8-K
Inland Real Estate Income Trust, Inc. (INRE)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 5, 2021
INLAND REAL ESTATE INCOME TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
| Maryland | 000-55146 | 45-3079597 |
|---|---|---|
| (State or Other Jurisdiction<br><br><br>of Incorporation) | (Commission<br><br><br>File Number) | (IRS Employer<br><br><br>Identification No.) |
2901 Butterfield Road
Oak Brook, Illinois 60523
(Address of Principal Executive Offices)
(630) 218-8000
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| None | None | None |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02Results of Operations and Financial Condition
The information in Item 7.01 is incorporated by reference into this Item 2.02 and is deemed to have been furnished and shall not be deemed to be “filed” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such act, nor shall any of such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 7.01Regulation FD Disclosure.
Correspondence with Financial Advisors and Broker Dealers
Furnished as Exhibit 99.1 to this Current Report, and incorporated by reference in this Item 7.01, is the text of a correspondence, including frequently asked questions, from Inland Real Estate Income Trust, Inc. (“we” or the “Company”) to financial advisors and broker dealers who participated in the Company’s public offering, notifying them that the board of directors of the Company (the “Board”), including all the independent members of the Board, approved $18.08 as the estimated per share net asset value (the “Estimated Per Share NAV”) of the Company’s common stock as of December 31, 2020. Based on this Estimated Per Share NAV, $18.08 per share will be the purchase price of shares issued under the Company’s amended and restated distribution reinvestment plan (the “DRP”) when a distribution is made, and in accordance with the Company’s Third Amended and Restated Share Repurchase Program (the “SRP”) if shares are repurchased both ordinary repurchases and repurchases for death or qualifying disability will be at $14.46 per share (80% of $18.08).
Pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), the information contained in this Item 7.01, including Exhibit 99.1 and the information set forth therein, is deemed to have been furnished and shall not be deemed to be “filed” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such act, nor shall any of such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
By furnishing the information contained in this Item 7.01 disclosure, including Exhibit 99.1, the Company makes no admission as to the materiality of such information.
Item 8.01Other Events.
Determination of Estimated Per Share NAV and Amendment and Restatement of Share Repurchase Program
Background and Conclusion of Estimated Per Share NAV
On March 5, the Company announced that its Board determined the Estimated Per Share NAV of its common stock and is providing such information to its stockholders and to members of the Financial Industry Regulatory Authority (“FINRA”) and their associated persons who participated in the Company’s public offering in order to assist them in meeting their customer account statement reporting obligations under the National Association of Securities Dealers Conduct Rule 2340.
To assist the Board in establishing the Estimated Per Share NAV, the Company engaged CBRE Capital Advisors, Inc., a FINRA registered broker dealer firm that specializes in providing real estate financial services (“CBRE Cap”). CBRE Cap provided an analysis of the Company’s assets and liabilities (including individual property-level analyses), all of which was used to estimate a range of Estimated Per Share NAVs. A third-party financial risk management firm analyzed the fair market value of the Company’s debt, and CBRE assessed the reasonableness of that valuation. The engagement of CBRE Cap was based on a number of factors, including CBRE Cap’s expertise in valuation services and its, and its affiliates’, breadth and depth of experience in real estate services. CBRE Cap engaged CBRE, Inc.’s Valuation & Advisory Services group, an affiliate of CBRE Cap that conducts appraisals and valuations of real properties (the “MAI Appraisals”), to perform cash flow projections and unlevered, ten-year discounted cash flow analyses from restricted-use appraisals for each of the Company’s wholly-owned operating assets as of December 31, 2020 (the “Valuation Date”). Based on the MAI Appraisals, the Company’s filings with the SEC and financial materials and other guidance provided by IREIT Business Manager & Advisor, Inc., the Company’s business manager and advisor (the “Business Manager”), to CBRE Cap, CBRE Cap developed a valuation analysis of the Company’s assets and liabilities and provided that analysis to the Board in a report presented on March 2, 2021 that contained, among other information, a range of per share net asset values for the Company’s common stock as of the Valuation Date (the “Valuation Report”). There have been no changes between December 31, 2020 and the date of the Valuation Report that the Business Manager believes would materially impact the overall Estimated Per Share NAV as of December 31, 2020.
