Broad Street Realty, Inc 10-Q for FY2024 Q1
Broad Street Realty, Inc. (BRST)
About this 10-Q
Broad Street Realty, Inc filed this 10-Q on May 15, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $10.07M
- down 9.5% from $11.13M a year earlier
- Net loss
- $1.94M
- compared with a net loss of $1.66M a year earlier
- Diluted EPS
- -$0.16
- compared with -$0.13 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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 |
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Emerging growth company |
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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 8, 2024, the registrant had
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Table of Contents
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Page |
PART I. |
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Item 1. |
3 |
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3 |
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4 |
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6 |
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8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 3. |
37 |
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Item 4. |
37 |
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PART II. |
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Item 1. |
38 |
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Item 1A. |
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Item 2. |
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Item 3. |
38 |
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Item 4. |
38 |
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Item 5. |
38 |
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Item 6. |
39 |
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40 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(Unaudited)
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March 31, 2024 |
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December 31, 2023 |
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(audited) |
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Assets |
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Real estate properties |
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Land |
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$ |
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$ |
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Building and improvements |
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Intangible lease assets |
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Construction in progress |
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Furniture and equipment |
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Less accumulated depreciation and amortization |
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Total real estate properties, net |
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Cash and cash equivalents |
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Restricted cash |
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Straight-line rent receivable |
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Tenant and accounts receivable, net of allowance of $ |
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Derivative assets |
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Other assets, net |
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Total Assets |
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$ |
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$ |
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Liabilities and Equity |
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Liabilities |
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Mortgage and other indebtedness, net (includes $ |
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$ |
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$ |
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Accounts payable and accrued liabilities |
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Unamortized intangible lease liabilities, net |
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Payables due to related parties |
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Deferred revenue |
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Total liabilities |
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Temporary Equity |
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Redeemable noncontrolling Fortress preferred interest |
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Permanent Equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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Accumulated other comprehensive income |
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Total Broad Street Realty, Inc. stockholders' equity |
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Noncontrolling interest |
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Total permanent equity |
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Total Liabilities, Temporary Equity and Permanent Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Revenues |
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Rental income |
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$ |
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$ |
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Commissions |
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Management fees and other income |
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Total revenues |
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Operating Expenses |
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Cost of services |
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Property operating |
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Depreciation and amortization |
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Impairment of real estate assets |
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Bad debt expense |
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General and administrative |
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Total operating expenses |
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Operating loss |
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Other income (expense) |
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Interest and other income |
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Derivative fair value adjustment |
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Net gain on fair value change of debt held under the fair value option |
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Interest expense |
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Loss on extinguishment of debt |
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Other expense |
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Total other expense |
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Net loss before income taxes |
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Income tax (expense) benefit |
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Net loss |
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$ |
( |
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$ |
( |
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Less: Preferred equity return on Fortress preferred equity |
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Less: Preferred equity accretion to redemption value |
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Less: Preferred OP units return |
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Plus: Net loss attributable to noncontrolling interest |
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Net loss attributable to common stockholders |
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$ |
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Net loss attributable to common stockholders per share |
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Basic and diluted |
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$ |
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$ |
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Weighted average shares outstanding |
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Basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Net loss |
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$ |
( |
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$ |
( |
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Other comprehensive income: |
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Change in fair value due to credit risk on debt held under the fair value option |
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Total other comprehensive income |
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Comprehensive (loss) income |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(in thousands, except share amounts)
(Unaudited)
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Preferred Stock |
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Common Stock |
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Shares |
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Par Value |
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Shares |
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Par Value |
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Additional |
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Accumulated |
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Accumulated Other Comprehensive Income |
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Non- |
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Total Equity |
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Balance at December 31, 2022 |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Forfeiture of restricted stock |
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— |
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— |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares surrendered for taxes upon vesting |
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— |
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— |
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( |
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— |
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( |
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— |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Preferred equity return on preferred equity investment |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Preferred equity accretion |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Preferred OP Units return |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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( |
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Balance at March 31, 2023 |
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— |
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( |
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( |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity (Continued)
(in thousands, except share amounts)
(Unaudited)
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Preferred Stock |
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Common Stock |
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Shares |
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Par Value |
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Shares |
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Par Value |
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Additional |
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Accumulated |
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Accumulated Other Comprehensive Income |
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Non- |
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Total Equity |
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Balance at December 31, 2023 |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Shares surrendered for taxes upon vesting |
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— |
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— |
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( |
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— |
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( |
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— |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Preferred equity return on preferred equity investment |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Preferred equity accretion |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Preferred OP Units return |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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( |
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Balance at March 31, 2024 |
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— |
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( |
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( |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities |
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Deferred income taxes |
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( |
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Depreciation and amortization |
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Amortization of deferred financing costs and debt discounts |
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Amortization of above and below market lease intangibles, net |
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Minimum multiple on preferred interests |
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( |
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Loss on extinguishment of debt |
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Impairment of real estate assets |
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Straight-line rent revenue |
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( |
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( |
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Straight-line rent expense |
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( |
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Stock-based compensation |
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Change in fair value of derivatives |
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( |
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Change in fair value of debt held under the fair value option |
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( |
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( |
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Bad debt expense |
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Write-off related party receivables |
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Changes in operating assets and liabilities |
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Accounts receivable |
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( |
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( |
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Other assets |
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Accounts payable and accrued liabilities |
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( |
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Payables due to related parties |
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( |
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Deferred revenues |
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( |
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Net cash from operating activities |
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( |
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Cash flows from investing activities |
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Capitalized pre-acquisition costs, net of refunds |
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Insurance proceeds |
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Capital expenditures for real estate |
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( |
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( |
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Net cash from investing activities |
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( |
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( |
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Cash flows from financing activities |
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Borrowings under debt agreements |
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Repayments under debt agreements |
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( |
) |
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( |
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Preferred equity return on preferred equity investment |
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( |
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( |
) |
Capitalized pre-refinancing costs |
|
|
( |
) |
|
|
( |
) |
Taxes remitted upon vesting of restricted stock |
|
|
( |
) |
|
|
( |
) |
Debt origination and discount fees |
|
|
( |
) |
|
|
|
|
Net cash from financing activities |
|
|
|
|
|
( |
) |
|
Increase (decrease) in cash, cash equivalents, and restricted cash |
|
|
|
|
|
( |
) |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
(in thousands)
(Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Reconciliation of cash and cash equivalents and restricted cash: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Supplemental Cash Flow Information |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Taxes paid, net of refunds |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosure of non-cash investing and financing activities |
|
|
|
|
|
|
||
Capitalized Preferred Return |
|
$ |
( |
) |
|
$ |
( |
) |
Accrued Current Preferred Return |
|
$ |
( |
) |
|
$ |
( |
) |
Capitalized interest on Mezzanine loan |
|
$ |
( |
) |
|
$ |
|
|
Accrued capital expenditures for real estate |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
BROAD STREET REALTY, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
Unaudited
March 31, 2024
Note 1 - Organization and Nature of Business
Broad Street Realty, Inc. (the “Company”) is focused on owning and managing essential grocery-anchored and mixed-use assets located in densely populated technology employment hubs and higher education centers within the Mid-Atlantic, Southeast and Colorado markets. As of March 31, 2024, the Company had gross real estate assets of $
The Company is structured as an “Up-C” corporation with substantially all of its operations conducted through Broad Street Operating Partnership, LP (the “Operating Partnership”) and its direct and indirect subsidiaries. As of March 31, 2024, the Company owned
Liquidity, Management’s Plan and Going Concern
The Company’s rental revenue and operating results depend significantly on the occupancy levels at its properties and the ability of its tenants to meet their rent and other obligations to the Company. The Company’s projected operating model reflects sufficient cash flow to cover its obligations over the next twelve months, except as noted below.
The Company’s financing is generally comprised of mortgage loans secured by the Company’s properties that typically mature within to
Specifically, as of March 31, 2024, the Company had
In addition, as of March 31, 2024,
The Company's access to capital depends upon a number of factors over which the Company has little or no control, including general market conditions, the market's perception of the Company's current and potential future earnings and cash distributions, the Company's current debt levels and the market price of the shares of the Company's common stock. Although the Company's common stock is quoted on the OTCQX Best Market, an over-the-counter stock market, there is a very limited trading market for the Company's common stock, and if a more active trading market is not developed and sustained, the Company will be limited in its ability to issue equity to fund its capital needs. If the Company cannot obtain capital from third-party sources, the Company may not be able to meet the capital and operating needs of its properties, satisfy its debt service obligations or pay dividends to its stockholders.
Under the Company's debt agreements, the Company is subject to certain covenants. In the event of a default, the lenders could accelerate the timing of payments under the applicable debt obligations and the Company may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on the Company's liquidity, financial condition and results of operations. The Company was in compliance with all covenants under its debt agreements as of March 31, 2024.
10
Note 2 - Accounting Policies and Related Matters
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim reports. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for a full year. The unaudited condensed consolidated financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2023, included in the Company’s 2023 Annual Report on Form 10-K filed with the SEC on April 1, 2024.
The interim condensed consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries and subsidiaries in which the Company has a controlling interest. All intercompany transactions and balances have been eliminated in consolidation.
For information about significant accounting policies, refer to the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2023, included in the Company’s 2023 Annual Report on Form 10-K filed with the SEC on April 1, 2024. During the three months ended March 31, 2024, there were no material changes to these policies.
Change in Presentation
The Company has made certain reclassifications to prior period financial statements in order to enhance the comparability with current period condensed consolidated financial statements. These reclassifications had no effect on net loss or cash flows from operations.
Accounting Guidance
Adoption of Accounting Standards
There were no adopted pronouncements during the three months ended March 31, 2024 that impacted the Company.
Issued Accounting Standards Not Yet Adopted
In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures, which requires entities to annually disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). This ASU is effective for the Company for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact of the guidance.
In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which requires entities to provide disclosures of significant segment expenses and other significant segment items, as well as provide in interim periods all disclosures about a reportable segments' profit or loss and assets that are currently required annually. Additionally, entities with a single reportable segment have to provide all of the disclosures required by ASC 280, including the significant segment expense disclosures. The ASU is applied retrospectively to all periods presented in the financial statements, unless it is impracticable. This ASU is effective for the Company for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact of this guidance.
Note 3 – Real Estate
Concentrations of Credit Risks
The following table contains information regarding the geographic concentration of the properties in the Company’s portfolio as of March 31, 2024, which includes rental income for the three months ended March 31, 2024 and 2023.
