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EX-32.2 - EX-32.2 - InPoint Commercial Real Estate Income, Inc.ck0001690012-ex322_6.htm
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EX-31.2 - EX-31.2 - InPoint Commercial Real Estate Income, Inc.ck0001690012-ex312_7.htm
EX-31.1 - EX-31.1 - InPoint Commercial Real Estate Income, Inc.ck0001690012-ex311_8.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 March 31, 2021

 

OR

 

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

 

For the transition period from            to           

 

Commission file number 000-55782

 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

(Exact name of registrant as specified in its charter)

 

 

Maryland

32-0506267

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

2901 Butterfield Road

Oak Brook, Illinois

60523

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (800) 826-8228  

 

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

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

None

 

 

 

 

 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

 

Smaller Reporting Company

 

 

 

 

Emerging Growth Company

 

 

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

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

As of May 13, 2021, the Registrant had the following shares outstanding: 10,142,801 shares of Class P common stock, 399,818 shares of Class T common stock, 384,783 shares of Class I common stock, 659,118 shares of Class A common stock, 50,884 shares of Class D common stock and no shares of Class S common stock.

 

 

 

 


 

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

2

 

 

 

 

Unaudited Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020

3

 

 

 

 

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2021 and 2020

4

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

5

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

6

 

 

 

Item 2.

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

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

Item 1A.

Risk Factors

35

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

 

Item 3.

Defaults Upon Senior Securities

37

 

 

 

Item 4.

Mine Safety Disclosures

37

 

 

 

Item 5.

Other Information

37

 

 

 

Item 6.

Exhibits

38

 

 

Signatures

39

 

1


 

 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except share data)

 

 

 

March 31, 2021

(unaudited)

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

52,644

 

 

$

72,107

 

Commercial mortgage loans at cost

 

 

475,414

 

 

 

441,814

 

Real estate owned, net of depreciation

 

 

32,236

 

 

 

32,474

 

Finance lease right of use asset, net of amortization

 

 

5,507

 

 

 

5,525

 

Deferred debt finance costs

 

 

1,183

 

 

 

1,001

 

Accrued interest receivable

 

 

1,241

 

 

 

1,168

 

Prepaid expenses and other assets

 

 

1,014

 

 

 

902

 

Total assets

 

$

569,239

 

 

$

554,991

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Repurchase agreements—commercial mortgage loans

 

 

305,943

 

 

 

290,699

 

Finance lease liability

 

 

16,865

 

 

 

16,790

 

Loan fees payable

 

 

361

 

 

 

401

 

Due to related parties

 

 

2,294

 

 

 

2,093

 

Accrued interest payable

 

 

296

 

 

 

292

 

Distributions payable

 

 

1,012

 

 

 

867

 

Accrued expenses

 

 

4,009

 

 

 

3,593

 

Total liabilities

 

 

330,780

 

 

 

314,735

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Class P common stock, $0.001 par value, 500,000,000 shares authorized,

   10,145,579 and 10,151,787 shares issued and outstanding at March 31,

   2021 and December 31, 2020, respectively

 

 

10

 

 

 

10

 

Class A common stock, $0.001 par value, 500,000,000 shares authorized, 658,266

   and 655,835 shares issued and outstanding as of March 31, 2021 and December 31,

   2020, respectively

 

 

1

 

 

 

1

 

Class T common stock, $0.001 par value, 500,000,000 shares authorized, 399,381

   and 398,233 shares issued and outstanding as of March 31, 2021 and December 31,

   2020, respectively

 

 

 

 

 

Class S common stock, $0.001 par value, 500,000,000 shares authorized, 0 shares

   issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

 

 

 

 

 

Class D common stock, $0.001 par value, 500,000,000 shares authorized, 50,751 and

   50,393 shares issued and outstanding as of March 31, 2021 and December 31, 2020,

   respectively

 

 

 

 

 

