InPoint Commercial Real Estate Income, Inc 10-Q for FY2024 Q1
InPoint Commercial Real Estate Income, Inc. (ICR-PA)
About this 10-Q
InPoint Commercial Real Estate Income, Inc filed this 10-Q on May 10, 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
- $5.64M
- down 41.0% from $9.55M a year earlier
- Net income
- $3.4M
- down 26.4% from net income of $4.62M a year earlier
- Diluted EPS
- $0.19
- down 38.7% from $0.31 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
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 Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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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Accelerated filer |
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Smaller Reporting Company |
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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 9, 2024, the Registrant had the following shares of common stock outstanding:
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 |
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Unaudited Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 |
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Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
42 |
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Item 4. |
43 |
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PART II OTHER INFORMATION |
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Item 1. |
43 |
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Item 1A. |
43 |
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Item 2. |
43 |
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Item 3. |
45 |
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Item 4. |
45 |
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Item 5. |
45 |
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Item 6. |
46 |
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47 |
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1
INPOINT COMMERCIAL REAL ESTATE INCOME, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts)
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March 31, 2024 |
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December 31, 2023 |
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ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Commercial mortgage loans: |
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Commercial mortgage loans at cost |
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Allowance for credit losses |
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Commercial mortgage loans at cost, net |
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Deferred debt finance costs |
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Accrued interest receivable |
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Prepaid expenses and other assets |
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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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Repurchase agreements |
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$ |
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$ |
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Credit facility payable |
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Loan participations sold, net |
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Accrued interest payable |
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Distributions payable |
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Accrued expenses and other liabilities |
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Total liabilities |
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Stockholders’ Equity: |
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Preferred stock, $ |
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Class P common stock, $ |
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Class A common stock, $ |
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Class T common stock, $ |
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Class S common stock, $ |
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Class D common stock, $ |
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Class I common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements
2
INPOINT COMMERCIAL REAL ESTATE INCOME, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollar amounts in thousands, except per share amounts)
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Three months ended |
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2024 |
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2023 |
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Income: |
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Interest income |
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$ |
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$ |
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Less: Interest expense |
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Net interest income |
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Revenue from real estate |
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Total income |
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Operating expenses: |
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Advisory fee |
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Amortization of debt finance costs |
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Directors compensation |
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Professional service fees |
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Real estate operating expenses |
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Depreciation and amortization |
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Other expenses |
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Total operating expenses |
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Other (loss) income: |
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(Provision for) reversal of credit losses |
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Total other (loss) income |
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Net income |
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Series A Preferred Stock dividends |
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Gain on repurchase and retirement of preferred stock |
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Net income attributable to common stockholders |
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$ |
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$ |
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Net income attributable to common stockholders per share basic and diluted |
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$ |
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$ |
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Weighted average number of shares of common stock |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these consolidated financial statements
3
INPOINT COMMERCIAL REAL ESTATE INCOME, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited, dollar amounts in thousands)
For the Three Months Ended March 31, 2024 |
Par Value |
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Par Value |
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Series A |
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Class P |
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Class A |
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Class T |
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Class S |
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Class D |
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Class I |
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Additional |
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Accumulated Deficit |
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Total |
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Balance as of December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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Offering costs |
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— |
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— |
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— |
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Net 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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Common stock distributions declared |
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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 stock distributions declared |
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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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Equity-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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— |
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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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$ |
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$ |
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$ |
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$ |
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$ |
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For the Three Months Ended March 31, 2023 |
Par Value |
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Par Value |
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Series A |
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Class P |
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Class A |
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Class T |
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Class S |
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Class D |
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Class I |
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Additional |
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Accumulated Deficit |
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Total |
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Balance as of December 31, 2022 |
$ |
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$ |
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$ |
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— |
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$ |
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Total stockholders’ equity at beginning of period, as adjusted |
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Proceeds from issuance of common stock |
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— |
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— |
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Repurchase and retirement of preferred stock |
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Offering costs |
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Net income |
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— |
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Common stock distributions declared |
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— |
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— |
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Preferred stock distributions declared |
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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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Distribution reinvestment |
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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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Equity-based compensation |
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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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$ |
— |
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$ |
— |
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$ |
— |
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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 consolidated financial statements
4
INPOINT COMMERCIAL REAL ESTATE INCOME, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollar amounts in thousands)
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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 income |
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$ |
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$ |
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Adjustments to reconcile net income to cash provided by operations: |
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Provision for (reversal of) credit losses |
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Depreciation and amortization expense |
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Reduction in the carrying amount of the right-of-use asset |
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— |
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Amortization of equity-based compensation |
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Amortization of debt finance costs to operating expense |
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Amortization of debt finance costs to interest expense |
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— |
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Amortization of origination fees |
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— |
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Amortization of loan extension fees |
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Changes in assets and liabilities: |
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Accrued interest receivable |
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Accrued expenses and other liabilities |
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Accrued interest payable |
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Due to related parties |
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Prepaid expenses and other assets |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Origination/funding of commercial loans |
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Loan extension fees received on commercial loans |
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Principal repayments of commercial loans |
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Real estate capital expenditures |
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— |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock |
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— |
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Repurchase of preferred stock |
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— |
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Payment of offering costs |
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Principal repayments of repurchase agreements |
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Proceeds from sale of loan participations |
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— |
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Principal repayments of loan participations |
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— |
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( |
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Debt finance costs |
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— |
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( |
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Distributions paid to common stockholders |
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Distributions paid to preferred stockholders |
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( |
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Net cash used in financing activities |
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Net change in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Amortization of deferred exit fees due to related party |
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$ |
( |
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$ |
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Interest paid |
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$ |
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$ |
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Accrued stockholder servicing fee due to related party |
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$ |
( |
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$ |
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Distribution reinvestment |
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$ |
— |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements
5
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
Note 1 – Organization and Business Operations
InPoint Commercial Real Estate Income, Inc. (the “Company”) was incorporated in Maryland on September 13, 2016 to originate, acquire and manage a diversified portfolio of commercial real estate (“CRE”) investments primarily comprised of (i) CRE debt, including (a) primarily floating-rate first mortgage loans, and (b) subordinate mortgage and mezzanine loans, and participations in such loans and (ii) floating-rate CRE securities, such as commercial mortgage-backed securities (“CMBS”), and senior unsecured debt of publicly traded real estate investment trusts (“REITs”). Substantially all of the Company’s business is conducted through InPoint REIT Operating Partnership, LP (the “Operating Partnership”), a Delaware limited partnership. The Company is the sole general partner and directly or indirectly holds all of the limited partner interests in the Operating Partnership. The Company has elected to be taxed as a REIT for U.S. federal income tax purposes.
The Company is externally managed by Inland InPoint Advisor, LLC (the “Advisor”), a Delaware limited liability company formed in August 2016 that is a wholly owned indirect subsidiary of Inland Real Estate Investment Corporation (“IREIC”), a member of The Inland Real Estate Group of Companies, Inc. The Advisor is responsible for coordinating the management of the day-to-day operations and originating, acquiring and managing the Company’s CRE investment portfolio, subject to the supervision of the Company’s board of directors (the “Board”). The Advisor performs its duties and responsibilities as the Company’s fiduciary pursuant to an amended and restated advisory agreement dated July 1, 2021 among the Company, the Advisor and the Operating Partnership (the “Advisory Agreement”).
The Advisor has delegated certain of its duties to SPCRE InPoint Advisors, LLC (the “Sub-Advisor”), a Delaware limited liability company formed in September 2016 that is a wholly owned subsidiary of Sound Point CRE Management, LP, pursuant to a second amended and restated sub-advisory agreement between the Advisor and the Sub-Advisor dated July 1, 2021. Among other duties, the Sub-Advisor has the authority to identify, negotiate, acquire and originate the Company’s investments and provide portfolio management, disposition, property management and leasing services to the Company. Notwithstanding such delegation to the Sub-Advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the Advisory Agreement, including those duties which the Advisor has not delegated to the Sub-Advisor, such as (i) valuation of the Company’s assets and calculation of the Company’s net asset value (“NAV”); (ii) management of the Company’s day-to-day operations; (iii) preparation of stockholder reports and communications and arrangement of the Company’s annual stockholder meetings; and (iv) monitoring the Company’s ongoing compliance with the REIT qualification requirements for U.S. federal income tax purposes.
On October 25, 2016, the Company commenced a private offering (the “Private Offering”) of up to $
On March 22, 2019, the Company filed a registration statement on Form S-11 (File No. 333-230465) (the “2019 Registration Statement”) with the Securities and Exchange Commission (the “SEC”) to register up to $
On May 3, 2019, the SEC declared effective the 2019 Registration Statement and the Company commenced the IPO. The purchase price per share for each class of common stock in the IPO (Class A, Class I, Class D, Class S and Class T) varied and generally equaled the prior month’s NAV per share, as determined monthly, plus applicable upfront selling commissions and dealer manager fees. Inland Securities Corporation (the “Dealer Manager”), an affiliate of the Advisor, served as the Company’s exclusive dealer manager for the IPO on a best efforts basis.
On September 22, 2021, the Company completed an underwritten public offering of
6
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
On April 28, 2022, the Company filed a registration statement on Form S-11 (File No. 333-264540) (the “2022 Registration Statement”) with the SEC to register up to $
In light of the pace of fundraising in the Second Public Offering and the amount of monthly redemption requests pursuant to the share repurchase plan (the “SRP”), which were in excess of such fundraising, on January 30, 2023, the Board approved, effective immediately, the suspension of the operation of the SRP. In connection with such suspension, the Board also approved the suspension of the sale of shares in the primary portion of the Second Public Offering (the “Primary Offering”), effective immediately, and the suspension of the sale of shares pursuant to the distribution reinvestment plan (the “DRP”), effective as of February 10, 2023. The Primary Offering, the SRP, and the DRP shall each remain suspended unless and until such time as the Board approves their resumption.
Please refer to “Note 14 – Subsequent Events” for updates to the Company’s business after March 31, 2024.
Note 2 – Summary of Significant Accounting Policies
Disclosures discussing all significant accounting policies are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 15, 2024 (the “Annual Report”), under the heading “Note 2 – Summary of Significant Accounting Policies.” See below for discussion of changes to the Company’s significant accounting policies for the three months ended March 31, 2024.
Basis of Accounting
The accompanying consolidated financial statements and related footnotes have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reported periods. Actual results could differ from such estimates.
In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Cash, Cash Equivalents and Restricted Cash
Restricted cash represents cash the Company is required to hold in a segregated account as additional collateral on real estate securities repurchase agreements. As of March 31, 2024 and December 31, 2023,
Allowance for Credit Losses
On
The following table illustrates the impact of adoption ASU 2016-13:
7
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
|
|
January 1, 2023 |
|
|||||||||
|
|
As Reported Under ASU 2016-13 |
|
|
As Reported Pre-Adoption |
|
|
Impact of Adoption |
|
|||
Assets: |
|
|
|
|
|
|
|
|
|
|||
Allowance for credit losses |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|||
Accrued expenses and other liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The allowance for credit losses is recorded in accordance with ASU 2016-13, and is a valuation account that is deducted from the amortized cost basis of loans held-for-investment on the Company’s consolidated balance sheets. Changes to the allowance for credit losses are recognized through net income (loss) on the Company’s consolidated statements of operations. The allowance is based on relevant information about past events, including historical loss experience, current portfolio, market conditions and reasonable and supportable forecasts for the duration of each respective loan. All loans held-for-investment within the Company’s portfolio have some amount of expected loss to reflect the GAAP principal underlying the CECL model that all loans have some inherent risk of loss, regardless of credit quality, subordinate capital or other mitigating factors.
The Company’s loans typically include commitments to fund incremental proceeds to its borrowers over the life of the loan. Those future funding commitments are also subject to an allowance for credit losses. The allowance for credit losses related to future loan fundings is recorded as a component of “Accrued expenses and other liabilities” on the Company’s consolidated balance sheets, and not as an offset to the related loan balance. This allowance for credit losses is estimated using the same process outlined below for the Company’s outstanding loan balances, and changes in this component of the allowance for credit losses similarly flow through the Company’s consolidated statements of operations.
The allowance for credit losses is estimated on a quarterly basis and represents management’s estimates of current expected credit losses in the Company’s investment portfolio. Pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. Estimating an allowance for credit losses is inherently subjective, as it requires management to exercise significant judgment in establishing appropriate factors used to determine the allowance and a variety of subjective assumptions, including (i) determination of relevant historical loan loss data sets, (ii) the expected timing and amount of future loan fundings and repayments, (iii) the current credit quality of loans and operating performance of loan collateral and the Company’s expectations of performance, and (iv) selecting the forecast for macroeconomic conditions.
