

 

 

2012

 

 

15-30

Mobile, AL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General

 

 

586

 

 

 

200

 

 

 

818

 

 

 

 

 

 

200

 

 

 

818

 

 

 

1,018

 

 

 

(91

)

 

 

2012

 

 

 

2012

 

 

15-30

Newport, TN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General

 

 

847

 

 

 

324

 

 

 

1,178

 

 

 

 

 

 

324

 

 

 

1,178

 

 

 

1,502

 

 

 

(139

)

 

 

2012

 

 

 

2012

 

 

15-30

Robertsdale, AL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General

 

 

531

 

 

 

119

 

 

 

805

 

 

 

 

 

 

119

 

 

 

805

 

 

 

924

 

 

 

(90

)

 

 

2012

 

 

 

2012

 

 

15-30

Valley, AL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar General

 

 

692

 

 

 

272

 

 

 

939

 

 

 

 

 

 

272

 

 

 

939

 

 

 

1,211

 

 

 

(111

)

 

 

2012

 

 

 

2012

 

 

15-30

Wetumpka, AL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eastside Junction

 

 

6,270

 

 

 

2,411

 

 

 

8,393

 

 

 

 

 

 

2,411

 

 

 

8,393

 

 

 

10,804

 

 

 

(244

)

 

 

2008

 

 

 

2015

 

 

15-30

Athens, AL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fairgrounds Crossing

 

 

13,453

 

 

 

6,069

 

 

 

22,637

 

 

 

 

 

 

6,069

 

 

 

22,637

 

 

 

28,706

 

 

 

(615

)

 

 

2008

 

 

 

2015

 

 

15-30

Hot Springs, AR

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fox Point Plaza

 

 

10,837

 

 

 

3,518

 

 

 

12,680

 

 

 

 

 

 

3,518

 

 

 

12,680

 

 

 

16,198

 

 

 

(458

)

 

 

2008

 

 

 

2014

 

 

15-30

Neenah, WI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Frisco Marketplace (D)

 

 

 

 

 

6,618

 

 

 

3,315

 

 

 

 

 

 

6,618

 

 

 

3,315

 

 

 

9,933

 

 

 

(111

)

 

 

2002

 

 

 

2015

 

 

15-30

Frisco, TX

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Green Tree Shopping Center

 

 

13,100

 

 

 

7,218

 

 

 

17,846

 

 

 

(209

)

 

 

7,218

 

 

 

17,637

 

 

 

24,855

 

 

 

(474

)

 

 

1997

 

 

 

2015

 

 

15-30

Katy, TX

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Harris Plaza (D)

 

 

 

 

 

6,500

 

 

 

19,403

 

 

 

108

 

 

 

6,500

 

 

 

19,511

 

 

 

26,011

 

 

 

(1,003

)

 

2001-2008

 

 

 

2014

 

 

15-30

Layton, UT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

78


 

Harvest Square

 

 

6,800

 

 

 

2,186

 

 

 

9,330

 

 

 

 

 

 

2,186

 

 

 

9,330

 

 

 

11,516

 

 

 

(361

)

 

 

2008

 

 

 

2014

 

 

15-30

Harvest, AL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heritage Square

 

 

4,460

 

 

 

2,028

 

 

 

5,538

 

 

 

16

 

 

 

2,028

 

 

 

5,554

 

 

 

7,582

 

 

 

(202

)

 

 

2010

 

 

 

2014

 

 

15-30

Conyers, AL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kroger - Copps Grocery

   Store (D)

 

 

 

 

 

1,440

 

 

 

11,799

 

 

 

 

 

 

1,440

 

 

 

11,799

 

 

 

13,239

 

 

 

(435

)

 

 

2012

 

 

 

2014

 

 

15-30

Stevens Point, WI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kroger - Pick n Save Center

 

 

9,561

 

 

 

3,150

 

 

 

14,283

 

 

 

 

 

 

3,150

 

 

 

14,283

 

 

 

17,433

 

 

 

(752

)

 

 

2011

 

 

 

2014

 

 

15-30

West Bend, WI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lakeside Crossing

 

 

9,910

 

 

 

1,460

 

 

 

16,999

 

 

 

 

 

 

1,460

 

 

 

16,999

 

 

 

18,459

 

 

 

(979

)

 

 

2013

 

 

 

2014

 

 

15-30

Lynchburg, VA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Landing at Ocean Isle Beach (D)

 

 

 

 

 

3,053

 

 

 

7,081

 

 

 

39

 

 

 

3,053

 

 

 

7,120

 

 

 

10,173

 

 

 

(314

)

 

 

2009

 

 

 

2014

 

 

15-30

Ocean Isle, NC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mansfield Pointe

 

 

14,200

 

 

 

5,350

 

 

 

20,002

 

 

 

 

 

 

5,350

 

 

 

20,002

 

 

 

25,352

 

 

 

(1,300

)

 

 

2008

 

 

 

2014

 

 

15-30

Mansfield, TX

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketplace at El Paseo

 

 

 

 

 

16,390

 

 

 

46,971

 

 

 

 

 

 

16,390

 

 

 

46,971

 

 

 

63,361

 

 

 

(281

)

 

 

2014

 

 

 

2015

 

 

15-30

Fresno, CA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketplace at Tech Center

 

 

43,500

 

 

 

10,684

 

 

 

68,580

 

 

 

 

 

 

10,684

 

 

 

68,580

 

 

 

79,264

 

 

 

 

 

 

2015

 

 

 

2015

 

 

15-30

Newport News, VA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MidTowne Shopping Center

 

 

20,725

 

 

 

8,810

 

 

 

29,699

 

 

 

111

 

 

 

8,810

 

 

 

29,810

 

 

 

38,620

 

 

 

(1,839

)

 

2005/2008

 

 

 

2014

 

 

5-30

Little Rock, AR

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Milford Marketplace

 

 

 

 

 

 

 

 

35,867

 

 

 

 

 

 

 

 

 

35,867

 

 

 

35,867

 

 

 

(320

)

 

 

2007

 

 

 

2015

 

 

15-30

Milford, CT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Newington Fair (D)

