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☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
June 30,
2025
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER:
000-55146
Inland Real Estate Income Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland
45-3079597
(
State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2901 Butterfield Road
,
Oak Brook
,
Illinois
60523
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code:
630
-
218-8000
Former name, former address and former fiscal year, if changed since last report: Not Applicable
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
None
None
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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
☐
Non-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.
☐
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 August 11, 2025, there were
36,117,282
shares of the registrant’s common stock, $.001 par value, outstanding.
Common stock, $
.001
par value,
1,460,000,000
shares authorized,
36,104,130
shares
issued and outstanding as of June 30, 2025 and December 31, 2024
36
36
Additional paid in capital
816,217
816,149
Accumulated distributions and net loss
(
481,980
)
(
467,427
)
Accumulated other comprehensive income
11,978
20,678
Total stockholders’ equity
346,251
369,436
Total liabilities and stockholders’ equity
$
1,265,870
$
1,294,825
See accompanying notes to consolidated financial statements.
3
INLAND REAL ESTATE INCOME TRUST, INC.
C
ONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, dollar amounts in thousands, except per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2025
2024
2025
2024
Income:
Rental income
$
38,038
$
37,438
$
76,794
$
74,787
Other property income
87
62
136
180
Total income
38,125
37,500
76,930
74,967
Expenses:
Property operating expenses
8,026
7,420
16,610
14,736
Real estate tax expense
4,604
4,710
9,108
9,493
General and administrative expenses
1,397
1,434
3,321
2,978
Business management fee
2,245
2,231
4,487
4,486
Depreciation and amortization
14,272
14,594
28,737
29,153
Total expenses
30,544
30,389
62,263
60,846
Other Income (Expense):
Interest expense
(
9,792
)
(
10,386
)
(
19,519
)
(
20,816
)
Interest and other income
55
72
95
154
Net loss
$
(
2,156
)
$
(
3,203
)
$
(
4,757
)
$
(
6,541
)
Net loss per common share, basic and diluted
$
(
0.06
)
$
(
0.09
)
$
(
0.13
)
$
(
0.18
)
Weighted average number of common shares outstanding, basic and diluted
36,104,130
36,130,886
36,104,130
36,141,292
Comprehensive loss:
Net loss
$
(
2,156
)
$
(
3,203
)
$
(
4,757
)
$
(
6,541
)
Unrealized (loss) gain on derivatives
(
372
)
3,187
(
2,869
)
13,253
Reclassification adjustment for amounts included in net loss
(
2,931
)
(
4,322
)
(
5,831
)
(
8,659
)
Comprehensive loss
$
(
5,459
)
$
(
4,338
)
$
(
13,457
)
$
(
1,947
)
See accompanying notes to consolidated financial statements.
4
INLAND REAL ESTATE INCOME TRUST, INC.
C
ONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, dollar amounts in thousands, except per share amounts)
For the Three Months Ended June 30, 2025
Number
of
Shares
Common
Stock
Additional
Paid in
Capital
Accumulated
Distributions
and
Net Loss
Accumulated
Other
Comprehensive
Income
Total
Balance at March 31, 2025
36,104,130
$
36
$
816,183
$
(
474,926
)
$
15,281
$
356,574
Distributions declared ($
0.135600
per share)
—
—
—
(
4,898
)
—
(
4,898
)
Unrealized loss on derivatives
—
—
—
—
(
372
)
(
372
)
Reclassification adjustment for amounts
included in net loss
—
—
—
—
(
2,931
)
(
2,931
)
Equity-based compensation
—
—
34
—
—
34
Net loss
—
—
—
(
2,156
)
—
(
2,156
)
Balance at June 30, 2025
36,104,130
$
36
$
816,217
$
(
481,980
)
$
11,978
$
346,251
For the Three Months Ended June 30, 2024
Number
of
Shares
Common
Stock
Additional
Paid in
Capital
Accumulated
Distributions
and
Net Loss
Accumulated
Other
Comprehensive
Income
Total
Balance at March 31, 2024
36,142,573
$
36
$
816,071
$
(
441,094
)
$
30,855
$
405,868
Distributions declared ($
0.135600
per share)
—
—
—
(
4,899
)
—
(
4,899
)
Proceeds from distribution reinvestment plan
86,992
—
1,668
—
—
1,668
Shares repurchased
(
108,712
)
—
(
1,668
)
—
—
(
1,668
)
Unrealized gain on derivatives
—
—
—
—
3,187
3,187
Reclassification adjustment for amounts
included in net loss
—
—
—
—
(
4,322
)
(
4,322
)
Equity-based compensation
—
—
23
—
—
23
Net loss
—
—
—
(
3,203
)
—
(
3,203
)
Balance at June 30, 2024
36,120,853
$
36
$
816,094
$
(
449,196
)
$
29,720
$
396,654
See accompanying notes to consolidated financial statements.
5
I
NLAND REAL ESTATE INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, dollar amounts in thousands, except per share amounts)
For the Six Months Ended June 30, 2025
Number
of
Shares
Common
Stock
Additional
Paid in
Capital
Accumulated
Distributions
and
Net Loss
Accumulated
Other
Comprehensive
Income
Total
Balance at December 31, 2024
36,104,130
$
36
$
816,149
$
(
467,427
)
$
20,678
$
369,436
Distributions declared ($
0.271200
per share)
—
—
—
(
9,796
)
—
(
9,796
)
Unrealized loss on derivatives
—
—
—
—
(
2,869
)
(
2,869
)
Reclassification adjustment for amounts
included in net loss
—
—
—
—
(
5,831
)
(
5,831
)
Equity-based compensation
—
—
68
—
68
Net loss
—
—
—
(
4,757
)
—
(
4,757
)
Balance at June 30, 2025
36,104,130
$
36
$
816,217
$
(
481,980
)
$
11,978
$
346,251
For the Six Months Ended June 30, 2024
Number
of
Shares
Common
Stock
Additional
Paid in
Capital
Accumulated
Distributions
and
Net Loss
Accumulated
Other
Comprehensive
Income
Total
Balance at December 31, 2023
36,163,852
$
36
$
816,047
$
(
432,854
)
$
25,126
$
408,355
Distributions declared ($
0.271200
per share)
—
—
—
(
9,801
)
—
(
9,801
)
Proceeds from distribution reinvestment plan
172,165
—
3,359
—
—
3,359
Shares repurchased
(
215,164
)
—
(
3,359
)
—
—
(
3,359
)
Unrealized gain on derivatives
—
—
—
—
13,253
13,253
Reclassification adjustment for amounts
included in net loss
—
—
—
—
(
8,659
)
(
8,659
)
Equity-based compensation
—
—
47
—
—
47
Net loss
—
—
—
(
6,541
)
—
(
6,541
)
Balance at June 30, 2024
36,120,853
$
36
$
816,094
$
(
449,196
)
$
29,720
$
396,654
See accompanying notes to consolidated financial statements.
6
INLAND REAL ESTATE INCOME TRUST, INC.
C
ONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollar amounts in thousands)
Six Months Ended
June 30,
2025
2024
Cash flows from operating activities:
Net loss
$
(
4,757
)
$
(
6,541
)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
28,737
29,153
Amortization of debt issuance costs
598
598
Amortization of acquired market leases, net
(
233
)
9
Amortization of equity-based compensation
68
47
Reduction in the carrying amount of the right-of-use-asset
186
195
Straight-line income, net
(
1,022
)
(
743
)
Other non-cash adjustments
97
94
Changes in assets and liabilities:
Accounts payable and accrued expenses
1,754
2,082
Accounts and rent receivable
1,078
2,405
Other assets
(
46
)
242
Due to related parties
104
(
7
)
Operating lease liability
153
145
Other liabilities
(
119
)
(
1,912
)
Net cash flows provided by operating activities
26,598
25,767
Cash flows from investing activities:
Capital expenditures
(
8,079
)
(
7,061
)
Net cash flows used in investing activities
(
8,079
)
(
7,061
)
Cash flows from financing activities:
Payment of credit facility
(
7,000
)
(
6,000
)
Proceeds from credit facility
4,000
2,000
Payment of mortgages payable
(
176
)
(
168
)
Proceeds from the distribution reinvestment plan
—
3,359
Shares repurchased
—
(
3,359
)
Distributions paid
(
9,796
)
(
9,807
)
Net cash flows used in financing activities
(
12,972
)
(
13,975
)
Net increase in cash, cash equivalents and restricted cash
5,547
4,731
Cash, cash equivalents and restricted cash, at beginning of the period
6,896
6,454
Cash, cash equivalents and restricted cash, at end of period
$
12,443
$
11,185
Supplemental disclosure of cash flow information:
Cash paid for interest
$
19,353
$
20,829
Supplemental schedule of non-cash investing and financing activities:
Accrued capital expenditures
$
1,483
$
1,087
See accompanying notes to consolidated financial statements.
7
INLAND REAL ESTATE INCOME TRUST, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2025
(Unaudited, dollar amounts in thousands, except per share amounts)
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report on Form 10-Q should refer to the audited consolidated financial statements of Inland Real Estate Income Trust, Inc. (which may be referred to herein as the “Company,” “we,” “us,” or “our”) for the year ended December 31, 2024, which are included in the Company’s 2024 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 5, 2025, as certain footnote disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report on Form 10-Q.
NOTE 1 – ORGANIZATION
The Company was formed on August 24, 2011 to acquire and manage a portfolio of commercial real estate investments located in the United States. The Company’s strategic plan, implemented with a view toward creating a liquidity event for stockholders, has recently focused primarily on acquiring and owning a portfolio substantially all of which is comprised of grocery-anchored properties. As of June 30, 2025, the Company owned
52
retail properties, totaling
7.2
million
square feet. The properties are located in
24
states. A majority of the Company’s properties are multi-tenant, necessity-based retail shopping centers located primarily in major regional markets and growing secondary markets throughout the United States. As of June 30, 2025, the Company’s portfolio had physical and economic occupancy of
91.6
%
and
91.9
%
, respectively.
The Company has no employees. The Company is managed by IREIT Business Manager & Advisor, Inc. (the “Business Manager”), an indirect wholly owned subsidiary of Inland Real Estate Investment Corporation (the “Sponsor”). Various affiliates of the Sponsor provide services to the Company through the Business Manager, which is responsible for overseeing and managing the Company’s day-to-day operations. The Company’s president and chief executive officer, Mark Zalatoris, serves in these capacities pursuant to an agreement the Company entered into with Mr. Zalatoris referred to herein as the “CEO Agreement.” Under the CEO Agreement, the Company compensates Mr. Zalatoris directly for his services. The Company’s relationship with the Business Manager is governed by the Amended and Restated Fourth Business Management Agreement (the “Fourth Business Management Agreement”) that the Company has entered into with the Business Manager. Under the Fourth Business Management Agreement, the Company pays the Business Manager a fee for the services it provides to the Company and reimburses the Business Manager for certain expenses that the Business Manager incurs on the Company’s behalf. The fee payable to the Business Manager is reduced, however, by any payments made to Mr. Zalatoris under the CEO Agreement. Mr. Zalatoris is not an employee of the Company and is not an officer or director of the Business Manager but has the authority under the CEO Agreement and the Fourth Business Management Agreement to direct the day-to-day operations of the Business Manager. The Company’s properties are managed by Inland Commercial Real Estate Services LLC (the “Real Estate Manager”), an indirect wholly owned subsidiary of the Sponsor.
On September 18, 2024, the Company announced that its board of directors had decided to begin a review of strategic alternatives, including sale of the Company. As of the date of the filing of this Quarterly Report, the board’s review of strategic alternatives is continuing and there is no set timeline for completing the review. The outcome of this review and any potential transaction or event that may result from the review will depend on several factors, many of which will be beyond the Company’s control. The board may conclude that it is in the Company’s best interest not to seek a transaction or event creating liquidity for stockholders.