The Company estimates the analytical portion of its allowance for credit losses by using a probability-weighted quantitative analytical model that considers the likelihood of default and loss-given-default for each individual loan. The analytical model incorporates a third-party licensed database for over 100,000 commercial real estate loans. The Company licenses certain macroeconomic financial forecasts from a third-party to inform its view of the potential future impact that broader macroeconomic conditions may have on the performance of the loans held-for-investment. These macroeconomic factors include unemployment rates, interest rates, price indices for commercial property and other factors. The Company may use one or more of these forecasts in the process of estimating its allowance for credit losses. Selection of these economic forecasts requires significant judgment about future events that, while based on the information available to the Company as of the balance sheet date, are ultimately unknowable with certainty, and the actual economic conditions impacting the Company’s portfolio could vary significantly from the estimates the Company made for the periods presented. Significant inputs to the Company’s estimate of the allowance for credit losses include the reasonable and supportable forecast period and loan specific factors such as debt service coverage ratio, or DSCR, loan-to-value ratio, or LTV, remaining contractual loan term, property type and others. In addition, the Company also considers relevant loan-specific qualitative factors to estimate its allowance for credit losses.
8
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
Note 3 – Commercial Mortgage Loans Held for Investment
The following tables show a summary of the Company’s commercial mortgage loans held for investment as of March 31, 2024 and December 31, 2023:
March 31, 2024
Loan Type (1) |
Number |
|
Principal |
|
Unamortized (fees)/costs, net |
|
Allowance for credit losses |
|
Carrying |
|
Weighted Average |
|
Weighted Average |
|
|||||||
First mortgage loans |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
|
% |
|
|
||||||
Credit loans |
|
|
|
|
|
— |
|
|
( |
) |
|
|
|
% |
|
|
|||||
Total and average |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
|
% |
|
|
||||||
December 31, 2023
Loan Type (1) |
Number |
|
Principal |
|
Unamortized (fees)/costs, net |
|
Allowance for credit losses |
|
Carrying |
|
Weighted Average |
|
Weighted Average |
|
|||||||
First mortgage loans |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
|
% |
|
|
||||||
Credit loans |
|
|
|
|
|
— |
|
|
( |
) |
|
|
|
% |
|
|
|||||
Total and average |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
|
% |
|
|
||||||
For the three months ended March 31, 2024, the activity in the Company’s commercial mortgage loans, held-for-investment portfolio was as follows:
|
|
Commercial mortgage loans at cost |
|
|
Allowance for credit losses |
|
|
Carrying Value |
|
|||
Balance at Beginning of Year |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Loan originations/advances |
|
|
|
|
|
— |
|
|
|
|
||
Principal repayments |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Amortization of loan origination and deferred exit fees |
|
|
|
|
|
— |
|
|
|
|
||
Origination fees and extension fees received on commercial loans |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Provision for credit losses |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at End of Period |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Allowance for Credit Losses
The following table presents the activity in the Company’s allowance for credit losses for the three months ended March 31, 2024:
|
|
Commercial Mortgage Loans |
|
|
Unfunded Loan Commitments (1) |
|
|
Total |
|
|||
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Provision for credit losses |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Ending allowance for credit losses |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
9
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
The following table presents the activity in the Company’s allowance for credit losses for the three months ended March 31, 2023:
|
|
Commercial Mortgage Loans |
|
|
Unfunded Loan Commitments (1) |
|
|
Total |
|
|||
Beginning of period |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
Adoption of ASU 2016-13 |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Reversal of (provision for) credit losses |
|
|
|
|
|
|
|
|
|
|||
Charge-offs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Ending allowance for credit losses |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
As of March 31, 2024, the Company had a total CECL reserve of $
During the three months ended March 31, 2024, the Company recorded a net increase of $
During the three months ended March 31, 2023, the Company reduced the CECL reserve by $
Credit Characteristics
As part of the Company’s process for monitoring the credit quality of its investments, it performs a quarterly asset review of the investment portfolio and assigns risk ratings to each of its loans and certain securities it may own, such as CMBS. Risk factors include payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographic location, as well as national and regional economic factors. To determine the likelihood of loss, the loans are rated on a 5-point scale as follows:
Investment Grade |
Investment Grade Definition |
1 |
|
2 |
|
3 |
|
4 |
|
5 |
All investments are assigned an initial risk rating of 2 at origination or acquisition.
10
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
As of March 31, 2024,
As of March 31, 2024, the Company has established an asset-specific CECL reserve of $
During the three months ended March 31, 2024, the Company recognized $
Loan Modifications
The Company may amend or modify a loan based on its specific facts and circumstances. These modifications are often in the form of a term extension to provide the borrower additional time to refinance or sell the collateral property in order to repay the principal balance of the loan. Such extensions are generally made at the loan’s contractual interest rate and may require an extension fee be paid to the Company. During the three months ended March 31, 2024 and 2023, the Company made no such modifications which are disclosable under ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures.
Note 4 – Repurchase Agreements and Credit Facilities
Commercial Mortgage Loans
On February 15, 2018, the Company, through a wholly owned subsidiary, entered into a master repurchase agreement (the “Atlas Repo Facility”) with Column Financial, Inc. as administrative agent for certain of its affiliates. As the Company’s business has grown, it has increased the borrowing limit and extended the maturity. The most recent extension was in November 2023 for a twelve-month term and the maximum advance amount was reduced to $
11
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
On May 6, 2019, the Company, through a wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association (“JPM”). The JPM Repo Facility provides up to $
On March 10, 2021, the Company, through a wholly owned subsidiary, entered into a loan and security agreement and a promissory note (collectively, the “WA Credit Facility”) with Western Alliance Bank (“Western Alliance”). The WA Credit Facility provides for loan advances up to the lesser of $
The JPM Repo Facility, Atlas Repo Facility and WA Credit Facility (collectively, the “Facilities”) are used to finance eligible loans and each act in the manner of a revolving credit facility that can be repaid as the Company’s assets are paid off and re-drawn as advances against new assets.
12
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
The details of the Facilities as of March 31, 2024 and December 31, 2023 are as follows:
March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
||||||||
|
Committed Financing |
|
|
Amount |
|
|
Accrued |
|
|
Collateral |
|
|
Interest |
|
Days to |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Atlas Repo Facility |
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
|
|
— |
|
|
JPM Repo Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
||||||
Total Repurchase Facilities — commercial mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
||||||
WA Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
||||||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
||||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
||||||||
|
Committed Financing |
|
|
Amount |
|
|
Accrued |
|
|
Collateral |
|
|
Interest |
|
Days to |
|
||||||
Atlas Repo Facility |
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
|
|
— |
|
|
JPM Repo Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
||||||
Total Repurchase Facilities — commercial mortgage loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
||||||
WA Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
||||||
Note 5 – Loan Participations Sold, Net
On November 15, 2021, the Company sold a non-recourse senior participation interest in
The third party, as the senior participation interest holder, receives interest and principal payments from the borrower until they receive the amounts to which they are entitled. All expenses or losses on the underlying mortgages are allocated first to the Company and then to the third party. If the underlying mortgage is in default, the Company will have the option to purchase the third party’s participation interest and remove it from the loan participation agreement.
The financing or transfer of a portion of a loan by the non-recourse sale of a senior interest in the loan through a participation agreement generally does not qualify as a sale under GAAP. Therefore, in this instance, the Company presents the whole loan as an asset and the loan participation sold as a liability on the consolidated balance sheet until the loan is repaid. The obligation to pay principal and interest on these liabilities is generally based on the performance of the related loan obligation. The gross presentation of loan participations sold does not impact stockholders’ equity or net income.
13
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
The following tables detail the Company’s loan participations sold as of March 31, 2024 and December 31, 2023:
|
|
March 31, 2024 |
|
|||||||||||||||||
Loan Participations Sold |
|
Count |
|
|
Principal Balance |
|
|
Book Value |
|
|
Yield/Cost (1) |
|
Guarantee (2) |
|
Weighted Average Maximum Maturity (4) |
|
||||
Total Loans |
|
|
|
|
$ |
|
|
$ |
|
|
S+ |
|
n/a |
|
|
|
||||
Senior participations (3) |
|
|
|
|
$ |
|
|
$ |
|
|
S+ |
|
n/a |
|
|
|
||||
|
|
December 31, 2023 |
|
|||||||||||||||||
Loan Participations Sold |
|
Count |
|
|
Principal Balance |
|
|
Book Value |
|
|
Yield/Cost (1) |
|
Guarantee (2) |
|
Weighted Average Maximum Maturity (4) |
|
||||
Total Loans |
|
|
|
|
$ |
|
|
$ |
|
|
SOFR+ |
|
n/a |
|
|
|
||||
Senior participations (3) |
|
|
|
|
$ |
|
|
$ |
|
|
SOFR+ |
|
n/a |
|
|
|
||||
____________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Note 6 – Stockholders’ Equity
Preferred Stock Offering
On September 22, 2021, the Company issued and sold
Dividends on the Series A Preferred Stock are cumulative and payable quarterly in arrears at a rate per annum equal to
The Company may not redeem the Series A Preferred Stock prior to
14
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
On August 11, 2022, the Board authorized and approved a share repurchase program (the “Series A Preferred Repurchase Program”) pursuant to which the Company was permitted to repurchase up to the lesser of
The Series A Preferred Stock is listed on the New York Stock Exchange under the symbol ICR PR A.
Share Activity for Common Stock and Preferred Stock
The following tables detail the change in the Company’s outstanding shares of all classes of common and preferred stock, including restricted common stock:
|
Preferred Stock |
|
Common Stock |
|
|||||||||||||||||
Three months ended March 31, 2024 |
Series A |
|
Class P |
|
Class A |
|
Class T |
|
Class S |
|
Class D |
|
Class I |
|
|||||||
Beginning balance |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||
Ending balance |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||
|
Preferred Stock |
|
Common Stock |
|
|||||||||||||||||
Three months ended March 31, 2023 |
Series A |
|
Class P |
|
Class A |
|
Class T |
|
Class S |
|
Class D |
|
Class I |
|
|||||||
Beginning balance |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||
Issuance of shares |
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
— |
|
|
|
|||
Distribution reinvestment |
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
||||
Repurchase and retirement of preferred stock |
|
( |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Ending balance |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||
Distributions – Common Stock and Series A Preferred Stock
The table below presents the aggregate annualized and monthly distributions declared on common stock by record date for all classes of shares.
Record date |
|
Aggregate annualized gross distribution declared per share |
|
|
Aggregate monthly gross distribution declared per share |
|
||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
The gross distribution was reduced each month for Class D and Class T of the Company’s common stock for applicable class-specific stockholder servicing fees to arrive at a lower net distribution amount paid to those classes. For a description of the stockholder servicing
15
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
fees applicable to Class D, Class S and Class T shares of the Company’s common stock, please see “Note 10 – Transactions with Related Parties” below. Since the IPO and through March 31, 2024, the Company has not issued any shares of Class S common stock.
The following table shows the monthly net distribution per share for shares of Class D and Class T common stock.
Record date |
|
Monthly net distribution declared per share of Class D common stock |
|
|
Monthly net distribution declared per share of Class T common stock |
|
||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
|
$ |
|
|
$ |
|
|||
Series A Preferred Stock dividends are paid quarterly in arrears based on an annualized distribution rate of
The tables below present the aggregate distributions declared per share for each applicable class of common stock and preferred stock during the three months ended March 31, 2024 and 2023. The tables exclude distributions declared for any month for a class of shares of stock when there were no shares of that class outstanding on the applicable record date.
|
Preferred Stock |
|
Common Stock |
|
|||||||||||||||||
Three months ended March 31, 2024 |
Series A |
|
Class P |
|
Class A |
|
Class T |
|
Class S |
|
Class D |
|
Class I |
|
|||||||
Aggregate gross distributions declared per share |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
— |
|
$ |
|
$ |
|
||||||
Stockholder servicing fee per share |
N/A |
|
N/A |
|
N/A |
|
|
|
|
— |
|
|
|
N/A |
|
||||||
Net distributions declared per share |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
— |
|
$ |
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Preferred Stock |
|
Common Stock |
|
|||||||||||||||||
Three months ended March 31, 2023 |
Series A |
|
Class P |
|
Class A |
|
Class T |
|
Class S |
|
Class D |
|
Class I |
|
|||||||
Aggregate gross distributions declared per share |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
— |
|
$ |
|
$ |
|
||||||
Stockholder servicing fee per share |
N/A |
|
N/A |
|
N/A |
|
|
|
|
— |
|
|
|
N/A |
|
||||||
Net distributions declared per share |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
— |
|
$ |
|
$ |
|
||||||
As of March 31, 2024 and December 31, 2023, distributions declared but not yet paid amounted to $
Note 7 – Net Income Per Share Attributable to Common Stockholders
Basic earnings per share attributable to common stockholders (“EPS”) is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income attributable to common stockholders by the common shares plus common share equivalents. The Company’s common share equivalents are unvested restricted shares. The Company excludes antidilutive restricted shares from the calculation of weighted-average shares for diluted earnings per share. There were
16
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
The following table is a summary of the basic and diluted net income per share attributable to common stockholders computation for the three months ended March 31, 2024 and 2023:
|
|
Three months ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net income attributable to common stockholders |
|
$ |
|
|
$ |
|
||
Weighted average shares outstanding, basic |
|
|
|
|
|
|
||
Dilutive effect of restricted stock |
|
|
|
|
|
|
||
Weighted average shares outstanding, diluted |
|
|
|
|
|
|
||
Net income attributable to common stockholders per share, basic and diluted |
|
$ |
|
|
$ |
|
||
Note 8 – Commitments and Contingencies
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.
