10-Q 1 ck0001690012-10q_20210331.htm 10-Q ck0001690012-10q_20210331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

OR

 

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 000-55782

 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

(Exact name of registrant as specified in its charter)

 

 

Maryland

32-0506267

(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: (800) 826-8228  

 

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

 

 

 

 

 

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 May 13, 2021, the Registrant had the following shares outstanding: 10,142,801 shares of Class P common stock, 399,818 shares of Class T common stock, 384,783 shares of Class I common stock, 659,118 shares of Class A common stock, 50,884 shares of Class D common stock and no shares of Class S common stock.

 

 

 

 


 

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

2

 

 

 

 

Unaudited Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020

3

 

 

 

 

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2021 and 2020

4

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

5

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

PART II OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

Item 1A.

Risk Factors

35

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

 

Item 3.

Defaults Upon Senior Securities

37

 

 

 

Item 4.

Mine Safety Disclosures

37

 

 

 

Item 5.

Other Information

37

 

 

 

Item 6.

Exhibits

38

 

 

Signatures

39

 

1


 

 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except share data)

 

 

 

March 31, 2021

(unaudited)

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

52,644

 

 

$

72,107

 

Commercial mortgage loans at cost

 

 

475,414

 

 

 

441,814

 

Real estate owned, net of depreciation

 

 

32,236

 

 

 

32,474

 

Finance lease right of use asset, net of amortization

 

 

5,507

 

 

 

5,525

 

Deferred debt finance costs

 

 

1,183

 

 

 

1,001

 

Accrued interest receivable

 

 

1,241

 

 

 

1,168

 

Prepaid expenses and other assets

 

 

1,014

 

 

 

902

 

Total assets

 

$

569,239

 

 

$

554,991

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Repurchase agreements—commercial mortgage loans

 

 

305,943

 

 

 

290,699

 

Finance lease liability

 

 

16,865

 

 

 

16,790

 

Loan fees payable

 

 

361

 

 

 

401

 

Due to related parties

 

 

2,294

 

 

 

2,093

 

Accrued interest payable

 

 

296

 

 

 

292

 

Distributions payable

 

 

1,012

 

 

 

867

 

Accrued expenses

 

 

4,009

 

 

 

3,593

 

Total liabilities

 

 

330,780

 

 

 

314,735

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Class P common stock, $0.001 par value, 500,000,000 shares authorized,

   10,145,579 and 10,151,787 shares issued and outstanding at March 31,

   2021 and December 31, 2020, respectively

 

 

10

 

 

 

10

 

Class A common stock, $0.001 par value, 500,000,000 shares authorized, 658,266

   and 655,835 shares issued and outstanding as of March 31, 2021 and December 31,

   2020, respectively

 

 

1

 

 

 

1

 

Class T common stock, $0.001 par value, 500,000,000 shares authorized, 399,381

   and 398,233 shares issued and outstanding as of March 31, 2021 and December 31,

   2020, respectively

 

 

 

 

 

Class S common stock, $0.001 par value, 500,000,000 shares authorized, 0 shares

   issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

 

 

 

 

 

Class D common stock, $0.001 par value, 500,000,000 shares authorized, 50,751 and

   50,393 shares issued and outstanding as of March 31, 2021 and December 31, 2020,

   respectively

 

 

 

 

 

Class I common stock, $0.001 par value, 500,000,000 shares authorized, 384,038 and

   381,955 shares issued and outstanding as of March 31, 2021 and December 31, 2020,

   respectively

 

 

 

 

 

Additional paid in capital (net of offering costs of $25,240 and $24,964 at March 31,

   2021 and December 31, 2020, respectively)

 

 

287,228

 

 

 

287,498

 

Accumulated deficit

 

 

(48,780

)

 

 

(47,253

)

Total stockholders’ equity

 

 

238,459

 

 

 

240,256

 

Total liabilities and stockholders’ equity

 

$

569,239

 

 

$

554,991

 

 

The accompanying notes are an integral part of these consolidated financial statements

2


 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, dollar amounts in thousands, except share data)

 

 

 

Three months ended March 31,

 

 

 

2021

 

 

2020

 

Income:

 

 

 

 

 

 

 

 

Interest income

 

$

6,451

 

 

$

10,356

 

Less: Interest expense

 

 

(1,894

)

 

 

(3,962

)

Net interest income

 

 

4,557

 

 

 

6,394

 

Revenue from real estate owned

 

 

868

 

 

 

 

Total income

 

 

5,425

 

 

 

6,394

 

Operating expenses:

 

 

 

 

 

 

 

 

Advisory fee

 

 

737

 

 

 

844

 

Debt finance costs

 

 

431

 

 

 

254

 

Directors compensation

 

 

21

 

 

 

24

 

Professional service fees

 

 

224

 

 

 

218

 

Real estate owned operating expenses

 

 

2,155

 

 

 

 

Depreciation and amortization

 

 

272

 

 

 

 

Other expenses

 

 

220

 

 

 

225

 

Total operating expenses

 

 

4,060

 

 

 

1,565

 

Other income (loss):

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

 

 

 

(4,500

)

Unrealized loss in value of real estate securities

 

 

 

 

 

(38,187

)

Total other income (loss)

 

 

 

 

 

(42,687

)

Net income (loss)

 

$

1,365

 

 

$

(37,858

)

Net income (loss) per share basic and diluted

 

$

0.12

 

 

$

(3.34

)

Weighted average number of shares

 

 

 

 

 

 

 

 

Basic

 

 

11,640,959

 

 

 

11,349,448

 

Diluted

 

 

11,640,969

 

 

 

11,349,581

 

 

The accompanying notes are an integral part of these consolidated financial statements

3


 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited, dollar amounts in thousands)

 

For the three months ended March 31, 2021

Par Value

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class P

 

 

Class A

 

 

Class T

 

 

Class S

 

 

Class D

 

 

Class I

 

 

Additional

Paid in

Capital

 

 

Accumulated Deficit

 

 

Total

Stockholders’

Equity

 

Balance as of December 31, 2020

$

10

 

 

$

1

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

287,498

 

 

$

(47,253

)

 

$

240,256

 

Proceeds from issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(276

)

 

 

 

 

 

(276

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,365

 

 

 

1,365

 

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,892

)

 

 

(2,892

)

Distribution reinvestment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

 

 

 

120

 

Redemptions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(125

)

 

 

 

 

 

(125

)

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Balance as of March 31, 2021

$

10

 

 

$

1

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

287,228

 

 

$

(48,780

)

 

$

238,459

 

 

 

 

For the three months ended March 31, 2020

Par Value

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class P

 

 

Class A

 

 

Class T

 

 

Class S

 

 

Class D

 

 

Class I

 

 

Additional

Paid in

Capital

 

 

Accumulated Deficit

 

 

Total

Stockholders’

Equity

 

Balance as of December 31, 2019

$

10

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

265,963

 

 

$

(9,807

)

 

$

256,166

 

Proceeds from issuance of common stock

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,260

 

 

 

 

 

 

24,261

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,565

)

 

 

 

 

 

(1,565

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,858

)

 

 

(37,858

)

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,525

)

 

 

(3,525

)

Distribution reinvestment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

127

 

 

 

 

 

 

127

 

Redemptions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(763

)

 

 

 

 

 

(763

)

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Balance as of March 31, 2020

$

10

 

 

$

1

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

288,030

 

 

$

(51,190

)

 

$

236,851

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

4


 

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, dollar amounts in thousands)

 

 

For the three months ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,365

 

 

$

(37,858

)

Adjustments to reconcile net income (loss) to cash provided by operations:

 

 

 

 

 

 

 

 

Net unrealized loss on real estate securities

 

 

 

 

 

38,187

 

Provision for loan losses

 

 

 

 

 

4,500

 

Depreciation and amortization expense

 

 

272

 

 

 

 

Reduction in the carrying amount of the right-of-use asset

 

 

18

 

 

 

 

Amortization of equity-based compensation

 

 

10

 

 

 

8

 

Amortization of debt finance costs to operating expense

 

 

431

 

 

 

254

 

Amortization of debt finance costs to interest expense

 

 

13

 

 

 

19

 

Amortization of bond discount

 

 

 

 

 

(221

)

Amortization of origination fees

 

 

(203

)

 

 

(360

)

Amortization of loan extension fees

 

 

(97

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(73

)

 

 

(58

)

Accrued expenses

 

 

416

 

 

 

(381

)

Loan fees payable

 

 

(40

)

 

 

430

 

Accrued interest payable

 

 

79

 

 

 

(138

)

Due to related parties

 

 

76

 

 

 

553

 

Prepaid expenses and other assets

 

 

(112

)

 

 

47

 

Net cash provided by operating activities

 

 

2,155

 

 

 

4,982

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Origination of commercial loans

 

 

(33,286

)

 

 

(50,543

)

Loan extension fees received on commercial loans

 

 

51

 

 

 

 

Principal repayments of commercial loans

 

 

77

 

 

 

 

Acquisition of real estate owned and capital expenditures

 

 

(34

)

 

 

 

Real estate securities principal paydown

 

 

 

 

 

2,054

 

Net cash used in investing activities

 

 

(33,192

)

 

 

(48,489

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

1

 

 

 

24,261

 

Redemptions of common stock

 

 

(125

)

 

 

(763

)

Payment of offering costs

 

 

(294

)

 

 

(1,132

)

Proceeds from repurchase agreements

 

 

15,244

 

 

 

402,767

 

Principal repayments of repurchase agreements

 

 

 

 

 

(367,307

)

Debt finance costs

 

 

(626

)

 

 

(185

)

Distributions paid

 

 

(2,626

)

 

 

(5,098

)

Net cash provided by financing activities

 

 

11,574

 

 

 

52,543

 

Net change in cash, cash equivalents and restricted cash

 

 

(19,463

)

 

 

9,036

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

72,107

 

 

 

37,639

 

Cash, cash equivalents and restricted cash at end of period

 

$

52,644

 

 

$

46,675

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Amortization of deferred exit fees due to related party

 

$

142

 

 

$

231

 

Interest paid

 

$

1,890

 

 

$

4,100

 

Receivable for real estate securities paydown

 

$

 

 

$

(34

)

Accrued stockholder servicing fee due to related party

 

$

(18

)

 

$

433

 

Distribution reinvestment

 

$

120

 

 

$

127

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

5


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

 

Note 1 – Organization and Business Operations

InPoint Commercial Real Estate Income, Inc. (the “Company”) was incorporated in Maryland on September 13, 2016 to originate, acquire and manage a diversified portfolio of commercial real estate (“CRE”) investments primarily comprised of floating-rate CRE debt, including first mortgage loans, subordinate mortgage and mezzanine loans, and participations in such loans. The Company may also invest in floating-rate CRE securities, such as commercial mortgage-backed securities (“CMBS”), and senior unsecured debt of publicly traded real estate investment trusts (“REITs”), and select equity investments in single-tenant, net leased properties. Substantially all of the Company’s business is conducted through InPoint REIT Operating Partnership, LP (the “Operating Partnership”), a Delaware limited partnership. The Company is the sole general partner and directly or indirectly holds all of the limited partner interests in the Operating Partnership. The Company has elected to be taxed as a REIT for U.S. federal income tax purposes.

The Company is externally managed by Inland InPoint Advisor, LLC (the “Advisor”), a Delaware limited liability company formed in August 2016 that is a wholly owned indirect subsidiary of Inland Real Estate Investment Corporation, a member of The Inland Real Estate Group of Companies, Inc. The Advisor is responsible for coordinating the management of the day-to-day operations and originating, acquiring and managing the Company’s CRE investment portfolio, subject to the supervision of the Company’s board of directors (the “Board”). The Advisor performs its duties and responsibilities as the Company’s fiduciary pursuant to an advisory agreement dated April 29, 2019 among the Company, the Operating Partnership and the Advisor (the “Advisory Agreement”).

The Advisor has delegated certain of its duties to SPCRE InPoint Advisors, LLC (the “Sub-Advisor”), a Delaware limited liability company formed in September 2016 that is a wholly owned subsidiary of Sound Point CRE Management, LP, pursuant to an amended and restated sub-advisory agreement between the Advisor and the Sub-Advisor dated April 29, 2019. Among other duties, the Sub-Advisor has the authority to identify, negotiate, acquire and originate the Company’s investments and provide portfolio management, disposition, property management and leasing services to the Company. Notwithstanding such delegation to the Sub-Advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the Advisory Agreement, including those duties which the Advisor has not delegated to the Sub-Advisor such as (i) valuation of the Company’s assets and calculation of the Company’s net asset value (“NAV”); (ii) management of the Company’s day-to-day operations; (iii) preparation of stockholder reports and communications and arrangement of the Company’s annual stockholder meeting; and (iv) advising the Company regarding its initial qualification as a REIT for U.S. federal income tax purposes and monitoring its ongoing compliance with the REIT qualification requirements thereafter.

On October 25, 2016, the Company commenced a private offering (the “Private Offering”) of up to $500,000 in shares of Class P common stock (“Class P shares”). Inland Securities Corporation, an affiliate of the Advisor (the “Dealer Manager”), was the dealer manager for the Private Offering. The Company issued 10,258,094 Class P shares in the Private Offering, resulting in gross proceeds of $276,681 and terminated the Private Offering on June 28, 2019, in anticipation of selling shares in a registered public offering.

On May 3, 2019, the Company commenced its public offering of up to $2,350,000 of shares of its common stock (the “IPO”) registered with the Securities and Exchange Commission (the “SEC”) on Form S-11 (File No. 333-230465, the “Registration Statement”). The purchase price per share for each class of common stock in the IPO (Class A, Class I, Class D, Class S and Class T) varies and generally equals the prior month’s NAV per share, as determined monthly, plus applicable upfront selling commissions and dealer manager fees. The Dealer Manager serves as the Company’s exclusive dealer manager for the IPO on a best efforts basis.

On March 24, 2020, the Board suspended (i) the sale of shares in the IPO, (ii) the operation of the share repurchase program (the “SRP”), (iii) the payment of distributions to the Company’s stockholders, and (iv) the operation of the distribution reinvestment plan (the “DRP”), effective as of April 6, 2020. In determining to take these actions, the Board considered various factors, including the impact of the global COVID-19 pandemic on the economy, the inability to accurately calculate the Company’s NAV per share due to uncertainty, volatility and lack of liquidity in the market, the Company’s need for liquidity due to financing challenges related to additional collateral required by the banks that regularly finance the Company’s assets and these uncertain and rapidly changing economic conditions.

