InPoint Commercial Real Estate Income, Inc 8-K, filed Dec 8, 2022
InPoint Commercial Real Estate Income, Inc. (ICR-PA)
About this 8-K
InPoint Commercial Real Estate Income, Inc filed this 8-K on December 8, 2022.
Items reported
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
UNITED STATES
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| Item 7.01. | Regulation FD Disclosure. |
On December 8, 2022, InPoint Commercial Real Estate Income, Inc. (the “Company”) held a webinar for registered representatives to review the Company’s financial results for the three months ended September 30, 2022, as well as to provide a portfolio update. A copy of the presentation materials used during the webinar and a transcript of the webinar are attached as Exhibits 99.1 and 99.2, respectively, to this Current Report on Form 8-K. Each of the copy of the presentation materials and the transcript of the webinar is incorporated herein solely for purposes of this Item 7.01 disclosure.
Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission, the information in this Item 7.01 disclosure, including Exhibits 99.1 and 99.2 and the information set forth therein, is deemed to have been furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. Such information shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
| 99.1 | Presentation Materials of InPoint Commercial Real Estate Income, Inc. dated December 8, 2022 | |
| 99.2 | Transcript of Webinar of InPoint Commercial Real Estate Income, Inc. dated December 8, 2022 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| INPOINT COMMERCIAL REAL ESTATE INCOME, INC. | ||||||
| Date: December 8, 2022 | By: | /s/ Catherine L. Lynch | ||||
| Catherine L. Lynch | ||||||
| Chief Financial Officer | ||||||
Exhibit 99.1 InPoint Commercial Real Estate Income, Inc. Third Quarter 2022 Results December , 2022 This sales and advertising literature is neither an offer to sell nor a solicitation of an offer to buy securities. An offering is made only by the prospectus. This literature must be read in conjunction with the prospectus in order to fully understand all of the implications and risks of the offering of securities to which the prospectus relates. A copy of the prospectus must be made available to you in connection with any offering. No offering is made except by a prospectus filed with the Department of Law of the State of New York. Neither the Securities and Exchange Commission, the Attorney General of the State of New York, nor any other state securities regulator has approved or disapproved of these securities or determined if the prospectus is truthful or complete. Any representation to the contrary is a criminal offense. There is no assurance that we will achieve our investment objectives. Past performance is not a guarantee of future results.
Risk Factors Consider Before Investing Investments in commercial real estate (CRE) credit and related securities (e.g., CMBS) are subject to the risks typically associated with the CRE underlying the investment, which include, but are not limited to: market risks such as local property supply and demand conditions; tenants’ inability to pay rent; tenant turnover; inflation and other increases in operating costs; adverse changes in laws and regulations; relative illiquidity of real estate investments; changing market demographics; acts of nature such as earthquakes, floods or other uninsured losses; interest rate fluctuations; and availability of financing. Investing in our common stock involves a high degree of risk. You should purchase these securities only if you can afford the complete loss of your investment. You should carefully review the “Risk Factors” section of the prospectus for a more detailed discussion. Some of the more significant risks relating to an investment in our shares include: · This is a “blind pool” offering. You will not have the opportunity to evaluate our future investments before we make them. · Since there is no public trading market for shares of our common stock, repurchase of shares by us will likely be the only way to dispose of your shares. Our share repurchase plan was suspended by our board of directors on March 24, 2020 because of the effects of the COVID-19 pandemic and was not reinstated for all stockholders until July 1, 2021. Under our share repurchase plan, stockholders who have held their shares at least one year have the opportunity to request that we repurchase their shares on a monthly basis, but we are not obligated to repurchase any shares and may choose to repurchase only some, or even none, of the shares that have been requested to be repurchased in any particular month at our discretion. In addition, repurchases are subject to available liquidity and other significant restrictions. Further, our board of directors may modify, suspend or terminate our share repurchase plan if it deems such action to be in our best interest and the best interest of our stockholders. As a result, our shares should be considered as having only limited liquidity and at times may be illiquid. · We cannot guarantee that we will make distributions, and if we do, such distributions have been and may again be funded from sources other than earnings and cash flow from operations, including, without limitation, the sale of assets, borrowings, repayment of real estate debt investments, return of capital or offering proceeds, and advances or the deferral of fees and expense reimbursements, and we have no limits on the amounts we may pay from such sources. Our earnings have not covered and may again not cover all of our distributions. The use of sources other than cash flow from operations to pay distributions, the ultimate repayment of any liabilities incurred, and paying distributions that are not covered by earnings could adversely impact our ability to pay distributions in future periods, decrease our NAV, decrease the amount of cash we have available for operations and new investments and adversely impact the value of our stockholders’ investments. 2