 

 

 

 

 

7,833

 

 

 

8,329

 

 

 

331

 

 

 

7,833

 

 

 

8,660

 

 

 

16,493

 

 

 

(1,175

)

 

1994/2009

 

 

 

2012

 

 

15-30

Newington, CT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North Hills Square

 

 

5,525

 

 

 

4,800

 

 

 

5,493

 

 

 

 

 

 

4,800

 

 

 

5,493

 

 

 

10,293

 

 

 

(374

)

 

 

1997

 

 

 

2014

 

 

15-30

Coral Springs, FL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oquirrh Mountain Marketplace

 

 

11,920

 

 

 

4,254

 

 

 

14,467

 

 

 

 

 

 

4,254

 

 

 

14,467

 

 

 

18,721

 

 

 

(84

)

 

2014-2015

 

 

 

2015

 

 

15-30

Jordan, UT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Park Avenue Shopping Center

 

 

11,684

 

 

 

5,500

 

 

 

16,365

 

 

 

2,383

 

 

 

5,500

 

 

 

18,748

 

 

 

24,248

 

 

 

(1,109

)

 

 

2012

 

 

 

2014

 

 

15-30

Little Rock, AR

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plaza at Prairie Ridge (D)

 

 

 

 

 

618

 

 

 

2,305

 

 

 

 

 

 

618

 

 

 

2,305

 

 

 

2,923

 

 

 

(69

)

 

 

2008

 

 

 

2015

 

 

15-30

Pleasant Prairie, WI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prattville Town Center

 

 

15,930

 

 

 

5,336

 

 

 

27,648

 

 

 

24

 

 

 

5,336

 

 

 

27,672

 

 

 

33,008

 

 

 

(763

)

 

 

2007

 

 

 

2015

 

 

15-30

Prattville, AL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regal Court

 

 

26,000

 

 

 

5,873

 

 

 

41,181

 

 

 

352

 

 

 

5,873

 

 

 

41,533

 

 

 

47,406

 

 

 

(1,109

)

 

 

2008

 

 

 

2015

 

 

15-30

Shreveport, LA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlers Ridge

 

 

76,533

 

 

 

25,961

 

 

 

98,157

 

 

 

 

 

 

25,961

 

 

 

98,157

 

 

 

124,118

 

 

 

(921

)

 

 

2011

 

 

 

2015

 

 

15-30

Pittsburgh, PA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shoppes at Lake Park (D)

 

 

 

 

 

2,285

 

 

 

8,527

 

 

 

 

 

 

2,285

 

 

 

8,527

 

 

 

10,812

 

 

 

(284

)

 

 

2008

 

 

 

2015

 

 

15-30

West Valley City. UT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shoppes at Market Pointe

 

 

13,700

 

 

 

12,499

 

 

 

8,388

 

 

 

333

 

 

 

12,499

 

 

 

8,721

 

 

 

21,220

 

 

 

(245

)

 

2006-2007

 

 

 

2015

 

 

15-30

Papillion, NE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shoppes at Prairie Ridge

 

 

15,591

 

 

 

7,521

 

 

 

22,468

 

 

 

39

 

 

 

7,521

 

 

 

22,507

 

 

 

30,028

 

 

 

(804

)

 

 

2009

 

 

 

2014

 

 

15-30

Pleasant Prairie, WI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Shoppes at Branson Hills

 

 

26,678

 

 

 

4,418

 

 

 

37,229

 

 

 

121

 

 

 

4,418

 

 

 

37,350

 

 

 

41,768

 

 

 

(1,328

)

 

 

2005

 

 

 

2014

 

 

15-30

Branson, MO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shops at Hawk Ridge (D)

 

 

 

 

 

1,328

 

 

 

10,341

 

 

 

228

 

 

 

1,328

 

 

 

10,569

 

 

 

11,897

 

 

 

(278

)

 

 

2009

 

 

 

2015

 

 

5-30

St. Louis, MO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasure Valley (D)

 

 

 

 

 

3,133

 

 

 

12,000

 

 

 

 

 

 

3,133

 

 

 

12,000

 

 

 

15,133

 

 

 

(256

)

 

 

2014

 

 

 

2015

 

 

15-30

Nampa, ID

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Village at Burlington Creek

 

 

17,723

 

 

 

10,791

 

 

 

19,384

 

 

 

57

 

 

 

10,791

 

 

 

19,441

 

 

 

30,232

 

 

 

(121

)

 

2007 & 2015

 

 

 

2015

 

 

15-30

Kansas City, MO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Walgreens Plaza

 

 

4,650

 

 

 

2,624

 

 

 

9,683

 

 

 

162

 

 

 

2,624

 

 

 

9,845

 

 

 

12,469

 

 

 

(271

)

 

 

2011

 

 

 

2015

 

 

15-30

Jacksonville, NC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wedgewood Commons

 

 

15,260

 

 

 

2,220

 

 

 

26,577

 

 

 

 

 

 

2,220

 

 

 

26,577

 

 

 

28,797

 

 

 

(1,870

)

 

2009-2013

 

 

 

2013

 

 

15-30

Olive Branch, MS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

79


 

Whispering Ridge (D)

 

 

 

 

 

4,121

 

 

 

10,418

 

 

 

 

 

 

4,121

 

 

 

10,418

 

 

 

14,539

 

 

 

(255

)

 

 

2007

 

 

 

2015

 

 

15-30

Omaha, NE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

White City

 

 

49,400

 

 

 

18,960

 

 

 

70,423

 

 

 

1,106

 

 

 

18,960

 

 

 

71,529

 

 

 

90,489

 

 

 

(1,862

)

 

 

2013

 

 

 

2015

 

 

15-30

Shrewsbury, MA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yorkville Marketplace (D)

 

 

 

 

 

4,990

 

 

 

13,928

 

 

 

 

 

 

4,990

 

 

 

13,928

 

 

 

18,918

 

 

 

(346

)

 

2002 & 2007

 

 

 

2015

 

 

15-30

Yorkville, IL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total:

 

$

484,995

 

 

$

247,082

 

 

$

908,595

 

 

$

5,760

 

 

$

247,082

 

 

$

914,355

 

 

$

1,161,437

 

 

$

(27,545

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

(A)

The initial cost to the Company represents the original purchase price of the property.