(dollars in thousands) |
|
Number |
|
Gross Real Estate Assets |
|
|
Percentage of Total Real Estate Assets |
|
|
Rental income for the three months ended March 31, |
|
|||||||
Location |
|
March 31, 2024 |
|
March 31, 2024 |
|
|
March 31, 2024 |
|
|
2024 |
|
|
2023 |
|
||||
Maryland |
|
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|||||
Virginia (1) |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|||||
Pennsylvania (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Washington D.C. |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|||||
Colorado |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|||||
|
|
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|||||
11
Note 4 – Intangibles
The following is a summary of the carrying amount of the Company’s intangible assets and liabilities as of March 31, 2024 and December 31, 2023.
(in thousands) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Assets: |
|
|
|
|
|
|
||
Above-market leases |
|
$ |
|
|
$ |
|
||
Above-market leases accumulated amortization |
|
|
( |
) |
|
|
( |
) |
In-place leases |
|
|
|
|
|
|
||
In-place leases accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Total real estate intangible assets, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Below-market leases |
|
$ |
|
|
$ |
|
||
Below-market leases accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Total real estate intangible liabilities, net |
|
$ |
|
|
$ |
|
||
For the three months ended March 31, 2024 and 2023, the Company recognized amortization related to in-place leases of approximately $
The following table represents expected amortization of existing real estate intangible assets and liabilities as of March 31, 2024:
(in thousands) |
Amortization of |
|
|
Amortization of |
|
|
Amortization of |
|
|
Total amortization, net |
|
||||
Remainder of 2024 |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
2025 |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
2026 |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
2027 |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
2028 |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
2029 |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Thereafter |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The Company amortizes the value of in-place leases to amortization expense, the value of above-market leases as a reduction of rental income and the value of below-market leases as an increase to rental income over the initial term of the respective leases.
Note 5 - Other Assets
Items included in other assets, net on the Company’s condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023 are detailed in the table below:
(in thousands) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Prepaid assets and deposits |
|
$ |
|
|
$ |
|
||
Leasing commission costs and incentives, net |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Pre-acquisition costs |
|
|
|
|
|
|
||
Other receivables, net |
|
|
|
|
|
|
||
Corporate property, net |
|
|
|
|
|
|
||
Receivables from related parties |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Receivables due from related parties as of March 31, 2024 and December 31, 2023 are described further in Note 15 “Related Party Transactions.”
12
Note 6 - Accounts Payable and Accrued Liabilities
Items included in accounts payable and accrued liabilities on the Company’s condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023 are detailed in the table below:
(in thousands) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Trade payable |
|
$ |
|
|
$ |
|
||
Security deposit |
|
|
|
|
|
|
||
Real estate tax payable |
|
|
|
|
|
|
||
Interest payable |
|
|
|
|
|
|
||
Derivative liability |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Income tax payable |
|
|
|
|
|
|
||
Other (1) |
|
|
|
|
|
|
||
Accounts payable and accrued liabilities |
|
$ |
|
|
$ |
|
||
Note 7 – Mortgage and Other Indebtedness
The table below details the Company’s debt balance at March 31, 2024 and December 31, 2023:
(dollars in thousands) |
|
Maturity Date |
|
Rate Type |
|
Interest Rate (1) |
|
March 31, 2024 |
|
|
|
December 31, 2023 |
|
|
||
Basis Term Loan (net of discount of $ |
|
|
|
|
$ |
|
(3) |
|
$ |
|
(3) |
|||||
Hollinswood Shopping Center Loan |
|
|
|
|
|
|
|
|
|
|
|
|||||
Avondale Shops Loan |
|
|
|
|
|
|
|
|
|
|
|
|||||
Vista Shops at Golden Mile Loan (net of discount of $ |
|
|
|
|
|
|
|
|
|
|
|
|||||
Brookhill Azalea Shopping Center Loan |
|
|
|
|
|
|
|
|
|
|
|
|||||
Crestview Shopping Center Loan (net of discount of $ |
|
|
|
|
|
|
|
|
|
|
|
|||||
Lamar Station Plaza West Loan (net of discount of $ |
|
|
|
|
|
|
|
|
|
|
|
|||||
Highlandtown Village Shopping Center Loan (net of discount of $ |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cromwell Field Shopping Center Loan (net of discount of $ |
|
|
|
|
|
|
|
|
|
|
|
|||||
Midtown Row Loan (net of discount of $ |
|
|
|
|
|
|
|
|
|
|
|
|||||
Midtown Row/Fortress Mezzanine Loan (7) |
|
|
|
|
|
|
|
|
|
|
|
|||||
Coral Hills Shopping Center Loan (net of discount of $ |
|
|
|
|
|
|
|
|
|
|
|
|||||
West Broad Shopping Center Loan (net of discount of $ |
|
|
|
|
|
|
|
|
|
|
|
|||||
The Shops at Greenwood Village (net of discount of $ |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
||
Unamortized deferred financing costs, net |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
|
Total Mortgage and Other Indebtedness |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
||
13
Basis Term Loan
In December 2019,
The Basis Loan Agreement was amended and restated on June 29, 2022 to replace LIBOR with SOFR. The Basis Term Loan bore interest at a rate equal to the greater of (i) SOFR plus
As of March 31, 2024, the interest rate of the Basis Term Loan was
The Company was in compliance with the Basis Loan Agreement's debt service coverage calculation for the twelve months ended March 31, 2024.
Mortgage Indebtedness
In addition to the indebtedness described above, as of March 31, 2024 and December 31, 2023, the Company had approximately $
On May 1, 2023, the Company terminated the prior interest rate swap for the loan secured by The Shops at Greenwood Village and entered into a new interest rate swap agreement to fix the interest rate at
On June 28, 2023, the loan agreement for the Company’s mortgage loan secured by the Vista Shops at Golden Mile was amended to change the interest rate to
On April 30, 2024, the Company received a $
Fortress Mezzanine Loan
In connection with the acquisition of Midtown Row, the Company entered into a $
14
statements of comprehensive loss. For each of the three months ended March 31, 2024 and 2023, the Company recognized $
Debt Maturities
The following table details the Company’s scheduled principal repayments and maturities during each of the next five years and thereafter as of March 31, 2024:
(dollars in thousands) |
|
Amount Due |
|
|
Remainder of 2024 (1) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
Unamortized debt discounts and deferred financing costs, net and fair value option adjustment |
|
|
( |
) |
Total |
|
$ |
|
|
Interest Rate Cap and Interest Rate Swap Agreements
To mitigate exposure to interest rate risk, the Company entered into an interest rate cap agreement, effective December 27, 2019, on the full $
The Company also entered into
On May 1, 2023, the Company terminated the prior interest rate swap agreement for the loan secured by The Shops at Greenwood Village and entered into a new interest rate swap agreement to fix the interest rate for the loan at
On May 5, 2023, the Company entered into an interest rate swap agreement on the Highlandtown Village Shopping Center mortgage loan to fix the interest rate at
The Company recognizes all derivative instruments as assets or liabilities at their fair value in the condensed consolidated balance sheets. Changes in the fair value of the Company’s derivatives that are not designated as hedges or do not meet the criteria of hedge accounting are recognized in earnings. For the three months ended March 31, 2024 and 2023, the Company recognized gains (losses) of approximately $
The fair value of the Company’s derivative financial instruments as of March 31, 2024 and December 31, 2023 was an interest rate swap asset of approximately $
Covenants
The Company’s loan agreements contain customary financial and operating covenants including debt service coverage ratios and aggregate minimum unencumbered cash covenants. As of March 31, 2024, the Company was in compliance with all covenants under its debt agreements.
15
Note 8 – Commitments and Contingencies
Litigation
From time to time, the Company or its properties may be subject to claims and suits in the ordinary course of business. The Company’s lessees and borrowers have indemnified, and are obligated to continue to indemnify, the Company against all liabilities arising from the operations of the properties and are further obligated to indemnify it against environmental or title problems affecting the real estate underlying such facilities. The Company is not aware of any pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on its condensed consolidated financial condition, results of operations or cash flows.
Note 9 – Fortress Preferred Equity Investment
The Company consolidates Broad Street Eagles JV LLC (the “Eagles Sub-OP”) under the guidance set forth in Accounting Standards Codification (“ASC”) 810, Consolidation. The Company evaluated whether the Eagles Sub-OP met the criteria for classification as a variable interest entity (“VIE”) or, alternatively, as a voting interest entity and concluded that that the Eagles Sub-OP met the criteria of a VIE. The Company is considered to have a controlling financial interest in the Eagles Sub-OP because the Company determined that it is the primary beneficiary because it is most closely associated with the Eagles Sub-OP.
In connection with the Preferred Equity Investment, the Operating Partnership and CF Flyer PE Investor LLC, the only holder of a preferred membership interest in the Eagles Sub-OP (the “Fortress Member”), entered into the Amended and Restated Limited Liability Company Agreement of the Eagles Sub-OP (the “Eagles Sub-OP Operating Agreement”), and the Operating Partnership contributed to the Eagles Sub-OP its subsidiaries that, directly or indirectly, own Brookhill Azalea Shopping Center, Vista Shops, Hollinswood Shopping Center, Avondale Shops, Greenwood Village Shopping Center and Lamar Station Plaza East in November 2022, as well as Cromwell Field in December 2022. Pursuant to the Eagles Sub-OP Operating Agreement, the Operating Partnership had the obligation to contribute to the Eagles Sub-OP its direct or indirect subsidiaries owning eight properties. As of March 31, 2024, the Operating Partnership had contributed to the Eagles Sub-OP its subsidiaries that own Highlandtown, Crestview, Coral Hills and West Broad and, with the approval of the Fortress Member, sold Spotswood and Dekalb Plaza. On April 30, 2024, the Operating Partnership contributed to the Eagles Sub-OP its subsidiaries that own Midtown Colonial and Midtown Lamonticello, the last remaining properties required to be contributed to the Eagles Sub-OP.
Pursuant to the Eagles Sub-OP Operating Agreement, the Fortress Member is entitled to monthly distributions, a portion of which is paid in cash (the “Current Preferred Return”) and a portion that accrues on and is added to the Preferred Equity Investment each month (the “Capitalized Preferred Return” and, together with the Current Preferred Return, the “Preferred Return”). The initial Preferred Return was
As disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, the Fortress Member has approval rights over certain Major Actions (as defined in the Eagles Sub-OP Operating Agreement). In addition, the Company is required to maintain separate bank accounts for tenant improvement costs and leasing costs as well as the net proceeds from the Spotswood and Dekalb dispositions. Prior written consent of the Fortress Member is required for the disbursement and use of cash held in such accounts, which had a combined balance of $
The Fortress Member’s interest in the Eagles Sub-OP under the Eagles Sub-OP Operating Agreement is a financial instrument with both equity and debt characteristics and is classified as mezzanine equity in our accompanying condensed consolidated financial statements. The instrument was initially recognized at fair value net of issuance costs. The Preferred Equity Investment is redeemable at a determinable date (at year five (5), prior to year five if a Qualified Public Offering occurs or at any time so long as the Fortress Mezzanine Loan is repaid in full before or concurrently with such redemption) and therefore, at each subsequent reporting period we will accrete the carrying value to the amount due upon redemption of the Fortress Preferred Interest based on the effective interest method over the remaining term. All financial instruments that are classified as mezzanine equity are evaluated for embedded derivative features by evaluating each feature against the nature of the host instrument (e.g., more equity-like or debt-like). Features identified as embedded derivatives that are material are recognized separately as a derivative asset or liability in the condensed consolidated financial statements. The Company has evaluated the Preferred Equity Investment and determined that its nature is that of a debt host and certain embedded derivatives exist that would require bifurcation on the Company’s condensed consolidated balance sheets. For the three months ended March 31, 2024 and 2023, the Company recognized a gain of $
16
The following table summarizes the preferred equity investment activities for the three months ended March 31, 2024 and 2023.