Class I common stock, $0.001 par value, 500,000,000 shares authorized, 384,038 and

   381,955 shares issued and outstanding as of March 31, 2021 and December 31, 2020,

   respectively

 

 

 

 

 

Additional paid in capital (net of offering costs of $25,240 and $24,964 at March 31,

   2021 and December 31, 2020, respectively)

 

 

287,228

 

 

 

287,498

 

Accumulated deficit

 

 

(48,780

)

 

 

(47,253

)

Total stockholders’ equity

 

 

238,459

 

 

 

240,256

 

Total liabilities and stockholders’ equity

 

$

569,239

 

 

$

554,991

 

 

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

2


 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

 

Three months ended March 31,

 

 

 

2021

 

 

2020

 

Income:

 

 

 

 

 

 

 

 

Interest income

 

$

6,451

 

 

$

10,356

 

Less: Interest expense

 

 

(1,894

)

 

 

(3,962

)

Net interest income

 

 

4,557

 

 

 

6,394

 

Revenue from real estate owned

 

 

868

 

 

 

 

Total income

 

 

5,425

 

 

 

6,394

 

Operating expenses:

 

 

 

 

 

 

 

 

Advisory fee

 

 

737

 

 

 

844

 

Debt finance costs

 

 

431

 

 

 

254

 

Directors compensation

 

 

21

 

 

 

24

 

Professional service fees

 

 

224

 

 

 

218

 

Real estate owned operating expenses

 

 

2,155

 

 

 

 

Depreciation and amortization

 

 

272

 

 

 

 

Other expenses

 

 

220

 

 

 

225

 

Total operating expenses

 

 

4,060

 

 

 

1,565

 

Other income (loss):

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

 

 

 

(4,500

)

Unrealized loss in value of real estate securities

 

 

 

 

 

(38,187

)

Total other income (loss)

 

 

 

 

 

(42,687

)

Net income (loss)

 

$

1,365

 

 

$

(37,858

)

Net income (loss) per share basic and diluted

 

$

0.12

 

 

$

(3.34

)

Weighted average number of shares

 

 

 

 

 

 

 

 

Basic

 

 

11,640,959

 

 

 

11,349,448

 

Diluted

 

 

11,640,969

 

 

 

11,349,581

 

 

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

3


 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited, dollar amounts in thousands)

 

For the three months ended March 31, 2021

Par Value

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class P

 

 

Class A

 

 

Class T

 

 

Class S

 

 

Class D

 

 

Class I

 

 

Additional

Paid in

Capital

 

 

Accumulated Deficit

 

 

Total

Stockholders’

Equity

 

Balance as of December 31, 2020

$

10

 

 

$

1

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

287,498

 

 

$

(47,253

)

 

$

240,256

 

Proceeds from issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(276

)

 

 

 

 

 

(276

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,365

 

 

 

1,365

 

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,892

)

 

 

(2,892

)

Distribution reinvestment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

 

 

 

120

 

Redemptions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(125

)

 

 

 

 

 

(125

)

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Balance as of March 31, 2021

$

10

 

 

$

1

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

287,228

 

 

$

(48,780

)

 

$

238,459

 

 

 

 

For the three months ended March 31, 2020

Par Value

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class P

 

 

Class A

 

 

Class T

 

 

Class S

 

 

Class D

 

 

Class I

 

 

Additional

Paid in

Capital

 

 

Accumulated Deficit

 

 

Total

Stockholders’

Equity

 

Balance as of December 31, 2019

$

10

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

265,963

 

 

$

(9,807

)

 

$

256,166

 

Proceeds from issuance of common stock

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,260

 

 

 

 

 

 

24,261

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,565

)

 

 

 

 

 

(1,565

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,858

)

 

 

(37,858

)

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,525

)

 

 

(3,525

)

Distribution reinvestment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

127

 

 

 

 

 

 

127

 

Redemptions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(763

)

 

 

 

