InvenTrust Properties Corp 10-Q for FY2020 Q3
InvenTrust Properties Corp. (IVT)
10-Q
2020-11-06
For: 2020-09-30
View Original
Added on
April 10, 2026
About this 10-Q
InvenTrust Properties Corp filed this 10-Q on November 6, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).
Headline figures
Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $52.55M
- down 9.4% from $58M a year earlier
- Net income
- $1.68M
- down 93.3% from net income of $24.93M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2020
or
For the transition period from to
COMMISSION FILE NUMBER: 000-51609
(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) | |||||||||||||||||
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 the filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
☒ | Smaller reporting company | |||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Exchange Act: None
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
| N/A | N/A | N/A | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 November 1, 2020, there were 718,934,723 shares of the registrant's common stock outstanding.
INVENTRUST PROPERTIES CORP.
Quarterly Report on Form 10-Q
For the quarterly period ended September 30, 2020
Table of Contents
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-i-
INVENTRUST PROPERTIES CORP.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
| As of | |||||||||||
| September 30, 2020 | December 31, 2019 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Investment properties | |||||||||||
| Land | $ | $ | |||||||||
| Building and other improvements | |||||||||||
| Construction in progress | |||||||||||
| Total | |||||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| Net investment properties | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Investment in unconsolidated entities | |||||||||||
| Intangible assets, net | |||||||||||
| Accounts and rents receivable, net | |||||||||||
| Deferred costs and other assets, net | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Debt, net | $ | $ | |||||||||
| Accounts payable and accrued expenses | |||||||||||
| Distributions payable | |||||||||||
| Intangible liabilities, net | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' Equity | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Distributions in excess of accumulated net income | ( | ( | |||||||||
| Accumulated comprehensive (loss) income | ( | ||||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
1
INVENTRUST PROPERTIES CORP.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(in thousands, except share and per share amounts)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Income | |||||||||||||||||||||||
| Lease income, net | $ | $ | $ | $ | |||||||||||||||||||
| Other property income | |||||||||||||||||||||||
| Other fee income | |||||||||||||||||||||||
| Total income | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Property operating | |||||||||||||||||||||||
| Real estate taxes | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Other (expense) income | |||||||||||||||||||||||
| Interest and other income, net | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Loss on extinguishment of debt | ( | ( | ( | ||||||||||||||||||||
| Provision for asset impairment | ( | ( | ( | ||||||||||||||||||||
| Gain on sale of investment properties, net | |||||||||||||||||||||||
| Equity in earnings (losses) of unconsolidated entities | ( | ||||||||||||||||||||||
| Total other (expense) income, net | ( | ( | |||||||||||||||||||||
| Net income (loss) from continuing operations | ( | ||||||||||||||||||||||
| Net loss from discontinued operations | ( | ||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Weighted-average number of common shares outstanding, basic | |||||||||||||||||||||||
| Weighted-average number of common shares outstanding, diluted | |||||||||||||||||||||||
| Net income (loss) per common share, from continuing operations, basic and diluted | $ | $ | $ | ( | $ | ||||||||||||||||||
| Net loss per common share, from discontinued operations, basic and diluted | ( | ||||||||||||||||||||||
| Net income (loss) per common share, basic and diluted | $ | $ | $ | ( | $ | ||||||||||||||||||
| Distributions declared per common share outstanding | $ | $ | $ | $ | |||||||||||||||||||
| Distributions paid per common share outstanding | $ | $ | $ | $ | |||||||||||||||||||
| Comprehensive income (loss) | |||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Unrealized loss on derivatives | ( | ( | ( | ( | |||||||||||||||||||
| Reclassification to net income (loss) | ( | ( | |||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | $ | ( | $ | ||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
2
INVENTRUST PROPERTIES CORP.
Condensed Consolidated Statements of Equity
(Unaudited)
(in thousands, except share amounts)
| Number of Shares | Common Stock | Additional Paid-in Capital | Distributions in Excess of Accumulated Net Income | Accumulated Comprehensive Income | Total | ||||||||||||||||||||||||||||||
| Beginning balance, January 1, 2019 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Unrealized loss on derivatives | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Reclassification to interest expense, net | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Distributions declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation, net | — | — | — | — | |||||||||||||||||||||||||||||||
| Ending balance, March 31, 2019 | ( | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Unrealized loss on derivatives | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Reclassification to interest expense, net | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Distributions declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation, net | — | — | — | ||||||||||||||||||||||||||||||||
| Ending balance, June 30, 2019 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Unrealized loss on derivatives | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Reclassification to interest expense, net | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Distributions declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation, net | — | — | — | — | |||||||||||||||||||||||||||||||
| Ending balance, September 30, 2019 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
3
INVENTRUST PROPERTIES CORP.
Condensed Consolidated Statements of Equity
(Unaudited)
(in thousands, except share amounts)
| Number of Shares | Common Stock | Additional Paid-in Capital | Distributions in Excess of Accumulated Net Income | Accumulated Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||||
| Beginning balance, January 1, 2020 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Unrealized loss on derivatives | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Reclassification to interest expense, net | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Distributions declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation, net | — | — | — | — | |||||||||||||||||||||||||||||||
| Common stock issuance costs in excess of proceeds from distribution reinvestment plan | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Ending balance, March 31, 2020 | ( | ( | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Unrealized loss on derivatives | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Reclassification to interest expense, net | — | — | — | — | |||||||||||||||||||||||||||||||
| Reclassification to equity in (losses) earnings of unconsolidated entities | — | — | — | — | |||||||||||||||||||||||||||||||
| Distributions declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation, net | — | — | — | ||||||||||||||||||||||||||||||||
| Repurchase of common stock under share repurchase plan | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Proceeds from distribution reinvestment plan, net | — | — | — | ||||||||||||||||||||||||||||||||
| Ending balance, June 30, 2020 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Unrealized loss on derivatives | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Reclassification to interest expense, net | — | — | — | — | |||||||||||||||||||||||||||||||
| Reclassification to equity in (losses) earnings of unconsolidated entities | — | — | — | — | |||||||||||||||||||||||||||||||
| Distributions declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation, net | — | — | — | — | |||||||||||||||||||||||||||||||
| Ending balance, September 30, 2020 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
4
INVENTRUST PROPERTIES CORP.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Nine months ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net (income) loss | $ | ( | $ | ||||||||
| Adjustments to reconcile net (income) loss to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of above and below-market leases and lease inducements, net | ( | ( | |||||||||
| Amortization of debt premiums, discounts and financing costs, net | |||||||||||
| Straight-line rent adjustment, net | ( | ||||||||||
| Provision for estimated credit losses | |||||||||||
| Provision for asset impairment | |||||||||||
| Gain on sale of investment properties, net | ( | ( | |||||||||
| Loss on extinguishment of debt | |||||||||||
| Equity in (earnings) losses of unconsolidated entities | ( | ||||||||||
| Distributions from unconsolidated entities | |||||||||||
| Stock-based compensation, net | |||||||||||
| Provision for indemnification claims | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts and rents receivable | ( | ( | |||||||||
| Deferred costs and other assets | ( | ( | |||||||||
| Accounts payable and accrued expenses | |||||||||||
| Other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of investment properties | ( | ( | |||||||||
| Acquired in-place and market lease intangibles, net | ( | ( | |||||||||
| Capital expenditures and tenant improvements | ( | ( | |||||||||
| Investment in development and re-development projects | ( | ( | |||||||||
| Proceeds from sale of investment properties, net | |||||||||||
| Indemnification payment related to the sale of investment properties | ( | ||||||||||
| Proceeds from the sale of unconsolidated entity | |||||||||||
| Lease commissions and other leasing costs | ( | ( | |||||||||
| Other assets | |||||||||||
| Other liabilities | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Common shares repurchased through share repurchase program | ( | ||||||||||
| Proceeds from distribution reinvestment plan | |||||||||||
| Distributions to shareholders | ( | ( | |||||||||
| Proceeds from debt | |||||||||||
| Payoffs of debt | ( | ( | |||||||||
| Debt prepayment penalties | ( | ( | |||||||||
| Principal payments of mortgage debt | ( | ( | |||||||||
| Payment of finance lease liabilities | ( | ( | |||||||||
| Payment of loan fees and deposits | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash at the beginning of the period | |||||||||||
| Cash, cash equivalents, and restricted cash at the end of the period | $ | $ | |||||||||
5
INVENTRUST PROPERTIES CORP.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Nine months ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Reconciliation of cash, cash equivalents, and restricted cash to condensed consolidated balance sheets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Cash, cash equivalents, and restricted cash at the end of the period | $ | $ | |||||||||
| Supplemental disclosure and schedules: | |||||||||||
| Cash flow disclosure, including non-cash activities: | |||||||||||
Cash paid for interest, net of capitalized interest of $ | $ | $ | |||||||||
| Cash paid for income taxes, net | $ | $ | |||||||||
| Distributions payable to shareholders | $ | $ | |||||||||
| Accrued capital expenditures and tenant improvements | $ | $ | |||||||||
| Accrued investment in re-development projects | $ | $ | |||||||||
| Accrued lease commissions and other leasing costs | $ | $ | |||||||||
| Capitalized costs placed in service | $ | $ | |||||||||
| Reclassification of registration statement costs incurred to equity issuance costs | $ | $ | |||||||||
| Purchase of investment properties: | |||||||||||
| Net investment properties | $ | $ | |||||||||
| Accounts and rents receivable, lease intangibles, and deferred costs and other assets | |||||||||||
| Accounts payable and accrued expenses, lease intangibles, and other liabilities | ( | ( | |||||||||
| Cash outflow for purchase of investment properties, net | |||||||||||
| Capitalized acquisition costs | ( | ( | |||||||||
| Credits and other changes in cash outflow, net | |||||||||||
| Gross acquisition price of investment properties | $ | $ | |||||||||
| Sale of investment properties: | |||||||||||
| Net investment properties | $ | $ | |||||||||
| Accounts and rents receivable, lease intangibles, and deferred costs and other assets | ( | ||||||||||
| Accounts payable and accrued expenses, lease intangibles, and other liabilities | ( | ( | |||||||||
| Gain on sale of investment properties, net | |||||||||||
| Loss on extinguishment of debt | ( | ||||||||||
| Proceeds from sale of investment properties, net | |||||||||||
| Credits and other changes in cash inflow, net | |||||||||||
| Gross disposition price of investment properties | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
6
INVENTRUST PROPERTIES CORP.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Readers of these interim condensed consolidated financial statements (the "Quarterly Report") should refer to the audited consolidated financial statements of InvenTrust Properties Corp. (the "Company") as of and for the year ended December 31, 2019, which are included in the Company's Annual Report on Form 10-K (the "Annual Report") as certain note disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report. In the opinion of management, all adjustments necessary (consisting of normal recurring accruals, except as otherwise noted) for a fair presentation have been included in these condensed consolidated financial statements. Unless otherwise noted, all dollar amounts are stated in thousands, except per share amounts. Number of properties and square feet are unaudited.
1. Organization
On October 4, 2004, InvenTrust Properties Corp. (the "Company") was incorporated as Inland American Real Estate Trust, Inc. as a Maryland corporation and has elected to be taxed, and currently qualifies, as a real estate investment trust ("REIT") for federal tax purposes. The Company changed its name to InvenTrust Properties Corp. in April of 2015 and is focused on owning, managing, acquiring and developing a multi-tenant retail platform.
The Company is taxed and operates in a manner that will allow the Company to continue to qualify as a REIT for U.S. federal income tax purposes. So long as it maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed to stockholders. If the Company fails to continue to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and will not be able to re-elect REIT status during the four years following the year of the failure.
The accompanying condensed consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries. Subsidiaries generally consist of limited liability companies ("LLCs") and limited partnerships ("LPs"). All significant intercompany balances and transactions have been eliminated.
Each retail property is owned by a separate legal entity that maintains its own books and financial records, and each separate legal entity's assets are not available to satisfy the liabilities of other affiliated entities, except as otherwise disclosed in "Note 7. Debt."
The Company determined it has a single reportable segment, multi-tenant retail, for disclosure purposes in accordance with GAAP. The following table summarizes the Company's multi-tenant retail portfolio as of September 30, 2020 and 2019:
| Wholly-Owned Retail Properties | Unconsolidated Retail Properties | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| No. of properties | |||||||||||||||||||||||
| Gross Leasable Area | |||||||||||||||||||||||
Impact of the COVID-19 Pandemic on the Company's Financial Statements
The Company's business has been, and continues to be, disrupted by the coronavirus disease 2019 ("COVID-19") pandemic. The Company continues to assess the ongoing impact of the COVID-19 pandemic on all aspects of its business, including the impact on its tenants and their ability to make future rental payments in a timely fashion or at all and the possible impairment in value of our investment properties.
Under the federal legislation enacted on March 27, 2020, known as the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), certain limitations on the deductibility of net operating losses ("NOLs") enacted under prior federal tax legislation have been temporarily rolled back. In particular, the CARES Act permits businesses to carryback NOLs generated in taxable years beginning after December 31, 2017 and before January 1, 2021 to the previous five years and temporarily suspends, until taxable years beginning after December 31, 2020, the annual limit of 80% on the amount of taxable income that NOLs generated in taxable years beginning after December 31, 2017 may offset. As a result of the anticipated NOL carryback claims for the Company's taxable REIT subsidiaries, total additional tax benefits of $1,172 have been recognized as part of interest and other income, net, on the condensed consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2020.
7
2. Basis of Presentation and Recently Issued Accounting Pronouncements
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates, judgments and assumptions are required in a number of areas, including, but not limited to, evaluating the impairment of long-lived assets, allocating the purchase price of acquired retail properties, determining the fair value of debt and evaluating the collectibility of accounts receivable. The Company bases these estimates, judgments and assumptions on historical experience and various other factors that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates.
Staff Q&A, Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic
In April 2020, the Financial Accounting Standards Board ("FASB") issued a document titled Staff Q&A, Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic ("FASB Q&A document"). The FASB Q&A document provides an election whereby an entity is not required to evaluate whether certain relief provided by a lessor in response to the COVID-19 pandemic is a lease modification (the "COVID-19 election"). An entity that makes this election can then either apply the modification guidance to that relief or account for the concession as if it were contemplated as part of the existing contract. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. The Company's adoption and application of the COVID-19 election has been included in "Note 3. Revenue Recognition".