Risk Factors Consider Before Investing (continued) · The purchase and repurchase price for shares of our common stock are generally based on our prior month’s NAV and are not based on any public trading market. A substantial portion of our assets consists of CRE debt that is valued by our Advisor, with the assistance of the Sub-Advisor, using factors that are periodically validated by an independent third party. The valuation of our investments is inherently subjective, and our NAV may not accurately reflect the actual price at which our investments could be liquidated on any given day. · We have no employees and are dependent on the Advisor and the Sub-Advisor to conduct our operations. The Advisor and the Sub-Advisor will face conflicts of interest as a result of, among other things, the allocation of investment opportunities among us and Other Sound Point Accounts, the allocation of time of their investment professionals and the substantial fees that we pay to the Advisor and that the Advisor pays to the Sub-Advisor. · This is a “best efforts” offering. If we are not able to raise a substantial amount of capital on an ongoing basis, our ability to achieve our investment objectives could be adversely affected. · Principal and interest payments on our borrowings will reduce the amount of funds available for distribution or investment in our targeted assets. · If we fail to maintain our qualification as a REIT and no relief provisions apply, we will have to pay corporate income tax on our taxable income (which will be determined without regard to the dividends-paid deduction available to REITs) and our NAV and cash available for distribution to our stockholders could materially decrease. · The COVID-19 pandemic adversely affected the economy and our operations, including causing decreases in the fair value of the collateral underlying our investments, and may have additional adverse effects in the future. · We own the Renaissance Chicago O’Hare Suites Hotel, and for so long as we own hotels or invest in loans secured by hotels and securities collateralized by hotels, we will be exposed to the unique risks of the hospitality sector, including seasonality, volatility and the severe reduction in occupancy caused by the COVID- 19 pandemic. 3
Forward-Looking Statements This website and other communications by InPoint Commercial Real Estate Income, Inc. or its representatives may contain “forward-looking statements,” which are not statements of fact. These statements may be identified by terminology such as “hope, “may,” “can,” “would,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “seek,” “appear,” or “believe.” Such statements reflect our current view with respect to future events and are subject to certain risks, uncertainties and assumptions related to numerous factors including, without limitation, risks related to blind pool offerings, best efforts offerings, use of short-term financing, borrower defaults, changing interest rates, the effects of the COVID-19 pandemic, particularly on hospitality and retail properties, including our hotel, and on related mortgage loans and securities, and other factors detailed under Risk Factors in our prospectus, if you are purchasing securities from us, or our most recent Form 10-K and subsequent Form 10-Qs on file with the SEC and available online at www.sec.gov or our website at https://inland-investments.com/inpoint/sec-filings. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. You should exercise caution when considering forward-looking statements and not place undue reliance on them. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described on the website. Except as required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date they are first made. 4
Featured Speakers Denise Kramer, CFA Don MacKinnon Matt Donnelly SVP, Investment Product Research Portfolio Manager Head of Capital Markets Inland Securities Corporation Sound Point Capital Management, LP Sound Point Capital Management, LP 5
Portfolio Highlights Q3 2022 st Average Investment Range of Investment Historical 1 Mortgage 1 Portfolio Size 1 Balance Balances Loan Payoffs $833M $19.4M $6-$47.7M 23 Loans 3 Average Leverage Ratio st st 1 Mortgage Weighted Historical 1 Mortgage 1 Investments 2 70.5% Avg. Years to Maturity Loan Payoff Amount Weighted average of loan-to-value 43 at origination based on current 1.56 Years $398M loan balance 1 Portfolio size is based on the unpaid principal balance of our debt investments and the fair value of our real estate owned (REO) in each case as of September 30, 2022. Portfolio size, average investment balance and number of investments include our REO. 2 1st mortgage weighted average years to maturity based on current loan balance as of September 30, 2022 and the maturity date assuming no options to extend are exercised. See our Form 10-K or 10-Q most recently filed with the SEC for maximum maturities assuming all extensions are exercised. 3 Weighted average of the loan to values at origination, based on current loan balance as of September 30, 2022. 6
Q3 2022 Portfolio Highlights Loans by Floating vs. Fixed Rate 2% Fixed Rate 98% Floating Rate Based on the par value of loan investments as of September 30, 2022. Subject to change without notice. *The senior position does not protect against default, and losses may still occur. Past performance is not a guarantee of future results, and there is no assurance that we will achieve our investment objectives. 7
Q3 2022 Portfolio Highlights Investments by Type 2% 2% Credit Loans REO 96% st st 1 1Mortg Mora tga gege Loans Investments by type are based on the par value of loan investments and the fair value of REO as of September 30, 2022. Subject to change without notice. First mortgage loans finance commercial real estate properties and are loans that generally have the highest priority lien among the loans in a foreclosure proceeding on the collateral securing the loan. The senior position does not protect against default, and losses may still occur. Credit loans, also called mezzanine loans, are secured by one or more direct or indirect ownership interests in an entity that directly or indirectly owns real estate. REO, which stands for “real estate owned,” represents real estate we have acquired through foreclosure, deed-in-lieu of foreclosure, or 8 purchase.