 

 

(763

)

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Balance as of March 31, 2020

$

10

 

 

$

1

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

288,030

 

 

$

(51,190

)

 

$

236,851

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4


 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, dollar amounts in thousands)

 

 

For the three months ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,365

 

 

$

(37,858

)

Adjustments to reconcile net income (loss) to cash provided by operations:

 

 

 

 

 

 

 

 

Net unrealized loss on real estate securities

 

 

 

 

 

38,187

 

Provision for loan losses

 

 

 

 

 

4,500

 

Depreciation and amortization expense

 

 

272

 

 

 

 

Reduction in the carrying amount of the right-of-use asset

 

 

18

 

 

 

 

Amortization of equity-based compensation

 

 

10

 

 

 

8

 

Amortization of debt finance costs to operating expense

 

 

431

 

 

 

254

 

Amortization of debt finance costs to interest expense

 

 

13

 

 

 

19

 

Amortization of bond discount

 

 

 

 

 

(221

)

Amortization of origination fees

 

 

(203

)

 

 

(360

)

Amortization of loan extension fees

 

 

(97

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(73

)

 

 

(58

)

Accrued expenses

 

 

416

 

 

 

(381

)

Loan fees payable

 

 

(40

)

 

 

430

 

Accrued interest payable

 

 

79

 

 

 

(138

)

Due to related parties

 

 

76

 

 

 

553

 

Prepaid expenses and other assets

 

 

(112

)

 

 

47

 

Net cash provided by operating activities

 

 

2,155

 

 

 

4,982

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Origination of commercial loans

 

 

(33,286

)

 

 

(50,543

)

Loan extension fees received on commercial loans

 

 

51

 

 

 

 

Principal repayments of commercial loans

 

 

77

 

 

 

 

Acquisition of real estate owned and capital expenditures

 

 

(34

)

 

 

 

Real estate securities principal paydown

 

 

 

 

 

2,054

 

Net cash used in investing activities

 

 

(33,192

)

 

 

(48,489

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

1

 

 

 

24,261

 

Redemptions of common stock

 

 

(125

)

 

 

(763

)

Payment of offering costs

 

 

(294

)

 

 

(1,132

)

Proceeds from repurchase agreements

 

 

15,244

 

 

 

402,767

 

Principal repayments of repurchase agreements

 

 

 

 

 

(367,307

)

Debt finance costs

 

 

(626

)

 

 

(185

)

Distributions paid

 

 

(2,626

)

 

 

(5,098

)

Net cash provided by financing activities

 

 

11,574

 

 

 

52,543

 

Net change in cash, cash equivalents and restricted cash

 

 

(19,463

)

 

 

9,036

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

72,107

 

 

 

37,639

 

Cash, cash equivalents and restricted cash at end of period

 

$

52,644

 

 

$

46,675

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Amortization of deferred exit fees due to related party

 

$

142

 

 

$

231

 

Interest paid

 

$

1,890

 

 

$

4,100

 

Receivable for real estate securities paydown

 

$

 

 

$

(34

)

Accrued stockholder servicing fee due to related party

 

$

(18

)

 

$

433

 

Distribution reinvestment

 

$

120

 

 

$

127

 

 

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

 

5


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

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

 

 