The Company has made a commitment to advance additional funds under certain of its CRE loans if the borrower meets certain conditions. As of March 31, 2024, the Company had
Note 9 – Segment Reporting
The Company has
Note 10 – Transactions with Related Parties
As of March 31, 2024, the Advisor had invested $
As of March 31, 2024, Sound Point Capital Management, LP (“Sound Point”), an affiliate of the Sub-Advisor, had invested $
17
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
The following table summarizes the Company’s related party transactions for the three months ended March 31, 2024 and 2023 and the amount due to related parties at March 31, 2024 and December 31, 2023:
|
Three months ended |
|
|
Payable as of March 31, |
|
Payable as of December 31, |
|
|||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
2023 |
|
||||
Organization and offering expense reimbursement (1) |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
$ |
|
||
Selling commissions and dealer manager fee (2) |
|
— |
|
|
|
|
|
|
— |
|
|
— |
|
|
Advisory fee (3) |
|
|
|
|
|
|
|
|
|
|
||||
Loan fees(4) |
|
|
|
|
|
|
|
|
|
|
||||
Accrued stockholder servicing fee (5) |
|
— |
|
|
|
|
|
|
|
|
|
|||
Total |
$ |
|
|
$ |
|
|
$ |
|
$ |
|
||||
Expense Limitation Agreement
Pursuant to an expense limitation agreement (the “Expense Limitation Agreement”) dated July 1, 2021, the Advisor and Sub-Advisor agree to
18
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
shares to the extent necessary to ensure that the ordinary operating expenses do not exceed
Separately from the limitation on ordinary operating expenses under the Expense Limitation Agreement, the Advisor and Sub-Advisor voluntarily chose not to seek reimbursement for certain expenses that they incurred or paid on behalf of the Company during the three months ended March 31, 2024, and for which they may have been entitled to be reimbursed. The Advisory Agreement and Sub-Advisory Agreement provide that expenses will be submitted monthly to the Company for reimbursement, and the amount of expenses submitted for reimbursement in any particular month is not necessarily indicative of the total amount of expenses actually incurred by the Advisor and Sub-Advisor in providing services to the Company and for which reimbursement could have been received by the Advisor and Sub-Advisor.
Revolving Credit Liquidity Letter Agreements
IREIC, the Company’s sponsor, and Sound Point have agreed under separate letter agreements dated July 20, 2021, and July 15, 2021, respectively, to make revolving credit loans to the Company in an aggregate principal amount outstanding at any one time not to exceed $
Note 11 – Equity-Based Compensation
With each stock grant, the Company awards each of its
Grant Date |
Class of common stock granted |
Total number of shares granted |
|
Grant Date Fair Value Per Share |
|
Total Fair Value of Grant |
|
Proportion of total shares that vest annually |
|
Vesting Date Year 1 |
Vesting Date Year 2 |
Vesting Date Year 3 |
||||
December 1, 2020 |
Class I |
|
|
$ |
|
$ |
|
|
|
|||||||
October 14, 2021 |
Class I |
|
|
$ |
|
$ |
|
|
|
|||||||
October 3, 2022 |
Class I |
|
|
$ |
|
$ |
|
|
|
|||||||
September 29, 2023 |
Class I |
|
|
$ |
|
$ |
|
|
|
|||||||
Under the Company’s Independent Director Restricted Share Plan (the “RSP”), restricted shares generally vest over a
19
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
period. Compensation expense associated with the restricted shares issued to the independent directors was $
A summary table of the status of the restricted shares granted under the RSP is presented below:
|
|
Restricted Shares |
|
|
Weighted Average Grant Date Fair Value Per Share |
|
||
Outstanding at December 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
— |
|
|
|
— |
|
Vested |
|
|
— |
|
|
|
— |
|
Converted |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
Outstanding at March 31, 2024 |
|
|
|
|
$ |
|
||
Note 12 – Fair Value of Financial Instruments
GAAP requires the disclosure of fair value information about financial instruments, whether or not they are recognized at fair value in the consolidated balance sheets, for which it is practicable to estimate that value.
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
Carrying |
|
|
Estimated Fair |
|
|
Carrying |
|
|
Estimated Fair |
|
||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial mortgage loans, net |
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
||||
Repurchase agreements — commercial mortgage |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Credit facility payable |
|
|
|
|
|
|
|
|
|
|
|
||||
Loan participations — sold |
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following describes the Company’s methods for estimating the fair value for financial instruments:
For the impaired loans, the CECL reserve was recorded based on the Company’s estimation of the fair value of the loans’ aggregate underlying collateral as of March 31, 2024 and December 31, 2023, as applicable. These loans are therefore measured at fair value on a nonrecurring basis using significant unobservable inputs and are classified as Level 3 assets in the fair value hierarchy. The
20
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited, dollar amounts in thousands, except per share amounts)
Company estimated the fair value of these loans by considering a variety of inputs including property performance, market data, and comparable sales, as applicable. The significant unobservable input used is the exit capitalization rate assumption used to forecast the future sale price of the underlying real estate collateral, which ranged from
Note 13– Leases
Upon assumption of the lease on August 20, 2020, the Company recorded a lease liability of $
For the three months ended March 31, 2023, total finance lease cost recorded to real estate operating expenses on the Company’s consolidated statements of operations was comprised as follows:
|
|
|
Three months ended |
|
|
Amortization of right-of-use assets |
|
|
$ |
|
|
Interest on lease liabilities |
|
|
|
|
|
Total finance lease cost |
|
|
$ |
|
|
Note 14– Subsequent Events
The Company has evaluated subsequent events through May 10, 2024, the date the consolidated financial statements were issued, and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements except for the following transactions:
Common Stock Distributions
On
|
|
Common Stock |
|
|||||||||||||||||||||
|
|
Class P |
|
|
Class A |
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
||||||
Aggregate gross distributions declared per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||||
Stockholder servicing fee per share |
|
N/A |
|
|
N/A |
|
|
|
|
|
|
— |
|
|
|
|
|
N/A |
|
|||||
Net distributions declared per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||||
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words such as “may,” “could,” “should,” “expect,” “intend,” “plan,” “goal,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “variables,” “potential,” “continue,” “expand,” “maintain,” “create,” “strategies,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions, are intended to identify forward-looking statements.
These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of the management of InPoint Commercial Real Estate Income, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 15, 2024 (the “Annual Report”), some of which are briefly summarized below:
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q and may ultimately prove to be incorrect or false. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
The following discussion and analysis relate to the three months ended March 31, 2024 and 2023 and as of March 31, 2024 and December 31, 2023. You should read the following discussion and analysis along with our unaudited consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q.
All dollar amounts are stated in thousands unless otherwise noted, except share data.
Overview
We are a Maryland corporation formed on September 13, 2016 to originate, acquire and manage an investment portfolio of CRE investments primarily comprised of (i) CRE debt, including (a) primarily floating-rate first mortgage loans, and (b) subordinate mortgage and mezzanine loans, and participations in such loans, and (ii) floating-rate CRE securities such as CMBS and senior unsecured debt of publicly traded REITs. Substantially all of our business is conducted through our Operating Partnership, of which we are the sole general partner. We are externally managed by our Advisor, an indirect subsidiary of IREIC. Our Advisor has engaged the Sub-Advisor, a subsidiary of Sound Point CRE Management, LP, to perform certain services on behalf of the Advisor for us.
22
We have operated in a manner that allows us to qualify as a REIT for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2017.
For a discussion of the history of the Company and its Private Offering, IPO, Second Public Offering and Preferred Stock Offering, please see “Note 1 – Organization and Business Operations” in the notes to our consolidated financial statements above. The IPO and the Second Public Offering are collectively referred to herein as the “Public Offerings”.
Recent Developments
In response to inflationary pressures, in 2022 the Federal Reserve began raising its federal funds rate target range and indicated that, due to the persistent high rate of inflation, it would continue to increase rates until a 2% inflation rate is achieved. The Federal Reserve has also been conducting monetary tightening by increasing the sale of bonds it had purchased on the open market. During the third quarter of 2023, the Federal Reserve paused its increase in interest rates to evaluate the impact that the rate increases have had on inflation. While market consensus has been predicting that the Federal Reserve may begin reducing rates as early as in its June 2024 meeting, the economic data from the first quarter of 2024 has shown that inflation continues to be above the Federal Reserve’s 2.0% target. The Federal Reserve has indicated it would need to see inflation decreasing in order to begin decreasing rates which puts doubt into the prediction of rate decreases in 2024.
We did not originate any new loans in 2023 or in the first quarter of 2024 as we chose to focus on maintaining our liquidity. We anticipate this to continue at least for the first half of 2024. The commercial real estate lending market tightened as the Federal Reserve raised rates and lenders concerns over property performance increased. Concerns over office properties continue as tenants evaluate the amount of space they need with more employees working from home. In general, property valuations have decreased as capitalization rates for commercial real estate assets have increased with overall interest rates.
We continue to evaluate all loans on a quarterly basis and assign our internal risk rating with the majority of our loans continuing to perform as expected. While there has been some increase in competition for new loans in the first quarter of 2024, refinancing risk continues to be a focus. As such, for our CECL reserve, we have placed additional focus on loans with maturity dates up to nine months from the quarter end to determine if the collateral value would be sufficient to cover the outstanding loan principal balance and have recorded an asset-specific CECL reserve when necessary.
Company Update – Review of Strategic Alternatives
As previously disclosed, in connection with the suspension of the primary offering, share repurchase plan and distribution reinvestment plan, the Board is evaluating strategic alternatives available for the Company. The Company, therefore, engaged Robert A. Stanger & Co., Inc., an investment banking firm, to assist in evaluating the strategic alternatives available to the Company. There is no assurance that the Company will be able to successfully implement any strategic alternative. In addition, our strategic efforts may continue to evolve or change over time. We make no undertaking to update you on future developments in this regard; however, to the extent our strategic efforts change in a material way, we may provide updates to the extent legally possible through our public filings with the SEC.
Q1 2024 Highlights
Operating Results:
Loan Portfolio:
23
Significant Accounting Policies and Use of Estimates
Disclosures discussing all significant accounting policies are set forth in our Annual Report under the heading “Note 2 – Summary of Significant Accounting Policies.” See “Note 2 – Summary of Significant Accounting Policies” for a discussion of changes to our significant accounting policies for the three months ended March 31, 2024.
Portfolio
Our strategy is to originate, acquire and manage an investment portfolio of CRE debt that is primarily floating rate and diversified based on the type and location of collateral securing the underlying CRE debt.
The charts below summarize our debt investments portfolio as a percentage of par value by type of rate, our total investment portfolio by investment type and our loan portfolio by collateral type and geographical region as of March 31, 2024 and December 31, 2023:
Floating vs. Fixed Rate Debt Investments:
March 31, 2024 |
December 31, 2023 |
|
|
24
All Investments by Type:
March 31, 2024
|
December 31, 2023
|
|
|
Loans by Property Type:
|
|
|
|
25
Loans by Region:
March 31, 2024 |
December 31, 2023
|
|
|
An investment’s region is defined according to the below map based on the location of underlying property.
The changes in our loan portfolio by property type and by region as of March 31, 2024 compared to December 31, 2023 were primarily due to loans that were repaid by borrowers in ordinary course.
26
Commercial Mortgage Loans Held for Investment
|
As of |
|
|
As of |
|
||
Principal balance of first mortgage loans |
$ |
700,664 |
|
|
$ |
729,380 |
|
Number of first mortgage loans |
|
32 |
|
|
|
34 |
|
Principal balance of credit loans |
$ |
13,500 |
|
|
|
13,500 |
|
Number of credit loans |
|
2 |
|
|
|
2 |
|
Total balance of loans |
$ |
714,164 |
|
|
$ |
742,880 |
|
Total number of loans |
|
34 |
|
|
|
36 |
|
All-in yield (1) |
|
7.9 |
% |
|
|
8.1 |
% |
Weighted average years to maximum maturity |
|
2.2 |
|
|
|
2.5 |
|
____________ |
|
|
|
|
|
||
The decrease in the size of our portfolio is primarily due to loan payoffs with no new loans originated during the three months ended March 31, 2024. The decrease in the all-in yield was primarily driven by the three loans placed on nonaccrual status.