On September 18, 2024, in connection with the process to review strategic alternatives, including the sale of the Company, the board of directors of the Company suspended both the distribution reinvestment plan (as amended, the “DRP”) and the share repurchase program (as amended, the “SRP”), effective as of October 1, 2024.
There is no established trading market for the Company’s common stock.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Disclosures discussing all significant accounting policies are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission on March 5, 2025, under the heading Note 2 – “Summary of Significant Accounting Policies.” There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2025, except as noted below.
8
General
The consolidated financial statements have been prepared in accordance with GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In the opinion of management, all adjustments necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods are presented. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.
Restricted Cash
Amounts included in restricted cash represent those required to be set aside by lenders for real estate taxes, insurance, capital expenditures and tenant improvements on the Company's existing properties. These amounts also include post close escrows for tenant improvements, leasing commissions, master lease, general repairs and maintenance, and are classified as restricted cash on the Company’s consolidated balance sheets.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Company’s consolidated balance sheets to such amounts shown on the Company’s consolidated statements of cash flows:
June 30,
2025
2024
Cash and cash equivalents
$
11,963
$
10,706
Restricted cash
480
479
Total cash, cash equivalents, and restricted cash
$
12,443
$
11,185
Recently Adopted Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. ASU 2023-07 is effective for fiscal years that began after December 15, 2023 and interim periods within fiscal years that began after December 15, 2024. Early adoption was permitted. The amendments should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Company has adopted ASU 2023-07 and updated its disclosures pertaining to having a single reportable segment. See
Note 11 – “Segment Reporting”
for further information. The adoption did not have any impact on the Company’s financial position, results of operations, or cash flows.
Accounting Pronouncements Recently Issued but Not Yet Effective
In December 2023, the FASB issued ASU 2023-09,
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
. ASU 2023-09 improves the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-09 is effective for annual periods that began after December 15, 2024. The amendments should be applied prospectively, however retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on the Company’s 2025 annual consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03,
Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
, and in January 2025, the FASB issued ASU 2025-01,
Clarifying the Effective Date
, which revised the effective date of ASU 2024-03 for interim periods. ASU 2024-03 requires disclosures in the notes to the financial statements on specified information about certain costs and expenses that are included on the face of the income statement for each interim and annual reporting period. ASU 2024-03, as clarified by ASU 2025-01, is effective for annual reporting periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted, and may be applied either prospectively or retrospectively. The Company is currently evaluating the impact of ASU 2024-03 and ASU 2025-01 on the Company’s consolidated financial statements.
NOTE 3 – EQUITY
The Company commenced an initial public “best efforts” offering (the “Offering”) on October 18, 2012, which concluded on October 16, 2015. The Company sold
33,534,022
shares of common stock generating gross proceeds of $
834,399
from
the Offering. The board last published an Estimated Per Share NAV in March 2024 but does not intend to publish a new estimate while reviewing or considering strategic alternatives. The board will consider evaluating net asset value and publishing an estimate if the strategic review does not result
9
in
a liquidity event or the board terminates its review of strategic alternatives.
As of
June 30, 2025, there were
36,104,130
shares of common stock outstanding including
6,760,659
shares issued through the DRP and
23,119
vested restricted shares, net of
4,213,670
shares repurchased through the SRP. See
Note 10 – “Equity-Based Compensation”
for further information on restricted shares.
Prior to the suspension, the Company provided the following programs to facilitate additional investment in the Company’s shares and to provide limited liquidity for stockholders.
Distribution Reinvestment Plan
On September 18, 2024, the board suspended the DRP effective as of October 1, 2024 in connection with the board’s review of strategic alternatives. Prior to the suspension, the Company, through the DRP, provided stockholders with the option to purchase additional shares from the Company by reinvesting cash distributions, subject to certain share ownership restrictions. There were no selling commissions or other fees such as marketing contribution or due diligence expense reimbursements paid in connection with any purchases under the DRP. Pursuant to the DRP, the price per share for shares of common stock purchased under the DRP was equal to the estimated value of one share, as determined by the Company’s board of directors and reported by the Company from time to time.
While the DRP remains suspended, stockholders that previously participated in the DRP are not permitted to reinvest distributions paid by the Company in additional shares. Any prior reinvested distributions will not be impacted. Although the Company expects to continue paying distributions during the pendency of the review of strategic alternatives, the DRP will no longer be a source of capital while it remains suspended.
In light of the suspension noted above, there were
no
distributions reinvested through the DRP during the
three and six months ended June 30, 2025. There were
$
1,668
and
$
3,359
distributions reinvested through the DRP during the three and six months ended June 30, 2024, respectively.
Share Repurchase Program
On September 18, 2024, the board suspended the SRP effective as of October 1, 2024 in connection with the board’s review of strategic alternatives. Prior to the suspension,
the Company was authorized, through the SRP, to repurchase shares from stockholders who purchased their shares directly from the Company as opposed to another stockholder or received their shares through a non-cash transfer and have held their shares for at least one year. The SRP is governed by the terms of the Fifth Amended and Restated Share Repurchase Program (the “Fifth SRP”) adopted by the board on November 7, 2023, effective on December 27, 2023. Repurchases are made in the Company’s sole discretion. In the case of repurchases made upon the death of a stockholder or qualifying disability (“Exceptional Repurchases”), as defined in the SRP, the one year holding period did not apply. Under the Fifth SRP, the board of directors had the discretion to establish the proceeds available to fund repurchases each quarter and could use proceeds from all sources available to the Company, in the board of directors’ sole discretion. The board of directors also had the discretion to determine the amount of repurchases, if any, to be made each quarter based on its evaluation of the Company’s business, cash needs and any other requirements of applicable law. The entirety of the Fifth SRP can be found on the Company’s website. During the suspension, the Company will not repurchase shares under the SRP. Any outstanding repurchase requests will automatically roll over for processing under the terms and conditions of the SRP if the SRP is reinstated unless a stockholder withdraws the request for repurchase. There is no assurance the SRP will be reinstated.
Even if reinstated, the SRP contains numerous restrictions that limit the stockholders’ ability to sell their shares. The board of directors, in its sole discretion, may amend or terminate the SRP. The SRP will immediately terminate if the Company’s shares become listed for trading on a national securities exchange.
In light of the suspension noted above, the Company did
no
t repurchase any shares through the SRP during the
three and six months ended June 30, 2025. Repurchases through the SRP were
$
1,668
and
$
3,359
for the three and six months ended June 30, 2024
, respectively. There was
no
liability related to the SRP as of
June 30, 2025 and December 31, 2024
.
NOTE 4 – LEASES
The Company is lessor under approximately
820
retail operating leases. The remaining lease terms for the Company’s leases range from less than
one year
to
14 years
. The Company considers the date on which it makes a leased space available to a lessee as the commencement date of the lease. At commencement, the Company determines the lease classification utilizing the classification tests under ASC 842. Options to extend a lease are included in the lease term when it is reasonably certain that the tenant will exercise its option to extend. Termination penalties are included in income when there is a termination agreement, all the conditions of the agreement have been met and amounts due are considered collectable. Such termination fees are recognized on a straight-line basis over the remaining lease term in rental income. If an operating lease is modified and the modification is not accounted for as a separate contract, the Company accounts for the modification as if it were a termination of the existing lease and the creation of a new lease. The Company considers any prepaid or accrued rentals relating to the original lease as part of the lease payments for the modified lease. The Company includes options to modify the original lease term when it is reasonably certain that the tenant will exercise its option to extend.
10
Most of the revenue from the Company’s properties consists of rents received under long-term operating leases. Most leases require the tenant to pay monthly fixed base rent in advance, and to reimburse the Company for the tenant’s pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the Company and recoverable under the terms of the lease. Under these leases, the Company pays all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid.
Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed base rent as well as all costs and expenses associated with occupancy. Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included on the consolidated statements of operations and comprehensive loss. Under leases where all expenses are paid by the Company, subject to reimbursement by the tenant, the expenses are included within property operating expenses. Reimbursements for common area maintenance are considered non-lease components that are permitted to be combined with rental income. The combined lease component and reimbursements for insurance and taxes are reported as rental income on the consolidated statements of operations and comprehensive loss.
Rental income related to the Company's operating leases is comprised of the following:
Three Months Ended
June 30,
Six Months Ended
June 30,
2025
2024
2025
2024
Rental income - fixed payments
$
30,043
$
29,524
$
60,044
$
59,199
Rental income - variable payments (a)
7,795
7,918
16,517
15,597
Amortization of acquired lease intangibles, net
200
(
4
)
233
(
9
)
Rental income
$
38,038
$
37,438
$
76,794
$
74,787
(a)
Primarily includes tenant recovery income for real estate taxes, common area maintenance and insurance.
As of June 30, 2025, the Company’s accounts and rent receivable, net balance was
$
23,299
, which was net of an allowance for bad debts of
$
1,235
. As of December 31, 2024, the Company’s accounts and rent receivable, net balance was
$
23,355
, which was net of an allowance for bad debts of $
1,044
.
NOTE 5 – ACQUIRED INTANGIBLE ASSETS AND LIABILITIES
The following table summarizes the Company’s identified intangible assets and liabilities as of
June 30, 2025 and December 31, 2024:
June 30, 2025
December 31, 2024
Intangible assets:
Acquired in-place lease value
$
183,305
$
183,305
Acquired above market lease value
52,640
52,640
Accumulated amortization
(
192,017
)
(
186,893
)
Acquired lease intangibles, net
$
43,928
$
49,052
Intangible liabilities:
Acquired below market lease value
$
79,914
$
79,914
Accumulated amortization
(
47,601
)
(
45,858
)
Acquired below market lease intangibles, net
$
32,313
$
34,056
The portion of the purchase price allocated to acquired above market lease value and acquired below market lease value is amortized on a straight-line basis over the term of the related lease as an adjustment to rental income. For below market lease values, the amortization period includes any renewal periods with fixed rate renewals. The portion of the purchase price allocated to acquired in-place lease value is amortized on a straight-line basis over the acquired leases’ weighted average remaining term.
11
Amortization pertaining to acquired in-place lease value, above market lease value and below market lease value is summarized below:
Three Months Ended
June 30,
Six Months Ended
June 30,
2025
2024
2025
2024
Amortization recorded as amortization expense:
Acquired in-place lease value
$
1,742
$
2,308
$
3,614
$
4,712
Amortization recorded as a (reduction) increase to rental income:
Acquired above market leases
$
(
738
)
$
(
830
)
$
(
1,510
)
$
(
1,670
)
Acquired below market leases
938
826
1,743
1,661
Net rental income increase (reduction)
$
200
$
(
4
)
$
233
$
(
9
)
Estimated amortization of the respective intangible lease assets and liabilities as of
June 30, 2025 for each of the five succeeding years and thereafter is as follows:
Acquired
In-Place
Leases
Above Market Leases
Below
Market
Leases
2025 (remainder of year)
$
3,090
$
1,399
$
1,485
2026
4,973
2,480
2,902
2027
3,569
1,837
2,699
2028
2,868
1,590
2,562
2029
2,584
1,508
2,487
Thereafter
11,040
6,990
20,178
Total
$
28,124
$
15,804
$
32,313
NOTE 6 – DEBT AND DERIVATIVE INSTRUMENTS
As of
June 30, 2025 and December 31, 2024, the Company had the following mortgages and credit facility payable:
June 30, 2025
December 31, 2024
Type of Debt
Principal Amount
Weighted
Average
Interest Rate
Principal
Amount
Weighted
Average
Interest Rate
Fixed rate mortgages payable
$
111,503
3.83
%
$
111,679
3.83
%
Variable rate mortgages payable with swap agreements
26,000
4.55
%
26,000
4.55
%
Mortgages payable
137,503
3.97
%
137,679
3.97
%
Credit facility payable
697,000
4.66
%
700,000
4.67
%
Total debt before unamortized debt issuance costs including impact of interest rate swaps
834,503
4.54
%
837,679
4.55
%
(Less): Unamortized debt issuance costs
(
1,335
)
(
1,933
)
Total debt
$
833,168
$
835,746
The Company’s indebtedness bore interest at a weighted average interest rate of
4.54
%
per annum as of June 30, 2025, which includes the effects of interest rate swaps. The Company estimates the fair value of its total debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by the Company’s lenders using Level 3 inputs. The carrying value of the Company’s debt excluding unamortized debt issuance costs was
$
834,503
and
$
837,679
as of June 30, 2025 and December 31, 2024, respectively, and its estimated fair value was
$
833,071
and $
834,949
as of
June 30, 2025 and December 31, 2024, respectively.