(thousands) |
|
Preferred Equity Investment |
|
|
Balance at December 31, 2023 |
|
$ |
|
|
Preferred equity return |
|
|
|
|
Preferred equity accretion |
|
|
|
|
Balance at March 31, 2024 |
|
$ |
|
|
(thousands) |
|
Preferred Equity Investment |
|
|
Balance at December 31, 2022 |
|
$ |
|
|
Preferred equity return |
|
|
|
|
Preferred equity payment |
|
|
( |
) |
Preferred equity accretion |
|
|
|
|
Balance at March 31, 2023 |
|
$ |
|
|
Note 10 – Equity
Common Stock
On January 2, 2024 and April 5, 2024, the Company issued
Preferred Stock
The Company is authorized to issue
As of March 31, 2024 and December 31, 2023, the Company had
Noncontrolling Interest
As of each of March 31, 2024 and December 31, 2023, the Company owned an
Amended and Restated 2020 Equity Incentive Plan
On September 15, 2021, the Company’s board of directors approved the Plan, which increased the number of shares of the Company’s common stock reserved for issuance under the Plan by
The Plan provides for the grant of stock options, share awards (including restricted stock and restricted stock units), share appreciation rights, dividend equivalent rights, performance awards, annual cash incentive awards and other equity-based awards, including LTIP units, which are convertible on a one-for-one basis into Common OP units. As of March 31, 2024, there were
On April 9, 2024, the Company’s board of directors approved a further amendment and restatement of the Plan, which increased the number of shares of the Company's common stock reserved for issuance under the Plan by
Restricted Stock
Awards of restricted stock are awards of the Company’s common stock that are subject to restrictions on transferability and other restrictions as established by the Company’s compensation committee on the date of grant that are generally subject to forfeiture if employment (or service as a director) terminates prior to vesting. Upon vesting, all restrictions would lapse. Except to the extent restricted under the award agreement, a participant awarded restricted stock will have all of the rights of a stockholder as to those shares, including, without limitation, the right to vote and the right to receive dividends on the shares. The value of the awards is determined
17
based on the market value of the Company’s common stock on the date of grant. The Company expenses the cost of restricted stock ratably over the vesting period.
The following table summarizes the stock-based award activity under the Plan for the three months ended March 31, 2024 and 2023.
|
|
Restricted Stock Awards |
|
|
Weighted-Average Grant Date |
|
||
Outstanding as of December 31, 2023 |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
|
|
|
Outstanding as of March 31, 2024 |
|
|
|
|
$ |
|
||
|
|
Restricted Stock Awards |
|
|
Weighted-Average Grant Date |
|
||
Outstanding as of December 31, 2022 |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeitures |
|
|
( |
) |
|
|
|
|
Outstanding as of March 31, 2023 |
|
|
|
|
$ |
|
||
Of the restricted shares that vested during the three months ended March 31, 2024,
Compensation expense related to these share-based payments for each of the three months ended March 31, 2024 and 2023 was approximately $
On April 18, 2024, the Company granted
Restricted Stock Units
The Company’s restricted stock unit (“RSU”) awards represent the right to receive unrestricted shares of common stock based on the achievement of Company performance objectives as determined by the Company’s compensation committee. Grants of RSUs generally entitle recipients to shares of common stock equal to
On October 1, 2021, the Company granted certain employees RSUs with an aggregate target number of
18
Option Awards
In connection with the completion of the Initial Mergers, the Company assumed option awards previously issued to directors and officers of MedAmerica. Details of these options for the three months ended March 31, 2023 are presented in the tables below:
|
|
Number |
|
|
Weighted |
|
|
Weighted |
|
|
Weighted |
|
|
Intrinsic |
|
|||||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
— |
|
|
|
|
|
$ |
— |
|
|||
Options granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Options exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Options expired |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
— |
|
|
|
|
|
$ |
— |
|
|||
The fair values of stock options are estimated using the Black-Scholes method, which takes into account variables such as estimated volatility, expected holding period, dividend yield, and the risk-free interest rate. The risk-free interest rate is the five-year treasury rate at the date of grant. The expected life is based on the contractual life of the options at the date of grant. All
Note 11 – Revenues
Disaggregated Revenue
The following table represents a disaggregation of revenues from contracts with customers for the three months ended March 31, 2024 and 2023 by type of service:
|
|
Topic 606 |
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
|
Revenue Recognition |
|
2024 |
|
|
2023 |
|
||
Topic 606 Revenues |
|
|
|
|
|
|
|
|
||
Leasing commissions |
|
Point in time |
|
$ |
|
|
$ |
|
||
Property and asset management fees |
|
Over time |
|
|
|
|
|
|
||
Sales commissions |
|
Point in time |
|
|
|
|
|
|
||
Development fees |
|
Over time |
|
|
|
|
|
|
||
Engineering services |
|
Over time |
|
|
|
|
|
|
||
Topic 606 Revenue |
|
|
|
|
|
|
|
|
||
Out of Scope of Topic 606 revenue |
|
|
|
|
|
|
|
|
||
Rental income |
|
|
|
$ |
|
|
$ |
|
||
Sublease income |
|
|
|
|
|
|
|
|
||
Total Out of Scope of Topic 606 revenue |
|
|
|
|
|
|
|
|
||
Total Revenue |
|
|
|
$ |
|
|
$ |
|
||
Leasing Operations
Minimum cash rental payments due to the Company in future periods under executed non-cancelable operating leases in place for the Company’s properties as of March 31, 2024 are reflected in the table below.
(in thousands) |
|
|
|
|
Remainder of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
19
Note 12 – Earnings per Share
Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined based on the weighted average number of shares outstanding during the period combined with the incremental average shares that would have been outstanding assuming the conversion of all potentially dilutive common shares into common shares as of the earliest date possible. Potentially dilutive securities include stock options, convertible preferred stock, restricted stock, warrants, RSUs and OP units, which, subject to certain terms and conditions, may be tendered for redemption by the holder thereof for cash based on the market price of the Company’s common stock or, at the Company’s option and sole discretion, for shares of the Company’s common stock on a
The following table sets forth the computation of earnings per common share for the three months ended March 31, 2024 and 2023:
(in thousands, except per share data) |
|
Three Months Ended March 31, |
|
|||||
Numerator: |
|
2024 |
|
|
2023 |
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Less: Preferred equity return on Fortress preferred equity |
|
|
( |
) |
|
|
( |
) |
Less: Preferred equity accretion to redemption value |
|
|
( |
) |
|
|
( |
) |
Less: Preferred OP units return |
|
|
( |
) |
|
|
( |
) |
Plus: Net loss attributable to noncontrolling interest |
|
|
|
|
|
|
||
Net loss attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator |
|
|
|
|
|
|
||
Basic weighted-average common shares |
|
|
|
|
|
|
||
Dilutive potential common shares |
|
|
|
|
|
|
||
Diluted weighted-average common shares |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Net loss per common share- basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Note 13 – Fair Value of Financial Instruments
The Company uses fair value measures to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. GAAP establishes a three-level hierarchy that prioritizes inputs into the valuation techniques used to measure fair value. Fair value measurements associated with assets and liabilities are categorized into one of the following levels of the hierarchy based upon how observable the valuation inputs are that are used in the fair value measurements.
20
Financial Assets and Liabilities Measured at Fair Value
The Company’s financial assets and liabilities measured at fair value on a recurring basis currently include derivative financial instruments and the Fortress Mezzanine Loan.
|
|
|
|
|
Fair Value Measurements |
|
||||||||||
(in thousands) |
|
March 31, 2024 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative instruments |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative instruments (1) |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Fortress Mezzanine Loan |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
|
|
|
|
|
Fair Value Measurements |
|
||||||||||
(in thousands) |
|
December 31, 2023 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative instruments |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative instruments (1) |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Fortress Mezzanine Loan |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
The derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs. The market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation model for interest rate caps and interest rate swaps are observable in active markets and are classified as Level 2 in the hierarchy. See Note 7 “—Interest Rate Cap and Interest Rate Swap Agreements” for further discussion regarding the Company’s interest rate cap and interest rate swap agreements.
The Preferred Equity Investment contains embedded features that are required to be bifurcated from the temporary equity-host and recognized as separate derivative liabilities subject to initial and subsequent periodic estimated fair value measurements under ASC 815, Derivatives and Hedging. The fair value of the embedded derivative liability was valued using a binomial lattice-based model which takes into account variables such as estimated volatility, expected holding period, stock price, the exit fee and the risk-free interest rate. The risk-free interest rate is the five-year treasury rate at the valuation date. This technique incorporates Level 1 and Level 2 inputs.
The Company elected to measure the Fortress Mezzanine Loan at fair value in accordance with the fair value option. The Fortress Mezzanine Loan is a debt host financial instrument containing embedded features which would otherwise be required to be bifurcated from the debt-host and recognized as separate derivative liabilities subject to initial and subsequent periodic estimated fair value measurements under ASC 815, Derivatives and Hedging. The fair value option election for the Fortress Mezzanine Loan is due to the number and complexity of features that would require separate bifurcation absent this election. The fair value of the Fortress Mezzanine Loan is valued using a binomial lattice-based model which takes into account variables such as estimated volatility, expected holding period, stock price, the exit fee and the risk-free interest rate. The risk-free interest rate is the five-year treasury rate at the valuation date. This technique incorporates Level 1 and Level 2 inputs.
Financial Assets and Liabilities Not Carried at Fair Value
The tables below provide information about the carrying amounts and fair values of those financial instruments of the Company for which fair value is not measured on a recurring basis and organizes the information based upon the level of the fair value hierarchy within which fair value measurements are categorized.
21
|
|
At March 31, 2024 |
|
|||||||||||||
|
|
|
|
|
Fair Value |
|
||||||||||
(in thousands) |
|
Carrying Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Restricted cash |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage and other indebtedness, net - variable rate |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Mortgage and other indebtedness, net - fixed rate |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
|
|
At December 31, 2023 |
|
|||||||||||||
|
|
|
|
|
Fair Value |
|
||||||||||
(in thousands) |
|
Carrying Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Restricted cash |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage and other indebtedness, net - variable rate |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Mortgage and other indebtedness, net - fixed rate |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
The carrying amounts of cash and cash equivalents, restricted cash, receivables and payables are reasonable estimates of their fair value as of March 31, 2024 and December 31, 2023 due to the short-term nature of these instruments (Level 1).
