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EX-32.2 - EX-32.2 - InPoint Commercial Real Estate Income, Inc.ck0001690012-ex322_253.htm
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EX-31.2 - EX-31.2 - InPoint Commercial Real Estate Income, Inc.ck0001690012-ex312_255.htm
EX-31.1 - EX-31.1 - InPoint Commercial Real Estate Income, Inc.ck0001690012-ex311_256.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2017

 

OR

 

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

 

For the transition period from            to           

 

Commission file number 000-55782

 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

(Exact name of registrant as specified in charter)

 

 

Maryland

32-0506267

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

2901 Butterfield Road

Oak Brook, Illinois

60523

(Address of principal executive offices)

(Zip Code)

 

(800) 826-8228

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    Yes     No  The Registrant’s registration statement on Form 10 became effective on July 1, 2017.  The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 since that date.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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     No 

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

 (Do not check if a smaller reporting company)

Smaller Reporting Company

 

 

 

 

Emerging Growth Company

 

 

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

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

As of August 9, 2017, there were 892,674 shares of the Registrant’s Class P Common Stock outstanding.

 

 

 

 


 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016

1

 

 

 

 

Unaudited Consolidated Statements of Operations for the three and six-months ended June 30, 2017 and 2016

2

 

 

 

 

Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the six-months ended June 30, 2017 

3

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the six-months ended June 30, 2017 and 2016

4

 

 

 

 

Notes to Consolidated Financial Statements

5

 

 

 

Item 2.

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

13

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

 

 

 

Item 4.

Controls and Procedures

21

 

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

21

 

 

 

Item 1A.

Risk Factors

21

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

21

 

 

 

Item 3.

Defaults Upon Senior Securities

21

 

 

 

Item 4.

Mine Safety Disclosures

21

 

 

 

Item 5.

Other Information

22

 

 

 

Item 6.

Exhibits

22

 

 

Signatures

23

 

 


 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

June 30, 2017

(unaudited)

 

 

December 31, 2016

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

10,917,497

 

 

$

511,854

 

Real estate securities at fair value

 

 

10,583,860

 

 

 

5,433,480

 

Deferred offering costs

 

 

1,547,064

 

 

 

967,448

 

Accrued interest receivable

 

 

32,046

 

 

 

13,652

 

Prepaid expenses

 

 

17,875

 

 

 

 

Other assets

 

 

500

 

 

 

 

Total assets

 

$

23,098,842

 

 

$

6,926,434

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Repurchase agreements—real estate securities

 

 

6,370,000

 

 

 

 

Due to related parties

 

 

1,547,582

 

 

 

995,716

 

Interest payable

 

 

7,680

 

 

 

 

Distributions payable

 

 

82,179

 

 

 

33,230

 

Accrued expenses

 

 

146,652

 

 

 

19,167

 

Total liabilities

 

 

8,154,093

 

 

 

1,048,113

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Class P common stock, $0.001 par value, 450,000,000 shares authorized, 614,859 and

   237,700 shares issued and outstanding at June 30, 2017 and December 31, 2016,

   respectively

 

 

615

 

 

 

238

 

Additional paid in capital (net of offering costs of $678,398 and $0 at June 30, 2017 and

   December 31, 2016, respectively)

 

 

15,443,748

 

 

 

5,942,262

 

Distributions in excess of earnings

 

 

(499,614

)

 

 

(64,179

)

Total stockholders’ equity

 

 

14,944,749

 

 

 

5,878,321

 

Total liabilities and shareholders’ equity

 

$

23,098,842

 

 

$

6,926,434

 

 

 

 

 

 

 

 

 

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

 

1


 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

Three-months ended June 30,

 

 

Six-months ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

148,305

 

 

 

 

 

 

250,044

 

 

 

 

Less: Interest expense

 

 

(41,323

)

 

 

 

 

 

(51,738

)

 

 

 

Net interest income

 

 

106,982

 

 

 

 

 

 

198,306

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Administration expense

 

 

28,750

 

 

 

 

 

 

57,500

 

 

 

 

Directors compensation

 

 

19,850

 

 

 

 

 

 

40,600

 

 

 

 

Professional service fees

 

 

209,522

 

 

 

 

 

 

230,334

 

 

 

 

Other expenses

 

 

7,257

 

 

 

 

 

 

29,809

 

 

 

 

Total operating expenses

 

 

265,379

 

 

 

 

 

 

358,243

 

 

 

 

Other income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) in value of real estate securities

 

 

(18,520

)

 

 

 

 

 

70,913

 