(B)

The aggregate cost of real estate owned at December 31, 2015 and 2014 for federal income tax purposes was approximately $1,271,000 and $450,600, respectively (unaudited).

(C)

Reconciliation of real estate owned:

 

 

2015

 

 

2014

 

 

2013

 

Balance at January 1,

 

$

414,463

 

 

$

58,327

 

 

$

29,214

 

Acquisitions

 

 

743,893

 

 

 

356,154

 

 

 

28,797

 

Improvements, net of master lease

 

 

3,081

 

 

 

(18

)

 

 

316

 

Balance at December 31,

 

$

1,161,437

 

 

$

414,463

 

 

$

58,327

 

(D)

These properties serve as security for our Credit Facility.

(E)

Reconciliation of accumulated depreciation:

 

Balance at January 1,

 

$

6,236

 

 

$

808

 

 

$

32

 

Depreciation expense

 

 

21,309

 

 

 

5,428

 

 

 

776

 

Balance at December 31,

 

$

27,545

 

 

$

6,236

 

 

$

808

 

 

 

80


 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  

None.

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of our management, including our principal executive officer and principal financial officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in Internal Control - Integrated Framework (2013) issued by the COSO, our management concluded that our internal control over financial reporting was effective as of December 31, 2015.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to permanent rules adopted by the SEC, permitting the Company to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.

Other Information

None.

 

 

81


 

Part III

Item 10.

Directors, Executive Officers and Corporate Governance

The information required by this Item will be presented in our definitive proxy statement for our 2016 annual meeting of stockholders which we anticipate filing with the SEC no later than 120 days after the end of the fiscal year, and is incorporated by reference into this Item 10.

We have adopted a code of ethics, which is available on our website free of charge at http://www.inlandincometrust.com. We will provide the code of ethics free of charge upon request to our customer relations group.

Item 11.

Executive Compensation

The information required by this Item will be presented in our definitive proxy statement for our 2016 annual meeting of stockholders which we anticipate filing with the SEC no later than 120 days after the end of the fiscal year, and is incorporated by reference into this Item 11.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item will be presented in our definitive proxy statement for our 2016 annual meeting of stockholders which we anticipate filing with the SEC no later than 120 days after the end of the fiscal year and is incorporated by reference into this Item 12.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this Item will be presented in our definitive proxy statement for our 2016 annual meeting of stockholders which we anticipate filing with the SEC no later than 120 days after the end of the fiscal year and is incorporated by reference into this Item 13.

Item 14.

Principal Accounting Fees and Services

The information required by this Item will be presented in our definitive proxy statement for our 2016 annual meeting of stockholders which we anticipate filing with the SEC no later than 120 days after the end of the fiscal year, and is incorporated by reference into this Item 14.

 

 

82


 

Part IV

Item 15.

Exhibits and Financial Statement Schedules

(a)

List of documents filed as part of this report:

 

(1)

Financial Statements:

Report of Independent Registered Public Accounting Firm

The consolidated financial statements of the Company are set forth in the report in Item 8.

 

(2)

Financial Statement Schedules:

Financial statement schedule for the year ended December 31, 2015 is submitted herewith.

Real Estate and Accumulated Depreciation (Schedule III).

 

(3)

Exhibits:

The list of exhibits filed as part of this Annual Report is set forth on the Exhibit Index attached hereto.

(b)

Exhibits:

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

(c)

Financial Statement Schedules:

All schedules other than those indicated in the index as set forth in Item 8 have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

 

 

83


 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INLAND REAL ESTATE INCOME TRUST, INC.

 

By:

 

/s/ JoAnn M. McGuinness

Name:

 

JoAnn M. McGuinness

 

 

President and principal executive officer

Date:

 

March 15, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

By:

 

/s/ Daniel L. Goodwin

 

Director and Chairman of the Board

 

March 15, 2016

Name:

 

Daniel L. Goodwin

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Mitchell A. Sabshon

 

Director and Chief Executive Officer

 

March 15, 2016

Name:

 

Mitchell A. Sabshon

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ JoAnn M. McGuinness

 

Director, President and

Chief Operating Officer

(principal executive officer)

 

March 15, 2016

Name:

 

JoAnn M. McGuinness

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Catherine L. Lynch

 

Chief Financial Officer (co-principal financial officer)

 

March 15, 2016

Name:

 

Catherine L. Lynch

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ David Z. Lichterman

 

Vice President, Treasurer and

Chief Accounting Officer

(co-principal financial officer and principal accounting officer)

 

March 15, 2016

Name:

 

David Z. Lichterman

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Lee A. Daniels

 

Director

 

March 15, 2016

Name:

 

Lee A. Daniels

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Stephen Davis

 

Director

 

March 15, 2016

Name:

 

Stephen Davis

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Gwen Henry

 

Director

 

March 15, 2016

Name:

 

Gwen Henry

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Bernard J. Michael

 

Director

 

March 15, 2016

Name:

 

Bernard J. Michael

 

 

 

 

 

 

84


 

EXHIBIT INDEX

 

Exhibit

No.