The table below presents select loan information for each of our commercial mortgage loans as of March 31, 2024:
|
Origination |
Loan |
Principal |
|
Cash Coupon (2)(3) |
All-in |
|
Maximum Maturity (4) |
State |
Property |
LTV (5) |
|
Risk |
|
||||
1 |
12/12/17 |
First mortgage |
$ |
13,450 |
|
SOFR+4.70% |
|
10.0 |
% |
4/9/23 (7) |
HI |
Office |
|
67.0 |
% |
|
4 |
|
2 |
9/7/18 |
First mortgage |
|
24,411 |
|
SOFR+3.75% |
(3) |
|
9/9/23 (8) |
TX |
Office |
|
73.0 |
% |
|
4 |
|
|
3 |
5/31/19 |
First mortgage |
|
11,056 |
|
SOFR+3.25% |
|
8.6 |
% |
6/9/24 (9) |
CA |
Multifamily |
|
69.9 |
% |
|
3 |
|
4 |
6/18/19 |
First mortgage |
|
45,983 |
|
SOFR+2.75% |
|
8.1 |
% |
7/9/26 |
TX |
Office |
|
72.2 |
% |
|
3 |
|
5 |
8/15/19 |
First mortgage |
|
7,934 |
|
SOFR+4.20% |
|
9.5 |
% |
11/9/24 |
TN |
Office |
|
44.6 |
% |
|
2 |
|
6 |
9/27/19 |
First mortgage |
|
13,626 |
|
SOFR+3.10% |
|
8.4 |
% |
10/9/24 |
CA |
Office |
|
74.5 |
% |
|
3 |
|
7 |
10/4/19 |
First mortgage |
|
22,616 |
|
SOFR+2.90% |
|
8.2 |
% |
10/9/24 (10) |
NC |
Office |
|
60.9 |
% |
|
4 |
|
8 |
2/28/20 |
First mortgage |
|
9,850 |
|
SOFR+3.50% |
|
8.8 |
% |
3/9/25 |
FL |
Retail |
|
77.7 |
% |
|
2 |
|
9 |
3/5/21 |
First mortgage |
|
13,477 |
|
SOFR+5.00% |
(3) |
|
3/9/26 |
VA |
Office |
|
56.8 |
% |
|
5 |
|
|
10 |
3/12/21 |
First mortgage |
|
20,135 |
|
SOFR+4.00% |
|
9.4 |
% |
3/9/25 |
MS |
Industrial |
|
63.5 |
% |
|
3 |
|
11 |
4/15/21 |
First mortgage |
|
9,090 |
|
SOFR+4.00% |
|
9.4 |
% |
5/9/26 |
NJ |
Industrial |
|
69.4 |
% |
|
2 |
|
12 |
5/26/21 |
First mortgage |
|
16,079 |
|
SOFR+3.10% |
|
8.5 |
% |
6/9/26 |
NV |
Multifamily |
|
79.6 |
% |
|
2 |
|
13 |
7/1/21 |
First mortgage |
|
6,430 |
|
SOFR+4.50% |
|
9.9 |
% |
7/9/26 |
OH |
Mixed Use |
|
78.9 |
% |
|
4 |
|
14 |
10/8/21 |
First mortgage |
|
29,986 |
|
SOFR+3.20% |
(3) |
|
5/9/24 (11) |
OR |
Multifamily |
|
72.2 |
% |
|
5 |
|
|
15 |
10/15/21 |
First mortgage |
|
23,680 |
|
SOFR+2.95% |
|
8.4 |
% |
11/9/26 |
VA |
Multifamily |
|
76.7 |
% |
|
2 |
|
16 |
11/12/21 |
First mortgage |
|
25,696 |
|
SOFR+2.90% |
|
8.3 |
% |
11/9/26 |
TX |
Multifamily |
|
73.2 |
% |
|
2 |
|
17 |
11/16/21 |
First mortgage |
|
24,581 |
|
SOFR+3.05% |
|
8.5 |
% |
12/9/26 |
TX |
Multifamily |
|
73.7 |
% |
|
3 |
|
18 |
11/17/21 |
First mortgage |
|
25,528 |
|
SOFR+2.85% |
|
8.3 |
% |
12/9/26 |
SC |
Multifamily |
|
71.5 |
% |
|
3 |
|
19 |
12/9/21 |
First mortgage |
|
39,967 |
|
SOFR+3.05% |
|
8.5 |
% |
12/9/26 |
GA |
Multifamily |
|
71.7 |
% |
|
2 |
|
20 |
12/15/21 |
First mortgage |
|
25,529 |
|
SOFR+3.20% |
|
8.6 |
% |
1/9/27 |
OR |
Multifamily |
|
70.2 |
% |
|
2 |
|
21 |
1/14/22 |
First mortgage |
|
38,833 |
|
SOFR+3.40% |
|
8.7 |
% |
1/9/27 |
MO |
Multifamily |
|
80.0 |
% |
|
2 |
|
22 |
1/20/22 |
First mortgage |
|
13,403 |
|
SOFR+3.65% |
|
9.0 |
% |
2/9/27 |
NC |
Retail |
|
62.6 |
% |
|
2 |
|
23 |
1/26/22 |
First mortgage |
|
15,496 |
|
SOFR+3.55% |
|
8.9 |
% |
2/9/27 |
NJ |
Industrial |
|
63.1 |
% |
|
3 |
|
24 |
1/28/22 |
First mortgage |
|
14,847 |
|
SOFR+3.30% |
|
8.6 |
% |
2/9/27 |
NC |
Multifamily |
|
69.9 |
% |
|
2 |
|
25 |
2/25/22 |
First mortgage |
|
30,000 |
|
SOFR+3.04% |
|
8.4 |
% |
3/9/27 |
NY |
Mixed Use |
|
66.7 |
% |
|
2 |
|
26 |
3/1/22 |
First mortgage |
|
28,742 |
|
SOFR+3.40% |
|
8.7 |
% |
3/9/27 |
TX |
Multifamily |
|
77.7 |
% |
|
2 |
|
27 |
3/25/22 |
First mortgage |
|
16,852 |
|
SOFR+3.30% |
|
8.6 |
% |
4/9/27 |
FL |
Industrial |
|
69.7 |
% |
|
2 |
|
28 |
4/7/22 |
First mortgage |
|
14,070 |
|
SOFR+3.25% |
|
8.6 |
% |
4/9/27 |
SC |
Multifamily |
|
69.0 |
% |
|
2 |
|
29 |
4/19/22 |
First mortgage |
|
20,067 |
|
SOFR+3.40% |
|
8.7 |
% |
5/9/26 |
TX |
Multifamily |
|
76.3 |
% |
|
2 |
|
30 |
6/13/22 |
First mortgage |
|
49,607 |
|
SOFR+3.45% |
|
8.8 |
% |
6/9/27 |
TX |
Multifamily |
|
73.1 |
% |
|
2 |
|
31 |
9/1/22 |
First mortgage |
|
27,643 |
|
SOFR+3.90% |
|
9.2 |
% |
9/9/27 |
NC |
Multifamily |
|
63.4 |
% |
|
2 |
|
32 |
11/17/22 |
First mortgage |
|
22,000 |
|
SOFR+3.90% |
|
9.2 |
% |
12/9/27 |
AL |
Multifamily |
|
69.6 |
% |
|
2 |
|
33 |
9/29/17 |
Credit |
|
7,500 |
|
9.20% |
|
9.2 |
% |
10/11/27 |
NJ |
Office |
|
79.9 |
% |
|
2 |
|
34 |
10/4/19 |
Credit |
|
6,000 |
|
10.00% |
|
10.0 |
% |
10/6/24 (12) |
NV |
Office |
|
75.2 |
% |
|
3 |
|
|
|
|
$ |
714,164 |
|
|
|
7.9 |
% |
|
|
|
|
71.0 |
% |
|
|
|
27
The following table allocates the loan principal balance and the net loss exposure based on our internal risk ratings as of March 31, 2024:
Risk Rating |
Number of Loans |
|
Principal Balance |
|
Net Loss Exposure (1) |
|
|||
1 |
|
— |
|
$ |
— |
|
$ |
— |
|
2 |
|
20 |
|
|
441,389 |
|
|
441,389 |
|
3 |
|
8 |
|
|
162,405 |
|
|
153,560 |
|
4 |
|
4 |
|
|
66,907 |
|
|
18,526 |
|
5 |
|
2 |
|
|
43,463 |
|
|
43,463 |
|
Total |
|
34 |
|
$ |
714,164 |
|
$ |
656,938 |
|
Add: Unamortized (fees)/costs, net |
|
|
$ |
727 |
|
|
|
||
Less: Allowance for credit losses |
|
|
|
(22,253 |
) |
|
|
||
Commercial mortgage loans at cost, net |
|
|
$ |
692,638 |
|
|
|
||
(1) Net loss exposure excludes the amount of loan participation sold. See “Note 5 – Loan Participations Sold, Net”.
28
We entered into master repurchase agreements to fund our loan portfolio. As of March 31, 2024 and December 31, 2023, we had total borrowings of $435,439 (which is net of $0 unamortized debt issuance costs) and $457,438 (which is net of $0 of unamortized debt issuance costs), respectively. During the three months ended March 31, 2024 and the year ended December 31, 2023, we had weighted average borrowings of $507,542 and $562,396 and weighted average borrowing costs of 7.4% and 7.4%, respectively.
Results of Operations
Comparison of the Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023
Net Interest Income
Net interest income is generated on our interest-earning assets less related interest-bearing liabilities. The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the periods indicated.
|
Three months ended |
|
|
|||||||||||||||||||||
|
2024 |
|
|
2023 |
||||||||||||||||||||
|
Average |
|
|
Interest |
|
|
Weighted Average |
|
|
Average |
|
|
Interest |
|
|
Weighted Average |
|
|
||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial mortgage loans |
$ |
719,993 |
|
|
$ |
14,474 |
|
|
|
8.0 |
% |
|
$ |
832,349 |
|
|
$ |
16,791 |
|
|
|
8.1 |
% |
|
Total/Weighted Average |
$ |
719,993 |
|
|
$ |
14,474 |
|
|
|
8.0 |
% |
|
$ |
832,349 |
|
|
$ |
16,791 |
|
|
|
8.1 |
% |
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Repurchase agreements— |
$ |
440,818 |
|
|
$ |
8,638 |
|
|
|
7.8 |
% |
|
$ |
485,354 |
|
|
$ |
8,426 |
|
|
|
6.9 |
% |
|
Credit facility—loans |
|
9,498 |
|
|
|
212 |
|
|
|
8.8 |
% |
|
|
18,380 |
|
|
|
362 |
|
|
|
7.9 |
% |
|
Loan participations sold, net |
|
57,226 |
|
|
|
626 |
|
|
|
4.3 |
% |
|
|
88,148 |
|
|
|
1,441 |
|
|
|
6.5 |
% |
|
Total/Weighted Average |
$ |
507,542 |
|
|
$ |
9,476 |
|
|
|
7.4 |
% |
|
$ |
591,882 |
|
|
$ |
10,229 |
|
|
|
6.9 |
% |
|
Net interest income/spread |
|
|
|
$ |
4,998 |
|
|
|
0.6 |
% |
|
|
|
|
$ |
6,562 |
|
|
|
1.2 |
% |
|
||
Average leverage % (5) |
|
238.9 |
% |
|
|
|
|
|
|
|
|
246.1 |
% |
|
|
|
|
|
|
|
||||
Weighted average levered yield (6) |
|
|
|
|
|
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
10.9 |
% |
|
||||
The change in our average interest-earning assets and interest-bearing liabilities was due to loan maturities. The change in the weighted average levered yield was primarily due to the three loans that were placed on nonaccrual status.
Revenue from Real Estate
During the three months ended March 31, 2023, the Renaissance O’Hare generated $2,921 in revenue. We sold the Renaissance O’Hare in September 2023.
29
Net Operating Expenses
Net operating expenses for the three months ended March 31, 2024 and 2023 consisted of the following:
|
|
Three months ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Advisory fee |
|
$ |
805 |
|
|
$ |
881 |
|
Amortization of debt finance costs |
|
|
403 |
|
|
|
371 |
|
Directors compensation |
|
|
20 |
|
|
|
19 |
|
Professional service fees |
|
|
281 |
|
|
|
191 |
|
Real estate operating expenses |
|
|
— |
|
|
|
3,188 |
|
Depreciation and amortization |
|
|
— |
|
|
|
321 |
|
Other expenses |
|
|
391 |
|
|
|
353 |
|
Net operating expenses |
|
$ |
1,900 |
|
|
$ |
5,324 |
|
Net operating expenses for the three months ended March 31, 2024 and 2023 were $1,900 and $5,324, respectively. The primary driver of the decrease in net operating expenses was the sale of Renaissance O’Hare.
Net Income
For the three months ended March 31, 2024 and 2023, our net income was $3,399 and $4,621, respectively. The decrease in net income was primarily due to a decrease in net interest income that is the result of a decrease in portfolio size combined with loss of interest income on the nonaccrual loans.