Q3 2022 Portfolio Highlights Loans by Region 1% Great 3% New Lakes 5.0% England 5% Plains 10% 26% Mid-Atlantic Southwest 17% West 38% Southeast Based on the par value of loan investments as of September 30, 2022. Subject to change without notice. 9
Q3 2022 Portfolio Highlights Loans by Property Type 2% Hospitality 7% Industrial 5% Mixed Use 5% Retail 25% Office 56% Multifamily Based on the par value of loan investments as of September 30, 2022. Subject to change without notice. 10
New Origination Highlight Recent Loan Origination Alcove Garner Apartments, Garner, NC The Loan: $27 million initial funding and future funding of $1.06 million for a total loan commitment of $28.06 million Loan Terms: 1-month SOFR + 3.90%, 3 years + two 1-year extension options The Property: 170-unit multifamily property located in Garner, NC Occupancy: 91.8% as of August 2022 Location: Located in the Raleigh, NC MSA The Borrower: Commercial real estate firm that focuses on acquiring, renovating, and managing undervalued properties across TX, NC and SC. Property Highlights: Built in 2014, the property has been well-maintained with occupancy in the high 90% range over the last few years but is facing competition from new construction. Business plan focuses on renovation of 59% of the total 170 units and enhancement of the common area amenities. 11
SOFR Forward Curve 1-Month Term SOFR Forward Curve 12 Source: https://www.chathamfinancial.com/technology/us-forward-curves Data available upon request.
Capital Markets Update • Transitional loans are pricing ~100bps wider than last year • LTVs are decreasing on new originations and borrower extensions • 1‐month Term SOFR ~4% after four consecutive 75bps increases in the Fed funds rate • Economic overview o Inflation numbers starting to ease o Potential for a 50bps increase by the Source: WSJ – Fed’s Aggressive Rate Hikes Are a Game Changer Fed in December 13
Thank you!
Exhibit 99.2
Denise Kramer (00:00):
Good afternoon and welcome to the InPoint Commercial Real Estate Income Q3 Update webinar. My name is Denise Kramer. I’m president of the Inland InPoint Advisor, and I’m joined today by Don MacKinnon, portfolio Manager and president of the REIT and Matt Donnelley, portfolio manager and head of originations for the REIT. Before we get started on our update, there is a brief disclosure that I need to read through as a reminder of some of the points that we’ll be discussing. Today’s discussion may include forward looking statements, which are uncertain and are subject to circumstances outside of the company’s control. Words such as may, expect, intend, believe, estimate, and similar expressions are intended to identify forward looking statements. Actual results may differ materially from what is predicted or expected in a forward looking statement for a discussion of some of the risks that could affect results, please see the risk factor section of our prospectus or our most recent 10-K and subsequent 10-Qs filed with the SEC and available on our website. We do not undertake any duty to update forward looking statements made during today’s discussion. So let’s get started on the portfolio update. Matt, do you want to walk through the portfolio status as of 9/30?
Matt Donnelly (01:10):
Sure. Thanks Denise. So at the end of the third quarter we had a portfolio size of 833 million in 43 investments with an average investment balance of 19.4 million. Those investments had an average weighted average maturity of 1.56 years. The range of investments were from 6 million to 47.7 million with an average leverage ratio of 70.5%. The historical first mortgage loan payoffs totaled 23 loans in at a, at a total balance paid off at 398 million. Next I’ll give you a breakdown of the portfolio as was always the plan here at InPoint, the vast majority of the investments are in floating rate investments with 98% 2% coming in fixed rate investments. As far as investments by type again, the vast majority, 96% are in first mortgage loans, 2% in credit loans, and 2% is within REO or real estate owned that is the Renaissance Hotel, which is at stable performance. As far as loans in the portfolio by regional breakdown we, we feel we’re fairly diversified with 38% of our investments in the southeast region, 26% in the southwest, 17% in the western region, 10% in the mid-Atlantic, 5% in the plains, 3% in New England, and 1% in the Great Lakes.
