SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
FOR THE QUARTERLY PERIOD ENDED
OR
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code:
Former name, former address and former fiscal year, if changed since last report: Not Applicable
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No
As of May 14, 2024, the registrant had the following shares of common stock outstanding:
IPC ALTERNATIVE REAL ESTATE INCOME TRUST, INC.
TABLE OF CONTENTS
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Part I - Financial Information |
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Item 1. |
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Financial Statements (unaudited) |
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Statement of Operations and Comprehensive Loss for the three months ended March 31, 2024 |
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Statement of Equity for the three months ended March 31, 2024 |
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Statement of Cash Flows for the three months ended March 31, 2024 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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IPC Alternative Real Estate Operating Partnership, LP Consolidated Financial Statements (unaudited) |
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Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 |
32 |
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33 |
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Consolidated Statements of Partners’ Capital for the three months ended March 31, 2024 and 2023 |
34 |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 |
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IPC ALTERNATIVE REAL ESTATE INCOME TRUST, INC.
BALANCE SHEETS
(Unaudited, dollar amounts in thousands, except per share amounts)
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As of |
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As of |
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ASSETS |
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Assets: |
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Investment in Operating Partnership |
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$ |
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$ |
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Distributions receivable from Operating Partnership |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Liabilities: |
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Distributions payable |
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$ |
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$ |
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Total liabilities |
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(Note 8) |
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Equity: |
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Preferred stock, $ |
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Common stock, Class T shares, $ |
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— |
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— |
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Common stock, Class S shares, $ |
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— |
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— |
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Common stock, Class D shares, $ |
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— |
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— |
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Common stock, Class I shares, $ |
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Common stock, Class A shares, $ |
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— |
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— |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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Accumulated other comprehensive loss |
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( |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See accompanying notes to financial statements.
3
IPC ALTERNATIVE REAL ESTATE INCOME TRUST, INC.
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, dollar amounts in thousands, except per share amounts)
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Three Months Ended |
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Other Income (Expenses): |
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Loss from equity method investment in Operating Partnership |
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$ |
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Net loss |
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$ |
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Net loss per common share, basic and diluted |
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$ |
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Weighted average number of common shares outstanding, basic and diluted |
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Comprehensive income (loss): |
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Net loss |
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$ |
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Comprehensive income from Operating Partnership |
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Comprehensive loss |
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$ |
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See accompanying notes to financial statements.
4
IPC ALTERNATIVE REAL ESTATE INCOME TRUST, INC.
STATEMENT OF EQUITY
(Unaudited, dollar amounts in thousands)
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Par value |
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For the three months ended March 31, 2024 |
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Preferred Stock |
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Common Stock |
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Common Stock |
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Common Stock |
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Common Stock |
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Common Stock |
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Additional |
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Accumulated Deficit |
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Accumulated |
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Total Equity |
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Balance at December 31, 2023 |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
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$ |
— |
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$ |
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$ |
( |
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$ |
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$ |
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Proceeds from issuance of common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Proceeds from distribution reinvestment plan |
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— |
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— |
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— |
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— |
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— |
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Common stock distributions declared |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Comprehensive income from Operating Partnership |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2024 |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
— |
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$ |
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$ |
( |
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$ |
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$ |
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See accompanying notes to financial statements.
5
IPC ALTERNATIVE REAL ESTATE INCOME TRUST, INC.
STATEMENT OF CASH FLOWS
(Unaudited, dollar amounts in thousands)
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Three Months Ended |
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Cash flows from operating activities: |
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Net loss |
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$ |
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Adjustments to reconcile net loss to net cash provided by operating |
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Loss from equity method investment in Operating Partnership |
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Net cash flows provided by operating activities |
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— |
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Cash flows from investing activities: |
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Investment in Operating Partnership |
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( |
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Distributions from investment in Operating Partnership |
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Net cash flows used in investing activities |
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( |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock |
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Distributions paid to common stockholders |
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Net cash flows provided by financing activities |
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Net change in cash and cash equivalents |
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Cash and cash equivalents, at beginning of the period |
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— |
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Cash and cash equivalents, at end of the period |
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$ |
— |
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Supplemental schedule of non-cash investing and financing activities: |
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Distributions payable |
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$ |
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Equity-based compensation – Restricted stock issued and investment in Operating Partnership |
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$ |
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See accompanying notes to financial statements.
6
IPC ALTERNATIVE REAL ESTATE INCOME TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2024
(Unaudited, dollar amounts in thousands, except share data and per share amounts)
The accompanying interim financial statements have been presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements include all adjustments, consisting of normal recurring items, necessary for their fair statement in conformity with GAAP. Interim results are not necessarily indicative of results for a full year. Balance sheet data as of December 31, 2023 was derived from the audited financial statements, but does not include all disclosures required by GAAP. Readers of this Quarterly Report should refer to the audited financial statements of IPC Alternative Real Estate Income Trust, Inc. (the “Company”) for the period ended December 31, 2023, which are included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on March 20, 2024, as certain footnote disclosures contained in such audited financial statements have been omitted from this Quarterly Report.
NOTE 1 – ORGANIZATION
The Company was incorporated on June 12,
Prior to August 24, 2023, the Company was managed by IPC Alternative Real Estate Advisor, LLC (the “Advisor”), an affiliate of Inland Real Estate Investment Corporation (“IREIC”), pursuant to a Business Management Agreement. On August 24, 2023, the Business Management Agreement was terminated and the Company, the Operating Partnership and the Advisor entered into an advisory agreement (the “Advisory Agreement”), which is effective from August 1, 2023.
The Company conducts substantially all of its business and owns, indirectly, substantially all of its assets through the Operating Partnership. The Company, through the Operating Partnership, will invest in stabilized, income-generating commercial real estate across alternative property types, with a non-exclusive focus on self-storage facilities, student housing properties and healthcare-related properties. Healthcare-related assets may include medical office buildings, ambulatory surgery centers, senior living facilities and life science and laboratory facilities. The Company, through the Operating Partnership, may also invest in value-add or other development projects in these asset classes, potentially through a variety of ownership structures including but not limited to direct ownership, joint ventures, co-investment opportunities, preferred equity positions and others.
On September 28, 2023, the Company’s Registration Statement on Form S-11 (File No. 333-272750) with respect to the Company’s public offering was declared effective by the SEC. The Company has registered an offering of up to $
When the Company receives proceeds from the Offering, the Company contributes such proceeds to the Operating Partnership and receives Operating Partnership units (“OP Units”) that correspond to the classes of the shares sold. The Company accounts for the units acquired in the Operating Partnership as an equity method investment during any period that the Company’s investment in the Operating Partnership is not considered significant to the Operating Partnership and expects to consolidate the Operating Partnership at such time that the Company’s investment in the Operating Partnership is considered significant to the Operating Partnership, and thereafter present the results of operations on a consolidated basis.
On December 1, 2023, the Company issued and sold
As of March 31, 2024, the Company holds
7
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Disclosures discussing significant accounting policies are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 20, 2024, under the heading Note 2 – “Summary of Significant Accounting Policies.” There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2024, except as noted below.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Equity Method Accounting
The Company accounts for an investment under equity method of accounting when the requirements for consolidation are not met and the Company has significant influence over the operations of the entity. Investments under equity method of accounting are initially recorded at cost and subsequently adjusted for the Company’s pro-rata share of net income, contributions, redemptions and distributions. The Company’s investments in unconsolidated entities are periodically assessed for impairment and an impairment loss is recorded when the fair value of the investment falls below the carrying value and such decline is determined to be other-than-temporary.
Distributions received from equity method investments are classified in the statement of cash flows as either operating or investing activities based on the cumulative earnings approach. Under the cumulative earnings approach, the Company compares distributions received to cumulative equity method earnings since inception. Any distributions received up to the amount of cumulative equity earnings are considered a return on investment and classified in operating activities. Any excess distributions are considered a return of investment and classified in investing activities.
Accounting Pronouncements Recently Issued but Not Yet Effective
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items, on an annual and interim basis, and to provide in interim periods all disclosures that are currently required annually regarding a reportable segment’s profit or loss and assets. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, early adoption is permitted. The amendments should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Company is currently evaluating the impact of ASU 2023-07 on the Company’s financial statements.
In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 improves the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-07 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied prospectively, however retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on the Company’s financial statements.
NOTE 3 – Investment in OPERATING PARTNERSHIP
During the three months ended March 31, 2024, the Company contributed $
As of March 31, 2024 and December 31, 2023, the Operating Partnership owned
8
The Company’s investment in the Operating Partnership as of March 31, 2024 was as follows:
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Carrying Amount |
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Ownership Percentage (1) |
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March 31, 2024 (2) |
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Class I OP Units |
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% |
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$ |
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The Company’s investment in the Operating Partnership as of December 31, 2023 was as follows:
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Carrying Amount |
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Ownership Percentage (1) |
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December 31, 2023 (2) |
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Class I OP Units |
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% |
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$ |
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Profits and losses of the Operating Partnership are allocated to its unitholders in proportion to their ownership of the OP Units.
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Three Months Ended |
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IPC Alternative Real Estate Operating Partnership, LP |
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$ |
( |
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The amounts reflected in the following tables reflect the financial information of the Operating Partnership.
The following table provides the summarized balance sheet of the Operating Partnership as of March 31, 2024 and December 31, 2023:
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March 31, 2024 |
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December 31, 2023 |
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Total assets |
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$ |
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$ |
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Total liabilities |
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$ |
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$ |
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Total partners’ capital |
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$ |
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$ |
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The following table provides the summarized income statement of the Operating Partnership for the three months ended March 31, 2024:
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Three Months Ended |
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Total revenues |
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$ |
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Net loss |
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$ |
( |
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NOTE 4 – EQUITY
As of March 31, 2024, the Company is authorized to issue a total of
9
On June 12, 2023, the Company was capitalized with a $
On December 1, 2023, the Company issued and sold
The Company is not offering Class A shares in the Offering, and the Company had
Distribution Reinvestment Plan
The Company has adopted a distribution reinvestment plan (“DRP”) whereby stockholders (other than Alabama, Arkansas, California, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Nebraska, New Jersey, North Carolina, Ohio, Oregon, Vermont and Washington investors and clients of certain participating broker-dealers that do not permit automatic enrollment in the DRP) will have their cash distributions automatically reinvested in additional shares of the Company’s common stock unless they elect to receive their distributions in cash. Alabama, Arkansas, California, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Nebraska, New Jersey, North Carolina, Ohio, Oregon, Vermont and Washington investors and clients of certain participating broker-dealers that do not permit automatic enrollment in the DRP will automatically receive their distributions in cash unless they elect to have their cash distributions reinvested in additional shares of the Company’s common stock. The purchase price for shares purchased under the DRP will be equal to the transaction price for such shares at the time the distribution is payable, which will generally be equal to the Company’s prior month’s NAV per share for that share class. Stockholders will not pay upfront selling commissions or dealer manager fees when purchasing shares under the DRP; however, all outstanding Class T, Class S and Class D shares, including those purchased under the DRP, will be subject to ongoing distribution fees. The distribution fees with respect to shares of the Company’s Class T shares, Class S shares and Class D shares are calculated based on the Company’s NAV for those shares and may reduce the NAV or, alternatively, the distributions payable with respect to shares of each such class, including shares issued in respect of distributions on such shares under the DRP.
Less than $
Share Repurchase Plan
The Company has adopted a share repurchase plan (“SRP”), whereby on a monthly basis, stockholders may request that the Company repurchase all or any portion of their shares. The Company 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 its discretion, subject to any limitations in the SRP. The total amount of aggregate repurchases of Class T, Class S, Class D, and Class I shares will be limited to
There were
10
Share Activity for Common Stock and Preferred Stock
The following table details the change in the Company’s outstanding shares of all classes of common and preferred stock:
For the three months ended March 31, 2024 |
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Preferred Stock |
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Common Stock |
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Common Stock |
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Common Stock |
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Common Stock |
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Common Stock |
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Beginning balance |
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— |
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— |
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— |
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Issuance of shares |
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— |
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— |
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— |
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— |
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Distribution reinvestment |
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— |
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— |
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— |
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— |
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— |
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Issuance of restricted shares (Note 7) |
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— |
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— |
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— |
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— |
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— |
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Ending balance |
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— |
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— |
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— |
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— |
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— |
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Distributions
The following table details the aggregate distributions declared per share for each applicable class of stock for the three months ended March 31, 2024:
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Class I Shares |
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Aggregate distributions declared per share |
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$ |
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NOTE 5 – EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the “common shares”). Diluted EPS is computed by dividing net income by the common shares plus common share equivalents (“Diluted EPS”). 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 EPS. As a result of a net loss for the three months ended March 31, 2024,
NOTE 6 – TRANSACTIONS WITH RELATED PARTIES
Pursuant to the Advisory Agreement between the Company, the Operating Partnership and the Advisor, the Advisor is responsible for sourcing, evaluating and monitoring the Company’s and the Operating Partnership's investment opportunities and making decisions related to the acquisition, management, financing and disposition of the Company’s and the Operating Partnership’s assets, in accordance with the Company’s investment objectives, guidelines, policies and limitations, subject to oversight by the Company’s board of directors.
The Company or the Operating Partnership pay all of their costs and expenses directly or reimburse the Advisor or its affiliates for costs and expenses of the Advisor and its affiliates incurred on behalf of the Company. In addition, the Operating Partnership will reimburse the Company for all administrative expenses incurred by the Company on behalf of the Operating Partnership.
Certain affiliates of the Company, including the Advisor, will receive fees and compensation in connection with the Offering and ongoing management of the assets of the Company and the Operating Partnership. As compensation for its services provided pursuant to the Advisory Agreement, the Company or the Operating Partnership pays the Advisor a management fee equal to (i)
The Special Limited Partner holds a performance participation interest in the Operating Partnership that entitles it to receive an allocation from the Operating Partnership equal to (a) with respect to Class T, Class S, Class D and Class I OP Units,
11
the Special Limited Partner will accrue monthly and will be paid annually in cash or Class I OP Units at the election of the Special Limited Partner. The performance participation allocations are a class-specific accrual.
The Company and the Operating Partnership may retain certain of the Advisor’s affiliates, from time to time, for services relating to the Company’s and the Operating Partnership’s investments or their operations, which may include accounting and audit services, account management services, corporate secretarial services, data management services, directorship services, information technology services, finance/budget services, human resources, judicial processes, legal services, operational services, risk management services, tax services, treasury services, loan management services, construction management services, property management services, leasing services, loan origination services, debt servicing, brokerage services, transaction support services (which may consist of assembling relevant information with respect to investment acquisitions and dispositions, conducting financial and market analyses, coordinating closing and post-closing procedures, coordinating of design and development works, coordinating with brokers, lawyers, accountants and other advisors, assisting with due diligence, site visits and other services), transaction consulting services and other similar operational matters. Any fees paid to the Advisor’s affiliates for any such services will not reduce the management fee payable to the Advisor or the performance participation allocations.
In addition, Inland Securities Corporation (the “Dealer Manager”) serves as the dealer manager for the Offering. The Dealer Manager is a registered broker-dealer affiliated with the Advisor. The Company entered into an agreement dated September 28, 2023 (the “Dealer Manager Agreement”) with the Dealer Manager in connection with the Offering. The Company’s obligations under the Dealer Manager Agreement to pay the distribution fees with respect to the Class T, Class S and Class D shares distributed in the Offering will survive until such shares are no longer outstanding (including such shares that have been converted into Class I shares).
The Dealer Manager is entitled to receive upfront selling commissions of up to
Related Party Share Ownership
As of both March 31, 2024 and December 31, 2023, IREIC and its affiliates held
NOTE 7 – EQUITY-BASED COMPENSATION
The table below summarizes total stock grants made at each grant date as of March 31, 2024.
Grant Date |
|
Class of common stock granted |
|
Total number of shares granted |
|
|
Grant Date Fair Value Per Share |
|
|
Total Fair Value of Grant |
|
|
Vesting Date |
|||
10/2/2023 |
|
Class I |
|
|
|
$ |
|
|
$ |
|
|
|||||
3/19/2024 |
|
Class I |
|
|
|
|
$ |
|
|
$ |
|
|
||||
Under the Company’s independent director compensation plan (the “DCP”), restricted shares generally vest over a
12
A summary of the status of the restricted shares granted under the DCP is presented below:
|
|
Restricted |
|
|
Outstanding at December 31, 2023 |
|
|
|
|
Granted (at grant date fair value of $ |
|
|
|
|
Vested |
|
|
— |
|
Outstanding at March 31, 2024 |
|
|
|
|
NOTE 8 – COMMITMENTS AND CONTINGENCIES
The Company may be subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. As of March 31, 2024 and December 31, 2023, the Company was not subject to any material litigation or aware of any pending or threatened material litigation.