Non-GAAP Financial Measures
Funds from Operations and Modified Funds from Operations
We use Funds from Operations (“FFO”), a widely accepted metric, to evaluate our performance. FFO provides a supplemental measure to compare our performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts (“NAREIT”) has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT. As defined by NAREIT, FFO means net income (loss) attributable to common stockholders computed in accordance with GAAP, excluding gains (or losses) from sales of operating property, plus depreciation and amortization and after adjustments for unconsolidated entities. In addition, NAREIT has further clarified the FFO definition to add-back impairment write-downs of depreciable real estate or of investments in unconsolidated entities that are driven by measurable decreases in the fair value of depreciable real estate and to exclude the earnings impacts of cumulative effects of accounting changes. We have adopted the NAREIT definition for computing FFO.
Due to the unique features of publicly registered, non-listed REITs, the Institute for Portfolio Alternatives (“IPA”), an industry trade group, published a standardized measure known as Modified Funds from Operations (“MFFO”), which the IPA has promulgated as a supplemental measure for publicly registered non-listed REITs and which may be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT.
The IPA defines MFFO as FFO adjusted for acquisition fees and expenses, amounts relating to straight line rents and amortization of premiums on debt investments, non-recurring impairments of real estate-related investments, mark-to-market adjustments included in net income, non-recurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures.
We define MFFO in accordance with the concepts established by the IPA and adjust FFO for certain items, such as amortization of premium and discounts on real estate securities. We purchase real estate securities at a premium or discount to par value, and in accordance with GAAP, record the amortization of premium/accretion of the discount to interest income. We believe that excluding the amortization of premiums and discounts provides better insight to the expected contractual cash flows. We also adjust FFO for gains or losses on preferred stock repurchases because we do not consider these gains or losses to be a measure of our operating performance. In addition, we adjust FFO for unrealized gains or losses on real estate securities. Any mark-to-market or fair value adjustments are based on general market or overall industry conditions and may be temporary in nature.
30
Because MFFO may be a recognized measure of operating performance within the non-listed REIT industry, MFFO and the adjustments used to calculate it may be useful in order to evaluate our performance against other non-listed REITs. Like FFO, MFFO is not equivalent to our net income or loss as determined under GAAP, as detailed in the table below, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we continue to acquire a significant amount of investments.
Our presentation of FFO and MFFO may not be comparable to other similarly titled measures presented by other REITs. We believe that the use of FFO and MFFO provides a more complete understanding of our operating performance to stockholders and to management, and when compared year over year, reflects the impact on our operations from trends in operating costs, general and administrative expenses, and interest costs. Neither FFO nor MFFO is intended to be an alternative to “net income” or to “cash flows from operating activities” as determined by GAAP as a measure of our capacity to pay distributions. Management uses FFO and MFFO to compare our operating performance to that of other REITs and to assess our operating performance.
Neither the SEC, any other regulatory body nor NAREIT has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, another regulatory body or NAREIT may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.
Our FFO and MFFO are calculated as follows:
|
Three months ended |
|
|||||
|
2024 |
|
|
2023 |
|
||
Net income attributable to common stockholders |
$ |
1,904 |
|
|
$ |
3,147 |
|
Depreciation and amortization |
|
— |
|
|
|
321 |
|
Funds from operations (FFO) attributable to common stockholders |
$ |
1,904 |
|
|
$ |
3,468 |
|
|
|
|
|
|
|
||
Amortization of debt financing costs |
|
403 |
|
|
|
371 |
|
Non-cash adjustment for ground lease |
|
— |
|
|
|
112 |
|
Provision for credit losses |
|
337 |
|
|
|
(399 |
) |
Adjustment for gain on repurchase and retirement of preferred stock |
|
— |
|
|
|
(21 |
) |
Modified funds from operations (MFFO) attributable to common stockholders |
$ |
2,644 |
|
|
$ |
3,531 |
|
Net Asset Value
Our NAV for each class of shares is based on the net asset values of our investments, the addition of any other assets (such as cash on hand) and the deduction of any liabilities, including the allocation/accrual of any performance participation and any stockholder servicing fees applicable to such class of shares. The Advisor is responsible for reviewing and confirming our NAV, as well as overseeing the process around the calculation of our NAV, in each case, as calculated by the independent valuation advisor. See “Valuation Guidelines” below for further information regarding our valuation policies used to determine our NAV.
The following table provides a breakdown of the major components of our total net asset value attributable to common stock as of March 31, 2024 ($ and shares in thousands):
Components of NAV |
As of |
|
|
Commercial mortgage loans |
$ |
697,464 |
|
Cash and cash equivalents and restricted cash |
|
60,396 |
|
Other assets |
|
4,800 |
|
Repurchase agreements - commercial mortgage loans |
|
(435,439 |
) |
Credit facility payable |
|
(9,498 |
) |
Loan participations sold |
|
(57,226 |
) |
Due to related parties |
|
(1,662 |
) |
Distributions payable |
|
(1,051 |
) |
Interest payable |
|
(1,720 |
) |
Accrued stockholder servicing fees (1) |
|
(212 |
) |
Other liabilities |
|
(494 |
) |
Preferred stock |
|
(86,870 |
) |
Net asset value attributable to common stock |
$ |
168,488 |
|
Number of outstanding common shares |
|
10,116 |
|
31
The following table provides a breakdown of our total net asset value attributable to common stock and NAV per share by share class as of March 31, 2024 ($ and shares in thousands, except per share data):
|
Common Stock |
|
|||||||||||||||||||||||||
NAV Per Share |
Class P |
|
|
Class A |
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
|
Total |
|
|||||||
Monthly NAV |
$ |
142,526 |
|
|
$ |
12,452 |
|
|
$ |
4,867 |
|
|
$ |
— |
|
|
$ |
801 |
|
|
$ |
7,832 |
|
|
$ |
168,488 |
|
Number of outstanding shares |
|
8,563 |
|
|
|
746 |
|
|
|
290 |
|
|
|
— |
|
|
|
48 |
|
|
|
469 |
|
|
|
10,116 |
|
NAV per share as of March 31, 2024 |
$ |
16.6448 |
|
|
$ |
16.6938 |
|
|
$ |
16.7617 |
|
|
$ |
— |
|
|
$ |
16.6885 |
|
|
$ |
16.6925 |
|
|
$ |
16.6556 |
|
The following table reconciles stockholders’ equity per our consolidated balance sheet to our NAV ($ in thousands):
Reconciliation of Stockholders’ Equity to NAV |
As of |
|
|
Stockholders’ equity per GAAP |
$ |
249,277 |
|
Adjustments: |
|
|
|
Unamortized stockholder servicing fee and other expenses |
|
436 |
|
Unamortized offering costs |
|
597 |
|
Credit losses reserve adjustment |
|
5,048 |
|
Net asset value |
$ |
255,358 |
|
Preferred Stock Adjustments: |
|
|
|
Preferred stock liquidation value |
|
(88,614 |
) |
Unamortized preferred stock offering costs |
|
1,744 |
|
Net asset value attributable to common stock |
$ |
168,488 |
|
Valuation Guidelines
Our Board, including a majority of our independent directors, has adopted valuation guidelines that contain a comprehensive set of methodologies to be used by our Advisor, with the assistance of our Sub-Advisor, and our independent valuation advisor in connection with estimating the values of our assets and liabilities for purposes of our NAV calculation. From time to time, our Board, including a majority of our independent directors, may adopt changes to the valuation guidelines if it (1) determines that such changes are likely to result in a more accurate reflection of NAV or a more efficient or less costly procedure for the determination of NAV without having a material adverse effect on the accuracy of such determination or (2) otherwise reasonably believes a change is appropriate for the determination of NAV. In connection with carrying out its responsibility to determine our NAV, our Advisor may delegate certain tasks to our Sub-Advisor. Our Advisor, however, is ultimately responsible for the NAV determination process.
The calculation of our NAV is intended to be a calculation of the value of our assets less our outstanding liabilities for the purpose of establishing a purchase and repurchase price for our shares of common stock and may differ from our financial statements. NAV is not a measure used under GAAP and the valuations of and certain adjustments made to our assets and liabilities used in the determination of NAV will differ from GAAP.
Our Advisor calculates the fair value of our assets in accordance with our valuation guidelines. Because these fair value calculations involve significant professional judgment in the application of both observable and unobservable attributes, the calculated fair value of our assets may differ from their actual realizable value or future fair value. Furthermore, no rule or regulation requires that we calculate NAV in a certain way. While we believe our NAV calculation methodologies are consistent with standard industry principles, there is no established practice among public REITs, whether listed or not, for calculating NAV in order to establish a purchase and repurchase price. As a result, other public REITs may use different methodologies or assumptions to determine NAV.
32
Our Independent Valuation Advisor
With the approval of our Board, including a majority of our independent directors, we have engaged BDO USA, P.C. to serve as our independent valuation advisor. Our Advisor, with the approval of our Board, including a majority of our independent directors, may engage additional independent valuation advisors in the future as our portfolio grows. At the end of each month, the independent valuation advisor reviews the calculation of our monthly NAV. The independent valuation advisor is not responsible for our NAV, and performs its services based solely on information received from us, our Advisor and our Sub-Advisor. Our Advisor, and not the independent valuation advisor, is ultimately responsible for the determination of our NAV.
Our independent valuation advisor may be replaced at any time, in accordance with agreed-upon notice requirements, by a majority vote of our Board, including a majority of our independent directors. We will promptly disclose any changes to the identity or role of the independent valuation advisor in reports we publicly file with the SEC. Our independent valuation advisor discharges its responsibilities in accordance with our valuation guidelines. Our Board is not involved in the monthly valuation of our assets and liabilities, but periodically receives and reviews such information about the valuation of our assets and liabilities as it deems necessary to exercise its oversight responsibility.
We have agreed to pay fees to our independent valuation advisor upon its delivery to us of its review reports. We have also agreed to indemnify our independent valuation advisor against certain liabilities arising out of this engagement. The compensation we pay to our independent valuation advisor is not based on the estimated values of our loans or our NAV.
Our independent valuation advisor may from time to time in the future perform other commercial real estate and financial advisory services for our Advisor or Sub-Advisor and their affiliates, so long as such other services do not adversely affect the independence of the independent valuation advisor.
Valuation of Investments
The majority of our investments consist of CRE debt intended to be held to maturity. We may also invest in real estate and other real estate-related assets and liquid non-real estate-related assets. Real estate-related assets include CRE securities, such as CMBS and CRE CLOs, and unsecured debt of publicly traded REITs. Our liquid non-real estate-related assets may include credit rated government and corporate debt securities, publicly traded equity securities and cash and cash equivalents.
Our Advisor seeks to determine the fair value of investments as of the last day of each month. Fair value determinations are based upon all available inputs that our Advisor deems relevant, including, but not limited to, indicative dealer quotes, values of like securities, discounted cash flow analysis, and valuations prepared by third-party valuation services. However, determination of fair value involves subjective judgments and estimates.
33
Valuation of Properties
Our valuation reports will not be addressed to the public and may not be relied upon by any other person to establish an estimated value of our common stock and will not constitute a recommendation to any person to purchase or sell any shares of our common stock. In preparing our NAV calculation, our Advisor will not solicit third-party indications of interest for our common stock in connection with possible purchases thereof or the acquisition of all or any part of our company. Real estate appraisals are reported on a free and clear basis (for example no mortgage), irrespective of any property-level financing that may be in place. The primary methodology used to value properties is the income approach, whereby value is derived by determining the present value of an asset’s stream of future cash flows (for example, discounted cash flow analysis). Consistent with industry practices, the income approach incorporates subjective judgments regarding comparable rental and operating expense data, the capitalization or discount rate, and projections of future rent and expenses based on appropriate evidence. Other methodologies that may also be used to value properties include sales comparisons and replacement cost approaches. Because the appraisals involve subjective judgments, the fair value of our assets, which is included in our NAV, may not reflect the liquidation value or net realizable value of our properties.
Liabilities
We include the fair value of our liabilities as part of our NAV calculation. Our liabilities generally include portfolio-level credit facilities, the fees payable to our Advisor and the Dealer Manager, accounts payable, accrued operating expenses, property-level mortgages, reserves for future liabilities and other liabilities. All liabilities are valued using widely accepted methodologies specific to each type of liability. Our debt is typically valued at fair value in accordance with GAAP. Our aggregate monthly NAV will be reduced to reflect the accrual of the liability to pay any declared (and unpaid) distributions for all classes of common stock. Liabilities allocable to a specific class of shares will only be included in the NAV calculation for that class.
NAV and NAV Per Share Calculation
34
Each class of our common stock, including Class P common stock that was not offered to the public, have an undivided interest in our assets and liabilities, other than class-specific liabilities. Our NAV is calculated by the independent valuation advisor for each of these classes. Our Advisor is responsible for reviewing and confirming our NAV, and overseeing the process around the calculation of our NAV, in each case, as calculated by the independent valuation advisor. Because stockholder servicing fees allocable to a specific class of shares will only be included in the NAV calculation for that class, the NAV per share for our share classes may differ.