At March 31, 2024 and December 31, 2023, the Company’s indebtedness was comprised of borrowings that bear interest at variable and fixed rates. The fair value of the Company’s borrowings under variable rates at March 31, 2024 and December 31, 2023 approximate their carrying values as the debt is at variable rates currently available and resets on a monthly basis.
The fair value of the Company’s fixed rate debt as of March 31, 2024 and December 31, 2023 is estimated by using Level 2 inputs such as discounting the estimated future cash flows using current market rates for similar loans that would be made to borrowers with similar credit ratings and for the same remaining maturities.
Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement at such fair value amounts may not be possible.
Note 14 – Taxes
Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items, such as the net gain on change in fair value of debt held under the fair value option, which are recorded in the interim period. The provision for income taxes for the three months ended March 31, 2024 and 2023 reflects an income tax (expense) benefit of $(
Note 15 – Related Party Transactions
Receivables and Payables
As of each of March 31, 2024 and December 31, 2023, the Company had $
22
$
Tax Protection Agreements
On December 27, 2019, the Company and the Operating Partnership entered into tax protection agreements (the “Initial Tax Protection Agreements”) with each of the prior investors in BSV Colonial Investor LLC, BSV Lamonticello Investors LLC and BSV Patrick Street Member LLC, including Messrs. Jacoby, Yockey and Topchy, in connection with their receipt of Common OP units in certain of the Initial Mergers. On April 4, 2023, the Company and the Operating Partnership entered into a tax protection agreement (together with the Initial Tax Protection Agreements, the “Tax Protection Agreements”), with each of the prior investors in BSV Lamont Investors LLC, including Messrs. Jacoby, Yockey and Topchy, in connection with their receipt of Common OP units in the merger whereby the Company acquired Lamar Station Plaza West. Pursuant to the Tax Protection Agreements, until the seventh anniversary of the completion of the applicable merger, the Company and the Operating Partnership may be required to indemnify the other parties thereto for their tax liabilities related to built-in gain that exists with respect to the properties known as Midtown Colonial, Midtown Lamonticello, Vista Shops at Golden Mile and Lamar Station Plaza West (the “Protected Properties”). Furthermore, until the seventh anniversary of the completion of the applicable merger, the Company and the Operating Partnership will be required to use commercially reasonable efforts to avoid any event, including a sale of the Protected Properties, that triggers built-in gain to the other parties to the Tax Protection Agreements, subject to certain exceptions, including like-kind exchanges under Section 1031 of the Code.
Guarantees
The Company’s subsidiaries’ obligations under the Eagles Sub-OP Operating Agreement, Basis Loan Agreement and the Brookhill mortgage loan are guaranteed by Messrs. Jacoby and Yockey. The Company has agreed to indemnify Mr. Yockey for any losses he incurs as a result of his guarantee of the Basis Term Loan and the Brookhill mortgage loan. Mr. Jacoby is also a guarantor under the mortgage loan agreements for Coral Hills Shopping Center, Cromwell Field Shopping Center, Highlandtown Village Shopping Center and West Broad Shopping Center.
Legal Fees
Samuel Spiritos, a director of the Company, is the managing partner of Shulman Rogers LLP, which represents the Company in certain real estate matters. During the three months ended March 31, 2024 and 2023, the Company paid less than $
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read together with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. References to “we,” “our,” “us,” and “Company” refer to Broad Street Realty, Inc., together with its consolidated subsidiaries.
Forward-Looking Statements
We make statements in this Quarterly Report on Form 10-Q (this “report”) that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in 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”)). These forward-looking statements include, without limitation, statements about our estimates, expectations, predictions and forecasts of our future business plans and financial and operating performance and/or results, as well as statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. When we use the words “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “project,” “seek,” or similar expressions or their negatives, as well as statements in future tense, we intend to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, beliefs and expectations, such forward-looking statements are not predictions of future events or guarantees of future performance, and our actual financial and operating results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such differences are described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023 and in other documents that we file from time to time with the Securities and Exchange Commission (the “SEC”), which factors include, without limitation, the following:
Given these uncertainties, undue reliance should not be placed on our forward-looking statements. We assume no duty or responsibility to publicly update or revise any forward-looking statement that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. We urge you to review the disclosures concerning risks in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion of these and other risks, as well as the risks, uncertainties and other factors discussed in this report and identified in other documents we file with the SEC from time to time. You should carefully consider these risks before making any investment decisions in the Company. New risks and uncertainties may also emerge from time to time that could materially and adversely affect us.
24
Overview
We are focused on owning and managing essential grocery-anchored and mixed-use assets located in densely populated technology employment hubs and higher education centers within the Mid-Atlantic, Southeast and Colorado markets. As of March 31, 2024, we owned 15 properties. The properties in our portfolio are dispersed in sub-markets that we believe generally have high population densities, high traffic counts, good visibility and accessibility, which provide our tenants with attractive locations to serve the necessity-based needs of the surrounding communities. We intend to focus on acquiring additional strategically positioned properties in established and developing neighborhoods primarily leased to necessity-based tenants that meet the needs of the surrounding communities in our existing markets, as well as acquiring properties in new markets that meet our investment criteria, including the Southeastern United States. In addition, we provide commercial real estate brokerage services for our own portfolio and third-party office, industrial and retail operators and tenants.
The table below provides certain information regarding our portfolio as of March 31, 2024 and December 31, 2023. For additional information, see “—Our Portfolio.”
|
|
As of |
|
|
As of |
|
||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Number of properties |
|
|
15 |
|
|
|
15 |
|
Number of states |
|
|
4 |
|
|
|
4 |
|
Total square feet (in thousands) |
|
|
1,918 |
|
|
|
1,916 |
|
Retail |
|
|
1,656 |
|
|
|
1,654 |
|
Residential |
|
|
262 |
|
|
|
262 |
|
Leased % of rentable square feet (1): |
|
|
|
|
|
|
||
Total portfolio |
|
|
90.3 |
% |
|
|
90.1 |
% |
Retail |
|
|
88.3 |
% |
|
|
88.5 |
% |
Residential |
|
|
100.0 |
% |
|
|
100.0 |
% |
Occupied % of rentable square feet (1): |
|
|
|
|
|
|
||
Total portfolio |
|
|
90.1 |
% |
|
|
86.2 |
% |
Retail |
|
|
88.1 |
% |
|
|
84.1 |
% |
Residential |
|
|
100.0 |
% |
|
|
100.0 |
% |
Total residential units/beds |
|
240/620 |
|
|
240/620 |
|
||
Monthly residential base rent per bed |
|
$ |
1,101.58 |
|
|
$ |
1,099.26 |
|
Annualized residential base rent per leased square foot (2) |
|
$ |
31.24 |
|
|
$ |
31.22 |
|
Annualized retail base rent per leased square foot (2) |
|
$ |
15.08 |
|
|
$ |
14.99 |
|
The table below provides certain information regarding our retail portfolio as of March 31, 2024 and December 31, 2023. For additional information, see “—Our Portfolio.”
|
|
As of |
|
|
As of |
|
||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Total rentable square feet (in thousands) |
|
|
1,656 |
|
|
|
1,654 |
|
Anchor spaces |
|
|
854 |
|
|
|
843 |
|
Inline spaces |
|
|
802 |
|
|
|
811 |
|
Leased % of rentable square feet (1): |
|
|
|
|
|
|
||
Total retail portfolio |
|
|
88.3 |
% |
|
|
88.5 |
% |
Anchor spaces |
|
|
95.1 |
% |
|
|
95.0 |
% |
Inline spaces |
|
|
81.2 |
% |
|
|
81.6 |
% |
Occupied % of rentable square feet (1): |
|
|
|
|
|
|
||
Total retail portfolio |
|
|
88.1 |
% |
|
|
84.1 |
% |
Anchor spaces |
|
|
95.1 |
% |
|
|
88.8 |
% |
Inline spaces |
|
|
80.7 |
% |
|
|
79.2 |
% |
Average remaining lease term (in years) (2) |
|
|
5.7 |
|
|
|
5.4 |
|
25
We are structured as an “Up-C” corporation with substantially all of our operations conducted through Broad Street Operating Partnership, LP (our “Operating Partnership”) and its direct and indirect subsidiaries. As of March 31, 2024, we owned 85.7% of the Class A common units of limited partnership interest in the Operating Partnership (“Common OP units”) and Series A preferred units of limited partnership interest in the Operating Partnership (“Preferred OP units” and, together with the Common OP units, “OP units”), and we are the sole member of the sole general partner of our Operating Partnership. We began operating in our current structure on December 27, 2019 upon the completion of certain mergers that were part of the previously announced series of mergers (collectively, the “Mergers”) on such date, and we operate as a single reporting segment.