 

 

 

Total other income (loss)

 

 

(18,520

)

 

 

 

 

 

70,913

 

 

 

 

Net loss

 

$

(176,917

)

 

$

 

 

$

(89,024

)

 

$

 

Net loss per share basic and diluted

 

$

(0.40

)

 

$

 

 

$

(0.25

)

 

$

 

Weighted average number of shares outstanding, basic and diluted

 

 

442,029

 

 

 

 

 

 

361,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

2


 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Six-months ended June 30, 2017

(unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

of Shares

 

 

Par Value

 

 

Additional

Paid in Capital

 

 

Distributions in

Excess of

Earnings

 

 

Total

Stockholders’

Equity

 

Balance as of December 31, 2016

 

 

237,700

 

 

$

238

 

 

$

5,942,262

 

 

$

(64,179

)

 

$

5,878,321

 

Proceeds from offering

 

 

377,159

 

 

 

377

 

 

 

10,179,884

 

 

 

 

 

 

10,180,261

 

Offering costs

 

 

 

 

 

 

 

 

(678,398

)

 

 

 

 

 

(678,398

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(89,024

)

 

 

(89,024

)

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

(346,411

)

 

 

(346,411

)

Balance as of June 30, 2017

 

 

614,859

 

 

$

615

 

 

$

15,443,748

 

 

$

(499,614

)

 

$

14,944,749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

3


 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

For six-months ended June 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

 

(89,024

)

 

 

 

Adjustments to reconcile net loss to cash used in operations:

 

 

 

 

 

 

 

 

Net unrealized gain on real estate securities

 

 

(70,913

)

 

 

 

Amortization of bond premium

 

 

45,533

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(18,394

)

 

 

 

Prepaid expenses

 

 

(17,875

)

 

 

 

Interest payable

 

 

7,680

 

 

 

 

Accrued expenses

 

 

127,485

 

 

 

 

Due to related parties

 

 

(27,750

)

 

 

 

Other assets

 

 

(500

)

 

 

 

Net cash used in operating activities

 

$

(43,758

)

 

$

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of real estate securities

 

 

(5,125,000

)

 

 

 

Net cash used in investing activities

 

$

(5,125,000

)

 

$

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

10,180,261

 

 

 

 

Payment of offering costs

 

 

(678,398

)

 

 

 

Proceeds from repurchase agreements

 

 

26,291,000

 

 

 

 

Principal repayments of repurchase agreements

 

 

(19,921,000

)

 

 

 

Distributions paid

 

 

(297,462

)

 

 

 

Net cash provided by financing activities

 

$

15,574,401

 

 

$

 

Net change in cash and cash equivalents

 

 

10,405,643

 

 

 

 

Cash and cash equivalents beginning of period

 

 

511,854

 

 

 

 

Cash and cash equivalents end of period

 

$

10,917,497

 

 

$

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Change in deferred offering costs and accrued offering expenses, included in due to related parties

 

$

579,616

 

 

$

 

Cash paid for interest

 

$

44,058

 

 

$

 

Distributions payable

 

$

82,179

 

 

$

 

 

 

 

 

 

 

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

 

4


 

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

June 30, 2017

(unaudited)

 

Note 1 – Organization and Business Operations

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

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

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

Note 2 – Summary of Significant Accounting Policies

Basis of Accounting

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

 

5


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements (continued)

June 30, 2017

(unaudited)

 

 

Principles of Consolidation

The Company consolidates all entities that the Company controls through either majority ownership or voting rights. The accompanying consolidated financial statements include the accounts of the Company and the OP. All intercompany accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity (“VIE”) for which the Company is the primary beneficiary. The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company’s assets and liabilities are held by the OP.

Cash and Cash Equivalents

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

Real Estate Securities at Fair Value

The Company’s real estate securities are comprised of CMBS and are accounted for in accordance with ASC Topic 320, Investments — Debt and Equity Securities (“ASC 320”). The Company has chosen to make a fair value option election pursuant to ASC Topic 825, Financial Instruments (“ASC 825”) for its securities and, therefore, its real estate securities are recorded at fair market value on the consolidated balance sheets. The periodic changes in fair market value are recorded in current period earnings on the consolidated statements of operations as a component of net unrealized gain (loss) on investments. These investments generally meet the requirements to be classified as available-for-sale under ASC 320, which requires the securities to be carried at fair value on the balance sheet with changes in fair value recorded to other comprehensive income on the Company’s consolidated statement of changes in stockholders’ equity. Electing the fair value option permits the Company to record changes in fair value of its investments in the consolidated statements of operations which, in management’s view, more appropriately reflects the results of operations for a particular reporting period.