Note 1 – Organization and Business Operations

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

The Company is externally managed by Inland InPoint Advisor, LLC (the “Advisor”), a Delaware limited liability company formed in August 2016 that is a wholly owned indirect subsidiary of Inland Real Estate Investment Corporation, a member of The Inland Real Estate Group of Companies, Inc. The Advisor is responsible for coordinating the management of the day-to-day operations and originating, acquiring and managing the Company’s CRE investment portfolio, subject to the supervision of the Company’s board of directors (the “Board”). The Advisor performs its duties and responsibilities as the Company’s fiduciary pursuant to an advisory agreement dated April 29, 2019 among the Company, the Operating Partnership 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 an amended and restated sub-advisory agreement between the Advisor and the Sub-Advisor dated April 29, 2019. Among other duties, the Sub-Advisor has the authority to identify, negotiate, acquire and originate the Company’s investments and provide portfolio management, disposition, property management and leasing services to the Company. Notwithstanding such delegation to the Sub-Advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the Advisory Agreement, including those duties which the Advisor has not delegated to the Sub-Advisor such as (i) valuation of the Company’s assets and calculation of the Company’s net asset value (“NAV”); (ii) management of the Company’s day-to-day operations; (iii) preparation of stockholder reports and communications and arrangement of the Company’s annual stockholder meeting; and (iv) advising the Company regarding its initial qualification as a REIT for U.S. federal income tax purposes and monitoring its ongoing compliance with the REIT qualification requirements thereafter.

On October 25, 2016, the Company commenced a private offering (the “Private Offering”) of up to $500,000 in shares of Class P common stock (“Class P shares”). Inland Securities Corporation, an affiliate of the Advisor (the “Dealer Manager”), was the dealer manager for the Private Offering. The Company issued 10,258,094 Class P shares in the Private Offering, resulting in gross proceeds of $276,681 and terminated the Private Offering on June 28, 2019, in anticipation of selling shares in a registered public offering.

On May 3, 2019, the Company commenced its public offering of up to $2,350,000 of shares of its common stock (the “IPO”) registered with the Securities and Exchange Commission (the “SEC”) on Form S-11 (File No. 333-230465, the “Registration Statement”). The purchase price per share for each class of common stock in the IPO (Class A, Class I, Class D, Class S and Class T) varies and generally equals the prior month’s NAV per share, as determined monthly, plus applicable upfront selling commissions and dealer manager fees. The Dealer Manager serves as the Company’s exclusive dealer manager for the IPO on a best efforts basis.

On March 24, 2020, the Board suspended (i) the sale of shares in the IPO, (ii) the operation of the share repurchase program (the “SRP”), (iii) the payment of distributions to the Company’s stockholders, and (iv) the operation of the distribution reinvestment plan (the “DRP”), effective as of April 6, 2020. In determining to take these actions, the Board considered various factors, including the impact of the global COVID-19 pandemic on the economy, the inability to accurately calculate the Company’s NAV per share due to uncertainty, volatility and lack of liquidity in the market, the Company’s need for liquidity due to financing challenges related to additional collateral required by the banks that regularly finance the Company’s assets and these uncertain and rapidly changing economic conditions.

Though the Company did not calculate the NAV for the months of March through May 2020, the Advisor resumed calculating the NAV beginning as of June 30, 2020 following its determination that there has been reduced volatility in the market for the Company’s investments and some improvement in the U.S. economic outlook. In August 2020, the Company resumed paying distributions monthly to stockholders of record for all classes of its common stock. On October 1, 2020, the SEC declared effective the Company’s post-effective amendment to the Registration Statement, thereby permitting the Company to resume offers and sales of shares of

6


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

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

 

common stock in the IPO, including through the DRP. On March 1, 2021, the SRP was reinstated for the Company’s stockholders requesting repurchase of shares as a result of the death or qualified disability of the holder.

The Board has also approved the reinstatement of the SRP for all stockholders, effective July 1, 2021. Repurchase requests must be submitted on or after July 1, 2021. The first settlement of permitted repurchase requests will be on July 30, 2021, the last business day of the month. In accordance with the terms of the SRP that allow the Company to repurchase fewer shares than the maximum amount permitted under the SRP, for the months of July, August and September 2021, the total amount of aggregate repurchases of shares will be limited to no more than 1% of the Company’s aggregate NAV per month as of the last day of the previous calendar month and no more than 2.5% of the Company’s aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter. Beginning on October 1, 2021, the total amount of aggregate repurchases of shares will be limited as set forth in the SRP (no more than 2% of the Company’s aggregate NAV per month as of the last day of the previous calendar month and no more than 5% of the Company’s aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter). Notwithstanding the foregoing, the Company may repurchase fewer shares than these limits in any month, or none. Further, the Board may modify, suspend or terminate the SRP if it deems such action to be in the Company’s best interest and the best interest of its stockholders.