Portfolio Summary
As of March 31, 2024, we owned 15 properties, of which 12 are located in the Mid-Atlantic region and three are located in Colorado. Retail properties comprise our entire portfolio except for a portion of one of our properties (Midtown Row), which includes a student housing property. Our retail properties have 1,657,057 total square feet of GLA. The following table provides additional information about the retail properties in our portfolio as of March 31, 2024.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Property Name |
|
City/State |
|
Year |
|
|
GLA |
|
|
Percent |
|
|
Total Annualized Base Rent (3) |
|
|
Annualized Base Rent per Leased SF (4) |
|
|
Percentage of Total Annualized Base Rent |
|
|
Gross Real |
|
|||||||
Avondale Shops |
|
Washington, D.C. |
|
2010 |
|
|
|
28,308 |
|
|
|
100.0 |
% |
|
$ |
672,293 |
|
|
$ |
23.75 |
|
|
|
3.0 |
% |
|
$ |
8,422 |
|
|
Brookhill Azalea Shopping Center |
|
Richmond, VA |
|
2012 |
|
|
|
163,353 |
|
|
|
87.0 |
% |
|
|
1,555,118 |
|
|
|
10.94 |
|
|
|
7.0 |
% |
|
|
18,290 |
|
|
Coral Hills Shopping Center |
|
Capitol Heights, MD |
|
|
2012 |
|
|
|
85,514 |
|
|
|
100.0 |
% |
|
|
1,472,854 |
|
|
|
17.22 |
|
|
|
6.7 |
% |
|
|
16,680 |
|
Crestview Square Shopping Center |
|
Landover Hills, MD |
|
|
2012 |
|
|
|
74,694 |
|
|
|
100.0 |
% |
|
|
1,540,219 |
|
|
|
20.62 |
|
|
|
7.0 |
% |
|
|
18,700 |
|
Cromwell Field Shopping Center |
|
Glen Burnie, MD |
|
|
2020 |
|
|
|
233,405 |
|
|
|
84.3 |
% |
|
|
1,933,054 |
|
|
|
9.82 |
|
|
|
8.8 |
% |
|
|
19,812 |
|
The Shops at Greenwood Village |
|
Greenwood Village, CO |
|
|
2019 |
|
|
|
198,691 |
|
|
|
96.9 |
% |
|
|
3,499,645 |
|
|
|
18.18 |
|
|
|
15.9 |
% |
|
|
31,679 |
|
Highlandtown Village Shopping Center |
|
Baltimore, MD |
|
|
1987 |
|
|
|
57,524 |
|
|
|
100.0 |
% |
|
|
1,096,961 |
|
|
|
19.07 |
|
|
|
5.0 |
% |
|
|
7,449 |
|
Hollinswood Shopping Center |
|
Baltimore, MD |
|
|
2020 |
|
|
|
112,659 |
|
|
|
97.8 |
% |
|
|
1,810,190 |
|
|
|
16.43 |
|
|
|
8.2 |
% |
|
|
24,586 |
|
Lamar Station Plaza East |
|
Lakewood, CO |
|
|
1984 |
|
|
|
84,745 |
|
|
|
30.7 |
% |
|
|
453,922 |
|
|
|
17.44 |
|
|
|
2.1 |
% |
|
|
8,747 |
|
Lamar Station Plaza West |
|
Lakewood, CO |
|
|
2016 |
|
|
|
186,705 |
|
|
|
100.0 |
% |
|
|
2,143,308 |
|
|
|
11.48 |
|
|
|
9.7 |
% |
|
|
24,738 |
|
Midtown Colonial |
|
Williamsburg, VA |
|
|
2018 |
|
|
|
95,455 |
|
|
|
88.0 |
% |
|
|
1,032,055 |
|
|
|
12.28 |
|
|
|
4.7 |
% |
|
|
17,592 |
|
Midtown Lamonticello |
|
Williamsburg, VA |
|
|
2019 |
|
|
|
63,157 |
|
|
|
86.1 |
% |
|
|
949,490 |
|
|
|
17.46 |
|
|
|
4.3 |
% |
|
|
16,048 |
|
Midtown Row (Retail Portion) |
|
Williamsburg, VA |
|
|
2021 |
|
|
|
63,622 |
|
|
|
28.9 |
% |
|
|
494,460 |
|
|
|
26.89 |
|
|
|
2.2 |
% |
|
|
127,003 |
|
Vista Shops at Golden Mile |
|
Frederick, MD |
|
|
2009 |
|
|
|
98,674 |
|
|
|
100.0 |
% |
|
|
1,884,181 |
|
|
|
19.10 |
|
|
|
8.5 |
% |
|
|
15,055 |
|
West Broad Commons Shopping Center |
|
Richmond, VA |
|
|
2017 |
|
|
|
109,551 |
|
|
|
97.8 |
% |
|
|
1,524,195 |
|
|
|
14.22 |
|
|
|
6.9 |
% |
|
|
19,967 |
|
Total |
|
|
|
|
|
|
|
1,656,057 |
|
|
|
88.3 |
% |
|
$ |
22,061,945 |
|
|
$ |
15.08 |
|
|
|
100.0 |
% |
|
$ |
374,768 |
|
|
26
Geographic Concentration
The following table contains information regarding the geographic concentration of the properties in our portfolio as of March 31, 2024, which includes rental income for the three months ended March 31, 2024 and 2023.
(dollars in thousands) |
|
Number |
|
Gross Real Estate Assets |
|
|
Percentage of Total Real Estate Assets |
|
|
Rental income for the three months ended March 31, |
|
|||||||
Location |
|
March 31, 2024 |
|
March 31, 2024 |
|
|
March 31, 2024 |
|
|
2024 |
|
|
2023 |
|
||||
Maryland |
|
6 |
|
$ |
102,282 |
|
|
|
27.3 |
% |
|
$ |
3,074 |
|
|
$ |
3,150 |
|
Virginia (1) |
|
5 |
|
|
198,900 |
|
|
|
53.1 |
% |
|
|
3,965 |
|
|
|
4,222 |
|
Pennsylvania (2) |
|
― |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
683 |
|
Washington D.C. |
|
1 |
|
|
8,422 |
|
|
|
2.2 |
% |
|
|
183 |
|
|
|
182 |
|
Colorado |
|
3 |
|
|
65,164 |
|
|
|
17.4 |
% |
|
|
2,289 |
|
|
|
1,971 |
|
|
|
15 |
|
$ |
374,768 |
|
|
|
100.0 |
% |
|
$ |
9,511 |
|
|
$ |
10,208 |
|
Critical Accounting Policies
Refer to our audited consolidated financial statements and notes thereto for the year ended December 31, 2023 for a discussion of our accounting policies, including the critical accounting policies of revenue recognition, real estate investments, asset impairment, income taxes, and our accounting policy on consolidation, which are included in our 2023 Annual Report on Form 10-K, which was filed with the SEC on April 1, 2024. During the three months ended March 31, 2024, there were no material changes to these policies. See Note 2 “—Accounting Guidance” to our condensed consolidated financial statements in Item 1 of this report for recently-adopted accounting pronouncements.
Factors that May Impact Future Results of Operations
Rental Income
Growth in rental income will depend on our ability to acquire additional properties that meet our investment criteria and on filling vacancies and increasing rents on the properties in our portfolio. The amount of rental income generated by the properties in our portfolio depends on our ability to renew expiring leases or re-lease space upon the scheduled or unscheduled termination of leases, lease currently available space and maintain or increase rental rates at our properties. Our rental income in future periods could be adversely affected by local, regional, or national economic conditions, an oversupply of or a reduction in demand for retail space, changes in market rental rates, our ability to provide adequate services and maintenance at our properties, fluctuations in interest rates and dispositions of properties. In addition, economic downturns affecting our markets or downturns in our tenants’ businesses that impair our ability to renew or re-lease space and the ability of our tenants to fulfill their lease commitments to us could adversely affect our ability to maintain or increase rent and occupancy.
Scheduled Lease Expirations
Our ability to re-lease expiring space at rental rates equal to or greater than that of current rental rates will impact our results of operations. Our properties are marketed to smaller tenants that generally desire shorter-term leases. As of March 31, 2024, approximately 44.5% of our portfolio (based on GLA) was leased to tenants occupying less than 10,000 square feet. In addition, as of March 31, 2024, approximately 11.7% of our GLA was vacant and approximately 2.0% of our leases (based on GLA) were scheduled to expire on or before December 31, 2024. Although we maintain ongoing dialogue with our tenants, we generally raise the issue of renewal at least 12 months prior to lease renewal often providing concessions for early renewal. If our current tenants do not renew their leases or terminate their leases early, we may be unable to re-lease the space to new tenants on favorable terms or at all. Our vacancy trends will be impacted by new properties that we acquire, which may include properties with higher vacancy where we identified opportunities to increase occupancy.
27
Acquisitions
Over the long-term, we intend to grow our portfolio through the acquisition of additional strategically positioned properties in established and developing neighborhoods primarily leased to necessity-based tenants that meet the needs of the surrounding communities in our existing markets, as well as acquiring properties in new markets that meet our investment criteria, including the Southeastern United States. We have established relationships with a wide variety of market participants, including tenants, leasing agents, investment sales brokers, property owners and lenders, in our target markets and beyond, and, over the long-term, we believe that we will have opportunities to acquire properties that meet our investment criteria at attractive prices.
General and Administrative Expenses
General and administrative expenses include employee compensation costs, professional fees, consulting, and other general administrative expenses. We expect an increase in general and administrative expenses in the future related to stock issuances to employees. We expect that our general and administrative expenses will rise in some measure as our portfolio grows but that such expenses as a percentage of our revenue will decrease over time due to efficiencies and economies of scale.
Capital Expenditures
We incur capital expenditures at our properties that vary in amount and frequency based on each property’s specific needs. We expect our capital expenditures will be for recurring maintenance to ensure our properties are in good working condition, including parking and roof repairs, façade maintenance and general upkeep. We also will incur capital expenditures related to repositioning and refurbishing properties where we have identified opportunities to improve our properties to increase occupancy, and we may incur capital expenditures related to redevelopment or development consistent with our business and growth strategies.
28
Results of Operations
This section provides a comparative discussion on our results of operations and should be read in conjunction with our condensed consolidated financial statements, including the accompanying notes.
Comparison of the three months ended March 31, 2024 to the three months ended March 31, 2023
|
|
For the Three Months Ended |
|
|
Change |
|
||||||||||
(dollars in thousands) |
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
$ |
|
|
% |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental income |
|
$ |
9,511 |
|
|
$ |
10,208 |
|
|
$ |
(697 |
) |
|
|
(7 |
%) |
Commissions |
|
|
502 |
|
|
|
856 |
|
|
|
(354 |
) |
|
|
(41 |
%) |
Management fees and other income |
|
|
58 |
|
|
|
68 |
|
|
|
(10 |
) |
|
|
(15 |
%) |
Total revenues |
|
|
10,071 |
|
|
|
11,132 |
|
|
|
(1,061 |
) |
|
|
(10 |
%) |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of services |
|
|
421 |
|
|
|
556 |
|
|
|
(135 |
) |
|
|
(24 |
%) |
Property operating |
|
|
3,006 |
|
|
|
3,061 |
|
|
|
(55 |
) |
|
|
(2 |
%) |
Depreciation and amortization |
|
|
3,819 |
|
|
|
5,568 |
|
|
|
(1,749 |
) |
|
|
(31 |
%) |
Impairment of real estate assets |
|
|
110 |
|
|
|
— |
|
|
|
110 |
|
|
N/A |
|
|
Bad debt expense |
|
|
142 |
|
|
|
42 |
|
|
|
100 |
|
|
|
238 |
% |
General and administrative |
|
|
3,480 |
|
|
|
3,530 |
|
|
|
(50 |
) |
|
|
(1 |
%) |
Total operating expenses |
|
|
10,978 |
|
|
|
12,757 |
|
|
|
(1,779 |
) |
|
|
(14 |
%) |
Operating loss |
|
|
(907 |
) |
|
|
(1,625 |
) |
|
|
718 |
|
|
|
44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and other income |
|
|
217 |
|
|
|
13 |
|
|
|
204 |
|
|
|
1,569 |
% |
Derivative fair value adjustment |
|
|
889 |
|
|
|
(179 |
) |
|
|
1,068 |
|
|
|
(597 |
%) |
Net gain on fair value change of debt held under the fair value option |
|
|
2,343 |
|
|
|
3,235 |
|
|
|
(892 |
) |
|
|
(28 |
%) |
Interest expense |
|
|
(4,333 |
) |
|
|
(4,781 |
) |
|
|
448 |
|
|
|
(9 |
%) |
Loss on extinguishment of debt |
|
|
(7 |
) |
|
|
— |
|
|
|
(7 |
) |
|
N/A |
|
|
Other expense |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
— |
|
|
|
0 |
% |
Total other expense |
|
|
(897 |
) |
|
|
(1,718 |
) |
|
|
821 |
|
|
|
(48 |
%) |
Net loss before income taxes |
|
|
(1,804 |
) |
|
|
(3,343 |
) |
|
|
1,539 |
|
|
|
(46 |
%) |
Income tax (expense) benefit |
|
|
(134 |
) |
|
|
1,683 |
|
|
|
(1,817 |
) |
|
|
(108 |
%) |
Net loss |
|
$ |
(1,938 |
) |
|
$ |
(1,660 |
) |
|
$ |
(278 |
) |
|
|
17 |
% |
Less: Preferred equity return on Fortress preferred equity |
|
|
(3,022 |
) |
|
|
(3,427 |
) |
|
|
405 |
|
|
|
(12 |
%) |
Less: Preferred equity accretion to redemption value |
|
|
(1,379 |
) |
|
|
(415 |
) |
|
|
(964 |
) |
|
|
232 |
% |
Less: Preferred OP units return |
|
|
(139 |
) |
|
|
(112 |
) |
|
|
(27 |
) |
|
|
24 |
% |
Plus: Net loss attributable to noncontrolling interest |
|
|
839 |
|
|
|
1,014 |
|
|
|
(175 |
) |
|
|
(17 |
%) |
Net loss attributable to common stockholders |
|
$ |
(5,639 |
) |
|
$ |
(4,600 |
) |
|
$ |
(1,039 |
) |
|
|
23 |
% |
Revenues for the three months ended March 31, 2024 decreased approximately $1.1 million, or 10%, compared to the three months ended March 31, 2023, as a result of approximately $0.7 million and $0.4 million decreases in rental income and commissions, respectively. Rental income primarily decreased as a result of the sale of two properties in the second and third quarters of 2023, which had aggregate rental income of $1.2 million during the three months ended March 31, 2023. This decrease was partially offset by an increase in rental income for the remaining properties. The decrease in commissions is due to lower transaction volume of leasing.