NOTE 9 – SUBSEQUENT EVENTS
In connection with the preparation of its financial statements, the Company has evaluated events that occurred through the issuance of these financial statements to determine whether any of these events required disclosure in the financial statements.
Acquisitions by the Operating Partnership
On April 5, 2024, the Operating Partnership acquired
As part of the consideration, the Operating Partnership issued
The Storage V Properties are managed by Inland Devon Self Storage Holdings LLC, an affiliate of IREIC.
On April 26, 2024, the Operating Partnership entered into a loan agreement with Parkway Bank for an aggregate principal amount of $
Distributions
On
13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in 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 IPC Alternative Real Estate Income Trust, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (the “SEC”) on March 20, 2024 and elsewhere in this Quarterly Report on Form 10-Q.
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report, and may ultimately prove to be incorrect or false. We undertake no obligation to update or revise forward-looking statements 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.
We routinely post important information about us and our business, including financial and other information for investors, on our website. We encourage investors to visit our website at ipcaltreit.com from time to time, as information is updated and new information is posted.
Overview
We are a Maryland corporation that intends to invest in a diversified portfolio of stabilized, income-generating commercial real estate across alternative property types, with a non-exclusive focus on self-storage facilities, student housing properties and healthcare-related properties. Healthcare-related assets may include medical office buildings, ambulatory surgery centers, senior living facilities and life science and laboratory facilities. We may also invest in value-add or other development projects in these asset classes, potentially through a variety of ownership structures including but not limited to direct ownership, joint ventures, co-investment opportunities, preferred equity positions and others. We were originally formed on June 17, 2021, as a Delaware limited liability company named “Inland Private Capital Alternative Assets Fund, LLC.” We converted to a Maryland corporation on June 12, 2023 and intend to qualify and elect to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes for the taxable year ending December 31, 2024. Until that time, we will be subject to taxation at regular corporate rates under the Internal Revenue Code of 1986, as amended. We had little or no taxable income for the taxable year ending December 31, 2023. We are the sole general partner of IPC Alternative Real Estate Operating Partnership, LP (formerly known as IPC Alternative Assets Operating Partnership, LP) (the “Operating Partnership”).
On September 28, 2023, the SEC declared our Registration Statement on Form S-11 (File No. 333-272750) for our public offering of common stock effective. We have registered a public offering of up to $1.25 billion in shares of common stock, consisting of up to $1.0 billion in shares in our primary offering and up to $250 million shares pursuant to our distribution reinvestment plan (the “Offering”). We are offering to sell any combination of four classes of shares of our common stock, Class T shares, Class S shares, Class D shares and Class I shares, with a dollar value up to the maximum offering amount. The share classes have different upfront selling commissions and dealer manager fees, and different ongoing distribution fees. The purchase price per share for each class of common stock will vary and will generally equal our prior month’s net asset value (“NAV”) per share, as determined monthly, plus applicable upfront selling commissions and dealer manager fees.
As of December 1, 2023, we had satisfied the minimum offering requirement in all states, except the State of Pennsylvania, and authorized the release of proceeds from escrow. Subscriptions from Pennsylvania residents will not be released from escrow until (i) we have received, prior to the termination of our primary offering, purchase orders from all sources for at least $62.5 million (including subscription orders by residents of other jurisdictions and by The Inland Real Estate Group of Companies, Inc. (together with its subsidiaries and affiliates, “Inland”), its affiliates and our directors and officers) of shares of our common stock in any combination of purchases of Class T shares, Class S shares, Class D shares and Class I shares and/or (ii) we obtain, prior to the termination of our primary offering, $62.5 million in assets (including by consolidating the Operating Partnership in our financial statements under accounting principles generally accepted in the United States of America (“GAAP”)).
14
Other than our investment in the Operating Partnership as described below, we had neither engaged in any operations nor generated any revenues through March 31, 2024. Our entire activity from inception through March 31, 2024 primarily consists of investment in the Operating Partnership, allocation of income (loss) and receipt of distributions from the Operating Partnership and distributions paid to our common stockholders. When we receive proceeds from the sale of shares of our common stock in this Offering, we contribute such proceeds to the Operating Partnership and receive Operating Partnership units (“OP Units”) that correspond to the classes of our shares sold. As of March 31, 2024, we hold 114,986 Class I OP Units, representing a 2.0% interest in the Operating Partnership. We account for the units acquired in the Operating Partnership as an equity method investment during any period our investment in the Operating Partnership is not considered significant to the Operating Partnership and will consolidate the Operating Partnership at such time our investment in the Operating Partnership is considered significant to the Operating Partnership (based on GAAP), and thereafter present the results of operations on a consolidated basis. We expect to invest our capital and all our Offering proceeds in the Operating Partnership and hold no other assets other than OP Units. We therefore expect to eventually consolidate the Operating Partnership, and we have included financial statements of the Operating Partnership in Part II Item 5 in this Quarterly Report on Form 10-Q, as we believe a discussion of the performance and results of operations of the Operating Partnership would be meaningful to investors as our cash flows and operating results are driven by the Operating Partnership, and subsequent invested capital will be significant to the Company.
The Operating Partnership
The Operating Partnership was originally formed on June 21, 2021 as a Delaware limited partnership. The Operating Partnership acquired 30 medical office properties on September 2, 2021 through a “roll-up” transaction with eight separate programs sponsored by an affiliate of the Company's sponsor. In exchange for the properties, the Operating Partnership issued 373,033 OP Units (prior to the unit split as described below) to the Delaware statutory trusts that owned the properties, which were subsequently distributed to the investors in those trusts. In addition, on December 1, 2022, the Operating Partnership acquired City Lofts on Laclede Student Housing (“University Lofts”) in St. Louis, MO for a purchase price of $39.1 million, including the assumed Parkway UL Mortgage Loan (as defined below) of $22 million, which was the original principal amount of the loan, in connection with the acquisition. Effective July 31, 2023, the Operating Partnership effected a unit split for each OP Unit resulting in 5,815,959 Class A OP Units outstanding. The Operating Partnership has no employees.
On April 5, 2024, the Operating Partnership acquired four self-storage properties (the “Storage V Properties”) from an affiliate of the Company, for a total purchase price of $43.8 million, including $17.6 million of assumed loans and corresponding swaps with First Merchants Bank. Storage V Properties are comprised of 2,275 storage units, including 1,810 climate-controlled units, that encompass 250,610 square feet. On April 26, 2024, the Operating Partnership entered into a loan agreement with Parkway Bank for an aggregate principal amount of $28,000 (the “Parkway Storage V Mortgage Loan”). The proceeds of the Parkway Storage V Mortgage Loan were used to repay the assumed loans and settle the corresponding swaps with First Merchants Bank.
The Company and the Operating Partnership entered into a Business Management Agreement with IPC Alternative Assets Business Manager, LLC, effective as of July 14, 2021. Effective as of October 1, 2022, the Business Management Agreement was transferred from IPC Alternative Assets Business Manager, LLC to our advisor, IPC Alternative Real Estate Advisor, LLC (the “Advisor”). There were no updates to the terms of the Business Management Agreement as a result of the transfer. The Business Management Agreement was terminated on August 24, 2023 and the Company, the Operating Partnership and the Advisor entered into an advisory agreement (the “Advisory Agreement”), which is effective from August 1, 2023. Pursuant to the Advisory Agreement, the Advisor is responsible for sourcing, evaluating and monitoring the Company’s and the Operating Partnership’s investment opportunities and making decisions related to the acquisition, management, financing and disposition of the Company’s and Operating Partnership’s assets, in accordance with the Company’s investment objectives, guidelines, policies and limitations, subject to oversight by the Company’s board of directors. The Advisory Agreement provides that the Operating Partnership or the Company will pay the Advisor a management fee equal to (i) 1.25% of aggregate NAV of the Operating Partnership attributable to outstanding Class T units, Class S units, Class D units and Class I units of the Operating Partnership and (ii) 0.50% of the aggregate NAV of the Operating Partnership attributable to outstanding Class A units, in each case per annum payable monthly in arrears. The management fee may be paid, at the Advisor’s election, in cash, Class I shares of the Company or Class I units of the Operating Partnership.
The Operating Partnership is governed by the Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated February 13, 2024 (as may be amended or restated from time to time, the “Amended and Restated Limited Partnership Agreement”). On August 24, 2023, IPC REIT Special Limited Partner, LP (the “Special Limited Partner”), an affiliate, was admitted as a limited partner of the Operating Partnership and the Special Limited Partner contributed $10,000 for a performance participation interest in the Operating Partnership. The Special Limited Partner’s performance participation interest in the Operating Partnership provides for the Special Limited Partner to receive an allocation from the Operating Partnership equal to (a) with respect to Class T, Class S, Class D and Class I OP Units, 12.5% of the Total Return, subject to a 5% Hurdle Amount and a High-Water Mark, with a Catch-Up (each term as defined in the Prospectus) and (b) with respect to Class A OP Units, 12.5% of the Class A Total Return, subject to a 5% Class A Hurdle Amount and a Class A High-Water Mark, with a Catch-Up (each term as defined in the Company’s Prospectus).
15
The performance participation allocations are subject to a loss carryforward which initially equaled zero and is cumulatively increased by the absolute value of any negative annual Total Return or Class A Total Return (as applicable) and decreased by any positive annual Total Return or Class A Total Return (as applicable), provided that the loss carryforward amount shall at no time be less than zero and provided further that the calculation of the loss carryforward amount will exclude the Total Return or Class A Total Return (as applicable) related to any OP Units redeemed during the year, which are subject to the performance participation allocation upon redemption.
The Operating Partnership is primarily focused on investing in a diversified portfolio of stabilized, income-generating commercial real estate across alternative property types, with a non-exclusive focus on self-storage facilities, student housing properties and healthcare-related properties. Healthcare-related assets may include medical office buildings, ambulatory surgery centers, senior living facilities and life science and laboratory facilities. The Operating Partnership may also invest in value-add or other development projects in these asset classes, potentially through a variety of ownership structures including but not limited to direct ownership, joint ventures, co-investment opportunities, preferred equity positions and others. In the initial stages of our capital raise pursuant to the Offering, a primary source of proposed real estate investments will consist of DST or other private investment programs sponsored by IPC, an affiliate of our sponsor. These investments are expected to take the form of a transaction structured as a tax-deferred contribution of the property owned by the DST or other IPC-sponsored investment program to the Operating Partnership in exchange for OP Units under Section 721 of the Code.
The following discussion and analysis is based on the consolidated financial statements for the three months ended March 31, 2024 and 2023 and as of March 31, 2024 and December 31, 2023 for the Operating Partnership. Our stockholders should read the following discussion and analysis along with the consolidated financial statements of the Operating Partnership and the related notes thereto included in Part II Item 5 in this Quarterly Report on Form 10-Q.
As of March 31, 2024 and December 31, 2023, the Operating Partnership operates in two reportable segments: Healthcare and Education. During the second quarter of 2023, the Operating Partnership retitled the Student Housing segment to Education. The Operating Partnership assesses performance and makes operational decisions based on the performance of each segment individually.
As of March 31, 2024 and December 31, 2023, the Operating Partnership had total assets of $433.7 million and $431.8 million, respectively, and owned 30 medical office building properties totaling 746,601 square feet and one student housing property with 406 student housing beds. The properties are located in 10 states. A majority of the Operating Partnership’s medical office properties are single-tenant medical office buildings. For the three months ended March 31, 2024, medical office buildings and the student housing property represented 83.5% and 16.5%, respectively, of the Operating Partnership’s total revenues. For the year ended December 31, 2023, medical office buildings and the student housing property represented 84.7% and 15.3%, respectively, of the Operating Partnership’s total revenues. As of March 31, 2024, medical office buildings and the student housing property were 100% and 99.8% leased, respectively. As of December 31, 2023, all of the Operating Partnership’s portfolio properties were 100% leased.
Select Property Information (all dollar amounts in thousands, except per square foot amounts)
Overview of Operating Partnership’s Portfolio
As of March 31, 2024, the Operating Partnership’s real property portfolio consisted of 31 properties totaling approximately 746,601 square feet of medical office buildings and one student housing property with 406 student housing beds. These properties are located in 14 markets throughout the U.S.
16
The following table summarizes certain operating metrics of the Operating Partnership’s portfolio by segment and by market as of March 31, 2024:
Property |
|
Number of Properties |
|
Gross Asset Value (1) |
|
|
Rentable Square Feet |
|
|
Percentage of Rentable Square Feet |
|
|
Percentage Leased(2) |
|
||||
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Austin MSA(3), TX |
|
1 |
|
|
2.8 |
% |
|
|
16,388 |
|
|
|
2.2 |
% |
|
|
100.0 |
% |
Chicago MSA, IL |
|
3 |
|
|
6.7 |
% |
|
|
56,173 |
|
|
|
7.5 |
% |
|
|
100.0 |
% |
Connecticut |
|
2 |
|
|
5.3 |
% |
|
|
112,369 |
|
|
|
15.1 |
% |
|
|
100.0 |
% |
Dallas, TX |
|
1 |
|
|
1.6 |
% |
|
|
16,050 |
|
|
|
2.1 |
% |
|
|
100.0 |
% |
Garden City, NY |
|
1 |
|
|
2.8 |
% |
|
|
16,920 |
|
|
|
2.3 |
% |
|
|
100.0 |
% |
Greendale, IN |
|
1 |
|
|
2.3 |
% |
|
|
24,722 |
|
|
|
3.3 |
% |
|
|
100.0 |
% |
Houston, TX |
|
2 |
|
|
13.6 |
% |
|
|
88,450 |
|
|
|
11.8 |
% |
|
|
100.0 |
% |
Indianapolis, IN |
|
1 |
|
|
3.0 |
% |
|
|
42,187 |
|
|
|
5.7 |
% |
|
|
100.0 |
% |
Oklahoma City, OK |
|
1 |
|
|
4.3 |
% |
|
|
33,500 |
|
|
|
4.5 |
% |
|
|
100.0 |
% |
Phoenix MSA, AZ |
|
10 |
|
|
28.9 |
% |
|
|
199,958 |
|
|
|
26.8 |
% |
|
|
100.0 |
% |
Raleigh, NC |
|
1 |
|
|
1.8 |
% |
|
|
13,131 |
|
|
|
1.8 |
% |
|
|
100.0 |
% |
San Antonio MSA, TX |
|
4 |
|
|
8.1 |
% |
|
|
71,995 |
|
|
|
9.6 |
% |
|
|
100.0 |
% |
Salt Lake City MSA, UT |
|
2 |
|
|
6.9 |
% |
|
|
54,758 |
|
|
|
7.3 |
% |
|
|
100.0 |
% |
Healthcare Total |
|
30 |
|
|
88.1 |
% |
|
|
746,601 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Education |
|
|
|
|
|
|
Beds |
|
|
Percentage of Beds |
|
|
|
|
||||
St. Louis, MO |
|
1 |
|
|
11.9 |
% |
|
|
406 |
|
|
|
100.0 |
% |
|
|
99.8 |
% |
Portfolio Total |
|
31 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|||
As of March 31, 2024, all of the properties listed in the table were owned in fee simple, with the exception of the following:
Lease Terms
Medical office lease terms typically range from 5 to 15 years, and often include renewal options. Most of the Operating Partnership’s medical office leases include fixed rental increases or Consumer Price Index-based rental increases and are not based on the income or profits of any person. The majority of the Operating Partnership’s student housing residential leases expire within 12 months.
17
Lease Expirations
As of March 31, 2024, the weighted-average remaining term of the Operating Partnership’s total leased commercial portfolio was approximately 7.9 years based on annualized base rent and 8.0 years based on leased square footage, excluding renewal options. The following table summarizes the lease expirations at the Operating Partnership’s medical office properties for leases in place as of March 31, 2024, without giving effect to the exercise of renewal or termination rights, if any. The table excludes ground leases described above as well as the student housing property, as substantially all leases at the student housing property expire within 12 months.