Recently Issued Accounting Pronouncements Adopted
| Standard | Description | Date of adoption | Effect on the financial statements or other significant matters | |||||||||||||||||
ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement | ASU No. 2018-13 is intended to improve the effectiveness of the disclosures required by Topic 820, Fair Value Measurement by eliminating, amending, or adding certain disclosures. Certain amendments require a prospective transition method, while others require a retrospective transition method. | January 2020 | The Company adopted the amendments of ASU No. 2018-13 on the applicable basis required, either prospective or retrospective. The standard only impacts fair value measurement disclosures, and therefore did not have an impact on the Company's condensed consolidated financial position, results of operations, or cash flows. | |||||||||||||||||
| ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting | ASU 2020-04 is intended to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Topic 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. Application of these expedients, which may be elected over time as reference rate reform activities occur, preserves the presentation of derivatives consistent with past presentation. | January 2020 | The Company adopted ASU No. 2020-04 and has elected to apply, as of January 1, 2020, the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. The Company is continuing to evaluate this guidance and may apply other elections as applicable as additional changes in the market occur. The Company expects the application of Topic 848 to assist in preserving the Company's presentation of derivatives as cash flow hedges. | |||||||||||||||||
8
3. Revenue Recognition
Operating Leases
The majority of revenue recognized from the Company's retail properties is comprised of fixed and variable consideration received from tenants under long-term operating leases with varying terms. Fixed consideration generally consists of minimum lease payments for the rental of retail space while the variable consideration generally consists of reimbursements of the tenant's pro rata share of certain operating expenses incurred by the Company, including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees and certain capital repairs. Certain other tenants are subject to net leases whereby the tenant is responsible for fixed minimum lease payments to the Company, as well as directly paying all costs and expenses associated with occupancy to third party service providers. Such direct payments to third parties are not recorded as revenue and expense by the Company.
Remaining lease terms range from less than one year to forty years . Minimum lease payments to be received under long-term operating leases and short-term specialty leases, excluding additional percentage rent based on tenants' sales volume and tenant reimbursements of certain operating expenses, and assuming no exercise of renewal options or early termination rights, are as follows:
| Minimum lease payments, by year | As of September 30, 2020 | ||||
| 2020 | $ | ||||
| 2021 | |||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| Thereafter | |||||
| Total | $ | ||||
COVID-19 Election
In response to receiving numerous rent relief requests, the Company has adopted the COVID-19 election, under which lease amendments providing tenants with COVID-19 related rent relief are not treated as lease modifications unless:
•the total payments required by the amended lease are not substantially the same as or less than the total payments required by the original lease; or
•the amended lease results in an increase to the lease term.
Rent relief has most frequently been requested in the form of deferral of rental payments. A deferral affects the timing of cash receipts, but the amount of consideration is substantially the same as that required by the original lease. Under the Company's COVID-19 election, deferrals are accounted for as if no changes to the lease contract were made. Under that accounting, the Company continues to recognize rental income and increase lease receivables during the deferral period. Rent abatements or other reductions in total payments are treated as negative variable rent in the period to which the rent relates.
Credit Losses
The Company continues to evaluate the impact of the COVID-19 pandemic on the Company's ability to collect future lease payments under the terms of the respective leases. As the duration and severity of the COVID-19 pandemic are still uncertain and continue to evolve, significant uncertainty exists regarding the Company's provision for estimated credit losses.
The Company reviews the collectibility of amounts due from its tenants on a regular basis; such reviews consider the tenant's financial condition and payment history and other economic conditions impacting the tenant. Changes in collectibility occur when the Company no longer believes it is probable that substantially all the lease payments will be collected over the term of the lease. If collection is not probable, regardless of whether the Company has entered into an amendment to provide the tenant with COVID-19 related rent relief, the lease payments will be accounted for on a cash basis, and revenue will be recorded as cash is received. If reassessed, and the collection of substantially all of the lease payments from the tenant becomes probable, the accrual basis of revenue recognition is reestablished. The provision for estimated credit losses resulting from changes in the expected collectibility of lease payments, including variable payments, is recognized as a direct adjustment to lease income on the condensed consolidated statements of operations and comprehensive income (loss), and a direct write-off of the operating lease receivables, including straight-line rent receivable, on the condensed consolidated balance sheets.
9
The following table reflects the disaggregation of lease income, net:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Minimum lease payments | $ | $ | $ | $ | |||||||||||||||||||
| Tax and insurance recoveries | |||||||||||||||||||||||
| Common area maintenance and other recoveries | |||||||||||||||||||||||
| Amortization of above and below-market leases and lease inducements, net | |||||||||||||||||||||||
| Short-term, termination fee and other lease income | |||||||||||||||||||||||
| Uncollectible straight-line rent | ( | ( | ( | ||||||||||||||||||||
| Uncollectible billed rent | ( | ( | ( | ( | |||||||||||||||||||
| Lease income, net | $ | $ | $ | $ | |||||||||||||||||||
Other Fee Income
The following table reflects the disaggregation of other fee income:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Property management fees | $ | $ | $ | $ | |||||||||||||||||||
| Asset management fees | |||||||||||||||||||||||
| Leasing commissions and other fees | |||||||||||||||||||||||
| Other fee income | $ | $ | $ | $ | |||||||||||||||||||
The Company has other fee income receivables of $271 and $460 as of September 30, 2020 and December 31, 2019, respectively.
10
4. Acquired Properties
The following table reflects the retail properties acquired, accounted for as asset acquisitions, during the nine months ended September 30, 2020:
| Acquisition Date | Property | Metropolitan Area | Gross Acquisition Price | Square Feet | ||||||||||||||||||||||
| February 25, 2020 | Trowbridge Crossing | Atlanta, GA | $ | |||||||||||||||||||||||
| March 10, 2020 | Antoine Town Center (a) | Houston, TX | ||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
(a)This retail property was acquired from the Company's unconsolidated joint venture, as disclosed in "Note 6. Investment in Consolidated and Unconsolidated Entities".
The following table reflects the retail properties acquired, accounted for as asset acquisitions, during the nine months ended September 30, 2019:
| Acquisition Date | Property | Metropolitan Area | Gross Acquisition Price | Square Feet | ||||||||||||||||||||||
| January 31, 2019 | Commons at University Place | Raleigh, NC | $ | |||||||||||||||||||||||
| March 20, 2019 | Lakeside Winter Park and Lakeside Crossings | Orlando, FL | ||||||||||||||||||||||||
| April 30, 2019 | Scofield Crossing (a) | Austin, TX | ||||||||||||||||||||||||
| May 7, 2019 | Tomball Town Center Kroger | Houston, TX | ||||||||||||||||||||||||
| June 14, 2019 | Sandy Plains Outparcel (b) | Atlanta, GA | ||||||||||||||||||||||||
| June 28, 2019 | Shops at Fairview Town Center | Dallas, TX | ||||||||||||||||||||||||
| July 11, 2019 | Southern Palm Crossing (c) | Miami, FL | ||||||||||||||||||||||||
| September 9, 2019 | Travilah Square | Washington, D.C. | ||||||||||||||||||||||||
| September 13, 2019 | Eldorado Marketplace | Dallas, TX | ||||||||||||||||||||||||
| September 27, 2019 | Garden Village Outparcel (b) | Los Angeles, CA | ||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
(a)An adjacent building and tenant improvements were acquired subject to an existing ground lease.
(b)The assets, liabilities and operations of the outparcels acquired are combined for presentation purposes with retail properties already owned by the Company.
(c)This acquisition was made through a consolidated VIE and was used to facilitate a Reverse 1031 Exchange. During the third quarter of 2019, the title of Southern Palm Crossing transferred to the Company through the completion of and exchange with the dispositions of West Creek and Boynton Commons.
Transaction costs of $63 1,416 and $2,334 were capitalized during three and nine months ended September 30, 2019, respectively.
11
5. Disposed Properties
The following table reflects the real property disposed of during the nine months ended September 30, 2020:
| Disposition Date | Property | Metropolitan Area | Square Feet | Gross Disposition Price | Gain (Loss) on Sale, net | |||||||||||||||||||||||||||
| February 10, 2020 | University Oaks Shopping Center (a) | Round Rock, TX | N/A | $ | $ | |||||||||||||||||||||||||||
| February 12, 2020 | Centerplace of Greeley (a) | Greeley, CO | N/A | |||||||||||||||||||||||||||||
| May 1, 2020 | Woodlake Crossing | San Antonio, TX | ( | |||||||||||||||||||||||||||||
| September 30, 2020 | Eldridge Town Center (a) | Houston, TX | N/A | |||||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||||||||
(a)The Company recognized a gain on sale related to the completion of partial condemnations at these retail properties.
The following table reflects the real property disposed of during the nine months ended September 30, 2019:
| Disposition Date | Property | Metropolitan Area | Square Feet | Gross Disposition Price | Gain (Loss) on Sale, net | Loss on Debt Extinguishment | ||||||||||||||||||||||||||||||||
| April 3, 2019 | Brooks Corner | San Antonio, TX | $ | $ | $ | ( | ||||||||||||||||||||||||||||||||
| May 31, 2019 | Silverlake | Cincinnati, OH | ||||||||||||||||||||||||||||||||||||
| August 15, 2019 | Promenade Fultondale | Birmingham, AL | ||||||||||||||||||||||||||||||||||||
| August 21, 2019 | Crossroads at Chesapeake Square and Chesapeake Commons | Virginia Beach, VA | ||||||||||||||||||||||||||||||||||||
| September 10, 2019 | West Creek | Austin, TX | ||||||||||||||||||||||||||||||||||||
| September 13, 2019 | Boynton Commons | Miami, FL | ||||||||||||||||||||||||||||||||||||
| September 25, 2019 | Quebec Square | Denver, CO | ( | ( | ||||||||||||||||||||||||||||||||||
| $ | $ | $ | ( | |||||||||||||||||||||||||||||||||||
12
6. Investment in Unconsolidated Entities
Joint Venture Interests
IAGM Retail Fund I, LLC
As of September 30, 2020 and December 31, 2019, the Company owned a 55 116,706 and $118,861 , respectively.
During the nine months ended September 30, 2019, IAGM disposed of Rockwell Plaza, a 255,000 square foot retail property, for a gross disposition price of $20,500 and recognized a provision for asset impairment of $1,443 and a loss on sale of $559 . The Company's share of IAGM's provision for asset impairment was $794 and its share of the loss on sale was $307 . Proceeds from the sale were used to extinguish the related $16,250 non-recourse mortgage loan.
During the nine months ended September 30, 2020, IAGM prepaid a $14,872 mortgage payable on one retail property with cash on hand.
During the nine months ended September 30, 2020, the Company purchased Antoine Town Center from IAGM for $22,254 , a fair value determined by independent appraisal, which resulted in IAGM recognizing a gain on sale of $1,741 . The Company deferred its share of IAGM's gain on sale of $958 and will amortize the gain over 30 years as an increase to equity in earnings (losses) of unconsolidated entities.
During the nine months ended September 30, 2020, IAGM entered into two interest rate swap agreements to achieve fixed interest rates on debt with a variable rate of 1-Month LIBOR plus 1.55 %. Each of the interest rate swaps have an effective date of April 1, 2020 and a termination date of November 2, 2023. One interest rate swap has a notional amount of $45,000 and achieves a fixed interest rate of 1.979 %. The other interest rate swap has a notional amount of $30,000 and achieves a fixed interest rate of 1.956 %. The Company recognizes its share of gains or losses resulting from IAGM's interest rate swaps as an adjustment to the Company's investment in IAGM and an increase or decrease in comprehensive income. As of September 30, 2020, the interest rate swaps were deemed to be liabilities of $631 on a fair value basis, of which the Company's share was $347 .
Combined Condensed Financial Information
As of September 30, 2020 and December 31, 2019, the Company's sole joint venture interest is in IAGM. Another joint venture was disposed of in 2019. The following table presents condensed balance sheet information for IAGM.
| As of | |||||||||||
| September 30, 2020 | December 31, 2019 | ||||||||||
| Assets: | |||||||||||
| Real estate assets, net of accumulated depreciation | $ | $ | |||||||||
| Other assets | |||||||||||
| Total assets | |||||||||||
| Liabilities and equity: | |||||||||||
| Mortgages payable, net | |||||||||||
| Other liabilities | |||||||||||
| Equity | |||||||||||
| Total liabilities and equity | |||||||||||
| Company's share of equity | |||||||||||
Deferred gain, net of accumulated amortization of $ | ( | ||||||||||
| Carrying value of investments in unconsolidated entities | $ | $ | |||||||||
13
Combined Condensed Financial Information, continued
The following table presents condensed income statement information of IAGM and the joint venture that was disposed in 2019.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| IAGM | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Total income | $ | $ | $ | $ | |||||||||||||||||||
| Depreciation and amortization | ( | ( | ( | ( | |||||||||||||||||||
| Property operating | ( | ( | ( | ( | |||||||||||||||||||
| Real estate taxes | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| General and administrative | ( | ( | ( | ( | |||||||||||||||||||
| Gain (loss) on sale of real estate, net | ( | ||||||||||||||||||||||
| Loss on debt extinguishment | ( | ||||||||||||||||||||||
| Provision for asset impairment | ( | ||||||||||||||||||||||
| Net income (loss) | ( | ||||||||||||||||||||||
| Other joint venture interest | |||||||||||||||||||||||
| Net loss | ( | ||||||||||||||||||||||
| Total net income (loss) of unconsolidated entities | $ | $ | $ | $ | ( | ||||||||||||||||||
| Company's share of net income (loss) | $ | $ | $ | $ | ( | ||||||||||||||||||
| Outside basis adjustment for IAGM's sale of real estate | ( | ||||||||||||||||||||||
| Outside basis adjustment for other joint venture's sale of assets | |||||||||||||||||||||||
| Equity in earnings (losses) of unconsolidated entities | $ | $ | $ | $ | ( | ||||||||||||||||||
The following table summarizes the scheduled maturities of IAGM's mortgages payable as of September 30, 2020, for the remainder of 2020, each of the next four years and thereafter.
| Scheduled maturities by year: | As of September 30, 2020 | ||||
| 2020 | $ | ||||
| 2021 | |||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| Thereafter | |||||
| Total | $ | ||||
As of September 30, 2020 and December 31, 2019, none of IAGM's mortgages payable are recourse to the Company. It is anticipated that the joint venture will be able to repay, refinance or extend all of its debt on a timely basis.
14
7. Debt
As of September 30, 2020, the Company's total debt, net was $655,213 , which consists of mortgages payable, net, of $107,009 , credit agreements, net, of $150,000 398,204 . The Company believes it has the ability to repay, refinance or extend any of its debt, and that it has adequate sources of funds to meet short-term cash needs related to mortgages payable. It is anticipated that the Company will use proceeds from property sales, cash on hand and available capacity on credit agreements, if any, to repay, refinance or extend the mortgages payable maturing in the near term.
The Company's credit agreements and mortgage loans require compliance with certain covenants, such as debt service coverage ratios, investment restrictions and distribution limitations. As of September 30, 2020 and December 31, 2019, the Company was in compliance with all loan covenants.
Mortgages Payable
As of September 30, 2020 and December 31, 2019, the Company's mortgages payable, net were as follows:
| September 30, 2020 | December 31, 2019 | ||||||||||
| Mortgages payable (a) | $ | $ | |||||||||
| Discount, net of accumulated amortization | ( | ( | |||||||||
| Issuance costs, net of accumulated amortization | ( | ( | |||||||||
| Total mortgages payable, net | $ | $ | |||||||||
(a)Mortgages payable had fixed interest rates ranging from 3.49 % to 4.58 %, with a weighted average interest rate of 4.07 % as of September 30, 2020, and 3.49 % to 5.49 %, with a weighted average interest rate of 4.34 % as of December 31, 2019.
During the nine months ended September 30, 2020, the Company repaid $67,349 of mortgages payable on three retail properties with cash on hand.