 

Description

 

 

 

3.1 

 

Second Articles of Amendment and Restatement of Inland Real Estate Income Trust, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 5 to the Registrant’s Form S-11 Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on October 11, 2012 (file number 333-176775))

 

 

 

3.2 

 

Second Amended and Restated Bylaws of Inland Real Estate Income Trust, Inc. (incorporated by reference to Exhibit 3.2 to  the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on August 13, 2015 (file number 000-55146))

 

 

 

4.1 

 

Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on October 9, 2015 (file number 000-55146))

 

 

 

4.2 

 

Share Repurchase Program (incorporated by reference to Exhibit 4.2 to Amendment No. 3 to the Registrant’s Form S-11 Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on August 2, 2012 (file number 333-176775))

 

 

 

10.1 

 

Business Management Agreement, dated as of October 18, 2012, by and between Inland Real Estate Income Trust, Inc. and IREIT Business Manager & Advisor, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on October 24, 2012 (file number 333-176775))

 

 

 

10.2 

 

Master Real Estate Management Agreement, dated as of October 18, 2012, by and between Inland Real Estate Income Trust, Inc. and Inland National Real Estate Services, LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on October 24, 2012 (file number 333-176775))

 

 

 

10.3 

 

Assignment and Assumption of Master Management Agreement, effective January 1, 2016, by and between Inland National Real Estate Services, LLC and Inland Commercial Real Estate Services LLC*

 

 

 

10.4

 

Master Real Estate Management Agreement, dated as of October 18, 2012, by and between Inland Real Estate Income Trust, Inc. and Inland National Real Estate Services II, LLC (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on October 24, 2012 (file number 333-176775))

 

 

 

10.5 

 

Assignment and Assumption of Master Management Agreement, effective January 1, 2016, by and between Inland National Real Estate Services II, LLC and Inland Commercial Real Estate Services LLC*

 

 

 

10.6

 

Investment Advisory Agreement, dated as of October 18, 2012, by and between Inland Real Estate Income Trust, Inc., IREIT Business Manager & Advisor, Inc. and Inland Investment Advisors, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on October 24, 2012 (file number 333-176775))

 

 

 

10.7 

 

License Agreement, by and between The Inland Real Estate Group, Inc. and Inland Real Estate Income Trust, Inc., effective as of August 24, 2011 (incorporated by reference to Exhibit 10.5 to Amendment No. 4 to the Registrant’s Form S-11 Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on September 25, 2012 (file number 333-176775))

 

 

 

10.8 

 

Sale Agreement, dated as of April 30, 2014, by and between Dogwood Festival, L.L.C. and IREIT Business Manager and Advisor, Inc., as amended by the Amendment to Agreement between the same parties, dated as of June 11, 2014; as further amended by the Second Amendment to Agreement between the same parties, dated as of June 17, 2014; and as further amended by the Third Amendment to Agreement between the same parties, dated as of June 23, 2014 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 2, 2014 (file number 000-55146))

 

 

 

10.9 

 

Assignment of Sale Agreement, dated as of June 27, 2014, by and between IREIT Business Manager and Advisor, Inc. and IREIT Flowood Dogwood, L.L.C. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 2, 2014 (file number 000-55146))

85


 

Exhibit

No.

 

Description

 

 

 

10.10 

 

Assignment and Assumption of Leases, dated as of June 27, 2014, by Dogwood Festival, L.L.C. and IREIT Flowood Dogwood, L.L.C. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 2, 2014 (file number 000-55146))

 

 

 

10.11

 

Loan Agreement, dated as of June 27, 2014, by and among IREIT Flowood Dogwood, L.L.C. and Wells Fargo, National Association (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 2, 2014 (file number 000-55146))

 

 

 

10.12

 

Promissory Note, made as of June 27, 2014, by IREIT Flowood Dogwood, L.L.C. for the benefit of Wells Fargo, National Association (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 2, 2014 (file number 000-55146))

 

 

 

10.13

 

Guaranty of Recourse Obligations, dated as of June 27, 2014, by Inland Real Estate Income Trust, Inc. in favor of Wells Fargo, National Association (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 2, 2014 (file number 000-55146))

 

 

 

10.14

 

Environmental Indemnity Agreement, dated as of June 27, 2014, made by IREIT Flowood Dogwood, L.L.C. and Inland Real Estate Income Trust, Inc. in favor of Wells Fargo, National Association (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 2, 2014 (file number 000-55146))

 

 

 

10.15

 

Purchase and Sale Agreement, dated as of March 10, 2014, by and between IMI MTLR LLC, IMI MTLR II LLC and IREIT Business Manager & Advisor, Inc., as amended by the First Amendment to the Purchase and Sale Agreement, dated April 9, 2014, as amended by the Second Amendment to the Purchase and Sale Agreement, dated April 11, 2014, as amended by the Third Amendment to the Purchase and Sale Agreement, dated April 14, 2014, as amended by the Fourth Amendment to the Purchase and Sale Agreement, dated April 15, 2014, as amended by the Fifth Amendment to the Purchase and Sale Agreement, dated April 17, 2014, as amended by the Sixth Amendment to the Purchase and Sale Agreement, dated April 18, 2014 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on April 24, 2014 (file number 000-55146))

 

 

 

10.16

 

Assignment and Assumption of Purchase and Sale Agreement, dated as of April 21, 2014 by IREIT Business Manager & Advisor, Inc. and Inland Real Estate Income Trust, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on April 24, 2014 (file number 000-55146))

 

 

 

10.17

 

Loan and Security Agreement, dated as of June 26, 2014, between IREIT Little Rock MidTowne, L.L.C. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 2, 2014 (file number 000-55146))

 

 

 

10.18

 

Promissory Note, made as of June 26, 2014, by IREIT Little Rock MidTowne, L.L.C. for the benefit of JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 2, 2014 (file number 000-55146))

 

 

 

10.19

 

Guaranty, dated as of June 26, 2014, by Inland Real Estate Income Trust, Inc. to and for the benefit of JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 2, 2014 (file number 000-55146))

 

 

 

10.20

 

Environmental Indemnity Agreement, dated as of June 26, 2014, made by IREIT Little Rock MidTowne, L.L.C. and Inland Real Estate Income Trust, Inc. in favor of JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.11 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 2, 2014 (file number 000-55146))

 

 

 

10.21

 

Purchase and Sale Agreement, dated September 16, 2014, by and among Inland Real Estate Income Trust, Inc. and the subsidiaries of Kite Realty Group Trust party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on September 19, 2014 (file number 000-55146))

86


 

Exhibit

No.