The Company records its transactions in securities on a trade date basis and recognizes realized gains and losses on securities transactions on an identified cost basis.

Interest Income

Interest income on CMBS, which includes accretion of discounts and amortization of premiums on such CMBS, is recognized over the life of the investment using the effective interest method. Management estimates, at the time of purchase, the future expected cash flows and determines the effective interest rate based on these estimated cash flows and the Company’s purchase price. As needed, these estimated cash flows are updated and a revised yield is computed based on the current amortized cost of the investment. In estimating these cash flows, there are a number of assumptions that are subject to uncertainties and contingencies, including the rate and timing of principal payments (prepayments, repurchases, defaults and liquidations), the pass through or coupon rate and interest rate fluctuations. In addition, management must use its judgment to estimate interest payment shortfalls due to delinquencies on the underlying mortgage loans. These uncertainties and contingencies are difficult to predict and are subject to future events that may impact management’s estimates and its interest income.

Fair Value Measurements

The Company estimates fair value using available market information and valuation methodologies it believes to be appropriate for these purposes. The Company defines fair value based on the price that 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. ASC 825

 

6


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements (continued)

June 30, 2017

(unaudited)

 

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 I - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

 

Level II - Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

 

Level III - Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The determination of where an asset or liability falls in the above hierarchy requires judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.

Real estate securities are valued utilizing both observable and unobservable market inputs. These factors include projected future cash flows, ratings, subordination levels, vintage, remaining lives, credit issues, recent trades of similar real estate securities and the spreads used in the prior valuation. The Company obtains current market spread information where available and uses this information in evaluating and validating the market price of all real estate securities. Depending upon the significance of the fair value inputs used in determining these fair values, these real estate securities are classified in either Level II or Level III of the fair value hierarchy. As of June 30, 2017 and December 31, 2016, the Company received third-party quotes on each real estate security used in determining the fair value, all of which have been classified as Level II due to the observable nature of all significant inputs.

Organization and Offering Expenses

On October 25, 2016, the Company commenced an ongoing private offering (the “Offering”) of up to $500,000,000 in Class P Shares of common stock (the “Class P Shares”), pursuant to a private placement memorandum dated October 25, 2016. The purchase price per Class P Share is equal to $25.00 (the “Transaction Price”) plus applicable selling commissions, dealer manager fees and organization and offering expenses, resulting in a total purchase price of $27.38 per Class P Share if maximum selling commissions, dealer manager fees and organization and offering expenses are paid. Inland Securities Corporation (the “Dealer Manager”), an affiliate of the Advisor, is the dealer manager for the Offering.

Organization and offering expenses include all expenses incurred in connection with the Offering. Organization and offering expenses (other than selling commissions and the dealer manager fee) of the Company may be paid by the Advisor, Sub-Advisor, the Dealer Manager, or their respective affiliates on behalf of the Company and subsequently reimbursed by the Company. Offering expenses are deferred and a payable to the Advisor or Sub-Advisor until shares are sold in the Offering, at which point the expense reimbursement is paid from additional paid-in capital. These expenses include but are not limited to: (i) reimbursing the Dealer Manager and participating broker-dealers for bona fide out-of-pocket, itemized and detailed due diligence expenses incurred by these entities, (ii) expenses for printing, engraving and mailing, charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts, and (iii) expenses of qualifying the sale of the shares under federal and state laws, including taxes and fees and accountants’ and attorneys’ fees and expenses.

The Company is obligated to reimburse the Advisor, the Sub-Advisor and their respective affiliates, as applicable, for organization and offering expenses paid by them on behalf of the Company to the extent organization and offering expenses (excluding selling commissions and the dealer manager fee) incurred by the Company in the Offering do not exceed the organization and offering expenses paid by investors in connection with the sale of Class P Shares in the Offering. As a result, these expenses are only a liability of the Company to the extent aggregate organization and offering expenses do not exceed the organization and offering expenses paid by investors in connection with the sale of Class P Shares in the Offering, determined at the end of the Offering.