Year Ending December 31 |
|
Number of |
|
|
Rentable Square Feet |
|
|
Percentage of Total Leased Square Feet |
|
|
Annualized Based Rent ($)(1) |
|
|
Percentage of Total Annualized Based Rent |
|
|||||
2024 (remainder of the year) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
2025 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
2026 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
2027 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
2028 |
|
|
3 |
|
|
|
75,973 |
|
|
|
10.2 |
% |
|
|
2,176 |
|
|
|
10.4 |
% |
2029 |
|
|
2 |
|
|
|
42,442 |
|
|
|
5.7 |
% |
|
|
1,314 |
|
|
|
6.3 |
% |
2030 |
|
|
2 |
|
|
|
71,851 |
|
|
|
9.6 |
% |
|
|
1,893 |
|
|
|
9.0 |
% |
2031 |
|
|
5 |
|
|
|
98,935 |
|
|
|
13.2 |
% |
|
|
3,129 |
|
|
|
14.9 |
% |
2032 |
|
|
8 |
|
|
|
252,171 |
|
|
|
33.8 |
% |
|
|
6,193 |
|
|
|
29.6 |
% |
2033 |
|
|
9 |
|
|
|
164,457 |
|
|
|
22.0 |
% |
|
|
5,324 |
|
|
|
25.4 |
% |
Thereafter |
|
|
3 |
|
|
|
40,772 |
|
|
|
5.5 |
% |
|
|
915 |
|
|
|
4.4 |
% |
Total |
|
|
32 |
|
|
|
746,601 |
|
|
|
100.0 |
% |
|
$ |
20,944 |
|
|
|
100.0 |
% |
Tenant Diversification
The Operating Partnership believes that the tenants that occupy the Operating Partnership’s real estate portfolio are generally well-diversified. As of March 31, 2024, there were three tenants that represented more than 10.0% of the Operating Partnership’s portfolio’s total annualized base rent or more than 10.0% of the Operating Partnership’s portfolio’s total leased square feet.
The following table reflects the Operating Partnership’s ten largest healthcare tenants, based on annualized base rent, as of March 31, 2024.
Tenant Name |
|
Number |
|
|
Rentable Square Feet |
|
|
Percentage of Rentable Square Feet |
|
|
Total Annualized Base Rent |
|
|
Percent of Healthcare Portfolio Annualized Base Rent |
|
|
Annualized Base Rent Per Square Foot |
|
||||||
Ironwood Cancer & Research Centers |
|
|
8 |
|
|
|
146,245 |
|
|
|
19.6 |
% |
|
$ |
4,844 |
|
|
|
23.1 |
% |
|
$ |
33.12 |
|
Memorial Hermann Health System |
|
|
2 |
|
|
|
88,450 |
|
|
|
11.8 |
% |
|
|
3,207 |
|
|
|
15.3 |
% |
|
|
36.26 |
|
Dermatology Associates of San Antonio |
|
|
2 |
|
|
|
36,385 |
|
|
|
4.9 |
% |
|
|
1,254 |
|
|
|
6.0 |
% |
|
|
34.46 |
|
Starling Physicians, P.C. |
|
|
2 |
|
|
|
112,369 |
|
|
|
15.0 |
% |
|
|
1,247 |
|
|
|
6.0 |
% |
|
|
11.10 |
|
Surgical Hospital of Oklahoma |
|
|
1 |
|
|
|
33,500 |
|
|
|
4.5 |
% |
|
|
1,046 |
|
|
|
5.0 |
% |
|
|
31.21 |
|
Banner Health |
|
|
1 |
|
|
|
29,350 |
|
|
|
3.9 |
% |
|
|
915 |
|
|
|
4.4 |
% |
|
|
31.19 |
|
Jordan Valley Medical Center LP |
|
|
1 |
|
|
|
25,056 |
|
|
|
3.4 |
% |
|
|
866 |
|
|
|
4.1 |
% |
|
|
34.55 |
|
Community Hospitals of Indiana |
|
|
1 |
|
|
|
42,187 |
|
|
|
5.6 |
% |
|
|
838 |
|
|
|
4.0 |
% |
|
|
19.86 |
|
NYU School of Medicine |
|
|
1 |
|
|
|
16,920 |
|
|
|
2.3 |
% |
|
|
723 |
|
|
|
3.5 |
% |
|
|
42.74 |
|
Emerus Community Hospital |
|
|
1 |
|
|
|
16,388 |
|
|
|
2.2 |
% |
|
|
716 |
|
|
|
3.4 |
% |
|
|
43.69 |
|
Total |
|
|
20 |
|
|
|
546,850 |
|
|
|
73.2 |
% |
|
$ |
15,656 |
|
|
|
74.8 |
% |
|
$ |
28.63 |
|
Liquidity and Capital Resources – Operating Partnership
General
The Operating Partnership’s primary uses and sources of cash are as follows:
18
Uses |
|
|
Sources |
||
• |
Interest and principal payments on mortgage loans or lines of credit |
|
|
• |
Cash receipts from tenants |
• |
Property operating expenses |
|
|
• |
Proceeds from new or refinanced mortgage loans |
• |
General and administrative expenses |
|
|
• |
Capital contribution from General Partner |
• |
Organization and offering expenses |
|
|
• |
Proceeds from issuance of securities |
• |
Distributions to unitholders |
|
|
• |
Proceeds from related party line of credit |
• |
Payments for redemptions of OP Units |
|
|
• |
Proceeds from sales of real estate (if any) |
• |
Fees payable to the Advisor and property managers |
|
|
|
|
• |
Capital expenditures, tenant improvements and leasing commissions |
|
|
|
|
• |
Acquisitions of real estate directly or indirectly through the purchase of equity interests in a DST, or through joint ventures |
|
|
|
|
As of March 31, 2024, the Operating Partnership was not actively marketing for sale any properties.
As of March 31, 2024 and December 31, 2023, the Operating Partnership had total debt outstanding of $245.4 million and $239.3 million, respectively, excluding the discount on assumed mortgage loan and unamortized debt issuance costs, and bore interest at a weighted average interest rate of 3.83% and 3.60% per annum, respectively. The debt consists of (i) a secured term loan in an original principal amount of $105.9 million (the “CONA Mortgage Loan”) with Capital One, National Association, individually and as administrative agent, and other lenders from time to time, (ii) a secured term loan in an original principal amount of $122.7 million (the “BMO Mortgage Loan”) with BMO Harris Bank N.A., individually and as administrative agent, and other lenders from time to time, and (iii) a loan in the original principal amount of $22 million (the “Parkway UL Mortgage Loan”) with Parkway Bank and Trust Company. On March 28, 2024, the Operating Partnership entered into an amendment that increased the principal amount of the Parkway UL Mortgage Loan to $27.8 million. The CONA Mortgage Loan matures on September 28, 2026, and the Operating Partnership has the option to extend the maturity date for two additional twelve-month periods subject to the payment of certain fees and expenses and certain other conditions. The BMO Mortgage Loan matures on September 30, 2026, and the Operating Partnership has the option to extend the maturity date for two additional twelve-month periods subject to the payment of an extension fee, certain costs and expenses and certain other conditions. As extended pursuant to the amendment to the Parkway UL Mortgage Loan, the maturity date of the Parkway UL Mortgage Loan is March 28, 2026, and the Operating Partnership has the option to extend the maturity date for an additional three-year period subject to the payment of an extension fee, certain costs and expenses and certain other conditions.
At March 31, 2024 and December 31, 2023, the Operating Partnership’s cash and cash equivalents balance was $11.7 million and $6.7 million, respectively.
As of March 31, 2024 and December 31, 2023, the Operating Partnership had paid all interest amounts when due, and was in compliance with all financial covenants under the mortgage loans as amended.
19
Cash Flow Analysis – Operating Partnership
Comparison of the three months ended March 31, 2024 and March 31, 2023
$ in thousands |
|
Three Months Ended |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
2024 vs. 2023 |
|
|||
Net cash flows provided by operating activities |
|
$ |
2,014 |
|
|
$ |
3,096 |
|
|
$ |
(1,082 |
) |
Net cash flows used in investing activities |
|
$ |
(470 |
) |
|
$ |
(13 |
) |
|
$ |
(457 |
) |
Net cash flows provided by (used in) financing activities |
|
$ |
3,509 |
|
|
$ |
(4,697 |
) |
|
$ |
8,206 |
|
Operating activities
The decrease in cash from operating activities during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to a decrease in accounts payable and fewer receipts due to one of the tenants being on a cash basis.
Investing activities
$ in thousands |
|
Three Months Ended |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
2024 vs. 2023 |
|
|||
Capital expenditures and tenant improvements |
|
|
(363 |
) |
|
|
(13 |
) |
|
|
(350 |
) |
Other investing activities |
|
|
(107 |
) |
|
|
— |
|
|
|
(107 |
) |
Net cash used in investing activities |
|
$ |
(470 |
) |
|
$ |
(13 |
) |
|
$ |
(457 |
) |
The increase in cash used in investing activities during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to an increase in capital expenditures in 2024.
Financing activities
$ in thousands |
|
Three Months Ended |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
2024 vs. 2023 |
|
|||
Contributions |
|
$ |
100 |
|
|
$ |
— |
|
|
$ |
100 |
|
Total net changes related to debt |
|
|
5,535 |
|
|
|
— |
|
|
|
5,535 |
|
Payment of offering costs |
|
|
(191 |
) |
|
|
(856 |
) |
|
|
665 |
|
Redemptions of Class A OP Units |
|
|
(381 |
) |
|
|
— |
|
|
|
(381 |
) |
Distributions paid |
|
|
(1,554 |
) |
|
|
(2,876 |
) |
|
|
1,322 |
|
Cash paid for interest rate caps |
|
|
— |
|
|
|
(965 |
) |
|
|
965 |
|
Net cash provided by (used in) financing activities |
|
$ |
3,509 |
|
|
$ |
(4,697 |
) |
|
$ |
8,206 |
|
The increase in cash provided by financing activities during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to a net increase of $5.6 million under the Parkway UL Mortgage Loan due to refinancing, as well as a decrease in cash paid for offering costs, distributions and interest rate caps.
Distributions – Operating Partnership
A summary of the distributions accrued to unitholders, distributions paid to unitholders and cash flows provided by operations for the three months ended March 31, 2024 and 2023 is as follows:
$ in thousands |
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Distributions accrued |
|
$ |
1,547 |
|
|
$ |
2,798 |
|
Distributions paid |
|
$ |
1,554 |
|
|
$ |
2,876 |
|
Cash flows from operations |
|
$ |
2,014 |
|
|
$ |
3,096 |
|
For the three months ended March 31, 2024 and 2023, 100% of the Operating Partnership’s distributions were funded by cash flows from operations generated during the period.
Results of Operations – Operating Partnership
20
The Operating Partnership generates primarily all of its net operating income from property operations. In order to evaluate the overall portfolio, the Operating Partnership’s management analyzes the net operating income of properties that the Operating Partnership owns and operates. Net operating income is a supplemental non-GAAP performance measure that the Operating Partnership believes is useful to investors in measuring the operating performance of the Operating Partnership’s property portfolio because the Operating Partnership’s primary business is the ownership of real estate, and net operating income excludes various items included in GAAP net income that do not relate to, or are not indicative of, the Operating Partnership’s property operating performance, such as depreciation and amortization and parent-level corporate expenses (including general and administrative expenses).
The Operating Partnership considers property net operating income an important supplemental non-GAAP financial measure because it reflects only those income and expense items that are incurred at the property level, and when compared across periods, reflects the impact on operations from trends in occupancy rates, rental rates and operating expenses. Although property net operating income is a widely used measure among REITs, there can be no assurance that property net operating income presented by the Operating Partnership is comparable to similarly titled metrics used by other REITs.
The Operating Partnership calculates property net operating income using net income and excluding general and administrative expenses, advisor management fee, depreciation and amortization, interest expense, and interest or other income.
The following table presents the property net operating income for the three months ended March 31, 2024 and 2023, prior to general and administrative expenses, advisor management fee, depreciation and amortization, and interest, along with a reconciliation to net (loss) income, calculated in accordance with GAAP. All 31 properties owned by the Operating Partnership were held for the entirety of both the three months ended March 31, 2024 and 2023.
Comparison of the three months ended March 31, 2024 and 2023
|
|
Three Months Ended |
|
|||||||||
$ in thousands |
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
Rental revenue |
|
$ |
7,160 |
|
|
$ |
7,635 |
|
|
$ |
(475 |
) |
Other property revenue |
|
|
118 |
|
|
|
1 |
|
|
|
117 |
|
Total revenues |
|
|
7,278 |
|
|
|
7,636 |
|
|
|
(358 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Property operating expenses |
|
|
848 |
|
|
|
882 |
|
|
|
(34 |
) |
Real estate tax expense |
|
|
325 |
|
|
|
323 |
|
|
|
2 |
|
Total property operating expenses |
|
|
1,173 |
|
|
|
1,205 |
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Property net operating income |
|
|
6,105 |
|
|
|
6,431 |
|
|
|
(326 |
) |
|
|
|
|
|
|
|
|
|
|
|||
General and administrative expenses |
|
|
(1,146 |
) |
|
|
(474 |
) |
|
|
(672 |
) |
Advisor management fee |
|
|
(187 |
) |
|
|
(255 |
) |
|
|
68 |
|
Performance participation allocation |
|
|
(264 |
) |
|
|
— |
|
|
|
(264 |
) |
Depreciation and amortization |
|
|
(4,091 |
) |
|
|
(4,827 |
) |
|
|
736 |
|
Interest expense |
|
|
(3,019 |
) |
|
|
(2,811 |
) |
|
|
(208 |
) |
Interest and other income |
|
|
11 |
|
|
|
15 |
|
|
|
(4 |
) |
Net loss |
|
$ |
(2,591 |
) |
|
$ |
(1,921 |
) |
|
$ |
(670 |
) |
Property net operating income. During the three months ended March 31, 2024, property net operating income decreased $0.3 million, total property revenues decreased $0.4 million, and total property operating expenses including real estate tax expense decreased $0.03 million.
The decrease in total property revenues is primarily due to fewer receipts from our cash basis tenant in 2024.
The decrease in total property operating expenses is primarily due to a decrease in repairs and maintenance.
General and administrative expenses. General and administrative expenses increased $0.7 million in 2024 compared to 2023. The increase is primarily due to an increase in payroll reimbursement to the Advisor and legal and professional costs.
Advisor management fee. Advisor management fees decreased $0.07 million in 2024 compared to 2023. The decrease is primarily due to the new Advisory Agreement in place effective August 1, 2023, which resulted in a lower fee.
21
Performance participation allocation. Performance participation allocation increased $0.3 million in 2024 compared to 2023. The increase is due to the Special Limited Partner earning a performance participation allocation during the three months ended March 31, 2024.
Depreciation and amortization. Depreciation and amortization decreased $0.7 million in 2024 compared to 2023. The decrease is primarily due to fully amortized assets.
Interest expense. Interest expense increased $0.2 million in 2024 compared to 2023. The increase is primarily due to higher amortization of derivatives costs.
Interest and other income. Interest and other income decreased less than $0.01 million in 2024 compared to 2023.
Non-GAAP Financial Measures – Operating Partnership
Accounting for real estate assets in accordance with GAAP assumes the value of real estate assets is reduced over time due primarily to non-cash depreciation and amortization expense. Because real estate values may rise and fall with market conditions, operating results from real estate companies that use GAAP accounting may not present a complete view of their performance. The Operating Partnership uses Funds from Operations, or “FFO”, a non-GAAP metric to evaluate its performance. FFO provides a supplemental measure to compare the Operating Partnership’s performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or “NAREIT”, has promulgated a standard known as FFO, which the Operating Partnership believes more accurately reflects the operating performance of a REIT. FFO, as defined by NAREIT and presented below, is net income (loss) computed in accordance with GAAP, excluding depreciation and amortization related to real estate, excluding gains (or losses) from sales of certain real estate assets, excluding impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate and excluding gains and losses from change in control.
The Operating Partnership also believes that adjusted FFO (“AFFO”) is an additional meaningful non-GAAP supplemental measure of its operating results. AFFO further adjusts FFO to reflect the performance of the Operating Partnership’s portfolio by adjusting for items the Operating Partnership believes are not directly attributable to its operations. The Operating Partnership’s adjustments to FFO to arrive at AFFO include removing the impact of (i) amortization of above- and below-market lease intangibles, (ii) straight-line income and expense, (iii) amortization of deferred financing costs, (iv) amortization of mortgage premium/discount, and (v) amortization of derivatives costs.