The Board reviewed the Valuation Report, met telephonically with representatives from CBRE Cap and considered the material assumptions and valuation methodologies applied and described therein. Taking into consideration the reasonableness of the valuation methodologies, assumptions, and the conclusions contained in the Valuation Report, on March 2, 2021, the Board determined the Company’s total estimated net asset value to be approximately $651.3 million, or $18.08 per share, based on a share
count of approximately 36.0 million shares issued and outstanding as of the Valuation Date. The Valuation Report contained a range for the Company’s Estimated Per Share NAV of $17.58 to $19.57. The mid-point of the range of values provided by CBRE Cap was $18.58. The Estimated Per Share NAV of $18.08 is lower than the mid-point of the range. Although the Company’s portfolio is stabilized with an economic occupancy of 93.3%, the Board considered (i) the uncertainty created by the effects of the coronavirus (COVID-19) pandemic, such as the ability of certain types of non-grocery retail tenants to pay rent, including rent deferred from 2020 to 2021, or continue in business and (ii) uncertainty regarding if and when base interest rates may rise and by how much, and the potential effects of interest rate changes on values of retail properties and debts. Additionally, retail real estate continues to experience volatility as a result of, among other things, shifting consumer shopping preferences and Internet competition. Approximately 37% of annualized base rent for leases in-place as of December 31, 2020 is generated from non-grocery big box retailers, a retail sector the Business Manager believes is currently impacted relatively more than certain other retail sectors by shifting consumer preferences and Internet competition. As a result, this retail sector was experiencing price dislocation even before the COVID-19 pandemic and measures taken to combat it, which have generally tended to exacerbate this price dislocation. In light of these factors, the Board selected an estimated per-share NAV lower than the mid-point of the range.
The Board’s determination of the Estimated Per Share NAV was undertaken in accordance with the Company’s valuation policy and the recommendations and methodologies of the Institute for Portfolio Alternatives (formerly known as the Investment Program Association), a trade association for non-listed direct investment vehicles (“IPA”), as set forth in IPA Practice Guideline 2013-01 “Valuations of Publicly Registered Non-Listed REITs” (the “IPA Practice Guideline”). In accordance with the valuation policy and the IPA Practice Guideline, the Estimated Per Share NAV excludes any value adjustments due to the size and diversification of the Company’s portfolio of assets.
The Estimated Per Share NAV represents a snapshot in time, will likely change over time, and may not represent the amount a stockholder would receive now or in the future for his or her shares of the Company’s common stock. Stockholders should not rely on the Estimated Per Share NAV in making a decision to buy or sell shares of our common stock. The Estimated Per Share NAV is based on a number of assumptions, estimates and data that are inherently imprecise and susceptible to uncertainty and changes in circumstances, including changes to the value of individual assets as well as changes and developments in the real estate and capital markets, for example, market changes and developments that may result from the spread and effects of the COVID-19 pandemic, and changes in interest rates. Please see “Valuation Methodologies,” and “Additional Information Regarding the Valuation, Limitations of the Estimated Per Share NAV and CBRE Cap” in this Current Report, below.
The Board, including all of the Board’s independent members, and not CBRE Cap, is ultimately and solely responsible for the determination of the Estimated Per Share NAV. The Company currently expects to publish an updated Estimated Per Share NAV on at least an annual basis.
Valuation Methodologies
As of the Valuation Date, the Company’s real estate portfolio was comprised of 44 retail properties, totaling approximately 6.5 million square feet. The weighted average period of time that the Company has owned the properties is 5.7 years as of the Valuation Date.