12
As of
June 30, 2025, scheduled principal payments and maturities on the Company’s debt were as follows:
June 30, 2025
Scheduled Principal Payments and Maturities by Year:
Scheduled
Principal
Payments
Maturities of Mortgage Loans
Maturity of Credit Facility
Total
2025 (remainder of the year)
$
120
$
92,656
$
—
$
92,776
2026
—
44,727
122,000
166,727
2027
—
—
575,000
575,000
2028
—
—
—
—
2029
—
—
—
—
Thereafter
—
—
—
—
Total
$
120
$
137,383
$
697,000
$
834,503
Credit Facility Payable
On February 3, 2022, the Company entered into a second amended and restated credit agreement (the “Credit Agreement”) with KeyBank National Association, individually and as administrative agent, KeyBanc Capital Markets Inc., PNC Capital Markets LLC and BofA Securities, Inc., as joint lead arrangers, and other lenders from time to time parties to the Credit Agreement (the “Credit Facility”).
Pursuant to the Credit Agreement, the aggregate total commitments under the Credit Facility were increased from $
350,000
to $
475,000
. The Credit Facility consists of the “Revolving Credit Facility” providing revolving credit commitments in an aggregate amount of $
200,000
and a term loan facility (the term loans funded under such commitments, the “Term Loan”) providing term loan commitments in an aggregate amount of $
275,000
(increased from $
150,000
). On May 17, 2022, the Company entered into a First Amendment to Credit Agreement Regarding Incremental Term Loans (the “First Amendment”), amending the terms of the Credit Agreement primarily to draw an additional $
300,000
. The Credit Agreement provides the Company with the ability from time to time to increase the size of the Credit Facility up to a total of $
1,200,000
, subject to certain conditions.
As of June 30, 2025, the Company had
$
122,000
outstanding under the Revolving Credit Facility and
$
575,000
outstanding under the Term Loan. As of June 30, 2025, the interest rates on the Revolving Credit Facility and the Term Loan were
6.32
%
and
4.30
%
, respectively. The Revolving Credit Facility matures on
February 3, 2026
, and the Company has the option to extend the maturity date for
one
additional year subject to the payment of an extension fee and certain other conditions. The Term Loan matures on
February 3, 2027
. Borrowings under the Credit Facility bear interest equal to one-month term Secured Overnight Financing Rate (“SOFR”) plus a margin, the amount of which depends on the Company’s leverage ratio.
As of June 30, 2025, the Company had a maximum amount of $
78,000
available for borrowing under the Revolving Credit Facility, subject to the terms and conditions of the Credit Agreement that governs the Credit Facility, including compliance with the covenants which could further limit the amount available. Although all of the amount available under the Revolving Credit Facility is available to pay off existing mortgages, due to the covenant limitations, the Company expects to have substantially less than all $
78,000
available to draw or otherwise undertake as additional debt.
The Company’s performance of the obligations under the Credit Facility, including the payment of any outstanding indebtedness under the Credit Facility, is guaranteed by certain subsidiaries of the Company, including each of the subsidiaries of the Company which owns or leases any of the properties included in the pool of unencumbered properties comprising the borrowing base. Additional properties will be added to and removed from the pool from time to time to support amounts borrowed under the Credit Facility so long as at any time there are at least
fifteen
unencumbered properties with an unencumbered pool value of $
300,000
or more. As of
June 30, 2025, a total of
47
out of
52
properties were included in the pool of unencumbered properties.
The Credit Facility requires compliance with certain covenants, including a minimum tangible net worth requirement, a limitation on the use of leverage, a distribution limitation, restrictions on indebtedness and investment restrictions, as defined. It also contains customary default provisions including the failure to comply with the Company's covenants and the failure to pay when amounts outstanding under the Credit Facility become due. As of June 30, 2025
,
the Company was in compliance with all financial covenants related to the Credit Facility as amended.
Mortgages Payable
The Company’s mortgage loans require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations. As of June 30, 2025
,
the Company was current on all of its debt service payments and in compliance with all financial covenants
. All of the Company’s mortgage loans are secured by first mortgages on the respective real estate assets. As
of June 30, 2025, the weighted average years to maturity for the Company’s mortgages payable was
0.5
years.
13
As of August 12, 2025
, the Company has
four
mortgage loans maturing in the next 12 months. The mortgage loans had an aggregate principal balance of $
137,503
as of June 30, 2025. The Company intends to repay amounts due with cash flows from operating activities, cash on hand, proceeds available under the Revolving Credit Facility or proceeds from refinancing of mortgage loans.
Interest Rate Swap Agreements
The Company entered into interest rate swaps to fix certain of its floating SOFR based debt under variable rate loans to a fixed rate to manage its risk exposure to interest rate fluctuations. The Company will generally match the maturity of the underlying variable rate debt with the maturity date on the interest swap. See
Note 13 – “Fair Value Measurements”
for further information.
As of June 30, 2025
, the Company had hedged its variable rate mortgage loan of $
26,000
and $
525,000
of the Term Loan using interest rate swap contracts.
The following table summarizes the Company’s interest rate swap contracts outstanding as of
June 30, 2025.
Date
Entered
Effective
Date
Maturity
Date
Receive Floating Rate Index (a)
Pay
Fixed
Rate
Notional
Amount
Fair Value
as of
June 30, 2025
Assets
December 5, 2022
December 1, 2022
January 1, 2026
One-month term SOFR
2.25
%
$
26,000
$
243
February 3, 2022
March 1, 2022
February 3, 2027
One-month term SOFR
1.69
%
90,000
2,589
February 3, 2022
March 1, 2022
February 3, 2027
One-month term SOFR
1.85
%
100,000
2,624
February 3, 2022
March 1, 2022
February 3, 2027
One-month term SOFR
1.72
%
85,000
2,415
May 17, 2022
June 1, 2022
February 3, 2027
One-month term SOFR
2.71
%
60,000
769
May 17, 2022
June 1, 2022
February 3, 2027
One-month term SOFR
2.71
%
60,000
769
May 17, 2022
June 1, 2022
February 3, 2027
One-month term SOFR
2.71
%
75,000
963
May 17, 2022
June 1, 2022
February 3, 2027
One-month term SOFR
2.77
%
55,000
661
$
551,000
$
11,033
(a)
As of
June 30, 2025
, the
one-month term SOFR
was
4.33
%
.
The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive loss for the
three and six months ended June 30, 2025 and 2024.
Three Months Ended
June 30,
Six Months Ended
June 30,
Derivatives in Cash Flow Hedging Relationships
2025
2024
2025
2024
Effective portion of derivatives
$
(
372
)
$
3,187
$
(
2,869
)
$
13,253
Reclassification adjustment for amounts included in net loss (effective portion)
$
(
2,931
)
$
(
4,322
)
$
(
5,831
)
$
(
8,659
)
The total amount of interest expense presented on the consolidated statements of operations and comprehensive loss was
$
9,792
and
$
10,386
for the three months ended June 30, 2025 and 2024, respectively. The total amount of interest expense presented on the consolidated statements of operations and comprehensive loss was
$
19,519
and
$
20,816
for the six months ended June 30, 2025 and 2024
,
respectively. The net gain or loss reclassified into income from accumulated other comprehensive income is reported in interest
14
expense
on the consolidated statements of operations and comprehensive loss. The amount that is expected to be reclassified from accumulated other comprehensive income into income (loss) in the next 12 months is
$
9,045
.
NOTE 7 – DISTRIBUTIONS
The table below presents the distributions paid and declared during the
three and six months ended June 30, 2025 and 2024.
Three Months Ended
June 30,
Six Months Ended
June 30,
2025
2024
2025
2024
Distributions paid
$
4,898
$
4,902
$
9,796
$
9,807
Distributions declared
$
4,898
$
4,899
$
9,796
$
9,801
NOTE 8 – EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the “common shares”). Diluted EPS is computed by dividing net income (loss) by the common shares plus common share equivalents. The Company excludes antidilutive restricted shares from the calculation of weighted-average shares for diluted EPS. As a result of a net loss for the three and six months ended June 30, 2025,
6,120
and
5,239
s
hares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive. As a result of a net loss for the three and six months ended June 30, 2024,
4,682
and
4,135
s
hares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company may be 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, management believes, based on currently available information, that the final outcome of such matters will not have a material adverse effect on the consolidated financial statements of the Company.
NOTE 10 – EQUITY-BASED COMPENSATION
Under the Company’s Employee and Director Restricted Share Plan (“RSP”), restricted shares generally vest over a
one
to
three year
vesting period from the date of the grant, subject to the specific terms of the grant. In accordance with the RSP, restricted shares are issued to non-employee directors as compensation. Restricted shares are included in common stock outstanding on the date of the vesting. The grant-date value of the restricted shares is amortized over the vesting period representing the requisite service period. Compensation expense associated with the restricted shares issued to the non-employee directors was $
34
and $
68
, in the aggregate, for the three and six months ended June 30, 2025, respectively.
Compensation expense associated with the restricted shares issued to the non-employee directors was $
23
and $
47
, in the aggregate, for the three and six months ended June 30, 2024, respectively. As of June 30, 2025, the Co
mpany had $
118
of unrecognized compensation expense related to the unvested restricted shares, in the aggregate. The weighted average remaining period that compensation expense related to unvested restricted shares will be recognized
is
1.5
years. There were
no
restricted shares that vested during the
three and six months ended June 30, 2025 and 2024.
A summary table of the status of the restricted shares is presented below:
Restricted Shares
Outstanding at December 31, 2024
13,153
Granted
—
Vested
—
Outstanding at June 30, 2025
13,153
NOTE 11 – SEGMENT REPORTING
The Company has
one
reportable segment as defined by GAAP, retail real estate, for the
six months ended June 30, 2025 and 2024. The retail real estate segment derives revenue from rents received under long-term operating leases. The accounting policies of the retail real estate segment are the same as those described in the summary of significant accounting policies for the Company.
The chief operating decision maker (“CODM”) assess performance for the retail real estate segment and decides how to allocate resources based on net income (loss), which is reported on the accompanying consolidated statements of operations and comprehensive loss.
The Company’s CODM is its
CEO
.
15
All the significant segment expenses that are provided to the CODM are reported in the accompanying consolidated statements of operations and comprehensive loss. Property operating expenses reported in the accompanying consolidated statements of operations and comprehensive loss primarily include common area maintenance, compensation, insurance and other costs related to the leasing of properties. General and administrative expenses reported in the accompanying consolidated statements of operations and comprehensive loss primarily include reimbursements to the Business Manager for costs relating to the Company’s administration, professional fees, insurance and board costs. The measure of segment assets is reported on the balance sheet as total assets.
NOTE 12 – TRANSACTIONS WITH RELATED PARTIES
The following table summarizes the Company’s related party transactions for the
three and six months ended June 30, 2025 and 2024. Certain compensation and fees payable to the Business Manager for services provided to the Company are limited to maximum amounts.