The Operating Partnership’s presentation of FFO and AFFO may not be comparable to other similarly titled measures presented by other REITs. The Operating Partnership believes that the use of FFO and AFFO provides a more complete understanding of its operating performance to unitholders, investors and to management, and when compared year over year, reflects the impact on its operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs. Neither FFO nor AFFO is intended to be an alternative to “net income” or to “cash flows from operating activities” as determined by GAAP as a measure of the Operating Partnership’s capacity to pay distributions. Management uses FFO and AFFO to compare the Operating Partnership’s operating performance to that of other REITs and to assess its operating performance.
FFO and AFFO for the three months ended March 31, 2024 and 2023 are calculated as follows:
|
|
$ in thousands |
|
Three Months Ended |
|
|||||
|
|
|
|
2024 |
|
|
2023 |
|
||
|
|
Net loss |
|
$ |
(2,591 |
) |
|
$ |
(1,921 |
) |
Add: |
|
Depreciation and amortization related to investment properties |
|
|
4,091 |
|
|
|
4,827 |
|
|
|
Funds from operations (FFO) |
|
|
1,500 |
|
|
|
2,906 |
|
|
|
|
|
|
|
|
|
|
||
Less: |
|
Above- and below-market rent intangible lease amortization, net |
|
|
(347 |
) |
|
|
(347 |
) |
|
|
Straight-line income, net |
|
|
(233 |
) |
|
|
(311 |
) |
Add: |
|
Amortization of deferred financing costs |
|
|
328 |
|
|
|
328 |
|
|
|
Amortization of mortgage premium/discount |
|
|
99 |
|
|
|
88 |
|
|
|
Amortization of derivatives costs |
|
|
411 |
|
|
|
241 |
|
|
|
Adjusted funds from operations (AFFO) |
|
$ |
1,758 |
|
|
$ |
2,905 |
|
22
Net Asset Value
We calculate our NAV each month in accordance with valuation guidelines approved by our board of directors. NAV is not a measure used under GAAP and the valuations of and certain adjustments made to our assets and liabilities used in the determination of NAV will differ from GAAP. Stockholders should not consider NAV to be equivalent to stockholders’ equity or any other GAAP measure. Please refer to Exhibit 4.3 of this Quarterly Report on Form 10-Q for further details on how our NAV is determined.
Our total NAV presented in the following tables shows the Company and the Operating Partnership on a combined basis and includes the NAV of the Company’s common stockholders, as well as partnership interests of the Operating Partnership held by parties other than us.
The following table provides a breakdown of the major components of our NAV as of March 31, 2024 (dollars and shares/units in thousands):
Components of NAV |
|
As of |
|
|
Investments in real estate |
|
$ |
367,120 |
|
Cash and cash equivalents |
|
|
11,720 |
|
Restricted cash |
|
|
298 |
|
Other assets |
|
|
16,439 |
|
Debt |
|
|
(244,273 |
) |
Other liabilities |
|
|
(7,028 |
) |
Net asset value |
|
$ |
144,276 |
|
Total shares/units outstanding |
|
|
5,784 |
|
The following table sets forth our NAV and NAV per share/unit by class as of March 31, 2024 (dollars and shares/units in thousands except per share/unit data):
NAV Per Share/Unit |
|
Class I Shares |
|
|
Class A Units |
|
|
Total |
|
|||
Net asset value |
|
$ |
2,876 |
|
|
$ |
141,400 |
|
|
$ |
144,276 |
|
Number of outstanding shares/units |
|
|
115 |
|
|
|
5,669 |
|
|
|
5,784 |
|
NAV per share/unit as of March 31, 2024 |
|
$ |
25.0162 |
|
|
$ |
24.9413 |
|
|
|
|
|
Set forth below are the weighted averages of the key assumptions used by our independent valuation advisor in the discounted cash flow analysis used for the March 31, 2024 valuations, based on property types:
Property Type |
|
Discount Rate |
|
|
Exit Capitalization Rate |
|
||
Healthcare |
|
|
7.51 |
% |
|
|
6.33 |
% |
Education |
|
|
8.50 |
% |
|
|
6.75 |
% |
A change in these key assumptions would impact the calculation of the value of our property investments. For example, assuming all other factors remain unchanged, the changes listed below would result in the following effects on our property investment values:
Property Type |
|
Hypothetical Change |
|
Healthcare |
|
|
Education |
|
||
Discount rate (weighted average) |
|
0.25% decrease |
|
|
1.69 |
% |
|
|
1.83 |
% |
|
|
0.25% increase |
|
|
(1.91 |
)% |
|
|
(1.83 |
)% |
Exit capitalization rate (weighted average) |
|
0.25% decrease |
|
|
2.19 |
% |
|
|
2.05 |
% |
|
|
0.25% increase |
|
|
(2.20 |
)% |
|
|
(2.05 |
)% |
23
The following table reconciles equity under GAAP per our combined balance sheets to our NAV (dollars in thousands):
Reconciliation of Equity to NAV |
|
As of |
|
|
Equity per GAAP |
|
$ |
150,320 |
|
Adjustments: |
|
|
|
|
Accumulated depreciation and amortization |
|
|
39,472 |
|
Unrealized net real estate and debt appreciation (depreciation) |
|
|
(41,610 |
) |
Straight-line rent adjustment |
|
|
(3,962 |
) |
Unamortized equity-based compensation |
|
|
66 |
|
Other liabilities |
|
|
(10 |
) |
Net asset value |
|
$ |
144,276 |
|
Distributions by the Company
The table below presents the aggregate monthly distributions declared by the Company by record date for all classes of shares of common stock outstanding since June 12, 2023.
Record Date |
|
Aggregate monthly gross distribution declared per share |
|
|
August 31, 2023 |
|
$ |
0.0885 |
|
September 30, 2023 |
|
$ |
0.0885 |
|
October 31, 2023 |
|
$ |
0.0885 |
|
November 30, 2023 |
|
$ |
0.0885 |
|
December 31, 2023 |
|
$ |
0.0885 |
|
January 31, 2024 |
|
$ |
0.0885 |
|
February 29, 2024 |
|
$ |
0.0885 |
|
March 31, 2024 |
|
$ |
0.0885 |
|
Sources of Distributions to Common Stockholders
|
|
Three Months Ended March 31, 2024 |
|
|
Distributions to Holders of Common Stock |
|
|
|
|
Paid in cash |
|
$ |
30 |
|
Total distributions |
|
$ |
30 |
|
Cash flows from operating activities |
|
$ |
— |
|
During the three months ended March 31, 2024, 100% of our distributions were funded by the Operating Partnership, which used its cash flows generated from operations to fund these distributions.
Critical Accounting Estimates and Policies
The Company’s and the Operating Partnership’s accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. The Company’s significant accounting policies are described in Note 2 – “Summary of Significant Accounting Policies” which is included in this Quarterly Report on Form 10-Q and the December 31, 2023 Notes to Financial Statements which is included in our Annual Report on Form 10-K. The Operating Partnership’s significant accounting policies are described in Note 2 – “Summary of Significant Accounting Policies” which is included in the Operating Partnership’s March 31, 2024 Notes to Consolidated Financial Statements included in Part II Item 5 in this Quarterly Report on Form 10-Q and the December 31, 2023 Notes to Financial Statements included in our Annual Report on Form 10-K. The Company has identified Impairment of Investments in Unconsolidated Entities and the Operating Partnership has identified Purchase Price Allocation of Acquired Real Estate and Impairment of Investment Properties as critical accounting policies.
The Company and the Operating Partnership consider these policies to be critical because they require the Company’s and the Operating Partnership’s management to use judgment in the application of the accounting policy, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or
24
interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of the Company’s and the Operating Partnership’s results of operations to those of companies in similar businesses.
The Company
Impairment of Investments in Unconsolidated Entities
The Company’s investments in unconsolidated entities are periodically assessed for impairment and an impairment loss is recorded when the fair value of the investment falls below the carrying value and such decline is determined to be other-than-temporary. The evaluation of an investment in an unconsolidated entity for potential impairment can require the Company to exercise significant judgment.
Refer to Exhibit 4.3 of this Quarterly Report on Form 10-Q for further details on the assumptions and estimates used in determination of fair value of the Company’s investment in the Operating Partnership.
The Operating Partnership
Purchase Price Allocation of Acquired Real Estate
The Operating Partnership generally accounts for the acquisition of real estate as an asset acquisition which requires that the Operating Partnership assess the fair value of acquired tangible and intangible assets and liabilities (including land, buildings, tenant improvements, above-market and below-market leases, acquired in-place leases, other identified intangible assets and assumed liabilities) and allocate the purchase price to the acquired assets and assumed liabilities. The cost of the acquisition is then allocated to the assets acquired and liabilities assumed based on their relative estimated fair values. The Operating Partnership assesses relative fair value based on estimated cash flow projections that utilize discount and/or capitalization rates that the Operating Partnership deems appropriate, as well as other available market information. The Operating Partnership estimates future cash flows based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. Valuation is highly subjective and is based in part on assumptions, such as comparable sales values, discount rates, capitalization rates, revenue and expense growth rates and lease-up assumptions, at a particular point in time.
The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. The Operating Partnership also considers an allocation of purchase price to acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including but not limited to the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals.
The Operating Partnership records acquired above-market and below-market leases at their fair values (using a discount rate that reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amounts to be paid under each in-place lease and (2) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. Other intangible assets acquired include amounts for in-place lease values that are based on the Operating Partnership’s evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. When estimating carrying costs, the Operating Partnership includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. When estimating costs to execute similar leases, the Operating Partnership considers leasing commissions, legal and other related expenses.
Impairment of Investment Properties
The Operating Partnership assesses the carrying values of long-lived assets each quarter or whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. The evaluation of anticipated future cash flows is highly subjective and is based in part on assumptions regarding the economic condition of the property at a particular point in time, future occupancy, rental rates and capital requirements that could differ materially from actual results. If it is determined that the carrying value
25
is not recoverable because the undiscounted cash flows do not exceed the carrying value, the Operating Partnership will be required to record an impairment loss to the extent that the carrying value exceeds fair value.
Recent Accounting Pronouncements
For information related to the Company’s recently issued accounting pronouncements, reference is made to Note 2 – “Summary of Significant Accounting Policies” which is included in this Quarterly Report on Form 10-Q and Note 2 – “Summary of Significant Accounting Policies” which is included in our December 31, 2023 Notes to Financial Statements included in our Annual Report on Form 10-K. For information related to the Operating Partnership’s recently issued accounting pronouncements, reference is made to Note 2 – “Summary of Significant Accounting Policies” which is included in the Operating Partnership’s March 31, 2024 Notes to Consolidated Financial Statements included in Part II Item 5 in this Quarterly Report on Form 10-Q and December 31, 2023 Notes to Financial Statements included in our Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
As of March 31, 2024, the Company and the Operating Partnership have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on their financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. The Company does not consolidate the Operating Partnership.
Subsequent Events
For information related to subsequent events, reference is made to “Note 9 – Subsequent Events,” which is included in our Notes to Financial Statements included in this Quarterly Report on Form 10-Q and Note 13 – “Subsequent Events” which is included in the Operating Partnership’s March 31, 2024 Notes to Financial Statements included in Part II Item 5 in this Quarterly Report on Form 10-Q.
26
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
The Company, through its investment in the Operating Partnership, is exposed to various market risks, including those caused by changes in interest rates and commodity prices. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and commodity prices. The Operating Partnership does not enter into derivatives or other financial instruments for trading or speculative purposes. The Operating Partnership has entered into, and may continue to enter into, financial instruments to manage and reduce the impact of changes in interest rates. The counterparties are, and are expected to continue to be, major financial institutions.
Interest Rate Risk
The Company, through its investment in the Operating Partnership, is exposed to interest rate changes primarily as a result of long-term debt used to purchase properties or other real estate assets and to fund capital expenditures.
As of March 31, 2024 and December 31, 2023, the Operating Partnership had outstanding debt of $245.4 million and $239.3 million, respectively, excluding the discount on assumed mortgage loan and unamortized debt issuance costs, bearing rates ranging from 2.97% to 5.80% per annum and 2.97% to 4.10% per annum, respectively. The weighted average interest rate as of March 31, 2024 and December 31, 2023 was 3.83% and 3.60%, respectively, which includes the effect of interest rate swaps and interest rate caps. As of March 31, 2024 and December 31, 2023, the weighted average years to maturity for the mortgages was 2.4 years and 2.6 years, respectively.
The following table sets forth the summary of the Operating Partnership’s debt, excluding unamortized debt issuance costs and discount on assumed mortgage loan (as applicable), as of March 31, 2024 and December 31, 2023:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||||||
Type of Debt |
|
Principal |
|
|
Percent of Total Principal Amount |
|
|
Weighted Average |
|
|
Principal |
|
|
Percent of Total Principal Amount |
|
|
Weighted Average |
|
||||||
$ in thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Fixed rate |
|
$ |
27,759 |
|
|
|
11.3 |
% |
|
|
5.80 |
% |
|
$ |
21,738 |
|
|
|
9.1 |
% |
|
|
3.80 |
% |
Variable rate with swap agreements |
|
|
88,000 |
|
|
|
35.9 |
% |
|
|
2.99 |
% |
|
|
88,000 |
|
|
|
36.8 |
% |
|
|
2.99 |
% |
Variable rate with cap agreements |
|
|
129,594 |
|
|
|
52.8 |
% |
|
|
3.98 |
% |
|
|
129,594 |
|
|
|
54.1 |
% |
|
|
3.98 |
% |
Total |
|
$ |
245,353 |
|
|
|
100.0 |
% |
|
|
|
|
$ |
239,332 |
|
|
|
100.0 |
% |
|
|
|
||
If interest rates on all debt which bears interest at variable rates as of March 31, 2024 increased by 1% (100 basis points) or decreased by 1% (100 basis points), there would be no impact to the earnings and cash flows as the 1% increase or 1% decrease in interest expense on the debt would be fully offset by the corresponding increase or reduction in payments from the interest rate swaps and interest rate caps.
If interest rates on all debt which bears interest at variable rates as of December 31, 2023 increased by 1% (100 basis points) or decreased by 1% (100 basis points), there would be no impact to the earnings and cash flows as the 1% increase or 1% decrease in interest expense on the debt would be fully offset by the corresponding increase or reduction in payments from the interest rate swaps and interest rate caps.
With regard to variable rate financing, the Advisor assesses the Operating Partnership’s interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Advisor maintains risk management control systems to monitor interest rate cash flow risk attributable to both of the outstanding or forecasted debt obligations as well as the potential offsetting hedge positions of the Operating Partnership.
The Operating Partnership uses derivative financial instruments to hedge exposures to changes in interest rates on loans secured by the Operating Partnership’s assets. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. The Operating Partnership’s actual hedging decisions are determined in light of the facts and circumstances existing at the time of the hedge. The Operating Partnership has used derivative financial instruments, specifically interest rate swap contracts and interest rate cap contracts, to hedge against interest rate fluctuations on variable rate debt, which exposes the Operating Partnership to both credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe the Operating Partnership, which creates credit risk for the Operating Partnership because the counterparty may not perform. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The Operating Partnership seeks to manage the
27
market risk associated with interest-rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. There is no assurance the Operating Partnership will be successful.
Derivatives
For information related to derivatives, reference is made to Note 4 – “Debt and Derivative Instruments” which is included in the Operating Partnership’s March 31, 2024 Notes to Consolidated Financial Statements included in Part II Item 5 in this Quarterly Report on Form 10-Q.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) that occurred during the three months ended March 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
Neither we nor the Operating Partnership is a party to, and none of the Operating Partnership’s properties are subject to, any material pending legal proceedings.
Item 1A. Risk Factors
There were no material changes during the period covered by this Quarterly Report to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Repurchases of Securities
Recent Sales of Unregistered Equity Securities
On March 19, 2024, we issued 633 restricted shares of Class I common stock to Ella S. Neyland, with a grant date fair value of $15,823, 670 shares of Class I common stock to Michael W. Reid, with a grant date fair value of $16,771, and 1,084 restricted shares of Class I common stock to Daniel Rigby, with a grant date fair value of $27,125, as part of their director compensation. Restricted stock issued to independent directors will generally vest one year from the date of grant and become fully vested earlier upon a liquidity event or
28
upon the termination of a director by reason of his or her death or disability. These issuances were consummated without registration under the Securities Act, in reliance upon the exemption from registration set forth in Section 4(a)(2) of the Securities Act.