Please refer to “Note 15 – Subsequent Events” for updates to the Company’s business after March 31, 2021.

Note 2 – Summary of Significant Accounting Policies

Disclosures discussing all significant accounting policies are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”), as filed with the SEC on March 19, 2021, under the heading “Note 2 – Summary of Significant Accounting Policies.” There have been no changes to the Company’s significant accounting policies for the three months ended March 31, 2021.

Basis of Accounting

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

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

 

Cash, Cash Equivalents and Restricted Cash

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

Restricted cash represents cash the Company is required to hold in a segregated account as additional collateral on real estate securities repurchase agreements. As of March 31, 2021 and December 31, 2020, the Company had repaid all outstanding repurchase agreements secured by real estate securities and, therefore, no restricted cash was held.

Accounting Pronouncements Recently Issued but Not Yet Effective

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes how entities measure credit losses for financial assets carried at amortized cost. ASU 2016-13 eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. ASU 2016-13 is effective for SEC filers for reporting periods beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”,

7


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

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

 

which grants smaller reporting companies (as defined by the SEC) until reporting periods commencing after December 15, 2022 to implement ASU 2016-13. As a smaller reporting company, the Company will continue to evaluate the future impact ASU 2016-13, once implemented, will have on its allowance for loan losses estimate.

Note 3 – Commercial Mortgage Loans Held for Investment

The tables below show the Company’s commercial mortgage loans held for investment as of March 31, 2021 and December 31, 2020:

March 31, 2021

 

Loan Type (1)

 

Number

of Loans

 

 

Principal

Balance

 

 

Unamortized (fees)/costs, net

 

 

Carrying

Value

 

 

Weighted Average

Interest Rate

 

 

Weighted Average

Years to Maturity

 

First mortgage loans

 

 

28

 

 

$

458,404

 

 

$

510

 

 

$

458,914

 

 

 

5.3

%

 

 

1.4

 

Credit loans

 

 

3

 

 

 

16,500

 

 

 

 

 

 

16,500

 

 

 

9.5

%

 

 

4.6

 

Total and average

 

 

31

 

 

$

474,904

 

 

$

510

 

 

$

475,414

 

 

 

5.4

%

 

 

1.5

 

 

December 31, 2020

 

Loan Type (1)

 

Number

of Loans

 

 

Principal

Balance

 

 

Unamortized (fees)/costs, net

 

 

Carrying

Value

 

 

Weighted Average

Interest Rate

 

 

Weighted Average

Years to Maturity

 

First mortgage loans

 

 

26

 

 

$

425,196

 

 

$

118

 

 

$

425,314

 

 

 

5.3

%

 

 

1.5

 

Credit loans

 

 

3

 

 

 

16,500

 

 

 

 

 

 

16,500

 

 

 

9.5

%

 

 

4.9

 

Total and average

 

 

29

 

 

$

441,696

 

 

$

118

 

 

$

441,814

 

 

 

5.5

%

 

 

1.6

 

 

 

 

(1)

First mortgage loans are first position mortgage loans and credit loans are mezzanine and subordinated loans.