The following table summarizes the scheduled maturities of the Company's mortgages payable as of September 30, 2020 for the remainder of 2020, each of the next four years and thereafter.
| Scheduled maturities by year: | As of September 30, 2020 | ||||
| 2020 | $ | ||||
| 2021 | |||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| Thereafter | |||||
| Total mortgage payable maturities | $ | ||||
| Debt issuance costs, net of accumulated amortization | ( | ||||
| Discount, net of accumulated amortization | ( | ||||
| Total mortgages payable, net | $ | ||||
Credit Agreements
Revolving Credit Agreement
On December 21, 2018, the Company entered into an unsecured revolving credit agreement, which amended and restated the Company's prior unsecured revolving credit agreement in its entirety, and provides for a $350,000 unsecured revolving line of credit (the "Revolving Credit Agreement"). During the nine months ended September 30, 2020, the Company drew $150,000 on the Revolving Credit Agreement at an interest rate reflecting 1-Month LIBOR plus 1.05 % for general corporate purposes and to increase its financial flexibility in light of the COVID-19 pandemic. The Revolving Credit Agreement has a 4 -yeartwo six-month extension options. As of September 30, 2020 and December 31, 2019, the Company had a total of $150,000 1.22 no 0.15 200,000 .
15
Unsecured term loans
As of September 30, 2020 and December 31, 2019, the Company had the following unsecured term loan tranches outstanding:
| September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||
| Principal Balance | Interest Rate | Principal Balance | Interest Rate | Maturity Date | |||||||||||||||||||||||||
$ | $ | $ | December 21, 2023 | ||||||||||||||||||||||||||
$ | December 21, 2023 | ||||||||||||||||||||||||||||
$ | December 21, 2023 | ||||||||||||||||||||||||||||
$ | June 21, 2024 | ||||||||||||||||||||||||||||
$ | June 21, 2024 | ||||||||||||||||||||||||||||
$ | June 21, 2024 | ||||||||||||||||||||||||||||
| Total unsecured term loans | |||||||||||||||||||||||||||||
| Issuance costs, net of accumulated amortization | ( | ( | |||||||||||||||||||||||||||
| Total unsecured term loans, net | $ | $ | |||||||||||||||||||||||||||
(a)As of September 30, 2020, the Company has four interest rate swap agreements, of which two each have a notional amount of $100,000 , an effective date of December 2, 2019, a termination date of December 21, 2023, and achieve a fixed interest rate of 2.68 %. The other two interest rate swap agreements each have a notional amount of $50,000 , an effective date of December 2, 2019, a termination date of June 21, 2024, and achieve fixed interest rates of 2.69 % and 2.70 %.
(b)Interest rate reflects 1-Month LIBOR plus 1.20 % effective September 1, 2020.
(c)Interest rate reflects 1-Month LIBOR plus 1.20 % effective December 2, 2019.
16
8. Fair Value Measurements
Recurring Measurements
The following financial instruments are remeasured at fair value on a recurring basis:
| Fair Value Measurements as of | ||||||||||||||||||||||||||||||||||||||
| September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||
Cash Flow Hedges: (a) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||
| Derivative interest rate assets (b) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Derivative interest rate liabilities (c) | ( | |||||||||||||||||||||||||||||||||||||
(a)During the twelve months subsequent to September 30, 2020, an estimated $4,172 of derivative interest rate liabilities recognized in accumulated comprehensive income (loss) will be reclassified into earnings.
(b)Recognized as a part of deferred costs and other assets, net, on the condensed consolidated balance sheets.
(c)Recognized as a part of other liabilities on the condensed consolidated balance sheets.
Level 1
At September 30, 2020 and December 31, 2019, the Company had no
Level 2
As of September 30, 2020 and December 31, 2019, the Company determined that the credit valuation adjustments associated with nonperformance risk are not significant to the overall valuation of its derivatives. As a result, the Company's derivative valuations in their entirety are classified as Level 2 of the fair value hierarchy.
Level 3
At September 30, 2020 and December 31, 2019, the Company had no
Nonrecurring Measurements
Investment Properties
During the nine months ended September 30, 2020, the Company identified one retail property that had a reduction in its expected holding period and recorded a provision for asset impairment of $9,002 on the condensed consolidated statement of operations and comprehensive income (loss) as a result of the fair value being lower than the property's carrying value. The Company's fair value was based on an executed sales contract. This property was disposed of on May 1, 2020.
During the three and nine months ended September 30, 2019, the Company identified one 2,359
Financial Instruments Not Measured at Fair Value
The table below summarizes the estimated fair value of financial instruments presented at carrying values in the Company's condensed consolidated financial statements as of September 30, 2020 and December 31, 2019:
| September 30, 2020 | December 31, 2019 | ||||||||||||||||
| Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||||
| Mortgages payable | $ | $ | $ | $ | |||||||||||||
| Term loans | $ | $ | $ | $ | |||||||||||||
| Revolving line of credit | $ | $ | $ | $ | |||||||||||||
The Company estimated the fair value of its mortgages payable using a weighted-average effective market interest rate of 4.14 % and 3.71 % as of September 30, 2020 and December 31, 2019, respectively. The fair value estimate of the term loans and line of credit approximate the carrying value. The assumptions reflect the terms currently available on similar borrowing terms to borrowers with credit profiles similar to that of the Company's. As a result, the Company used a weighted-average interest rate of 1.30 % and 2.77 % as of September 30, 2020 and December 31, 2019, respectively, to estimate the fair value of its term loans. The Company has determined that its debt instrument valuations are classified in Level 2 of the fair value hierarchy.
17
9. Earnings (Loss) per Share and Equity Transactions
The following table reconciles the amounts used in calculating basic and diluted income (loss) per share:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Earnings allocated to unvested restricted shares | ( | |||||||||||||||||||||||||
| Net income (loss) from continuing operations attributed to common shareholders | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Net loss from discontinued operations attributed to common shareholders | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Weighted average number of common shares outstanding - basic | ||||||||||||||||||||||||||
| Effect of unvested restricted shares (a) | ||||||||||||||||||||||||||
| Weighted average number of common shares outstanding - diluted | ||||||||||||||||||||||||||
| Basic and diluted income (loss) per common share: | ||||||||||||||||||||||||||
| Net income (loss) from continuing operations per common share | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Net loss from discontinued operations per common share | ( | |||||||||||||||||||||||||
| Net income (loss) per common share | $ | $ | $ | ( | $ | |||||||||||||||||||||
(a)For the three and nine months ended September 30, 2020, the Company has excluded the anti-dilutive effect of unvested restricted shares.
On November 1, 2019, the Company adopted a Second Amended and Restated Share Repurchase Program ("SRP"), authorizing redemption of the Company's shares of common stock, subject to certain conditions and limitations, to provide limited liquidity to stockholders. The Company's obligation to repurchase any shares under the SRP was conditioned upon having sufficient funds available to complete the repurchase. The repurchase price per share for all stockholders is equal to a 25 % discount to the most recent estimated Net Asset Value ('"NAV") per share of the Company's common stock established by the Company's Board of Directors (the "Board"), which was $3.14 per share as of May 1, 2019. During the nine months ended September 30, 2020, 2,136,119 shares were repurchased in connection with the SRP.
On November 1, 2019, the Company began offering shares of the Company's common stock to existing stockholders pursuant to the Company's Amended and Restated Distribution Reinvestment Plan ("DRP"). Under the DRP, stockholders may elect to reinvest an amount equal to the distributions declared on their shares of common stock into additional shares of the Company's common stock in lieu of receiving cash distributions. In accordance with the DRP, participants may acquire shares of common stock at a 25 % discount to the most recent estimated NAV per share of the Company's common stock established by the Board, which was $3.14 per share as of May 1, 2019. During the nine months ended September 30, 2020, 79,040 shares, were issued pursuant to the DRP.
Effective July 11, 2020, the Company suspended the SRP and the DRP until further notice.
18
10. Stock-Based Compensation
The following table presents the Company's restricted stock unit ("RSU") activity for the nine months ended September 30, 2020:
| Unvested Time- Based RSUs | Unvested Performance- Based RSUs | Weighted-Average Grant Date Price Per Share | |||||||||||||||
| Outstanding as of January 1, 2020 | $ | ||||||||||||||||
| Shares granted | $ | ||||||||||||||||
| Shares vested | ( | $ | |||||||||||||||
| Shares forfeited | ( | ( | $ | ||||||||||||||
| Outstanding as of September 30, 2020 | $ | ||||||||||||||||
On May 8, 2020, the board of directors approved a grant of time-based and performance-based RSUs under the Company's 2015 Incentive Award Plan at the most recent estimated NAV per share of $3.14 on May 1, 2019.
As of September 30, 2020, there was $7,576 of total unrecognized compensation expense related to unvested stock-based compensation arrangements that will vest through December 2022. The Company recognized stock-based compensation expense of $1,598 and $3,546 for the three and nine months ended September 30, 2020, respectively, and $1,289 and $3,454 for the three and nine months ended September 30, 2019, respectively.
11. Commitments and Contingencies
The Company is subject, from time to time, to various types of third-party legal claims or litigation that arise in the ordinary course of business, including, but not limited to, property loss claims, personal injury or other damages resulting from contact with the Company's properties. These claims and lawsuits and any resulting damages are generally covered by the Company's insurance policies. The Company accrues for legal costs associated with loss contingencies when these costs are probable and reasonably estimable. While the resolution of these matters cannot be predicted with certainty, based on currently available information, management does not expect that the final outcome of any pending claims or legal proceedings will have a material adverse effect on the financial condition, results of operations or cash flows of the Company.
University House Communities Group, Inc., Indemnity Claims
The Company received an indemnity notice from UHC Acquisition Sub LLC ("UHC") regarding certain matters under the Stock Purchase Agreement, dated January 3, 2016, for University House Communities Group, Inc., which was sold in June 2016. The notice set forth various items for which UHC believed they were entitled to indemnification from the Company. On June 14, 2019, UHC and the Company, through various negotiations, reached a final settlement for the claims in the amount of $30,000 , which was paid by the Company on June 24, 2019. During the nine months ended September 30, 2019, the Company recognized losses from discontinued operations of $25,500 related to these claims.
Operating and Finance Lease Commitments
The Company has non-cancelable contracts of property improvements that have been deemed to contain finance leases. In addition, the Company has non-cancelable operating leases for office space used in its business.
Future minimum lease obligations as of September 30, 2020, were as follows:
| Minimum Lease Payments | |||||||||||
| Operating Leases | Finance Leases | ||||||||||
| Remaining 2020 | $ | $ | |||||||||
| 2021 | |||||||||||
| 2022 | |||||||||||
| 2023 | |||||||||||
| 2024 | |||||||||||
| Thereafter | |||||||||||
| Total expected minimum lease obligation | |||||||||||
| Less: Amount representing interest (a) | ( | ( | |||||||||
| Present value of net minimum lease payments | $ | $ | |||||||||
(a)Interest includes the amount necessary to reduce to present value the total expected minimum lease obligations calculated at the Company's incremental borrowing rate.
19
12. Subsequent Events
In preparing its condensed consolidated financial statements, the Company has evaluated events and transactions occurring after September 30, 2020, through the date the financial statements were issued for recognition and disclosure purposes.
On October 28, 2020, the Company paid down $100,000 on the Revolving Credit Agreement using cash on hand.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in these interim condensed consolidated financial statements for the quarter ended September 30, 2020 (the "Quarterly Report"), other than purely historical information, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements about InvenTrust Properties Corp.'s (the "Company") plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events; and they involve known and unknown risks that are difficult to predict, including the potential adverse effects of the current coronavirus disease 2019 ("COVID-19") pandemic on the financial condition, results of operations and cash flows of the Company and its tenants. The extent to which the COVID-19 pandemic continues to impact the Company and its tenants will depend on future developments, which are highly uncertain, including the scope, severity, duration, and any resurgences of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. As a result, our actual financial results, performance, achievements, or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, forward-looking statements can be identified by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "guidance," "predict," "potential," "continue," "likely," "will," "would," "illustrative," and "should," and variations of these terms and similar expressions, or the negatives of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while we consider reasonable based on our knowledge and understanding of the business and industry, are inherently uncertain. These statements are expressed in good faith and are not guarantees of future performance or results. Our actual results could differ materially from those expressed in the forward-looking statements and stockholders should not rely on forward-looking statements in making investment decisions.
There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report. Such risks, uncertainties and other important factors, include those set forth in our filings with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2019 (the "Annual Report"), and as updated in this Quarterly Report and other quarterly and current reports, which are on file with the SEC and are available at the SEC's website (www.sec.gov). Such risks and uncertainties are related to, among others, the following:
•the effects of the COVID-19 pandemic in the markets where we own and operate properties, including the effect on our tenants' operations and ability to pay rent;
•the duration of the COVID-19 pandemic and the timing and nature of an economic recovery from the pandemic, including the effects of any future resurgence of COVID-19;
•market, political and economic volatility experienced by the U.S. economy or real estate industry as a whole, including as a result of the COVID-19 pandemic, and the regional and local political and economic conditions in the markets in which our retail properties are located;
•our ability to collect rent from tenants or to rent space on favorable terms or at all;
•the consummation of lease amendments on the agreed-upon terms and/or if consummated, payments as required by the terms of the respective agreements;
•declaration of bankruptcy by our retail tenants;
•the continued impact of the COVID-19 pandemic on our cash flows and our ability to satisfy certain covenants required by our mortgage loans and credit agreements;
•our ability to execute on a potential strategic transaction intended to enhance stockholder value and provide investment liquidity to stockholders, and the impact of the COVID-19 pandemic on our ability to execute on, and the timing of such a potential strategic transaction;
•our ability to identify, execute and complete disposition opportunities and at expected valuations;
•our ability to identify, execute and complete acquisition opportunities and to integrate and successfully operate any retail properties acquired in the future and manage the risks associated with such retail properties;
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•our ability to manage the risks of expanding, developing or re-developing our retail properties;
•loss of members of our senior management team or other key personnel;
•changes in governmental regulations and U.S. accounting standards or interpretations thereof;
•our ability to access capital for development, re-development and acquisitions on terms and at times that are acceptable to us;
•changes in the competitive environment in the leasing market and any other market in which we operate;
•shifts in consumer retail shopping from brick and mortar stores to e-commerce;
•forthcoming expirations of certain of our leases, our ability to re-lease such properties, and increasing costs associated with leasing activities;
•the impact of leasing and capital expenditures to improve our retail properties to retain and attract tenants;
•events beyond our control, such as war, terrorist attacks, including acts of domestic terrorism, civil unrest, natural disasters and severe weather incidents, and any uninsured or under-insured loss resulting therefrom;
•actions or failures by our joint venture partner, including development partners;
•the cost of compliance with and liabilities under environmental, health and safety laws;
•changes in real estate and zoning laws and increases in real property tax rates;
•the economic success and viability of our anchor retail tenants;
•our debt financing, including risk of default, loss and other restrictions placed on us;
•our ability to refinance or repay maturing debt or to obtain new financing on attractive terms;
•future increases in interest rates;
•the availability of cash flow from operating activities to fund capital and other expenditures, service our debt and other obligations, and to fund distributions;
•our status as a real estate investment trust ("REIT") for federal tax purposes; and
•changes in federal, state or local tax law, including legislative, administrative, regulatory or other actions affecting REITs.