Three Months Ended
June 30,
Six Months Ended
June 30,
Unpaid amounts as of
2025
2024
2025
2024
June 30, 2025
December 31, 2024
General and administrative reimbursements
(a)
$
373
$
426
$
789
$
828
$
266
$
241
Real estate management fees
$
1,527
$
1,434
$
2,976
$
2,904
$
—
$
—
Property operating expenses
558
505
1,171
930
104
23
Construction management fees
81
144
188
188
76
51
Leasing fees
76
134
162
224
106
112
Total real estate management related costs
(b)
$
2,242
$
2,217
$
4,497
$
4,246
$
286
$
186
Business management fees
(c)
$
2,245
$
2,231
$
4,487
$
4,486
$
2,245
$
2,241
(a)
The Business Manager and its related parties are entitled to reimbursement for certain general and administrative expenses incurred by the Business Manager or its related parties relating to the Company’s administration. Such costs are included in general and administrative expenses in the consolidated statements of operations and comprehensive loss. Unpaid amounts are included in due to related parties on the consolidated balance sheets.
(b)
For each property that is managed by the Real Estate Manager, the Company pays a monthly real estate management fee of up to
1.9
% of the gross income from any single-tenant, net-leased property, and up to
3.9
% of the gross income from any other property type. The Real Estate Manager determines, in its sole discretion, the amount of the fee with respect to a particular property, subject to those limitations. For each property that is managed directly by the Real Estate Manager or its affiliates, the Company pays the Real Estate Manager a separate leasing fee. Further, in the event that the Company engages its Real Estate Manager to provide construction management services for a property, the Company pays a separate construction management fee. Leasing fees are included in deferred costs, net and construction management fees are included in building and other improvements in the consolidated balance sheets. The Company also reimburses the Real Estate Manager and its affiliates for property-level expenses that they pay or incur on the Company’s behalf, including the salaries, bonuses and benefits of persons performing services for the Real Estate Manager and its affiliates except for the salaries, bonuses and benefits of persons who also serve as an executive officer of the Real Estate Manager or the Company. Real estate management fees and reimbursable expenses are included in property operating expenses in the consolidated statements of operations and comprehensive loss.
(c)
The Company pays the Business Manager an annual business management fee equal to
0.55
% of its “averaged invested assets.” The fee is payable quarterly in an amount equal to
0.1375
% of its average invested assets as of the last day of the immediately preceding quarter. “Average invested assets” means, for any period, the average of the aggregate book value of the Company’s assets, including all intangibles and goodwill, invested, directly or indirectly, in equity interests in, and loans secured by, properties, as well as amounts invested in securities and consolidated and unconsolidated joint ventures or other partnerships, before reserves for amortization and depreciation or bad debts, impairments or other similar non-cash reserves, computed by taking the average of these values at the end of each month during the relevant calendar quarter. Unpaid amounts are included in due to related parties on the consolidated balance sheets. The Business Management Agreement terminates on March 31, 2027.
On January 19, 2024, the Company entered into the Fourth Business Management Agreement with the Business Manager effective February 1, 2024, to, among other things, provide the Company with the authority to engage a person not affiliated with or employed by the Business Manager to serve as president and chief executive officer of the Company and to reduce the business management fee payable to the Business Manager by the amount of any payment made to any third-party person as compensation for service as the
16
Company’s president and chief executive officer. In connection with the CEO Agreement entered into with Mr. Zalatoris, the Business Management Fee is reduced by the amount of any payments made to Mr. Zalatoris under the CEO Agreement. The foregoing description is qualified by reference to the Fourth Business Management Agreement in its entirety. During the three and six months ended June 30, 2025
, total costs incurred under the CEO Agreement were $
87
and $
175
, respectively. During the
three and six months ended June 30, 2024
, total costs incurred under the CEO Agreement were $
88
and $
147
, respectively. These costs are included in general and administrative expenses in the consolidated statements of operations and comprehensive loss.
NOTE 13 – FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
The Company defines fair value based on the price that it believes would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:
Level 1 −
Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2 −
Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 −
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The Company has estimated the fair value of its financial and non-financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes.
Recurring Fair Value Measurements
For assets and liabilities measured at fair value on a recurring basis, the table below presents the fair value of the Company’s cash flow hedges as well as their classification on the consolidated balance sheets as of
June 30, 2025 and December 31, 2024.
Fair Value
Level 1
Level 2
Level 3
Total
June 30, 2025
Interest rate swap agreements - Other assets
$
—
$
11,033
$
—
$
11,033
Interest rate swap agreements - Other liabilities
$
—
$
—
$
—
$
—
December 31, 2024
Interest rate swap agreements - Other assets
$
—
$
19,437
$
—
$
19,437
Interest rate swap agreements - Other liabilities
$
—
$
—
$
—
$
—
The fair value of derivative instruments was estimated based on data observed in the forward yield curve which is widely observed in the marketplace. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the counterparty's nonperformance risk in the fair value measurements which utilize Level 3 inputs, such as estimates of current credit spreads. The Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative interest rate swap agreements and therefore has classified these in Level 2 of the hierarchy.
NOTE 14 – SUBSEQUENT EVENTS
In connection with the preparation of its consolidated financial statements, the Company has evaluated events that occurred subsequent to June 30, 2025 through the date on which these consolidated financial statements were issued to determine whether any of these events required disclosure in the consolidated financial statements.
There were no reportable subsequent events or transactions.
17
Item 2. Management’s Discussion and Analysis o
f Financial Condition and Results of Operations
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words such as “may,” “could,” “should,” “expect,” “intend,” “plan,” “goal,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “variables,” “potential,” “continue,” “expand,” “maintain,” “create,” “strategies,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions, are intended to identify forward-looking statements.
These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of the management of Inland Real Estate Income Trust, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission on March 5, 2025 and subsequent Quarterly Reports on Form 10-Q, some of which are summarized below:
•
Our board is reviewing strategic alternatives, including sale of the Company. There is no set timeline for completing this review and no assurance that the review of strategic alternatives will lead to a sale of the Company or some other liquidity event or the price that stockholders may receive in a sale or have available in an alternative liquidity event;
•
During the pendency of our board’s review of strategic alternatives, we do not expect to acquire new properties or engage in redevelopment activities which may negatively impact our ability to grow our assets and income;
•
There are inherent risks with real estate investments. For example, an investment in real estate cannot generally be quickly sold, limiting our ability to promptly vary our portfolio in response to changing economic, financial and investment conditions. Investments in real estate assets also are subject to adverse changes in general economic conditions which, for example, reduce the demand for rental space;
•
We have four mortgage loans with an aggregate principal balance of approximately $137.5 million maturing in the next twelve months. The maturing mortgage loans bear interest at rates significantly lower than current market rates for new or refinanced indebtedness. Continuing volatility in financial markets and challenging economic conditions may adversely affect our ability to refinance maturing debt on terms and conditions acceptable to us, if at all;
•
Market disruptions and uncertainties resulting from any future global pandemic or epidemic, the ongoing hostilities in the Middle East and between Russia and Ukraine, NATO and the international community’s response thereto and other geopolitical events affecting the financing markets generally, inflation, tariffs, changes in governmental programs or spending, volatility in interest rates, supply chain shortages that affect our tenants or other disruptions caused by events beyond our control may adversely impact the economy generally and the retail sector in particular;
•
We have incurred net losses on a GAAP basis for the three and six months ended June 30, 2025 and 2024, and for the year ended December 31, 2024, and future net losses could have a material adverse impact on our financial condition, operations, cash flow, and our ability to service our indebtedness or pay distributions to our stockholders;
•
Our Business Manager and its affiliates face conflicts of interest caused by, among other things, their compensation arrangements with us, and the simultaneous overlapping leadership roles certain of our executive officers have at the Business Manager and its affiliates, which could result in actions that are not in the long-term best interests of our stockholders;
•
Our Sponsor may face a conflict of interest in allocating personnel and resources between its affiliates, our Business Manager and our Real Estate Manager;
•
We do not have arm’s-length agreements with our Business Manager, our Real Estate Manager or any other affiliates of our Sponsor;
•
We pay fees, which may be significant, to our Business Manager, Real Estate Manager and other affiliates of our Sponsor;
•
Our properties may compete with the properties owned by other programs sponsored by our Sponsor or Inland Private Capital Corporation for, among other things, tenants;
•
Our Business Manager is under no obligation, and may not agree, to forgo or defer its business management fee; and
•
If we fail to continue to qualify as a REIT, our operations and distributions to stockholders, if any, will be adversely affected.
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report, and may ultimately prove to be incorrect or false. We undertake no obligation to update or revise forward-looking statements
18
to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
The following discussion and analysis relates to the three and six months ended June 30, 2025 and 2024 and as of June 30, 2025 and December 31, 2024. Our stockholders should read the following discussion and analysis along with our consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q.
We routinely post important information about us and our business, including financial and other information for investors, on our website. We encourage investors to visit our website at inland-investments.com/inland-income-trust from time to time, as information is updated and new information is posted.
Overview
We were formed as a Maryland corporation on August 24, 2011 to acquire and manage a portfolio of commercial real estate investments located in the United States. We elected to be taxed as a real estate investment trust for U.S. federal income tax purposes (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the tax year ended December 31, 2013. Our strategic plan, implemented with a view toward creating a liquidity event for stockholders, has recently focused primarily on acquiring and owning a portfolio substantially all of which is comprised of grocery-anchored properties. On September 18, 2024, we announced our board’s decision to review strategic alternatives, including the sale of the Company. The board engaged a financial advisor to assist with this review and, through the advisor, contacted entities viewed as potential purchasers seeking offers for the entire Company. This process is continuing and there is no timeline for completing this review, especially in light of volatility and uncertainty existing in the market relating to tariffs, interest rates and economic conditions. There is no assurance that a sale, merger or other transaction creating a liquidity event will result from the process or the price or value that may be agreed upon in any such transaction. The board may further reevaluate other alternatives or decide to suspend or terminate its review of strategic alternatives as well as consider and engage in other steps such as refinancing our maturing mortgage debt and evaluate other sources of capital, including through joint venture arrangements. During the pendency of this review, we do not expect to acquire any properties or redevelop existing properties although we may sell properties on an individual basis, including to generate proceeds to repay or refinance our maturing indebtedness.
We raised equity capital through a “best efforts” offering that commenced on October 18, 2012, and concluded on October 16, 2015. We sold 33,534,022 shares of common stock in the offering generating gross proceeds of $834.4 million. We have also generated equity capital through the sale of shares through our DRP. As of June 30, 2025, we had issued a total of 6,760,659 shares through the DRP generating aggregate proceeds of $148.1 million. The DRP has, however, been suspended pending the board’s review of strategic alternatives.
As of June 30, 2025, we owned 52 retail properties, totaling 7.2 million square feet located in 24 states. A majority of our properties are multi-tenant, necessity-based retail shopping centers located primarily in major regional markets and growing secondary markets throughout the United States. As of June 30, 2025, grocery-anchored or grocery shadow-anchored shopping center properties represented 87% of our annualized base rent. A grocery shadow-anchored shopping center is a shopping center near a grocery store that we do not own and is not a part of our shopping center but that we believe generates traffic for our shopping center. As of June 30, 2025, our portfolio had physical and economic occupancy of 91.6% and 91.9%, respectively. Physical and economic occupancy increased approximately 0.7% and 0.4%, respectively, compared to March 31, 2025, but has declined from physical and economic occupancy of 93.1% and 93.4%, respectively, as of December 31, 2024. As of June 30, 2025, annualized base rent (“ABR”) per square foot averaged $20.05 for all owned properties. ABR is calculated by annualizing the monthly base rent for leases in-place as of the applicable date, excluding ground leases. ABR including ground leases averaged $17.14 as of June 30, 2025. There were no acquisitions or dispositions during the three and six months ended June 30, 2025.