Total operating expenses for the three months ended March 31, 2024 decreased approximately $1.8 million, or 14%, compared to the three months ended March 31, 2023, primarily from a decrease in depreciation and amortization expense of approximately $1.7 million, primarily related to a $1.2 million decrease in amortization of in-place lease intangibles and a $0.7 million decrease relating to two properties that were disposed of during 2023.
The gain on derivative fair value adjustment was approximately $0.9 million for the three months ended March 31, 2024 compared to a loss of approximately $0.2 million for the three months ended March 31, 2023. The increase of approximately $1.1 million was primarily due to a $1.0 million change in the fair value of interest rate swaps and a $0.1 million change in the fair value of the embedded derivative liability relating to the Preferred Equity Investment (as defined below).
Net gain on fair value change of debt held under the fair value option reflects the change in fair value of the Fortress Mezzanine Loan (as defined below) for which we elected the fair value option.
29
Interest expense for the three months ended March 31, 2024 decreased approximately $0.4 million, or 9%, compared to the three months ended March 31, 2023, primarily due to debt that was repaid in connection with the sale of two properties during the second and third quarters of 2023. We had additional net borrowings of approximately $27.6 million after March 31, 2023.
Income tax (expense) benefit for the three months ended March 31, 2024 decreased approximately $1.8 million compared to the three months ended March 31, 2023, which is primarily attributable to the Company recording a valuation allowance against its deferred tax asset as of March 31, 2024.
Preferred equity return on Fortress preferred equity reflects the portion of the distribution to the Fortress Member that is payable in cash and the portion that is accrued and added to the Preferred Equity Investment.
Preferred equity accretion to redemption value reflects the accretion of the carrying value of the Fortress preferred equity to the Redemption amount over the remaining term.
Preferred OP units return reflects the portion of the distribution to holders of the Preferred OP units that are payable in cash and the portion that are accrued and added to the liquidation preference of the Preferred OP units.
Net loss attributable to noncontrolling interest for the three months ended March 31, 2024 decreased $0.2 million compared to the three months ended March 31, 2023. The net loss attributable to noncontrolling interest reflects the proportionate share of the OP units held by outside investors in the operating results of the Operating Partnership.
Non-GAAP Performance Measures
We present the non-GAAP performance measures set forth below. These measures should not be considered as an alternative to, or more meaningful than, net income (calculated in accordance with U.S. generally accepted accounting principles (“GAAP”)) or other GAAP financial measures, as an indicator of financial performance and are not alternatives to, or more meaningful than, cash flow from operating activities (calculated in accordance with GAAP) as a measure of liquidity. Non-GAAP performance measures have limitations as they do not include all items of income and expense that affect operations, and accordingly, should always be considered as supplemental financial results to those calculated in accordance with GAAP. Our computation of these non-GAAP performance measures may differ in certain respects from the methodology utilized by other real estate companies and, therefore, may not be comparable to similarly titled measures presented by other real estate companies. Investors are cautioned that items excluded from these non-GAAP performance measures are relevant to understanding and addressing financial performance.
Net Operating Income and Same-center Net Operating Income
Net operating income (“NOI”) is a supplemental non-GAAP measure of the operating performance of our properties. We define NOI as rental income less property operating expenses, including real estate taxes. We also exclude the impact of straight‑line rent revenue, net amortization of above and below market leases, depreciation and amortization, interest, impairments and gains or losses of real estate assets and other significant infrequent items that create volatility in our earnings and make it difficult to determine the earnings generated by our core ongoing business. Same-center NOI should not be viewed as an alternative measure to net income or loss calculated in accordance with GAAP as a measurement of our financial performance. We believe that NOI is a helpful measure because it provides additional information to allow management, investors and our current and potential creditors to evaluate and compare our core operating results.
Same-center NOI is a supplemental non-GAAP financial measure which we use to assess our operating results. For the three months ended March 31, 2024 and 2023, Same-center NOI represents the NOI for thirteen properties that were wholly owned and operational for the entire portion of each reporting period. Same-center NOI should not be viewed as an alternative measure to net income or loss calculated in accordance with GAAP as a measurement of our financial performance, as it does not reflect the operations of our entire portfolio. We believe that Same-center NOI is a helpful measure because it provides additional information to allow management, investors and our current and potential creditors to enhance the comparability of our operating performance between periods.
The table below compares Same-center NOI for the three months ended March 31, 2024 and 2023:
|
|
For the three months ended March 31, |
|
|
Change |
|
||||||||||
(unaudited, dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental income (1) |
|
$ |
9,238 |
|
|
$ |
8,702 |
|
|
$ |
536 |
|
|
|
6 |
% |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property operating |
|
|
3,425 |
|
|
|
3,218 |
|
|
|
207 |
|
|
|
6 |
% |
Total Same-center NOI |
|
$ |
5,813 |
|
|
$ |
5,484 |
|
|
$ |
329 |
|
|
|
6 |
% |
30
Our reconciliation of Same-center NOI for the three months ended March 31, 2024, and 2023 is as follows:
|
|
For the three months ended March 31, |
|
|||||
(unaudited, dollars in thousands) |
|
2024 |
|
|
2023 |
|
||
Net loss |
|
$ |
(1,938 |
) |
|
$ |
(1,660 |
) |
Adjusted to exclude: |
|
|
|
|
|
|
||
Commissions |
|
|
(502 |
) |
|
|
(856 |
) |
Management and other income |
|
|
(58 |
) |
|
|
(68 |
) |
Straight-line rent revenue |
|
|
(352 |
) |
|
|
(446 |
) |
Amortization of above and below market lease, net |
|
|
81 |
|
|
|
48 |
|
Consolidated eliminations adjustments |
|
|
(416 |
) |
|
|
(444 |
) |
Cost of services |
|
|
421 |
|
|
|
556 |
|
Depreciation and amortization |
|
|
3,819 |
|
|
|
5,568 |
|
Impairment of real estate assets |
|
|
110 |
|
|
|
— |
|
Bad debt expense |
|
|
142 |
|
|
|
42 |
|
General and administrative |
|
|
3,480 |
|
|
|
3,530 |
|
Net interest and other income |
|
|
(217 |
) |
|
|
(13 |
) |
Derivative fair value adjustment |
|
|
(889 |
) |
|
|
179 |
|
Net gain on fair value change on debt held under the fair value option |
|
|
(2,343 |
) |
|
|
(3,235 |
) |
Interest expense |
|
|
4,333 |
|
|
|
4,781 |
|
Loss on extinguishment of debt |
|
|
7 |
|
|
|
— |
|
Other expense |
|
|
6 |
|
|
|
6 |
|
Income tax expense (benefit), net |
|
|
134 |
|
|
|
(1,683 |
) |
NOI |
|
|
5,818 |
|
|
|
6,305 |
|
Less: Non Same-center NOI relating to dispositions (1) |
|
|
(5 |
) |
|
|
(821 |
) |
Total Same-center NOI |
|
$ |
5,813 |
|
|
$ |
5,484 |
|
Funds From Operations and Adjusted Funds from Operations
Funds from operations (“FFO”) is a supplemental non-GAAP financial measure of real estate companies’ operating performance. The National Association of Real Estate Investment Trusts (“Nareit”) defines FFO as follows: net income (loss), computed in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains and losses from the sale of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis.
Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Considering the nature of our business as a real estate owner and operator, we believe that FFO is useful to investors in measuring our operating and financial performance because the definition excludes items included in net income that do not relate to or are not indicative of our operating and financial performance, such as depreciation and amortization related to real estate, and items which can make periodic and peer analysis of operating and financial performance more difficult, such as gains and losses from the sale of certain real estate assets and impairment write-downs of certain real estate assets. Specifically, in excluding real estate related depreciation and amortization and gains and losses from sales of depreciable operating properties, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.
However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or service indebtedness. Also, FFO should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.
Adjusted FFO (“AFFO”) is calculated by excluding the effect of certain items that do not reflect ongoing property operations, including stock-based compensation expense, deferred financing and debt issuance cost amortization, non-real estate depreciation and amortization, straight-line rent, non-cash interest expense and other non-comparable or non-operating items. Management considers
31
AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO.
AFFO is not intended to represent cash flow or liquidity for the period and is only intended to provide an additional measure of our operating performance. We believe that Net income/(loss) is the most directly comparable GAAP financial measure to AFFO. Management believes that AFFO is a widely recognized measure of the operations of real estate companies and presenting AFFO enables investors to assess our performance in comparison to other real estate companies. AFFO should not be considered as an alternative to net income/(loss) (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.