 

7


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements (continued)

June 30, 2017

(unaudited)

 

Repurchase Agreements – Real Estate Securities

The Company enters into Master Repurchase Agreements (each, an “MRA”) that allow the Company to sell real estate securities while providing a fixed repurchase price for the same real estate securities in the future. The repurchase contracts on each security under an MRA generally mature in 30 to 90 days and terms are adjusted for current market rates as necessary. Repurchase agreements are being accounted for as secured borrowings since the Company maintains effective control of the financed assets. Under the MRAs, the respective lender retains the right to mark the underlying collateral to fair value. A reduction in the value of pledged assets would require the Company to provide additional collateral or fund margin calls. The Company intends to maintain a level of liquidity that will enable the Company to meet margin calls. In addition, the MRAs are generally subject to certain financial covenants. The Company was in compliance with all financial covenant requirements as of June 30, 2017.

Income Taxes

The Company intends to qualify as a REIT under the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ending December 31, 2017. If the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax to the extent it distributes its REIT taxable income, subject to certain adjustments, to its stockholders. Subsequently, if the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal 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.

The Company had no uncertain tax positions as of June 30, 2017 and December 31, 2016. The Company expects no significant increases or decreases in uncertain tax positions due to changes in tax positions within one year of June 30, 2017 or December 31, 2016. The Company had no interest or penalties relating to income taxes recognized in the consolidated statements of operations for the three and six-months ended June 30, 2017 or 2016. As of June 30, 2017, returns for the calendar year 2016 remain subject to examination by U.S. and various state and local tax jurisdictions.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences and are attributable to (1) differences between the financial statement carrying amounts and their respective tax bases, and (2) net operating losses. A valuation allowance is established for uncertainties relating to realization of deferred tax assets. As of December 31, 2016, the Company had a deferred tax asset of $10,832, related to organization and start-up costs, which are capitalized for income tax purposes, and a current net operating loss, and an unrealized loss in value of real estate securities. A valuation allowance in the amount of $10,832 was recorded due to current uncertainty of realization.

As of June 30, 2017, the Company has reversed deferred tax assets and the valuation allowance related to its activities. As a REIT, the Company is not expected to pay federal income tax at the REIT level, but instead a dividends paid deduction will generally offset its taxable income. As a result, while the Company will still be permitted to use net operating losses to offset its REIT taxable income, the Company generally does not expect to pay taxes on its REIT taxable income, and therefore does not expect to be able to realize such deferred tax assets.

Distributions Payable

Distributions payable represent distributions declared as of the balance sheet date which are payable to stockholders.

Per Share Data

The Company calculates basic and diluted earnings per share by dividing net income attributable to the Company for the period by the weighted-average number of shares of common stock outstanding for that period.

 

8


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements (continued)

June 30, 2017

(unaudited)

 

Note 3 – Real Estate Securities

The following is a summary of the Company’s real estate securities as of June 30, 2017:

 

 

 

Interest Rate

 

 

Maturity Date

 

Par Value

 

 

Fair Value

 

CMBS 1

 

 

LIBOR + 4.6500

%

 

November/2018

 

$

5,400,000

 

 

$

5,485,860

 

CMBS 2

 

 

LIBOR + 6.9878

%

 

May/2018

 

$

5,000,000

 

 

 

5,098,000

 

Total

 

 

 

 

 

 

 

$

10,400,000

 

 

$

10,583,860

 

 

The Company classified its CMBS as available-for-sale as of June 30, 2017. These investments are reported at fair value in the consolidated balance sheets with changes in fair value recorded in other income or loss in the consolidated statements of operations. The following table shows the amortized cost, unrealized gains/losses and fair value of the Company’s CMBS investments as of June 30, 2017:

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

CMBS 1

 

$

5,429,529

 

 

$

56,331

 

 

 

 

 

$

5,485,860

 

CMBS 2

 

$

5,088,657

 

 

$

9,343

 

 

 

 

 

 

5,098,000

 

Total

 

$

10,518,186

 

 

$

65,674

 

 

 

 

 

$

10,583,860

 

 

The following is a summary of the Company’s real estate securities as of December 31, 2016:

 

 

 

Number of

Investments

 

 

Interest Rate

 

Maturity Date

 

Par Value

 

 

Fair Value

 

CMBS 1

 

 

1

 

 

LIBOR + 4.6500%

 

November/2018

 

$

5,400,000

 

 

$

5,433,480

 

 

The Company classified its CMBS as available-for-sale as of December 31, 2016. These investments are reported at fair value in the consolidated balance sheets with changes in fair value recorded in other income or loss in the consolidated statements of operations. The following table shows the amortized cost, unrealized gains/losses and fair value of the Company’s CMBS investments as of December 31, 2016:

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

CMBS 1

 

$

5,438,719

 

 

 

 

 

$

(5,239

)

 

$

5,433,480

 

 

As of June 30, 2017, the Company held two CMBS with a total carrying value of $10,583,860 with a total unrealized gain of $65,674. As of December 31, 2016, the Company held one CMBS with a carrying value of $5,433,480 with an unrealized loss of $5,239.  No position had an unrealized loss for a period greater than 12 months. The Company did not have any realized gains or losses during the six-month periods ended June 30, 2017 and 2016.