(02:55):
And then as far as the loans by property type at the end of third quarter, again fairly diversified with 56% of investments in multifamily assets, 25% in office, 7% in industrial, 5% in retail, 5% in mixed use, and 2% in hospitality.
Denise Kramer (03:19):
Right. Thank you Matt. Perfect. And so interest rates have increased significantly with four consecutive increases of 75 basis points by the Fed and around the commercial real estate industry, we’ve seen the impact of that on the equity side, but Don, can you talk a little bit about how that’s affected things on the, on the lending side of the industry and maybe what we’re anticipating from a forward interest rate curve perspective?
Don MacKinnon (03:48):
Sure. that obviously is a very relevant question. As Matt mentioned, our focus is on floating rate loans and our typical loans priced over one month SOFR. A year ago essentially, SOFR was close to zero and today it’s at in the neighborhood of 4%. It has really moved in lockstep with the federal reserves move in the federal funds rate. Federal funds rate has gone up 375 basis points in the last nine months to get us to this level. So we, we like the fact that this is really benefiting the mortgage market. The expectation in the current market is that we will see another a hundred basis point move in fed funds rates, which is going to lead to a SOFR peaking out somewhere in the middle of next year, around 5%, and it is expected to remain high through the next two years, so through 2023 and 2024, which is really beneficial to floating rate mortgages.
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(04:59):
Now, the impact on the commercial real estate lending world is that higher rates really slow down some of the overall transaction activity, meaning buyers and sellers of real estate. And if you think of it, you know, a year ago versus today a year ago the index was 375 basis points lower. A year ago, the spread over the index was somewhere in the neighborhood of a hundred basis points lower. So a buyer’s cost of funds is basically up in the neighborhood of four and three quarters percent. And so that has a natural chilling effect on the buyers and sellers of real estate, meaning the number of transactions. With that said there’s ample transactions in the market and there is enough activity for us to remain very active in our lending profile and able to achieve what we believe are very attractive rates.
Denise Kramer (06:03):
Great. Any other commentary that you wanted to give just from an overall economic perspective and how that’s impacting the portfolio in in lending?
Don MacKinnon (06:12):
Yes. You, you, you see on the chart on this slide a a little bit of history in the Fed making their moves and it stands out that the Fed moves over the last nine months have been the most aggressive moves that the Fed hasn’t made in a very, very long time. And you know, it, it’s got the capital markets in turmoil. People are not sure whether the fed will cause a recession or not. We watch that all the time. You know, if you look at employment numbers that we’ve seen they still remain favorable. If you look at or listen to Black Friday sales data from last week very high, so we don’t see a recession in the near term. That’s not to say future fed moves will not cause one but we don’t see one in the, in the very near term which we think is favorable again for our real estate portfolio or loan portfolio on the real estate that we have. So it’s, it’s an interesting market. We believe it’s a very good market for floating right investments.
Denise Kramer (07:24):
Great. So given that an industry backdrop that Don just gave, Matt, can you just walk us through the details of a recent loan origination in the portfolio?
Don MacKinnon (07:35):
Sure. So the most recent origination we had was the Alcove Garner Apartments which is located in Garner, North Carolina. This was a 27 million initial funding with a 1.06 million future funding commitment totaling 28.06 million total loan that we made last month. The loan terms were the one month SOFR index plus 390 basis points. Again, as, as Don said this is about a hundred basis points higher than a similar loan originated a year ago. The terms were three years initial term with two one year extensions. The property is 170 units as I said, located in Garner, North Carolina. The at closing the property exhibited an occupancy rate of 91.8%. The property’s located in the Raleigh MSA, the Raleigh North Carolina MSA. The borrower here was a commercial real estate firm that focuses on acquiring, renovating, and managing assets in the Texas market as well as North Carolina and South Carolina. This property was built in 2014, has been well maintained with occupancy generally running above 90% and has fared well against new con competition in the market from new newly constructed assets and the business here business plan here from the sponsors to renovate approximately 60% of the units. And it improved some of the common area amenities at the asset.