We have no employees and are externally managed and advised by IREIT Business Manager & Advisor, Inc., referred to herein as our “Business Manager,” to whom we pay fees and reimburse certain expenses for the services provided to us. Our president and chief executive officer, Mark Zalatoris, serves in these capacities pursuant to an agreement we entered into with Mr. Zalatoris which, as amended, is referred to herein as the “CEO Agreement.” Under this agreement, we compensate Mr. Zalatoris directly for his services. Our relationship with the Business Manager is governed by the Amended and Restated Fourth Business Management Agreement (the “Fourth Business Management Agreement”) that we have entered into with the Business Manager. Under the Fourth Business Management Agreement, we pay the Business Manager a fee for the services it provides to the Company and reimburse the Business Manager for certain expenses that it incurs on the Company’s behalf. The fee that we pay to the Business Manager is reduced dollar for dollar for amounts we pay to Mr. Zalatoris under the CEO Agreement. Mr. Zalatoris is not an employee of the Company and is not an officer or director of the Business Manager but has the authority under the CEO Agreement and the Fourth Business Management Agreement to direct the day-to-day operations of the Business Manager. Our properties are managed by Inland Commercial Real Estate Services LLC, an indirect wholly owned subsidiary of our Sponsor.
19
Inflation and Interest Rates
Inflationary pressures and volatility in interest rates, as well as the imposition of new duties, tariffs, trade barriers and retaliatory countermeasures by the U.S. and other governments, could reduce consumer spending and adversely impact retailer profitability, particularly if rates rise which may impact our ability to increase rents as well as tenant demand for new and existing store locations. Regardless of inflation levels, base rent under most of our long-term anchor leases remain constant (subject to tenants’ exercise of renewal options at pre-negotiated rent increases) until the expiration of their lease terms, regardless of the inflation rate for any particular period. While many of our leases require tenants to pay their share of shopping center operating expenses (including common area maintenance, real estate tax and insurance expenses), our ability to collect the expense increases passed through to tenants is dependent on their ability to absorb and pay these increases. Inflation may also impact other aspects of our operating costs, including fees paid to service providers, the cost to complete redevelopments and build-outs of recently leased vacancies and interest rate costs relating to variable rate loans and refinancing of lower fixed-rate indebtedness. While we have not been significantly impacted by any of these items to date, no assurances can be provided that these inflationary pressures will not have a material adverse effect on our business in the future.
SELECT PROPERTY INFORMATION
(All dollar amounts in thousands, except per square foot amounts)
Investment Properties
As of June 30, 2025
Number of properties
52
Purchase price
$
1,624,667
Total square footage
7,169,585
Physical occupancy
91.6
%
Economic occupancy
91.9
%
Weighted average remaining lease term (years) (a)
4.5
(a)
Weighted average remaining lease term is based on a weighting by ABR as of June 30, 2025.
20
The table below presents information for each of our investment properties as of June 30, 2025.
Property
Location
Square
Footage
Physical
Occupancy
Economic
Occupancy
Mortgage
Balance
Interest
Rate (b)
Newington Fair (a)
Newington, CT
186,205
72.3
%
72.3
%
$
—
—
Wedgewood Commons (a)
Olive Branch, MS
169,558
90.6
%
92.7
%
—
—
Park Avenue (a)
Little Rock, AR
78,702
96.5
%
96.5
%
—
—
North Hills Square (a)
Coral Springs, FL
63,829
100.0
%
100.0
%
—
—
Mansfield Shopping Center (a)
Mansfield, TX
148,529
86.6
%
86.6
%
—
—
Lakeside Crossing (a)
Lynchburg, VA
67,034
97.8
%
97.8
%
—
—
MidTowne Shopping Center (a)
Little Rock, AR
126,288
74.6
%
74.6
%
—
—
Dogwood Festival (a)
Flowood, MS
188,770
91.4
%
91.4
%
—
—
Pick N Save Center (a)
West Bend, WI
94,446
97.4
%
97.4
%
—
—
Harris Plaza (a)
Layton, UT
125,814
71.1
%
71.1
%
—
—
Dixie Valley (a)
Louisville, KY
119,911
81.2
%
81.2
%
—
—
The Landings at Ocean Isle (a)
Ocean Isle, NC
53,203
97.4
%
97.4
%
—
—
Shoppes at Prairie Ridge (a)
Pleasant Prairie, WI
232,606
98.0
%
100.0
%
—
—
Harvest Square (a)
Harvest, AL
70,590
98.0
%
98.0
%
—
—
Heritage Square (a)
Conyers, GA
22,510
93.8
%
93.8
%
—
—
The Shoppes at Branson Hills (a)
Branson, MO
256,244
94.7
%
94.7
%
—
—
Branson Hills Plaza (a)
Branson, MO
210,201
100.0
%
100.0
%
—
—
Copps Grocery Store (a)
Stevens Point, WI
69,911
100.0
%
100.0
%
—
—
Fox Point Plaza (a)
Neenah, WI
171,121
99.1
%
99.1
%
—
—
Shoppes at Lake Park (a)
W. Valley City, UT
52,997
88.2
%
88.2
%
—
—
Plaza at Prairie Ridge (a)
Pleasant Prairie, WI
9,035
100.0
%
100.0
%
—
—
Green Tree Shopping Center (a)
Katy, TX
147,621
84.3
%
84.3
%
—
—
Eastside Junction (a)
Athens, AL
79,675
94.6
%
94.6
%
—
—
Fairgrounds Crossing (a)
Hot Springs, AR
155,127
100.0
%
100.0
%
—
—
Prattville Town Center (a)
Prattville, AL
168,842
100.0
%
100.0
%
—
—
Regal Court
Shreveport, LA
363,061
92.5
%
92.5
%
26,000
4.55
%
Shops at Hawk Ridge (a)
St. Louis, MO
75,951
100.0
%
100.0
%
—
—
Walgreens Plaza (a)
Jacksonville, NC
42,219
52.8
%
52.8
%
—
—
Frisco Marketplace (a)
Frisco, TX
112,024
90.6
%
90.6
%
—
—
White City (a)
Shrewsbury, MA
256,974
80.1
%
80.1
%
—
—
Yorkville Marketplace (a)
Yorkville, IL
111,591
94.7
%
94.7
%
—
—
Shoppes at Market Pointe (a)
Papillion, NE
253,793
97.9
%
97.9
%
—
—
Marketplace at El Paseo (a)
Fresno, CA
224,683
100.0
%
100.0
%
—
—
The Village at Burlington Creek
Kansas City, MO
157,937
78.8
%
78.8
%
16,243
4.25
%
Milford Marketplace
Milford, CT
111,911
97.3
%
97.3
%
18,727
4.02
%
Settlers Ridge
Pittsburgh, PA
473,871
90.5
%
90.5
%
76,533
3.70
%
Blossom Valley Plaza (a)
Turlock, CA
111,475
98.7
%
98.7
%
—
—
Oquirrh Mountain Marketplace (a)
South Jordan, UT
75,950
97.1
%
97.1
%
—
—
Marketplace at Tech Center (a)
Newport News, VA
210,666
89.3
%
93.1
%
—
—
Coastal North Town Center (a)
Myrtle Beach, SC
304,662
96.7
%
96.7
%
—
—
Oquirrh Mountain Marketplace II (a)
South Jordan, UT
10,150
84.7
%
84.7
%
—
—
Wilson Marketplace (a)
Wilson, NC
311,030
100.0
%
100.0
%
—
—
Pentucket Shopping Center (a)
Plaistow, NH
199,454
97.4
%
97.4
%
—
—
Hickory Tavern
Myrtle Beach, SC
6,588
100.0
%
100.0
%
—
—
New Town (a)
Owings Mill, MD
117,593
45.1
%
45.1
%
—
—
Olde Ivy Village (a)
Smyrna, GA
46,500
88.5
%
96.7
%
—
—
Northpark Village Square (a)
Santa Clarita, CA
87,103
97.9
%
97.9
%
—
—
Lower Makefield Shopping Center (a)
Lower Makefield, PA
74,953
94.9
%
94.9
%
—
—
Denton Village (a)
Denton, TX
48,280
96.9
%
96.9
%
—
—
Rusty Leaf Plaza (a)
Orange, CA
59,188
95.3
%
95.3
%
—
—
Northville Park Place (a)
Northville, MI
78,421
82.8
%
82.8
%
—
—
CityPlace (a)
Woodbury, MN
174,788
98.4
%
98.4
%
—
—
Portfolio total
7,169,585
91.6
%
91.9
%
$
137,503
3.97
%
(a)
Property is included in the pool of unencumbered properties under our Credit Facility.
(b)
Portfolio total is equal to the weighted average interest rate.
21
Tenancy Highlights
The following table presents information regarding the top ten tenants in our portfolio based on annualized base rent for leases in-place as of June 30, 2025.
Tenant Name
Number
of
Leases
Annualized
Base Rent
Percent of
Total
Portfolio
Annualized
Base Rent
Annualized
Base Rent
Per Square
Foot
Square
Footage
Percent of
Total
Portfolio
Square
Footage
The Kroger Co
5
$
4,899
4.3
%
$
16.54
296,150
4.1
%
The TJX Companies, Inc.
14
3,821
3.4
%
10.79
354,070
4.9
%
Ross Dress for Less, Inc.
10
2,828
2.5
%
10.79
262,080
3.7
%
Ulta Salon, Cosmetics & Fragrance Inc.
11
2,423
2.1
%
21.84
110,958
1.5
%
Amazon/Whole Foods Market Group, Inc.
3
2,377
2.1
%
20.60
115,396
1.6
%
Planet Fitness
6
2,161
2.0
%
17.50
123,486
1.8
%
Dick’s Sporting Goods, Inc.
4
2,158
1.9
%
11.94
180,766
2.5
%
PetSmart
7
2,117
1.9
%
15.27
138,578
1.9
%
Albertsons/Jewel/Shaw's
2
2,090
1.9
%
16.34
127,892
1.8
%
Sprouts Farmers Market, LLC
4
2,079
1.8
%
18.38
113,092
1.6
%
Top Ten Tenants
66
$
26,953
23.9
%
$
14.79
1,822,468
25.4
%
The following table sets forth a summary of our tenant diversity for our entire portfolio and is based on leases in-place as of June 30, 2025.
Tenant Type
Gross
Leasable
Area –
Square Footage
Percent of
Total Gross
Leasable Area
Percent of
Total Annualized
Base Rent
Discount and Department Stores
1,433,846
21.8
%
11.0
%
Grocery
1,331,575
20.2
%
16.9
%
Lifestyle, Health Clubs, Books & Phones
853,735
13.0
%
15.5
%
Home Goods
819,541
12.4
%
6.9
%
Restaurant
634,750
9.6
%
18.6
%
Apparel & Accessories
463,072
7.0
%
9.4
%
Consumer Services, Salons, Cleaners, Banks
343,752
5.2
%
9.5
%
Pet Supplies
261,509
4.0
%
4.0
%
Sporting Goods
201,977
3.1
%
2.3
%
Health, Doctors & Health Foods
194,663
3.0
%
5.2
%
Other
51,485
0.7
%
0.7
%
Total
6,589,905
100.0
%
100.0
%
The following table sets forth a summary, as of June 30, 2025, of the percent of total annualized base rent and the weighted average lease expiration by size of tenant.
Size of Tenant
Description –
Square Footage
Percent of Total Annualized Base Rent
Weighted Average Lease Expiration – Years
Anchor
10,000 and over
48
%
5.5
Junior Box
5,000-9,999
14
%
4.0
Small Shop
Less than 5,000
38
%
3.5
Total
100
%
4.5
Party City, which leases space at four of our properties, filed for bankruptcy protection in December 2024. All four stores were closed as of March 31, 2025. Party City rejected their leases at all four of our locations and we currently have possession of these spaces. We are marketing all four of our spaces.
22
With respect to our location affected by the American Freight bankruptcy, the location closed and that lease was rejected in December 2024. We are marketing the space.
Rite Aid, which leases space at one of our properties, filed for bankruptcy protection in May 2025. The location is still operating.