Note 4 – Repurchase Agreements—Real Estate Securities

As of June 30, 2017, the Company had entered into one MRA and had two outstanding repurchase agreements, as described in the table below.  The Company had not entered into any MRAs and did not have any outstanding repurchase agreements as of December 31, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

Counterparty

 

Amount

Outstanding

 

 

Accrued

Interest

Payable

 

 

Collateral

Pledged

 

 

Interest

Rate

 

 

Days to

Maturity

 

Counterparty 1

 

$

6,370,000

 

 

$

7,680

 

 

$

10,400,000

 

 

 

3.15857

%

 

 

13

 

 

Note 5 – Stockholders Equity

During the six-month period ended June 30, 2017, the Company issued 377,159 shares of Class P common stock at an average of $26.99 per share with total net proceeds of $9,501,863 after selling costs of $678,398. In addition, the Company incurred $579,616 in reimbursable deferred offering costs that are payable to the Advisor and Sub-Advisor from future stock issuance.

 

9


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements (continued)

June 30, 2017

(unaudited)

 

Distributions Declared

The table below sets forth the distributions declared for Class P Shares during the six-month period ended June 30, 2017.

 

 

 

Distributions Declared Per Share

Date Declared

 

Distribution Period

 

Daily Distribution

Amount

 

 

Date of Payment

February 22, 2017

 

March 1, 2017 through March 31, 2017

 

$

0.005260274

 

 

April 3, 2017

February 22, 2017

 

April 1, 2017 through April 30, 2017

 

$

0.005260274

 

 

May 1, 2017

February 22, 2017

 

May 1, 2017 through May 31, 2017

 

$

0.005260274

 

 

June 1, 2017

May 31, 2017

 

June 1, 2017 through June 30, 2017

 

$

0.005260274

 

 

July 5, 2017

May 31, 2017

 

July 1, 2017 through July 31, 2017

 

$

0.005260274

 

 

August 1, 2017

May 31, 2017

 

August 1, 2017 through August 31, 2017

 

$

0.005260274

 

 

On or before September 7, 2017

 

Distributions Paid

The table below sets forth the distributions paid on the Class P common stock during the six-month period ended June 30, 2017.

 

Distribution Period

 

Payment Date

 

Distribution Amount

 

December 2016

 

January 3, 2017

 

$

33,230

 

January 2017

 

February 1, 2017

 

 

40,572

 

February 2017

 

March 1, 2017

 

 

40,661

 

March 2017

 

April 3, 2017

 

 

52,273

 

April 2017

 

May 1, 2017

 

 

59,276

 

May 2017

 

June 1, 2017

 

 

71,450

 

Total

 

 

 

$

297,462

 

 

During the six-month period ended June 30, 2017, the Company declared distributions of $346,411 and paid cash distributions of $297,462. As of June 30, 2017, distributions declared but not yet paid amounted to $82,179. There were no distributions declared or paid during the six-month period ended June 30, 2016, as the Company was not incorporated until September 2016.

Note 6 – Net Loss Per Share

The following table is a summary of the basic and diluted net loss per share computation for the six-month periods ended June 30, 2017 and 2016:

 

 

 

Three-month period ended June 30,

 

 

Six-month period ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net loss

 

$

(176,917

)

 

 

 

 

$

(89,024

)

 

 

 

Weighted average shares outstanding, basic and diluted

 

 

442,029

 

 

 

 

 

 

361,740

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.40

)

 

 

 

 

$

(0.25

)

 

 

 

 

Note 7 – Commitments and Contingencies

Litigation and Regulatory Matters

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

Note 8 – Transactions with Related Parties

As of June 30, 2017, the Advisor had invested $1.0 million in the Company through the purchase of 40,040 shares of Class P common stock. The purchase price per Class P Share for the Advisor’s investment was the Transaction Price, with no payment of selling

 

10


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements (continued)

June 30, 2017

(unaudited)

 

commissions, dealer manager fees or organization and offering expenses. The Advisor has agreed pursuant to its subscription agreement that, for so long as it or its affiliate is serving as the Advisor, (i) it will not sell or transfer at least 8,000 of the Class P Shares that it has purchased, accounting for $200,000 of its investment, to an unaffiliated third party; (ii) it will not be eligible to submit a request for these 40,040 Class P Shares pursuant to the Company’s share repurchase program prior to the fifth anniversary of the date on which such shares were purchased; and (iii) repurchase requests made for these shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.