To estimate our per share value, CBRE Cap utilized the “net asset value” or “NAV” method, also known as the appraised value methodology, which is based on the fair value of real estate, real estate related investments and all other assets, less the fair value of total liabilities. The fair value estimate of our real estate assets is equal to the sum of their individual real estate values. Generally, CBRE Cap estimated the value of the Company’s real estate assets using several methodologies, including a discounted cash flow, or “DCF,” of projected net operating income, less lease-up discounts and deferred maintenance, as appropriate, for each property, for the ten-year period ending December 31, 2030, and applied a discount rate that it believed was consistent with the inherent level of risk associated with the asset. The other methodologies considered consisted of the “direct cap rate” and “sales comparison” approaches. CBRE Cap believed use of the DCF approach was more appropriate because the portfolio is comprised of multi-tenant assets.
The estimated value of the Company’s real estate assets reflects an overall decrease of 6.6% compared to the Company’s original cost of the real estate assets plus any capital expenditures invested in those real estate assets by the Company through December 31, 2020. For all other (non-real estate) assets, such as other current assets, fair value was determined separately based on book value. The Business Manager engaged a third-party financial risk management firm in determining the fair market value of the Company’s debt by comparing current market interest rates to the contract rates on the Company’s long-term debt and discounting to present value the difference in future payments. The fair market value of the Company’s debt was reviewed by CBRE, Inc.’s Valuation & Advisory Services group for reasonableness and utilized in the Valuation Report. CBRE Cap determined that no incentive fee to the Business Manager would be payable under a hypothetical liquidation occurring within the range of values provided in the Valuation Report. CBRE Cap determined NAV in a manner consistent with the definition of fair value under U.S. generally accepted accounting principles set forth in FASB’s Topic ASC 820, Fair Value Measurements and Disclosures.
Net asset value per share was estimated by subtracting the fair value of our total liabilities from the fair value of our total assets and dividing the result by the number of common shares outstanding as of the Valuation Date. CBRE Cap created a valuation
range by first establishing a discount rate and terminal capitalization rate for each real estate asset. CBRE Cap then applied a discount rate and terminal capitalization rate sensitivity analysis by varying the discount rate and terminal capitalization rate of each real estate asset by 2.5% in either direction, which represents an approximate 5% sensitivity on the discount rates and terminal capitalization rates, resulting in a value range equal to $17.58 to $19.57 per share. The mid-point in that range was $18.58. Discount rates and terminal capitalization rates were sourced from the MAI Appraisals and varied by location, asset quality and supply and demand metrics. The Estimated Per Share NAV determined by the Board of $18.08 assumes a weighted average discount rate equal to 7.96% and a weighted average terminal capitalization rate of 7.27%.
The terminal capitalization rate and discount rate have a significant impact on the estimated value under the net asset value method. The following chart presents the impact of changes to the Estimated Per Share NAV based on variations in the terminal capitalization rate and discount rate within the range of values determined by CBRE Cap.
| Range of Value and Rate | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Low | Estimated<br><br><br>Value | Mid-point | High | |||||||||
| Share Price | $ | 17.58 | $ | 18.08 | $ | 18.58 | $ | 19.57 | ||||
| Terminal Capitalization Rate | 7.34 | % | 7.27 | % | 7.18 | % | 6.98 | % | ||||
| Discount Rate | 8.07 | % | 7.96 | % | 7.87 | % | 7.67 | % |
The following table summarizes the individual components presented to the Board to estimate per share values as of the dates presented. All share information reflects the 1-for-2.5 reverse stock split effected by the Company on January 16, 2018 (the “Stock Split”).