Our reconciliation of net loss to FFO and AFFO for the three months ended March 31, 2024 and 2023 is as follows:
|
|
For the Three Months Ended March 31, |
|
|
Change |
|
||||||||||
(unaudited, dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
Net loss |
|
$ |
(1,938 |
) |
|
$ |
(1,660 |
) |
|
$ |
(278 |
) |
|
|
17 |
% |
Real estate depreciation and amortization |
|
|
3,715 |
|
|
|
5,523 |
|
|
|
(1,808 |
) |
|
|
(33 |
%) |
Amortization of direct leasing costs |
|
|
23 |
|
|
|
27 |
|
|
|
(4 |
) |
|
|
(15 |
%) |
FFO attributable to common shares and OP units |
|
|
1,800 |
|
|
|
3,890 |
|
|
|
(2,090 |
) |
|
|
(54 |
%) |
Stock-based compensation expense |
|
|
360 |
|
|
|
214 |
|
|
|
146 |
|
|
|
68 |
% |
Deferred financing and debt issuance cost amortization |
|
|
193 |
|
|
|
282 |
|
|
|
(89 |
) |
|
|
(32 |
%) |
Impairment of real estate assets (1) |
|
|
110 |
|
|
|
— |
|
|
|
110 |
|
|
N/A |
|
|
Intangibles amortization |
|
|
81 |
|
|
|
48 |
|
|
|
33 |
|
|
|
69 |
% |
Non-real estate depreciation and amortization |
|
|
80 |
|
|
|
15 |
|
|
|
65 |
|
|
|
433 |
% |
Non-cash interest expense |
|
|
331 |
|
|
|
300 |
|
|
|
31 |
|
|
|
10 |
% |
Recurring capital expenditures |
|
|
(93 |
) |
|
|
(8 |
) |
|
|
(85 |
) |
|
|
1,063 |
% |
Straight-line rent revenue |
|
|
(352 |
) |
|
|
(446 |
) |
|
|
94 |
|
|
|
(21 |
%) |
Minimum multiple on preferred interests |
|
|
— |
|
|
|
(77 |
) |
|
|
77 |
|
|
|
(100 |
%) |
Non-cash fair value adjustment |
|
|
(3,232 |
) |
|
|
(3,056 |
) |
|
|
(176 |
) |
|
|
6 |
% |
AFFO attributable to common shares and OP units |
|
$ |
(722 |
) |
|
$ |
1,162 |
|
|
$ |
(1,884 |
) |
|
|
(162 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding to common shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
|
35,875,326 |
|
|
|
35,374,216 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to common stockholders per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted (2) |
|
$ |
(0.16 |
) |
|
$ |
(0.13 |
) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding to common shares and OP units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
|
41,435,622 |
|
|
|
40,934,512 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
FFO attributable to common shares and OP units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted (3) |
|
$ |
0.04 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
||
The decrease in FFO and AFFO for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, is mainly due to (i) a $1.8 million decline in income tax benefit which is primarily attributable to the Company recording a valuation allowance against its deferred tax asset as of March 31, 2024 and (ii) a $0.7 million decline in rental income as a result of the sale of two properties in the second and third quarters of 2023. These declines were partially offset by a $0.4 million decline in interest expense primarily due to debt that was repaid in connection with the sale of two properties during the second and third quarters of 2023.
32
Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDAre
We calculate EBITDAre in accordance with standards established by Nareit and define EBITDAre as net income or loss computed in accordance with GAAP (i) plus depreciation and amortization, interest expense and income tax expense, (ii) plus or minus losses or gains on the disposition of properties, (iii) plus impairment losses and (iv) with appropriate adjustments to reflect our share of EBITDAre of unconsolidated affiliates and consolidated affiliates with non-controlling interests, in each case as applicable. We define Adjusted EBITDAre as EBITDAre plus non-cash stock compensation, non-cash amortization related to above and below market leases and less straight-line rent revenue and non-cash fair value adjustment. Some of the adjustments can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. EBITDAre and Adjusted EBITDAre are non-GAAP financial measures and should not be viewed as alternatives to net income or loss calculated in accordance with GAAP as a measurement of our operating performance. We believe that EBITDAre and Adjusted EBITDAre are helpful measures because they provide additional information to allow management, investors and our current and potential creditors to evaluate and compare our core operating results and our ability to service debt. We also believe that EBITDAre and Adjusted EBITDAre can help facilitate comparisons of operating performance between periods and with other real estate companies.
Our reconciliation of net loss to EBIDTAre and Adjusted EBITDAre for the three months ended March 31, 2024 and 2023 is as follows:
|
|
For the Three Months Ended March 31, |
|
|||||
(unaudited, dollars in thousands) |
|
2024 |
|
|
2023 |
|
||
Net loss |
|
$ |
(1,938 |
) |
|
$ |
(1,660 |
) |
Interest expense |
|
|
4,333 |
|
|
|
4,781 |
|
Income tax expense (benefit) |
|
|
134 |
|
|
|
(1,683 |
) |
Depreciation and amortization expense |
|
|
3,819 |
|
|
|
5,568 |
|
EBITDA |
|
|
6,348 |
|
|
|
7,006 |
|
Impairment loss |
|
|
110 |
|
|
|
— |
|
EBITDAre |
|
|
6,458 |
|
|
|
7,006 |
|
Stock-based compensation expense |
|
|
360 |
|
|
|
214 |
|
Straight-line rent revenue |
|
|
(352 |
) |
|
|
(446 |
) |
Amortization of above and below market lease, net |
|
|
81 |
|
|
|
48 |
|
Non-cash fair value adjustment |
|
|
(3,232 |
) |
|
|
(3,056 |
) |
Adjusted EBITDAre |
|
$ |
3,315 |
|
|
$ |
3,766 |
|
Liquidity and Capital Resources
Overview
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay any outstanding borrowings, fund and maintain our assets and operations and other general business needs.
Our short-term liquidity requirements consist primarily of debt service requirements, operating expenses, recurring capital expenditures (such as repairs and maintenance of our properties), and non-recurring capital expenditures (such as capital improvements and tenant improvements). As of March 31, 2024 and May 8, 2024, we had unrestricted cash and cash equivalents of approximately $14.6 million and $20.0 million, respectively, and restricted cash of approximately $2.7 million and $5.2 million, respectively, which is available for debt service shortfall requirements, certain capital expenditures, real estate taxes and insurance.
As of March 31, 2024, we had two mortgage loans (Hollinswood Shopping Center Loan and Brookhill Azalea Shopping Center Loan) with a combined principal balance outstanding of approximately $21.6 million that will mature within twelve months of the date that the condensed consolidated financial statements included in this report are issued. Management is in discussions with the current lenders as well as various other lenders to extend or refinance these two mortgage loans prior to maturity. Although we have a history of demonstrating our ability to successfully refinance our loans as they come due, there can be no assurances that we will be successful in our efforts to refinance the loans on favorable terms or at all. While it is not our current plan, we also have the option to sell the properties securing the loans and use the proceeds to satisfy the outstanding loan obligations. If we are ultimately unable to repay or refinance these loans or sell the properties prior to maturity, the lender has the right to place the loans in default and ultimately foreclose on the properties securing the loans. Under this circumstance, we would not have any further financial obligations to the lenders as the current estimated market values of these properties are in excess of the outstanding loan balances.
In addition, as of March 31, 2024, the Basis Term Loan had an outstanding principal balance of $8.5 million and had a maturity date of July 1, 2024. On April 30, 2024, we received a loan secured by the properties that were collateral for the Basis Term Loan and paid off the Basis Term Loan with a portion of the proceeds from the new mortgage loan.
Our long-term liquidity requirements are expected to consist primarily of funds necessary for the repayment of debt at or prior to maturity, capital improvements, development and/or redevelopment of properties and property acquisitions. We expect to meet our
33
long-term liquidity requirements through net cash from operations, additional secured and unsecured debt and, subject to market conditions, the issuance of additional shares of common stock, preferred stock or OP units.
Our access to capital depends upon a number of factors over which we have little or no control, including general market conditions, the market’s perception of our current and potential future earnings and cash distributions, our current debt levels and the market price of the shares of our common stock. Although our common stock is quoted on the OTCQX Best Market, there is a very limited trading market for our common stock, and if a more active trading market is not developed and sustained, we will be limited in our ability to issue equity to fund our capital needs. If we cannot obtain capital from third-party sources, we may not be able to meet the capital and operating needs of our properties, satisfy our debt service obligations or pay dividends to our stockholders.
As described below, under our existing debt agreements, we are subject to continuing covenants. In the event of a default, the lenders could accelerate the timing of payments under the applicable debt obligations, and we may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on our liquidity, financial condition and results of operations. As of March 31, 2024, we were in compliance with all of the other covenants under our debt agreements.
Consolidated Indebtedness and Preferred Equity
Indebtedness Summary
The following table sets forth certain information regarding our outstanding indebtedness as of March 31, 2024:
(dollars in thousands) |
|
Maturity Date |
|
Rate Type |
|
Interest Rate |
|
Balance Outstanding at March 31, 2024 |
|
|
|
Basis Term Loan |
|
July 1, 2024 |
|
Floating (1) |
|
8.62% |
|
$ |
8,512 |
|
(2) |
Hollinswood Shopping Center Loan |
|
December 1, 2024 |
|
SOFR + 2.36% (3) |
|
4.06% |
|
|
12,354 |
|
|
Avondale Shops Loan |
|
June 1, 2025 |
|
Fixed |
|
4.00% |
|
|
2,838 |
|
|
Vista Shops at Golden Mile Loan (net of discount of $101) (4) |
|
February 8, 2029 |
|
Fixed |
|
6.90% |
|
|
16,049 |
|
|
Brookhill Azalea Shopping Center Loan |
|
January 31, 2025 |
|
SOFR + 2.75% |
|
8.08% |
|
|
9,197 |
|
|
Crestview Shopping Center Loan (net of discount of $48) |
|
September 29, 2026 |
|
Fixed |
|
7.83% |
|
|
11,952 |
|
|
Lamar Station Plaza West Loan (net of discount of $90) |
|
December 10, 2027 |
|
Fixed |
|
5.67% |
|
|
18,817 |
|
|
Highlandtown Village Shopping Center Loan (net of discount of $36) |
|
May 10, 2028 |
|
SOFR + 2.5% (5) |
|
6.085% |
|
|
8,714 |
|
|
Cromwell Field Shopping Center Loan (net of discount of $56) |
|
December 22, 2027 |
|
Fixed |
|
6.71% |
|
|
12,320 |
|
|
Midtown Row Loan (net of discount of $18) |
|
December 1, 2027 |
|
Fixed |
|
6.48% |
|
|
75,982 |
|
|
Midtown Row/Fortress Mezzanine Loan (6) |
|
December 1, 2027 |
|
Fixed |
|
13.00% (7) |
|
|
13,435 |
|
|
Coral Hills Shopping Center Loan (net of discount of $184) |
|
October 31, 2033 |
|
Fixed |
|
6.95% |
|
|
12,517 |
|
|
West Broad Shopping Center Loan (net of discount of $86) |
|
December 21, 2033 |
|
Fixed |
|
7.00% |
|
|
11,671 |
|
|
The Shops at Greenwood Village (net of discount of $76) |
|
October 10, 2028 |
|
SOFR + 2.85% |
|
5.85% |
|
|
22,075 |
|
|
|
|
|
|
|
|
|
|
$ |
236,433 |
|
|
Unamortized deferred financing costs, net |
|
|
|
|
|
|
|
|
(2,161 |
) |
|
Total Mortgage and Other Indebtedness |
|
|
|
|
|
|
|
$ |
234,272 |
|
|
34
As of March 31, 2024 and December 31, 2023, we had approximately $214.5 million and $208.4 million, respectively, of outstanding mortgage indebtedness secured by individual properties. The Hollinswood mortgage, Vista Shops mortgage, Brookhill mortgage, Crestview mortgage, Highlandtown mortgage, Cromwell mortgage, Lamar Station Plaza West mortgage, Midtown Row mortgage, Coral Hills mortgage, West Broad mortgage and Greenwood Village mortgage require the Company to maintain a minimum debt service coverage ratio (as such term is defined in the respective loan agreements) as follows in the table below.