Though the Company did not calculate the NAV for the months of March through May 2020, the Advisor resumed calculating the NAV beginning as of June 30, 2020 following its determination that there has been reduced volatility in the market for the Company’s investments and some improvement in the U.S. economic outlook. In August 2020, the Company resumed paying distributions monthly to stockholders of record for all classes of its common stock. On October 1, 2020, the SEC declared effective the Company’s post-effective amendment to the Registration Statement, thereby permitting the Company to resume offers and sales of shares of

6


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

common stock in the IPO, including through the DRP. On March 1, 2021, the SRP was reinstated for the Company’s stockholders requesting repurchase of shares as a result of the death or qualified disability of the holder.

The Board has also approved the reinstatement of the SRP for all stockholders, effective July 1, 2021. Repurchase requests must be submitted on or after July 1, 2021. The first settlement of permitted repurchase requests will be on July 30, 2021, the last business day of the month. In accordance with the terms of the SRP that allow the Company to repurchase fewer shares than the maximum amount permitted under the SRP, for the months of July, August and September 2021, the total amount of aggregate repurchases of shares will be limited to no more than 1% of the Company’s aggregate NAV per month as of the last day of the previous calendar month and no more than 2.5% of the Company’s aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter. Beginning on October 1, 2021, the total amount of aggregate repurchases of shares will be limited as set forth in the SRP (no more than 2% of the Company’s aggregate NAV per month as of the last day of the previous calendar month and no more than 5% of the Company’s aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter). Notwithstanding the foregoing, the Company may repurchase fewer shares than these limits in any month, or none. Further, the Board may modify, suspend or terminate the SRP if it deems such action to be in the Company’s best interest and the best interest of its stockholders.

Please refer to “Note 15 – Subsequent Events” for updates to the Company’s business after March 31, 2021.

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, 2020 (the “Annual Report”), as filed with the SEC on March 19, 2021, under the heading “Note 2 – Summary of Significant Accounting Policies.” There have been no changes to the Company’s significant accounting policies for the three months ended March 31, 2021.

Basis of Accounting

The accompanying consolidated financial statements and related footnotes have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reported periods. Actual results could differ from such estimates.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

 

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include funds on deposit with financial institutions, including demand deposits with financial institutions with original maturities of three months or less. The account balance may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage limits and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage limits. The Company believes that the risk will not be significant, as the Company does not anticipate the financial institutions’ non-performance.

Restricted cash represents cash the Company is required to hold in a segregated account as additional collateral on real estate securities repurchase agreements. As of March 31, 2021 and December 31, 2020, the Company had repaid all outstanding repurchase agreements secured by real estate securities and, therefore, no restricted cash was held.

Accounting Pronouncements Recently Issued but Not Yet Effective

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes how entities measure credit losses for financial assets carried at amortized cost. ASU 2016-13 eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. ASU 2016-13 is effective for SEC filers for reporting periods beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”,

7


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

which grants smaller reporting companies (as defined by the SEC) until reporting periods commencing after December 15, 2022 to implement ASU 2016-13. As a smaller reporting company, the Company will continue to evaluate the future impact ASU 2016-13, once implemented, will have on its allowance for loan losses estimate.

Note 3 – Commercial Mortgage Loans Held for Investment

The tables below show the Company’s commercial mortgage loans held for investment as of March 31, 2021 and December 31, 2020:

March 31, 2021

 

Loan Type (1)

 

Number

of Loans

 

 

Principal

Balance

 

 

Unamortized (fees)/costs, net

 

 

Carrying

Value

 

 

Weighted Average

Interest Rate

 

 

Weighted Average

Years to Maturity

 

First mortgage loans

 

 

28

 

 

$

458,404

 

 

$

510

 

 

$

458,914

 

 

 

5.3

%

 

 

1.4

 

Credit loans

 

 

3

 

 

 

16,500

 

 

 

 

 

 

16,500

 

 

 

9.5

%

 

 

4.6

 

Total and average

 

 

31

 

 

$

474,904

 

 

$

510

 

 

$

475,414

 

 

 

5.4

%

 

 

1.5

 

 

December 31, 2020

 

Loan Type (1)

 

Number

of Loans

 

 

Principal

Balance

 

 

Unamortized (fees)/costs, net

 

 

Carrying

Value

 

 

Weighted Average

Interest Rate

 

 

Weighted Average

Years to Maturity

 

First mortgage loans

 

 

26

 

 

$

425,196

 

 

$

118

 

 

$

425,314

 

 

 

5.3

%

 

 

1.5

 

Credit loans

 

 

3

 

 

 

16,500

 

 

 

 

 

 

16,500

 

 

 

9.5

%

 

 

4.9

 

Total and average

 

 

29

 

 

$

441,696

 

 

$

118

 

 

$

441,814

 

 

 

5.5

%

 

 

1.6

 

 

 

 

(1)

First mortgage loans are first position mortgage loans and credit loans are mezzanine and subordinated loans.

For the three months ended March 31, 2021 and the year ended December 31, 2020, the activity in the Company’s commercial mortgage loans, held-for-investment portfolio was as follows:

 

 

Three Months Ended March 31, 2021

 

 

Year Ended December 31, 2020

 

Balance at Beginning of Year

 

$

441,814

 

 

$

504,702

 

Loan originations

 

 

33,286

 

 

 

69,135

 

Principal repayments

 

 

(77

)

 

 

(99,727

)

Amortization of loan origination, loan extension and deferred exit fees

 

 

442

 

 

 

1,818

 

Sale of commercial loan

 

 

 

 

 

(10,000

)

Origination fees and extension fees received on commercial loans

 

 

(51

)

 

 

 

Provision for loan losses

 

 

 

 

 

(4,726

)

Deferred interest capitalized on commercial loan

 

 

 

 

 

386

 

Transfer on deed-in-lieu of foreclosure to real estate owned

 

 

 

 

 

(19,774

)

Balance at End of Period

 

$

475,414

 

 

$

441,814

 

 

8


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

 

Allowance for Loan Losses

The following table presents the activity in the Company’s allowance for loan losses:

 

 

 

Three Months Ended March 31, 2021

 

 

Three Months Ended March 31, 2020

 

Beginning of period

 

$

 

 

$

 

Provision for loan losses

 

 

 

 

 

4,500

 

Charge-offs

 

 

 

 

 

 

Ending allowance for loan losses

 

$

 

 

$

4,500

 

 

During the three-month period ended March 31, 2021, the Company determined that no loan losses were probable and, therefore, did not record an allowance for loan losses. In accordance with the Company’s allowance for loan loss policy, during the three-month period ended March 31, 2020, the Company recorded impairment charges of $3,000 on one first mortgage loan secured by a hotel property in Illinois and $1,500 on a credit loan secured by a hotel property located in Florida. The impairment charges were based on the estimated fair value of the underlying collateral. As of March 31, 2020, the recorded investments in these loans were $21,500 ($24,500, net of a $3,000 allowance for loan loss) and $1,500 ($3,000, net of a $1,500 allowance for loan loss), respectively. For the three months ended March 31, 2020, interest income for the impaired loans was $546. The two impaired loans were current on monthly payments, however, the economic impact of the COVID-19 pandemic on the hospitality industry was the key factor in the determination that the loans were impaired. For further information on the Company’s allowance for loan losses policy, see “Note 2 – Summary of Significant Accounting Policies” in its Annual Report.

Credit Characteristics

As part of the Company’s process for monitoring the credit quality of its investments, it performs a quarterly asset review of the investment portfolio and assigns risk ratings to each of its loans and CMBS. Risk factors include payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographic location, as well as national and regional economic factors. To determine the likelihood of loss, the loans are rated on a 5-point scale as follows:

 

Investment

Grade

Investment Grade Definition

1

Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable.

2

Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.

3

Performing investment requiring closer monitoring. Trends and risk factors show some deterioration. Collection of principal and interest is still expected.

4

Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative.

5

Underperforming investment with expected loss of interest and some principal.

 

All investments are assigned an initial risk rating of 2 at origination or acquisition.

As of March 31, 2021, 22 loans had a risk rating of 2, six had a risk rating of 3 and three had a risk rating of 4. As of December 31, 2020, 19 loans had a risk rating of 2, seven had a risk rating of 3 and three had a risk rating of 4. There were no loans with a risk rating of 1 or 5 as of March 31, 2021 or December 31, 2020.

Note 4 – Real Estate Securities

The Company classified its real estate securities as available-for-sale as of March 31, 2020. These investments were reported at fair value in the consolidated balance sheets with changes in fair value recorded in other income or loss in the consolidated statements of operations. The Company did not hold any real estate securities at March 31, 2021 or December 31, 2020.

9


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

During the three months ended March 31, 2020, the Company held real estate securities that generated unrealized losses in value of $38,187, primarily attributed to the significant economic impact of the COVID-19 pandemic on the economy.

Note 5 – Repurchase Agreements and Credit Facilities

Commercial Mortgage Loans

On February 15, 2018, the Company, through a wholly owned subsidiary, entered into a master repurchase agreement (the “CF Repo Facility”) with Column Financial, Inc. as administrative agent for certain of its affiliates. The CF Repo Facility had an initial advance amount of $100,000 subject to a maximum advance amount of $250,000. The Company increased the advance amount in August 2018 to $175,000, and in January 2019 to $250,000. In March 2020, the Company temporarily increased the maximum advance amount to $300,000, and this increase expired on June 30, 2020 and the maximum advance amount reverted to $250,000. The initial term of the CF Repo Facility was 12 months and the Company extended the maturity date in March 2020 to February 2021. During December 2020, the maturity date was further extended to December 2021. Advances under the CF Repo Facility for loans made before December 18, 2020 accrue interest at a per annum rate equal to the London Interbank Offered Rate (“LIBOR”) plus 2.25% with a 0.75% floor. Loans made on or after December 18, 2020 accrue interest at a per annum annual rate equal to LIBOR plus 2.25% to 2.75% with a 0.25% to 0.75% floor. The CF Repo Facility is subject to certain financial covenants. The Company was in compliance with all financial covenant requirements as of March 31, 2021 and December 31, 2020.

On May 6, 2019, the Company, through a wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association. The JPM Repo Facility provides up to $150,000 in advances that the Company expects to use to finance the acquisition or origination of eligible loans and participation interests therein. Advances under the JPM Repo Facility accrue interest at per annum rates equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of between 1.75% to 2.50%, depending on the attributes of the purchased assets. The initial maturity date of the JPM Repo Facility is May 6, 2021, with two successive one-year extensions at the Company’s option, which may be exercised upon the satisfaction of certain conditions. The JPM Repo Facility is subject to certain financial covenants. The Company was in compliance with all financial covenant requirements as of March 31, 2021 and December 31, 2020.

On March 10, 2021, the Company, through a wholly owned subsidiary, entered into a loan and security agreement and a promissory note (collectively the “WA Facility”) with Western Alliance Bank, an Arizona corporation (“Western Alliance”). The WA Facility provides for loan advances up to the lesser of $75,000 or the borrowing base. The borrowing base consists of eligible assets pledged to and accepted by Western Alliance in its discretion up to the lower of (i) 60% to 70% of loan-to-unpaid balance or (ii) 45% to 50% of the loan-to-appraised value (depending on the property type underlying the asset, for both (i) and (ii)). Assets that would otherwise be eligible become ineligible after being pledged as part of the borrowing base for 36 months. Advances under the WA Facility accrue interest at an annual rate equal to one-month LIBOR plus 3.25% with a floor of 4.0%. The initial maturity date of the WA Facility is March 10, 2023. The Company has an option to convert the loan made pursuant to the WA Facility upon its initial maturity to a term loan with the same interest rate and floor and a maturity of two years in exchange for, among other things, a conversion fee of 0.25% of the outstanding amount at the time of conversion. The WA Facility requires maintenance of an average unrestricted aggregate deposit account balance with Western Alliance of not less than $3,750. Failure to meet the minimum deposit balance will result in, among other things, the interest rate of the WA Facility increasing by 0.25% per annum for each quarter in which the compensating balances are not maintained. The Company was in compliance with all financial covenant requirements as of March 31, 2021.

The JPM Repo Facility, CF Repo Facility and WA Facility (collectively, the “Facilities”) are used to finance eligible loans and each act in the manner of a revolving credit facility that can be repaid as the Company’s assets are paid off and re-drawn as advances against new assets.

10


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

The tables below show the Facilities as of March 31, 2021 and December 31, 2020:

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

Committed Financing

 

 

Amount

Outstanding(1)

 

 

Accrued

Interest

Payable

 

 

Collateral

Pledged

 

 

Interest

Rate

 

 

Days to

Maturity

 

CF Repo Facility

$

250,000

 

 

$

169,698

 

 

$

188

 

 

$

241,538

 

 

 

3.00

%

 

 

262

 

JPM Repo Facility

 

150,000

 

 

$

136,271

 

 

$

108

 

 

$

197,616

 

 

 

2.03

%

 

 

36

 

WA Facility

 

75,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

709

 

 

$

475,000

 

 

$

305,969

 

 

$

296

 

 

$

439,154

 

 

 

2.57

%

 

 

161

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

Committed Financing

 

 

Amount

Outstanding(1)

 

 

Accrued

Interest

Payable

 

 

Collateral

Pledged

 

 

Interest

Rate

 

 

Days to

Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CF Repo Facility

$

250,000

 

 

$

159,948

 

 

$

187

 

 

$

228,359

 

 

 

3.00

%

 

 

352

 

JPM Repo Facility

 

150,000

 

 

 

130,778

 

 

 

105

 

 

 

190,047

 

 

 

2.08

%

 

 

126

 

 

$

400,000

 

 

$

290,726

 

 

$

292

 

 

$

418,406

 

 

 

2.58

%

 

 

250

 

 

(1)

Excludes $26 and $27 of unamortized debt issuance costs at March 31, 2021 and December 31, 2020, respectively.