Lease Expirations
The following table sets forth a summary, as of June 30, 2025, of lease expirations scheduled to occur during the remainder of 2025 and each of the calendar years from 2026 to 2034 and thereafter, assuming no exercise of renewal options or early termination rights for leases commenced on or prior to June 30, 2025. Annualized base rent represents the rent in-place for the applicable property as of June 30, 2025. The table below includes ground leases. If ground leases are excluded, annualized base rent would equal $103,022 or $20.05 per square foot for total expiring leases.
Lease Expiration Year
Number of
Expiring
Leases
Gross Leasable Area of Expiring Leases – Square Footage
Percent of
Total Gross
Leasable
Area of
Expiring
Leases
Total
Annualized
Base Rent
of Expiring
Leases
Percent of
Total
Annualized
Base Rent
of Expiring
Leases
Annualized Base Rent per Leased Square Foot
2025 (including month-to-month)
63
211,358
3.2
%
$
5,606
5.0
%
$
26.52
2026
102
439,190
6.7
%
9,500
8.4
%
21.63
2027
124
836,543
12.7
%
14,942
13.2
%
17.86
2028
148
1,425,278
21.6
%
18,996
16.8
%
13.33
2029
130
887,690
13.5
%
16,791
14.9
%
18.92
2030
109
821,830
12.5
%
16,783
14.9
%
20.42
2031
29
259,964
3.9
%
5,008
4.4
%
19.27
2032
31
202,373
3.1
%
4,908
4.3
%
24.25
2033
27
197,841
3.0
%
3,675
3.3
%
18.58
2034
26
592,405
9.0
%
7,367
6.5
%
12.44
Thereafter
27
715,433
10.8
%
9,391
8.3
%
13.13
Leased Total
816
6,589,905
100.0
%
$
112,967
100.0
%
$
17.14
Refer to “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Leasing Activity” for details regarding the leasing activity during the six months ended June 30, 2025.
23
Liquidity and Capital Resources
General
Our primary uses and sources of cash are as follows:
Uses
Sources
•
Interest and principal payments on mortgage loans and
Credit Facility
•
Cash receipts from our tenants
•
Property operating expenses
•
Sale of shares through the DRP (if reinstated)
•
General and administrative expenses
•
Proceeds from new or refinanced mortgage loans
•
Distributions to stockholders
•
Borrowing on our Credit Facility
•
Fees payable to our Business Manager and Real Estate
Manager
•
Proceeds from sales of real estate (if any)
•
Repurchases of shares under the SRP (if reinstated)
•
Proceeds from issuance of securities (if any) other than through the DRP
•
Capital expenditures, tenant improvements and leasing commissions
•
Acquisitions of real estate directly or through joint ventures
•
Redevelopments of entire properties or certain spaces within our properties
Historically, we have generated capital through the issuance of shares of our common stock through a best-efforts offering and through issuances pursuant to the DRP and by borrowing monies on either a secured or unsecured basis. Since 2015, we have generated the bulk of our capital through borrowings.
As of June 30, 2025, we had $122 million outstanding under the Revolving Credit Facility and $575 million outstanding under the Term Loan. As of June 30, 2025, the interest rates on the Revolving Credit Facility and the Term Loan were 6.32% and 4.30%, respectively. As of June 30, 2024, the interest rates on the Revolving Credit Facility and the Term Loan were 7.34% and 4.39%, respectively. The Revolving Credit Facility matures on February 3, 2026 subject to a twelve month extension, at the Company’s option. The Term Loan matures on February 3, 2027. As of both August 12, 2025 and June 30, 2025, we had $78 million available for borrowing under the Revolving Credit Facility, subject to various terms and conditions, including compliance with the covenants which could further limit the amount available, of the Credit Agreement that governs the Credit Facility. Although $78 million is the maximum available as of both August 12, 2025 and June 30, 2025, covenant limitations affect what we can actually draw. As of both August 12, 2025 and June 30, 2025, approximately $44 million is available to draw as additional debt under the Revolving Credit Facility. By “additional debt,” we mean debt in addition to existing debt such as existing mortgages. A total of 47 of our 52 properties currently comprise the borrowing base for the Credit Facility. The properties comprising the borrowing base for the Credit Facility are not available to be used as collateral for other debt unless removed from the borrowing base, which would shrink availability under the Credit Facility.
As of June 30, 2025, we had total debt outstanding of $835 million, excluding unamortized debt issuance costs, which bore interest at a weighted average interest rate of 4.54% per annum. As of June 30, 2025, the weighted average years to maturity for our debt was 1.3 years, not taking into account any extension options that may be exercised at our option. As of June 30, 2025 and December 31, 2024, our borrowings were 51% and 52%, respectively, of the purchase price of our investment properties. As of June 30, 2025, our cash and cash equivalents balance was $12.0 million. See
Item 1A. – “Risk Factors — The financial covenants under our credit agreement may restrict our ability to make distributions and our operating and acquisition activities. If we breach the financial covenants we could be held in default under the credit agreement, which could accelerate our repayment date and materially adversely affect our liquidity and financial condition.”
for further information.
As of August 12, 2025, in the next 12 months, we have four mortgage loans maturing with an aggregate principal balance of $137.5 million. The weighted average interest rate on these four mortgage loans is 3.97% per annum as of June 30, 2025, which includes the effects of interest rate swaps. We may refinance these loans as they mature although interest rates are currently higher than the existing weighted average interest rate. We may also repay a portion of these maturing loans by making draws of proceeds available under the Revolving Credit Facility or proceeds from other sources such as cash flows from operating activities. Draws on our Revolving Credit Facility also bear interest at rates above the weighted average interest rate on the maturing debt. If interest rates continue to exceed the existing weighted average rate on the maturing debt, our cash flows and net income may be materially and adversely impacted. See
Item 1A. – “Risk Factors — The financial covenants under our credit agreement may restrict our ability to make distributions and our operating and acquisition activities. If we breach the financial covenants we could be held in default under the credit agreement, which could accelerate our repayment date and materially adversely affect our liquidity and financial condition” and
“— Volatility in the financial markets and challenging economic conditions could adversely affect our ability to secure debt financing on attractive terms and our ability to service any future indebtedness that we may incur”
for further information.
24
During the six months ended June 30, 2025, we invested $8.1 million on capital expenditures and tenant improvements, which is approximately $1.0 million more than we did during the six months ended June 30, 2024. For the remainder of 2025, we have budgeted approximately $16.8 million for capital expenditures and tenant improvements. Capital expenditures and tenant improvements are funded by cash flows generated from operations during current or prior periods.
As of June 30, 2025, we have paid all interest and principal amounts when due, and were in compliance with all financial covenants under the Credit Facility as amended.
Cash Flow Analysis
Six Months Ended
June 30,
Change
2025
2024
2025 vs. 2024
(Dollar amounts in thousands)
Net cash flows provided by operating activities
$
26,598
$
25,767
$
831
Net cash flows used in investing activities
$
(8,079
)
$
(7,061
)
$
(1,018
)
Net cash flows used in financing activities
$
(12,972
)
$
(13,975
)
$
1,003
Operating activities
The increase in cash from operating activities during the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was primarily due to timing of receipts from tenants.
Investing activities
Six Months Ended
June 30,
Change
2025
2024
2025 vs. 2024
(Dollar amounts in thousands)
Capital expenditures
$
(8,079
)
$
(7,061
)
$
(1,018
)
Net cash used in investing activities
$
(8,079
)
$
(7,061
)
$
(1,018
)
The increase in cash used in investing activities during the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was due to an increase in capital expenditures.
Financing activities
Six Months Ended
June 30,
Change
2025
2024
2025 vs. 2024
(Dollar amounts in thousands)
Total net changes related to debt
$
(3,176
)
$
(4,168
)
$
992
Proceeds from DRP
—
3,359
(3,359
)
Shares repurchased
—
(3,359
)
3,359
Distributions paid
(9,796
)
(9,807
)
11
Net cash used in financing activities
$
(12,972
)
$
(13,975
)
$
1,003
During the six months ended June 30, 2025, changes in total debt decreased $1.0 million from the six months ended June 30, 2024 primarily due to lower net repayment on the credit facility in 2025 compared to 2024. During the six months ended June 30, 2025, we paid $9.8 million in distributions. As noted herein, in connection with the board’s review of strategic alternatives, the DRP and SRP have both been suspended effective October 1, 2024.
25
Distributions
Distributions when declared are paid quarterly in arrears. A summary of the distributions declared, distributions paid and cash flows provided by operations for the six months ended June 30, 2025 and 2024 follows (Dollar amounts in thousands except per share amounts):
Distributions Paid (1)
Six Months Ended
June 30,
Distributions
Declared
Distributions
Declared Per
Share
Cash
Reinvested
via DRP
Total
Cash Flows
From
Operating Activities
2025
$
9,796
$
0.271200
$
9,796
$
—
$
9,796
$
26,598
2024
$
9,801
$
0.271200
$
6,448
$
3,359
$
9,807
$
25,767
(1)
Distributions were funded by cash flows from operating activities during the six months ended June 30, 2025 and 2024.
Results of Operations
This section describes and compares our results of operations for the three and six months ended June 30, 2025 and 2024. Dollar amounts are stated in thousands.
We generate our net operating income from property operations. All 52 investment properties we currently own were held for the entirety of both the three and six months ended June 30, 2025 and 2024.
Net operating income is a supplemental non-GAAP performance measure that we believe is useful to investors in measuring the operating performance of our property portfolio because our primary business is the ownership of real estate, and net operating income excludes various items included in GAAP net income that do not relate to, or are not indicative of, our property operating performance, such as depreciation and amortization and parent-level corporate expenses (including general and administrative expenses).
The following tables present the property net operating income prior to straight-line income (expense), net, amortization of intangibles, interest, and depreciation and amortization for the three and six months ended June 30, 2025 and 2024, along with a reconciliation to net loss, calculated in accordance with GAAP.
Comparison of the three months ended June 30, 2025 and 2024
Three Months Ended
June 30,
2025
2024
Change
(Dollar amounts in thousands)
Rental income
$
37,384
$
37,101
$
283
Other property income
87
62
25
Total income
37,471
37,163
308
Property operating expenses
7,856
7,250
606
Real estate tax expense
4,604
4,710
(106
)
Total property operating expenses
12,460
11,960
500
Property net operating income
25,011
25,203
(192
)
Straight-line income (expense), net
332
228
104
Amortization of intangibles and lease incentives
152
(61
)
213
General and administrative expenses
(1,397
)
(1,434
)
37
Business management fee
(2,245
)
(2,231
)
(14
)
Depreciation and amortization
(14,272
)
(14,594
)
322
Interest expense
(9,792
)
(10,386
)
594
Interest and other income
55
72
(17
)
Net loss
$
(2,156
)
$
(3,203
)
$
1,047
26
Net loss.
Net loss was $2,156 and $3,203 for the three months ended June 30, 2025 and 2024, respectively.
Total property net operating income.
During the three months ended June 30, 2025, property net operating income decreased $192, total property income increased $308, and total property operating expenses including real estate tax expense increased $500.
The increase in total property income is primarily due to an increase in base rent in new leases and step-up rent on existing leases, and an increase in tenant recovery income. The increase in property operating expenses is primarily due to increases in the following: (i) $187 in insurance expense, (ii) $116 in utilities, (iii) $112 in repairs and maintenance expense due to the timing of projects, (iv) $110 in snow removal costs, and (v) $44 in legal costs.
Straight-line income (expense), net.
Straight-line income (expense), net increased $104 in 2025 compared to 2024. The increase is primarily due to an increase in rent abatements on new leases in 2025.
Amortization of intangibles and lease incentives.
Income from the amortization of intangibles and lease incentives increased $213 in 2025 compared to 2024. The increase is primarily due to write-off of below market leases due to early tenant move-outs.
General and administrative expenses.
General and administrative expenses decreased $37 in 2025 compared to 2024. The decrease is primarily due to a decrease in professional fees in 2025.
Business management fee.