As of June 30, 2017, Sound Point Capital Management, LP (“Sound Point”), an affiliate of the Sub-Advisor, had invested $3.0 million in the Company through the purchase of 120,000 shares of Class P common stock. The purchase price per Class P Share for this investment was the Transaction Price, with no payment of selling commissions, dealer manager fees or organization and offering expenses. Sound Point has agreed pursuant to its subscription agreement that, for so long as the Sub-Advisor or its affiliate is serving as the Sub-Advisor, (i) it will not be eligible to submit a request for the repurchase of these 120,000 shares pursuant to the Company’s share repurchase program prior to the fifth anniversary of the date on which such shares were purchased; and (ii) repurchase requests made for these shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.

The following table summarizes the Company’s related party transactions for the six-month periods ended June 30, 2017 and 2016:

 

 

 

Six-month period ended

June 30,

 

 

Payable as of June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Organization and offering expense reimbursement(1)

 

$

645,784

 

 

$

 

 

$

1,547,064

 

 

$

 

Selling commissions and dealer manager fee(2)

 

 

612,229

 

 

 

 

 

 

 

 

 

 

Advisory fee(3)

 

 

 

 

 

 

 

 

 

 

 

 

Operating expense reimbursement(4)

 

 

213,053

 

 

 

 

 

 

518

 

 

 

 

Total

 

$

1,471,066

 

 

$

 

 

$

1,547,582

 

 

$

 

 

(1)

The Company reimburses the Advisor, the Sub-Advisor and their respective affiliates for costs and other expenses related to the Offering, provided that aggregate reimbursements of such costs and expenses shall not exceed the organization and offering expenses paid by investors in connection with the sale of Class P Shares in the Offering. Offering costs are offset against stockholders’ equity when paid. Unpaid amounts are recorded as deferred offering costs and included in due to related parties in these consolidated balance sheets.

(2)

The Dealer Manager, an affiliate of the Advisor, receives selling commissions up to 5%, and a dealer manager fee up to 3% of the Transaction Price for each Class P Share sold in the Offering, the majority of which is paid to third-party broker-dealers.

(3)

The Company pays the Advisor an advisory fee comprised of (1) a fixed component and (2) a performance component. The fixed component of the advisory fee is paid quarterly in arrears in an amount equal to 1/4th of 1.5% of the average aggregate value of the Company’s assets over such quarter, where the value of each asset shall be the value determined in accordance with the Company’s valuation policies or, if such value has not yet been determined, the book value of the asset. If, in any given calendar quarter ending on or prior to December 31, 2017, the modified funds from operations (“MFFO”), which is a non-GAAP supplemental financial performance measure, is less than the aggregate distributions payable to stockholders for such quarter, then a portion of the fixed component of the advisory fee otherwise payable with respect to that quarter shall be deferred in an amount equal to the distributions payable for that quarter minus the MFFO for that quarter, provided that such deferred amount shall not exceed 25% of the fixed component of the advisory fee otherwise payable with respect to that quarter. Deferred portions of the fixed component of the advisory fee will be paid to the Advisor to the extent that MFFO exceeds distributions paid or payable to stockholders for a future calendar quarter, but only to the extent of such excess. The performance component of the advisory fee is calculated and paid annually with respect to the Class P Shares, such that for any year in which the Company’s total return per Class P Share exceeds 7% per annum, the Advisor will receive 20% of the excess total return allocable to the Class P Shares; provided that in no event will the performance component of the advisory fee exceed 15% of the aggregate total return allocable to Class P Shares for such year. The Advisor has waived the advisory fee for the six-month period ended June 30, 2017.

 

11


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements (continued)

June 30, 2017

(unaudited)

 

(4)

The Company reimburses the Advisor or its affiliates for out-of-pocket expenses that it incurs in connection with providing services to the Company, provided that the Company does not reimburse overhead costs, including rent and utilities or personnel costs (including salaries, bonuses, benefits and severance payments).