| Per Share as of<br><br><br>December 31, 2020 | Per Share as of<br><br><br>December 31, 2019 | |||||
|---|---|---|---|---|---|---|
| Real Estate Assets | $ | 35.78 | $ | 38.13 | ||
| Cash and Other Assets, Net of Other Liabilities^(1)^ | (0.33 | ) | (0.72 | ) | ||
| Fair Market Value of Debt^(2)^ | (17.37 | ) | (19.26 | ) | ||
| Estimated Per Share NAV | $ | 18.08 | $ | 18.15 | ||
| (1) | Includes the following items based on book value: (i) cash and cash equivalents; (ii) accounts and rent receivables; (iii) other assets; (iv) accounts payable and accrued expenses; (v) distributions payable; (vi) due to related parties and (vii) other liabilities | |||||
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| (2) | Comprised of mortgage loans and credit facility payable, as adjusted for fair market value. | |||||
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The primary factors that impacted the Board’s determination of the Company’s Estimated Per Share NAV as compared to the Company’s prior NAV determination as of December 31, 2019 were (i) a decrease in the value of the real estate assets due to the sale of three assets, higher terminal capitalization rates, and higher discount rates applied to certain assets and a decrease in rents at certain properties, (ii) an increase in cash and other assets, net of other liabilities, as a result of an increase in the cash balance, a decrease in distributions and share repurchase program payable of $0.37 per share because the Company suspended distributions and repurchases following the onset of the pandemic, offset by an increase in the fair value of derivatives liability due to a decrease in interest rates, (iii) a decrease in the fair market value of debt of $1.59 per share from paying down mortgages payable and reducing the line of credit balance outstanding with cash and proceeds from the sale of assets, and (iv) a decrease in the fair market value of debt due to an increase in risk-adjusted market interest rates.
New Purchase Price under the Distribution Reinvestment Plan
Pursuant to the DRP, the price per share for shares of common stock purchased under the DRP is equal to the estimated value of a share, as determined by the Board and reported by the Company from time to time, until the shares become listed for trading, if a listing occurs, assuming that the DRP has not been terminated or suspended in connection with such listing. Accordingly, if distributions are paid and shares are purchased through the DRP, based on the Estimated Per Share NAV, distributions may be reinvested in shares of our common stock at a price equal to $18.08 per share until we announce a new Estimated Per Share NAV.
New Repurchase Price under the Third Amended and Restated Share Repurchase Program
Pursuant to the SRP, if we make repurchases, we may repurchase shares at 80% of the “share price,” as defined in the SRP, for stockholders who have owned shares for at least one year (“Ordinary Repurchases”) and for repurchases sought upon a stockholder’s death or qualifying disability (“Exceptional Repurchases”). The “share price” is equal to the lesser of: (A) $25 (unless the shares were purchased at a discount from that price, and then that purchase price, as adjusted for the Stock Split), reduced by any distributions of net sale proceeds that we designate as constituting a return of capital; or (B) the most recently disclosed estimated value per share. Under the SRP, beginning with repurchases after March 5, 2021, the “share price” will be equal to $18.08 per share until we announce a new Estimated Per Share NAV, and any Ordinary Repurchases and Exceptional Repurchases would be made at $14.46 per share. Our SRP provides a funding limit for repurchases that is a percentage of the net proceeds we receive from the issuance of shares of common stock pursuant to the DRP. Until the Company pays a distribution and receives net proceeds from the
DRP, the SRP provides that no shares will be repurchased. If the Company makes repurchases under its SRP, it repurchases shares within 15 calendar days following the end of each calendar quarter, subject to the terms and limitations contained in the SRP.
Additional Information Regarding the Valuation, Limitations of the Estimated Per Share NAV and CBRE Cap
Throughout the valuation process, the Business Manager, including senior members of management, reviewed, confirmed and approved the processes and methodologies used by CBRE Cap and their consistency with real estate industry standards and best practices.
The Valuation Report was based upon market, economic, financial and other information, circumstances and conditions existing as of the Valuation Date and any material change in such information, circumstances or conditions since the Valuation Date may have a material effect on the Estimated Per Share NAV. CBRE Cap’s valuation materials were addressed solely to the Company to assist the Board in establishing the Estimated Per Share NAV. CBRE Cap’s valuation materials were not addressed to the public and should not be relied upon by any other person to establish an estimated value of the Company’s common stock. The Valuation Report does not constitute a recommendation by CBRE Cap to purchase or sell any shares of the Company’s common stock and should not be represented as such.
Although CBRE Cap reviewed the information provided by the Company and the Business Manager for reasonableness, and utilized some of the information in its valuation analyses, CBRE Cap and its affiliates are not responsible for the accuracy of the information provided to it by the Company and the Business Manager. Neither CBRE Cap nor any of its affiliates, including CBRE, Inc.’s Valuation & Advisory Services group, is responsible for the Board’s determination of the Estimated Per Share NAV, the Board’s determination of the repurchase price for shares under the Company’s SRP or the Board’s determination of the purchase price for shares under the Company’s DRP.