These factors are not necessarily all of the important factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our business, financial condition, results of operations, cash flows and overall value. Moreover, the risks identified elsewhere in this report, as well as the risks set forth above, should be interpreted as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic and/or socio-economic environment. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements are only as of the date they are made; we do not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information, future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
The following discussion and analysis relates to the three and nine months ended September 30, 2020 and 2019 and as of September 30, 2020 and December 31, 2019. It should be read in conjunction with our condensed consolidated financial statements and the related notes included in this Quarterly Report. All dollar amounts are stated in thousands, except per share amounts and per square foot metrics, unless otherwise noted.
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Overview
InvenTrust Properties Corp. is a premier multi-tenant retail REIT that owns, leases, redevelops, acquires and manages grocery-anchored neighborhood centers, and select power centers that often have a grocery component, predominantly in Sun Belt markets with favorable demographics. We seek to continue to execute our strategy to enhance our multi-tenant retail platform by further investing in grocery-anchored centers with essential retail in our current markets, while exhibiting focused and disciplined capital allocation.
Evaluation of Financial Condition
Historically, management has evaluated our financial condition and operating performance by focusing on the following financial and nonfinancial indicators, discussed in further detail herein:
•Modified NOI, a supplemental measure not determined in accordance with generally accepted accounting principles in the United States ("GAAP"), which excludes general and administrative expenses, depreciation and amortization, provision for asset impairment, interest and other income, net, gains (losses) from sales of properties, gains (losses) on extinguishment of debt, interest expense, net, equity in (losses) earnings from unconsolidated entities, lease termination income and expense, and GAAP rent adjustments (such as straight-line rent, above/below-market lease amortization, and amortization of lease incentives);
•Funds From Operations ("FFO") Applicable to Common Shares and Dilutive Securities, a supplemental non-GAAP measure;
•Adjusted Funds From Operations ("AFFO") Applicable to Common Shares, a supplemental non-GAAP measure;
•Cash flow from operations as determined in accordance with GAAP;
•Economic and physical occupancy and rental rates;
•Leasing activity and lease rollover;
•Operating expense levels and trends;
•General and administrative expense levels and trends;
•Debt maturities and leverage ratios; and
•Liquidity levels.
Impact of the COVID-19 Pandemic on the Company's Business and Financial Statements
The Company's business has been, and continues to be, disrupted by the coronavirus disease 2019 ("COVID-19") pandemic. We continue to assess the impact of the COVID-19 pandemic on all aspects of our business, including the impact on our tenants and their ability to make future rental payments in a timely fashion or at all and the possible impairment in value of our investment properties. The spread of COVID-19 is having a significant impact on the regional and local economic conditions in the markets in which our retail properties are located, throughout the broader financial markets, and the country. At this time, we are unable to estimate the full extent of these disruptions going forward on our financial condition and results of operations due to the evolving nature of the situation and numerous uncertainties that exist. These uncertainties include the scope, severity and duration, and any resurgences of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the direct and indirect economic effects of the pandemic and containment measures, and the timing, length and nature of an economic recovery, among others.
We are unable to predict whether cases of COVID-19 in the markets where we own and operate properties will decrease, increase, or remain the same, and/or whether state and local governments will mandate closures of our tenants' businesses or implement other restrictive measures on their and our operations.
As of October 29, 2020, 100% of our properties were open for business and approximately 98% of our occupied gross leasable area ("GLA") were permitted by state and local governments to be open and operating in some capacity, including 100% of the GLA in Florida, North Carolina, Virginia, Maryland, Texas and California.
During the three months ended September 30, 2020, we increased our write-offs for uncollectible accounts by approximately $2.0 million on our condensed and consolidated statement of operations after assessing our tenants with uncertain collectibility situations. Additionally, as of September 30, 2020, our share of the write-offs for uncollectible accounts recorded by our unconsolidated joint venture was $0.2 million.
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Additionally, through October 29, 2020, we received requests for assistance from approximately 62% of our tenants representing approximately 52% of our GLA. We continue to evaluate our tenants' requests and are negotiating the terms of potential lease amendments on an individual basis. We do not expect all tenant requests will result in amended agreements, nor do we intend to forgo our contractual rights under our lease agreements. There can be no assurance that all amendments will be consummated on the agreed-upon terms and/or if consummated, amounts due will be collected as required by terms of the agreement.
As of September 30, 2020, the status of our tenant billings across our entire portfolio, including our proportionate share of the properties in our unconsolidated joint venture, is reflected in the following tables, which shows disaggregated gross rent billed in the second and third quarter of 2020.
| Disaggregation of Gross Rent Billed | |||||||||||||||||||||||||||||
| Gross Rent Billed | Collected | Payment Deferral Plan | Estimated Credit Loss | Remaining Accounts Receivable | |||||||||||||||||||||||||
| Quarter end June 30, 2020 | $ | 53,575 | $ | 44,723 | $ | 3,246 | $ | 4,677 | $ | 929 | |||||||||||||||||||
| July 31, 2020 | $ | 17,558 | $ | 15,524 | $ | 827 | $ | 818 | $ | 389 | |||||||||||||||||||
| August 30, 2020 | 17,625 | 15,933 | 31 | 928 | 733 | ||||||||||||||||||||||||
| September 30, 2020 | 17,419 | 15,830 | (204) | 846 | 947 | ||||||||||||||||||||||||
| Quarter end Sept. 30, 2020 | $ | 52,602 | $ | 47,287 | $ | 654 | $ | 2,592 | $ | 2,069 | |||||||||||||||||||
| Disaggregation of Gross Rent Billed | |||||||||||||||||||||||||||||
| Gross Rent Billed | Collected | Payment Deferral Plan | Estimated Credit Loss | Remaining Accounts Receivable | |||||||||||||||||||||||||
| Quarter end June 30, 2020 | 100% | 83.5% | 6.1% | 8.7% | 1.7% | ||||||||||||||||||||||||
| July 31, 2020 | 100% | 88.4% | 4.7% | 4.7% | 2.2% | ||||||||||||||||||||||||
| August 30, 2020 | 100% | 90.3% | 0.2% | 5.3% | 4.2% | ||||||||||||||||||||||||
| September 30, 2020 | 100% | 90.9% | (1.2)% | 4.9% | 5.4% | ||||||||||||||||||||||||
| Quarter end Sept. 30, 2020 | 100% | 90.0% | 1.2% | 4.9% | 3.9% | ||||||||||||||||||||||||
Subsequent to September 30, 2020, we collected approximately $0.4 million of second quarter and $0.9 million of third quarter unpaid gross rent billed, including our proportionate share of the properties in our unconsolidated joint venture. As of October 29, 2020, approximately 92% of our October 2020 tenant billings across our entire portfolio, including our proportionate share of the properties in our unconsolidated joint venture, have been collected.
We have taken and will consider a number of measures to mitigate the impact of the COVID-19 pandemic on our business and financial condition, including the following:
•For general corporate purposes and to increase our financial flexibility in light of the COVID-19 pandemic, we drew $150.0 million on the Revolving Credit Agreement on March 27, 2020. On October 28, 2020, we paid down $100.0 million of this balance;
•We have implemented a work from home policy and have placed restrictions on air travel. Our existing focus on providing remote-work IT solutions for our employees has enabled our workforce to transition smoothly to working from home with minimal disruption to our core operations. We remain committed to the safety of our employees as they execute on our operational needs and provide support to our tenants;
•We did not publish an estimated share value in May 2020 as a result of the potential financial impact of the COVID-19 pandemic and the sharp drop in property transactions leading to limited visibility on property valuations;
•On June 11, 2020, we announced that our Board of Directors (the "Board") voted to suspend the Second Amended and Restated Share Repurchase Program ("SRP") and the Amended and Restated Distribution Reinvestment Plan ("DRP") until further notice; and
•The Board will continue to evaluate our distribution rate and policy and, if the Board deems appropriate, adjust the distribution to take into account the ongoing effects of the COVID-19 pandemic on our financial condition and results of operations.
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Current Strategy
InvenTrust focuses on grocery-anchored neighborhood centers, and select power centers that often have a grocery component, in markets with favorable demographics, including above average growth in population, employment and income. We believe these conditions create favorable demand characteristics for grocery-anchored neighborhood and select power centers which will enable us to capitalize on potential future rent increases while enjoying sustained occupancy at our centers. Using these criteria, we have identified 15 to 20 markets, including, but not limited to, the metropolitan areas of Atlanta, Austin, Charlotte, Dallas-Fort Worth-Arlington, Houston, the greater Los Angeles and San Diego areas, Miami, Orlando, Raleigh-Durham, San Antonio and Tampa.
Our portfolio of grocery-anchored centers is open and our grocery tenants are continuing to serve their communities during this crisis. These properties play a critical role in the communities they serve, often providing essential retail and services such as groceries and healthcare products and services. Our strategically located regional field offices are within a two-hour drive of 90% of our properties which affords us the ability to respond to the needs and requests of our tenants as they maneuver through this crisis with the intent to minimize disruption. However, as a result of the COVID-19 pandemic: some of our tenants have not been able to make rent payments to us in a timely fashion or at all, it will take longer to collect rent from many of our tenants, and retailer bankruptcies, failures, and store closings are expected to increase, leading to an increase in vacancies at our properties.
We believe the refinement of our multi-tenant retail platform has positioned us for future success and will allow us to evaluate and ultimately execute on, a potential strategic transaction to achieve liquidity for and provide a return of capital to our stockholders in the long term. However, we may be unable to execute on such a transaction on terms we would find attractive for our stockholders and our ability to do so will be influenced by external and macroeconomic factors including, among others, the effects and duration of the COVID-19 pandemic and any future resurgences, the timing and nature of the recovery from the COVID-19 pandemic, interest rate movements, local, regional, national and global economic performance, competitive factors, the impact of e-commerce on the retail industry, future retailer store closings, retailer consolidation, retailers reducing store size, retailer bankruptcies, and government policy changes. At this time, the COVID-19 pandemic and related uncertainties have delayed our process for exploring and executing upon a potential strategic transaction.
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Highlights for the Three Months Ended September 30, 2020
Our Multi-Tenant Retail Portfolio
Our wholly-owned, consolidated and managed retail properties include grocery-anchored community and neighborhood centers and power centers, including those classified as necessity-based. As of September 30, 2020, we owned or had an interest in 65 retail properties with a total GLA of approximately 10.8 million square feet, which includes 10 retail properties with a GLA of approximately 2.5 million square feet owned through our 55% interest in IAGM Retail Fund I, LLC ("IAGM").
Where appropriate, the Company has included results from the IAGM properties at 55% when combined with the Company's wholly-owned properties, defined as "Pro Rata Combined Multi-Tenant Retail Portfolio," with the exception of number of properties.
The following table summarizes our multi-tenant retail portfolio, on a wholly-owned, IAGM, and pro rata combined basis, as of September 30, 2020 and 2019.
| Wholly-Owned Retail Properties | IAGM Retail Properties | Pro Rata Combined Multi-Tenant Retail Portfolio | |||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| No. of properties | 55 | 57 | 10 | 11 | 65 | 68 | |||||||||||||||||||||||||||||
| GLA (square feet) | 8,329,408 | 9,259,678 | 2,470,193 | 2,572,892 | 9,688,014 | 10,674,768 | |||||||||||||||||||||||||||||
| Economic occupancy (a) | 95.7% | 96.0% | 90.5% | 94.4% | 94.9% | 95.8% | |||||||||||||||||||||||||||||
| ABR PSF (b) | $18.79 | $18.39 | $17.10 | $17.49 | $18.57 | $18.28 | |||||||||||||||||||||||||||||
(a)Economic occupancy is defined as the percentage of total GLA for which a tenant is obligated to pay rent under the terms of its lease agreement, regardless of the actual use or occupancy by that tenant of the area being leased. Actual use may be less than economic occupancy.
(b)Annualized Base Rent ("ABR") is computed as revenue for the last month of the period multiplied by 12 months. ABR includes the effect of rent abatements, lease inducements, straight-line rent GAAP adjustments and ground rent income. ABR per square foot ("ABR PSF") is computed as ABR divided by the total leased square footage at the end of the period. Specialty leasing represents leases of less than one year in duration for inline space and includes any term length for a common area space, and is excluded from the ABR and leased square footage figures when computing the ABR PSF.
Multi-Tenant Retail Portfolio Summary by Center Type
Our retail properties consist of community and neighborhood centers and power centers.
•Community and neighborhood centers are generally open-air and designed for tenants that offer a wide array of merchandise and services, including groceries, soft goods and convenience-oriented offerings. Our community centers contain large anchor stores and a significant presence of national retail tenants. Our neighborhood centers are generally smaller open-air centers with a grocery store anchor and/or drugstore and other small service-type retailers.
•Power centers are generally larger and consist of several anchors, such as discount department stores, off-price stores, specialty grocers and warehouse clubs. Typically, the number of specialty tenants is limited and most are national or regional in scope.