Note 9 – Fair Value of Financial Instruments

The following table presents the Company’s financial instruments carried at fair value in the consolidated balance sheets by its level in the fair value hierarchy (see Note 2 – Summary of Significant Accounting Policies) as of June 30, 2017:

 

 

 

Total

 

 

Level I

 

 

Level II

 

 

Level III

 

Real estate securities

 

$

10,583,860

 

 

 

 

 

$

10,583,860

 

 

 

 

 

Note 10 – Subsequent Events

The Company has evaluated subsequent events through August 10, 2017, the date the financial statements were issued, and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements except for the following transactions:

Sale of Common Stock

As of August 9, 2017, the Company had 892,674 shares of common stock outstanding and had raised proceeds from the Offering since June 30, 2017 and since inception as follows:

 

Source of Capital

 

July 1, 2017 through

August 9, 2017

 

 

Total

 

Class P Shares

 

$

7,455,535

 

 

$

23,578,295

 

Distributions Declared

The table below sets forth the distributions declared for Class P Shares.

 

 

 

Distributions Declared Per Share

Date Declared

 

Distribution Period

 

Daily Distribution

Amount

 

 

Date of Payment

August 9, 2017

 

September 1, 2017 through September 30, 2017

 

$

0.005260274

 

 

On or before October 7, 2017

August 9, 2017

 

October 1, 2017 through October 31, 2017

 

$

0.005260274

 

 

On or before November 7, 2017

August 9, 2017

 

November 1, 2017 through November 30, 2017

 

$

0.005260274

 

 

On or before December 7, 2017

 

 

 

 

12


 

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

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

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of the management of InPoint Commercial Real Estate Income, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors described below:

 

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

 

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

 

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

 

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

 

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

 

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

 

If we fail to qualify as a real estate investment trust (“REIT”), our operations and distributions to stockholders will be adversely affected.

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

The following discussion and analysis relates to the three and six-months ended June 30, 2017 and 2016 and as of June 30, 2017 and December 31, 2016. You should read the following discussion and analysis along with our consolidated financial statements and the related notes included in this report. 

Overview

We are a Maryland corporation formed on September 13, 2016 to originate, acquire and manage a diversified portfolio of commercial real estate (“CRE”) investments primarily comprised of (i) CRE debt, including first mortgage loans, subordinate mortgage and mezzanine loans, and participations in such loans and (ii) CRE securities, such as commercial mortgage-backed securities (“CMBS”), senior unsecured debt of publicly traded REITs, and collateralized debt obligation notes. We may also invest in select equity investments in single-tenant, net leased properties. Substantially all of our business is conducted through our operating partnership, of which we are the sole general partner.  We are externally managed by Inland InPoint Advisor, LLC, an indirect subsidiary of Inland Real Estate Investment Corporation. Our Advisor has engaged SPCRE InPoint Advisors, LLC, a subsidiary of Sound Point CRE Management, LP, to perform certain services on behalf of the Advisor for us.

 

13


 

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

On October 25, 2016, we commenced a private offering (the “Offering”) of up to $500,000,000 in our Class P Shares, pursuant to a private placement memorandum dated October 25, 2016. The purchase price per Class P Share currently equals $25.00 (the “Transaction Price”) plus applicable selling commissions, dealer manager fees and organization and offering expenses, resulting in a total purchase price of $27.38 per Class P Share if maximum selling commissions, dealer manager fees and organization and offering expenses are paid. Inland Securities Corporation (our “Dealer Manager”), an affiliate of our Advisor, is our dealer manager for the Offering. As of August 9, 2017, we had received and accepted investors’ subscriptions for and issued 892,674 Class P Shares in the Offering, resulting in gross proceeds of $23,578,295. As of August 9, 2017, $476,421,705 of Class P Shares remained to be sold in the Offering.

Significant Accounting Policies and Use of Estimates

A summary of our significant accounting policies is set forth in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Portfolio

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

As of June 30, 2017 and December 31, 2016, our portfolio consisted of two and one investments in CMBS, respectively. Our CMBS investments had a fair value of $10,583,860 and $5,433,480 as of June 30, 2017 and December 31, 2016, respectively. The increase in the size of our portfolio is due to investing capital received from the Offering and increased leverage arising from a Master Repurchase Agreement (the “MRA”).

As of June 30, 2017 and December 31, 2016, our CMBS investments had a weighted average coupon of 6.9% and 5.4% and a remaining life of 1.2 and 1.9 years, respectively.  As of June 30, 2017 and December 31, 2016, assets comprising 52% and 100% respectively of our portfolio based on fair value had a rating by a national rating agency of Ba3.  Our credit process evaluates the underlying quality of the loans securing the CMBS at the time of purchase and we continually review the credit performance while we own the CMBS. Ratings by national rating agencies are subject to change and may not be continuously updated, and therefore we do not place reliance on these ratings.