 

Description

 

 

 

10.22

 

Assignment and Assumption of Leases and Security Deposits, dated as of November 21, 2014, by and between KRG OCEAN ISLE BEACH LANDING, LLC and IREIT OCEAN ISLE BEACH LANDING, L.L.C. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on November 28, 2014 (file number 000-55146))

 

 

 

10.23

 

Assignment and Assumption of Leases and Security Deposits (Lot 4B in The Shoppes at Branson Hills), dated as of December 15, 2014, by and between KRG BRANSON HILLS IV, LLC and IREIT BRANSON HILLS, L.L.C. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.24

 

Assignment and Assumption of Leases and Security Deposits (The Shoppes at Branson Hills and Branson Hills Plaza), dated as of December 15, 2014, by and between KRG BRANSON HILLS, LLC and IREIT BRANSON HILLS, L.L.C. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.25

 

Consent to Sale, Assumptions and Second Loan Modification Agreement (Branson Hills), dated as of December 15, 2014, by and among KRG BRANSON HILLS, LLC, KITE REALTY GROUP, L.P., IREIT BRANSON HILLS, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC. and PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.26

 

First Amended and Restated Promissory Note (Branson Hills), dated as of December 15, 2014, issued by IREIT BRANSON HILLS, L.L.C. in favor of PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.27

 

Replacement Guaranty of Payment and Recourse Obligations (Branson Hills), dated as of December 15, 2014, by INLAND REAL ESTATE INCOME TRUST, INC. in favor of PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.28

 

Assignment and Assumption of Leases and Security Deposits (Harvest Square), dated as of December 15, 2014, by and between KRG HARVEST SQUARE, LLC and IREIT HARVEST SQUARE, L.L.C. (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.29

 

Consent and Assumption Agreement with Limited Release (Harvest Square), dated as of December 15, 2014, by and among KRG HARVEST SQUARE, LLC, KITE REALTY GROUP, L.P., IREIT HARVEST SQUARE, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC. and PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.30

 

Environmental Indemnity Agreement (Harvest Square), dated as of December 15, 2014, by IREIT HARVEST SQUARE, L.L.C. and INLAND REAL ESTATE INCOME TRUST, INC. in favor of PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.31

 

Guaranty of Recourse Obligations of Borrower (Harvest Square), dated as of December 15, 2014, by INLAND REAL ESTATE INCOME TRUST, INC. in favor of PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.32

 

General Assignment and Assumption Agreement (Prairie Ridge), dated as of December 15, 2014, by and between KRG PLEASANT PRAIRIE RIDGE, LLC and IREIT PLEASANT PRAIRIE RIDGE, L.L.C. (incorporated by reference to Exhibit 10.11 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.33

 

Assignment and Assumption of Leases and Security Deposits (Prairie Ridge), dated as of December 15, 2014, by and between KRG PLEASANT PRAIRIE RIDGE, LLC and IREIT PLEASANT PRAIRIE RIDGE, L.L.C. (incorporated by reference to Exhibit 10.12 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

87


 

Exhibit

No.

 

Description

 

 

 

10.34

 

Consent to Sale, Assumptions and Second Loan Modification Agreement (Prairie Ridge), dated as of December 15, 2014, by and among KRG PLEASANT PRAIRIE RIDGE, LLC, KITE REALTY GROUP, L.P., IREIT PLEASANT PRAIRIE RIDGE, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC. and PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.13 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.35

 

First Amended and Restated Promissory Note (Prairie Ridge), dated as of December 15, 2014, issued by IREIT PLEASANT PRAIRIE RIDGE, L.L.C. in favor of PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.14 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.36

 

Replacement Guaranty of Payment and Recourse Obligations (Prairie Ridge), dated as of December 15, 2014, by INLAND REAL ESTATE INCOME TRUST, INC. to and for the benefit of PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.15 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.37

 

Assignment and Assumption of Leases and Security Deposit (Copps), dated as of December 15, 2014, by and between KRG STEVENS POINT PINECREST, LLC and IREIT STEVENS POINT PINECREST, L.L.C. (incorporated by reference to Exhibit 10.16 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.38

 

Assignment and Assumption of Leases and Security Deposits (Fox Point), dated as of December 15, 2014, by and between KRG NEENAH FOX POINT, LLC and IREIT NEENAH FOX POINT, L.L.C. (incorporated by reference to Exhibit 10.17 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.39

 

Consent to Sale, Assumptions and Second Loan Modification Agreement (Fox Point), dated as of December 15, 2014, by and among KRG NEENAH FOX POINT, L.L.C., KITE REALTY GROUP, L.P., IREIT NEENAH FOX POINT, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC. and PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.18 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.40

 

First Amended and Restated Promissory Note (Fox Point), dated as of December 15, 2014, issued by IREIT NEENAH FOX POINT, L.L.C. in favor of PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.19 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.41

 

Replacement Guaranty of Payment and Recourse Obligations (Fox Point), dated as of December 15, 2014, by INLAND REAL ESTATE INCOME TRUST, INC. in favor of PNC BANK, NATIONAL ASSOCIATION (incorporated by reference to Exhibit 10.20 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.42

 

Assignment and Assumption of Leases and Security Deposits (Heritage Square), dated as of December 15, 2014, by and between KRG CONYERS HERITAGE, LLC and IREIT CONYERS HERITAGE, L.L.C. (incorporated by reference to Exhibit 10.21 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.43

 

Consent and Assumption Agreement with Release (Heritage Square), dated as of December 15, 2014, by and among KRG CONYERS HERITAGE, LLC, KITE REALTY GROUP, L.P., KITE REALTY GROUP TRUST, IREIT CONYERS HERITAGE, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC. and WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2011-C5, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2011-C5 (incorporated by reference to Exhibit 10.22 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

88


 

Exhibit

No.