|
|
Minimum Debt Service Coverage |
Hollinswood Shopping Center |
|
1.40 to 1.00 |
Vista Shops at Golden Mile |
|
1.25 to 1.00 |
Brookhill Azalea Shopping Center |
|
1.30 to 1.00 |
Crestview Shopping Center |
|
1.25 to 1.00 |
Highlandtown Village Shopping Center |
|
1.25 to 1.00 |
Cromwell Field Shopping Center (1) |
|
1.20 to 1.00 |
Lamar Station Plaza West |
|
1.30 to 1.00 |
Midtown Row |
|
1.15 to 1.00 |
Coral Hills Shopping Center |
|
1.20 to 1.00 |
West Broad Shopping Center |
|
1.25 to 1.00 |
The Shops at Greenwood Village |
|
1.40 to 1.00 |
On April 30, 2024, we received a $19.2 million loan secured by Midtown Colonial and Midtown Lamonticello, which bears interest at a rate of 7.92% per annum and matures on May 1, 2027. We used a portion of the proceeds from the new mortgage loan to pay off the Basis Term Loan.
As of March 31, 2024, we were in compliance with all covenants under our debt agreements.
See Note 7, “Debt” for further information.
Fortress Preferred Equity Investment
On November 22, 2022, the Company, the Operating Partnership and Broad Street Eagles JV LLC, a newly formed subsidiary of the Operating Partnership (the “Eagles Sub-OP”), entered into a Preferred Equity Investment Agreement with CF Flyer PE Investor LLC (the “Fortress Member”), an affiliate of Fortress Investment Group LLC, pursuant to which the Fortress Member invested $80.0 million in the Eagles Sub-OP in exchange for a preferred membership interest (such interest, the “Fortress Preferred Interest” and such investment, the “Preferred Equity Investment”).
In connection with the Preferred Equity Investment, the Operating Partnership and the Fortress Member entered into the Eagles Sub-OP Operating Agreement, and the Operating Partnership contributed to the Eagles Sub-OP its subsidiaries that, directly or indirectly, own Brookhill Azalea Shopping Center, Vista Shops, Hollinswood Shopping Center, Avondale Shops, Greenwood Village Shopping Center and Lamar Station Plaza East in November 2022, as well as Cromwell Field in December 2022. Pursuant to the Eagles Sub-OP Operating Agreement, the Operating Partnership had the obligation to contribute to the Eagles Sub-OP its direct or indirect subsidiaries owning eight properties. As of March 31, 2024, the Operating Partnership had contributed to the Eagles Sub-OP its subsidiaries that own Highlandtown, Crestview, Coral Hills and West Broad and, with the approval of the Fortress Member, sold Spotswood and Dekalb Plaza. On April 30, 2024, the Operating Partnership contributed to the Eagles Sub-OP its subsidiaries that own Midtown Colonial and Midtown Lamonticello, the last remaining properties required to be contributed to the Eagles Sub-OP.
Pursuant to the Amended and Restated Limited Liability Company Agreement of the Eagles Sub-OP (the “Eagles Sub-OP Operating Agreement”), the Fortress Member is entitled to monthly distributions, a portion of which is paid in cash (the “Current Preferred Return”) and a portion that accrues on and is added to the Preferred Equity Investment each month (the “Capitalized Preferred Return” and, together with the Current Preferred Return, the “Preferred Return”). The initial Preferred Return was 12% per annum, comprised of a 5% Current Preferred Return and a 7% Capitalized Preferred Return, provided that, until the Portfolio Excluded Properties were contributed to the Eagles Sub-OP, the Capitalized Preferred Return was increased by 4.75%. The Capitalized Preferred Return increases each year by 1%. Commencing on November 22, 2027, the Preferred Return will be 19% per annum, all payable in cash, and will increase an additional 3% each year thereafter. Upon (i) the occurrence of a Trigger Event, (ii) during a three-month period in which distributions on the Preferred Equity Investment are not made because such payments would cause a violation of Delaware law or (iii) if a Qualified Public Offering has not occurred on or prior to November 22, 2027, the entire Preferred Return shall accrue at the then-applicable Preferred Return plus 4% and shall be payable monthly in cash. As of March 31, 2024, the Capitalized
35
Preferred Return was approximately $13.2 million and is reflected within Redeemable noncontrolling Fortress preferred interest on the condensed consolidated balance sheets. For the three months ended March 31, 2024 and 2023, we recognized $1.2 million and $1.0 million, respectively, of Current Preferred Return and $1.8 million and $2.4 million, respectively, of Capitalized Preferred Return, as a reduction to additional paid-in capital in the condensed consolidated statements of equity.
See Note 9 “Fortress Preferred Equity Investment” for further information.
Cash Flows
The table below sets forth the sources and uses of cash reflected in our condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023.
|
|
For the Three Months Ended March 31, |
|
|
|
|
||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
Cash and cash equivalents and restricted cash at beginning of period |
|
$ |
13,797 |
|
|
$ |
17,031 |
|
|
$ |
(3,234 |
) |
Net cash from operating activities |
|
|
1,296 |
|
|
|
(612 |
) |
|
|
1,908 |
|
Net cash from investing activities |
|
|
(2,285 |
) |
|
|
(1,086 |
) |
|
|
(1,199 |
) |
Net cash from financing activities |
|
|
4,473 |
|
|
|
(1,487 |
) |
|
|
5,960 |
|
Cash and cash equivalents and restricted cash at end of period |
|
$ |
17,281 |
|
|
$ |
13,846 |
|
|
$ |
3,435 |
|
Operating Activities- Cash from operating activities increased by approximately $1.9 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Operating cash flows were primarily impacted by a net decrease in changes in operating assets and liabilities of approximately $1.9 million, of which approximately $2.6 million was related to the net change in accounts payable. This increase was partially offset by approximately $0.5 million changes in deferred revenue and $0.3 million changes to other assets.
Investing Activities- Cash from investing activities during the three months ended March 31, 2024 decreased by approximately $1.2 million compared to the three months ended March 31, 2023. This decrease resulted primarily from a $1.7 million increase in capital expenditures for real estate during the three months ended March 31, 2024 as compared to the corresponding period in 2023. This decrease was partially offset by approximately $0.5 million from insurance proceeds relating to fire damage at one of our retail properties.
Financing Activities- Cash from financing activities during the three months ended March 31, 2024 increased by approximately $6.0 million compared to the three months ended March 31, 2023. The increase resulted primarily from (i) a net increase in the Vista Shops at Golden Mile Loan of approximately $4.9 million from the refinance of the loan and (ii) additional draws of $1.7 million relating to the Cromwell Field Shopping Center Loan. These increases were partially offset by a decrease in scheduled principal payments on loans of approximately $0.1 million as compared to the corresponding period in 2023 and approximately $0.4 million increase in debt origination and discount fees for the three months ended March 31, 2024.
36
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined in Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision of and with the participation of our management, including our Chief Executive Officer, who is our principal executive officer, and our Chief Financial Officer, who is our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2024, the end of the period covered by this report. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms promulgated by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of March 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level described above.
Changes in Internal Control Over Financial Reporting
During the three months ended March 31, 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in various claims and legal actions in the ordinary course of business. We are not currently involved in any material legal proceedings outside the ordinary course of our business.
Item 1A. Risk Factors
There have been no material changes to the risk factors that were disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended March 31, 2024, no director or officer of the Company
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Item 6. Exhibits
Exhibit Number |
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Description |
3.1 |
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3.2 |
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10.1 |
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31.1* |
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2* |
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1** |
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101* |
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Inline XBRL (Extensible Business Reporting Language). The following materials from this Quarterly Report on Form 10-Q for the period ended March 31, 2024, formatted in Inline XBRL: (i) condensed consolidated balance sheets of Broad Street Realty, Inc., (ii) condensed consolidated statements of operations of Broad Street Realty, Inc., (iii) condensed consolidated statements of comprehensive loss of Broad Street Realty, Inc., (iv) condensed consolidated statements of changes in equity of Broad Street Realty, Inc., (v) condensed consolidated statements of cash flows of Broad Street Realty, Inc. and (vi) notes to condensed consolidated financial statements of Broad Street Realty, Inc. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document |
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104* |
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Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document |
________________________________________
* Filed herewith
** Furnished herewith
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BROAD STREET REALTY, INC. |
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Date: May 15, 2024 |
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By: |
/s/ Michael Z. Jacoby |
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Michael Z. Jacoby |
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Chief Executive Officer |
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(principal executive officer) |
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Date: May 15, 2024 |
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By: |
/s/ Alexander Topchy |
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Alexander Topchy |
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Chief Financial Officer and Secretary |
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(principal financial and accounting officer) |
40
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Z. Jacoby, certify that:
Date: May 15, 2024 |
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By: |
/s/ Michael Z. Jacoby |
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Michael Z. Jacoby |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alexander Topchy, certify that:
Date: May 15, 2024 |
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By: |
/s/ Alexander Topchy |
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Alexander Topchy |
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Chief Financial Officer and Secretary |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, for the purposes of 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned’s best knowledge and belief, the Quarterly Report on Form 10-Q of Broad Street Realty, Inc. (“Company”) for the period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”):
Date: May 15, 2024 |
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By: |
/s/ Michael Z. Jacoby |
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Michael Z. Jacoby |
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Chief Executive Officer |
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By: |
/s/ Alexander Topchy |
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Alexander Topchy |
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Chief Financial Officer and Secretary
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