The following tables summarize our multi-tenant retail portfolio, by center type, as of September 30, 2020 and 2019.
| Community and neighborhood centers | |||||||||||||||||||||||||||||||||||
| Wholly-Owned Retail Properties | IAGM Retail Properties | Pro Rata Combined Multi-Tenant Retail Portfolio | |||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| No. of properties | 44 | 42 | 5 | 6 | 49 | 48 | |||||||||||||||||||||||||||||
| GLA (square feet) | 4,986,164 | 4,813,393 | 1,386,308 | 1,489,066 | 5,748,633 | 5,632,379 | |||||||||||||||||||||||||||||
| Economic occupancy | 95.0% | 95.4% | 89.3% | 95.2% | 94.3% | 95.3% | |||||||||||||||||||||||||||||
| ABR PSF | $20.01 | $20.07 | $17.07 | $17.22 | $19.65 | $19.65 | |||||||||||||||||||||||||||||
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| Power centers | |||||||||||||||||||||||||||||||||||
| Wholly-Owned Retail Properties | IAGM Retail Properties | Pro Rata Combined Multi-Tenant Retail Portfolio | |||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| No. of properties | 11 | 15 | 5 | 5 | 16 | 20 | |||||||||||||||||||||||||||||
| GLA (square feet) | 3,343,244 | 4,446,285 | 1,083,885 | 1,083,826 | 3,939,381 | 5,042,389 | |||||||||||||||||||||||||||||
| Economic occupancy | 96.7% | 96.6% | 91.9% | 93.3% | 95.9% | 96.2% | |||||||||||||||||||||||||||||
| ABR PSF | $16.94 | $16.56 | $17.14 | $17.94 | $16.96 | $16.70 | |||||||||||||||||||||||||||||
Same-Property Multi-Tenant Retail Portfolio Summary
The following tables summarize the GLA, economic occupancy and ABR PSF of the properties included in our multi-tenant retail portfolio classified as same-property for the three and nine months ended September 30, 2020 and 2019. The properties classified as same-property were owned for the entirety of both periods presented.
| Same-property results for the three months ended September 30, 2020 and 2019 | |||||||||||||||||||||||||||||||||||
| Wholly-Owned Retail Properties | IAGM Retail Properties | Pro Rata Combined Multi-Tenant Retail Portfolio | |||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| No. of properties | 50 | 50 | 10 | 10 | 60 | 60 | |||||||||||||||||||||||||||||
| GLA (square feet) | 7,562,480 | 7,554,106 | 2,470,193 | 2,462,414 | 8,921,086 | 8,908,434 | |||||||||||||||||||||||||||||
| Economic occupancy | 95.7% | 96.4% | 90.5% | 94.2% | 94.9% | 96.0% | |||||||||||||||||||||||||||||
| ABR PSF | $18.67 | $18.43 | $17.10 | $17.62 | $18.45 | $18.32 | |||||||||||||||||||||||||||||
| Same-property results for the nine months ended September 30, 2020 and 2019 | |||||||||||||||||||||||||||||||||||
| Wholly-Owned Retail Properties | IAGM Retail Properties | Pro Rata Combined Multi-Tenant Retail Portfolio | |||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| No. of properties | 46 | 46 | 10 | 10 | 56 | 56 | |||||||||||||||||||||||||||||
| GLA (square feet) | 7,253,086 | 7,244,712 | 2,470,193 | 2,462,414 | 8,611,692 | 8,599,040 | |||||||||||||||||||||||||||||
| Economic occupancy | 95.8% | 96.5% | 90.5% | 94.2% | 94.9% | 96.1% | |||||||||||||||||||||||||||||
| ABR PSF | $18.49 | $18.28 | $17.10 | $17.62 | $18.29 | $18.19 | |||||||||||||||||||||||||||||
Market Summary
The following table represents the geographical diversity of our Multi-Tenant Retail Portfolio as of September 30, 2020.
| Gross Leasable Area | ||||||||||||||||||||||||||||||||
| State | Region | No. of Properties | Wholly-Owned Retail Properties | IAGM Retail Properties at Share | Total | |||||||||||||||||||||||||||
| Texas | Southwest | 25 | 2,396,641 | 1,358,606 | 3,755,247 | |||||||||||||||||||||||||||
| Florida | South Atlantic | 10 | 1,981,550 | — | 1,981,550 | |||||||||||||||||||||||||||
| Georgia | South Atlantic | 10 | 1,058,095 | — | 1,058,095 | |||||||||||||||||||||||||||
| California | West | 7 | 1,050,533 | — | 1,050,533 | |||||||||||||||||||||||||||
| North Carolina | South Atlantic | 7 | 1,015,870 | — | 1,015,870 | |||||||||||||||||||||||||||
| Colorado | West | 3 | 466,460 | — | 466,460 | |||||||||||||||||||||||||||
| Maryland | East | 2 | 183,348 | — | 183,348 | |||||||||||||||||||||||||||
| Virginia | South Atlantic | 1 | 176,911 | — | 176,911 | |||||||||||||||||||||||||||
| 65 | 8,329,408 | 1,358,606 | 9,688,014 | |||||||||||||||||||||||||||||
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Lease Expirations
The following table presents the lease expirations of our economic occupied Pro Rata Combined Multi-Tenant Retail Portfolio as of September 30, 2020.
| Lease Expiration Year | No. of Expiring Leases (a) | GLA of Expiring Leases (square feet) | Percent of Total GLA of Expiring Leases | ABR of Expiring Leases | Percent of Total ABR | Expiring ABR PSF | ||||||||||||||||||||||||||||||||
| 2020 | 21 | 61,118 | 0.7% | $ | 1,509 | 0.9% | $ | 24.69 | ||||||||||||||||||||||||||||||
| 2021 | 189 | 736,193 | 8.0% | 14,347 | 8.7% | 19.49 | ||||||||||||||||||||||||||||||||
| 2022 | 223 | 1,255,569 | 13.6% | 22,610 | 13.5% | 18.01 | ||||||||||||||||||||||||||||||||
| 2023 | 202 | 947,661 | 10.3% | 17,206 | 10.4% | 18.16 | ||||||||||||||||||||||||||||||||
| 2024 | 187 | 1,173,598 | 12.8% | 21,179 | 12.8% | 18.05 | ||||||||||||||||||||||||||||||||
| 2025 | 166 | 1,066,894 | 11.6% | 17,825 | 10.8% | 16.71 | ||||||||||||||||||||||||||||||||
| 2026 | 99 | 504,976 | 5.5% | 10,575 | 6.4% | 20.94 | ||||||||||||||||||||||||||||||||
| 2027 | 109 | 834,143 | 9.1% | 17,357 | 10.5% | 20.81 | ||||||||||||||||||||||||||||||||
| 2028 | 80 | 449,633 | 4.9% | 9,355 | 5.6% | 20.81 | ||||||||||||||||||||||||||||||||
| 2029 | 91 | 510,490 | 5.6% | 10,210 | 6.2% | 20.00 | ||||||||||||||||||||||||||||||||
| Thereafter | 111 | 1,391,288 | 15.1% | 22,154 | 13.4% | 15.92 | ||||||||||||||||||||||||||||||||
| Other (b) | 280 | 254,895 | 2.8% | 1,355 | 0.8% | 24.08 | ||||||||||||||||||||||||||||||||
| 1,758 | 9,186,458 | 100.0% | $ | 165,682 | 100.0% | $ | 18.04 | |||||||||||||||||||||||||||||||
(a)No. of expiring leases includes IAGM at 100%.
(b)Other lease expirations include the GLA, ABR and ABR PSF of month-to-month leases and the GLA of specialty leases. Specialty leasing, which is included in other property income, represents leases of less than one year in duration for inline space and includes any term length for a common area space. Examples include retail holiday stores, storage, and short-term clothing and furniture consignment stores. Specialty leasing includes, but is not limited to, any term length for a common area space, including by not limited to, tent sales, automated teller machines, cell towers, billboards, and vending.
For purposes of preparing the table, we have not assumed that unexercised contractual lease renewal or extension options contained in our leases will, in fact, be exercised. Our retail business is neither highly dependent on specific retailers nor subject to lease roll-over concentration. We believe this minimizes risk to our multi-tenant retail portfolio from significant revenue variances over time.
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Leasing Activity
The following tables summarize the leasing activity for leases that were executed during the nine months ended September 30, 2020, compared with expiring or expired leases for the same or previous tenant for renewals and the same unit for new leases at our 65 retail properties. These tables do not include rent deferral lease amendments executed as a result of the impact of the COVID-19 pandemic.
In our wholly-owned multi-tenant retail portfolio, we had GLA totaling 544,730 square feet expiring during the nine months ended September 30, 2020, of which 405,941 square feet was re-leased. This achieved a retention rate of approximately 74.5%.
| Wholly-Owned Multi Tenant Retail Properties | |||||||||||||||||||||||||||||||||||||||||||||||
| No. of Leases Executed for the Quarter Ended Sept. 30, 2020 | GLA SF | New Contractual Rent ($PSF) (b) | Prior Contractual Rent ($PSF) (b) | % Change over Prior Contract Rent (b) | Weighted Average Lease Term (Years) | Tenant Improvement Allowance ($PSF) | Lease Commissions ($PSF) | ||||||||||||||||||||||||||||||||||||||||
| All Tenants | |||||||||||||||||||||||||||||||||||||||||||||||
| Comparable Renewal Leases (a) | 85 | 348,961 | $21.44 | $20.24 | 5.9% | 5.2 | $0.68 | $0.12 | |||||||||||||||||||||||||||||||||||||||
| Comparable New Leases (a) | 9 | 17,502 | $35.15 | $38.24 | (8.1)% | 8.4 | $22.42 | $8.85 | |||||||||||||||||||||||||||||||||||||||
| Non-Comparable Renewal and New Leases | 27 | 118,984 | $20.21 | N/A | N/A | 9.6 | $27.97 | $8.82 | |||||||||||||||||||||||||||||||||||||||
| Total | 121 | 485,447 | $22.10 | $21.10 | 4.7% | 6.4 | $8.15 | $2.57 | |||||||||||||||||||||||||||||||||||||||
| Anchor Tenants (leases over 10,000 square feet) | |||||||||||||||||||||||||||||||||||||||||||||||
| Comparable Renewal Leases (a) | 6 | 170,889 | $10.17 | $9.96 | 2.1% | 4.8 | $— | $— | |||||||||||||||||||||||||||||||||||||||
| Comparable New Leases (a) | — | — | $— | $— | —% | — | $— | $— | |||||||||||||||||||||||||||||||||||||||
| Non-Comparable Renewal and New Leases | 2 | 58,577 | $10.45 | N/A | N/A | 11.1 | $23.66 | $4.24 | |||||||||||||||||||||||||||||||||||||||
| Total | 8 | 229,466 | $10.17 | $9.96 | 2.1% | 6.4 | $6.04 | $1.08 | |||||||||||||||||||||||||||||||||||||||
| Non-anchor Tenants (leases under 10,000 square feet) | |||||||||||||||||||||||||||||||||||||||||||||||
| Comparable Renewal Leases (a) | 79 | 178,072 | $32.26 | $30.12 | 7.1% | 5.6 | $1.34 | $0.23 | |||||||||||||||||||||||||||||||||||||||
| Comparable New Leases (a) | 9 | 17,502 | $35.15 | $38.24 | (8.1)% | 8.4 | $22.42 | $8.85 | |||||||||||||||||||||||||||||||||||||||
| Non-Comparable Renewal and New Leases | 25 | 60,407 | $30.38 | N/A | N/A | 8.2 | $32.15 | $13.26 | |||||||||||||||||||||||||||||||||||||||
| Total | 113 | 255,981 | $32.52 | $30.84 | 5.4% | 6.4 | $10.05 | $3.89 | |||||||||||||||||||||||||||||||||||||||
(a)Comparable leases are leases that meet all of the following criteria: terms greater than one year, unit was vacant one year or less prior to occupancy, square footage of unit remains unchanged or within 10% of prior unit square footage, and has a rent structure consistent with the previous tenant.
(b)Non-comparable leases are not included in totals.
28
In our IAGM multi-tenant retail portfolio, we had GLA totaling 78,408 square feet expiring during the nine months ended September 30, 2020, of which 48,234 square feet was re-leased. This achieved a retention rate of approximately 61.5%.
| IAGM Multi-Tenant Retail Properties | |||||||||||||||||||||||||||||||||||||||||||||||
| No. of Leases Executed for the Quarter Ended Sept. 30, 2020 | GLA SF | New Contractual Rent ($PSF) (b) | Prior Contractual Rent ($PSF) (b) | % Change over Prior Contract Rent (b) | Weighted Average Lease Term (Years) | Tenant Improvement Allowance ($PSF) | Lease Commissions ($PSF) | ||||||||||||||||||||||||||||||||||||||||
| All Tenants | |||||||||||||||||||||||||||||||||||||||||||||||
| Comparable Renewal Leases (a) | 20 | 122,388 | $14.31 | $15.79 | (9.4)% | 4.5 | $0.20 | $0.13 | |||||||||||||||||||||||||||||||||||||||
| Comparable New Leases (a) | 1 | 2,148 | $29.00 | $29.00 | —% | 10.0 | $20.00 | $— | |||||||||||||||||||||||||||||||||||||||
| Non-Comparable Renewal and New Leases | 12 | 61,294 | $19.88 | N/A | N/A | 9.6 | $9.95 | $5.16 | |||||||||||||||||||||||||||||||||||||||
| Total | 33 | 185,830 | $14.57 | $16.02 | (9.1)% | 6.2 | $3.64 | $1.79 | |||||||||||||||||||||||||||||||||||||||
| Anchor Tenants (leases over 10,000 square feet) | |||||||||||||||||||||||||||||||||||||||||||||||
| Comparable Renewal Leases (a) | 3 | 87,946 | $10.13 | $11.78 | (14.0)% | 4.3 | $— | $— | |||||||||||||||||||||||||||||||||||||||
| Comparable New Leases (a) | — | — | $— | $— | —% | — | $— | $— | |||||||||||||||||||||||||||||||||||||||
| Non-Comparable Renewal and New Leases | 2 | 32,048 | $14.21 | N/A | N/A | 10.5 | $3.12 | $4.22 | |||||||||||||||||||||||||||||||||||||||
| Total | 5 | 119,994 | $10.13 | $11.78 | (14.0)% | 6.0 | $0.83 | $1.13 | |||||||||||||||||||||||||||||||||||||||
| Non-anchor Tenants (leases under 10,000 square feet) | |||||||||||||||||||||||||||||||||||||||||||||||
| Comparable Renewal Leases (a) | 17 | 34,442 | $25.00 | $26.04 | (4.0)% | 5.0 | $0.70 | $0.46 | |||||||||||||||||||||||||||||||||||||||
| Comparable New Leases (a) | 1 | 2,148 | $29.00 | $29.00 | —% | 10.0 | $20.00 | $— | |||||||||||||||||||||||||||||||||||||||
| Non-Comparable Renewal and New Leases | 10 | 29,246 | $26.09 | N/A | N/A | 8.5 | $17.44 | $6.19 | |||||||||||||||||||||||||||||||||||||||
| Total | 28 | 65,836 | $25.23 | $26.21 | (3.7)% | 6.7 | $8.77 | $2.99 | |||||||||||||||||||||||||||||||||||||||
(a)Comparable leases are leases that meet all of the following criteria: terms greater than one year, unit was vacant one year or less prior to occupancy, square footage of unit remains unchanged or within 10% of prior unit square footage, and has a rent structure consistent with the previous tenant.
(b)Non-comparable leases are not included in totals.
29
Results of Operations
Comparison of results for the three and nine months ended September 30, 2020 and 2019
The following section describes and compares our consolidated results of operations for the three and nine months ended September 30, 2020 and 2019. We generate substantially all of our net income from property operations. Since January 1, 2019, we have acquired nine retail properties and disposed of 11 retail properties.
Lease income, net, consists of basic monthly rent, amortization of acquired above and below-market leases, amortization of lease inducements, straight-line rent adjustments, percentage of sales rent, contractual reimbursements for real estate taxes, common area maintenance costs, tax and insurance costs, late charges, termination fee income, and estimated credit losses resulting from changes in the expected collectibility of operating lease receivables.
The following table presents the changes in our income for the three months ended September 30, 2020 and 2019.
| Three months ended September 30, | Composition of Total Decrease, net | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Total Decrease, net | Acquisition Increase | Disposition Decrease | Same Property Decrease | ||||||||||||||||||||||||||||||
| Income | |||||||||||||||||||||||||||||||||||
| Lease income, net | $ | 51,489 | $ | 56,596 | $ | (5,107) | $ | 3,071 | $ | (8,018) | $ | (160) | |||||||||||||||||||||||
| Other property income | 177 | 333 | (156) | 9 | (124) | (41) | |||||||||||||||||||||||||||||
| Other fee income | 879 | 1,068 | (189) | — | — | (189) | |||||||||||||||||||||||||||||
| Total income | $ | 52,545 | $ | 57,997 | $ | (5,452) | $ | 3,080 | $ | (8,142) | $ | (390) | |||||||||||||||||||||||
The following table presents the changes in our income for the nine months ended September 30, 2020 and 2019.
| Nine months ended September 30, | Composition of Total Decrease, net | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Total Decrease, net | Acquisition Increase | Disposition Decrease | Same Property Decrease | ||||||||||||||||||||||||||||||
| Income | |||||||||||||||||||||||||||||||||||
| Lease income, net | $ | 143,491 | $ | 167,708 | $ | (24,217) | $ | 13,661 | $ | (27,399) | $ | (10,479) | |||||||||||||||||||||||
| Other property income | 576 | 1,605 | (1,029) | 33 | (689) | (373) | |||||||||||||||||||||||||||||
| Other fee income | 2,555 | 2,833 | (278) | — | — | (278) | |||||||||||||||||||||||||||||
| Total income | $ | 146,622 | $ | 172,146 | $ | (25,524) | $ | 13,694 | $ | (28,088) | $ | (11,130) | |||||||||||||||||||||||
Lease income, net, for the nine months ended September 30, 2020, decreased by $10.5 million, on a same property basis when compared to the same period in 2019, primarily as a result of increased estimated credit losses of $9.2 million and decreased real estate tax recoveries of $1.3 million. We believe that the increase in estimated credit losses was directly attributable to the effects of the COVID-19 pandemic on our tenants.