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Denise Kramer (09:15):
Okay, great. So with this loan in mind, and as you think about these changing market conditions that you’ve talked about, how, I’m sure your underwriting process from a procedural perspective hasn’t changed, but how is the team incorporating these it rapid changes in interest rates and then what we’re projecting for the next 12 to 18 months? How is that incorporated into the underwriting process and where, what we’re expecting from each of the borrowers?
Matt Donnelly (09:47):
Yeah, so obviously the, the, the first answer is changing the interest rate assumptions within the underwriting model. So obviously we’re using the current, so SOFR for the initial, you know, DSCR that’s on the asset when we close, but then of course we’re looking at forward cash flows during our loan term and, and using the forward SOFR curve to do that forward DSCR analysis as well. So that obviously has an impact as rates go up we adjust our underwriting based on that anticipated increase in interest rates. We’re also being very conservative on rental growth assumptions especially if we’re looking at a multifamily asset here on the slide. Multifamily has seen a tremendous increase across most markets in this country and in rental rates because of lack of housing in the country nationally. We are tempering back our underwritten rental increases for all loans in anticipation of a slowdown in that rental growth. And what these adjustments in underwriting do is they lower the amount of leverage we’ll give to a borrower for any acquisition that they’re pursuing. And obviously we require higher structural or more, more conservative structural elements of the loan, such as a higher interest reserve when we close.
Denise Kramer (11:06):
Ok, great. And then for those loans that are currently in the portfolio that are about to reach their maturity, can you talk a little bit about the extension process and what we’re requiring from some of the borrowers? Because obviously it, they’re probably less likely to try to get to a new lender because of the current market conditions. So talk about it, what kind of requirements you have for borrowers that are looking to extend in this current environment.
Matt Donnelly (11:37):
So the all of our loans have certain underwriting metrics that the loan has to achieve in order to for the borrower to qualify for an extension. So as we see here on this loan, there’s a three year initial term with two one year extensions. In order to qualify for those, those extensions, there’s certain hurdles such as debt yield and DSCR metrics that the loan has to achieve in order to have that extension as of right. So that’s a pretty straightforward conversation with a sponsor. Either they qualify or they don’t. If they don’t qualify and they’re looking for some kind of modification, well then it goes back to underwriting and we re underwrite the loan based on the current, the current metrics at the asset, and we will propose a new basically new loan terms that qualify under our existing program with our investment committee to get some kind of modified extension. Those extensions usually require modified extension, usually require some pay down of principle and probably an adjustment of the spread as just two of the many things we may ask for from a sponsor in that scenario.
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Denise Kramer (12:42):
Okay. So you’re, you mentioned on the, on the recent loans that you’re originating that the LTV tends to be lower and it sounds like through those current loan extensions you’re also getting lower LTVs out of those, those target loans as well?
Matt Donnelly (12:55):
Correct. Again, as two different scenarios and as of right extension, generally we’ll have a lower LTV in, in that we’re requiring at origination, even on loans that we originated several years ago, we require a higher underwriting hurdle in order to achieve an extension, so that’s higher than what was required at the closing. So that inherently means that the, there’s more value at the asset to qualify for the extension and then on any bespoke or modified extension, then obviously we’re doing the same underwriting we do today, which takes into consideration the interest rates, rental growth and making those conservative assumptions that will then probably, maybe not always, but may require principal data.
Denise Kramer (13:36):
Okay. So are you on those extensions, are you requiring updated appraisals to make sure that your LTV is updated based on, especially with any renovations that they’ve done since the loan was originated, or how, how is your updated LTV calculated?
Matt Donnelly (13:53):
It’s case by case most likely we’ll order a new appraisal on a modified extension for an as of right extension. You know, we’re monitoring these assets every quarter, sometimes monthly. So we have a pretty good idea of what’s happening at the asset. And when we do those quarterly asset reviews, we are looking at what’s going on in the market and we have an understanding of, we believe we have an understanding of where values are each quarter as we look at our portfolio. So when we come up to an extension, it’s not that we haven’t looked at this loan for three years, we’re looking at it quarterly and we usually have a sense or an opinion of where we think value is.
Denise Kramer (14:28):
Gotcha. Okay. Well great. I think that’s all that we have the time for today. Thank you everybody for joining us. We appreciate your time and we’ll talk to you again next quarter. Thank you guys.
Don MacKinnon (14:41):
Thank you. Bye.
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