 

Note 6 – Stockholders’ Equity

The following tables detail the change in the Company’s outstanding shares of all classes of common stock, including restricted common stock:

 

 

 

Common Stock

 

Three months ended March 31, 2021

 

Class P

 

 

Class A

 

 

Class T

 

 

Class S

 

 

Class D

 

 

Class I

 

Beginning balance

 

 

10,151,787

 

 

 

655,835

 

 

 

398,233

 

 

 

 

 

 

50,393

 

 

 

381,955

 

Issuance of shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64

 

Distribution reinvestment

 

 

 

 

 

2,431

 

 

 

1,148

 

 

 

 

 

 

358

 

 

 

2,019

 

Issuance of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redemptions

 

 

(6,208

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

 

10,145,579

 

 

 

658,266

 

 

 

399,381

 

 

 

 

 

 

50,751

 

 

 

384,038

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Three months ended March 31, 2020

 

Class P

 

 

Class A

 

 

Class T

 

 

Class S

 

 

Class D

 

 

Class I

 

Beginning balance

 

 

10,182,305

 

 

 

272,006

 

 

 

121,718

 

 

 

 

 

 

41,538

 

 

 

100,743

 

Issuance of shares

 

 

 

 

 

379,250

 

 

 

274,570

 

 

 

 

 

 

8,066

 

 

 

276,250

 

Distribution reinvestment

 

 

 

 

 

2,310

 

 

 

963

 

 

 

 

 

 

477

 

 

 

1,309

 

Issuance of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redemptions

 

 

(30,518

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

 

10,151,787

 

 

 

653,566

 

 

 

397,251

 

 

 

 

 

 

50,081

 

 

 

378,302

 

 

Distributions

Distributions declared for January and February of 2020 on Class P shares were based on monthly record dates, payable in arrears the following month equal to a monthly amount of 1/12th of $1.92 per share. Distributions declared for January and February of 2020 on shares of Class A, Class T, Class D and Class I common stock were based on monthly record dates, payable in arrears the following

11


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

month equal to a monthly amount of 1/12th of $1.62 per share. Gross distributions are reduced for certain classes of our common stock for applicable class-specific expenses to arrive at the net distribution amount for those classes.

On March 24, 2020, the Board suspended the payment of distributions to the Company’s stockholders. In determining to suspend the payment of distributions, the Board considered various factors, including the impact of the global COVID-19 pandemic on the economy, the inability to accurately calculate the Company’s NAV per share due to uncertainty, volatility and lack of liquidity in the market, the Company’s need for liquidity due to financing challenges related to additional collateral required by the banks that regularly finance the Company’s assets and these uncertain and rapidly changing economic conditions.

Though the Company did not calculate the NAV for the months of March through May 2020, the Advisor resumed calculating the NAV beginning as of June 30, 2020 following its determination that there has been reduced volatility in the market for the Company’s investments and some improvement in the U.S. economic outlook. In August 2020, the Company resumed paying distributions monthly to stockholders of record for all classes of shares. Please refer to “Note 15 – Subsequent Events” for updates on the Company’s business after March 31, 2021.

Distributions paid on all classes of shares of common stock for monthly record dates of July 31, 2020 and August 31, 2020 were payable in arrears the following month based upon monthly amounts of 1/12th of $0.8576 and $0.88 per share, respectively. For stockholders of record as of September 30, 2020, October 31, 2020, November 30, 2020 and December 31, 2020, the Company declared a distribution in the gross amount of 1/12th of $0.90 per share for all classes of shares. For stockholders of record as of January 31, 2021, February 28, 2021 and March 31, 2021, the Company declared distributions in the gross amounts of 1/12th of $0.95, $1.00 and $1.05 per share, respectively.

The table below presents the aggregate and net distributions declared for each applicable class of common stock during the three months ended March 31, 2021. The table excludes distributions declared for any month for a class of shares of stock when there were no outstanding shares of that class on the record date corresponding to that distribution.

 

 

 

Common Stock

 

Three months ended March 31, 2021

 

Class P

 

 

Class A

 

 

Class T

 

 

Class S

 

 

Class D

 

 

Class I

 

Aggregate gross distributions declared per share

 

$

0.2500

 

 

$

0.2500

 

 

$

0.2500

 

 

$

 

 

$

0.2500

 

 

$

0.2500

 

Stockholder servicing fee per share

 

N/A

 

 

N/A

 

 

 

0.0424

 

 

 

 

 

 

0.0125

 

 

N/A

 

Net distributions declared per share

 

$

0.2500

 

 

$

0.2500

 

 

$

0.2076

 

 

$

 

 

$

0.2375

 

 

$

0.2500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Three months ended March 31, 2020

 

Class P

 

 

Class A

 

 

Class T

 

 

Class S

 

 

Class D

 

 

Class I

 

Aggregate gross distributions declared per share

 

$

0.3200

 

 

$

0.2700

 

 

$

0.2700

 

 

$

 

 

$

0.2700

 

 

$

0.2700

 

Stockholder servicing fee per share

 

N/A

 

 

N/A

 

 

 

0.0349

 

 

 

 

 

 

0.0103

 

 

N/A

 

Net distributions declared per share

 

$

0.3200

 

 

$

0.2700

 

 

$

0.2351

 

 

$

 

 

$

0.2597

 

 

$

0.2700

 

 

As of March 31, 2021, and December 31, 2020, distributions declared but not yet paid amounted to $1,012 and $867, respectively.

Note 7 – Net Income (Loss) Per Share

Basic earnings per share (“EPS”) are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by the common shares plus common share equivalents. The Company’s common share equivalents are unvested restricted shares. The Company excludes antidilutive restricted shares from the calculation of weighted-average shares for diluted earnings per share. There were 165 and 17 antidilutive restricted shares for the three months ended March 31, 2021 and 2020, respectively. For further information about the Company’s restricted shares, see “Note 11 – Equity-Based Compensation.”

12


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

The following table is a summary of the basic and diluted net (loss) income per share computation for the three months ended March 31, 2021 and 2020:

 

 

 

Three months ended March 31,

 

 

 

2021

 

 

2020

 

Net income (loss)

 

$

1,365

 

 

$

(37,858

)

Weighted average shares outstanding, basic

 

 

11,640,959

 

 

 

11,349,448

 

Dilutive effect of restricted stock

 

 

10

 

 

 

133

 

Weighted average shares outstanding, diluted

 

 

11,640,969

 

 

 

11,349,581

 

Net income (loss) per share, basic and diluted

 

$

0.12

 

 

$

(3.34

)

 

Note 8 – Commitments and Contingencies

In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.

The Company has made a commitment to advance additional funds under certain of its CRE loans if the borrower meets certain conditions. As of March 31, 2021, the Company had 22 of such loans with a total remaining future funding commitment of $56,649. As of December 31, 2020, the Company had 20 such loans with a total remaining future funding commitment of $50,940. The Company advances future funds if the borrower meets certain requirements as specified in the individual loan agreements.

Note 9 – Segment Reporting

The Company has one reportable segment as defined by GAAP for the three months ended March 31, 2021 and 2020.

Note 10 – Transactions with Related Parties

As of March 31, 2021, the Advisor had invested $1,000 in the Company through the purchase of 40,040 Class P shares. The purchase price per Class P share for the Advisor’s investment was equal to $25.00, with no payment of selling commissions, dealer manager fees or organization and offering expenses. The Advisor has agreed pursuant to its subscription agreement that, for so long as it or its affiliate is serving as the Company’s advisor, (i) it will not sell or transfer at least 8,000 of the Class P shares that it has purchased, accounting for $200 of its investment, to an unaffiliated third party; (ii) it will not be eligible to submit a request for these 40,040 Class P shares pursuant to the SRP prior to the fifth anniversary of the date on which such Class P shares were purchased (November 2021); and (iii) repurchase requests made for these Class P shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.

As of March 31, 2021, Sound Point Capital Management, LP (“Sound Point”), an affiliate of the Sub-Advisor, had invested $3,000 in the Company through the purchase of 120,000 Class P shares. The purchase price per Class P share for this investment was $25.00, with no payment of selling commissions, dealer manager fees or organization and offering expenses. Sound Point has agreed pursuant to its subscription agreement that, for so long as the Sub-Advisor or its affiliate is serving as the Company’s sub-advisor, (i) it will not be eligible to submit a request for the repurchase of these 120,000 Class P shares pursuant to the SRP prior to the fifth anniversary of the date on which such Class P shares were purchased (November 2021); and (ii) repurchase requests made for these Class P shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.

13


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

The following table summarizes the Company’s related party transactions for the three months ended March 31, 2021 and 2020 and the amount due to related parties at March 31, 2021 and December 31, 2020:

 

 

 

Three months ended

March 31,

 

 

Payable as of

March 31,

 

 

Payable as of

December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Organization and offering expense reimbursement(1)

 

$

 

 

$

60

 

 

$

 

 

$

 

Selling commissions and dealer manager fee(2)

 

 

 

 

 

758

 

 

 

 

 

 

 

Advisory fee(3)

 

 

737

 

 

 

844

 

 

 

246

 

 

 

507

 

Loan fees(4)

 

 

558

 

 

 

794

 

 

 

1,376

 

 

 

912

 

Accrued stockholder servicing fee(5)

 

 

 

 

 

446

 

 

 

657

 

 

 

674

 

Operating expense reimbursement to advisor(6)

 

 

15

 

 

 

 

 

 

15

 

 

 

 

Total

 

$

1,310

 

 

$

2,902

 

 

$

2,294

 

 

$

2,093

 

 

 

 

(1)

The Company reimbursed the Advisor, the Sub-Advisor and their respective affiliates for costs and other expenses related to the Private Offering, provided that aggregate reimbursements of such costs and expenses did not exceed the organization and offering expenses paid by investors in connection with the sale of Class P shares in the Private Offering. The Company reimburses the Advisor, the Sub-Advisor and their respective affiliates for costs and other expenses related to the IPO, provided the Advisor has agreed to reimburse the Company to the extent that the organization and offering expenses that the Company incurs exceeds 15% of its gross proceeds from the IPO. For the Private Offering, offering costs were offset against stockholders’ equity when paid. For the IPO, offering costs are offset against stockholders’ equity when incurred.

(2)

The Dealer Manager received selling commissions up to 5%, and a dealer manager fee up to 3%, of the transaction price for each Class P share sold in the Private Offering, the majority of which was paid to third-party broker-dealers. For the IPO, the Dealer Manager is entitled to receive (a) upfront selling commissions of up to 6.0%, and upfront dealer manager fees of up to 1.25%, of the transaction price of each Class A share sold in the primary offering, however such amounts may vary at certain participating broker-dealers provided that the sum will not exceed 7.25% of the transaction price; (b) upfront selling commissions of up to 3.0%, and upfront dealer manager fees of 0.5%, of the transaction price of each Class T share sold in the primary offering, however such amounts may vary at certain participating broker-dealers provided that the sum will not exceed 3.5% of the transaction price; and (c) upfront selling commissions of up to 3.5% of the transaction price of each Class S share sold in the primary offering. No upfront selling commissions or dealer manager fees are paid with respect to purchases of Class D shares, Class I shares or shares of any class sold pursuant to the DRP.

(3)

Pursuant to the Advisory Agreement, (1) the fixed component of the advisory fee is paid in an amount equal to 1/12th of 1.25% per annum of the gross value of the Company’s assets, paid monthly in arrears, provided that any such monthly payment shall not exceed 1/12th of 2.5% of the Company’s NAV; and (2) the performance component of the advisory fee is calculated and paid annually, such that for any year in which the Company’s total return per share exceeds 7% per annum, the Advisor will receive 20% of the excess total return allocable to shares of the Company’s common stock; provided that in no event will the performance fee exceed 15% of the aggregate total return allocable to shares of the Company’s common stock for such year. For the three months ended March 31, 2021, the Advisor waived $737 of the fixed component of the advisory fees.

(4)

Pursuant to the Advisory Agreement, the Company pays the Advisor all loan origination and administrative fees related to CRE loans held for investment, to the extent that such fees are paid by the borrower.

(5)

Subject to the Financial Industry Regulatory Authority, Inc. limitations on underwriting compensation, the Company pays the Dealer Manager selling commissions over time as stockholder servicing fees for ongoing services rendered to stockholders by participating broker-dealers or broker-dealers servicing stockholders’ accounts as follows: (a) for Class T shares only, 0.85% per annum of the NAV of the Class T shares; (b) for Class S shares only, 0.85% per annum of the aggregate NAV for the Class S shares; and (c) for Class D shares only, 0.25% per annum of the aggregate NAV for the Class D shares. The Company will cease paying the stockholder servicing fee with respect to any Class T share, Class S share or Class D share held in a stockholder’s account upon the occurrence of certain events. The Company accrues the full cost of the stockholder servicing fee as an offering cost at the time the Company sells Class T, Class S, and Class D shares. The Dealer Manager does not retain any of these fees, all of which are retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers for ongoing stockholder services performed by such broker-dealers.

(6)

The Company reimburses the Advisor for expenses that it (or the Sub-Advisor acting on the Advisor’s behalf) incurs in connection with providing services to the Company, provided that the Company does not reimburse overhead costs, including

14


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

rent and utilities or personnel costs (including salaries, bonuses, benefits and severance payments) and the Company will only reimburse the Advisor for fees payable to its affiliates if they are incurred for legal or marketing services rendered on the Company’s behalf.

Note 11 – Equity-Based Compensation

On December 1, 2020, the Company granted each of its three independent directors 464 restricted Class I shares for a total of 1,393 Class I shares with a grant date fair value of $21.54 per share and a total combined fair value of $30. The restricted Class I shares will vest in equal one-third increments on December 1, 2021, 2022 and 2023. On December 2, 2019, the Company granted each of its three independent directors 399 restricted Class I shares for a total of 1,197 Class I shares with a grant date fair value of $25.07 per share and a total combined fair value of $30. The restricted Class I shares vest in equal one-third increments on December 2, 2020, 2021 and 2022. On January 7, 2019, the Company granted 400 restricted Class P shares to each of its three independent directors for a total of 1,200 Class P shares with a grant date fair value of $25.00 per share and a total combined fair value of $30. These restricted Class P shares vest in equal one-third increments on January 7, 2020, 2021 and 2022. On March 1, 2018, the Company granted 400 restricted Class P shares to each of its three independent directors for a total of 1,200 Class P shares with a grant date fair value of $25.00 per share and a total combined fair value of $30. These restricted Class P shares vest in equal one-third increments on March 1, 2019, 2020 and 2021.