 

Description

 

 

 

10.44

 

Joinder Agreement (Heritage Square), dated as of December 15, 2014, by INLAND REAL ESTATE INCOME TRUST, INC. in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2011-C5, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2011-C5 (incorporated by reference to Exhibit 10.23 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.45

 

Environmental Indemnity Agreement (Heritage Square), dated as of December 15, 2014, by IREIT CONYERS HERITAGE, L.L.C. and INLAND REAL ESTATE INCOME TRUST, INC. in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2011-C5, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2011-C5 (incorporated by reference to Exhibit 10.24 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.46

 

Guaranty Agreement (Heritage Square), dated as of December 15, 2014, by INLAND REAL ESTATE INCOME TRUST, INC. in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2011-C5, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2011-C5 (incorporated by reference to Exhibit 10.25 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 22, 2014 (file number 000-55146))

 

 

 

10.47

 

Assignment and Assumption of Lease and Security Deposit (The Shoppes at Branson Hills – Kohl’s), dated as of December 19, 2014, by and between KRG BRANSON HILLS K-II, LLC and IREIT SHOPPES AT BRANSON HILLS - K, L.L.C. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 29, 2014 (file number 000-55146))

 

 

 

10.48

 

Assumption Agreement (The Shoppes at Branson Hills – Kohl’s), dated as of December 19, 2014, by and among KRG BRANSON HILLS K-II, LLC, KITE REALTY GROUP, L.P., IREIT SHOPPES AT BRANSON HILLS - K, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC. and U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, AS SUCCESSOR-IN-INTEREST TO BANK OF AMERICA, NATIONAL ASSOCIATION, SUCCESSOR-BY-MERGER TO LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF LB-UBS COMMERCIAL MORTGAGE TRUST 2007-C7, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-C7 (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 29, 2014 (file number 000-55146))

 

 

 

10.49

 

Guaranty of Recourse Obligations of Borrower (The Shoppes at Branson Hills – Kohl’s), dated as of December 19, 2014, by INLAND REAL ESTATE INCOME TRUST, INC. in favor of U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, AS SUCCESSOR-IN-INTEREST TO BANK OF AMERICA, NATIONAL ASSOCIATION, SUCCESSOR-BY-MERGER TO LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF LB-UBS COMMERCIAL MORTGAGE TRUST 2007-C7, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-C7 (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 29, 2014 (file number 000-55146))

 

 

 

10.50

 

Environmental Indemnity Agreement (The Shoppes at Branson Hills – Kohl’s), dated as of December 19, 2014, by IREIT SHOPPES AT BRANSON HILLS - K, L.L.C. and INLAND REAL ESTATE INCOME TRUST, INC. in favor of U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, AS SUCCESSOR-IN-INTEREST TO BANK OF AMERICA, NATIONAL ASSOCIATION, SUCCESSOR-BY-MERGER TO LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF LB-UBS COMMERCIAL MORTGAGE TRUST 2007-C7, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-C7 (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 29, 2014 (file number 000-55146))

 

 

 

10.51

 

Assignment and Assumption of Lease and Security Deposit (Branson Hills Plaza – TJ Maxx), dated as of December 22, 2014, by and between KRG BRANSON HILLS T-III, LLC and IREIT BRANSON HILLS PLAZA – T, L.L.C. (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 29, 2014 (file number 000-55146))

89


 

Exhibit

No.

 

Description

 

 

 

10.52

 

Assumption Agreement (Branson Hills Plaza – TJ Maxx), dated as of December 22, 2014, by and among KRG BRANSON HILLS T-III, LLC, KITE REALTY GROUP, L.P., IREIT BRANSON HILLS PLAZA - T, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC. and U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, AS SUCCESSOR-IN-INTEREST TO BANK OF AMERICA, NATIONAL ASSOCIATION, SUCCESSOR-BY-MERGER TO LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF LB-UBS COMMERCIAL MORTGAGE TRUST 2006-C4, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C4 (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 29, 2014 (file number 000-55146))

 

 

 

10.53

 

Guaranty of Recourse Obligations of Borrower (Branson Hills Plaza – TJ Maxx), dated as of December 22, 2014, by INLAND REAL ESTATE INCOME TRUST, INC. in favor of U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, AS SUCCESSOR-IN-INTEREST TO BANK OF AMERICA, NATIONAL ASSOCIATION, SUCCESSOR-BY-MERGER TO LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF LB-UBS COMMERCIAL MORTGAGE TRUST 2006-C4, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C4 (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 29, 2014 (file number 000-55146))

 

 

 

10.54

 

Environmental Indemnity Agreement (Branson Hills Plaza – TJ Maxx), dated as of December 22, 2014, by IREIT BRANSON HILLS PLAZA - T, L.L.C. and INLAND REAL ESTATE INCOME TRUST, INC. in favor of U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, AS SUCCESSOR-IN-INTEREST TO BANK OF AMERICA, NATIONAL ASSOCIATION, SUCCESSOR-BY-MERGER TO LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF LB-UBS COMMERCIAL MORTGAGE TRUST 2006-C4, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-C4 (incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on December 29, 2014 (file number 000-55146))

 

 

 

10.55

 

Assignment and Assumption of Leases and Security Deposits (Prattville Town Center), dated as of March 16, 2015, by and between KRG PRATTVILLE LEGENDS, LLC and IREIT PRATTVILLE LEGENDS, L.L.C. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.56

 

Consent and Assumption Agreement with Release (Prattville Town Center), dated as of March 16, 2015, by and among KRG PRATTVILLE LEGENDS, LLC, KITE REALTY GROUP, L.P., KITE REALTY GROUP TRUST, IREIT PRATTVILLE LEGENDS, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC. and WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2011-C5, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2011-C5  (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.57

 

Joinder Agreement (Prattville Town Center), dated as of March 16, 2015, by INLAND REAL ESTATE INCOME TRUST, INC. in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2011-C5, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2011-C5  (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.58

 

Environmental Indemnity Agreement (Prattville Town Center), dated as of March 16, 2015, by IREIT PRATTVILLE LEGENDS, L.L.C. and INLAND REAL ESTATE INCOME TRUST, INC. in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2011-C5, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2011-C5  (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

90


 

Exhibit

No.