With respect to financial forecasts and other information and data provided to or otherwise reviewed by or discussed with CBRE Cap, CBRE Cap assumed that such forecasts and other information and data were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments (including subjective judgments) of management of the Company, and relied upon the Company to advise CBRE Cap promptly if any information previously provided became inaccurate or was required to be updated during its review. CBRE Cap assumes no obligation to update or otherwise revise these materials. In connection with its work in preparing valuation materials, CBRE Cap did not, and it was not requested to, solicit third party indications of interest for the Company.
In performing its analyses, CBRE Cap made numerous assumptions as of various points in time with respect to industry performance, general business, economic and regulatory conditions and other matters, many of which are necessarily subject to change and beyond the control of CBRE Cap and the Company. The analyses performed by CBRE Cap are not necessarily indicative of actual values, trading values or actual future results of the Company’s common stock that might be achieved, all of which may be significantly more or less favorable than suggested by such analyses. The analyses do not purport to be appraisals or to reflect the prices at which the properties may actually be sold, and such estimates are inherently subject to uncertainty. The actual value of the Company’s common stock may vary significantly depending on numerous factors that generally impact the price of securities, the financial condition of the Company and the state of the real estate industry more generally. Accordingly, with respect to the Estimated Per Share NAV, neither the Company nor CBRE Cap can give any assurance that:
| • | a stockholder would be able to resell his or her shares at the Estimated Per Share NAV; |
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| • | a stockholder would ultimately realize distributions per share equal to the Estimated Per Share NAV upon liquidation of the Company’s assets and settlement of the Company’s liabilities or a sale of the Company; |
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| • | the Company’s shares would trade at a price equal to or greater than the Estimated Per Share NAV if the Company listed them on a national securities exchange; |
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| • | a third party would acquire the Company at a value equal to or greater than the Estimated Per Share NAV; or |
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| • | the methodology used to estimate the Estimated Per Share NAV would be acceptable to FINRA or under the Employee Retirement Income Security Act of 1974, as amended, for compliance with its reporting requirements. |
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In addition, the Estimated Per Share NAV does not reflect “enterprise value” which may include an adjustment for:
| • | the large size of our portfolio given that some buyers may be willing to pay more for a large portfolio than they are willing to pay for each property in the portfolio separately; |
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| • | any other intangible value associated with a going concern; or |
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| • | the possibility that our shares could trade at a premium or a discount to net asset value if we listed our shares on a national securities exchange. |
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CBRE Group, Inc. (“CBRE”) is a Fortune 500 and S&P 500 company headquartered in Dallas, Texas and one of the world’s largest commercial real estate services and investment firms (based on 2020 revenue). CBRE Cap, a subsidiary of CBRE, is a FINRA registered broker dealer firm that specializes in providing real estate financial services. CBRE Cap and its affiliates possess substantial experience in the valuation of assets similar to those owned by the Company and regularly undertake the valuation of securities in connection with public offerings, private placements, business combinations and similar transactions. For the preparation of the Valuation Report, the Company paid CBRE Cap a customary fee for services of this nature, no part of which was contingent relating to the provision of services or specific findings. Further, the Company and certain affiliates of the Business Manager have engaged affiliates of CBRE primarily for various real estate-related services, and the Company and the Business Manager anticipate that affiliates of CBRE will continue to provide similar real estate-related services in the future. In addition, the Company has engaged CBRE Cap for the past five years, and currently intends to continue to engage CBRE Cap in the future, to assist the Board in determinations of the Company’s Estimated Per Share NAV. The Company is not affiliated with CBRE, CBRE Cap or any of their affiliates. While the Company and affiliates or related parties of the Business Manager have engaged and may engage CBRE Cap or its affiliates in the future for valuations and commercial real estate-related services of various kinds, the Company believes that there are no material conflicts of interest with respect to the Company’s engagement of CBRE Cap.
Item 9.01Financial Statements and Exhibits.