Under the Company’s Independent Director Restricted Share Plan, restricted shares generally vest over a three-year vesting period from the date of the grant, subject to the specific terms of the grant. Restricted shares are included in common stock outstanding on the grant date. 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 independent directors was $10 and $8, in the aggregate, for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, the Company had $50 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 1.38 years. The total fair value at the vesting date for restricted shares that vested during the three months ended March 31, 2021 and 2020 was $16 and $20, respectively.

A summary table of the status of the restricted shares is presented below:

 

 

 

Restricted Shares

 

 

Weighted

Average

Grant Date

Fair Value Per Share

 

Outstanding at December 31, 2020

 

 

3,391

 

 

$

23.59

 

Granted

 

 

 

 

 

 

Vested

 

 

(800

)

 

 

25.00

 

Converted

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

2,591

 

 

$

23.16

 

 

15


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

 

Note 12 – Fair Value of Financial Instruments

GAAP requires the disclosure of fair value information about financial instruments, whether or not they are recognized at fair value in the consolidated balance sheets, for which it is practicable to estimate that value. The following table details the carrying amount and estimated fair value of the Company’s financial instruments at the dates below:

 

 

March 31, 2021

 

 

December 31, 2020

 

 

Carrying

Amount

 

 

Estimated Fair

Value

 

 

Carrying

Amount

 

 

Estimated Fair

Value

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

52,644

 

 

$

52,644

 

 

$

72,107

 

 

$

72,107

 

Commercial mortgage loans, net

 

475,414

 

 

 

475,593

 

 

 

441,814

 

 

 

441,267

 

Total

$

528,058

 

 

$

528,237

 

 

$

513,921

 

 

$

513,374

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements - commercial mortgage

   loans

 

305,943

 

 

 

305,943

 

 

 

290,699

 

 

 

290,699

 

Total

$

305,943

 

 

$

305,943

 

 

$

290,699

 

 

$

290,699

 

 

The following describes the Company’s methods for estimating the fair value for financial instruments:

The estimated fair value of cash and cash equivalents and restricted cash was based on the bank balance and was a Level 1 fair value measurement.

The estimated fair value of commercial mortgage loans, net is a Level 3 fair value measurement. The Sub-Advisor estimates the fair values of commercial loans by analyzing interest rate spreads on loans based on various factors including capitalization rates, occupancy rates, sponsorship, geographic concentration, collateral type, market conditions and actions of other lenders.

The estimated fair value of repurchase agreements – commercial mortgage loans is a Level 3 fair value measurement based on an expected present value technique. This method discounts future estimated cash flows using rates the Company determined best reflect current market interest rates that would be offered for repurchase agreements with similar characteristics and credit quality.

Note 13 – Real Estate Owned

The following table summarizes the Company’s real estate owned assets as of March 31, 2021:

 

Acquisition Date

 

Property Type

 

Primary Location(s)

 

Building and Improvements

 

 

Furniture, Fixtures and Equipment

 

 

Accumulated Depreciation

 

 

Real Estate Owned, Net

 

August 2020 (1)(2)

 

Hotel

 

Chicago, IL

 

$

26,683

 

 

$

6,230

 

 

$

(677

)

 

$

32,236

 

 

(1)

Refer to “Note 2 – Summary of Significant Accounting Policies” in the Annual Report for useful life of the above assets.

(2)

Represents assets acquired by the Company by completing a deed-in-lieu of foreclosure transaction.

During February 2021, the Company received a loan under the Paycheck Protection Program (“PPP”) related to the operations of the Company’s 362-room hotel located in Chicago, Illinois known as the Renaissance Chicago O’Hare Suites Hotel. This five-year loan was for $1,093 with a fixed interest rate of 1.00% that does not compound. The PPP was created as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). To be eligible to receive a loan, companies must make a number of certifications related to its operations, employees and size of the business on an application. Companies may also subsequently apply for loan forgiveness under the program provided that it meets requirements limiting any reduction in workforce or in pay.

The Company intends to qualify and apply for loan forgiveness and as such is accounting for this PPP loan using a government grant accounting approach. The grant proceeds are initially recorded in accrued expenses on the consolidated balance sheet. Each month,

16


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

those proceeds are applied as a reduction to payroll-related costs within real estate owned operating expenses on the consolidated statement of operations until the proceeds have been fully absorbed by the payroll-related expenses.

 

Note 14 – Leases

 

The Company is the lessee under one ground lease. The ground lease, which commenced on April 1, 1999, was assumed as part of the Renaissance Chicago O’Hare Suites Hotel acquired through a deed-in-lieu of foreclosure transaction on August 20, 2020 and extends through March 31, 2098. The lease is classified as a finance lease. Under the ground lease, the Company is prohibited from mortgaging the land but is not prohibited from making a leasehold mortgage for property constructed on the land. The Company may terminate the lease as of March 31, 2049, March 31, 2065 and March 31, 2081 provided that twelve months’ notice is provided to the lessor prior to those respective dates.

 

Upon assumption of the lease, the Company recorded a lease liability of $16,827 and a right-of-use asset of $5,549 on its consolidated balance sheet. The lease liability was based on the present value of the ground lease’s future payments using an interest rate of 11.37%, which the Company considers reasonable and within the range of the Company’s incremental borrowing rate. For the three months ended March 31, 2021 and 2020, total finance lease cost was comprised as follows:

 

 

 

Three months ended

March 31,

 

 

 

2021

 

 

2020

 

Amortization of right-of-use assets

 

$

18

 

 

$

 

Interest on lease liabilities

 

 

478

 

 

 

 

Total finance lease cost

 

$

496

 

 

$

 

 

The table below shows the Company’s finance lease right of use asset, net of amortization as of March 31, 2021 and December 31, 2020:

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Finance lease right of use asset, gross

 

$

5,549

 

 

$

5,549

 

Accumulated amortization

 

 

(42

)

 

 

(24

)

Finance lease right of use asset, net of amortization

 

$

5,507

 

 

$

5,525

 

 

 

Lease payments for the ground lease as of March 31, 2021 for each of the five succeeding years and thereafter is as follows:

 

 

 

Lease Payments

 

2021

 

$

1,208

 

2022

 

 

1,611

 

2023

 

 

1,611

 

2024

 

 

1,745

 

2025

 

 

1,772

 

Thereafter

 

 

271,457

 

Total undiscounted lease payments

 

$

279,404

 

Less: Amount representing interest

 

 

(262,539

)

Present value of lease liability

 

$

16,865

 

 

Note 15 – Subsequent Events

The Company has evaluated subsequent events through May 14, 2021, the date the financial statements were issued. The following are updates on the Company’s operations since March 31, 2021.

17


InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

March 31, 2021

(Unaudited, dollar amounts in thousands, except share data)

 

Distributions

The Board has authorized distributions to stockholders of record as of April 30, 2021, payable on or about May 18, 2021 for each class of its common stock in the amount per share set forth below:

 

 

 

Common Stock

 

 

 

Class P

 

 

Class A

 

 

Class T

 

 

Class S

 

 

Class D

 

 

Class I

 

Aggregate gross distributions declared per share

 

$

0.0917

 

 

$

0.0917

 

 

$

0.0917

 

 

$

 

 

$

0.0917

 

 

$

0.0917

 

Stockholder servicing fee per share

 

N/A

 

 

N/A

 

 

 

0.0141

 

 

 

 

 

 

0.0041

 

 

N/A

 

Net distributions declared per share

 

$

0.0917

 

 

$

0.0917

 

 

$

0.0776

 

 

$

 

 

$

0.0876

 

 

$

0.0917

 

 

The Board has authorized distributions to stockholders of record as of May 31, 2021, payable on or about June 17, 2021 for each class of its common stock in the amount per share set forth below:

 

 

Common Stock

 

 

 

Class P

 

 

Class A

 

 

Class T

 

 

Class S

 

 

Class D

 

 

Class I

 

Aggregate gross distributions declared per share

 

$

0.0958

 

 

$

0.0958

 

 

$

0.0958

 

 

$

 

 

$

0.0958

 

 

$

0.0958

 

Stockholder servicing fee per share

 

N/A

 

 

N/A

 

 

TBD*

 

 

 

 

 

TBD*

 

 

N/A

 

Net distributions declared per share

 

$

0.0958

 

 

$

0.0958

 

 

TBD*

 

 

$

 

 

TBD*

 

 

$

0.0958

 

 

* Amount to be determined. The gross distributions for the Class D and Class T Common Stock to stockholders of record as of May 31, 2021, will be reduced by class-specific stockholder servicing fees, resulting in a lower net distribution per share, which will be disclosed by the Company in future current reports on Form 8-K once those amounts have been determined.

Extension of JPM Repo Facility

On May 6, 2021, the Company extended the maturity date of the JPM Repo Facility to May 6, 2022 with no changes to any other loan terms or debt covenants.

 

 

 

18


 

 

Item 2.  Management’s Discussion and Analysis of 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 InPoint Commercial Real Estate Income, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”), as filed with the SEC on March 19, 2021, and the factors described below:

Market disruptions caused by the economic effects of, or uncertainties surrounding the future effects of, the COVID-19 pandemic have adversely impacted aspects of our operating results and operating condition and may continue to do so, and these effects may become more severe, e.g., if COVID-19 vaccinations are not as effective as expected or for some other reason COVID-19 cases increase nationally or in markets that affect the value of our investments;

We have paid past distributions from sources other than cash flows from operating activities and net income, including from offering proceeds, which reduces the amount of cash we ultimately have to invest in assets, and if we cannot generate sufficient cash flow from operations to fully fund distributions, some or all of our distributions may again be paid from these other sources;

There is no current public trading market for our common stock, and we do not expect that such a market will ever develop. Therefore, repurchase of shares by us will likely be the only way for stockholders to dispose of their shares, and our share repurchase program (the “SRP”) was suspended and may be suspended again in the future;

Even if our stockholders are able to sell their shares pursuant to our SRP, or otherwise, they may not be able to recover the amount of their investment in our shares;

Under our charter, we may borrow to 300% of our net assets, equivalent to 75% of the costs of our assets and may exceed this limitation with the approval of a majority of our independent directors;

Inland InPoint Advisor, LLC (our “Advisor”) and SPCRE InPoint Advisors, LLC (our “Sub-Advisor”) may face conflicts of interest in allocating personnel and resources between their affiliates;

None of our agreements with our Advisor, our Sub-Advisor or any affiliates of our Advisor or Sub-Advisor were negotiated at arm’s-length, and although our Advisor has agreed to waive 50% of its monthly advisory fee, which will increase our income and the amount of cash that would otherwise be available to us, the Advisor may revoke this waiver in its discretion at any time and without any advance notice;

If we fail to continue to qualify as a real estate investment trust (“REIT”), our operations and distributions to stockholders will be adversely affected; and

The COVID-19 pandemic has had a significant and adverse effect on the economy and our investments, particularly the Renaissance O’Hare and CRE debt investments backed by hospitality and retail properties, and its future impacts are uncertain and hard to measure but may cause a material adverse effect on our business and results of operations.

Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q and may ultimately prove to be incorrect or false. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

19


 

The following discussion and analysis relate to the three months ended March 31, 2021 and 2020 and as of March 31, 2021 and December 31, 2020. You should read the following discussion and analysis along with our unaudited consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q.

Unless otherwise stated, all dollar amounts are stated in thousands, except share data. 

Overview

We are a Maryland corporation formed on September 13, 2016 to originate, acquire and manage an investment portfolio of commercial real estate (“CRE”) investments primarily comprised of floating-rate CRE debt, including first mortgage loans, subordinate mortgage and mezzanine loans, and participations in such loans. We may also invest in floating-rate CRE securities such as commercial mortgage-backed securities (“CMBS”) and senior unsecured debt of publicly traded REITs, and select equity investments in single-tenant, net leased properties. Substantially all of our business is conducted through InPoint Operating Partnership, LP (our “Operating Partnership”), of which we are the sole general partner. We are externally managed by our Advisor, an indirect subsidiary of Inland Real Estate Investment Corporation. Our Advisor has engaged the Sub-Advisor, a subsidiary of Sound Point CRE Management, LP, to perform certain services on behalf of the Advisor for us.

We have operated in a manner that allows us to qualify as a REIT for U.S. federal income tax purposes commencing with the taxable year ending December 31, 2017. Among other requirements, REITs are required to distribute to stockholders at least 90% of their annual REIT taxable income (computed without regard to the dividends-paid deduction and excluding net capital gain).

For a discussion of the history of the Company and its Private Offering and IPO, please see “Note 1 – Organization and Business Operations” in the notes to our consolidated financial statements above.

Recent Developments

We continue to evaluate the economic impact from the COVID-19 pandemic and the continuing economic recovery. Since March 31, 2021 and through the filing of this Quarterly Report on Form 10-Q, all of our borrowers have made their scheduled loan payments and we have not identified any loans that have had conditions that would change the risk rating we assigned to those loans as of March 31, 2021. For further discussion of our risk ratings assigned to loans, please see “Note 3 – Commercial Mortgage Loans Held for Investment” in the notes to our consolidated financial statements above. We will continue to actively monitor our borrowers to address the impacts of COVID-19 on their respective businesses. We continue to see significant demand and competition for new loans and are selectively executing term sheets with prospective borrowers.

Loans and Warehouse Financing

As of March 31, 2021, our loan portfolio, which was comprised of 31 loans with a current principal balance of $474.9 million, was diversified across property types. Our loan portfolio was comprised of approximately 10% loans backed by retail and hospitality properties, the two sectors most negatively affected by the COVID-19 pandemic, and our allocation to loans secured by industrial properties increased to 14%. The hospitality and retail sectors continue to be impacted by reduced travel, social distancing and other requirements and recommendations resulting from the pandemic and efforts to control it. We have closely monitored the loans in our portfolio and have communicated with borrowers to ascertain their ability to collect rent from tenants and, therefore, the potential to fulfill their loan obligations.

We continue to see good opportunities to originate loans backed by office, industrial and multifamily properties. During the three month period ended March 31, 2021, we originated two loans and grew our CRE loan portfolio by $33.6 million. In addition, we continue to see high loan demand and have issued several term sheets for new loans which we expect to close during the second quarter 2021.