Property operating expenses consist of recurring repair and maintenance, utilities, and insurance (most of which are recoverable from the tenants).
The following table presents the changes in our operating expenses for the three months ended September 30, 2020 and 2019.
| Three months ended September 30, | Composition of Total Decrease, net | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Total Decrease (Increase), net | Acquisition Increase | Disposition Decrease | Same Property Increase (Decrease) | ||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 22,170 | $ | 24,253 | $ | (2,083) | $ | 1,376 | $ | (3,091) | $ | (368) | |||||||||||||||||||||||
| Property operating | 6,677 | 8,288 | (1,611) | 442 | (1,777) | (276) | |||||||||||||||||||||||||||||
| Real estate taxes | 8,940 | 9,000 | (60) | 1,079 | (1,607) | 468 | |||||||||||||||||||||||||||||
| General and administrative | 10,106 | 8,379 | 1,727 | — | — | 1,727 | |||||||||||||||||||||||||||||
| Total operating expenses | $ | 47,893 | $ | 49,920 | $ | (2,027) | $ | 2,897 | $ | (6,475) | $ | 1,551 | |||||||||||||||||||||||
30
Property operating expenses, for the three months ended September 30, 2020, decreased $0.3 million on a same property basis when compared to the same period in 2019, primarily as a result of non-recoverable expenses. Real estate taxes, for the three months ended September 30, 2020, increased $0.5 million on a same property basis when compared to the same period in 2019 primarily due to an increase in real estate taxes at three reassessed properties. General and administrative expenses, for the three months ended September 30, 2020, increased $1.7 million on a same property basis compared to the same period in 2019 primarily as a result of an increase in lease commission expense paid to employees.
The following table presents the changes in our operating expenses for the nine months ended September 30, 2020 and 2019.
| Nine months ended September 30, | Composition of Total Decrease, net | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Total Decrease, net | Acquisition Increase | Disposition Decrease | Same Property Decrease | ||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 66,697 | $ | 71,807 | $ | (5,110) | $ | 7,604 | $ | (10,464) | $ | (2,250) | |||||||||||||||||||||||
| Property operating | 19,969 | 23,365 | (3,396) | 2,636 | (5,308) | (724) | |||||||||||||||||||||||||||||
| Real estate taxes | 24,647 | 27,009 | (2,362) | 2,949 | (4,610) | (701) | |||||||||||||||||||||||||||||
| General and administrative | 25,688 | 25,788 | (100) | — | — | (100) | |||||||||||||||||||||||||||||
| Total operating expenses | $ | 137,001 | $ | 147,969 | $ | (10,968) | $ | 13,189 | $ | (20,382) | $ | (3,775) | |||||||||||||||||||||||
Depreciation and amortization, for the nine months ended September 30, 2020, decreased $2.3 million on a same property basis when compared to the same period in 2019 as a result of decreased in-place lease amortization of $1.9 million and a decrease in depreciation of corporate IT software of $1.1 million, which was partially offset by increased building, site, and tenant improvement depreciation of $0.7 million.
General and administrative expenses for the nine months ended September 30, 2020, decreased $0.1 million, when compared to the same period in 2019, primarily as a result of decreased compensation and long-term incentive plan costs of $0.7 million, decreased marketing and conference costs of $0.7 million, and decreased stock administration and valuation costs of $0.4 million primarily as a result of the impact of the COVID-19 pandemic. These decreases were partially offset by an increase in lease commission expense paid to employees.
The following table presents the changes in our other income and expenses.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Change, net | 2020 | 2019 | Change, net | ||||||||||||||||||||||||||||||
| Other (expense) income | |||||||||||||||||||||||||||||||||||
| Interest and other income, net | $ | 244 | $ | 24 | $ | 220 | $ | 2,572 | $ | 1,075 | $ | 1,497 | |||||||||||||||||||||||
| Interest expense, net | (4,594) | (6,077) | 1,483 | (14,327) | (17,182) | 2,855 | |||||||||||||||||||||||||||||
| Loss on extinguishment of debt | — | (2,092) | 2,092 | (2,543) | (2,901) | 358 | |||||||||||||||||||||||||||||
| Provision for asset impairment | — | (2,359) | 2,359 | (9,002) | (2,359) | (6,643) | |||||||||||||||||||||||||||||
| Gain on sale of investment properties, net | 424 | 26,781 | (26,357) | 668 | 32,443 | (31,775) | |||||||||||||||||||||||||||||
| Equity in earnings (losses) of unconsolidated entities | 951 | 572 | 379 | 1,591 | (48) | 1,639 | |||||||||||||||||||||||||||||
| Total other (expense) income, net | $ | (2,975) | $ | 16,849 | $ | (19,824) | $ | (21,041) | $ | 11,028 | $ | (32,069) | |||||||||||||||||||||||
Interest and other income, net
Interest and other income, net, consists of interest earned on cash and cash equivalents, income tax benefits and expenses, and non-operating income and expenses.
Under the federal legislation enacted on March 27, 2020, known as the CARES Act, certain limitations on the deductibility of net operating losses ("NOLs") enacted under prior federal tax legislation have been temporarily rolled back. In particular, the CARES Act permits businesses to carryback NOLs generated in taxable years beginning after December 31, 2017 and before January 1, 2021 to the previous five years and temporarily suspends, until taxable years beginning after December 31, 2020, the annual limit of 80% on the amount of taxable income that NOLs generated in taxable years beginning after December 31, 2017 may offset. As a result of the anticipated NOL carryback claims for our taxable REIT subsidiaries, total additional tax benefits of $1.2 million have been recognized as part of interest and other income, net, on the condensed consolidated statements of operations and comprehensive loss during the nine months ended September 30, 2020.
31
Interest expense, net
Interest expense, net, consists of interest incurred on mortgages payable and our corporate credit facilities, interest incurred on other financing instruments, and amortization of loan fees.
Interest expense, net, for the three months ended September 30, 2020 decreased $1.5 million when compared to the same period in 2019 primarily as a result of extinguishing total mortgages payable of $90.9 million across four retail properties since July 1, 2019, resulting in interest savings of $1.0 million. The remaining $0.5 million decrease in interest expense, net, relates to lower 1-month LIBOR interest rates on corporate credit facilities.
Interest expense, net, for the nine months ended September 30, 2020 decreased $2.9 million when compared to the same period in 2019, primarily as a result of repaying total mortgages payable of $106.3 million across five retail properties since January 1, 2019, resulting in interest savings of $3.1 million, and was offset by an increase in interest expense of $0.2 million from corporate credit facilities.
Loss on extinguishment of debt
During the nine months ended September 30, 2020, we recognized a loss of $2.5 million on the extinguishment of total mortgages payable of $26.3 million on two retail properties, primarily related to prepayment penalties.
During the three months ended September 30, 2019, we recognized a loss on extinguishment of debt of $2.1 million related to the loan pay-off on one retail property, comprising a $1.9 million prepayment penalty and $0.2 million of loan fee write-offs. During the nine months ended September 30, 2019, we recognized a loss on extinguishment of debt of $2.9 million related to the loan pay-off on two retail properties, comprising a $2.7 million prepayment penalty and $0.2 million of loan fee write-offs. These properties were sold during the nine months ended September 30, 2019.
Provision for asset impairment
During the nine months ended September 30, 2020, we identified one retail property that had a reduction in its expected hold period. We recorded a provision for asset impairment of $9.0 million as a result of the executed sales contract price being lower than the property's carrying value. This property was sold on May 1, 2020.
Gain on sale of investment properties, net
During the three months ended September 30, 2020, we recognized a gain of $0.4 million on the completion of a partial condemnation at one retail property. During the nine months ended September 30, 2020, we recognized a gain of $0.7 million on the sale of one retail property and the completion of partial condemnations at three retail properties.
During the three and nine months ended September 30, 2019, we recognized a gain of $26.8 million and $32.4 million, respectively, on the sale of five and seven retail properties, respectively.
Equity in earnings (losses) of unconsolidated entities
Equity in earnings of unconsolidated entities for the three and nine months ended September 30, 2020, increased $0.4 million and $1.6 million, respectively, when compared to the same periods in 2019, primarily as a result of lower net loss and our share of higher net income of IAGM.
IAGM's decrease in net loss and increase in net income was primarily a result of prepaying a $14.9 million mortgage payable on January 22, 2020, lowered interest rates on certain variable rate debt, and a provision of asset impairment of $1.4 million recorded in 2019.
Net loss from discontinued operations
During the nine months ended September 30, 2019, we recognized $25.5 million relating to indemnity claims from the sale of our student housing business, which was sold in June 2016. On June 14, 2019, a final settlement for the claims was reached in the amount of $30.0 million, which we paid on June 24, 2019.
32
Net Operating Income
We evaluate the performance of our wholly-owned and consolidated retail properties based on modified NOI. Modified NOI reflects the income from operations excluding lease termination income and GAAP rent adjustments (such as straight-line rent above/below market lease amortization, and amortization of lease incentives). We believe modified NOI, same-property modified NOI, and modified NOI from other investment properties, each of which are supplemental non-GAAP financial measures, provide added comparability across periods when evaluating the financial condition and operating performance that is not readily apparent from "Operating income" or "Net income" in accordance with GAAP.
Comparison of same-property results for the three and nine months ended September 30, 2020 and 2019
A total of 50 wholly-owned retail properties met our same-property criteria for the three months ended September 30, 2020 and 2019. A total of 46 wholly-owned retail properties met our same-property criteria for the nine months ended September 30, 2020 and 2019. Modified NOI from other investment properties in the table below for the three and nine months ended September 30, 2020 and 2019 includes retail properties that did not meet our same-property criteria. The following table represents the reconciliation of net income, the most directly comparable GAAP measure, to Modified NOI and same-property modified NOI for the three months ended September 30, 2020 and 2019:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net income (loss) | $ | 1,677 | $ | 24,926 | $ | (11,420) | $ | 9,705 | |||||||||||||||
| Adjustments to reconcile to non-GAAP metrics: | |||||||||||||||||||||||
| Net loss from discontinued operations | — | — | — | 25,500 | |||||||||||||||||||
| Equity in (earnings) losses of unconsolidated entities | (951) | (572) | (1,591) | 48 | |||||||||||||||||||
| Interest expense, net | 4,594 | 6,077 | 14,327 | 17,182 | |||||||||||||||||||
| Loss on extinguishment of debt | — | 2,092 | 2,543 | 2,901 | |||||||||||||||||||
| Gain on sale of investment properties, net | (424) | (26,781) | (668) | (32,443) | |||||||||||||||||||
| Interest and other income, net | (244) | (24) | (2,572) | (1,075) | |||||||||||||||||||
| Provision for asset impairment | — | 2,359 | 9,002 | 2,359 | |||||||||||||||||||
| Depreciation and amortization | 22,170 | 24,253 | 66,697 | 71,807 | |||||||||||||||||||
| General and administrative | 10,106 | 8,379 | 25,688 | 25,788 | |||||||||||||||||||
| Other fee income | (879) | (1,068) | (2,555) | (2,833) | |||||||||||||||||||
| Adjustments to modified NOI (a) | (3,547) | (2,749) | (4,825) | (8,281) | |||||||||||||||||||
| Modified NOI | 32,502 | 36,892 | 94,626 | 110,658 | |||||||||||||||||||
| Modified NOI from other investment properties | (2,943) | (6,426) | (12,401) | (23,021) | |||||||||||||||||||
| Same-property modified NOI | $ | 29,559 | $ | 30,466 | $ | 82,225 | $ | 87,637 | |||||||||||||||
(a)Adjustments to modified NOI include termination fee income and expense and GAAP rent adjustments (such as straight-line rent, net of write-offs, above/below-market lease amortization, and amortization of lease incentives).
33
Comparison of the components of same-property modified NOI for the three and nine months ended September 30, 2020 and 2019.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Change | Var. | 2020 | 2019 | Change | Var. | ||||||||||||||||||||||||||||||||||||||||
| Lease income, net | $ | 42,890 | $ | 43,737 | $ | (847) | (1.9) | % | $ | 118,767 | $ | 125,747 | $ | (6,980) | (5.6) | % | |||||||||||||||||||||||||||||||
| Other property income | 171 | 212 | (41) | (19.3) | % | 519 | 894 | (375) | (41.9) | % | |||||||||||||||||||||||||||||||||||||
| 43,061 | 43,949 | (888) | (2.0) | % | 119,286 | 126,641 | (7,355) | (5.8) | % | ||||||||||||||||||||||||||||||||||||||
| Property operating expenses | 6,043 | 6,493 | (450) | (6.9) | % | 16,723 | 17,966 | (1,243) | (6.9) | % | |||||||||||||||||||||||||||||||||||||
| Real estate taxes | 7,459 | 6,990 | 469 | 6.7 | % | 20,338 | 21,038 | (700) | (3.3) | % | |||||||||||||||||||||||||||||||||||||
| 13,502 | 13,483 | 19 | 0.1 | % | 37,061 | 39,004 | (1,943) | (5.0) | % | ||||||||||||||||||||||||||||||||||||||
| Same-property Modified NOI | $ | 29,559 | $ | 30,466 | $ | (907) | (3.0) | % | $ | 82,225 | $ | 87,637 | $ | (5,412) | (6.2) | % | |||||||||||||||||||||||||||||||
Same-property Modified NOI decreased by $0.9 million, or 3.0%, when comparing the three months ended September 30, 2020 to the same period in 2019, and was primarily a result of:
•an increase in estimated credit losses of $1.1 million,
•a decrease in minimum lease payments of $0.1 million, and
•an increase in real estate taxes of $0.5 million, and was offset by:
•a decrease in property operating expenses of $0.5 million, and
•an increase in recoverable and other property income of $0.3 million.
Same-property Modified NOI decreased by $5.4 million, or 6.2%, when comparing the nine months ended September 30, 2020 to the same period in 2019, and was primarily a result of:
•an increase in estimated credit losses of $6.3 million, and
•a decrease in recoverable and other property income of $1.9 million, and was offset by:
•a decrease in property operating expenses of $1.2 million,
•a decrease in real estate taxes of $0.7 million, and
•an increase in minimum lease payments of $0.9 million.
These fluctuations in Same-property Modified NOI were, in our judgment, attributable to the impact of the COVID-19 pandemic, primarily those related to estimated credit losses.