For the three months ended March 31, 2021 and the year ended December 31, 2020, the activity in the Company’s commercial mortgage loans, held-for-investment portfolio was as follows:

 

 

Three Months Ended March 31, 2021

 

 

Year Ended December 31, 2020

 

Balance at Beginning of Year

 

$

441,814

 

 

$

504,702

 

Loan originations

 

 

33,286

 

 

 

69,135

 

Principal repayments

 

 

(77

)

 

 

(99,727

)

Amortization of loan origination, loan extension and deferred exit fees

 

 

442

 

 

 

1,818

 

Sale of commercial loan

 

 

 

 

 

(10,000

)

Origination fees and extension fees received on commercial loans

 

 

(51

)

 

 

 

Provision for loan losses

 

 

 

 

 

(4,726

)

Deferred interest capitalized on commercial loan

 

 

 

 

 

386

 

Transfer on deed-in-lieu of foreclosure to real estate owned

 

 

 

 

 

(19,774

)

Balance at End of Period

 

$

475,414

 

 

$

441,814

 

 

8


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

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

 

 

Allowance for Loan Losses

The following table presents the activity in the Company’s allowance for loan losses:

 

 

 

Three Months Ended March 31, 2021

 

 

Three Months Ended March 31, 2020

 

Beginning of period

 

$

 

 

$

 

Provision for loan losses

 

 

 

 

 

4,500

 

Charge-offs

 

 

 

 

 

 

Ending allowance for loan losses

 

$

 

 

$

4,500

 

 

During the three-month period ended March 31, 2021, the Company determined that no loan losses were probable and, therefore, did not record an allowance for loan losses. In accordance with the Company’s allowance for loan loss policy, during the three-month period ended March 31, 2020, the Company recorded impairment charges of $3,000 on one first mortgage loan secured by a hotel property in Illinois and $1,500 on a credit loan secured by a hotel property located in Florida. The impairment charges were based on the estimated fair value of the underlying collateral. As of March 31, 2020, the recorded investments in these loans were $21,500 ($24,500, net of a $3,000 allowance for loan loss) and $1,500 ($3,000, net of a $1,500 allowance for loan loss), respectively. For the three months ended March 31, 2020, interest income for the impaired loans was $546. The two impaired loans were current on monthly payments, however, the economic impact of the COVID-19 pandemic on the hospitality industry was the key factor in the determination that the loans were impaired. For further information on the Company’s allowance for loan losses policy, see “Note 2 – Summary of Significant Accounting Policies” in its Annual Report.

Credit Characteristics

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

 

Investment

Grade

Investment Grade Definition

1

Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable.

2

Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.

3

Performing investment requiring closer monitoring. Trends and risk factors show some deterioration. Collection of principal and interest is still expected.

4

Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative.

5

Underperforming investment with expected loss of interest and some principal.

 

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

As of March 31, 2021, 22 loans had a risk rating of 2, six had a risk rating of 3 and three had a risk rating of 4. As of December 31, 2020, 19 loans had a risk rating of 2, seven had a risk rating of 3 and three had a risk rating of 4. There were no loans with a risk rating of 1 or 5 as of March 31, 2021 or December 31, 2020.

Note 4 – Real Estate Securities

The Company classified its real estate securities as available-for-sale as of March 31, 2020. These investments were 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 Company did not hold any real estate securities at March 31, 2021 or December 31, 2020.

9


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

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

 

During the three months ended March 31, 2020, the Company held real estate securities that generated unrealized losses in value of $38,187, primarily attributed to the significant economic impact of the COVID-19 pandemic on the economy.

Note 5 – Repurchase Agreements and Credit Facilities

Commercial Mortgage Loans

On February 15, 2018, the Company, through a wholly owned subsidiary, entered into a master repurchase agreement (the “CF Repo Facility”) with Column Financial, Inc. as administrative agent for certain of its affiliates. The CF Repo Facility had an initial advance amount of $100,000 subject to a maximum advance amount of $250,000. The Company increased the advance amount in August 2018 to $175,000, and in January 2019 to $250,000. In March 2020, the Company temporarily increased the maximum advance amount to $300,000, and this increase expired on June 30, 2020 and the maximum advance amount reverted to $250,000. The initial term of the CF Repo Facility was 12 months and the Company extended the maturity date in March 2020 to February 2021. During December 2020, the maturity date was further extended to December 2021. Advances under the CF Repo Facility for loans made before December 18, 2020 accrue interest at a per annum rate equal to the London Interbank Offered Rate (“LIBOR”) plus 2.25% with a 0.75% floor. Loans made on or after December 18, 2020 accrue interest at a per annum annual rate equal to LIBOR plus 2.25% to 2.75% with a 0.25% to 0.75% floor. The CF Repo Facility is subject to certain financial covenants. The Company was in compliance with all financial covenant requirements as of March 31, 2021 and December 31, 2020.