We fund our first mortgage loan portfolio with our two master repurchase agreements. See “Note 5 – Repurchase Agreements and Credit Facilities” in the notes to our consolidated financial statements above. During the COVID-19 pandemic we have continued to access our master repurchase agreement financings and anticipate we will continue to do so.

Real Property

We own a 362-room hotel located in Chicago, Illinois, known as the Renaissance Chicago O’Hare Suites Hotel (the “Renaissance O’Hare”). More specifically, we own a ground lease interest in the Renaissance O’Hare and currently pay annual rent of approximately $1.6 million on a net basis, with us as the tenant responsible for all operating expenses, including property taxes. The lease has a 10% rental increase every five years with the next increase scheduled to occur in April 2023. This ground lease runs through March 2098.

20


 

Along with the hospitality sector as a whole, the Renaissance O’Hare has been and continues to be negatively impacted by the COVID-19 pandemic. We have estimated a $2.25 million expected loss during 2021 for the Renaissance O’Hare related to the continuing COVID-19 pandemic, and recognized a net loss from the hotel of approximately $1.2 million in the first quarter of 2021. Though vaccinations are continuing, there are numerous risks and uncertainties still surrounding the continuing effects of the pandemic, including whether and when a resumption of pre-pandemic levels of travel and in-person meetings and events might happen. Government and corporate restrictions on travel and in-person gatherings, reduced demand for these activities from businesses and individuals, and the uncertainties surrounding the duration and effects of the pandemic persist.

Ultimately, we intend to sell the Renaissance O’Hare and remain focused on our core business of investing in CRE debt. Until we determine to sell the hotel, a third-party management company we have engaged will continue to manage it. To help facilitate operations while we monitor the course of the pandemic and market conditions, the hotel received a $1.1 million loan in the first quarter of 2021 under the federal government’s Paycheck Protection Program (“PPP”). Under the terms of the CARES Act, PPP loan recipients can apply for forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations and ongoing rulemaking by the U.S. Small Business Administration, based in part on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs and the maintenance of employee and compensation levels. Our intent is to use the loan proceeds for these purposes, but there is no assurance that our PPP loan will be forgiven. Risks remain, but the performance of the Renaissance O’Hare has trended positively in the first four months of 2021, with April 2021’s approximate average occupancy per night of 46%, revenue per available room of $38 and average daily rate of $83, all improved from the first quarter of 2021 metrics of 28%, $23 and $80, respectively. Although occupancy and the hotel’s performance improved slightly during the quarter ended March 31, 2021, balancing the potential increase in the price of a future sale against the potential for continued operating losses in the face of the uncertainty surrounding the pandemic is difficult. Whether we achieve a sale price that is worth waiting for will likely depend in large part on how the aforementioned uncertainties surrounding the pandemic and the return of leisure and business travel and in-person large group events unfolds, which could result in a favorable sale price or future operating losses even beyond what we are expecting or a loss on sale, any of which could be material to our future results of operations. We will monitor the market for hotel sales while considering, among other things, the performance of the Renaissance O’Hare, relevant market factors and our expected total return weighing current potential disposition prices and redeployment of the sales proceeds into our core investment strategy against the potential disposition prices expected later upon the stabilization of the performance of the hotel.

Cash and Unencumbered Assets

As of March 31, 2021, we held cash of $52.6 million and $49.8 million of unencumbered assets that are free and clear of any lender claims.

Significant Accounting Policies and Use of Estimates

Disclosures discussing all significant accounting policies are set forth in our Annual Report under the heading “Note 2 – Summary of Significant Accounting Policies.” There have been no additions to our significant accounting policies for the three months ended March 31, 2021.

Portfolio

We began operations in October 2016 and our strategy is to originate, acquire and manage an investment portfolio of CRE debt that is primarily floating rate and diversified based on the type and location of collateral securing the underlying CRE debt. We anticipate our investment portfolio will be less diversified and have higher concentrations in asset class, collateral type and geographic location until our capital raise reaches levels that will allow for greater diversification.

The charts below summarize our debt investments portfolio as a percentage of par value by type of rate, our total investment portfolio by investment type, including real estate owned (“REO”), and our loan portfolio by collateral type and geographical region as of March 31, 2021 and December 31, 2020:

21


 

Floating Vs. Fixed Rate Debt Investments:

 

March 31, 2021

December 31, 2020

                

 

All Investments by Type:

 

March 31, 2021

December 31, 2020

              

 

 

22


 

 

Loans by Property Type:


March 31, 2021


December 31, 2020

 

              

 

 

Loans by Region:

 

March 31, 2021

 

December 31, 2020

 

                     

 

                  

 

23


 

 

An investment’s region is defined according to the below map based on the location of property underlying loans in our portfolio.

 

 

The changes in our loan portfolio by property type and by region as of March 31, 2021 compared to December 31, 2020 were primarily due to new loans originated during the period. Due to the small number of investments in our portfolio, the changes in the portfolio composition may be significant from one period to another. We anticipate that these changes will become less significant as our portfolio increases in size.

Commercial Mortgage Loans Held for Investment

 

 

As of

March 31, 2021

 

 

As of

December 31, 2020

 

 

 

 

 

 

 

 

 

Principal balance of first mortgage loans

$

458,404

 

 

$

425,196

 

Number of first mortgage loans

 

28

 

 

 

26

 

Principal balance of credit loans

$

16,500

 

 

$

16,500

 

Number of credit loans

 

3

 

 

 

3

 

Total balance of loans

$

474,904

 

 

$

441,696

 

Total number of loans

 

31

 

 

 

29

 

All-in yield (1)

 

5.4

%

 

 

5.5

%

Weighted average years to maximum maturity

 

3.2

 

 

 

3.4

 

____________

 

 

 

 

 

 

 

(1)

All-in yield is the present value of all future principal and interest payments on the loan and does not include any origination fees or deferred commitment fees.

The increase in the size of our portfolio is due to increased leverage as we executed our business strategy and the redeployment of proceeds from the sale of real estate securities that were sold during the year ended December 31, 2020. The change in the all-in yield was not significant.

24


 

The table below presents information for each of our commercial mortgage loans as of March 31, 2021:

 

 

 

Origination

Date

 

Loan

Type (1)

 

Principal

Balance

 

 

Cash Coupon (2)

 

 

All-in

Yield (2)

 

 

Maximum

Maturity (3)

 

State

 

Property

Type

 

LTV (4)

 

 

Risk

Rating (5)

 

1

 

12/12/17

 

First mortgage

 

$

14,650

 

 

L+4.70%

 

 

5.9%

 

 

1/9/23

 

HI

 

Office

 

 

67

%

 

 

2

 

2

 

12/13/17

 

First mortgage

 

 

16,860

 

 

L+4.50%

 

 

5.7%

 

 

6/9/21

 

VA

 

Office

 

 

55

%

 

 

4

 

3

 

3/22/18

 

First mortgage

 

 

12,059

 

 

L+3.75%

 

 

5.1%

 

 

4/9/23

 

CO

 

Retail

 

 

74

%

 

 

2

 

4

 

5/4/18

 

First mortgage

 

 

31,000

 

 

L+4.00%

 

 

5.5%

 

 

5/9/23

 

PA

 

Industrial

 

 

64

%

 

 

2

 

5

 

5/17/18

 

First mortgage

 

 

6,962

 

 

L+4.50%

 

 

6.2%

 

 

6/9/23

 

NC

 

Multifamily

 

 

54

%

 

 

3

 

6

 

9/7/18

 

First mortgage

 

 

24,411

 

 

L+3.75%

 

 

5.6%

 

 

9/9/23

 

TX

 

Office

 

 

73

%

 

 

2

 

7

 

9/19/18

 

First mortgage

 

 

8,531

 

 

L+3.70%

 

 

5.7%

 

 

10/9/23

 

TX

 

Multifamily

 

 

69

%

 

 

2

 

8

 

10/30/18

 

First mortgage

 

 

6,860

 

 

L+3.85%

 

 

5.7%

 

 

11/9/23

 

TX

 

Multifamily

 

 

76

%

 

 

2

 

9

 

11/16/18

 

First mortgage

 

 

5,200

 

 

L+3.90%

 

 

5.9%

 

 

12/9/23

 

CA

 

Multifamily

 

 

64

%

 

 

2

 

10 (6)

 

12/20/18

 

First mortgage

 

 

16,459

 

 

L+4.20%

 

 

6.2%

 

 

6/9/25

 

AL

 

Hospitality

 

 

64

%

 

 

4

 

11

 

1/25/19

 

First mortgage

 

 

11,659

 

 

L+3.45%

 

 

5.4%

 

 

2/9/24

 

IL

 

Multifamily

 

 

78

%

 

 

2

 

12

 

4/11/19

 

First mortgage

 

 

15,761

 

 

L+3.30%

 

 

5.7%

 

 

4/9/24

 

CA

 

Industrial

 

 

79

%

 

 

2

 

13

 

5/29/19

 

First mortgage

 

 

24,000

 

 

L+3.25%

 

 

5.7%

 

 

6/9/24

 

TX

 

Multifamily

 

 

68

%

 

 

3

 

14

 

5/31/19

 

First mortgage

 

 

13,001

 

 

L+3.25%

 

 

5.6%

 

 

6/9/24

 

CA

 

Multifamily

 

 

70

%

 

 

3

 

15

 

6/18/19

 

First mortgage

 

 

47,746

 

 

L+2.75%

 

 

4.7%

 

 

7/9/24

 

TX

 

Office

 

 

72

%

 

 

2

 

16

 

6/18/19

 

First mortgage

 

 

6,350

 

 

L+3.60%

 

 

5.7%

 

 

7/9/24

 

CA

 

Mixed Use

 

 

54

%

 

 

2

 

17

 

8/15/19

 

First mortgage

 

 

7,567

 

 

L+4.20%

 

 

6.6%

 

 

9/9/24

 

TN

 

Office

 

 

45

%

 

 

3

 

18

 

9/27/19

 

First mortgage

 

 

15,344

 

 

L+3.10%

 

 

4.6%

 

 

10/9/24

 

CA

 

Office

 

 

75

%

 

 

2

 

19

 

9/30/19

 

First mortgage

 

 

30,000

 

 

L+3.30%

 

 

5.0%

 

 

10/9/24

 

TX

 

Multifamily

 

 

77

%

 

 

2

 

20

 

10/4/19

 

First mortgage

 

 

20,958

 

 

L+2.90%

 

 

4.6%

 

 

10/9/24

 

NC

 

Office

 

 

61

%

 

 

3

 

21

 

10/30/19

 

First mortgage

 

 

13,743

 

 

L+3.00%

 

 

4.9%

 

 

11/9/24

 

CA

 

Multifamily

 

 

80

%

 

 

2

 

22

 

11/22/19

 

First mortgage

 

 

32,965

 

 

L+3.00%

 

 

4.9%

 

 

12/9/24

 

AZ

 

Multifamily

 

 

80

%

 

 

2

 

23

 

2/6/20

 

First mortgage

 

 

19,835

 

 

L+3.30%

 

 

4.9%

 

 

2/9/25

 

NJ

 

Office

 

 

69

%

 

 

2

 

24

 

2/20/20

 

First mortgage

 

 

8,048

 

 

L+3.85%

 

 

5.4%

 

 

3/9/25

 

CA

 

Retail

 

 

57

%

 

 

2

 

25

 

2/28/20

 

First mortgage

 

 

9,320

 

 

L+3.50%

 

 

5.0%

 

 

3/9/25

 

FL

 

Retail

 

 

78

%

 

 

2

 

26

 

10/13/20

 

First mortgage

 

 

6,865

 

 

L+4.00%

 

 

4.9%

 

 

10/9/25

 

CA

 

Multifamily

 

 

70

%

 

 

2

 

27

 

3/5/21

 

First mortgage

 

 

13,000

 

 

L+5.00%

 

 

5.5%

 

 

3/9/26

 

VA

 

Office

 

 

57

%

 

 

2

 

28

 

3/12/21

 

First mortgage

 

 

19,250

 

 

L+4.00%

 

 

4.2%

 

 

3/6/26

 

MS

 

Industrial

 

 

64

%

 

 

2

 

29

 

9/29/17

 

Credit

 

 

7,500

 

 

9.20%

 

 

9.2%

 

 

10/11/27

 

NJ

 

Office

 

 

80

%

 

 

3

 

30

 

3/27/18

 

Credit

 

 

3,000

 

 

9.35%

 

 

9.3%

 

 

4/1/23

 

FL

 

Hospitality

 

 

68

%

 

 

4

 

31

 

10/4/19

 

Credit

 

 

6,000

 

 

10.00%

 

 

10.0%

 

 

10/6/24

 

NV

 

Office

 

 

75

%

 

 

2

 

 

 

 

 

 

 

$

474,904

 

 

 

 

 

 

5.4%

 

 

 

 

 

 

 

 

 

69

%

 

 

 

 

 

 

(1)

First mortgage loans are first position mortgage loans and credit loans are mezzanine and subordinated loans.

 

(2)

The term “L” refers to one-month LIBOR. As of March 31, 2021, one-month LIBOR was equal to 0.11%. Cash coupon is the stated rate on the loan. All-in yield is the present value of all future principal and interest payments on the loan and does not include any origination fees or deferred commitment fees. The total is the weighted average rate as of March 31, 2021. Our first mortgage loans are all floating rate and each contains a minimum LIBOR floor. The weighted average LIBOR floor for these loans is 1.73%.

 

(3)

Maximum maturity assumes all extension options are exercised by the borrower, however loans may be repaid prior to such date.

 

(4)

Loan-to-value (“LTV”) was determined at loan origination and is not updated for subsequent property valuations or loan modifications. The total is the weighted average LTV.

 

(5)

Risk rating is the internal risk rating assigned by the Sub-Advisor. See “Note 3 – Commercial Mortgage Loans Held for Investment,” which is included in our notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.

 

(6)

Loan has been modified to capitalize a portion of its interest payment for a temporary period of time. The all-in yield assumes the timely payment of interest and principal through maturity.