Results of Operations

Comparison of the Three Months Ended June 30, 2017 to the Three Months Ended June 30, 2016

We began operations in October 2016 and had no operations for the three month period ended June 30, 2016.

 

14


 

Net Interest Income

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

 

 

 

Three-Month Period Ended June 30,

 

 

 

2017

 

 

2016

 

 

 

Average

Carrying

Value (1)

 

 

Interest

Income/

Expense (2)

 

 

Weighted Average

Yield/Financing

Cost (3)

 

 

Average

Carrying

Value (1)

 

 

Interest

Income/

Expense (2)

 

 

Weighted Average

Yield/Financing

Cost (3)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate securities

 

$

10,538,347

 

 

 

148,305

 

 

 

5.6

%

 

$

 

 

$

 

 

 

%

Total

 

$

10,538,347

 

 

 

148,305

 

 

 

5.6

%

 

$

 

 

$

 

 

 

%

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements—securities

 

$

5,579,033

 

 

 

41,323

 

 

 

2.9

%

 

 

 

 

 

 

 

 

 

Total

 

$

5,579,033

 

 

 

41,323

 

 

 

2.9

%

 

 

 

 

 

 

 

 

 

Net interest income/spread

 

 

 

 

 

$

106,982

 

 

 

2.6

%

 

 

 

 

 

$

 

 

 

%

Average leverage %(4)

 

 

112.5

%

 

 

 

 

 

 

 

 

 

 

%

 

 

 

 

 

 

 

 

Weighted average levered yield(5)

 

 

 

 

 

 

 

 

 

 

8.5

%

 

 

 

 

 

 

 

 

 

 

%

 

(1)

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

(2)

Includes the effect of amortization of premium or accretion of discount.

(3)

Calculated as interest income or expense divided by average carrying value.

(4)

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

(5)

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

For the three-month period ended June 30, 2017, we had two investments in CMBS with an average carrying value of $10.5 million and a weighted average interest rate of 5.6%.  We financed the CMBS with repurchase agreements with an average balance of $5.6 million and an average financing cost of 2.9%.  Our net interest income was $106,982 and had a weighted average levered yield of 8.5%.

Operating expenses

Operating expenses for the three months ended June 30, 2017 and 2016 consisted of the following:

 

 

 

Three-Months Ended June 30,

 

 

 

2017

 

 

2016

 

Administration expense

 

$

28,750

 

 

$

 

Directors compensation

 

 

19,850

 

 

 

 

Professional service fees

 

 

209,522

 

 

 

 

Other expenses

 

 

7,257

 

 

 

 

Total operating expenses

 

$

265,379

 

 

$

 

 

Total operating expenses for the three months ended June 30, 2017 and 2016 were $265,379 and $0, respectively.

Other Income

For the three month periods ended June 30, 2017 and 2016, our real estate securities decreased in value by $18,520 and $0 respectively. The changes in valuation were unrealized and were the result of the changes in market conditions that affected the price of our securities.

 

15


 

Net Loss

For the three months ended June 30, 2017 and 2016, our net loss was $176,917 and $0, or $0.40 and $0 per share (basic and diluted), respectively.

Comparison of the Six-Months Ended June 30, 2017 to the Six-Months Ended June 30, 2016

We began operations in October 2016 and had no operations for the six-month period ended June 30, 2016.

Net Interest Income

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

 

 

 

Six-Month Period Ended June 30,

 

 

 

2017

 

 

2016

 

 

 

Average

Carrying

Value (1)

 

 

Interest

Income/

Expense (2)

 

 

Weighted Average

Yield/Financing

Cost (3)

 

 

Average

Carrying

Value (1)

 

 

Interest

Income/

Expense (2)

 

 

Weighted Average

Yield/Financing

Cost (3)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate securities

 

$

9,230,172

 

 

 

250,044

 

 

 

5.4

%

 

$

 

 

$

 

 

 

%

Total

 

$

9,230,172

 

 

 

250,044

 

 

 

5.4

%

 

$

 

 

$

 

 

 

%

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements—securities

 

$

3,674,387

 

 

 

51,738

 

 

 

2.8

%

 

 

 

 

 

 

 

 

 

Total

 

$

3,674,387

 

 

 

51,738

 

 

 

2.8

%

 

 

 

 

 

 

 

 

 

Net interest income/spread

 

 

 

 

 

$

198,306

 

 

 

2.6

%

 

 

 

 

 

$

 

 

 

%

Average leverage %(4)

 

 

66.1

%