(d)Exhibits.
| Exhibit No. | Description |
|---|---|
| 99.1 | Correspondence to Financial Advisors and Broker-Dealers |
Forward-Looking Statements
This Current Report on Form 8-K contains “forward-looking statements,” which are not historical facts, within the meaning of the Private Securities Litigation Reform Act of 1995. The statements may be identified by terminology such as “may,” “can,” “would,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “seek,” “appear,” or “believe.” Such statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, the uncertainties related to general economic conditions, the effects of the COVID-19 pandemic and measures taken to combat it, competition for our tenants from internet retailers, unforeseen events affecting the commercial real estate industry, retail real estate, or particular markets, and other factors detailed under Risk Factors in our most recent Form 10-K as of December 31, 2019 filed on March 18, 2020 and subsequent Form 10-Qs on file with the SEC. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. You should exercise caution when considering forward-looking statements and not place undue reliance on them. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein. Except as required by federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Current Report on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| INLAND REAL ESTATE INCOME TRUST, INC. | ||
|---|---|---|
| Date: March 5, 2021 | By: | /s/ Catherine L. Lynch |
| Name: | Catherine L. Lynch | |
| Title | Chief Financial Officer |
ck0001528985-ex991_22.htm
Exhibit 99.1
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| Inland Income Trust Announces<br>Estimated Per Share<br>Net Asset Value | ||
| Inland Real Estate Income Trust, Inc. (Inland Income Trust or the Company) filed a Form 8-K to announce that its Board of Directors (Board) determined an estimated per share net asset value (NAV) of its common stock as of December 31, 2020.<br><br><br>• The estimated per share NAV of the Company’s common stock is $18.08^1^^^as of December 31, 2020.<br><br><br>• The Board, after considering the constantly changing and ongoing negative effects of COVID-19 and the related mitigation efforts and lockdowns to help slow the spread, as well as the evolution to online shopping accelerated by the pandemic, selected an estimated per share NAV lower than the mid-point of the range of values provided in a valuation report by CBRE Capital Advisors, Inc. (CBRE Cap). CBRE Cap is a FINRA registered broker-dealer firm that specializes in providing real estate financial services. CBRE Cap conducted the valuation analysis in compliance with the industry’s guidelines and determined an estimated per share NAV range of $17.58 to $19.57 per share.<br><br><br>• Primary factors contributing to the change in the NAV:<br><br><br>o A $2.35 per share decline in the value of the retail properties due to the sale of three assets, higher terminal capitalization rates, higher discount rates applied to certain assets and a decrease in rents at certain properties<br><br><br>o Stronger balance sheet which, relative to the NAV, equates to approximately $2.28 per share with a decrease in mortgages and credit facility payable, decrease in fair market value of debt due to an increase in risk-adjusted market interest rates and a decrease in distributions and share repurchase program payable due to the suspension of distributions and repurchases following the onset of the pandemic | ||
| • This valuation is a snapshot in time and is not indicative of the amount Inland Income Trust or its stockholders may receive if the Company were to list its shares or liquidate its assets at any given time, or the amount a stockholder may receive when selling shares.<br><br><br>• Distributions, the distribution reinvestment plan (DRP) and the share repurchase program (SRP) remain suspended. Management may consider recommending that the Board revisit these important features later this year, should the new vaccines and other immunities continue to reduce the spread of COVID-19 and the businesses and prospects of our tenants that have been impacted by the pandemic trend toward returning to pre-pandemic levels. If we resume paying distributions and if the DRP or SRP are reinstated prior to striking a new NAV in 2022, the purchase price for shares issued under the DRP would be $18.08 per share and both ordinary repurchases and repurchases for death or qualifying disability will be at $14.46 (80% of $18.08).<br><br><br>Helpful Links<br><br><br>• Form 8-K<br><br><br>• Frequently Asked Questions (FAQs)<br><br><br>• Inland Income Trust Valuation Webinar Registration | ||
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| Contact Your Wholesaler | ||