We entered into master repurchase agreements to fund our investment portfolio. As of March 31, 2021 and December 31, 2020, we had total borrowings of $305,943 (which is net of $26 of unamortized debt issuance costs) and $290,699 (which is net of $27 of

25


 

unamortized debt issuance costs), respectively. During the three months ended March 31, 2021 and the year ended December 31, 2020, we had weighted average borrowings of $292,999 and $378,136 and weighted average borrowing costs of 2.6% and 2.7%, respectively. The increase in borrowings was due to loan originations that were financed under the master repurchase agreements. The decrease in the weighted average borrowing costs was primarily due to the change in LIBOR during the period.

Results of Operations

Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2020

Net Interest Income

Net interest income is generated on our interest-earning assets less related interest-bearing liabilities. The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the periods indicated.

 

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

 

Average

Carrying

Value (1)

 

 

Interest

Income/

Expense (2)(3)

 

 

Weighted Average

Yield/Financing

Cost (4)

 

 

Average

Carrying

Value (1)

 

 

Interest

Income/

Expense (2)

 

 

Weighted Average

Yield/Financing

Cost (4)

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate securities

 

$

 

 

$

 

 

0.0%

 

 

$

157,195

 

 

$

2,125

 

 

5.3%

 

 

Commercial mortgage loans

 

 

450,268

 

 

 

6,451

 

 

5.7%

 

 

 

533,000

 

 

 

8,080

 

 

6.0%

 

 

Total/Weighted Average

 

$

450,268

 

 

$

6,451

 

 

5.7%

 

 

$

690,195

 

 

$

10,205

 

 

5.8%

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements—securities

 

$

 

 

$

 

 

0.0%

 

 

$

109,212

 

 

$

833

 

 

3.0%

 

 

Repurchase agreements—commercial

   mortgage loans

 

 

292,999

 

 

 

1,894

 

 

2.6%

 

 

 

353,697

 

 

 

3,129

 

 

3.5%

 

 

Total/Weighted Average

 

$

292,999

 

 

$

1,894

 

 

2.6%

 

 

$

462,909

 

 

$

3,962

 

 

3.4%

 

 

Net interest income/spread

 

 

 

 

 

$

4,557

 

 

3.1%

 

 

 

 

 

 

$

6,243

 

 

2.4%

 

 

Average leverage %(5)

 

 

186.3

%

 

 

 

 

 

 

 

 

 

 

203.7

%

 

 

 

 

 

 

 

 

 

Weighted average levered yield(6)

 

 

 

 

 

 

 

 

 

11.6%

 

 

 

 

 

 

 

 

 

 

10.9%

 

 

 

 

(1)

Based on amortized cost for real estate securities and principal amount for repurchase agreements. Amounts are calculated based on the average daily balance.

(2)

Includes the effect of amortization of premium or accretion of discount.

(3)

Interest income excludes $0 and $151 for the three months ended March 31, 2021 and 2020, respectively, related to bank deposits and Treasury bills not included in the investment portfolio.

(4)

Calculated as annualized interest income or expense divided by average carrying value.

(5)

Calculated by dividing total average interest-bearing liabilities by total average equity (total average interest-earning assets less total average liabilities).

(6)

Calculated by taking the sum of (i) the net interest spread multiplied by the average leverage and (ii) the weighted average yield on interest-earning assets.

The decrease in our weighted average interest-earning assets and interest-bearing liabilities was due to the sale of CMBS during 2020, as well as loan payoffs. The change in the weighted average levered yield was due to the change in the portfolio composition and the changes in interest rates tied to LIBOR.

Revenue from Real Estate Owned

During the three months ended March 31, 2021, our hotel property generated $868 in revenue. We did not own any real estate during the three months ended March 31, 2020.

26


 

Operating Expenses

Operating expenses for the three months ended March 31, 2021 and 2020 consisted of the following:

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Advisory fee

 

$

737

 

 

$

844

 

Debt finance costs

 

 

431

 

 

 

254

 

Directors compensation

 

 

21

 

 

 

24

 

Professional service fees

 

 

224

 

 

 

218

 

Real estate owned operating expenses

 

 

2,155

 

 

 

 

Depreciation and amortization

 

 

272

 

 

 

 

Other expenses

 

 

220

 

 

 

225

 

Total operating expenses

 

$

4,060

 

 

$

1,565

 

 

Total operating expenses for the three months ended March 31, 2021 and 2020 were $4,060 and $1,565, respectively. The increase was primarily due to the increase in real estate owned operating expenses and depreciation and amortization from the hotel acquired through a deed-in-lieu of foreclosure transaction during August 2020. We did not hold any real estate during the three months ended March 31, 2020. The debt finance costs primarily increased due to an increase in amortization from the extension fees related to the CF Repo Facility and the addition of the WA Facility. For the three months ended March 31, 2021 our total operating expenses were 1% of our average invested assets. In order to support the performance of the Company, the Advisor agreed to waive 50% of its advisory fee beginning with the month of January 2021 and continuing for each future month until it notifies our Board that the waiver is terminated.

Other Income (Loss)

For the three months ended March 31, 2021 and 2020, other income (loss) was $0 and $(42,687), respectively. The other income (loss) is due to the change in fair value of the real estate securities resulting from different market conditions, with a significant decrease in value following the onset of the COVID-19 pandemic. These losses did not recur during 2021, as all the real estate securities were sold during the year ended December 31, 2020. There was also a provision for loan losses of $(4,500) recorded during the three months ended March 31, 2020 primarily related to the deed-in-lieu of foreclosure for the Renaissance O’Hare.

Net Income (Loss)

For the three months ended March 31, 2021 and 2020, our net income (loss) was $1,365 and $(37,858), or $0.12 and $(3.34) per share (basic and diluted), respectively. The increase in net income was primarily due to losses on real estate securities during the three months ended March 31, 2020 that did not recur in 2021 as all the real estate securities were sold during the year ended December 31, 2020.

Non-GAAP Financial Measures

Funds from Operations and Modified Funds from Operations

We use Funds from Operations (“FFO”), a widely accepted metric, to evaluate our performance. FFO provides a supplemental measure to compare our performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts (“NAREIT”) has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT. As defined by NAREIT, FFO means net income computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains (or losses) from sales of operating property, plus depreciation and amortization and after adjustments for unconsolidated entities. In addition, NAREIT has further clarified the FFO definition to add-back impairment write-downs of depreciable real estate or of investments in unconsolidated entities that are driven by measurable decreases in the fair value of depreciable real estate and to exclude the earnings impacts of cumulative effects of accounting changes. We have adopted the NAREIT definition for computing FFO.

Due to the unique features of publicly registered, non-listed REITs, the Institute for Portfolio Alternatives (“IPA”), an industry trade group, published a standardized measure known as Modified Funds from Operations (“MFFO”), which the IPA has promulgated as a supplemental measure for publicly registered non-listed REITs and which may be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT.

The IPA defines MFFO as FFO adjusted for acquisition fees and expenses, amounts relating to straight line rents and amortization of premiums on debt investments, non-recurring impairments of real estate-related investments, mark-to-market adjustments included in

27


 

net income, non-recurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures.

We define MFFO in accordance with the concepts established by the IPA and adjust FFO for certain items, such as amortization of premium and discounts on real estate securities. We purchase real estate securities at a premium or discount to par value, and in accordance with GAAP, record the amortization of premium/accretion of the discount to interest income. We believe that excluding the amortization of premiums and discounts provides better insight to the expected contractual cash flows. In addition, we adjust FFO for unrealized gains or losses on real estate securities. Any mark-to-market or fair value adjustments are based on general market or overall industry conditions and may be temporary in nature.

Because MFFO may be a recognized measure of operating performance within the non-listed REIT industry, MFFO and the adjustments used to calculate it may be useful in order to evaluate our performance against other non-listed REITs. Like FFO, MFFO is not equivalent to our net income or loss as determined under GAAP, as detailed in the table below, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we continue to acquire a significant amount of investments.

Our presentation of FFO and MFFO may not be comparable to other similarly titled measures presented by other REITs. We believe that the use of FFO and MFFO provides a more complete understanding of our operating performance to stockholders and to management, and when compared year over year, reflects the impact on our operations from trends in operating costs, general and administrative expenses, and interest costs. Neither FFO nor MFFO is intended to be an alternative to “net income” or to “cash flows from operating activities” as determined by GAAP as a measure of our capacity to pay distributions. Management uses FFO and MFFO to compare our operating performance to that of other REITs and to assess our operating performance.

Neither the SEC, any other regulatory body nor NAREIT has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, another regulatory body or NAREIT may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

Our FFO and MFFO are calculated as follows:

 

 

Three months ended March 31,

 

 

2021

 

 

2020

 

GAAP net income (loss)

$

1,365

 

 

$

(37,858

)

Depreciation and amortization

 

272

 

 

 

 

Funds from operations

$

1,637

 

 

$

(37,858

)

 

 

 

 

 

 

 

 

Amortization of discount on real estate securities

 

 

 

 

(221

)

Amortization of debt financing costs

 

431

 

 

 

254

 

Non-cash adjustment for ground lease

 

93

 

 

 

 

Provision for loan losses

 

 

 

 

4,500

 

Unrealized (gain) loss on real estate securities

 

 

 

 

38,187

 

Modified funds from operations

$

2,161

 

 

$

4,862

 

Net Asset Value

The purchase price per share for each class of our common stock in our IPO generally equals our prior month’s NAV per share, as determined monthly, plus applicable selling commissions and dealer manager fees. Our NAV for each class of shares is based on the net asset values of our investments, the addition of any other assets (such as cash on hand) and the deduction of any liabilities, including the allocation/accrual of any performance participation and any stockholder servicing fees applicable to such class of shares.

On March 24, 2020, our Board suspended (i) the sale of shares in our IPO, (ii) the operation of the SRP, (iii) the payment of distributions to our stockholders, and (iv) the operation of the DRP, effective as of April 6, 2020. These changes were made to allow us to maintain fiscal responsibility and respond accordingly to the unprecedented economic disruption resulting from the COVID-19 pandemic. In determining to suspend our IPO, the SRP, the payment of distributions and the DRP, our Board considered various factors, including the impact of the global COVID-19 pandemic on the economy, the inability to accurately calculate our NAV per share due to uncertainty, volatility and lack of liquidity in the market, our need for liquidity due to financing challenges related to

28


 

additional collateral required by the banks that regularly finance our assets and these uncertain and rapidly changing economic conditions.

As a result of these factors, we did not calculate our NAV for the months of March through May 2020. We resumed calculation of our NAV beginning as of June 30, 2020 following the Advisor’s determination that volatility in the market for our investments had declined and the U.S. economic outlook had improved. In August 2020, we resumed paying distributions monthly to stockholders of record for all classes of shares. On October 1, 2020, the SEC declared effective our post-effective amendment to our registration statement on Form S-11, thereby permitting us to resume offers and sales of shares of common stock in our IPO, including through the DRP.

On March 1, 2021, our SRP was reinstated for our stockholders requesting repurchase of shares as a result of the death or qualified disability of the holder. The first settlement of permitted repurchase requests was on March 31, 2021.

On July 1, 2021, our SRP will be reinstated for all stockholders. Repurchase requests must be submitted on or after July 1, 2021. The first settlement of permitted repurchase requests will be on July 30, 2021, the last business day of the month. In accordance with the terms of the SRP that allow us to repurchase fewer shares than the maximum amount permitted under the SRP, for the months of July, August and September 2021, the total amount of aggregate repurchases of shares (including Class P shares) will be limited to no more than 1% of our aggregate NAV per month as of the last day of the previous calendar month and no more than 2.5% of our aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter. Beginning on October 1, 2021, the total amount of aggregate repurchases of shares will be limited as set forth in the SRP (no more than 2% of our aggregate NAV per month as of the last day of the previous calendar month and no more than 5% of our aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter). Notwithstanding the foregoing, we may repurchase fewer shares than these limits in any month, or none. Further, our Board may modify, suspend or terminate our SRP if it deems such action to be in our best interest and the best interest of our stockholders.

The following table provides a breakdown of the major components of our NAV:

Components of NAV

As of

March 31, 2021

 

Commercial mortgage loans

$

475,593

 

Real estate owned, net

 

14,000

 

Cash and cash equivalents and restricted cash

 

52,644

 

Other assets

 

6,583

 

Repurchase agreements - commercial mortgage loans

 

(305,943

)

Reserve for negative impact of COVID on real estate owned(1)

 

(1,056

)

Due to related parties

 

(2,294

)

Distributions payable

 

(1,012

)

Accrued interest payable

 

(296

)

Accrued stockholder servicing fees(2)

 

(66

)

Other liabilities

 

(3,638

)

Net asset value

$

234,515

 

Number of outstanding shares

 

11,638

 

 

 

(1)

As of December 31, 2020, we established as a component of the NAV calculation a reserve for the estimated negative impact of COVID-19 during 2021 on real estate owned. The reduction in this reserve as of March 31, 2021 from December 31, 2020 resulted from the net loss on real estate owned set forth below. Because we had already established a reserve for losses, the loss on real estate owned for the three months ended March 31, 2021 has no negative effect on the NAV. Below is a reconciliation of the reserve ($ in thousands):

29


 

 

Beginning reserve balance as of December 31, 2020

 

$

(2,250

)

Less: Net loss on real estate owned for the three months ended March 31, 2021:

 

 

 

 

Revenue from real estate owned

 

 

868

 

Real estate owned operating expense

 

 

(2,155

)

Non-cash adjustment for ground lease

 

 

93

 

Net loss from real estate owned

 

 

(1,194

)

Reserve balance as of March 31, 2021

 

$

(1,056

)

 

 

(2)

Stockholder servicing fees only apply to Class T, Class S, and Class D shares. For purposes of NAV, we recognize the stockholder servicing fee as a reduction of NAV on a monthly basis as such fee is paid. Under GAAP, we accrue the full cost of the stockholder servicing fee as an offering cost at the time we sell Class T, Class S, and Class D shares. As of March 31, 2021, we have accrued under GAAP $723 of stockholder servicing fees payable to the Dealer Manager related to the Class T and Class D shares sold. As of March 31, 2021, we have not sold any Class S shares and, therefore, we have not accrued any stockholder servicing fees payable to the Dealer Manager related to Class S shares. The Dealer Manager does not retain any of these fees, all of which are retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers for ongoing stockholder services performed by such broker-dealers.