At the end of each month, before taking into consideration class-specific expense accruals for that month, any change in our aggregate NAV (whether an increase or decrease) is allocated among each class of shares based on each class’s relative percentage of the previous aggregate NAV plus issuances of shares that were effective on the first business day of such month and issuances of shares under our DRP and less repurchases under our SRP during such month. The NAV calculation is generally available within 15 calendar days after the end of the applicable month. Changes in our monthly NAV include, without limitation, accruals of our net portfolio income, interest expense, the management fee, any accrued performance fee, distributions, unrealized/realized gains and losses on assets, provisions for credit losses recorded on specific loans, any applicable organization and offering costs and any expense reimbursements. Changes in our monthly NAV also include material non-recurring events, such as capital expenditures and material property acquisitions and dispositions occurring during the month. On an ongoing basis, our Advisor will adjust the accruals to reflect actual operating results and the outstanding receivable, payable and other account balances resulting from the accumulation of monthly accruals for which financial information is available.
For the purpose of calculating our NAV, offering costs are expenses we incur as we raise proceeds in our public and private offerings. For GAAP purposes, these costs are deducted from equity when incurred. For the NAV calculation, all of the offering costs from our public and private offerings incurred through July 17, 2019 (the “NAV Pricing Date”) were added back to equity and amortized into equity monthly over the 60 months beginning with the first full month that follows the NAV Pricing Date. Following the NAV Pricing Date, offering costs are included in the NAV calculation as and when incurred.
Following the aggregation of the NAV of our investments, the addition of any other assets (such as cash on hand) and the deduction of any other liabilities, the independent valuation advisor will incorporate any class-specific adjustments to our NAV, including additional issuances and repurchases of our common stock and accruals of class-specific stockholder servicing fees. For each applicable class of shares, the stockholder servicing fees will be calculated as a percentage of the aggregate NAV for such class of shares. NAV per share for each class is calculated by dividing such class’s NAV at the end of each month by the number of shares outstanding for that class at the end of such month.
The combination of the Class A NAV, Class T NAV, Class S NAV, Class D NAV, Class I NAV and Class P NAV equals the value of our assets less our liabilities, which include certain class-specific liabilities. Our Advisor calculates the value of our investments as directed by our valuation guidelines based upon values received from various sources, including independent valuation services. Our Advisor, with assistance from our Sub-Advisor, is responsible for information received from third parties that is used in calculating our NAV.
Limits on the Calculation of Our Per Share NAV
The overarching principle of our valuation guidelines is to produce reasonable estimated values for each of our investments (and other assets and liabilities). However, the majority of our assets will consist of real estate loans and, as with any real estate valuation protocol and as described above, the valuation of our loans (and other assets and liabilities) will be based on a number of judgments, assumptions and opinions about future events that may or may not prove to be correct. The use of different judgments, assumptions or opinions would likely result in a different estimate of the value of our real estate loans (and other assets and liabilities). Any resulting potential disparity in our NAV per share may be in favor of stockholders whose shares are repurchased, existing stockholders or new purchasers of our common stock, as the case may be, depending on the circumstances at the time (for cases in which our transaction price is based on NAV).
Additionally, while the methodologies contained in our valuation guidelines are designed to operate reliably within a wide variety of circumstances, it is possible that in certain unanticipated situations or after the occurrence of certain extraordinary events (such as a significant disruption in relevant markets, a terrorist attack or an act of nature), our ability to calculate NAV may be impaired or delayed, including, without limitation, circumstances where there is a delay in accessing or receiving information from vendors or other reporting agents upon which we may rely upon in determining the monthly value of our NAV. In these circumstances, a more accurate valuation of our NAV could be obtained by using different assumptions or methodologies. Accordingly, in special situations when, in our Advisor’s reasonable judgment, the administration of the valuation guidelines would result in a valuation that does not represent a fair and accurate estimate of the value of our investment, alternative methodologies may be applied, provided that our Advisor must notify our Board at the next scheduled board meeting of any alternative methodologies utilized and their impact on the overall valuation of our investment. We include no discounts to our NAV for the illiquid nature of our shares, including the limitations under our SRP and our ability to suspend or terminate our SRP at any time. Our NAV generally does not consider exit costs that would likely be incurred if our
35
assets and liabilities were liquidated or sold. While we may use market pricing concepts to value individual components of our NAV, our per share NAV is not derived from the market pricing information of open-end real estate funds listed on stock exchanges. Our NAV does not represent the fair value of our assets less liabilities under GAAP.
Liquidity and Capital Resources
Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay distributions to our stockholders, fund investments, originate loans, repay borrowings, and other general business needs including the payment of our operating and administrative expenses. Our primary sources of funds for liquidity consist of any future follow-on public offerings of common stock, net cash provided by operating activities, proceeds from repurchase agreements and other financing arrangements and future issuances of equity and/or debt securities.
Our primary sources of liquidity include $60.4 million in cash, $221 million in available capacity on our borrowing facilities, and $20 million in available borrowing capacity from our revolving credit letter agreements with IREIC and Sound Point. We may seek additional sources of liquidity from syndicated financing in the form of collateralized loan obligations, sale of loan participations, other borrowings, including additional repurchase agreement facilities and borrowings not related to a specific investment and future offerings of equity and debt securities.
Our primary liquidity needs include originating new loans and acquiring assets in accordance with our investment objectives, our commitments to repay the principal and interest on our borrowings and pay other financing costs, financing our assets, making advances on our future funding obligations, making distributions to our stockholders, funding redemptions under our SRP, funding our operations which includes paying fees and expenses to our Advisor and Sub-Advisor, payment of offering costs in connection with public offerings of common stock, and other general business needs.
Cash Flow Analysis
|
|
Three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net cash provided by operating activities |
|
$ |
4,164 |
|
|
$ |
1,198 |
|
Net cash provided by investing activities |
|
|
28,778 |
|
|
|
21,188 |
|
Net cash used in financing activities |
|
|
(26,689 |
) |
|
|
(32,072 |
) |
Net increase (decrease) in cash and cash equivalents |
|
$ |
6,253 |
|
|
$ |
(9,686 |
) |
We experienced a net increase in cash and cash equivalents of $6,253 for the three months ended March 31, 2024 compared to a net decrease of $9,686 for the three months ended March 31, 2023. During the three months ended March 31, 2024, we funded $3,482 in mortgage loans, received $32,197 in principal payments from our loans, paid down $21,999 on our borrowing facilities, and paid distributions of $4,645.
Repurchase Agreements and Credit Facilities
On February 15, 2018, we, through our wholly owned subsidiary, entered into a master repurchase agreement (the “Atlas Repo Facility”) with Column Financial, Inc. as administrative agent for certain of its affiliates. As our business has grown, we have increased the borrowing limit and extended the maturity. The most recent extension was in November 2023 for a twelve-month term and the maximum advance amount was reduced to $100,000. On February 8, 2023, Column Financial, Inc. and affiliated parties sold and assigned their interest in the Atlas Repo Facility to Atlas Securitized Products Investments 2, L.P. with no changes to the terms of the Atlas Repo Facility. Advances under the Atlas Repo Facility for current loans accrue interest at a per annum rate equal to SOFR plus 2.50% to 3.00% with a 0.15% to 0.25% floor. We paid off the outstanding balance on the Atlas Repo Facility in May 2023 and had no outstanding balance as of March 31, 2024. As there was no outstanding balance on the Atlas Repo Facility, we were not subject to any financial covenants.
On May 6, 2019, we, through our wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association (“JPM”). The JPM Repo Facility provides up to $150,000 in advances that we expect to use to finance the acquisition or origination of eligible loans and participation interests therein. Advances made prior to December 2021 under the JPM Repo Facility accrue interest at per annum rates equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of between 1.75% to 2.50% with no floor, depending on the attributes of the purchased assets. Advances made subsequent to December 2021 under the JPM Repo Facility accrue interest at per annum rates equal to the sum of SOFR plus an agreed upon margin. As of March 31, 2024, all of the advances made under the JPM Repo Facility were indexed to SOFR and have margins between 1.85% and 2.85% with a floor between 0.00% and 2.00%. In May 2022, the maturity date of the JPM Repo Facility was
36
extended to May 6, 2023. On May 5, 2023, we entered into an amendment that extended the maturity date to May 6, 2026, with the option to extend the maturity date further to May 6, 2028 subject to two optional one-year extensions. The amendment also increased the maximum facility amount to $526,076. We used the increased capacity to pay off the balance on the Atlas Repo Facility. The JPM Repo Facility is subject to certain financial covenants. We were in compliance with all financial covenant requirements as of March 31, 2024 and December 31, 2023.
On March 10, 2021, we, through our wholly owned subsidiary, entered into a credit facility with Western Alliance Bank (the “WA Credit Facility,” together with the Atlas Repo Facility and the JPM Repo Facility, the “Facilities”). The WA Credit Facility provides for loan advances up to the lesser of $75,000 or the borrowing base. The borrowing base consists of eligible assets pledged to and accepted by Western Alliance in its discretion up to the lower of (i) 60% to 70% of loan-to-unpaid balance or (ii) 45% to 50% of the loan-to-appraised value (depending on the property type underlying the asset, for both (i) and (ii)). Assets that would otherwise be eligible become ineligible after being pledged as part of the borrowing base for 36 months. Advances under the WA Credit Facility accrue interest at an annual rate equal to one-month LIBOR plus 3.25% with a floor of 0.75%. The initial maturity date of the WA Credit Facility was March 10, 2023. On March 9, 2023, we extended the maturity date of the WA Credit Facility to March 10, 2025, modified that loan advances are up to the lesser of $40,000 or the borrowing base, and changed the index rate from LIBOR to SOFR. In addition, the spread increased to 3.50% and the floor to 2.50%. We have an option to convert the loan made pursuant to the WA Credit Facility upon its initial maturity to a term loan with the same interest rate and floor and a maturity of two years in exchange for, among other things, a conversion fee of 0.25% of the outstanding amount at the time of conversion. The WA Credit Facility requires maintenance of an average unrestricted aggregate deposit account balance with Western Alliance of not less than $3,750 until the calendar quarter ending on June 30, 2023 and not less than $5,000 commencing with the calendar quarter ending on September 30, 2023. Failure to meet the minimum deposit balance will result in, among other things, the interest rate of the WA Credit Facility increasing by 0.50% per annum for each quarter in which the compensating balances are not maintained. The WA Credit Facility is subject to certain financial covenants. One of the covenants requires that we have a debt service coverage ratio of at least 1.50 measured on a quarterly basis. On March 4, 2024, we executed a second loan modification and waiver agreement that temporarily decreased the debt service coverage ratio to 1.40 for the three-month period ended March 31, 2024. For the three-month period ended March 31, 2024 and December 31, 2023, we had a debt service coverage ratio of 1.44 and 1.47, respectively. Western Alliance agreed to waive this covenant as of December 31, 2023. As a result, we were in compliance with all financial covenant requirements as of March 31, 2024 and December 31, 2023.
The Facilities are used to finance eligible loans and act in the manner of a revolving credit facility that can be repaid as our assets are paid off and re-drawn as advances against new assets.
The tables below show our Facilities as of March 31, 2024 and December 31, 2023:
March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
||||||||
|
Committed Financing |
|
|
Amount |
|
|
Accrued |
|
|
Collateral |
|
|
Interest |
|
Days to |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Atlas Repo Facility |
$ |
100,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
|
|
— |
|
JPM Repo Facility |
|
526,076 |
|
|
|
435,439 |
|
|
|
1,312 |
|
|
|
615,655 |
|
|
|
7.74 |
% |
|
1,497 |
|
Total Repurchase Facilities — commercial mortgage loans |
|
626,076 |
|
|
|
435,439 |
|
|
|
1,312 |
|
|
|
615,655 |
|
|
|
7.74 |
% |
|
1,497 |
|
WA Credit Facility |
|
40,000 |
|
|
|
9,498 |
|
|
|
40 |
|
|
|
13,477 |
|
|
|
8.83 |
% |
|
344 |
|
|
$ |
666,076 |
|
|
$ |
444,937 |
|
|
$ |
1,352 |
|
|
$ |
629,132 |
|
|
|
7.77 |
% |
|
1,472 |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
||||||||
|
Committed Financing |
|
|
Amount |
|
|
Accrued |
|
|
Collateral |
|
|
Interest |
|
Days to |
|
||||||
Atlas Repo Facility |
$ |
100,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
|
|
— |
|
JPM Repo Facility |
|
526,076 |
|
|
|
457,438 |
|
|
|
1,385 |
|
|
|
644,201 |
|
|
|
7.78 |
% |
|
1,588 |
|
Total Repurchase Facilities — commercial mortgage loans |
|
626,076 |
|
|
|
457,438 |
|
|
|
1,385 |
|
|
|
644,201 |
|
|
|
7.78 |
% |
|
1,588 |
|
WA Credit Facility |
|
40,000 |
|
|
|
9,498 |
|
|
|
42 |
|
|
|
13,647 |
|
|
9.34% (2) |
|
|
435 |
|
|
|
$ |
666,076 |
|
|
$ |
466,936 |
|
|
$ |
1,427 |
|
|
$ |
657,848 |
|
|
|
7.81 |
% |
|
1,565 |
|
37
Loan Participations Sold
On November 15, 2021, we sold a non-recourse senior participation interest in nine first mortgage loans to a third party. Under the loan participation agreement, in the event of default by the underlying mortgagor, any amounts paid are first allocated to the third party before any amounts are allocated to our subordinate interest. As the directing participant in the loan participation agreement, we are entitled to exercise, without the consent of the third party, each of the consent approval and control rights under the applicable underlying mortgage loan documents with a few exceptions. We require the third party’s approval for any modification or amendment to the loan, a bankruptcy plan for an underlying mortgagor where the third party would incur an out-of-pocket loss, or any transfer of the underlying mortgaged property if our approval is required by the underlying mortgage documents. We remain the directing participant unless certain conditions are met related to losses on the property or if the mortgagor is one of our affiliates. In the former case, we may post cash or short-term U.S. government securities as collateral to retain the rights of the directing participant.