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| View SEC Filings<br><br><br>^1^This valuation represents the estimated per share NAV as a snapshot in time, which will fluctuate over time. The estimated per share NAV does not represent the amount a stockholder would receive now or in the future for his or her shares of the Company’s common stock. The estimated per share NAV is based on a number of assumptions, estimates and data that are inherently imprecise and susceptible to uncertainty and changes in circumstances, including changes to the value of individual assets as well as changes and developments in the real estate and capital markets, changes in interest rates, and changes in the composition of the Company’s portfolio. Throughout the valuation process, the Board, the Company’s business manager and senior members of management reviewed, confirmed and approved the processes and methodologies used by CBRE Cap and their consistency with real estate industry standards and best practices. The Board then reviewed the valuation report provided by CBRE Cap and determined the estimated per share NAV. Neither CBRE Cap nor any of its affiliates is responsible for the Board’s determination of the estimated per share NAV or the Board’s determination of the repurchase price for shares under the Company’s SRP or the purchase price for shares under the Company’s DRP.<br><br><br>For Institutional Use Only. Not for distribution to the public. This is neither an offer to sell nor a solicitation of an offer to buy any security, which can be made only by a prospectus, which has been filed or registered with appropriate state and federal regulatory agencies and sold only by broker dealers and registered investment advisors authorized to do so. Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved of the securities of Inland Income Trust. Any representation to the contrary is unlawful.<br><br><br>The Inland name and logo are registered trademarks being used under license. This material has been distributed by Inland Securities Corporation, member FINRA/SIPC. | ||
| Inland Securities Corporation | 2901 Butterfield Road, Oak Brook, IL 60523 | 800.826.8228<br>To opt out of future emails, unsubscribe. |
Important Information Regarding
Inland Real Estate Income Trust’s Annual Valuation
Inland Real Estate Income Trust (Inland Income Trust, the Company or the REIT) is pleased to provide important information about its recent valuation.
| Q1: | What is the new per share value for Inland Income Trust? |
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| A: | Inland Income Trust’s declared net asset value per share for common stock as of December 31, 2020 is $18.08. IREIT’s first quarter account statements, to be mailed in April 2021, will reflect this new NAV per share. This new NAV may be reflected sooner on account statements generated by BD home offices, RIAs or other data aggregators. |
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| Q2: | How did Inland Income Trust estimate its per share value? |
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| A: | An unlevered discounted cash flow analysis was used to determine an estimated per share value. A discount rate and terminal cap rate were established for each real estate asset and used to create a valuation range. We engaged CBRE Capital Advisors, Inc. (CBRE Cap), an independent consultant, to provide an estimated per share net asset value range. Based on information provided by CBRE Cap and taking into consideration the reasonableness of the valuation methodology, Inland Income Trust’s Board determined the estimated net asset value to be approximately $651.3 million or $18.08 per share. |
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| Q3: | What primary factors impacted the per share estimated NAV? |
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| A: | The primary factors that impacted the change in the estimated per share NAV from 2019 were (i) a decrease in same-store real estate values, (ii) a decrease in mortgages and credit facility payable attributed to the sale of three properties and the subsequent paydown of the line of credit, (iii) a decrease in the fair market value of debt due to an increase in risk-adjusted market interest rates, and (iv) a decrease in distributions and share repurchase program payable. |
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In determining a per share net asset value, the Board considered (i) the uncertainty created by the effects of the pandemic, such as the ability of certain types of non-grocery retail tenants to pay rent, including rent deferred from 2020 to 2021, or continue in business, and (ii) uncertainty regarding if and when base interest rates may rise and by how much and the potential effects of interest rate changes on values of retail properties and debts. Additionally, retail real estate continues to experience volatility as a result of, among other things, shifting consumer shopping preferences and Internet competition. In light of these factors, the Board selected an estimated per-share NAV lower than the mid-point of the range.