The table below outlines our total NAV and NAV per share by share class as of March 31, 2021:

 

Common Stock

 

NAV Per Share

Class P

 

 

Class A

 

 

Class T

 

 

Class S

 

 

Class D

 

 

Class I

 

 

Total

 

Monthly NAV

$

204,376

 

 

$

13,291

 

 

$

8,063

 

 

$

 

 

$

1,024

 

 

$

7,754

 

 

$

234,515

 

Number of outstanding shares

 

10,146

 

 

 

658

 

 

 

399

 

 

 

 

 

 

51

 

 

 

384

 

 

 

11,638

 

NAV per share as of March 31, 2021

$

20.1443

 

 

$

20.1903

 

 

$

20.1893

 

 

$

 

 

$

20.1855

 

 

$

20.1910

 

 

$

20.1508

 

The following table reconciles stockholders’ equity per our consolidated balance sheet to our NAV:

 

Reconciliation of Stockholders’ Equity to NAV

As of

March 31, 2021

 

Stockholders' equity per GAAP

$

238,459

 

Adjustments:

 

 

 

   Unamortized stockholder servicing fee

 

666

 

   Unamortized offering costs

 

3,145

 

   Real estate owned non-cash adjustments

 

758

 

   Fair value real estate owned adjustment

 

(8,691

)

   Fair value loan adjustment

 

178

 

Net asset value

$

234,515

 

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay distributions to our stockholders, fund investments, originate loans, repay borrowings, and other general business needs including the payment of our operating and administrative expenses. Our primary sources of funds for liquidity consist of the net proceeds from our IPO, net cash provided by operating activities, proceeds from repurchase agreements and other financing arrangements and future issuances of equity and/or debt securities.

Cash Flow Analysis

 

 

 

Three months Ended March 31,

 

 

Change

 

 

 

2021

 

 

2020

 

 

2021 vs. 2020

 

Net cash provided by operating activities

 

$

2,155

 

 

$

4,982

 

 

$

(2,827

)

Net cash used in investing activities

 

$

(33,192

)

 

$

(48,489

)

 

$

15,297

 

Net cash provided by financing activities

 

$

11,574

 

 

$

52,543

 

 

$

(40,969

)

 

30


 

 

We held cash, cash equivalents and restricted cash of $52,644 and $72,107 as of March 31, 2021 and December 31, 2020, respectively. Our cash, cash equivalents and restricted cash decreased due to loan originations during the first quarter.

Our operating activities generated net cash of $2,155 and $4,982 for the three months ended March 31, 2021 and 2020, respectively. The decrease in cash from operating activities was primarily due to the reduction in net interest income. During 2020, the Company sold all of the real estate securities held which was the primary cause for the $239,927 reduction in the average interest earning investments.

Our investing activities used net cash of $33,192 and $48,489 for the three months ended March 31, 2021 and 2020, respectively. The primary driver of the change was due to larger originations of mortgage loans during the three months ended March 31, 2020.

Our financing activities provided net cash of $11,574 and $52,543 for the three months ended March 31, 2021 and 2020, respectively. The net cash used during the three months ended March 31, 2021 was driven by $15,244 of net drawings on our repurchase agreement financing offset partially by distributions paid of $2,626. For the three months ended March 31, 2020, the net cash came primarily from $35,275 in net proceeds from our repurchase agreement financing and $23,129 in net proceeds from the issuance of our common stock offset partially by distributions paid of $5,098.

Repurchase Agreements and Credit Facilities

Commercial Mortgage Loans

On February 15, 2018, we, through our wholly owned subsidiary, entered into a master repurchase agreement (the “CF Repo Facility”) with Column Financial, Inc. as administrative agent for certain of its affiliates. The CF Repo Facility had an initial advance amount of $100,000 subject to a maximum advance amount of $250,000. We increased the advance amount in August 2018 to $175,000, and in January 2019 to $250,000. In March 2020, we temporarily increased the maximum advance amount to $300,000, and this increase expired on June 30, 2020 and the maximum advance amount reverted to $250,000. The initial term of the CF Repo Facility was 12 months and we extended the maturity date in March 2020 to February 2021. During December 2020, the maturity date was further extended to December 2021. Advances under the CF Repo Facility for loans made before December 18, 2020 accrue interest at a per annum rate equal to the London Interbank Offered Rate (“LIBOR”) plus 2.25% with a 0.75% floor. Loans made on or after December 18, 2020 accrue interest at a per annum annual rate equal to LIBOR plus 2.25% to 2.75% with a 0.25% to 0.75% floor. The CF Repo Facility is subject to certain financial covenants. We were in compliance with all financial covenant requirements as of March 31, 2021 and December 31, 2020.

On May 6, 2019, we, through our wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association. The JPM Repo Facility provides up to $150,000 in advances that we expect to use to finance the acquisition or origination of eligible loans and participation interests therein. Advances under the JPM Repo Facility accrue interest at per annum rates equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of between 1.75% to 2.50%, depending on the attributes of the purchased assets. The initial maturity date of the JPM Repo Facility is May 6, 2021, with two successive one-year extensions at our option, which may be exercised upon the satisfaction of certain conditions. The JPM Repo Facility is subject to certain financial covenants. We were in compliance with all financial covenant requirements as of March 31, 2021 and December 31, 2020.

On March 10, 2021, we, through our wholly owned subsidiary, entered into a loan and security agreement and a promissory note (collectively the “WA Facility”) with Western Alliance Bank, an Arizona corporation (“Western Alliance”). The WA Facility provides for loan advances up to the lesser of $75,000 or the borrowing base. The borrowing base consists of eligible assets pledged to and accepted by Western Alliance in its discretion up to the lower of (i) 60% to 70% of loan-to-unpaid balance or (ii) 45% to 50% of the loan-to-appraised value (depending on the property type underlying the asset, for both (i) and (ii)). Assets that would otherwise be eligible become ineligible after being pledged as part of the borrowing base for 36 months. Advances under the WA Facility accrue interest at an annual rate equal to one-month LIBOR plus 3.25% with a floor of 4.0%. The initial maturity date of the WA Facility is March 10, 2023. We have an option to convert the loan made pursuant to the WA Facility upon its initial maturity to a term loan with the same interest rate and floor and a maturity of two years in exchange for, among other things, a conversion fee of 0.25% of the outstanding amount at the time of conversion. The WA Facility requires maintenance of an average unrestricted aggregate deposit account balance with Western Alliance of not less than $3,750. Failure to meet the minimum deposit balance will result in, among other things, the interest rate of the WA Facility increasing by 0.25% per annum for each quarter in which the compensating balances are not maintained. We were in compliance with all financial covenant requirements as of March 31, 2021.

The JPM Repo Facility, CF Repo Facility and WA Facility (collectively, the “Facilities”) are used to finance eligible loans and act in the manner of a revolving credit facility that can be repaid as our assets are paid off and re-drawn as advances against new assets.

31


 

The tables below show our Facilities as of March 31, 2021 and December 31, 2020:

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

Committed Financing

 

 

Amount

Outstanding(1)

 

 

Accrued

Interest

Payable

 

 

Collateral

Pledged

 

 

Interest

Rate

 

 

Days to

Maturity

 

CF Repo Facility

$

250,000

 

 

$

169,698

 

 

$

188

 

 

$

241,538

 

 

 

3.00

%

 

 

262

 

JPM Repo Facility

 

150,000

 

 

$

136,271

 

 

$

108

 

 

$

197,616

 

 

 

2.03

%

 

 

36

 

WA Facility

 

75,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

709

 

 

$

475,000

 

 

$

305,969

 

 

$

296

 

 

$

439,154

 

 

 

2.57

%

 

 

161

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

Committed Financing

 

 

Amount

Outstanding(1)

 

 

Accrued

Interest

Payable

 

 

Collateral

Pledged

 

 

Interest

Rate

 

 

Days to

Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CF Repo Facility

$

250,000

 

 

$

159,948

 

 

$

187

 

 

$

228,359

 

 

 

3.00

%

 

 

352

 

JPM Repo Facility

 

150,000

 

 

 

130,778

 

 

 

105

 

 

 

190,047

 

 

 

2.08

%

 

 

126

 

 

$

400,000

 

 

$

290,726

 

 

$

292

 

 

$

418,406

 

 

 

2.58

%

 

 

250

 

 

(1)

Excludes $26 and $27 of unamortized debt issuance costs at March 31, 2021 and December 31, 2020, respectively.

Distributions

Distributions declared on Class P shares for January and February of 2020 were based on monthly record dates, payable in arrears the following month, equal to a monthly amount of 1/12th of $1.92 per share.

For each class of common stock offered in the IPO, in January and February of 2020 we paid the same gross distribution based on monthly record dates, payable in arrears the following month, equal to a monthly amount of 1/12th of $1.62 per share. On July 31, 2020 and August 31, 2020, for all classes of shares we paid the same gross distribution based on monthly record dates, payable in arrears the following month, equal to monthly amounts of 1/12th of $0.8576 and $0.88 per share, respectively. For stockholders of record as of September 30, 2020, October 31, 2020, November 30, 2020 and December 31, 2020, we paid a distribution in the gross amount based on monthly record dates, payable in arrears the following month, equal to monthly amounts of 1/12th of $0.90 per share for all classes of shares. For stockholders of record as of January 31, 2021, February 28, 2021 and March 31, 2021, we paid distributions in the gross amounts based on monthly record dates, payable in arrears the following month, equal to monthly amounts of 1/12th of $0.95, $1.00 and $1.05 per share, respectively. The gross distribution was reduced for certain classes of our common stock for applicable class-specific expenses to arrive at the net distribution amount for those classes. During the three months ended March 31, 2021 and 2020, we did not have shares outstanding of Class S common stock.

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Distributions

 

 

 

 

 

 

 

 

   Paid in cash

 

$

2,626

 

 

$

5,098

 

   Reinvested in shares

 

 

120

 

 

 

127

 

       Total distributions

 

$

2,746

 

 

$

5,225

 

   Cash flows from operating activities

 

$

2,155

 

 

$

4,982

 

 

(1)

For the three months ended March 31, 2021, 17.9% of our distributions were paid from cash flows from operating activities generated during the year ended December 31, 2020. For the three months ended March 31, 2020, 2.3% of distributions were paid from the net proceeds from our IPO.

On March 24, 2020, our Board suspended the payment of distributions to our stockholders.

32


 

On July 14, 2020, in anticipation of the potential future reinstatement of the distribution reinvestment plan, our Board approved an amended and restated DRP, which became effective on August 7, 2020. As amended, stockholders who hold Class P shares may now elect to participate in the DRP, and cash distributions with respect to Class P shares will be applied to the purchase of Class I shares. The DRP resumed on October 1, 2020 when the SEC declared effective our post-effective amendment to our registration statement on Form S-11.

In determining to suspend the payment of distributions and the DRP, our Board considered various factors, including the impact of the global COVID-19 pandemic on the economy, the inability to accurately calculate our NAV per share due to uncertainty, volatility and lack of liquidity in the market, our need for liquidity due to financing challenges related to additional collateral required by the banks that regularly finance our assets and these uncertain and rapidly changing economic conditions. Though we did not calculate the NAV for the months of March, April and May 2020, our Advisor subsequently determined that there was reduced volatility in the market for our investments and some improvement in the U.S. economic outlook and resumed calculation of the NAV beginning as of June 30, 2020. In August 2020 we resumed paying distributions monthly to stockholders of record for all classes of shares.

Contractual Obligations and Commitments

Our contractual obligations, excluding expected interest payments, as of March 31, 2021 and December 31, 2020 are summarized as follows:

 

As of March 31, 2021

 

Less than

1 Year

 

 

1 to 3

Years

 

 

3 to 5

Years

 

 

More than

5 Years

 

 

Total

 

Borrowings under repurchase agreements -

   commercial mortgage loans(1)

 

 

305,969

 

 

 

 

 

 

 

 

 

 

 

 

305,969

 

Rental payments under ground lease (2)

 

 

1,611

 

 

 

3,234

 

 

 

3,543

 

 

 

271,016

 

 

 

279,404

 

Total

 

$

307,580

 

 

$

3,234

 

 

$

3,543

 

 

$

271,016

 

 

$

585,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings under repurchase agreements -

   commercial mortgage loans(1)

 

$

290,726

 

 

 

 

 

 

 

 

 

 

 

$

290,726

 

Rental payments under ground lease (2)

 

 

1,611

 

 

 

3,222

 

 

 

3,515

 

 

 

271,459

 

 

 

279,807

 

Total

 

$

292,337

 

 

 

3,222

 

 

 

3,515

 

 

 

271,459

 

 

$

570,533

 

 

(1)

Excludes $26 and $27 of unamortized debt issuance costs at March 31, 2021 and December 31, 2020, respectively.

(2)

The ground lease was assumed as part of a deed-in-lieu of foreclosure transaction on the Renaissance O’Hare during the year ended December 31, 2020.

 

We have made a commitment to advance additional funds under certain of our CRE loans if the borrower meets certain conditions. As of March 31, 2021, we had 22 of such loans with a total remaining future funding commitment of $56,649. As of December 31, 2020, we had 20 of such loans with a total remaining future funding commitment of $50,940. The future funding commitments are advanced if the borrower has met certain loan specific requirements.

Critical Accounting Policies

Disclosures discussing all critical accounting policies are set forth in our Annual Report under the heading “Summary of Critical Accounting Policies.” There have been no changes to our critical accounting policies during the three months ended March 31, 2021.

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.

Subsequent Events

For information related to subsequent events, reference is made to “Note 15 – Subsequent Events” which is included in our notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.

33


 

Our Corporate Information

Our principal executive offices are located at 2901 Butterfield Rd., Oak Brook, Illinois 60523, our telephone number is (800) 826-8228 and our website is www.inland-investments.com/inpoint. From time to time, we may use our website as a distribution channel for material company information. Our website is not incorporated by reference in or otherwise a part of this Quarterly Report on Form 10-Q. We will provide without charge a copy of this Quarterly Report on Form 10-Q upon written request delivered to our principal executive offices. We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those reports with the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Credit Risk

Our investments are subject to a high degree of credit risk. Credit risk is the exposure to loss from loan defaults. Default rates are subject to a wide variety of factors, including, but not limited to, borrower financial condition, property performance, property management, supply/demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the U.S. economy, and other factors beyond our control. All loans are subject to some risk of default. We manage credit risk through the underwriting process and investment structuring process, acquiring our investments at the appropriate discount to face value, if any, and establishing loss assumptions. We also carefully monitor the performance of the loans, as well as external factors that may affect their value.