 

Description

10.59

 

Guaranty Agreement (Prattville Town Center) executed as of March 16, 2015, by INLAND REAL ESTATE INCOME TRUST, INC. for the benefit of WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2011-C5, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2011-C5  (incorporated by reference to

Exhibit 10.6 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.60

 

Assignment and Assumption of Leases and Security Deposits (Walgreens Plaza), dated as of March 16, 2015, by and between KRG JACKSONVILLE RICHLANDS, LLC and IREIT JACKSONVILLE RICHLANDS, L.L.C. (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.61

 

Consent and Assumption Agreement with Release (Walgreens Plaza), dated as of March 16, 2015, by and between KRG JACKSONVILLE RICHLANDS, LLC, KITE REALTY GROUP, L.P., KITE REALTY GROUP TRUST, IREIT JACKSONVILLE RICHLANDS, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC., and WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2011-C5, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2011-C5 (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.62

 

Guaranty Agreement (Walgreens Plaza) executed as of March 16, 2015, by INLAND REAL ESTATE INCOME TRUST, INC. for the benefit of WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2011-C5, COMMERCIAL MORTGAGE PASSTHROUGH CERTIFICATES, SERIES 2011-C5  (incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

 

10.63

 

Environmental Indemnity Agreement (Walgreens Plaza), dated as of March 16, 2015, by IREIT JACKSONVILLE RICHLANDS, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC., and WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2011-C5, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2011-C5  (incorporated by reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.64

 

Assignment and Assumption of Leases and Security Deposits (Fairgrounds Crossing), dated as of March 16, 2015, by and between KRG HOT SPRINGS FAIRGROUNDS, LLC and IREIT HOT SPRINGS FAIRGROUNDS, L.L.C. (incorporated by reference to Exhibit 10.11 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.65

 

Assumption Agreement (Fairgrounds Crossing), dated as of March 16, 2015, by and between KRG HOT SPRINGS FAIRGROUNDS, LLC and IREIT HOT SPRINGS FAIRGROUNDS, L.L.C., KITE REALTY GROUP, L.P., INLAND REAL ESTATE INCOME TRUST, INC., and WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF GS MORTGAGE SECURITIES CORPORATION II, COMMERCIAL MORTGAGE PASSTHROUGH CERTIFICATES, SERIES 2012-GC6  (incorporated by reference to Exhibit 10.12 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

 

10.66

 

Assignment and Assumption of Leases and Security Deposits (Hawk Ridge), dated as of March 16, 2015, by and between KRG LAKE ST. LOUIS HAWK RIDGE, LLC and IREIT LAKE ST. LOUIS HAWK RIDGE, L.L.C. (incorporated by reference to Exhibit 10.13 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.67

 

Assignment and Assumption of Leases and Security Deposits (Whispering Ridge), dated as of March 16, 2015, by and between KRG OMAHA WHISPERING RIDGE, LLC, and RE INCOME OMAHA WHISPERING RIDGE, L.L.C. (incorporated by reference to Exhibit 10.14 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.68

 

Assignment and Assumption of Leases and Security Deposits (Regal Court), dated as of March 16, 2015, by and between KRG SHREVEPORT REGAL COURT, LLC, and IREIT SHREVEPORT REGAL COURT, L.L.C. (incorporated by reference to Exhibit 10.15 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

91


 

Exhibit

No.

 

Description

 

 

 

10.69

 

Assignment and Assumption of Leases and Security Deposits (Eastside Junction), dated as of March 16, 2015, by and between KRG ATHENS EASTSIDE, LLC, and IREIT ATHENS EASTSIDE, L.L.C. (incorporated by reference to Exhibit 10.16 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.70

 

Guaranty of Recourse Obligations of Borrower (Eastside Junction), executed as of March 16, 2015, by INLAND REAL ESTATE INCOME TRUST, INC., in favor of PNC BANK, NATIONAL ASSOCIATION  (incorporated by reference to Exhibit 10.17 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.71

 

Environmental Indemnity Agreement (Eastside Junction), dated as of March 16, 2015, by IREIT ATHENS EASTSIDE, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC., in favor of PNC BANK, NATIONAL ASSOCIATION  (incorporated by reference to Exhibit 10.18 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.72

 

Consent and Assumption Agreement with Limited Release (Eastside Junction), dated as of March 16, 2015, by and among KRG ATHENS EASTSIDE, LLC, KITE REALTY GROUP, L.P., IREIT ATHENS EASTSIDE, L.L.C., INLAND REAL ESTATE INCOME TRUST, INC. and PNC BANK, NATIONAL ASSOCIATION  (incorporated by reference to Exhibit 10.19 to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 20, 2015 (file number 000-55146))

 

 

 

10.73

 

Agreement of Purchase and Sale, dated March 6, 2015, by and among White City Partners LLC, White City East Partners LLC and Inland Real Estate Acquisitions, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 13, 2015 (file number 000-55146))

 

 

 

10.74

 

First Amendment to Agreement, dated March 27, 2015, by and among White City Partners LLC, White City East Partners LLC and Inland Real Estate Acquisitions, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 13, 2015 (file number 000-55146))

 

 

 

10.75

 

Assignment and Assumption of Agreement for Sale and Purchase Agreement, dated April 7, 2015, by and between Inland Real Estate Acquisitions, Inc. and Inland Real Estate Income Trust, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 13, 2015 (file number 000-55146))

 

 

 

10.76

 

Loan Agreement, dated April 7, 2015, by and between IREIT Shrewsbury White City, L.L.C. and Santander Bank, N.A. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 13, 2015 (file number 000-55146))

 

 

 

10.77

 

Guaranty dated April 7, 2015, by Inland Real Estate Income Trust, Inc. in favor of Santander Bank, N.A. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 13, 2015 (file number 000-55146))

 

 

 

10.78

 

Environmental Indemnity Agreement, dated April 7, 2015, by IREIT Shrewsbury White City, L.L.C. and Inland Real Estate Income Trust, Inc. in favor of Santander Bank, N.A. (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 13, 2015 (file number 000-55146))

 

 

 

10.79

 

Term Note, dated April 7, 2015, by IREIT Shrewsbury White City, L.L.C. for the benefit of Santander Bank, N.A. (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on April 13, 2015 (file number 000-55146))

 

 

 

92


 

Exhibit

No.