On May 6, 2019, the Company, through a wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association. The JPM Repo Facility provides up to $150,000 in advances that the Company expects to use to finance the acquisition or origination of eligible loans and participation interests therein. Advances under the JPM Repo Facility accrue interest at per annum rates equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of between 1.75% to 2.50%, depending on the attributes of the purchased assets. The initial maturity date of the JPM Repo Facility is May 6, 2021, with two successive one-year extensions at the Company’s option, which may be exercised upon the satisfaction of certain conditions. The JPM Repo Facility is subject to certain financial covenants. The Company was in compliance with all financial covenant requirements as of March 31, 2021 and December 31, 2020.

On March 10, 2021, the Company, through a wholly owned subsidiary, entered into a loan and security agreement and a promissory note (collectively the “WA Facility”) with Western Alliance Bank, an Arizona corporation (“Western Alliance”). The WA Facility provides for loan advances up to the lesser of $75,000 or the borrowing base. The borrowing base consists of eligible assets pledged to and accepted by Western Alliance in its discretion up to the lower of (i) 60% to 70% of loan-to-unpaid balance or (ii) 45% to 50% of the loan-to-appraised value (depending on the property type underlying the asset, for both (i) and (ii)). Assets that would otherwise be eligible become ineligible after being pledged as part of the borrowing base for 36 months. Advances under the WA Facility accrue interest at an annual rate equal to one-month LIBOR plus 3.25% with a floor of 4.0%. The initial maturity date of the WA Facility is March 10, 2023. The Company has an option to convert the loan made pursuant to the WA Facility upon its initial maturity to a term loan with the same interest rate and floor and a maturity of two years in exchange for, among other things, a conversion fee of 0.25% of the outstanding amount at the time of conversion. The WA Facility requires maintenance of an average unrestricted aggregate deposit account balance with Western Alliance of not less than $3,750. Failure to meet the minimum deposit balance will result in, among other things, the interest rate of the WA Facility increasing by 0.25% per annum for each quarter in which the compensating balances are not maintained. The Company was in compliance with all financial covenant requirements as of March 31, 2021.

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

10


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

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

 

The tables below show the Facilities as of March 31, 2021 and December 31, 2020:

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

Committed Financing

 

 

Amount

Outstanding(1)

 

 

Accrued

Interest

Payable

 

 

Collateral

Pledged

 

 

Interest

Rate

 

 

Days to

Maturity

 

CF Repo Facility

$

250,000

 

 

$

169,698

 

 

$

188

 

 

$

241,538

 

 

 

3.00

%

 

 

262

 

JPM Repo Facility

 

150,000

 

 

$

136,271

 

 

$

108

 

 

$

197,616

 

 

 

2.03

%

 

 

36

 

WA Facility

 

75,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

709

 

 

$

475,000

 

 

$

305,969

 

 

$

296

 

 

$

439,154

 

 

 

2.57

%

 

 

161

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

Committed Financing

 

 

Amount

Outstanding(1)

 

 

Accrued

Interest

Payable

 

 

Collateral

Pledged

 

 

Interest

Rate

 

 

Days to

Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CF Repo Facility

$

250,000

 

 

$

159,948

 

 

$

187

 

 

$

228,359

 

 

 

3.00

%

 

 

352

 

JPM Repo Facility

 

150,000

 

 

 

130,778

 

 

 

105

 

 

 

190,047