Other than mentioned above, during the three months ended March 31, 2024, we did not sell or issue any equity securities that were not registered under the Securities Act.
Use of Proceeds
We have registered with the SEC an Offering up to $1.25 billion in shares of common stock, consisting of up to $1 billion in shares in our primary offering and up to $250 million in shares pursuant to our distribution reinvestment plan. On September 28, 2023, our Registration Statement on Form S-11 (File No. 333-272750) with respect to our Offering was declared effective by the SEC.
The following table presents information about the Offering and use of proceeds therefrom as of March 31, 2024 ($ in thousands except for share data):
|
Class T |
|
Class S |
|
Class D |
|
Class I |
|
Total |
|
|||||
Offering shares sold |
|
— |
|
|
— |
|
|
— |
|
|
103,664 |
|
|
103,664 |
|
Gross proceeds from primary offering |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
2,600 |
|
$ |
2,600 |
|
Reinvestments of distributions |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Total gross proceeds |
|
— |
|
|
— |
|
|
— |
|
|
2,600 |
|
|
2,600 |
|
Selling commissions and dealer manager fees |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Other expenses |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Total expenses |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Net offering proceeds (1) |
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
2,600 |
|
$ |
2,600 |
|
(1) Excludes offering costs of $3,962 incurred by the Operating Partnership.
We also expect to pay our Dealer Manager distribution fees with respect to Class T, Class S and Class D shares sold in the Offering, but expect such fees to be funded from operations rather than the Offering proceeds.
We intend to use the net proceeds from such sales for the purposes set forth in the Prospectus for the Offering.
We contributed the net proceeds from the Offering to the Operating Partnership and received OP Units that correspond to the classes of the shares sold. The Operating Partnership primarily used the proceeds for general corporate expenses.
Share Repurchase Plan
We adopted the share repurchase plan (“SRP”), whereby on a monthly basis, stockholders may request that we repurchase all or any portion of their shares. 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. The total amount of aggregate repurchases of Class T, Class S, Class D, and Class I shares will be limited to 2% of the aggregate NAV per month and 5% of the aggregate NAV per calendar quarter. Shares will be repurchased at a price equal to the transaction price on the applicable repurchase date, subject to any early repurchase deduction. Shares that have not been outstanding for at least one year will be repurchased at 95% of the transaction price. Stockholders who have received shares of our common stock in exchange for OP Units may include the period of time such stockholder held such OP Units for purposes of calculating the holding period for such shares of our common stock. In the event that we, at our sole discretion, elect to issue Class A shares to holders of OP Units seeking redemption, we expect to amend the SRP to address the repurchase of Class A shares on the same terms that are applicable to the Class T, Class S, Class D and Class I shares. Due to the illiquid nature of investments in real estate, we may not have sufficient liquid resources to fund repurchase requests and have established limitations on the amount of funds we may use for repurchases during any calendar month and quarter. Further, our board of directors may modify or suspend the SRP if in its reasonable judgment it deems such action to be in our best interest. We began the SRP in January 2024, the first month of the first full calendar quarter following the conclusion of our escrow period.
During the three months ended March 31, 2024, there were no repurchases of shares of our common stock.
Item 3. Defaults Upon Senior Securities
None.
29
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Trading Arrangements
During the quarter ended March 31, 2024, none of the Company’s directors or executive officers
Financial Statements of the Operating Partnership
We account for the units acquired in the Operating Partnership as an equity method investment during any period our investment in the Operating Partnership is not considered significant to the Operating Partnership and will consolidate the Operating Partnership at such time our investment in the Operating Partnership is considered significant to the Operating Partnership (based on generally accepted accounting principles), and thereafter present the results of operations on a consolidated basis. We expect to invest our capital and all our Offering proceeds in the Operating Partnership and hold no other assets other than OP Units. We therefore expect to eventually consolidate the Operating Partnership. As such, we have included unaudited consolidated financial statements as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023, as we believe these financial statements would be meaningful to investors, and subsequent invested capital will be significant to us.
30
INDEX TO FINANCIAL STATEMENTS
|
Page |
|
|
IPC Alternative Real Estate Operating Partnership, LP (formerly known as IPC Alternative Assets Operating Partnership, LP) |
|
|
|
Financial Statements (unaudited): |
|
|
|
Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 |
32 |
|
|
33 |
|
|
|
Consolidated Statements of Partners’ Capital for the three months ended March 31, 2024 and 2023 |
34 |
|
|
Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 |
35 |
|
|
37 |
|
|
|
31
IPC ALTERNATIVE REAL ESTATE OPERATING PARTNERSHIP, LP
(FORMERLY KNOWN AS IPC ALTERNATIVE ASSETS OPERATING PARTNERSHIP, LP)
CONSOLIDATED BALANCE SHEETS
(Unaudited, dollar amounts in thousands)
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
ASSETS |
|
|
|
|
|
|
||
Assets: |
|
|
|
|
|
|
||
Investment properties held and used: |
|
|
|
|
|
|
||
Land |
|
$ |
47,068 |
|
|
$ |
47,068 |
|
Building and other improvements |
|
|
350,165 |
|
|
|
349,665 |
|
Total |
|
|
397,233 |
|
|
|
396,733 |
|
Less: accumulated depreciation |
|
|
(31,048 |
) |
|
|
(27,857 |
) |
Net investment properties held and used |
|
|
366,185 |
|
|
|
368,876 |
|
Cash and cash equivalents |
|
|
11,720 |
|
|
|
6,695 |
|
Restricted cash |
|
|
298 |
|
|
|
270 |
|
Accounts and rent receivable |
|
|
4,224 |
|
|
|
4,098 |
|
Acquired lease intangible assets, net |
|
|
33,337 |
|
|
|
34,318 |
|
Finance lease right-of-use asset, net |
|
|
2,087 |
|
|
|
2,101 |
|
Operating lease right-of-use assets, net |
|
|
3,399 |
|
|
|
3,409 |
|
Due from related parties (Note 9) |
|
|
— |
|
|
|
166 |
|
Other assets |
|
|
12,423 |
|
|
|
11,863 |
|
Total assets |
|
$ |
433,673 |
|
|
$ |
431,796 |
|
|
|
|
|
|
|
|
||
LIABILITIES AND PARTNERS’ CAPITAL |
|
|
|
|
|
|
||
Liabilities: |
|
|
|
|
|
|
||
Mortgage loans payable, net |
|
$ |
241,399 |
|
|
$ |
235,437 |
|
Accounts payable and accrued expenses |
|
|
2,404 |
|
|
|
2,907 |
|
Finance lease liability |
|
|
2,821 |
|
|
|
2,812 |
|
Operating lease liability |
|
|
1,734 |
|
|
|
1,731 |
|
Distributions payable |
|
|
511 |
|
|
|
518 |
|
Redemptions payable |
|
|
1,883 |
|
|
|
205 |
|
Acquired lease intangible liabilities, net |
|
|
30,314 |
|
|
|
30,742 |
|
Due to related parties (Note 9) |
|
|
662 |
|
|
|
337 |
|
Other liabilities |
|
|
1,625 |
|
|
|
1,740 |
|
Total liabilities |
|
|
283,353 |
|
|
|
276,429 |
|
|
|
|
|
|
|
|
||
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Partners’ Capital: |
|
|
|
|
|
|
||
General Partner |
|
|
— |
|
|
|
— |
|
Limited Partners |
|
|
140,479 |
|
|
|
146,709 |
|
Accumulated other comprehensive income |
|
|
9,841 |
|
|
|
8,658 |
|
Total partners’ capital |
|
|
150,320 |
|
|
|
155,367 |
|
Total liabilities and partners’ capital |
|
$ |
433,673 |
|
|
$ |
431,796 |
|
See accompanying notes to consolidated financial statements.
32
IPC ALTERNATIVE REAL ESTATE OPERATING PARTNERSHIP, LP
(FORMERLY KNOWN AS IPC ALTERNATIVE ASSETS OPERATING PARTNERSHIP, LP)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, dollar amounts in thousands)
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenues: |
|
|
|
|
|
|
||
Rental revenue |
|
$ |
7,160 |
|
|
$ |
7,635 |
|
Other property revenue |
|
|
118 |
|
|
|
1 |
|
Total revenues |
|
|
7,278 |
|
|
|
7,636 |
|
|
|
|
|
|
|
|
||
Expenses: |
|
|
|
|
|
|
||
Property operating expenses |
|
|
848 |
|
|
|
882 |
|
Real estate tax expense |
|
|
325 |
|
|
|
323 |
|
General and administrative expenses |
|
|
1,146 |
|
|
|
474 |
|
Advisor management fee (Note 9) |
|
|
187 |
|
|
|
255 |
|
Performance participation allocation (Note 9) |
|
|
264 |
|
|
|
— |
|
Depreciation and amortization |
|
|
4,091 |
|
|
|
4,827 |
|
Total expenses |
|
|
6,861 |
|
|
|
6,761 |
|
|
|
|
|
|
|
|
||
Other Income (Expense): |
|
|
|
|
|
|
||
Interest expense |
|
|
(3,019 |
) |
|
|
(2,811 |
) |
Interest and other income |
|
|
11 |
|
|
|
15 |
|
Net loss |
|
$ |
(2,591 |
) |
|
$ |
(1,921 |
) |
|
|
|
|
|
|
|
||
Comprehensive income (loss): |
|
|
|
|
|
|
||
Net loss |
|
$ |
(2,591 |
) |
|
$ |
(1,921 |
) |
Unrealized gain (loss) on derivatives |
|
|
2,893 |
|
|
|
(1,664 |
) |
Reclassification adjustment for amounts included in net loss |
|
|
(1,710 |
) |
|
|
(1,370 |
) |
Comprehensive loss |
|
$ |
(1,408 |
) |
|
$ |
(4,955 |
) |
See accompanying notes to consolidated financial statements.
33
IPC ALTERNATIVE REAL ESTATE OPERATING PARTNERSHIP, LP
(FORMERLY KNOWN AS IPC ALTERNATIVE ASSETS OPERATING PARTNERSHIP, LP)
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(Unaudited, dollar amounts in thousands)
For the three months ended March 31, 2024 |
|
General |
|
|
Limited |
|
|
Accumulated |
|
|
Total |
|
||||
Balance at December 31, 2023 |
|
$ |
— |
|
|
$ |
146,709 |
|
|
$ |
8,658 |
|
|
$ |
155,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contributions |
|
|
— |
|
|
|
100 |
|
|
|
— |
|
|
|
100 |
|
Redemptions of Class A OP Units |
|
|
— |
|
|
|
(2,059 |
) |
|
|
— |
|
|
|
(2,059 |
) |
Distributions |
|
|
— |
|
|
|
(1,547 |
) |
|
|
— |
|
|
|
(1,547 |
) |
Equity-based compensation |
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
11 |
|
Offering costs |
|
|
— |
|
|
|
(144 |
) |
|
|
— |
|
|
|
(144 |
) |
Unrealized gain on derivatives |
|
|
— |
|
|
|
— |
|
|
|
2,893 |
|
|
|
2,893 |
|
Reclassification adjustment for amounts |
|
|
— |
|
|
|
— |
|
|
|
(1,710 |
) |
|
|
(1,710 |
) |
Net loss |
|
|
— |
|
|
|
(2,591 |
) |
|
|
— |
|
|
|
(2,591 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at March 31, 2024 |
|
$ |
— |
|
|
$ |
140,479 |
|
|
$ |
9,841 |
|
|
$ |
150,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the three months ended March 31, 2023 |
|
General |
|
|
Limited |
|
|
Accumulated |
|
|
Total |
|
||||
Balance at December 31, 2022 |
|
$ |
— |
|
|
$ |
165,855 |
|
|
$ |
13,060 |
|
|
$ |
178,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Distributions |
|
|
— |
|
|
|
(2,798 |
) |
|
|
— |
|
|
|
(2,798 |
) |
Unrealized loss on derivatives |
|
|
— |
|
|
|
— |
|
|
|
(1,664 |
) |
|
|
(1,664 |
) |
Reclassification adjustment for amounts |
|
|
— |
|
|
|
— |
|
|
|
(1,370 |
) |
|
|
(1,370 |
) |
Net loss |
|
|
— |
|
|
|
(1,921 |
) |
|
|
— |
|
|
|
(1,921 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at March 31, 2023 |
|
$ |
— |
|
|
$ |
161,136 |
|
|
$ |
10,026 |
|
|
$ |
171,162 |
|
See accompanying notes to consolidated financial statements.
34
IPC ALTERNATIVE REAL ESTATE OPERATING PARTNERSHIP, LP
(FORMERLY KNOWN AS IPC ALTERNATIVE ASSETS OPERATING PARTNERSHIP, LP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollar amounts in thousands)
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
(2,591 |
) |
|
$ |
(1,921 |
) |
Adjustments to reconcile net loss to net cash provided by operating |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
4,091 |
|
|
|
4,827 |
|
Amortization of debt issuance costs and premium/discount |
|
|
427 |
|
|
|
416 |
|
Amortization of acquired above- and below-market leases, net |
|
|
(347 |
) |
|
|
(347 |
) |
Amortization of equity-based compensation |
|
|
11 |
|
|
|
— |
|
Amortization of finance lease right-of-use asset |
|
|
14 |
|
|
|
15 |
|
Amortization of operating lease right-of-use assets |
|
|
10 |
|
|
|
10 |
|
Straight-line income |
|
|
(269 |
) |
|
|
(350 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Accounts and rent receivable |
|
|
143 |
|
|
|
147 |
|
Due from related parties |
|
|
166 |
|
|
|
— |
|
Other assets |
|
|
245 |
|
|
|
100 |
|
Accounts payable and accrued expenses |
|
|
(495 |
) |
|
|
(183 |
) |
Due to related parties |
|
|
331 |
|
|
|
37 |
|
Operating lease liability |
|
|
3 |
|
|
|
5 |
|
Other liabilities |
|
|
275 |
|
|
|
340 |
|
Net cash flows provided by operating activities |
|
|
2,014 |
|
|
|
3,096 |
|
|
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Capital expenditures and tenant improvements |
|
|
(363 |
) |
|
|
(13 |
) |
Other investing activities |
|
|
(107 |
) |
|
|
— |
|
Net cash flows used in investing activities |
|
|
(470 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Contributions |
|
|
100 |
|
|
|
— |
|
Proceeds from mortgage loans |
|
|
6,122 |
|
|
|
— |
|
Payment of mortgage loans |
|
|
(101 |
) |
|
|
— |
|
Redemptions of Class A OP Units |
|
|
(381 |
) |
|
|
— |
|
Payment of offering costs |
|
|
(191 |
) |
|
|
(856 |
) |
Distributions paid |
|
|
(1,554 |
) |
|
|
(2,876 |
) |
Payment of debt issuance costs |
|
|
(486 |
) |
|
|
— |
|
Cash paid for interest rate caps |
|
|
— |
|
|
|
(965 |
) |
Net cash flows provided by (used in) financing activities |
|
|
3,509 |
|
|
|
(4,697 |
) |
|
|
|
|
|
|
|
||
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
5,053 |
|
|
|
(1,614 |
) |
Cash, cash equivalents and restricted cash, at beginning of the period |
|
|
6,965 |
|
|
|
10,658 |
|
Cash, cash equivalents and restricted cash, at end of the period |
|
$ |
12,018 |
|
|
$ |
9,044 |
|
See accompanying notes to consolidated financial statements.
35
IPC ALTERNATIVE REAL ESTATE OPERATING PARTNERSHIP, LP
(FORMERLY KNOWN AS IPC ALTERNATIVE ASSETS OPERATING PARTNERSHIP, LP)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited, dollar amounts in thousands)
Supplemental disclosure of cash flow information: |
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
2,180 |
|
|
$ |
2,348 |
|
|
|
|
|
|
|
|
||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Distributions payable |
|
$ |
511 |
|
|
$ |
933 |
|
|
|
|
|
|
|
|
||
Redemptions payable |
|
$ |
1,883 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
||
Accrued capital expenditures |
|
$ |
137 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
||
Issuance of restricted Class I OP Units (Note 10) |
|
$ |
60 |
|
|
$ |
— |
|
See accompanying notes to consolidated financial statements.