We also carefully monitor the performance of the loans, as well as external factors that may affect their level of risk and accordingly their value and the market prices of any mortgage-related securities we may own, such as CMBS that are collateralized by borrower payments under mortgage loans. Adverse economic conditions could negatively impact hotels or tenants at commercial properties underlying our investments resulting in potential borrower delinquencies or defaults or declines in the values of properties that secure our investments, which could in turn impact the fundamental performance of mortgage-backed securities. Further, credit rating agencies may reassess transactions that are negatively impacted by these adverse changes, which may result in CMBS investments being downgraded and temporarily or permanently losing value. In particular, the COVID-19 pandemic and actions taken to try to contain its spread have caused severe volatility, dislocation and illiquidity in certain fixed income markets amidst forced selling of securities by market participants, including CMBS, at depressed market prices. The amount of financing we may receive under our CMBS repurchase agreements is directly related to our counterparties' valuation of our assets that serve as collateral for our outstanding repurchase agreement financing. Our CMBS repurchase agreements are typically short-term in nature, are renewable at the discretion of our lenders and do not contain guaranteed roll-over terms and have been periodically refinanced at current market rates. If we fail to repay the lender at maturity, the lender has the right to immediately sell the collateral and pursue us for any shortfall if the sales proceeds are inadequate to cover the repurchase agreement financing. If adverse market conditions such as those described above stemming from the pandemic recur, valuations will likely be reduced, and margin call risk under repurchase agreements will likely be elevated. We have addressed these risks by selling our CMBS investments and focusing our potential investments more on floating-rate first mortgage loans backed by multifamily, industrial and office properties while continuing to assess the ongoing and potential effects of the pandemic on the hospitality and retail sectors.

Interest Rate Risk

Our market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we may borrow funds at fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. During the three months ended March 31, 2021 and 2020, we did not engage in interest rate hedging activities. We do not hold or issue derivative contracts for trading or speculative purposes. We do not have any foreign denominated investments, and thus, we are not exposed to foreign currency fluctuations.

34


 

As of both March 31, 2021, and December 31, 2020, our investment portfolio was 97% and 96% variable rate investments based on LIBOR for various terms, respectively. Borrowings under our master repurchase agreements were short-term and at a variable rate. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase or decrease by 25 or 50 basis points, assuming that our current balance sheet was to remain constant and no actions were taken to alter our existing interest rate sensitivity:

 

 

 

Estimated Percentage Change in Interest Income Net of Interest Expense

 

Change in Rates

 

March 31, 2021

 

 

December 31, 2020

 

(-) 50 Basis Points

 

 

0.81

%

 

 

1.13

%

(-) 25 Basis Points

 

 

0.81

%

 

 

1.13

%

Base Interest Rate

 

 

0.00

%

 

 

0.00

%

(+) 25 Basis Points

 

 

(1.74

)%

 

 

(1.96

)%

(+) 50 Basis Points

 

 

(3.36

)%

 

 

(3.92

)%

 

For this analysis, LIBOR was assumed to not fall below zero. 

Item 4.  Controls and Procedures

Controls and Procedures

Our management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II - Other Information

Item 1.  Legal Proceedings

In the ordinary course of business, we may become subject to litigation. We have no knowledge of material legal proceedings pending or known to be contemplated against us at this time.

Item 1A.  Risk Factors

The following risk factor amends and supplements the risk factors set forth in our Annual Report.

The discontinuation of LIBOR may adversely affect interest expense related to our loans and investments or otherwise adversely affect our results of operations, cash flows and the market value of our investments.

LIBOR has been the subject of recent national, international and regulatory guidance and proposals for reform. In a speech on July 27, 2017, the Chief Executive of the Financial Conduct Authority of the U.K. (the “FCA”), announced the FCA’s intention to cease sustaining LIBOR after 2021. The FCA subsequently announced on March 5, 2021 that the publication of LIBOR will cease for the one-week and two-month USD LIBOR settings immediately after December 31, 2021, and the remaining USD LIBOR settings immediately after June 30, 2023. Based on undertakings received from the panel banks, the FCA does not expect that any LIBOR settings will become unrepresentative before these dates. Nevertheless, the U.S. Federal Reserve System, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation have issued guidance encouraging market participants to adopt alternatives to LIBOR in new contracts as soon as practicable. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has identified the Secured Overnight Financing Rate (“SOFR”), a new index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR. At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates as the transition away from LIBOR proceeds.

There is currently no definitive information regarding any particular replacement rate. In addition, any LIBOR benchmark may perform differently during any phase-out period than in the past. As such, the potential effect of any such event on our cost of capital

35


 

and net investment income cannot yet be determined and any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations, cash flows and the market value of our investments. In addition, we may need to renegotiate certain of our loan agreements with lenders and borrowers that extend past December 31, 2021, or June 30, 2023, depending on the applicable LIBOR setting. Such amendments and restructurings could require us to incur significant expense and may subject us to disputes or litigation over the appropriateness or comparability to the relevant benchmark of the replacement reference rates.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Equity Securities

We have not sold any securities which were not registered under the Securities Act during the period covered by this report.

Use of Proceeds (dollar amounts in thousands, except share data)

On May 3, 2019, our Registration Statement on Form S-11 (File No. 333-230465) for our IPO of up to $2,350,000 in shares of Class A, Class T, Class S, Class D and Class I common stock, was declared effective under the Securities Act. Inland Securities Corporation serves as our dealer manager for the IPO.

 

The offering price for each class of our common stock is determined monthly and is made available on our website and in prospectus supplement filings. As of March 31, 2021, we received net offering proceeds of $36.6 million from the IPO. The following table summarizes certain information about the IPO proceeds:

 

 

 

Class A Shares

 

 

Class T Shares

 

 

Class S Shares

 

 

Class D Shares

 

 

Class I Shares

 

 

Total

 

Primary shares sold

 

 

658,266

 

 

 

399,381

 

 

 

 

 

 

50,751

 

 

 

381,449

 

 

 

1,489,847

 

Gross proceeds from primary offering

 

$

17,308

 

 

$

10,206

 

 

$

 

 

$

1,237

 

 

$

9,419

 

 

$

38,170

 

Reinvestments of distributions

 

 

171

 

 

 

77

 

 

 

 

 

 

32

 

 

 

122

 

 

 

402

 

    Total gross proceeds

 

 

17,479

 

 

 

10,283

 

 

 

 

 

 

1,269

 

 

 

9,541

 

 

 

38,572

 

Selling commissions and

dealer manager fees

 

 

1,004

 

 

 

284

 

 

 

 

 

 

 

 

 

 

 

 

1,288

 

Stockholder servicing fees

 

 

 

 

 

615

 

 

 

 

 

 

108

 

 

 

 

 

 

723

 

    Total expenses

 

 

1,004

 

 

 

899

 

 

 

 

 

 

108

 

 

 

 

 

 

2,011

 

         Net offering proceeds(1)

 

$

16,475

 

 

$

9,384

 

 

$

 

 

$

1,161

 

 

$

9,541

 

 

$

36,561

 

 

(1)

Excludes company-level offering costs of $3,961.

We primarily used the net offering proceeds from the IPO to originate commercial real estate loans and purchase real estate securities on a levered basis, subject to our investment guidelines and to the extent consistent with maintaining our REIT qualification, and other general corporate purposes.

On March 24, 2020, our Board suspended our IPO, effective immediately, and the DRP, effective April 6, 2020. In determining to suspend the IPO and the DRP, our Board considered various factors, including the impact of the global COVID-19 pandemic on the economy, the inability to accurately calculate our NAV per share due to uncertainty, volatility and lack of liquidity in the market, our need for liquidity due to financing challenges related to additional collateral required by the banks that regularly finance our assets and these uncertain and rapidly changing economic conditions. After determining that there had been reduced volatility in the market for the Company’s investments and some improvement in the U.S. economic outlook, our Advisor resumed calculation of the NAV beginning as of June 30, 2020, and on October 1, 2020, the SEC declared effective the post-effective amendment to the Company’s registration statement on Form S-11 thereby permitting the Company to resume offers and sales of shares of common stock in the IPO, including through the DRP.

Repurchases of Common Stock

We have adopted the SRP, whereby on a monthly basis, stockholders may request that we repurchase all or any portion of their shares. The total amount of aggregate repurchases of shares will be limited to no more than 2% of our aggregate NAV per month as of the last day of the previous calendar month and no more than 5% of our aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter. Stockholders may not request that we repurchase their shares for at least one year, provided we can waive the holding period in the event of death.

36


 

Due to the illiquid nature of investments in real estate, we may not have sufficient liquid resources to fund repurchase requests. We may choose to repurchase all, some or none of the shares that have been requested to be repurchased at the end of any particular month, in our discretion, subject to any limitations in the SRP. Further, our Board may modify, suspend or terminate the SRP.

On March 24, 2020, our Board suspended our SRP. In determining to suspend the SRP, our Board considered various factors, including the impact of the global COVID-19 pandemic on the economy, the inability to accurately calculate our NAV per share due to uncertainty, volatility and lack of liquidity in the market, our need for liquidity due to financing challenges related to additional collateral required by the banks that regularly finance our assets and uncertain and rapidly changing economic conditions. As a result of these factors, we did not calculate our NAV for the months of March through May 2020. We resumed calculation of our NAV beginning as of June 30, 2020 following the Advisor’s determination that volatility in the market for our investments had declined and the U.S. economic outlook had improved.

On March 1, 2021, our SRP was reinstated for our stockholders requesting repurchase of shares as a result of the death or qualified disability of the holder. The first settlement of permitted repurchase requests was on March 31, 2021, the last business day of the month.

On July 1, 2021, our SRP will be reinstated for all stockholders. Repurchase requests must be submitted on or after July 1, 2021. The first settlement of permitted repurchase requests will be on July 30, 2021, the last business day of the month. In accordance with the terms of the SRP that allow us to repurchase fewer shares than the maximum amount permitted under the SRP, for the months of July, August and September 2021, the total amount of aggregate repurchases of shares will be limited to no more than 1% of our aggregate NAV per month as of the last day of the previous calendar month and no more than 2.5% of our aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter. Beginning on October 1, 2021, the total amount of aggregate repurchases of shares will be limited as set forth in the SRP (no more than 2% of our aggregate NAV per month as of the last day of the previous calendar month and no more than 5% of our aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter). Notwithstanding the foregoing, we may repurchase fewer shares than these limits in any month, or none. Further, our Board may modify, suspend or terminate our SRP if it deems such action to be in our best interest and the best interest of our stockholders.

During the three months ended March 31, 2021, we repurchased shares of our common stock in the following amounts, which represented all of the share repurchase requests received following March 1, 2021, the date our SRP was reinstated for stockholders requesting repurchase of shares as a result of the death or qualified disability of the holder:

 

Period

 

Total Number of Shares Purchased

 

 

Average Price Paid per Share

 

 

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or Programs

 

 

Maximum Number

of Shares that May

Yet Be Purchased

Under the Plans or

Programs(1)

January 1 — January 31, 2021

 

 

 

 

$

 

 

 

 

 

February 1 — February 28, 2021

 

 

 

 

$

 

 

 

 

 

March 1 — March 31, 2021

 

 

6,208

 

 

$

20.13

 

 

 

6,208

 

 

 

 

 

6,208

 

 

$

20.13

 

 

 

6,208

 

 

________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Repurchases are limited as described above.

 

 

 

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not Applicable.

Item 5.  Other Information

Not Applicable.

37


 

Item 6.  Exhibits

The representations, warranties and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties or covenants to, or with, you. Moreover, these representations, warranties and covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.

The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto and are incorporated herein by reference.

 

Exhibit No.

 

Description

 

 

 

3.1

 

Articles of Amendment and Restatement of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form 10 filed May 2, 2017 and incorporated by reference)

3.2

 

Articles of Amendment of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed April 30, 2019 and incorporated by reference)

3.3

 

Articles Supplementary of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed April 30, 2019 and incorporated by reference)

3.4

 

Certificate of Correction of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q filed August 14, 2019 and incorporated by reference)

3.5

 

Bylaws of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.2 to the Registrant’s Registration Statement on Form 10 filed May 2, 2017 and incorporated by reference)

4.1

 

Amended and Restated Distribution Reinvestment Plan (filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-11 filed March 19, 2021 and incorporated by reference)

10.1

 

Loan and Security Agreement, dated March 10, 2021, between Western Alliance Bank and InPoint REIT Operating Partnership, LP (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 16, 2021 and incorporated by reference)

10.2

 

Promissory Note, dated March 10, 2021, made by InPoint REIT Operating Partnership, LP to Western Alliance Bank (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed March 16, 2021 and incorporated by reference)

10.3

 

Guaranty Agreement, dated March 10, 2021, executed by InPoint Commercial Real Estate Income, Inc., as Guarantor, for the benefit of Western Alliance Bank, as Lender (filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed March 16, 2021 and incorporated by reference)

31.1*

 

Certification of the Principal Executive Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002

31.2*

 

Certification of the Principal Financial Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002

32.1*

 

Certification of the Principal Executive Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002

32.2*

 

Certification of the Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002

101

 

The following financial information from our Quarterly Report on Form 10-Q for the period ended March 31, 2021, filed with the Securities and Exchange Commission on May 14, 2021 is formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Changes in Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements (tagged as blocks of text)

*

Filed as part of this Quarterly Report on Form 10-Q

38


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

INPOINT COMMERCIAL REAL ESTATE

INCOME, INC.

 

 

 

 

By:

/s/ Mitchell A. Sabshon

Name:

Mitchell A. Sabshon

Title:

Chief Executive Officer and Chairman

 

(principal executive officer)

Date:

May 14, 2021

 

 

By:

/s/ Catherine L. Lynch

Name:

Catherine L. Lynch

Title:

Chief Financial Officer

 

(principal financial officer)

Date:

May 14, 2021

 

 

39