The third party, as the senior participation interest holder, receives interest and principal payments from the borrower until they receive the amounts to which they are entitled. All expenses or losses on the underlying mortgages are allocated first to us and then to the third party. If the underlying mortgage is in default, we will have the option to purchase the third party’s participation interest and remove it from the loan participation agreement.
The following table details our loan participations sold as of March 31, 2024 and December 31, 2023:
|
|
March 31, 2024 |
|
|||||||||||||||||
Loan Participations Sold |
|
Count |
|
|
Principal Balance |
|
|
Book Value |
|
|
Yield/Cost (1) |
|
Guarantee (2) |
|
Weighted Average Maximum Maturity (4) |
|
||||
Total Loans |
|
|
4 |
|
|
$ |
71,532 |
|
|
$ |
65,837 |
|
|
S+3.2% |
|
n/a |
|
|
0.19 |
|
Senior participations (3) |
|
|
4 |
|
|
$ |
57,226 |
|
|
$ |
57,226 |
|
|
S+2.0% |
|
n/a |
|
|
0.19 |
|
|
|
December 31, 2023 |
|
|||||||||||||||||
Loan Participations Sold |
|
Count |
|
|
Principal Balance |
|
|
Book Value |
|
|
Yield/Cost (1) |
|
Guarantee (2) |
|
Weighted Average Maximum Maturity (4) |
|
||||
Total Loans |
|
|
4 |
|
|
$ |
71,532 |
|
|
$ |
65,435 |
|
|
SOFR+3.5% |
|
n/a |
|
|
0.11 |
|
Senior participations (3) |
|
|
4 |
|
|
$ |
57,226 |
|
|
$ |
57,226 |
|
|
SOFR+2.0% |
|
n/a |
|
|
0.11 |
|
____________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving Credit Liquidity Letter Agreements
IREIC, our sponsor, and Sound Point have agreed under separate letter agreements dated July 20, 2021, and July 15, 2021, respectively, to make revolving credit loans to us in an aggregate principal amount outstanding at any one time not to exceed $5,000 and $15,000, respectively (the “IREIC-Sound Point Commitments”) from time to time. Use of the IREIC-Sound Point Commitments is limited to satisfying requirements to maintain cash or cash equivalents under our repurchase and other borrowing arrangements.
38
Distributions
Common Stock
The table below presents the aggregate annualized and monthly distributions declared by record date for all classes of shares of common stock since January 1, 2023. The amount of distributions that we may pay in the future is not certain.
Record date |
|
Aggregate annualized gross distribution declared per share |
|
|
Aggregate monthly gross distribution declared per share |
|
||
January 31, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
February 28, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
March 31, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
April 30, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
May 31, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
June 30, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
July 31, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
August 31, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
September 30, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
October 31, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
November 30, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
December 31, 2023 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
January 30, 2024 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
February 29, 2024 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
March 31, 2024 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
The gross distribution was reduced each month for Class D and Class T of our common stock for applicable class-specific stockholder servicing fees to arrive at a lower net distribution amount paid to those classes. For a description of the stockholder servicing fees applicable to Class D, Class S and Class T shares of our common stock, please see “Note 10 – Transactions with Related Parties” in the notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q. Since the IPO and through March 31, 2024, we have not issued any shares of Class S common stock.
The following table shows our monthly net distribution per share for shares of Class D and Class T common stock since January 1, 2023.
Record date |
|
Monthly net distribution declared per share of Class D common stock |
|
|
Monthly net distribution declared per share of Class T common stock |
|
||
January 31, 2023 |
|
$ |
0.1000 |
|
|
$ |
0.0900 |
|
February 28, 2023 |
|
$ |
0.1004 |
|
|
$ |
0.0914 |
|
March 31,2023 |
|
$ |
0.1001 |
|
|
$ |
0.0903 |
|
April 30,2023 |
|
$ |
0.1002 |
|
|
$ |
0.0907 |
|
May 31, 2023 |
|
$ |
0.1001 |
|
|
$ |
0.0903 |
|
June 30, 2023 |
|
$ |
0.1004 |
|
|
$ |
0.0912 |
|
July 31, 2023 |
|
$ |
0.1005 |
|
|
$ |
0.0916 |
|
August 31, 2023 |
|
$ |
0.1005 |
|
|
$ |
0.0915 |
|
September 30, 2023 |
|
$ |
0.1006 |
|
|
$ |
0.0920 |
|
October 31, 2023 |
|
$ |
0.1005 |
|
|
$ |
0.0916 |
|
November 30, 2023 |
|
$ |
0.1006 |
|
|
$ |
0.0920 |
|
December 31, 2023 |
|
$ |
0.1005 |
|
|
$ |
0.0916 |
|
January 30, 2024 |
|
$ |
0.1006 |
|
|
$ |
0.0919 |
|
February 29, 2024 |
|
$ |
0.1008 |
|
|
$ |
0.0927 |
|
March 31, 2024 |
|
$ |
0.1006 |
|
|
$ |
0.0920 |
|
Series A Preferred Stock
Series A Preferred Stock dividends are paid quarterly in arrears based on an annualized distribution rate of 6.75% of the $25.00 per share liquidation preference, or $1.6875 per share per annum. The table below shows the aggregate annualized and quarterly distributions declared on the Series A Preferred Stock by record date since January 1, 2023.
39
Record date |
Aggregate annualized gross distribution declared per share |
|
Aggregate quarterly gross distribution declared per share |
|
||
March 15, 2023 |
$ |
1.6875 |
|
$ |
0.421875 |
|
June 15, 2023 |
$ |
1.6875 |
|
$ |
0.421875 |
|
September 15, 2023 |
$ |
1.6875 |
|
$ |
0.421875 |
|
December 15, 2023 |
$ |
1.6875 |
|
$ |
0.421875 |
|
March 15, 2024 |
$ |
1.6875 |
|
$ |
0.421875 |
|
Sources of Distributions to Common Stockholders
|
|
Three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Distributions to Holders of Common Stock |
|
|
|
|
|
|
||
Paid in cash |
|
$ |
3,150 |
|
|
$ |
3,061 |
|
Reinvested in shares |
|
|
— |
|
|
|
85 |
|
Total distributions |
|
$ |
3,150 |
|
|
$ |
3,146 |
|
Net cash provided by operating activities |
|
$ |
4,164 |
|
|
$ |
1,198 |
|
During the three months ended March 31, 2024, 100% of our distributions were paid from cash flows from operating activities generated during the period. During the three months ended March 31, 2023, 39.1% of our distributions were paid from cash flow from operating activities generated during the period, and the remainder was paid using cash generated during prior periods.
Critical Accounting Policies
There have been no material changes to our critical accounting policies set forth in our Annual Report on Form 10-K under the heading “Summary of Critical Accounting Policies and Estimates.”
Commercial Mortgage Loans Held for Investment and Allowance for Credit Losses
Loans held-for-investment are anticipated to be held until maturity, and reported at cost, net of allowance for credit losses, any unamortized acquisition premiums or discounts, loan fees and origination costs, as applicable. In accordance with ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, we use a probability-weighted quantitative analytical model to estimate and recognize an allowance for credit losses on loans held-for-investment and their related unfunded commitments. We employed quarterly updated macroeconomic forecasts, which reflect expectations for overall economic output, interest rates, values of real estate properties and other factors, geopolitical instability and the Federal Reserve monetary policy impact on the overall U.S. economy and commercial real estate markets generally. These estimates may change in future periods based on available future macroeconomic data and might result in a material change in our future estimates of expected credit losses for our loan portfolio.
We consider loan investments that are both (i) expected to be substantially repaid through the operation or sale of the underlying collateral, and (ii) for which the borrower is experiencing financial difficulty, to be “collateral-dependent” loans. For loans that we determine foreclosure of the collateral is probable, we measure the expected losses based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. For collateral-dependent loans that we determine foreclosure is not probable, we apply a practical expedient to estimate expected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan.
For loans assigned a risk rating of “5,” we have determined that the recovery of the loan’s principal is collateral-dependent. Accordingly, these loans are assessed individually, and we elected to apply a practical expedient in accordance with ASU 2016-13. While utilizing the practical expedient for collateral-dependent loans, we estimate the fair value of the loan’s underlying collateral using the discounted cash flow method of valuation, less the estimated cost to foreclose and sell the property when applicable. The estimation of the fair value of the collateral property also involves using various Level 3 unobservable inputs, which are inherently uncertain and subjective, and are in part developed based on discussions with various market participants and management’s best estimates, which may vary depending on the information available and market conditions as of the valuation date. Selecting the appropriate inputs and assumptions requires significant judgment and consideration of various factors that are specific to the underlying collateral property being assessed. Our estimate of the fair value of the collateral property is sensitive to both the valuation methodology selected and inputs used in the analysis. As a result, the fair value of the collateral property used in determining the expected credit losses is subject to uncertainty and any actual losses, if incurred, could differ materially from the estimated provision for credit losses.
40
Interest income on loans held-for-investment is recognized at the loan coupon rate. Any premiums or discounts, loan fees, contractual exit fees and origination costs are amortized or accreted into interest income over the lives of the loans using the effective interest method. Generally, loans held-for-investment are placed on nonaccrual status when delinquent for more than 90 days or when determined not to be probable of full collection. Interest income recognition is suspended when loans are placed on nonaccrual status. Interest accrued, but not collected, at the date loans are placed on nonaccrual is reversed and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status. However, when there is doubt regarding the ultimate collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. Loans held-for-investment are restored to accrual status only when contractually current or the collection of future payments is reasonably assured. We may make exceptions to placing a loan on nonaccrual status if the loan has sufficient collateral value and is in the process of collection or has been modified.
The allowance for credit losses is recorded in accordance with ASU 2016-13, and is a valuation account that is deducted from the amortized cost basis of loans held-for-investment on our consolidated balance sheets. Changes to the allowance for credit losses are recognized through net income (loss) on our consolidated statements of operations. The allowance is based on relevant information about past events, including historical loss experience, current portfolio, market conditions and reasonable and supportable forecasts for the duration of each respective loan. All loans held-for-investment within our portfolio have some amount of expected loss to reflect the GAAP principal underlying the CECL model that all loans have some inherent risk of loss, regardless of credit quality, subordinate capital or other mitigating factors.
Our loans typically include commitments to fund incremental proceeds to our borrowers over the life of the loan. Those future funding commitments are also subject to an allowance for credit losses. The allowance for credit losses related to future loan fundings is recorded as a component of “Accrued expenses and other liabilities” on our consolidated balance sheets, and not as an offset to the related loan balance. This allowance for credit losses is estimated using the same process outlined below for our outstanding loan balances, and changes in this component of the allowance for credit losses similarly flow through our consolidated statements of operations.
The allowance for credit losses is estimated on a quarterly basis and represents management’s estimates of current expected credit losses in our investment portfolio. Pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. Estimating an allowance for credit losses is inherently subjective, as it requires management to exercise significant judgment in establishing appropriate factors used to determine the allowance and a variety of subjective assumptions, including (i) determination of relevant historical loan loss data sets, (ii) the expected timing and amount of future loan fundings and repayments, (iii) the current credit quality of loans and operating performance of loan collateral and our expectations of performance, (iv) selecting the forecast for macroeconomic conditions and (v) determining the reasonable and supportable forecast period.
We estimate the analytical portion of our allowance for credit losses by using a probability-weighted quantitative analytical model that considers the likelihood of default and loss-given-default for each individual loan. The analytical model incorporates a third-party licensed database for over 100,000 commercial real estate loans. We license certain macroeconomic financial forecasts from a third-party to inform our view of the potential future impact that broader macroeconomic conditions may have on the performance of the loans held-for-investment. These macroeconomic factors include unemployment rates, interest rates, price indices for commercial property and other factors. We may use one or more of these forecasts in the process of estimating our allowance for credit losses. Selection of these economic forecasts requires significant judgment about future events that, while based on the information available to us as of the balance sheet date, are ultimately unknowable with certainty, and the actual economic conditions impacting our portfolio could vary significantly from the estimates we made for the periods presented. Significant inputs to our estimate of the allowance for credit losses include the reasonable and supportable forecast period and loan specific factors such as debt service coverage ratio, or DSCR, loan-to-value ratio, or LTV, remaining contractual loan term, property type and others. In addition, we also consider relevant loan-specific qualitative factors to estimate our allowance for credit losses.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources excluding future loan advance commitments as disclosed in “Note 8 – Commitments and Contingencies.