Business management fees increased $14 in 2025 compared to 2024.
Depreciation and amortization.
Depreciation and amortization decreased $322 in 2025 compared to 2024. The decrease is primarily due to a larger amount of fully amortized assets in 2025 compared to 2024.
Interest expense.
Interest expense decreased $594 in 2025 compared to 2024. The decrease is primarily due to lower average debt outstanding and a lower average interest rate.
Interest and other income.
Interest and other income decreased $17 in 2025 compared to 2024.
Comparison of the six months ended June 30, 2025 and 2024
Six Months Ended
June 30,
2025
2024
Change
Rental income
$
75,636
$
74,160
$
1,476
Other property income
136
180
(44
)
Total income
75,772
74,340
1,432
Property operating expenses
16,270
14,396
1,874
Real estate tax expense
9,108
9,493
(385
)
Total property operating expenses
25,378
23,889
1,489
Property net operating income
50,394
50,451
(57
)
Straight-line income (expense), net
682
403
279
Amortization of intangibles and lease incentives
136
(116
)
252
General and administrative expenses
(3,321
)
(2,978
)
(343
)
Business management fee
(4,487
)
(4,486
)
(1
)
Depreciation and amortization
(28,737
)
(29,153
)
416
Interest expense
(19,519
)
(20,816
)
1,297
Interest and other income
95
154
(59
)
Net loss
$
(4,757
)
$
(6,541
)
$
1,784
Net loss.
Net loss was $4,757 and $6,541 for the six months ended June 30, 2025 and 2024, respectively.
Total property net operating income.
During the six months ended June 30, 2025, property net operating income decreased $57, total property income increased $1,432, and total property operating expenses including real estate tax expense increased $1,489.
27
The increase in total property income is primarily due to an increase in base rent in new leases and step-up rent on existing leases, and an increase in tenant recovery income. The increase in property operating expenses is primarily due to increases in the following: (i) $632 in snow removal costs, (ii) $433 in insurance expense, (iii) $354 in repairs and maintenance expense due to the timing of projects, (iv) $228 in legal costs, and (v) $160 in utilities.
Straight-line income (expense), net.
Straight-line income (expense), net increased $279 in 2025 compared to 2024. The increase is primarily due to an increase in rent abatements on new leases and lower straight-line write-offs in 2025 compared to 2024.
Amortization of intangibles and lease incentives.
Income from the amortization of intangibles and lease incentives increased $252 in 2025 compared to 2024. The increase is primarily due to write-off of below market leases due to early tenant move-outs and fully amortized intangible assets.
General and administrative expenses.
General and administrative expenses increased $343 in 2025 compared to 2024. The increase is primarily due to an increase in costs in connection with the review of strategic alternatives, partially offset by the fact that we did not incur any costs to publish an Estimated Per Share NAV in 2025.
Business management fee.
Business management fees increased $1 in 2025 compared to 2024.
Depreciation and amortization.
Depreciation and amortization decreased $416 in 2025 compared to 2024. The decrease is primarily due to a larger amount of fully amortized assets in 2025 compared to 2024.
Interest expense.
Interest expense decreased $1,297 in 2025 compared to 2024. The decrease is primarily due to lower average debt outstanding and a lower average interest rate.
Interest and other income.
Interest and other income decreased $59 in 2025 compared to 2024.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Estimates
“Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates”
of our 2024 Annual Report on Form 10-K, filed with the SEC on March 5, 2025, contains a description of our critical accounting estimates. There have been no changes to our critical accounting estimates during the six months ended June 30, 2025.
Leasing Activity
The following table sets forth leasing activity during the six months ended June 30, 2025. Leases with terms of less than 12 months have been excluded from the table.
Number of Leases Signed
Gross Leasable Area
New Contractual Rent per Square Foot
Prior Contractual Rent per Square Foot
% Change over Prior Annualized Base Rent
Weighted Average Lease Term
Tenant Allowances per Square Foot
Comparable Renewal Leases
43
219,383
$
25.34
$
23.67
7.1
%
4.6
$
—
Comparable New Leases
4
15,727
$
36.39
$
32.65
11.4
%
10.0
$
46.10
Non-Comparable New and Renewal Leases (a)
24
98,867
$
15.13
N/A
N/A
5.0
$
10.27
Total
71
333,977
(a)
Includes leases signed on units that were vacant for over 12 months, leases signed without fixed rent amounts and leases signed where the previous and current lease do not have similar lease structures.
28
Non-GAAP Financial Measures
Accounting for real estate assets in accordance with GAAP assumes the value of real estate assets is reduced over time due primarily to non-cash depreciation and amortization expense. Because real estate values may rise and fall with market conditions, operating results from real estate companies that use GAAP accounting may not present a complete view of their performance. We use Funds from Operations, or “FFO”, a widely accepted metric to evaluate our performance. FFO provides a supplemental measure to compare our performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or “NAREIT”, has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT. On November 7, 2018, NAREIT’s Executive Board approved the White Paper restatement, effective December 15, 2018. The purpose of the restatement was not to change the fundamental definition of FFO but to clarify existing guidance. The restated definition of FFO by NAREIT is net income (loss) computed in accordance with GAAP, excluding depreciation and amortization related to real estate, excluding gains (or losses) from sales of certain real estate assets, excluding impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate and excluding gains and losses from change in control. We have adopted the restated NAREIT definition for computing FFO. Previously presented periods were not impacted.
Under GAAP, acquisition related costs are treated differently if the acquisition is a business combination or an asset acquisition. An acquisition of a single property will likely be treated as an asset acquisition as opposed to a business combination and acquisition related costs will be capitalized rather than expensed when incurred. Publicly registered, non-listed REITs typically engage in a significant amount of acquisition activity in the early years of their operations, and thus incur significant acquisition related costs, during these initial years. Although other start up entities may engage in significant acquisition activity during their initial years, publicly registered, non-listed REITs are unique in that they typically have a limited timeframe during which they acquire a significant number of properties and thus incur significant acquisition related costs. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Institute for Portfolio Alternatives, or “IPA”, an industry trade group, published a standardized measure known as Modified Funds from Operations, or “MFFO”, which the IPA has promulgated as a supplemental measure for publicly registered non-listed REITs and which may be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that, when compared year-over-year, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
MFFO excludes expensed costs associated with investing activities, some of which are acquisition related costs that affect our operations only in periods in which properties are acquired, and other non-operating items that are included in FFO, such as straight-lining of rents as required by GAAP. By excluding costs that we consider more reflective of acquisition activities and other non-operating items, the use of MFFO provides another measure of our operating performance once our portfolio is stabilized. Because MFFO may be a recognized measure of operating performance within the non-listed REIT industry, MFFO and the adjustments used to calculate it may be useful in order to evaluate our performance against other non-listed REITs. Like FFO, MFFO is not equivalent to our net income or loss as determined under GAAP, as detailed in the table below, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we continue to acquire a significant amount of properties. MFFO should only be used as a measurement of our operating performance while we are acquiring a significant amount of properties because it excludes, among other things, acquisition costs incurred during the periods in which properties were acquired.
We believe our definition of MFFO, a non-GAAP measure, is consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the “Practice Guideline,” issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to straight-line rents and amortization of above and below market lease assets and liabilities, accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.
Our presentation of FFO and MFFO may not be comparable to other similarly titled measures presented by other REITs. We believe that the use of FFO and MFFO provides a more complete understanding of our operating performance to stockholders and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs. Neither FFO nor MFFO is intended to be an alternative to “net income” or to “cash flows from operating activities” as determined by GAAP as a measure of our capacity to pay distributions. Management uses FFO and MFFO to compare our operating performance to that of other REITs and to assess our operating performance.
29
Our FFO and MFFO for the six months ended June 30, 2025 and 2024 are calculated as follows:
Six Months Ended
June 30,
2025
2024
(Dollar amounts in thousands)
Net loss
$
(4,757
)
$
(6,541
)
Add:
Depreciation and amortization related to investment properties
28,737
29,153
Funds from operations (FFO)
23,980
22,612
Less:
Amortization of acquired lease intangibles, net
(233
)
9
Straight-line (income) expense, net
(682
)
(403
)
Modified funds from operations (MFFO)
$
23,065
$
22,218
Subsequent Events
For information related to subsequent events, reference is made to
Note 14 – “Subsequent Events”
which is included in our June 30, 2025 Notes to Consolidated Financial Statements in Item 1.
Item 3. Quantitative and Qualitat
ive Disclosures About Market Risk
Market Risk
We are exposed to various market risks, including those caused by changes in interest rates and commodity prices. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and commodity prices. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We have entered into, and may continue to enter into, financial instruments to manage and reduce the impact of changes in interest rates. The counterparties are, and are expected to continue to be, major financial institutions.
Interest Rate Risk
We are exposed to interest rate changes primarily as a result of long-term debt and the Revolving Credit Facility used to purchase properties or other real estate assets and to fund capital expenditures.
As of June 30, 2025, we had outstanding debt of $834.5 million, excluding unamortized debt issuance costs, bearing interest rates ranging from 3.70% to 6.32% per annum. The weighted average interest rate was 4.54% per annum, which includes the effect of interest rate swaps. As of June 30, 2025, the weighted average years to maturity for our mortgages and Credit Facility payable was 1.3 years.
As of June 30, 2025, our fixed-rate debt consisted of secured mortgage financings with a carrying value of $111.5 million and a fair value of $110.0 million. Changes in interest rates do not affect interest expense incurred on our fixed-rate debt until their maturity or earlier repayment, but interest rates do affect the fair value of our fixed rate debt obligations. If market interest rates were to increase by 1% (100 basis points), the fair market value of our fixed-rate debt would decrease by $0.5 million as of June 30, 2025. If market interest rates were to decrease by 1% (100 basis points), the fair market value of our fixed-rate debt would increase by $0.5 million as of June 30, 2025. If the interest rates upon refinancing of the maturing mortgage loans were to increase by 1% (100 basis points), the increase in interest expense would decrease earnings and cash flows by $1.4 million annually.
As of June 30, 2025, we had $172 million of debt or 21% of our total debt, excluding unamortized debt issuance costs, bearing interest at variable rates with a weighted average interest rate equal to 6.29% per annum. We had additional variable rate debt subject to swap agreements of $551 million, or 66% of our total debt, excluding unamortized debt issuance costs, as of June 30, 2025.
If interest rates on all debt which bears interest at variable rates as of June 30, 2025 increased by 1% (100 basis points), the increase in interest expense would decrease earnings and cash flows by $1.7 million annually. If interest rates on all debt which bears interest at variable rates as of June 30, 2025 decreased by 1% (100 basis points), the decrease in interest expense would increase earnings and cash flows by $1.7 million annually. For the variable rate debt that matures during 2025 and 2026, if interest rates as of June 30, 2025 increased by 1% (100 basis points), the increase in interest expense would decrease earnings and cash flows by $1.2 million annually. If interest rates on such debt as of June 30, 2025 decreased by 1% (100 basis points), the decrease in interest expense would increase earnings and cash flows by $1.2 million annually.
With regard to variable rate financing, our management assesses our 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
30
opportunities. We utilize risk management control systems implemented by our Business Manager to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions.
We use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions are determined in light of the facts and circumstances existing at the time of the hedge. We have used derivative financial instruments, specifically interest rate swap contracts, to hedge against interest rate fluctuations on variable rate debt, which exposes us to both credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us because the counterparty may not perform. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We seek to manage the market risk associated with interest-rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. There is no assurance we will be successful.
Derivatives
For information related to derivatives, reference is made to
Note 6 – “Debt and Derivative Instruments”
which is included in our June 30, 2025 Notes to Consolidated Financial Statements in Item 1.
Item 4. Controls
and Procedures
Disclosure Controls and Procedures
Our management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the three months ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II - Other Information
Item 1. Lega
l Proceedings
We are not a party to, and none of our properties are subject to, any material pending legal proceedings.