36
IPC ALTERNATIVE REAL ESTATE OPERATING PARTNERSHIP, LP
(FORMERLY KNOWN AS IPC ALTERNATIVE ASSETS OPERATING PARTNERSHIP, LP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollar amounts in thousands)
The accompanying interim financial statements have been presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements include all adjustments, consisting of normal recurring items, necessary for their fair statement in conformity with GAAP. Interim results are not necessarily indicative of results for a full year. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The information included in these financial statements should be read in conjunction with the audited consolidated and combined financial statements and notes thereto of IPC Alternative Real Estate Operating Partnership, LP (formerly known as IPC Alternative Assets Operating Partnership, LP) (the “Operating Partnership”) for the fiscal year ended December 31, 2023 included in the General Partner’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on March 20, 2024, as certain footnote disclosures contained in such audited financial statements have been omitted from this Quarterly Report.
NOTE 1 – ORGANIZATION
The Operating Partnership, a Delaware limited partnership, was formed on June 21, 2021 and commenced operations on September 2, 2021. On June 12, 2023, the Operating Partnership changed its name from IPC Alternative Assets Operating Partnership, LP to IPC Alternative Real Estate Operating Partnership, LP. IPC Alternative Real Estate Income Trust, Inc. (the “General Partner”), formerly known as Inland Private Capital Alternative Assets Fund, LLC, is the sole general partner of the Operating Partnership. The General Partner converted to a Maryland corporation effective June 12, 2023. At March 31, 2024, the Operating Partnership owned 30 medical office building properties totaling 746,601 square feet and one student housing property with 406 student housing beds. The properties are located in 10 states. The Operating Partnership has no employees. Until September 30, 2022, the Operating Partnership was externally managed by IPC Alternative Assets Business Manager, LLC, an affiliate of Inland Private Capital Corporation (“IPC”), a Delaware corporation, pursuant to a Business Management Agreement. Effective as of October 1, 2022, the Business Management Agreement was transferred from IPC Alternative Assets Business Manager, LLC to IPC Alternative Real Estate Advisor, LLC, an affiliate of Inland Real Estate Investment Corporation (“IREIC”). There were no updates to the terms of the Business Management Agreement as a result of the transfer. On August 24, 2023, the Business Management Agreement was terminated and the General Partner, the Operating Partnership and IPC Alternative Real Estate Advisor, LLC entered into an advisory agreement (the “Advisory Agreement”), which is effective from August 1, 2023. IPC Alternative Assets Business Manager, LLC, until September 30, 2022, and IPC Alternative Real Estate Advisor, LLC, effective October 1, 2022, are referred to herein as the “Advisor.” Pursuant to the Advisory Agreement, the Advisor is responsible for sourcing, evaluating and monitoring the General Partner’s and the Operating Partnership’s investment opportunities and making decisions related to the acquisition, management, financing and disposition of the General Partner’s and Operating Partnership’s assets, in accordance with the General Partner’s investment objectives, guidelines, policies and limitations, subject to oversight by the General Partner’s board of directors.
On September 28, 2023, the General Partner’s registration statement (the “Registration Statement”) on Form S-11 to register up to $1,250,000 in shares of common stock under a blind pool offering was declared effective by the SEC. The General Partner will contribute the proceeds from the offering to the Operating Partnership. The General Partner intends to elect and qualify to be treated as a real estate investment trust (“REIT”) for U.S. federal income tax purposes for the taxable year ending December 31, 2024. Until that time, the General Partner will be subject to taxation at regular corporate rates under the Internal Revenue Code of 1986, as amended. As of March 31, 2024, the Operating Partnership had 5,784,289 Operating Partnership Units (“OP Units”) outstanding, comprised of 5,669,303 Class A OP Units and 114,986 Class I OP Units. The General Partner held all of the Class I OP Units, representing a 2.0% interest in the Operating Partnership as of March 31, 2024. The Operating Partnership and the General Partner anticipate that the contribution of offering proceeds from the General Partner to the Operating Partnership will ultimately result in consolidation of the Operating Partnership by the General Partner.
The Operating Partnership has invested and intends to invest, through anticipated follow-on investment activity, in stabilized, income-generating commercial real estate across alternative property types, with a non-exclusive focus on self-storage facilities, student housing properties and healthcare-related properties. Healthcare-related assets may include medical office buildings, ambulatory surgery centers, senior living facilities and life science and laboratory facilities. The Operating Partnership may also invest in value-add or other development projects in these asset classes, potentially through a variety of ownership structures including but not limited to direct ownership, joint ventures, co-investment opportunities, preferred equity positions and others.
37
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Disclosures discussing all significant accounting policies are set forth in the Operating Partnership’s audited consolidated and combined financial statements for the fiscal year ended December 31, 2023 included in the General Partner’s Annual Report on Form 10-K filed with the SEC on March 20, 2024, under the heading Note 2 – “Summary of Significant Accounting Policies.” There have been no material changes to the Operating Partnership’s significant accounting policies during the three months ended March 31, 2024.
General
The consolidated financial statements have been prepared in accordance with GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.
Restricted Cash
Amounts included in restricted cash represent those required to be set aside by lenders for real estate taxes, insurance, capital expenditures and tenant improvements on the Operating Partnership’s existing properties. These amounts also include post close escrows for tenant improvements, leasing commissions, master lease, tenant security deposits, general repairs and maintenance, and are classified as restricted cash on the Operating Partnership’s consolidated balance sheets.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Operating Partnership’s consolidated balance sheets to such amounts shown on the Operating Partnership’s consolidated statements of cash flows:
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash and cash equivalents |
|
$ |
11,720 |
|
|
$ |
8,814 |
|
Restricted cash |
|
|
298 |
|
|
|
230 |
|
Total cash, cash equivalents, and restricted cash |
|
$ |
12,018 |
|
|
$ |
9,044 |
|
Accounting Pronouncements Recently Issued but Not Yet Effective
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items, on an annual and interim basis, and to provide in interim periods all disclosures that are currently required annually regarding a reportable segment’s profit or loss and assets. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, early adoption is permitted. The amendments should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Operating Partnership is currently evaluating the impact of ASU 2023-07 on the Operating Partnership’s consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 improves the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-07 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied prospectively, however retrospective application is permitted. The Operating Partnership is currently evaluating the impact of ASU 2023-09 on the Operating Partnership’s consolidated financial statements.
NOTE 3 – ACQUIRED INTANGIBLE ASSETS AND LIABILITIES
The following table summarizes the Operating Partnership’s identified intangible assets and liabilities as of March 31, 2024 and December 31, 2023:
38
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Intangible assets: |
|
|
|
|
|
|
||
Acquired in-place lease value |
|
$ |
42,132 |
|
|
$ |
42,132 |
|
Acquired above-market lease value |
|
|
3,204 |
|
|
|
3,204 |
|
Accumulated amortization |
|
|
(11,999 |
) |
|
|
(11,018 |
) |
Acquired lease intangible assets, net |
|
$ |
33,337 |
|
|
$ |
34,318 |
|
Intangible liabilities: |
|
|
|
|
|
|
||
Acquired below-market lease value |
|
$ |
(34,740 |
) |
|
$ |
(34,740 |
) |
Accumulated amortization |
|
|
4,426 |
|
|
|
3,998 |
|
Acquired lease intangible liabilities, net |
|
$ |
(30,314 |
) |
|
$ |
(30,742 |
) |
The portion of the purchase price allocated to acquired above-market lease value and acquired below-market lease value is amortized on a straight-line basis over the term of the related lease as an adjustment to rental revenue. For below-market lease values, the amortization period includes any renewal periods with below-market fixed rate renewals. The portion of the purchase price allocated to acquired in-place lease value is amortized on a straight-line basis over the acquired leases’ weighted average remaining term.
The following table summarizes the Operating Partnership’s ground lease intangibles as of March 31, 2024 and December 31, 2023:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
|
|
|
|
|
|
|
||
Acquired below-market ground lease intangibles, operating leases |
|
$ |
1,813 |
|
|
$ |
1,813 |
|
Accumulated amortization |
|
|
(46 |
) |
|
|
(42 |
) |
Acquired below-market ground lease intangibles, net |
|
$ |
1,767 |
|
|
$ |
1,771 |
|
|
|
|
|
|
|
|
||
Acquired above-market ground lease intangibles, finance lease |
|
$ |
(500 |
) |
|
$ |
(500 |
) |
Accumulated amortization |
|
|
18 |
|
|
|
17 |
|
Acquired above-market ground lease intangibles, net |
|
$ |
(482 |
) |
|
$ |
(483 |
) |
Acquired below-market ground lease intangibles, net are included within operating lease right-of-use assets, net and acquired above-market ground lease intangibles, net are included within finance lease right-of-use asset, net in the consolidated balance sheets. The portion of the purchase price allocated to above- and below-market ground lease intangibles is amortized on a straight-line basis over the term of the related lease as an adjustment to property operating expenses.
Amortization pertaining to acquired in-place lease value, above-/below-market ground leases and, above-/below-market lease values is summarized below:
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Amortization recorded as amortization expense: |
|
|
|
|
|
|
||
Acquired in-place lease value |
|
$ |
900 |
|
|
$ |
1,617 |
|
Amortization recorded as a (reduction) increase to property operating |
|
|
|
|
|
|
||
Above-market ground lease, finance lease |
|
$ |
(1 |
) |
|
$ |
(1 |
) |
Below-market ground leases, operating leases |
|
|
4 |
|
|
|
4 |
|
Net property operating expense increase |
|
$ |
3 |
|
|
$ |
3 |
|
Amortization recorded as a (reduction) increase to rental |
|
|
|
|
|
|
||
Acquired above-market leases |
|
$ |
(81 |
) |
|
$ |
(81 |
) |
Acquired below-market leases |
|
|
428 |
|
|
|
428 |
|
Net rental revenue increase |
|
$ |
347 |
|
|
$ |
347 |
|
39
Estimated amortization of the respective intangible lease assets and liabilities as of March 31, 2024 for each of the five succeeding years and thereafter is as follows:
|
|
Acquired |
|
|
Above- |
|
|
Below- |
|
|
Above- |
|
|
Below- |
|
|||||
2024 (remainder of the year) |
|
$ |
2,699 |
|
|
$ |
243 |
|
|
$ |
(1,285 |
) |
|
$ |
(4 |
) |
|
$ |
14 |
|
2025 |
|
|
3,599 |
|
|
|
324 |
|
|
|
(1,713 |
) |
|
|
(6 |
) |
|
|
18 |
|
2026 |
|
|
3,599 |
|
|
|
324 |
|
|
|
(1,713 |
) |
|
|
(6 |
) |
|
|
18 |
|
2027 |
|
|
3,599 |
|
|
|
324 |
|
|
|
(1,713 |
) |
|
|
(6 |
) |
|
|
18 |
|
2028 |
|
|
3,418 |
|
|
|
316 |
|
|
|
(1,713 |
) |
|
|
(6 |
) |
|
|
18 |
|
Thereafter |
|
|
14,056 |
|
|
|
836 |
|
|
|
(22,177 |
) |
|
|
(454 |
) |
|
|
1,681 |
|
Total |
|
$ |
30,970 |
|
|
$ |
2,367 |
|
|
$ |
(30,314 |
) |
|
$ |
(482 |
) |
|
$ |
1,767 |
|
NOTE 4 – DEBT AND DERIVATIVE INSTRUMENTS
As of March 31, 2024 and December 31, 2023, the Operating Partnership had the following mortgage loans payable:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||
Type of Debt |
|
Principal |
|
|
Interest |
|
|
Principal |
|
|
Interest |
|
||||
CONA Mortgage Loan (maturity date September 28, 2026) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable rate with swap agreements |
|
$ |
26,500 |
|
|
|
3.03 |
% |
|
$ |
26,500 |
|
|
|
3.03 |
% |
Variable rate with cap agreements |
|
|
68,439 |
|
|
|
4.10 |
% |
|
|
68,439 |
|
|
|
4.10 |
% |
BMO Mortgage Loan (maturity date September 30, 2026) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable rate with swap agreements |
|
|
61,500 |
|
|
|
2.97 |
% |
|
|
61,500 |
|
|
|
2.97 |
% |
Variable rate with cap agreements |
|
|
61,155 |
|
|
|
3.85 |
% |
|
|
61,155 |
|
|
|
3.85 |
% |
Parkway UL Mortgage Loan (maturity date March 28, 2026) |
|
|
27,759 |
|
|
|
5.80 |
% |
|
|
21,738 |
|
|
|
3.80 |
% |
Total debt before discount and debt issuance costs including impact of interest rate swaps/caps |
|
|
245,353 |
|
|
|
|
|
|
239,332 |
|
|
|
|
||
Less: Unamortized discount on assumed mortgage loan |
|
|
(196 |
) |
|
|
|
|
|
(287 |
) |
|
|
|
||
Less: Unamortized debt issuance costs |
|
|
(3,758 |
) |
|
|
|
|
|
(3,608 |
) |
|
|
|
||
Total mortgage loans payable, net |
|
$ |
241,399 |
|
|
|
|
|
$ |
235,437 |
|
|
|
|
||
The Operating Partnership’s indebtedness bore interest at a weighted average interest rate of 3.83% and 3.60% per annum at March 31, 2024 and December 31, 2023, respectively, which includes the effects of interest rate swaps and interest rate caps. The Operating Partnership estimates the fair value of its total debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by the Operating Partnership’s lenders using Level 3 inputs. The carrying value of the Operating Partnership’s debt excluding the discount on assumed mortgage loan and unamortized debt issuance costs was $245,353 and $239,332 as of March 31, 2024 and December 31, 2023, respectively, and its estimated fair value was $244,273 and $237,887 as of March 31, 2024 and December 31, 2023, respectively.
The discount on assumed mortgage loan is amortized over the remaining term of the underlying debt as a reduction to the interest expense.
As of March 31, 2024, scheduled principal payments and maturities of the Operating Partnership’s debt were as follows:
|
|
March 31, 2024 |
|
|||||||||
Scheduled Principal Payments and Maturities by Year: |
|
Scheduled |
|
|
Maturities of |
|
|
Total |
|
|||
2024 (remainder of the year) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
2025 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
2026 |
|
|
— |
|
|
|
245,353 |
|
|
|
245,353 |
|
2027 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
2028 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Thereafter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
— |
|
|
$ |
245,353 |
|
|
$ |
245,353 |
|
40
Mortgage Loans Payable
CONA Mortgage Loan
On September 29, 2021, the Operating Partnership entered into a loan agreement (the “CONA Loan Agreement”) with Capital One, National Association, individually and as administrative agent, and other lenders from time to time parties to the CONA Loan Agreement (the “CONA Mortgage Loan”). Pursuant to the CONA Loan Agreement, the aggregate total maximum commitments under the CONA Mortgage Loan are $105,891.
The CONA Mortgage Loan is collateralized by all the respective real and personal property owned by the Operating Partnership under the CONA Loan Agreement.
At March 31, 2024, the Operating Partnership had $94,939 outstanding under the CONA Mortgage Loan. Advances made under the CONA Mortgage Loan are interest only. Advances made under the CONA Mortgage Loan accrue interest at (i) the applicable one-month term secured overnight financing rate (“Term SOFR”) plus (ii) 2.10%. The CONA Mortgage Loan matures on September 28, 2026, and the Operating Partnership has the option to extend the maturity date for two additional twelve month periods subject to the payment of certain fees and expenses and certain other conditions.
IPC had guaranteed (1) any losses that the administrative agent and lenders may incur as a result of the occurrence of certain bad acts of the Operating Partnership and (2) the repayment of the CONA Mortgage Loan upon the occurrence of certain other significant events, including bankruptcy. Additionally, the Operating Partnership and IPC have agreed to indemnify the lenders against certain environmental liabilities. Effective October 31, 2023, the CONA Mortgage Loan was amended to, among other things, (a) substitute IREIC, the General Partner’s sponsor, as the guarantor of recourse obligations and to release IPC as guarantor for all guaranteed obligations from and after such date and (b) join IREIC as an additional indemnitor under the environmental indemnity agreement.
The CONA Mortgage Loan requires compliance with certain covenants, including a minimum project yield requirement and a guarantor's net worth requirement. It also contains customary default provisions including the failure to comply with the Operating Partnership's covenants and the failure to pay when amounts outstanding under the CONA Mortgage Loan become due. As of March 31, 2024, the Operating Partnership was in compliance with all financial covenants related to the CONA Mortgage Loan.
BMO Mortgage Loan
On September 30, 2021, the Operating Partnership entered into a loan agreement (the “BMO Loan Agreement”) with BMO Harris Bank N.A. (“BMO”), individually and as administrative agent, and other lenders from time to time parties to the BMO Loan Agreement (the “BMO Mortgage Loan”).