 

Description

10.80

 

Credit Agreement, dated as of September 30, 2015, by and among Inland Real Estate Income Trust, Inc., as borrower, KeyBank National Association, individually and as administrative agent, KeyBanc Capital Markets Inc., as lead arranger, and other lender parties thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K

as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.81

 

Purchase and Sale Agreement and Escrow Instructions, dated August 21, 2015, by and among CBL/Settlers Ridge GP, LLC, CBL/Settlers Ridge LP, LLC, Settlers Ridge Management GP, LLC, Settlers Ridge Management LP, LLC, O’Connor/Realvest Milford LLC and Inland Real Estate Acquisitions, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.82

 

First Amendment to Purchase and Sale Agreement and Escrow Instructions, dated September 16, 2015, by and among CBL/Settlers Ridge GP, LLC, CBL/Settlers Ridge LP, LLC, Settlers Ridge Management GP, LLC, Settlers Ridge Management LP, LLC, O’Connor/Realvest Milford LLC and Inland Real Estate Acquisitions, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.83

 

Second Amendment to Purchase and Sale Agreement and Escrow Instructions, dated September 18, 2015, by and among CBL/Settlers Ridge GP, LLC, CBL/Settlers Ridge LP, LLC, Settlers Ridge Management GP, LLC, Settlers Ridge Management LP, LLC, O’Connor/Realvest Milford LLC and Inland Real Estate Acquisitions, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.84

 

Third Amendment to Purchase and Sale Agreement and Escrow Instructions, dated September 21, 2015, by and among CBL/Settlers Ridge GP, LLC, CBL/Settlers Ridge LP, LLC, Settlers Ridge Management GP, LLC, Settlers Ridge Management LP, LLC, O’Connor/Realvest Milford LLC and Inland Real Estate Acquisitions, Inc. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.85

 

Assignment and Assumption of Purchase and Sale Agreement and Escrow Instructions (Settlers Ridge), dated October 1, 2015, by and between Inland Real Estate Acquisitions, Inc. and Inland Real Estate Income Trust, Inc. (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.86

 

Assignment of Partnership Interest, dated October 1, 2015, by and between Inland Real Estate Income Trust, Inc. and CBL/Settlers Ridge GP, LLC (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.87

 

Assignment of Partnership Interest, dated October 1, 2015, by and between Inland Real Estate Income Trust, Inc. and CBL/Settlers Ridge LP, LLC (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.88

 

Assignment of Partnership Interest, dated October 1, 2015, by and between Inland Real Estate Income Trust, Inc. and Settlers Ridge Management GP, LLC (incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.89

 

Assignment of Partnership Interest, dated October 1, 2015, by and between Inland Real Estate Income Trust, Inc. and Settlers Ridge Management LP, LLC (incorporated by reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.90

 

Assignment and Assumption of Purchase and Sale Agreement and Escrow Instructions (Milford Marketplace), dated October 1, 2015, by and between Inland Real Estate Acquisitions, Inc. and IREIT Milford Marketplace, L.L.C. (incorporated by reference to Exhibit 10.11 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.91

 

Ground Lease Assignment Agreement, dated October 1, 2015, by and between IREIT Milford Marketplace, L.L.C. and O'Connor/Realvest Milford LLC (incorporated by reference to Exhibit 10.12 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

93


 

Exhibit

No.

 

Description

10.92

 

Agreement Regarding Ground Lease Assignment, dated October 1, 2015, by and between IREIT Milford Marketplace, L.L.C. and O'Connor/Realvest Milford LLC (incorporated by reference to Exhibit 10.13 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.93

 

Milford Assignment and Assumption Agreement, dated October 1, 2015, by and between IREIT Milford Marketplace, L.L.C. and O'Connor/Realvest Milford LLC (incorporated by reference to Exhibit 10.14 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.94

 

Holdback Escrow Agreement, dated October 1, 2015, by and among Chicago Title and Trust Company, CBL/Settlers Ridge GP, LLC, CBL/Settlers Ridge LP, LLC, Settlers Ridge Management GP, LLC, Settlers Ridge Management LP, LLC, O’Connor/Realvest Milford LLC, Inland Real Estate Income Trust, Inc. and IREIT Milford Marketplace, L.L.C. (incorporated by reference to Exhibit 10.15 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on October 6, 2015 (file number 000-55146))

 

 

 

10.95

 

Loan Agreement, dated December 3, 2015, by and between IREIT Pittsburgh Settlers Ridge, L.L.C. and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on December 9, 2015 (file number 000-55146))

 

 

 

10.96

 

Promissory Note, dated December 3, 2015, issued by IREIT Pittsburgh Settlers Ridge, L.L.C. in favor of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on December 9, 2015 (file number 000-55146))

 

 

 

10.97

 

Open-End Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, effective December 3, 2015, by IREIT Pittsburgh Settlers Ridge, L.L.C. for the benefit of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on December 9, 2015 (file number 000-55146))

 

 

 

10.98

 

Assignment of Leases, effective December 3, 2015, by IREIT Pittsburgh Settlers Ridge, L.L.C. in favor of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on December 9, 2015 (file number 000-55146))

 

 

 

10.99

 

Guaranty of Recourse Obligations, dated December 3, 2015, by Inland Real Estate Income Trust, Inc. in favor of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on December 9, 2015 (file number 000-55146))

 

 

 

10.100

 

Unsecured Indemnity Agreement, dated December 3, 2015, by IREIT Pittsburgh Settlers Ridge, L.L.C. and Inland Real Estate Income Trust, Inc. in favor of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K as filed by the Registrant with the Securities and Exchange Commission on December 9, 2015 (file number 000-55146))

 

 

 

14.1 

 

Code of Ethics (incorporated by reference to Exhibit 14.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, as filed by the Registrant with the Securities and Exchange Commission on April 1, 2013 (file number 000-55146))

 

 

 

21.1 

 

Subsidiaries of the Registrant*

 

 

 

23.1

 

Consent of KPMG LLP*

 

 

 

31.1 

 

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

 

 

 

31.2 

 

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

 

 

 

31.3 

 

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

 

 

 

32.1 

 

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

 

 

 

32.2 

 

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

 

 

 

32.3 

 

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

94


 

Exhibit

No.

 

Description

 

 

 

101   

 

The following financial information from our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 11, 2016, is formatted in Extensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Loss, (iii) Consolidated Statements of Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements (tagged as blocks of text).

 

 

 

 

 

*  Filed as part of this Annual Report on Form 10-K.

 

 

95