Item 1A. R
isk Factors
The following risk factors amend and supplement the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2024:
The review of strategic alternatives may not result in the sale of the Company or any other liquidity event in the near term, if at all.
The board’s review of strategic alternatives may not result in a sale, merger or other strategic transaction or otherwise result in a liquidity event for stockholders. There is also no assurance as to how long the review will take or the outcome of the process. The outcome of any potential transaction or other liquidity event will depend on several factors many of which will be beyond our control including, among other things, market conditions including interest rates, inflation, industry trends, regulatory approvals, the availability of favorable financing for a potential transaction and the impact and uncertainty resulting from the imposition or threat of new duties, tariffs, trade barriers and retaliatory countermeasures by the U.S. and other governments on the marketplace generally and specifically, our tenants. The process of reviewing strategic alternatives is time consuming and may be distracting to the employees of our Business Manager and Real Estate Manager and may be disruptive to our business. In addition, any perceived uncertainty regarding our future operations or business may limit the ability of our Business Manager or Real Estate Manager to retain or hire qualified personnel and may impact our ability to attract or retain tenants at our properties.
We may be unable to renew expiring leases with existing tenants or re-lease spaces to new tenants on favorable terms or at all.
Our results of operations depend to a significant degree on our ability to continue to lease our properties, including renewing expiring leases, leasing vacant space and re-leasing space in properties where leases are expiring. As of June 30, 2025, our portfolio had physical
31
and economic occupancy of 91.6% and 91.9%, respectively, and the weighted average lease expiration for our portfolio was 4.5 years. During the remainder of 2025, leases for approximately 5% of our portfolio, measured by total ABR, expire and in 2026, leases for approximately 8% of our portfolio, measured by total ABR, expire. The existing tenants may decline to renew leases and we may not be able to find replacement tenants. We cannot guarantee that leases that are renewed or new leases will have terms that are as economically favorable to us as the expiring leases, or that substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options will not be offered to retain tenants or attract new tenants or that we will be able to lease a property at all. We may experience significant costs in connection with re-leasing a significant number of our properties, which could materially and adversely affect us.
We have entered into both short-term and long-term leases with some of our retail tenants. Our short-term leases may expose us to the effects of declining market rent and our long-term leases may limit our ability to adjust lease rates to fair market rental rates which may adversely affect our revenues and ultimately our ability to make distributions.
Although as of June 30, 2025, the weighted average lease expiration for our portfolio was 4.5 years, we have entered into both short-term leases, with lease terms of fewer than three years, and long-term leases, with lease terms of greater than seven years, both of which expose us to risk. Our short-term leases expose us to the effects of declining market rent. There is no assurance that we will be able to renew these short-term leases as they expire or attract replacement tenants on comparable terms, if at all. Therefore, the returns we earn on this type of investment may be more volatile than the returns generated by properties with longer term leases.
In contrast, long-term leases do not allow for significant changes in rental payments and do not expire in the near term. If we do not accurately judge the potential for increases in market rental rates when negotiating these long-term leases, significant increases in future property operating costs could result in receiving less than fair market rental rates from these leases. These circumstances would adversely affect our revenues and funds available for distribution.
The financial covenants under our credit agreement may restrict our ability to make distributions and our operating and acquisition activities. If we breach the financial covenants we could be held in default under the credit agreement, which could accelerate our repayment date and materially adversely affect our liquidity and financial condition.
We entered into a second amended and restated credit agreement in February 2022 for a $475.0 million Credit Facility consisting of a revolving credit facility providing initial revolving credit commitments in an aggregate amount of $200.0 million (the “Revolving Credit Facility”) and a term loan facility providing initial term loan commitments in an aggregate amount of $275.0 million (the “Term Loan”). On May 17, 2022, we entered into a First Amendment to Credit Agreement Regarding Incremental Term Loans (the “First Amendment”), amending the terms of the Credit Agreement primarily to draw an additional $300.0 million to fund the acquisition of investment properties during May 2022. The credit agreement provides us with the ability from time to time to increase the size of the Credit Facility in an amount not to exceed $1.2 billion, subject to certain conditions. Our performance of the obligations under the credit agreement, including the payment of any outstanding indebtedness, is secured by a minimum pool of 15 unencumbered properties with an unencumbered pool value of $300.0 million or above and by a guaranty by certain of our subsidiaries. As of both August 12, 2025 and June 30, 2025, we had $122 million outstanding of the $200 million available under the Revolving Credit Facility. Our maximum availability under the Revolving Credit Facility was $78 million as of both August 12, 2025 and June 30, 2025, subject to various terms and conditions, including compliance with the covenants, of the Amended and Restated Credit Agreement that governs the Credit Facility. Although $78 million is the maximum amount that could be available as of both August 12, 2025 and June 30, 2025, covenant limitations, particularly the leverage ratio, affect what we can actually draw. As of both August 12, 2025 and June 30, 2025, approximately $44 million is available to draw as additional debt under the Revolving Credit Facility. By “additional debt,” we mean debt in addition to existing debt such as existing mortgages. The properties comprising the borrowing base for the Credit Facility are not available to be used as collateral for other debt unless removed from the borrowing base, which would reduce availability under the Credit Facility. Under the terms of the credit agreement, our leverage ratio generally cannot exceed 65%. As of June 30, 2025, our leverage ratio was 56%. There has been substantially less available to actually draw or undertake as additional debt than the maximum amount available, and there may be additional periods during which the amount we can actually draw or otherwise incur as additional debt is considerably less than the maximum amount available, for example, if high inflation or high interest rates were to negatively affect our tenants.
The credit agreement requires compliance with certain financial covenants, including, among other conditions, a Consolidated Tangible Net Worth requirement, restrictions on indebtedness, a distribution limitation and other material covenants. Compliance with these covenants could inhibit our ability to make distributions to our stockholders and to pursue certain business initiatives or effect certain transactions that might otherwise be beneficial to us. For example, without lender consent, we may not declare and pay distributions or honor any redemption requests if any default under the agreement then exists or if distributions, excluding any distributions reinvested through our DRP, for the then-current quarter and the three immediately preceding quarters would exceed 95% of our Funds from Operations, or “FFO,” excluding acquisition expenses, or “adjusted FFO,” for that period.
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The credit agreement provides for several customary events of default, including, among other things, the failure to comply with our covenants under the credit agreement, such as the “Consolidated Tangible Net Worth” covenant as defined in the credit agreement, and the failure to pay when amounts outstanding under the credit agreement become due or defaulting by us or our subsidiaries in the payment of an amount due under, or in the performance of any term, provision or condition contained in, any agreement providing for another debt arrangement, such as a mortgage, beyond certain dollar thresholds specified in our Credit Facility. Tenant bankruptcies negatively impact our compliance with the Consolidated Tangible Net Worth covenant even if the tenant continues to pay rent. There is no guarantee that our lenders under the credit agreement will grant a waiver of this covenant or any other covenant that we might be in danger of violating or required representation that we cannot make. Any merger, sale of assets, consolidation or change of control may constitute a default under the credit agreement. Defaults under the credit agreement could restrict our ability to borrow additional monies and could cause all amounts to become immediately due and payable, which would materially adversely affect our liquidity and financial condition.
Volatility in the financial markets and challenging economic conditions could adversely affect our ability to secure debt financing on attractive terms and our ability to service any future indebtedness that we may incur.
We have funded our capital needs almost exclusively through cash flow from operations (to the extent positive) and through draws on the Credit Facility, if needed. The domestic and international commercial real estate debt markets have been volatile resulting in increases in interest rates or changes in the expected or anticipated rate of decline and, from time to time, the tightening of underwriting standards by lenders and credit rating agencies, which limits the availability of credit and increase costs for what is available. We may also face a heightened level of interest rate risk, for example, if the U.S. Federal Reserve Board increases interest rates or decreases the pace of any reductions in response to, among other things, changing inflationary expectations. All these actions will likely lead to increases in our borrowing costs and may impact our ability to access capital on favorable terms, in a timely manner, or at all, which could adversely affect our ability to obtain funding for our capital needs, such as future acquisitions. As of June 30, 2025, we have a total of approximately $93 million and approximately $167 million of indebtedness bearing interest at a weighted rate of 3.80% and 5.79%, respectively, maturing in calendar year 2025 and 2026, respectively. A total of approximately $138 million of this debt is secured by mortgages on certain of our properties and $122 million relates to draws on the Revolving Credit Facility, the maturity of which may be extended at the Company’s option for an additional 12 months. Interest rates and the costs of hedging variable interest debt by using swaps have increased since the maturing debt was incurred. If the overall cost of borrowing increases, either by increases in the index rates or by increases in lender spreads, the increased costs may result in existing or future acquisitions generating lower overall economic returns and potentially reducing future cash flow available to us. If interest rates on all debt which bears interest at variable rates as of June 30, 2025 increased by 1% (100 basis points), the increase in interest expense on all debt would decrease earnings and cash flows by $1.2 million annually.
As of June 30, 2025, we had $122 million outstanding under the Revolving Credit Facility and $575 million outstanding under the Term Loan. The Revolving Credit Facility matures on February 3, 2026 subject to a twelve month extension, at the Company’s option. The Term Loan matures on February 3, 2027. As of August 12, 2025, in the next 12 months, we have four mortgage loans maturing with an aggregate principal balance of $137.5 million, which we intend to repay with cash flows from operating activities, cash on hand, proceeds available under the Revolving Credit Facility or proceeds from refinancing of mortgage loans. If the interest rates upon refinancing of the maturing mortgage loans were to increase by 1% (100 basis points), the increase in interest expense would decrease earnings and cash flows by $1.4 million annually. Volatility in the debt markets may negatively impact our ability to borrow monies to refinance any of our indebtedness as it comes due on favorable terms, or at all. Economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio. Increases in interest rates or changes in underwriting standards imposed by lenders may require us to increase the collateral securing mortgage loans or comprising the borrowing base under the Revolving Credit Facility to the extent we seek to renew the Revolving Credit Facility. We may have to use cash on hand, draws on our Revolving Credit Facility or other sources of cash to the extend available to fund additional monies to repay or refinance any indebtedness or may realize fewer proceeds from new or refinanced mortgage loans or reduced availability under the Revolving Credit Facility. If we are unable to repay or refinance any indebtedness secured by mortgages, we would lose the mortgaged property in a foreclosure action.
Item 2. Unregistered Sales of Equ
ity Securities and Use of Proceeds
Recent Sales of Unregistered Equity Securities
During the quarter covered by this report, we did not sell any equity securities that were not registered under the Securities Act.
Share Repurchase Program
During the three months ended June 30, 2025, we did not repurchase any shares of our common stock.
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Item 3. Defaults Up
on Senior Securities
None.
Item 4. Mine Safe
ty Disclosures
Not Applicable.
Item 5. Othe
r Information
Trading Arrangements
During the three months ended June 30, 2025
, none of the Company’s directors or executive officers
adopted
or
terminated
any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
Indemnification Agreements
Effective May 6, 2025, the Company entered into an indemnification agreement (the “Indemnification Agreement”) with each of its existing directors and executive officers, as well as with a person who recently retired from his position as a director. The Indemnification Agreement, the form of which the board of directors of the Company approved on May 6, 2025, requires the Company to indemnify each of the covered directors and executive officers for claims arising in such person's capacity as a director, executive officer or other agent of the Company to the fullest extent permitted by law except as otherwise provided in the agreement. The rights of each director or executive officer party to an Indemnification Agreement are in addition to any other rights such person may have under the Company’s Articles of Amendment and Restatement, Amended and Restated Bylaws or otherwise under Maryland law.
The above description of the Indemnification Agreement does not purport to be complete and is qualified in its entirety by reference to the form of Indemnification Agreement, a copy of which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.1.
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Item 6.
Exhibits
The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto and are incorporated herein by reference.
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH
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104
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* Filed herewith.
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SIGNA
TURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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