The BMO Mortgage Loan is collateralized by all the respective properties, rights, interests, and privileges from time to time subject to the liens granted to BMO for the benefit of the lenders, or any security trustee therefor, by the collateral documents.
At March 31, 2024, the Operating Partnership had $122,655 outstanding under the BMO Mortgage Loan. Advances made under the BMO Mortgage Loan are interest only. Advances made under the BMO Mortgage Loan accrue interest at (i) the applicable Term SOFR plus (ii) 2.10%. The BMO Mortgage Loan matures on September 30, 2026, and the Operating Partnership has the option to extend the maturity date for two additional twelve month periods subject to the payment of an extension fee, certain costs and expenses and certain other conditions.
IPC has guaranteed (1) any losses that the administrative agent and lenders may incur as a result of the occurrence of certain bad acts of the Operating Partnership and (2) the repayment of the BMO Mortgage Loan upon the occurrence of certain other significant events, including bankruptcy. Additionally, the Operating Partnership and IPC have agreed to indemnify the lenders against certain environmental liabilities.
The BMO Mortgage Loan requires compliance with certain covenants, including a minimum debt yield requirement, a distribution limitation, a limitation on the use of leverage and restrictions on indebtedness. It also contains customary default provisions including the failure to comply with the Operating Partnership’s covenants and the failure to pay when amounts outstanding under the BMO Mortgage Loan become due. As of March 31, 2024, the Operating Partnership was in compliance with all financial covenants related to the BMO Mortgage Loan.
Parkway UL Mortgage Loan
On December 1, 2022, the Operating Partnership assumed the Parkway UL Mortgage Loan in the amount of $22,000, which was the original principal amount, from Parkway Bank and Trust Company (“Parkway”) in connection with the acquisition of University Lofts.
41
At March 31, 2024, the Operating Partnership had $27,759 outstanding under the Parkway UL Mortgage Loan. The Parkway UL Mortgage Loan bore interest at a fixed rate equal to 3.60% per annum until April 25, 2023 and at a fixed rate equal to 3.80% per annum thereafter. The Parkway UL Mortgage Loan required interest-only payments through April 26, 2023 and monthly payments of principal and interest thereafter. The initial maturity date of the Parkway UL Mortgage Loan was October 26, 2024. On March 28, 2024, the Operating Partnership entered into an amendment that increased the principal amount of the Parkway UL Mortgage Loan to $27,759. As extended pursuant to the amendment to the Parkway UL Mortgage Loan, the maturity date of the Parkway UL Mortgage Loan is March 28, 2026, and the Operating Partnership has the option to extend the maturity date for an additional three-year period subject to the payment of an extension fee, certain costs and expenses and certain other conditions. Pursuant to the amendment, the Parkway UL Mortgage Loan bears interest at a fixed rate equal to 5.80% per annum until March 28, 2026. Upon extension, the interest rate will be equal to the lesser of (a) 6.25%, or (b) 3-year U.S. Treasury Rate in effect on March 28, 2026 plus 2.00%. Beginning on April 28, 2024, the Parkway UL Mortgage Loan requires interest-only payments until the maturity date, at which point the outstanding principal and interest are due.
The Parkway UL Mortgage Loan contains customary default provisions including the failure to pay when amounts outstanding under the Parkway UL Mortgage Loan become due. The Parkway UL Mortgage Loan is collateralized by the underlying property.
Interest Rate Swap and Cap Agreements
The Operating Partnership entered into interest rate swaps to fix a portion of its floating SOFR-based debt under variable rate loans to a fixed rate to manage its risk exposure to interest rate fluctuations. The Operating Partnership will generally match the maturity of the underlying variable rate debt with the maturity date on the interest rate swaps. See Note 11 – “Fair Value Measurements” for further information.
The Operating Partnership entered into interest rate caps to protect the Operating Partnership against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows on a portion of the Operating Partnership’s floating-rate debt. The Operating Partnership will generally match the maturity of the underlying variable rate debt with the maturity date on the interest rate caps. See Note 11 – “Fair Value Measurements” for further information.
All of the Operating Partnership’s interest rate swap and cap contracts are accounted for as cash flow hedges for accounting purposes.
The following table summarizes the Operating Partnership’s interest rate swap and cap contracts outstanding as of March 31, 2024:
|
|
Date |
|
Effective |
|
Maturity |
|
Receive Floating Rate Index (a) |
|
Pay Fixed |
|
|
Notional |
|
|
Fair Value at |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Interest rate swap agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
CONA Mortgage Loan swap |
|
August 11, 2022 |
|
August 1, 2022 |
|
September 28, 2026 |
|
1-month Term SOFR |
|
|
0.93 |
% |
|
$ |
26,500 |
|
|
$ |
2,120 |
|
BMO Mortgage Loan swap |
|
August 12, 2022 |
|
August 1, 2022 |
|
September 30, 2026 |
|
1-month Term SOFR |
|
|
0.87 |
% |
|
|
61,500 |
|
|
|
5,030 |
|
CONA Mortgage Loan swap |
|
March 9, 2023 |
|
January 2, 2025 |
|
September 28, 2026 |
|
1-month Term SOFR |
|
|
3.48 |
% |
|
|
26,500 |
|
|
|
208 |
|
Interest rate cap agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
BMO Mortgage Loan cap |
|
December 12, 2022 |
|
December 1, 2022 |
|
December 30, 2025 |
|
1-month Term SOFR |
|
|
1.75 |
% |
|
|
61,155 |
|
|
|
2,932 |
|
CONA Mortgage Loan cap |
|
February 9, 2023 |
|
February 1, 2023 |
|
January 2, 2025 |
|
1-month Term SOFR |
|
|
2.00 |
% |
|
|
68,439 |
|
|
|
1,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
244,094 |
|
|
$ |
11,852 |
|
|
42
The following table summarizes the Operating Partnership’s interest rate swap and cap contracts outstanding as of December 31, 2023:
|
|
Date |
|
Effective |
|
Maturity |
|
Receive Floating Rate Index (a) |
|
Pay Fixed |
|
|
Notional |
|
|
Fair Value at |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Interest rate swap agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
CONA Mortgage Loan swap |
|
August 11, 2022 |
|
August 1, 2022 |
|
September 28, 2026 |
|
1-month Term SOFR |
|
|
0.93 |
% |
|
$ |
26,500 |
|
|
$ |
1,942 |
|
BMO Mortgage Loan swap |
|
August 12, 2022 |
|
August 1, 2022 |
|
September 30, 2026 |
|
1-month Term SOFR |
|
|
0.87 |
% |
|
|
61,500 |
|
|
|
4,647 |
|
Interest rate cap agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
BMO Mortgage Loan cap |
|
December 12, 2022 |
|
December 1, 2022 |
|
December 30, 2025 |
|
1-month Term SOFR |
|
|
1.75 |
% |
|
|
61,155 |
|
|
|
2,793 |
|
CONA Mortgage Loan cap |
|
February 9, 2023 |
|
February 1, 2023 |
|
January 2, 2025 |
|
1-month Term SOFR |
|
|
2.00 |
% |
|
|
68,439 |
|
|
|
1,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
217,594 |
|
|
$ |
11,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Interest rate swap agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
CONA Mortgage Loan swap |
|
March 9, 2023 |
|
January 2, 2025 |
|
September 28, 2026 |
|
1-month Term SOFR |
|
|
3.48 |
% |
|
|
26,500 |
|
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,500 |
|
|
$ |
(116 |
) |
|
The table below presents the effect of the Operating Partnership’s derivative financial instruments on the consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023.
|
|
Three Months Ended |
|
|||||
Derivatives in Cash Flow Hedging Relationships: |
|
2024 |
|
|
2023 |
|
||
Effective portion of derivatives |
|
$ |
2,893 |
|
|
$ |
(1,664 |
) |
Reclassification adjustment for amounts included in net gain or loss (effective portion) |
|
$ |
(1,710 |
) |
|
$ |
(1,370 |
) |
The total amount of interest expense presented on the consolidated statements of operations and comprehensive loss was $3,019 and $2,811 for the three months ended March 31, 2024 and 2023, respectively. The location of the net gain or loss reclassified into income from accumulated other comprehensive income is reported in interest expense on the consolidated statements of operations and comprehensive loss. The amount that is expected to be reclassified from accumulated other comprehensive income into income in the next 12 months is $5,275.
NOTE 5 – EQUITY
The Operating Partnership's capital includes general and limited partnership interests in the Operating Partnership referred to as General Partner’s capital and Limited Partners’ capital, respectively, in the accompanying consolidated statements of partners’ capital. The General Partner and the Limited Partners are collectively referred to as Partners. Partnership interests in the Operating Partnership, other than the Special Limited Partner (as defined in Note 9) interest and General Partner interest, are currently divided into five classes of units: (a) Class T OP Units; (b) Class S OP Units; (c) Class D OP Units; (d) Class I OP Units; and (e) Class A OP Units. In general, the Class T OP Units, Class S OP Units, Class D OP Units and Class I OP Units issued to the General Partner are intended to correspond on a one-for-one basis with the General Partner’s Class T shares, Class S shares, Class D shares and Class I shares. Similarly, Class A OP Units issued to the General Partner are intended to correspond on a one-for-one basis with the General Partner’s Class A shares if the General Partner issues Class A shares in connection with a Class A OP Unit redemption request. When the General Partner receives proceeds from the sale of shares of its common stock, the General Partner contributes such proceeds to the Operating Partnership and receives OP Units that correspond to the classes of the shares sold in the offering. Additionally, the Operating Partnership may issue
43
any of these classes of OP Units to its Limited Partners. See Note 9 – “Transactions with Related Parties” for further information on management fees and performance participation allocation for each of the classes of OP Units.
Effective July 31, 2023, in contemplation of the Registration Statement as discussed in Note 1, the Operating Partnership effected a unit split for each OP Unit resulting in 5,815,959 Class A OP Units outstanding.
As of March 31, 2024 and 2023, there were 114,986 Class I OP Units and no Class I OP Units, respectively, issued to the General Partner. As of both March 31, 2024 and 2023, there were no General Partner interests issued to the General Partner.
Pursuant to the Amended and Restated Limited Partnership Agreement, OP unitholders may request redemption of all or a portion of their units after holding those units for at least two years (or such shorter period as consented to by the General Partner in its sole discretion). The General Partner has discretion to accept or reject redemption requests and whether accepted redemptions will be redeemed for cash or shares in the General Partner. During the three months ended March 31, 2024, certain Class A OP unitholders requested redemption of their units as shown in the table below, all of which the General Partner accepted and agreed to redeem for cash. As of March 31, 2024, $1,883 in redemptions payable are reflected on the consolidated balance sheet.
Unit Activity
The following tables detail the change in the Operating Partnership’s units for the three months ended March 31, 2024 and 2023:
Three months ended March 31, 2024 |
|
General Partner Interests |
|
|
Limited Partner Interests |
|
||||||
|
|
|
|
|
Class A OP Units |
|
|
Class I OP Units (1) |
|
|||
Beginning balance |
|
|
— |
|
|
|
5,751,638 |
|
|
|
108,569 |
|
Issuance of units |
|
|
— |
|
|
|
— |
|
|
|
6,417 |
|
Redemptions |
|
|
— |
|
|
|
(82,335 |
) |
|
|
— |
|
Ending balance |
|
|
|
|
|
5,669,303 |
|
|
|
114,986 |
|
|
(1) As of March 31, 2024, 100% of the Class I OP Units were held by the General Partner.
Three months ended March 31, 2023 |
|
General Partner Interests |
|
|
Limited Partner Interests |
|
||
|
|
|
|
|
Class A OP Units |
|
||
Beginning balance |
|
|
— |
|
|
|
373,033 |
|
Ending balance |
|
|
— |
|
|
|
373,033 |
|
NOTE 6 – DISTRIBUTIONS
Partners are entitled, based on their respective partnership interests, to monthly cash distributions payable by the Operating Partnership. The General Partner, in its sole discretion, determines the timing and amount of any distributions to the Partners. Such cash flow, if available, will be distributed on a monthly basis.
The table below presents the distributions paid and accrued to Partners for the three months ended March 31, 2024 and 2023.
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Distributions paid |
|
$ |
1,554 |
|
|
$ |
2,876 |
|
Distributions accrued |
|
$ |
1,547 |
|
|
$ |
2,798 |
|
44
NOTE 7 –LEASES
Rental Revenue as a Lessor
The Operating Partnership leases its 30 medical office properties and one student housing property under long-term and short-term operating leases. The remaining lease terms for the Operating Partnership’s medical office leases, as of March 31, 2024, range from 3.9 years to 13.9 years. The lease terms for the Operating Partnership’s student housing leases generally approximate one year.
Medical office leases require the tenant to pay fixed base rent paid monthly in advance, and to reimburse the Operating Partnership for the tenant’s pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the Operating Partnership and recoverable under the terms of the lease. Under these leases, the Operating Partnership pays all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid. Student housing properties are typically leased by the bed on an individual lease liability basis and require the tenant to pay fixed base rent paid monthly in advance, and to reimburse the Operating Partnership for certain costs, primarily the tenant’s share of utilities expenses, incurred by the Operating Partnership. Under leases where all expenses are paid by the Operating Partnership, subject to reimbursement by the tenant, the expenses are included within property operating expenses. As per ASC 842, reimbursements for common area maintenance are considered non-lease components that are permitted to be combined with rental revenue. The combined lease component and reimbursements for insurance and taxes are reported as rental revenue on the consolidated statements of operations and comprehensive loss.
Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed base rent as well as all costs and expenses associated with occupancy. Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included on the consolidated statements of operations and comprehensive loss.
Rental revenue related to the Operating Partnership’s operating leases is comprised of the following:
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Rental revenue - fixed payments |
|
$ |
6,195 |
|
|
$ |
6,646 |
|
Rental revenue - variable payments (a) |
|
|
618 |
|
|
|
642 |
|
Amortization of acquired above- and below-market leases, net |
|
|
347 |
|
|
|
347 |
|
Rental revenue |
|
$ |
7,160 |
|
|
$ |
7,635 |
|
The table below presents future base rent payments, excluding variable lease payments, to be received under the Operating Partnership’s operating leases as of March 31, 2024 for the years indicated, assuming no early terminations or expiring leases are renewed. Leases for the student housing property are generally 12 months or less and are therefore excluded from the table below.
|
|
Lease |
|
|
2024 (remainder of the year) |
|
$ |
15,011 |
|
2025 |
|
|
20,314 |
|
2026 |
|
|
20,657 |
|
2027 |
|
|
21,172 |
|
2028 |
|
|
20,316 |
|
Thereafter |
|
|
72,028 |
|
Total |
|
$ |
169,498 |
|
45
Concentration of Credit Risk
Revenue Concentration
The table below shows the Operating Partnership’s revenue concentration from tenants as a percentage of the Operating Partnership’s total revenues for the three months ended March 31, 2024 and 2023:
|
|
Three Months Ended |
|
|||||
Tenant |
|
2024 |
|
|
2023 |
|
||
Ironwood Physicians, P.C. |
|
|
18 |
% |
|
|
17 |
% |
Memorial Hermann Health System |
|
|
12 |
% |
|
|
12 |
% |
Geographic Concentration
As of both March 31, 2024 and December 31, 2023, Arizona, Texas and Connecticut represented approximately 27%, 26% and 15%, respectively, of the Operating Partnership’s total rentable square feet of medical office properties.
Lease Expense as a Lessee
The below table shows the remaining lease term, including extensions, as of March 31, 2024, for the leases where the Operating Partnership is a lessee:
Ground Lease |
|
Remaining Lease Term (in years) |
|
|
Phoenix Property |
|
|
68 |
|
Jordan Valley Medical Center |
|
|
136 |
|
Saint Elizabeth Medical Center |
|
|
84 |
|
For the three months ended March 31, 2024 and 2023, total rent expense was $79 and $81, respectively, recorded in property operating expenses on the consolidated statements of operations and comprehensive loss.