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| Q4: | Why was CBRE Cap selected to perform the property appraisals and determine Inland Income Trust’s estimated per share NAV range? |
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| A: | CBRE Group, Inc. (CBRE) is a Fortune 500 and S&P 500 company headquartered in Dallas, Texas and, in terms of 2020 revenue, one of the world’s largest commercial real estate services and investment firms. CBRE Cap, a subsidiary of CBRE, is a FINRA registered broker dealer firm that specializes in providing real estate financial services. CBRE Cap was chosen based on a number of factors, including its expertise in valuation services and its, as well as its affiliates’, breadth and depth of experience in real estate services. The firm is familiar with the Inland Income Trust portfolio as it has provided an analysis of the assets and liabilities the last four years. Neither CBRE Cap nor any of its affiliates is responsible for the Company’s board of directors’ determination of the estimated per share NAV. |
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| Q5: | When will the Board consider the reinstatement of the Distribution Reinvestment Plan (DRP) and the Share Repurchase Program (SRP)? |
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| A: | It is our goal to resume the payment of distributions and to reopen the SRP as soon as appropriate. While occupancy and collections have recently been stable, the Board believes it prudent to continue preserving cash for the payment of operating and other fundamental expenses until there is further clarity around the longer-term impacts of the pandemic on IREIT’s properties and tenants. |
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| Q6: | What is the status of the Inland Income Trust portfolio through the global COVID-19 pandemic? |
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The Inland Income Trust portfolio generally performed well in 2020, amid the severe disruptions caused by COVID-19 and the accelerated shift to online shopping. Thirty-six new leases were executed throughout 2020, an increase of 16% over 2019 leasing activity. More than 78% of tenants renewed their leases in 2020, with 91 renewals inked over the year.
As of December 31, 2020, the Inland Income Trust portfolio had an economic occupancy of 93.3%, and 691 primarily necessity-based tenants called its properties home. Although economic occupancy decreased year-over-year from 94.4% to 93.3%, we believe we fared well given the wide range of bankruptcies and store closures devastating retailers and restaurants.
Portfolio highlights as of December 31, 2020:
| • | 93% economic occupancy |
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| • | 78% tenant retention |
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| • | 691 tenants across a wide range of goods and services |
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| • | More than 85% of properties anchored or shadow-anchored by a grocer |
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Top line same-store rental income was lower by approximately $8.5 million due to higher bad debt, lower reimbursements due to lower operating expenses, and lower rent because of pandemic-related abatements but, at the same time, we were able to lower same-store property operating expenses by approximately $3.4 million through reductions in management, landscaping, insurance, marketing and snow removal fees.
| Q7: | How has the COVID-19 pandemic affected retail commercial real estate overall? |
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| A: | Same-store net operating income (NOI) growth expectations from 2020 to 2022 for most traditional strip centers, including grocery-anchored centers and power centers, are unlikely to materially change. According to JPMorgan’s Commercial Real Estate team, grocery-anchored shopping centers have remained stable, with supermarkets deemed essential through various stay-at-home orders. In a 2020 survey by Lending Tree, average weekly grocery spending increased by 17%, and 53% of American consumers visit more than one store per shopping trip. |
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| Q8: | What steps has Inland’s property management team taken to manage the properties through the pandemic? |
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| A: | Inland’s team of property management experts is laser-focused on helping stressed tenants stay in business and working through payment plan solutions that are acceptable for both parties. When Paycheck Protection Program (PPP) loans were made available in 2020 and 2021, Inland’s team contacted every small business tenant to offer assistance with the filing process. |
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Throughout the pandemic, and ongoing today, Inland’s team works with tenants to design payment solutions that are favorable for businesses while ensuring the REIT can meet its financial obligations. As a result, rent collections and occupancy have remained strong through the pandemic.
| Q9: | Are there any updates to Inland Income Trust’s strategic plan? |
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| A: | While the strategic plan communicated in 2019 continues to be the long-term goal for the REIT, we do not plan on selling any assets or making new acquisitions until we can more accurately assess market conditions post-pandemic. As part of the REIT’s strategic plan to reduce exposure to big box retail locations and focus on necessity-based grocery- and shadow-anchored shopping centers, three properties were sold in Q1 2020: |
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| • | Treasure Valley |
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| • | 2727 Iowa Street |
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| • | Whispering Ridge |
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| Q10: | Where can I find out more about the Inland Income Trust Valuation? |
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| A: | Contact your financial advisor, contact Inland Investor Services at 800-826-8228 or visit our website at inland-investments.com/inland-income-trust for more information. |
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