34
Funds From Operations
The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a widely accepted non-GAAP financial measure of operating performance known as Funds From Operations ("FFO"). Our FFO, based on the NAREIT definition, is net income (or loss) in accordance with GAAP, excluding gains (or losses) resulting from dispositions of properties, plus depreciation and amortization and impairment charges on depreciable real property. Adjustments for unconsolidated joint ventures are calculated to reflect our proportionate share of the joint venture's funds from operations on the same basis.
In calculating FFO, impairment charges of depreciable real estate assets are added back even though the impairment charge may represent a permanent decline in value due to the decreased operating performance of the applicable property. Furthermore, because gains and losses from sales of property are excluded from FFO, it is consistent and appropriate that impairments, which are often early recognition of losses on prospective sales of property, also be excluded. If evidence exists that a loss reflected in the investment of an unconsolidated entity is due to the impairment of depreciable real estate assets, our share of these impairments is added back to net income in the determination of FFO.
We believe FFO Applicable to Common Shares and Dilutive Securities, when considered with the financial statements determined in accordance with GAAP, is helpful to investors in understanding our performance because the historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative.
Adjusted Funds From Operations ("AFFO") is an additional supplemental non-GAAP financial measure of our operating performance. In particular, AFFO provides an additional measure to compare the operating performance of different REITs without having to account for certain remaining amortization assumptions within FFO and other unique revenue and expense items which are not pertinent to measuring a particular company’s on-going operating performance. In that regard, we use AFFO as an input to our compensation plan to determine cash bonuses and measure the achievement of certain performance-based equity awards.
Our adjustments to FFO to arrive at AFFO include removing the impact of (i) amortization of debt premiums, discounts, and financing costs, (ii) amortization of above and below-market leases and lease inducements, (iii) depreciation and amortization of corporate assets, (iv) straight-line rent adjustments, (v) gains (or losses) resulting from debt extinguishments (vi) other non-operating revenue and expense items which are not pertinent to measuring on-going operating performance, (vii) adjustments for unconsolidated joint ventures to reflect our share of the ventures' AFFO on the same basis. Our calculation of AFFO Applicable to Common Shares and Dilutive Securities is not reduced by any capital expenditures.
Other REITs may use alternative methodologies for calculating similarly titled measures, which may not be comparable to our definition and calculation of FFO Applicable to Common Shares and Dilutive Securities or AFFO Applicable to Common Shares and Dilutive Securities. Furthermore, FFO and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as alternatives to net income as an indication of our performance. FFO and AFFO should not be considered as alternatives to our cash flows from operating, investing, and financing activities. Nor should FFO and AFFO be considered as measures of liquidity, our ability to make cash distributions, or our ability to service our debt.
Prior to January 1, 2020, we reported a non-GAAP supplemental measure of operating performance, Modified Funds From Operations ("MFFO"). We discontinued the use of MFFO in favor of AFFO as we believe that it is a more meaningful supplemental non-GAAP financial measure of our operating performance than MFFO.
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FFO Applicable to Common Shares and Dilutive Securities and AFFO Applicable to Common Shares and Dilutive Securities is calculated as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net income (loss) | $ | 1,677 | $ | 24,926 | $ | (11,420) | $ | 9,705 | |||||||||||||||
| Depreciation and amortization related to investment properties | 22,165 | 23,524 | 65,726 | 69,412 | |||||||||||||||||||
| Provision for asset impairment | — | 2,359 | 9,002 | 2,359 | |||||||||||||||||||
| Gain on sale of investment properties, net | (424) | (26,781) | (668) | (32,443) | |||||||||||||||||||
| Provision for indemnification claims (a) | — | — | — | 25,500 | |||||||||||||||||||
| Our share of IAGM's depreciation and amortization related to investment properties | 2,110 | 2,571 | 6,872 | 8,594 | |||||||||||||||||||
| Our share of IAGM's provision for asset impairment | — | — | — | 794 | |||||||||||||||||||
| Our share of IAGM's gain on sale of investment properties, net | — | — | — | 307 | |||||||||||||||||||
| FFO Applicable to Common Shares and Dilutive Securities | $ | 25,528 | $ | 26,599 | $ | 69,512 | $ | 84,228 | |||||||||||||||
| Loss on extinguishment of debt | — | 2,092 | 2,543 | 2,901 | |||||||||||||||||||
| Amortization of debt premiums, discounts and financing costs, net | 462 | 435 | 1,388 | 1,279 | |||||||||||||||||||
| Amortization of above and below-market leases and lease inducements, net | (2,915) | (1,629) | (5,763) | (4,546) | |||||||||||||||||||
| Depreciation and amortization related to corporate assets | 5 | 729 | 971 | 2,395 | |||||||||||||||||||
| Straight-line rent adjustment, net | (328) | (1,036) | 1,039 | (2,823) | |||||||||||||||||||
| Non-operating income and expense, net (b) | (242) | 376 | (807) | 234 | |||||||||||||||||||
| Our share of IAGM's loss on extinguishment of debt | — | — | 5 | — | |||||||||||||||||||
| Our share of IAGM's amortization of financing costs | 75 | 77 | 224 | 230 | |||||||||||||||||||
| Our share of IAGM's amortization of above and below-market leases and lease inducements, net | (83) | 60 | 350 | 145 | |||||||||||||||||||
| Our share of IAGM's straight-line rent adjustment, net | 63 | (47) | 430 | (52) | |||||||||||||||||||
| Our share of IAGM's non-operating income and expense, net (b) | (11) | (35) | (9) | (55) | |||||||||||||||||||
| AFFO Applicable to Common Shares and Dilutive Securities | $ | 22,554 | $ | 27,621 | $ | 69,883 | $ | 83,936 | |||||||||||||||
| Weighted average number of common shares outstanding - basic | 718,934,723 | 728,722,763 | 720,198,772 | 728,645,975 | |||||||||||||||||||
| Effect of unvested restricted shares (c) | 633,616 | 733,959 | — | 575,251 | |||||||||||||||||||
| Weighted average number of common shares outstanding - diluted | 719,568,339 | 729,456,722 | 720,198,772 | 729,221,226 | |||||||||||||||||||
| Net income (loss) per common share, diluted | $ | — | $ | 0.03 | $ | (0.02) | $ | 0.02 | |||||||||||||||
| Per share adjustments for FFO Applicable to Common Shares and Dilutive Securities | 0.04 | 0.01 | 0.12 | 0.10 | |||||||||||||||||||
| FFO Applicable to Common Shares and Dilutive Securities per share, diluted | $ | 0.04 | $ | 0.04 | $ | 0.10 | $ | 0.12 | |||||||||||||||
| Per share adjustments for AFFO Applicable to Common Shares and Dilutive Securities | (0.01) | — | — | — | |||||||||||||||||||
| AFFO Applicable to Common Shares and Dilutive Securities per share, diluted | $ | 0.03 | $ | 0.04 | $ | 0.10 | $ | 0.12 | |||||||||||||||
(a)The provision for indemnification claims of $25.5 million recognized during the nine months ended September 30, 2019, was an adjustment to the gain on disposition of our discontinued operation (student housing business). We exclude disposition gains and losses from FFO.
(b)Non-operating income and expense, net, includes other non-operating revenue and expense items which are not pertinent to measuring on-going operating performance, such as termination fee expense, miscellaneous income, and settlement income.
(c)For purposes of calculating non-GAAP per share metrics, the same denominator is used as that which would be used in calculating earnings per share under GAAP. For the nine months ended September 30, 2020, the effects of unvested restricted shares have been excluded from the denominator in the diluted net loss per share calculations under GAAP as they were antidilutive.
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Liquidity and Capital Resources
Development, Re-development, Capital Expenditures and Leasing Activities
The following table summarizes capital resources used through development and re-development, capital expenditures, and leasing activities at our retail properties owned during the nine months ended September 30, 2020. These costs are classified as cash used in capital expenditures and tenant improvements on the condensed consolidated statement of cash flows for the nine months ended September 30, 2020.
| Development and Re-development | Capital Expenditures | Leasing | Total | ||||||||||||||||||||
| Direct costs | $ | 1,139 | (a) | $ | 1,946 | $ | 5,343 | (c) | $ | 8,428 | |||||||||||||
| Indirect costs | 597 | (b) | 1,436 | — | 2,033 | ||||||||||||||||||
| Total | $ | 1,736 | $ | 3,382 | $ | 5,343 | $ | 10,461 | |||||||||||||||
(a)Direct development and re-development costs relate to construction of buildings at our retail properties.
(b)Indirect development and re-development costs relate to capitalized interest, real estate taxes, insurance, and payroll attributed to improvements at our retail properties.
(c)Direct leasing costs relate to improvements to a tenant space that are either paid directly by or reimbursed to the tenants.
Short-term Liquidity and Capital Resources
On a short-term basis, our principal demands for funds are to pay our operating, corporate, and transaction readiness expenses, as well as property capital expenditures, to make distributions to our stockholders, and to pay interest and principal on our indebtedness.
At this time, we do not expect the COVID-19 pandemic to impact our ability to meet our short-term liquidity requirements. However, our ability to maintain adequate liquidity for our operations in the future is dependent upon a number of factors, including our revenue, macroeconomic conditions, the length and severity of business disruptions caused by the COVID-19 pandemic, our ability to contain costs, including capital expenditures, and to collect rents and other receivables, and various other factors, many of which are beyond our control. We will continue to monitor our liquidity position and may seek to raise funds through debt or equity financing in the future to fund operations, significant investments or acquisitions that are consistent with our strategy. Our ability to raise these funds may be diminished by the impact of the COVID-19 pandemic on the capital markets.
Long-term Liquidity and Capital Resources
Our objectives are to maximize revenue generated by our multi-tenant retail platform, to further enhance the value of our retail properties to produce attractive current yield and long-term returns for our stockholders, and to generate sustainable and predictable cash flow from our operations to distribute to our stockholders.
In November 2019, our Board approved an increase to our annual distribution rate effective for the quarterly distribution paid in April 2020. The Board will continue to evaluate our distribution rate and, if it deems appropriate, adjust the distribution to take into account the ongoing effects of the COVID-19 pandemic and our operating and capital needs.
Our primary sources and uses of capital are as follows:
Sources
•Operating cash flows from our real estate investments, which consists of our retail properties;
•Distributions from our joint venture investment;
•Proceeds from sales of properties;
•Proceeds from mortgage loan borrowings on properties;
•Proceeds from corporate borrowings; and
•Proceeds from interest earned on cash and cash equivalents.
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Uses
•To pay our operating expenses;
•To make distributions to our stockholders;
•To service or pay down our debt;
•To fund development, re-development, maintenance and capital expenditures or leasing investments; and
•To fund other general corporate uses.
We may, from time to time, seek to retire or purchase additional amounts of our outstanding equity through cash purchases or exchanges for other securities. Such purchases or exchanges, if any, will depend on our liquidity requirements, contractual restrictions, and other factors.
Distributions
During the nine months ended September 30, 2020, we declared distributions to our stockholders totaling $41.0 million and paid cash distributions of $40.6 million. As we execute on our retail strategy and evaluate the impact of the COVID-19 pandemic on our business, results of operations and cash flows, the Board will continue to evaluate our distribution on a periodic basis. See "Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Current Strategy and Outlook" for more information regarding our retail strategy.
Suspension of SRP and DRP
As disclosed in our Annual Report, on November 1, 2019, we adopted the SRP, authorizing redemption of the Company's shares of common stock, subject to certain conditions and limitations, to provide limited liquidity to qualifying stockholders. During the nine months ended September 30, 2020, 2,136,119 shares were repurchased in connection with the SRP. The price per share for all shares repurchased was $2.355.
As disclosed in our Annual Report, on November 1, 2019, we began offering shares of our common stock to our existing stockholders pursuant to the DRP. During the nine months ended September 30, 2020, we sold a total of 79,040 shares in connection with the DRP.
On June 11, 2020, we announced that our Board voted to suspend the SRP and the DRP until further notice. Pursuant to the terms of the SRP and DRP, the suspensions went into effect on July 11, 2020. Beginning with the distributions previously authorized by the Board for the month of June 2020, which were paid in July 2020, any stockholder receiving their quarterly distribution through the DRP received a check or distribution statement showing their quarterly distribution.
Summary of Cash Flows
| Nine months ended September 30, | Change | ||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Cash provided by operating activities | $ | 69,906 | $ | 86,189 | $ | (16,283) | |||||||||||
| Cash used in investing activities | (36,488) | (199,652) | 163,164 | ||||||||||||||
| Cash provided by (used in) financing activities | 33,079 | (32,573) | 65,652 | ||||||||||||||
| Increase (decrease) in cash, cash equivalents, and restricted cash | 66,497 | (146,036) | 212,533 | ||||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 260,748 | 264,853 | (4,105) | ||||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 327,245 | $ | 118,817 | $ | 208,428 | |||||||||||
Cash provided by operating activities of $69.9 million and $86.2 million for the nine months ended September 30, 2020 and 2019, respectively, was generated primarily from income from property operations and operating distributions from unconsolidated entities. Cash provided by operating activities decreased $16.3 million when comparing the nine months ended September 30, 2020, to the same period in 2019 primarily as a result of reduced lease income partially offset by reduced operating expenses, both principally due to the impact of the COVID-19 pandemic and the disposition of 11 retail properties since January 1, 2019, which was partially offset by the acquisition of nine retail properties since January 1, 2019.
Cash used in investing activities of $36.5 million for the nine months ended September 30, 2020, was primarily the result of:
•$32.4 million for acquisitions of investment properties,
•$8.6 million for capital expenditures and tenant improvements,
•$1.8 million for investment in development projects, and
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•$0.4 million for lease commissions and other leasing costs, which was partially offset by cash provided of
•$0.9 million for cash inflows from other investing activities, and
•$5.8 million from net proceeds received from the sale of investment properties.
Cash used in investing activities of $199.7 million for the nine months ended September 30, 2019, was primarily the result of:
•$359.1 million for acquisitions of investment properties,
•$14.9 million for capital expenditures and tenant improvements,
•$5.7 million for investment in development projects,
•$3.9 million for lease commissions and other leasing costs, and
•$30.0 million to settle the UHC claims as described in "Note 11. Commitments and Contingencies" of the condensed consolidated financial statements, which was partially offset by cash provided of
•$183.6 million from net proceeds received from the sale of investment properties,
•$30.0 million received from the sale of an unconsolidated entity, and
•$0.3 million for cash inflows from other investing activities.
Cash provided by financing activities of $33.1 million for the nine months ended September 30, 2020, was primarily the result of:
•$150.0 million of proceeds received from our unsecured revolving credit agreement, partially offset by cash used in
•$67.3 million for pay-offs of debt,
•$40.6 million to pay distributions,
•$5.2 million for the common shares repurchased through share repurchase program,
•$2.5 million for debt prepayment penalties, and
•$1.3 million for principal payments of mortgage debt, payment of finance lease liabilities, and payment of loan fees and other deposits.