The table below shows the cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2024 and 2023:
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Operating cash flows - operating leases |
|
$ |
17 |
|
|
$ |
15 |
|
Operating cash flows - finance leases |
|
$ |
26 |
|
|
$ |
26 |
|
For the three months ended March 31, 2024 and 2023, total finance lease cost was comprised as follows:
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Amortization of finance lease right-of-use asset |
|
$ |
14 |
|
|
$ |
15 |
|
Interest on finance lease liability |
|
|
36 |
|
|
|
35 |
|
Total finance lease cost |
|
$ |
50 |
|
|
$ |
50 |
|
The table below shows the Operating Partnership’s finance lease right-of-use asset, net of amortization as of March 31, 2024 and December 31, 2023:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Finance lease right-of-use asset, gross |
|
$ |
2,230 |
|
|
$ |
2,230 |
|
Accumulated amortization |
|
|
(143 |
) |
|
|
(129 |
) |
Finance lease right-of-use asset, net of amortization |
|
$ |
2,087 |
|
|
$ |
2,101 |
|
46
Lease payments for the ground leases as of March 31, 2024 for each of the five succeeding years and thereafter is as follows:
|
|
Operating |
|
|
Finance |
|
||
2024 (remainder of the year) |
|
$ |
50 |
|
|
$ |
79 |
|
2025 |
|
|
67 |
|
|
|
105 |
|
2026 |
|
|
67 |
|
|
|
105 |
|
2027 |
|
|
67 |
|
|
|
121 |
|
2028 |
|
|
70 |
|
|
|
121 |
|
Thereafter |
|
|
6,757 |
|
|
|
16,702 |
|
Total undiscounted lease payments |
|
$ |
7,078 |
|
|
$ |
17,233 |
|
Less: Amount representing interest |
|
|
(5,344 |
) |
|
|
(14,412 |
) |
Present value of lease liability |
|
$ |
1,734 |
|
|
$ |
2,821 |
|
NOTE 8 – COMMITMENTS AND CONTINGENCIES
The Operating Partnership may be subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. As of both March 31, 2024 and December 31, 2023, the Operating Partnership was not subject to any material litigation or aware of any pending or threatened material litigation.
NOTE 9 – TRANSACTIONS WITH RELATED PARTIES
The following table summarizes the related party transactions for the three months ended March 31, 2024 and 2023. Certain compensation and fees payable to the Advisor for services provided to the Operating Partnership are limited to maximum amounts.
|
|
|
|
Three Months Ended |
|
|
Unpaid amounts as of |
|
||||||||||
|
|
|
|
2024 |
|
|
2023 |
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||
General and administrative reimbursements |
|
(a) |
|
$ |
336 |
|
|
$ |
113 |
|
|
$ |
188 |
|
|
$ |
130 |
|
Acquisition related costs |
|
|
|
$ |
16 |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
10 |
|
Offering Costs |
|
(b) |
|
$ |
21 |
|
|
$ |
51 |
|
|
$ |
12 |
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property management fees |
|
|
|
$ |
122 |
|
|
$ |
157 |
|
|
$ |
2 |
|
|
$ |
4 |
|
Property operating expenses |
|
|
|
|
17 |
|
|
|
8 |
|
|
|
8 |
|
|
|
— |
|
Total property management related costs |
|
(c) |
|
$ |
139 |
|
|
$ |
165 |
|
|
$ |
10 |
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advisor management fee |
|
(d) |
|
$ |
187 |
|
|
$ |
255 |
|
|
$ |
187 |
|
|
$ |
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Performance participation allocation |
|
|
|
$ |
264 |
|
|
$ |
— |
|
|
$ |
264 |
|
|
$ |
— |
|
47
Performance Participation Allocation
The Operating Partnership is governed by the Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated February 13, 2024 (as may be amended or restated from time to time, the “Amended and Restated Limited Partnership Agreement”).
On August 24, 2023, the General Partner admitted IPC REIT Special Limited Partner, LP (the “Special Limited Partner”), an affiliate, as a limited partner of the Operating Partnership and the Special Limited Partner contributed $10 for a performance participation interest in the Operating Partnership. The Special Limited Partner’s performance participation interest in the Operating Partnership provides for the Special Limited Partner to receive an allocation from the Operating Partnership equal to (a) with respect to Class T, Class S, Class D and Class I OP Units, 12.5% of the Total Return, subject to a 5% Hurdle Amount and a High-Water Mark, with a Catch-Up (each term as defined in the General Partner’s prospectus dated September 28, 2023 (the “Prospectus”)) and (b) with respect to Class A OP Units, 12.5% of the Class A Total Return, subject to a 5% Class A Hurdle Amount and a Class A High-Water Mark, with a Catch-Up (each term as defined in the Prospectus). The performance participation allocations are subject to a loss carryforward which initially equaled zero and is cumulatively increased by the absolute value of any negative annual Total Return or Class A Total Return (as applicable) and decreased by any positive annual Total Return or Class A Total Return (as applicable), provided that the loss carryforward amount shall at no time be less than zero and provided further that the calculation of the loss carryforward amount will exclude the Total Return or Class A Total Return (as applicable) related to any OP Units redeemed during the year, which are subject to the performance participation allocation upon redemption. The loss carryforward at March 31, 2024 was $0. As of March 31, 2024, the Special Limited Partner had accrued a performance participation allocation of $264.
Related Party Line of Credit
On October 27, 2023, the Operating Partnership entered into a revolving credit facility loan agreement (the “Credit Agreement”) and a revolving promissory note (the “Promissory Note, and together with the credit agreement, the “Credit Facility”) with IPC, as lender.
The Credit Facility provides for loan advances in an aggregate amount not to exceed $22,500, with a maturity date of November 30, 2024 (as may be amended, modified, extended or renewed, but not accelerated, in IPC’s sole discretion) or the date IPC declares obligations under the Credit Facility, or the obligations become, due and payable after the occurrence of an event of default (the “Loan”). The daily balance of the Loan under the Credit Facility bears interest at a rate of 4.25% per annum, however in connection with the occurrence and continuance of certain events of default (and at IPC’s option for all other events of default), the interest rate will increase to 9.25% per annum. The Operating Partnership has the right to prepay all or any part of the Loan at any time upon five days’ notice to IPC. The Credit Facility acts in the manner of a revolving credit facility wherein prepayments from the Operating Partnership shall be available for funding future advances to the Operating Partnership. As of March 31, 2024, the Operating Partnership had not made any draws on the Credit Facility.
48
Class A OP Units held by Affiliates
As of both March 31, 2024 and December 31, 2023, 75,484 Class A OP Units, which represents 1.33% and 1.31%, respectively, of the total Class A OP Units, were held by IPC and its affiliates.
Due from Related Parties
As of March 31, 2024 and December 31, 2023, $0 and $166, respectively, of cash due from an affiliate is included in due from related parties in the consolidated balance sheets.
NOTE 10 – EQUITY-BASED COMPENSATION
As a result of the restricted share grants by the General Partner to its independent directors, the Operating Partnership issued 2,387 Class I restricted units to the General Partner during the three months ended March 31, 2024. Compensation expense associated with the restricted units is recognized by the Operating Partnership over a one-year period from the date of the grant. Compensation expense associated with the restricted units issued to the General Partner was $11 for the three months ended March 31, 2024. As of March 31, 2024, the General Partner had $66 of unrecognized compensation expense related to the restricted units, in the aggregate. The weighted average remaining period that unrecognized compensation expense related to restricted units will be recognized is 0.89 years.
NOTE 11 – FAIR VALUE MEASUREMENTS
The Operating Partnership defines fair value based on the price that it believes would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Operating Partnership establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:
Level 1 − |
|
Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. |
|
|
|
Level 2 − |
|
Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
|
|
|
Level 3 − |
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
The Operating Partnership has estimated the fair value of its financial and non-financial instruments using available market information and valuation methodologies the Operating Partnership believes to be appropriate for these purposes.
Recurring Fair Value Measurements
For assets and liabilities measured at fair value on a recurring basis, the table below presents the fair value of the Operating Partnership’s cash flow hedges as well as their classification on the consolidated balance sheets as of March 31, 2024 and December 31, 2023.
|
|
Fair Value |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap agreements - Other assets |
|
$ |
— |
|
|
$ |
7,358 |
|
|
$ |
— |
|
|
$ |
7,358 |
|
Interest rate cap agreements - Other assets |
|
$ |
— |
|
|
$ |
4,494 |
|
|
$ |
— |
|
|
$ |
4,494 |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap agreements - Other assets |
|
$ |
— |
|
|
$ |
6,589 |
|
|
$ |
— |
|
|
$ |
6,589 |
|
Interest rate cap agreements - Other assets |
|
$ |
— |
|
|
$ |
4,607 |
|
|
$ |
— |
|
|
$ |
4,607 |
|
Interest rate cap agreements - Other liabilities |
|
$ |
— |
|
|
$ |
(116 |
) |
|
$ |
— |
|
|
$ |
(116 |
) |
The fair value of derivative instruments was estimated based on data observed in the forward yield curve which is widely observed in the marketplace. The Operating Partnership also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the counterparty’s nonperformance risk in the fair value measurements which utilize Level 3 inputs, such as estimates of current credit spreads. The Operating Partnership has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative interest rate swap and interest rate cap agreements and therefore has classified these in Level 2 of the hierarchy.
49
NOTE 12 – SEGMENT REPORTING
As of March 31, 2024, the Operating Partnership operates in two reportable segments: Healthcare and Education. During the second quarter of 2023, the Operating Partnership retitled the Student Housing segment to Education. The Operating Partnership assesses performance and makes operational decisions based on the performance of each segment individually. The Operating Partnership believes that segment net operating income is a key performance metric that captures the unique operating characteristics of each segment. The Operating Partnership defines segment net operating income as total revenues less property operating expenses and real estate tax expense attributable to the segment.
Prior to the acquisition of University Lofts on December 1, 2022, the Operating Partnership managed its operations on an aggregated, single segment basis for purposes of assessing performance and making operational decisions and, accordingly, had only one reporting and operating segment.
The following table details the total assets by reportable segment as of March 31, 2024 and December 31, 2023:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Healthcare |
|
$ |
385,941 |
|
|
$ |
388,543 |
|
Education |
|
|
35,573 |
|
|
|
36,042 |
|
Corporate and other |
|
|
12,159 |
|
|
|
7,211 |
|
Total assets |
|
$ |
433,673 |
|
|
$ |
431,796 |
|
The following table details the financial results by reportable segment for the three months ended March 31, 2024:
|
|
Healthcare |
|
|
Education |
|
|
Total |
|
|||
Revenues: |
|
|
|
|
|
|
|
|
|
|||
Rental revenue |
|
$ |
5,956 |
|
|
$ |
1,204 |
|
|
$ |
7,160 |
|
Other property revenue |
|
|
118 |
|
|
|
— |
|
|
|
118 |
|
Total revenues |
|
|
6,074 |
|
|
|
1,204 |
|
|
|
7,278 |
|
|
|
|
|
|
|
|
|
|
|
|||
Expenses: |
|
|
|
|
|
|
|
|
|
|||
Property operating expenses |
|
|
440 |
|
|
|
408 |
|
|
|
848 |
|
Real estate tax expense |
|
|
233 |
|
|
|
92 |
|
|
|
325 |
|
Total expenses |
|
|
673 |
|
|
|
500 |
|
|
|
1,173 |
|
|
|
|
|
|
|
|
|
|
|
|||
Segment net operating income |
|
$ |
5,401 |
|
|
$ |
704 |
|
|
$ |
6,105 |
|
|
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
$ |
(3,731 |
) |
|
$ |
(360 |
) |
|
$ |
(4,091 |
) |
|
|
|
|
|
|
|
|
|
|
|||
General and administrative expenses |
|
|
|
|
|
|
|
$ |
(1,146 |
) |
||
Advisor management fee |
|
|
|
|
|
|
|
|
(187 |
) |
||
Performance participation allocation |
|
|
|
|
|
|
|
|
(264 |
) |
||
Interest expense |
|
|
|
|
|
|
|
|
(3,019 |
) |
||
Interest and other income |
|
|
|
|
|
|
|
|
11 |
|
||
Net loss |
|
|
|
|
|
|
|
$ |
(2,591 |
) |
||
50
The following table details the financial results by reportable segment for the three months ended March 31, 2023:
|
|
Healthcare |
|
|
Education |
|
|
Total |
|
|||
Revenues: |
|
|
|
|
|
|
|
|
|
|||
Rental revenue |
|
$ |
6,535 |
|
|
$ |
1,100 |
|
|
$ |
7,635 |
|
Other property revenue |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
Total revenues |
|
|
6,536 |
|
|
|
1,100 |
|
|
|
7,636 |
|
|
|
|
|
|
|
|
|
|
|
|||
Expenses: |
|
|
|
|
|
|
|
|
|
|||
Property operating expenses |
|
|
524 |
|
|
|
358 |
|
|
|
882 |
|
Real estate tax expense |
|
|
226 |
|
|
|
97 |
|
|
|
323 |
|
Total expenses |
|
|
750 |
|
|
|
455 |
|
|
|
1,205 |
|
|
|
|
|
|
|
|
|
|
|
|||
Segment net operating income |
|
$ |
5,786 |
|
|
$ |
645 |
|
|
$ |
6,431 |
|
|
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
$ |
(3,774 |
) |
|
$ |
(1,053 |
) |
|
$ |
(4,827 |
) |
|
|
|
|
|
|
|
|
|
|
|||
General and administrative expenses |
|
|
|
|
|
|
|
$ |
(474 |
) |
||
Advisor management fee |
|
|
|
|
|
|
|
|
(255 |
) |
||
Interest expense |
|
|
|
|
|
|
|
|
(2,811 |
) |
||
Interest and other income |
|
|
|
|
|
|
|
|
15 |
|
||
Net loss |
|
|
|
|
|
|
|
$ |
(1,921 |
) |
||
NOTE 13 – SUBSEQUENT EVENTS
In connection with the preparation of its consolidated financial statements, the Operating Partnership has evaluated events that occurred through May 15, 2024, which is the date of issuance of these consolidated financial statements to determine whether any of these events required disclosure in the consolidated financial statements.
Related Party Line of Credit
On April 4, 2024, the Operating Partnership borrowed $18,000 from IPC under the Credit Facility. The proceeds were used for the acquisition of the Storage V Properties (defined below). On April 26, 2024, the Operating Partnership used a portion of the proceeds from the Parkway Storage V Mortgage Loan (defined below) to pay down $9,000 of the Credit Facility.
Acquisitions
On April 5, 2024, the Operating Partnership acquired four self-storage properties (the “Storage V Properties”) from an affiliate of the Operating Partnership, for a total purchase price of $43,804, including $17,634 of assumed loans and corresponding swaps with First Merchants Bank. Storage V Properties are comprised of 2,275 storage units, including 1,810 climate-controlled units, that encompass 250,610 square feet. The acquisition was accounted for as an asset acquisition.
As part of the consideration, the Operating Partnership issued 4,381 Class T OP Units and 91,711 Class I OP Units. After holding the OP Units received in the acquisition for two years, the holders of such OP Units have the right to require the Operating Partnership to redeem all or a portion of the OP Units in exchange for shares of the General Partner’s common stock or cash, as determined by the General Partner in its sole discretion.
The Storage V Properties are managed by Inland Devon Self Storage Holdings LLC, an affiliate of IREIC.
On April 26, 2024, the Operating Partnership entered into a loan agreement with Parkway Bank for an aggregate principal amount of $28,000 (the “Parkway Storage V Mortgage Loan”). The proceeds of the Parkway Storage V Mortgage Loan were used to repay the assumed loans with First Merchants Bank. On April 26, 2024, the Operating Partnership also settled the corresponding swaps with First Merchants Bank. The Parkway Storage V Mortgage Loan bears interest at a rate equal to 5.80% per annum and matures on April 25, 2026, and the Operating Partnership has the option to extend the maturity date for an additional three-year period subject to the payment of an extension fee, certain costs and expenses and certain other conditions.
51
Item 6. Exhibits
The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto and are incorporated herein by reference.
Exhibit Index |
||
Exhibit No. |
|
Description |
|
|
|
1.1 |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
4.3 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
10.4 |
|
|
|
|
|
10.5 |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
INLAND REAL ESTATE INCOME TRUST, INC. |
|
|
|
|
|
|
/s/ Keith D. Lampi |
|
By: |
Keith D. Lampi |
|
|
Chairman of the Board and Chief Executive Officer (principal executive officer) |
|
Date: |
May 15, 2024 |
|
|
|
|
|
/s/ Jerry Kyriazis |
|
By: |
Jerry Kyriazis |
|
|
Chief Financial Officer (principal financial officer) |
|
Date: |
May 15, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53