Subsequent Events
For information related to subsequent events, reference is made to “Note 14 – Subsequent Events,” which is included in our notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.
41
Our Corporate Information
Our principal executive offices are located at 2901 Butterfield Rd., Oak Brook, Illinois 60523, our telephone number is (866) 694-6526 and our website is www.inland-investments.com/inpoint. From time to time, we may use our website as a distribution channel for material company information, including, for example, our position on any third-party tender offers for our securities. Our website is not incorporated by reference in or otherwise a part of this Quarterly Report on Form 10-Q. We will provide without charge a copy of this Quarterly Report on Form 10-Q upon written request delivered to our principal executive offices. We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those reports with the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Credit Risk
Our investments are subject to a high degree of credit risk. Credit risk is the exposure to loss from loan defaults. Default rates are subject to a wide variety of factors, including, but not limited to, borrower financial condition, property performance, property management, supply/demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the U.S. economy, and other factors beyond our control. All loans are subject to some risk of default. We manage credit risk through the underwriting process and investment structuring process, acquiring our investments at the appropriate discount to face value, if any, and establishing loss assumptions. We also carefully monitor the performance of the loans, as well as external factors that may affect their value.
Adverse economic conditions could negatively impact the commercial properties underlying our investments resulting in potential borrower delinquencies or defaults. If we fail to repay the lender at maturity, the lender has the right to immediately sell the collateral and pursue us for any shortfall if the sales proceeds are inadequate to cover the repurchase agreement financing.
Interest Rate Risk
Our market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we may borrow funds at fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. During the three months ended March 31, 2024 and 2023, we did not engage in interest rate hedging activities. We do not hold or issue derivative contracts for trading or speculative purposes. We do not have any foreign denominated investments, and thus, we are not exposed to foreign currency fluctuations.
As of both March 31, 2024 and December 31, 2023, our debt investment portfolio was 98% variable rate investments based on SOFR for various terms. Borrowings under our master repurchase agreements were short-term and at a variable rate. Both our investment portfolio and borrowings have minimum levels for SOFR known as interest rate floors. The floors were established when the loans and borrowings were originated based on market conditions. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase or decrease by 25 or 50 basis points, assuming that our current balance sheet was to remain constant and no actions were taken to alter our existing interest rate sensitivity. The change from December 31, 2023 to March 31, 2024 was primarily due to the changes in the portfolio relating to payoffs, paydowns and draws.
|
Estimated Percentage Change in Interest Income Net of Interest Expense |
|
|||||
Change in Rates |
March 31, 2024 |
|
|
December 31, 2023 |
|
||
(-) 50 Basis Points |
|
(4.25 |
)% |
|
|
(4.18 |
)% |
(-) 25 Basis Points |
|
(2.12 |
)% |
|
|
(2.09 |
)% |
Base Interest Rate |
|
0.00 |
% |
|
|
0.00 |
% |
(+) 25 Basis Points |
|
2.12 |
% |
|
|
2.09 |
% |
(+) 50 Basis Points |
|
4.25 |
% |
|
|
4.18 |
% |
For this analysis, SOFR was assumed to not fall below zero.
42
Item 4. Controls and Procedures
Controls and Procedures
Our management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
In the ordinary course of business, we may become subject to litigation. We have no knowledge of material legal proceedings pending or known to be contemplated against us at this time.
Item 1A. Risk Factors
There are no material changes to the risk factors set forth 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
Recent Sales of Unregistered Equity Securities
We did not have any recent sales of unregistered securities during the period covered by this Quarterly Report on Form 10-Q.
Use of Proceeds
On May 3, 2019, our 2019 Registration Statement on Form S-11 (File No. 333-230465) for our IPO of common stock of up to $2,350,000 in shares of Class A, Class T, Class S, Class D and Class I common stock, was declared effective under the Securities Act. Inland Securities Corporation served as our dealer manager for the common stock IPO. On April 28, 2022, we filed 2022 Registration Statement on Form S-11 (File No. 333-264540) with the SEC, for our Second Public Offering, to register up to $2,200,000 in shares of common stock, which was declared effective by the SEC on November 2, 2022.
As of March 31, 2024, we had received net offering proceeds of $42.8 million from the IPO and Second Public Offering. The following table summarizes certain information about the Public Offerings’ proceeds ($ in thousands):
|
Class A |
|
Class T |
|
Class S |
|
Class D |
|
Class I |
|
Total |
|
||||||
Primary shares sold |
|
794,715 |
|
|
464,881 |
|
|
— |
|
|
53,815 |
|
|
489,069 |
|
|
1,802,480 |
|
Gross proceeds from primary offerings |
$ |
19,695 |
|
$ |
11,309 |
|
$ |
— |
|
$ |
1,237 |
|
$ |
10,999 |
|
$ |
43,240 |
|
Reinvestments of distributions |
|
619 |
|
|
304 |
|
|
— |
|
|
93 |
|
|
658 |
|
|
1,674 |
|
Total gross proceeds |
|
20,314 |
|
|
11,613 |
|
|
— |
|
|
1,330 |
|
|
11,657 |
|
|
44,914 |
|
Selling commissions and dealer manager fees |
|
1,142 |
|
|
313 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,455 |
|
Stockholder servicing fees |
|
— |
|
|
547 |
|
|
— |
|
|
98 |
|
|
— |
|
|
645 |
|
Total expenses |
|
1,142 |
|
|
860 |
|
|
— |
|
|
98 |
|
|
— |
|
|
2,100 |
|
Net offering proceeds (1) |
$ |
19,172 |
|
$ |
10,753 |
|
$ |
— |
|
$ |
1,232 |
|
$ |
11,657 |
|
$ |
42,814 |
|
43
We primarily used the net offering proceeds from the Public Offerings to originate commercial real estate loans and purchase real estate securities on a levered basis, subject to our investment guidelines and to the extent consistent with maintaining our REIT qualification, and other general corporate purposes.
In light of the pace of fundraising in the Second Public Offering and the amount of monthly redemption requests pursuant to the SRP, which were in excess of such fundraising, on January 30, 2023, the Board approved, effective immediately, the suspension of the operation of the SRP. In connection with such suspension, the Board has also approved the suspension of the sale of shares in the primary portion of the Second Public Offering (the “Primary Offering”), effective immediately, and the suspension of the sale of shares pursuant to the DRP, effective as of February 10, 2023. The Primary Offering, the SRP, and the DRP shall each remain suspended unless and until such time as the Board approves their resumption.
On September 15, 2021, our registration statement on Form S-11 (File No. 333-258802) for our Preferred Stock Offering of up to 3,500,000 shares of Series A Preferred Stock was declared effective under the Securities Act. Raymond James & Associates acted as representative of the underwriters. On September 22, 2021, we issued and sold 3,500,000 shares of our Series A Preferred Stock at a public offering price of $25.00 per share. In addition, on October 15, 2021, the underwriters partially exercised their over-allotment option and purchased an additional 100,000 shares of Series A Preferred Stock. The Series A Preferred Stock is listed on the New York Stock Exchange with the ticker symbol ICR PR A.
As of March 31, 2024, we received net offering proceeds of $86.3 million from our Preferred Stock Offering. The following table summarizes certain information about the proceeds from our Preferred Stock Offering ($ in thousands):
|
Series A |
|
|
Primary shares sold |
|
3,600,000 |
|
Gross proceeds from primary offering |
$ |
90,000 |
|
Underwriting discounts and commissions |
|
2,835 |
|
Other expenses |
|
855 |
|
Total expenses |
|
3,690 |
|
Net offering proceeds |
$ |
86,310 |
|
We contributed the net proceeds from the Preferred Stock Offering to our Operating Partnership, which in turn used the net proceeds to originate first mortgage loans and acquire other targeted assets in a manner consistent with our investment strategies and investment guidelines and for general corporate purposes.
Repurchases of Common Stock
We adopted an SRP, effective May 3, 2019, whereby on a monthly basis, stockholders who have held our shares of common stock for at least one year may request that we repurchase all or any portion of their shares. Due to the illiquid nature of investments in real estate, we may not have sufficient liquid resources to fund repurchase requests. Because there is no public market for our shares, stockholders may have difficulty selling their shares if we choose to repurchase only some, or even none, of the shares that have been requested to be repurchased in any particular month, in our discretion, or if our Board modifies, suspends or terminates the SRP.
In addition, we established limitations on the amount of funds we may use for repurchases during any calendar month and quarter. We may repurchase fewer shares than have been requested in any particular month to be repurchased under our SRP, or none at all, in our discretion at any time. In addition, the total amount of aggregate repurchases of shares will be limited to no more than 2% of our aggregate NAV per month and no more than 5% of our aggregate NAV per calendar quarter.
In light of the pace of fundraising in the Second Public Offering and the amount of monthly redemption requests pursuant to the SRP, which were in excess of such fundraising, on January 30, 2023, our Board unanimously approved, effective immediately, the suspension of the operation of the SRP.
During the three months ended March 31, 2024, we repurchased no shares of our common stock.
Repurchases of Series A Preferred Stock
Subject to certain exceptions, we may not redeem our Series A Preferred Stock until on or after September 22, 2026. Preferred stockholders may only convert their Series A Preferred Shares into Class I common stock if there is a Change of Control and we do not
44
redeem the shares within 120 days of the Change of Control event. For the three months ended March 31, 2024, there were no redemptions of our Series A Preferred Stock and no conversions of our Series A Preferred Stock to common stock.
On August 11, 2022, the Board authorized and approved a share repurchase program (the “Series A Preferred Repurchase Program”) pursuant to which we were permitted to repurchase up to the lesser of 1,000,000 shares or $15 million of the outstanding shares of our Series A Preferred Stock through December 31, 2022. On November 10, 2022, the Board approved to extend the Series A Preferred Repurchase Program through December 31, 2023. Under the Series A Preferred Repurchase Program, repurchases of shares of our Series A Preferred Stock were to be made at management’s discretion from time to time through open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws. On January 30, 2023, our Board approved the termination of the Series A Preferred Repurchase Program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Trading Arrangements
During the quarter ended March 31, 2024, none of the Company’s directors or executive officers
45
Item 6. Exhibits
The representations, warranties and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties or covenants to, or with, you. Moreover, these representations, warranties and covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.
The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto and are incorporated herein by reference.
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
|
3.2 |
|
|
3.3 |
|
|
3.4 |
|
|
3.5 |
|
|
3.6 |
|
|
4.1 |
|
|
4.2 |
|
|
31.1* |
|
|
31.2* |
|
|
32.1* |
|
|
32.2* |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed as part of this Quarterly Report on Form 10-Q
46
SIGNATURES
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, thereunto duly authorized.
|
INPOINT COMMERCIAL REAL ESTATE INCOME, INC. |
|
|
|
|
|
By: |
/s/ Mitchell A. Sabshon |
|
Name: |
Mitchell A. Sabshon |
|
Title: |
Chief Executive Officer and Chairman |
|
|
(principal executive officer) |
|
Date: |
May 10, 2024 |
|
|
|
|
By: |
/s/ Catherine L. Lynch |
|
Name: |
Catherine L. Lynch |
|
Title: |
Chief Financial Officer |
|
|
(principal financial officer) |
|
Date: |
May 10, 2024 |
47
EXHIBIT 31.1
Certification of Principal Executive Officer
I, Mitchell A. Sabshon, certify that:
|
|
|
|
By: |
/s/ Mitchell A. Sabshon |
Name: |
Mitchell A. Sabshon |
Title: |
Chief Executive Officer and Chairman |
Date: |
May 10, 2024 |
EXHIBIT 31.2
Certification of Principal Financial Officer
I, Catherine L. Lynch, certify that:
|
|
|
|
By: |
/s/ Catherine L. Lynch |
Name: |
Catherine L. Lynch |
Title: |
Chief Financial Officer |
Date: |
May 10, 2024 |
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
In connection with the Quarterly Report on Form 10-Q of InPoint Commercial Real Estate Income, Inc. (the “Company”) for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Mitchell A. Sabshon, Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
|
|
|
|
By: |
/s/ Mitchell A. Sabshon |
Name: |
Mitchell A. Sabshon |
Title: |
Chief Executive Officer and Chairman |
Date: |
May 10, 2024 |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of InPoint Commercial Real Estate Income, Inc. (the “Company”) for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Catherine L. Lynch, Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of her knowledge:
|
|
|
|
By: |
/s/ Catherine L. Lynch |
Name: |
Catherine L. Lynch |
Title: |
Chief Financial Officer |
Date: |
May 10, 2024 |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.