Cash used in financing activities of $32.6 million for the nine months ended September 30, 2019, was primarily the result of:
•$39.8 million to pay distributions,
•$106.0 million for pay-offs of debt,
•$2.7 million for debt prepayment penalties,
•$1.4 million for principal payments of mortgage debt, and
•$0.7 million for payment of finance lease liabilities, payment of loan fees and other deposits, which was partially offset by cash provided of
•$118.0 million of proceeds from debt.
We consider all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements with a maturity of three months or less, at the date of purchase, to be cash equivalents. We maintain our cash and cash equivalents at major financial institutions. The combined account balances at one or more institutions generally exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage. We periodically assess the credit risk associated with these financial institutions. As a result, there is what we believe to be insignificant credit risk related to amounts on deposit in excess of FDIC insurance coverage.
Off Balance Sheet Arrangements
We do not have off balance sheet arrangements other than our joint venture, IAGM, as disclosed in "Part I. Item 1. Financial Statements - Note 6. Investment in Unconsolidated Entities."
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Contractual Obligations
We have obligations related to our mortgage loans, term loan, and revolving credit facility as described in "Note 7. Debt" in the condensed consolidated financial statements. The unconsolidated entity in which we have an investment has third-party mortgage debt of $244.0 million as of September 30, 2020, as described in "Note 6. Investment in Unconsolidated Entities" in the condensed consolidated financial statements. It is anticipated that our unconsolidated entity will be able to repay or refinance all of its debt on a timely basis.
The following table presents, on a consolidated basis, obligations and commitments to make future payments under debt obligations and lease agreements. It excludes third-party debt associated with our unconsolidated entity and debt discounts that are not future cash obligations as of September 30, 2020.
| Payments due by year ending December 31, | |||||||||||||||||||||||||||||||||||||||||
| 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
| Long-term debt: | |||||||||||||||||||||||||||||||||||||||||
| Fixed rate debt, principal (a) | $ | — | $ | — | $ | 22,939 | $ | 240,311 | $ | 115,700 | $ | 28,630 | $ | 407,580 | |||||||||||||||||||||||||||
| Variable-rate debt, principal | — | — | 150,000 | 50,000 | 50,000 | — | 250,000 | ||||||||||||||||||||||||||||||||||
| Interest | 3,979 | 15,712 | 14,972 | 11,304 | 3,045 | 744 | 49,756 | ||||||||||||||||||||||||||||||||||
| Total long-term debt | 3,979 | 15,712 | 187,911 | 301,615 | 168,745 | 29,374 | 707,336 | ||||||||||||||||||||||||||||||||||
| Operating lease obligations (b) | 149 | 547 | 522 | 536 | 550 | 53 | 2,357 | ||||||||||||||||||||||||||||||||||
| Finance lease obligations (c) | 131 | 408 | 279 | 21 | — | — | 839 | ||||||||||||||||||||||||||||||||||
| Grand total | $ | 4,259 | $ | 16,667 | $ | 188,712 | $ | 302,172 | $ | 169,295 | $ | 29,427 | $ | 710,532 | |||||||||||||||||||||||||||
(a)Includes $300.0 million of variable-rate unsecured term loans that have been swapped to a fixed rate.
(b)Includes leases on corporate office spaces.
(c)Includes contracts for property improvements that have been deemed to contain finance leases.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risk associated with changes in interest rates both in terms of variable-rate debt and the price of new fixed-rate debt upon maturity of existing debt and for acquisitions.
Interest Rate Risk
Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. As of September 30, 2020, our debt included outstanding variable-rate term loans of $400.0 million, of which $300.0 million has been swapped to a fixed rate, and a variable-rate draw on our revolving credit facility of $150.0 million. If market rates of interest on all variable-rate debt as of September 30, 2020 permanently increased and decreased by 1%, the annual increase and decrease in interest expense on the variable-rate debt and future earnings and cash flows would be approximately $2.5 million.
With regard to our variable-rate financing, we assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both outstanding or forecasted debt obligations as well as our potential offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows. We continue to assess retaining cash flows that may assist us in maintaining a flexible low debt balance sheet and managing the impact of upcoming debt maturities.
We monitor interest rate risk using a variety of techniques, including periodically evaluating fixed interest rate quotes on all variable-rate debt and the costs associated with converting the debt to fixed-rate debt. Refer to our Borrowings table in Item 2 of this Quarterly Report for debt principal amounts and expected maturities by year to evaluate the expected cash flows and sensitivity to interest rate changes.
We may use financial instruments to hedge exposures to changes in interest rates on loans. To the extent we do, we are exposed to credit risk and market risk. Credit risk is the risk of failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates a credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not pose credit risk. We seek to minimize the credit risk in derivative instruments by entering into transactions with what we believe are high-quality counterparties. Market risk is the adverse effect on the value of a financial instrument resulting from a change in interest rates.
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In July 2017, the Financial Conduct Authority ("FCA"), which regulates LIBOR, announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee ("AARC") has proposed that the Secured Overnight Financing Rate ("SOFR") is the rate that best represents the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. The ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as they relate to derivatives and cash markets exposed to USD-LIBOR. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change.
Our unsecured line of credit, term loan, and interest rate swaps are indexed to USD-LIBOR. However, as our amended and restated line of credit and term loan agreements and interest rate swap agreements have provisions that allow for a transition to a new alternative rate, we believe that the transition from USD-LIBOR to SOFR will not have a material impact on our condensed consolidated financial statements.
The following table summarizes our four effective interest rate swaps as of September 30, 2020:
| Interest Rate Swap | Effective Date | Termination Date | Bank Pays Variable Rate of | InvenTrust Pays Fixed Rate of | Notional Amount | Fair Value as of | ||||||||||||||||||||||||||||||||||||||
| September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||
| 5 year, fixed portion | Dec 2, 2019 | Dec 21, 2023 | 1-Month LIBOR | 1.4795% | $ | 100,000 | $ | (4,269) | $ | 341 | ||||||||||||||||||||||||||||||||||
| 5 year, fixed portion | Dec 2, 2019 | Dec 21, 2023 | 1-Month LIBOR | 1.4795% | 100,000 | (4,268) | 199 | |||||||||||||||||||||||||||||||||||||
| 5.5 year, fixed portion | Dec 2, 2019 | June 21, 2024 | 1-Month LIBOR | 1.4915% | 50,000 | (2,450) | 342 | |||||||||||||||||||||||||||||||||||||
| 5.5 year, fixed portion | Dec 2, 2019 | June 21, 2024 | 1-Month LIBOR | 1.4990% | 50,000 | (2,464) | 175 | |||||||||||||||||||||||||||||||||||||
| Total fixed of unsecured term loan | $ | 300,000 | $ | (13,451) | $ | 1,057 | ||||||||||||||||||||||||||||||||||||||
The gains or losses resulting from marking-to-market our derivatives each reporting period are recognized as an increase or decrease in comprehensive income on our condensed consolidated statements of operations and comprehensive income (loss).
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act, our management, including our Principal Executive Officer and our Principal Financial Officer, evaluated as of September 30, 2020, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our Principal Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures, as of September 30, 2020, were effective for the purpose of ensuring that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Principal Executive Officer and our Principal Financial Officer as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
We are subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, we believe, based on currently available information, that the final outcome of such matters will not have a material adverse effect on our financial condition, results of operations, or liquidity.
Item 1A. Risk Factors
The COVID-19 pandemic, and the future outbreak of other highly infectious or contagious diseases, is expected to continue to materially and adversely impact and disrupt our business, financial condition, results of operations and cash flows.
The COVID-19 pandemic has impacted our business and financial performance, and we expect this impact to continue. The states in which our retail properties are located are in varying stages of restrictions and re-opening in response to the COVID-19 pandemic. Certain jurisdictions had begun re-opening only to return to restrictions in the face of increases in new COVID-19 cases. As of the filing of this report, cases of COVID-19 continue to increase across much of the country, including a number of our core markets, prompting additional government restrictions and, in some cases, mandated business closures. We are unable to predict whether cases of COVID-19 in these markets or other areas in which we operate will decrease, increase, or remain the same, and whether local governments will mandate closures of our tenants' businesses or implement other restrictive measures on their operations. Many of our tenants have already been adversely affected by the COVID-19 pandemic and actions taken to contain or prevent its spread. A substantial number of tenants have temporarily closed their businesses, shortened their operating hours or are offering reduced services. As a result, the Company has observed a substantial increase in the number of tenants that have made late or partial rent payments, requested a deferral of rent payments, or defaulted on rent payments, and it is likely that more of our tenants will be similarly impacted in the future. Additionally, certain tenants have declared bankruptcy as a result of the effects of the pandemic.
The global spread and unprecedented impact of COVID-19 has created significant volatility, uncertainty and economic disruption. The extent to which the COVID-19 pandemic continues to impact our business, operations, and financial results is highly uncertain and will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration, scope, severity and any resurgences of the pandemic; the impact on worldwide macroeconomic conditions, including interest rates, employment rate, and consumer confidence; governmental, business, and individuals' actions that have been, and continue to be, taken in response to the pandemic (which could include limitations on our and our tenants' operations); the effect on consumer confidence and spending; the effects of temporary or permanent closures of our tenant's businesses, tenant bankruptcies, and early terminations by our tenants of their leases; the ability of our tenants to pay rent; the impact of travel restrictions and people working from home; the health of, and the effect on, our workforce; and the potential effects on our internal controls, including those over financial reporting, as a result of changes in working environments for our employees and business partners.
The COVID-19 pandemic, including any resurgences, or a future pandemic, could also have material and adverse effects on our financial condition, results of operations, cash flows and share value due to, among other factors:
•continuing or additional closures of, or other operational issues at, our properties resulting from government or tenant action;
•reduced economic activity impacting our tenants' ability to meet their rental and other obligations to us in full or at all;
•the ability of our tenants who have been granted rent deferrals to timely pay deferred rent;
•any inability to renew leases or lease vacant space on favorable terms, or at all;
•a potentially prolonged recession and high unemployment negatively impacting consumer discretionary spending;
•continued changes in consumer behavior in favor of e-commerce;
•tenant bankruptcies;
•liquidity issues resulting from reduced cash flows from operations;
•negative impacts to the credit and/or capital markets making it difficult to access capital on favorable terms or at all;
•impairment in value of our tangible or intangible assets;
•a general decline in business activity and demand for real estate transactions adversely affecting our ability to grow our portfolio of properties and service our indebtedness;
•supply chain disruptions adversely affecting our tenants' operations; and
•impacts on the health of our personnel and a disruption in the continuity of our business.
The impact of COVID-19 may also heighten other risks discussed in our Annual Report on Form 10-K, which could adversely affect our business, financial condition, results of operations, cash flows and estimated share value.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| Exhibit No. | Description | |||||||
| Master Modification Agreement, dated as of March 12, 2014, by and among Inland American Real Estate Trust, Inc., Inland American Business Manager & Advisor, Inc., Inland American Lodging Corporation, Inland American Holdco Management LLC, Inland American Retail Management LLC, Inland American Office Management LLC, Inland American Industrial Management LLC and Eagle I Financial Corp. (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on March 13, 2014) | ||||||||
| Asset Acquisition Agreement, dated as of March 12, 2014, by and among Inland American Real Estate Trust, Inc., Inland American Holdco Management LLC, Inland American Retail Management LLC, Inland American Office Management LLC, Inland American Industrial Management LLC and Eagle I Financial Corp. (incorporated by reference to Exhibit 2.2 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on March 13, 2014) | ||||||||
| Separation and Distribution Agreement by and between Inland American Real Estate Trust, Inc. and Xenia Hotels & Resorts, Inc., dated as of January 20, 2015 (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on January 23, 2015) | ||||||||
| Separation and Distribution Agreement by and between InvenTrust Properties Corp. and Highlands REIT, Inc., dated as of April 14, 2016 (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on April 14, 2016) | ||||||||
| Stock Purchase Agreement by and among InvenTrust Properties Corp., University House Communities Group, Inc. and UHC Acquisition Sub LLC, dated as of January 3, 2016 (incorporated by reference to Exhibit 2.1 to the Registrant's Form 10-Q, as filed by the Registrant on May 10, 2016) | ||||||||
| Amendment No. 1 to Stock Purchase Agreement, dated as of May 30, 2016, by and among InvenTrust Properties Corp., University House Communities Group, Inc. and UHC Acquisition Sub LLC (incorporated by reference to Exhibit 2.2 to the Registrant's Form 8-K, as filed by the Registrant on June 27, 2016) | ||||||||
| Amendment No. 2 to Stock Purchase Agreement, dated as of June 20, 2016, by and among InvenTrust Properties Corp., University House Communities Group, Inc. and UHC Acquisition Sub LLC (incorporated by reference to Exhibit 2.3 to the Registrant's Form 8-K, as filed by the Registrant on June 27, 2016) | ||||||||
| Seventh Articles of Amendment and Restatement of InvenTrust Properties Corp., as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q, as filed by the Registrant with the SEC on May 14, 2015) | ||||||||
| Second Amended and Restated Bylaws of the Company, dated as of November 9, 2017 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, as filed by the Registrant on November 9, 2017) | ||||||||
| Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||
| 101 | The following financial information from our Quarterly Report on Form 10-Q for the period ended September 30, 2020, filed with the SEC on November 6, 2020, is formatted in Extensible Business Reporting Language ("XBRL"): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) Condensed Consolidated Statements of Equity, (iv) Condensed Consolidated Statements of Cash Flows (v) Notes to Condensed Consolidated Financial Statements (tagged as blocks of text). | |||||||
| * Filed as part of this Quarterly Report on Form 10-Q | ||||||||
43
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
InvenTrust Properties Corp.
| Date: | November 6, 2020 | ||||
| By: | /s/ Thomas P. McGuinness | ||||
| Name: | Thomas P. McGuinness | ||||
| Title: | President and Chief Executive Officer (Principal Executive Officer) | ||||
| Date: | November 6, 2020 | ||||
| By: | /s/ Daniel J. Busch | ||||
| Name: | Daniel J. Busch | ||||
| Title: | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||
44
Exhibit 31.1
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Thomas P. McGuinness, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of InvenTrust Properties Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | November 6, 2020 | ||||
| By: | /s/ Thomas P. McGuinness | ||||
| Name: | Thomas P. McGuinness | ||||
| Title: | President and Chief Executive Officer (Principal Executive Officer) | ||||
Exhibit 31.2
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Daniel J. Busch, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of InvenTrust Properties Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | November 6, 2020 | ||||
| By: | /s/ Daniel J. Busch | ||||
| Name: | Daniel J. Busch | ||||
| Title: | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||
Exhibit 32.1
Certification of Principal Executive Officer
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 InvenTrust Properties Corp. (the "Company") for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned 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 such officer’s knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | November 6, 2020 | ||||
| By: | /s/ Thomas P. McGuinness | ||||
| Name: | Thomas P. McGuinness | ||||
| Title: | President and Chief Executive Officer (Principal Executive Officer) | ||||
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.
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as a part of the Report or on a separate disclosure document.
Exhibit 32.2
Certification of Principal Financial Officer
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 InvenTrust Properties Corp. (the "Company") for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned 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 such officer’s knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | November 6, 2020 | ||||
| By: | /s/ Daniel J. Busch | ||||
| Name: | Daniel J. Busch | ||||
| Title: | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||
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.
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as a part of the Report or on a separate disclosure document.