ck0001528985-10k_20191231.htm

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 ☒

There is no established public market for the registrant’s shares of common stock. As of March 11, 2020, there were 36,024,249 shares of the registrant’s common stock outstanding.

The registrant incorporates by reference portions of its Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders, which is expected to be filed no later than 120 days after the end of the fiscal year, into Part III of this Form 10-K to the extent stated herein.

Inland Real Estate Income Trust, Inc. (which we refer to herein as the “Company”, “we”, “our” or “us”) was incorporated on August 24, 2011 to acquire and manage a portfolio of commercial real estate investments located in the United States. We have primarily focused on acquiring retail properties and intend to target a portfolio of 100% grocery-anchored properties as described below. We have invested in joint ventures and may continue to invest in additional joint ventures or acquire other real estate assets such as office and medical office buildings, multi-family properties and industrial/distribution and warehouse facilities if our management believes the expected returns from those investments exceed that of retail properties. We also may invest in real estate-related equity securities of both publicly traded and private real estate companies, as well as commercial mortgage-backed securities (“CMBS”). Our sponsor, Inland Real Estate Investment Corporation, referred to herein as our “Sponsor” or “IREIC,” is an indirect subsidiary of The Inland Group, LLC. Various affiliates of our Sponsor provide services to us. We are externally managed and advised by IREIT Business Manager & Advisor, Inc., referred to herein as our “Business Manager,” an indirect wholly owned subsidiary of our Sponsor. Our Business Manager is responsible for overseeing and managing our day-to-day operations. Our properties are managed by Inland Commercial Real Estate Services LLC, referred to herein as our “Real Estate Manager,” an indirect wholly owned subsidiary of our Sponsor.

We commenced an initial public “best efforts” offering (the “Offering”) on October 18, 2012, which concluded on October 16, 2015. We sold 33,534,022 shares of common stock generating gross proceeds of $834.4 million from the Offering. On March 3, 2020, our board of directors determined an estimated per share net asset value (the “Estimated Per Share NAV”) of our common stock as of December 31, 2019 of $18.15. The previously estimated per share net asset value of $20.12 as of December 31, 2018 was established on March 5, 2019.

On January 16, 2018, we effected a 1-for-2.5 reverse stock split of our issued and outstanding common stock whereby every 2.5 shares of our issued and outstanding common stock were converted into one share of our common stock (the “Reverse Stock Split”). In accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), all share information presented has been retroactively adjusted to reflect the Reverse Stock Split.

At December 31, 2019, we owned 47 retail properties, totaling 6.8 million square feet. A majority of our properties are multi-tenant, necessity-based retail shopping centers primarily located in major regional markets and growing secondary markets throughout the United States. At December 31, 2019, 83% of our annualized base rental income was generated from grocery-anchored or grocery shadow-anchored shopping center. A grocery shadow-anchored shopping center is a shopping center near a grocery store that generates traffic for the shopping center but is not a part of the shopping center. At December 31, 2019, our portfolio had weighted average physical and economic occupancy of 94.0% and 94.4%, respectively. As of December 31, 2019, 2018 and 2017, annualized base rent (“ABR”) per square foot averaged $17.54, $17.30 and $17.16, respectively, for all properties owned. ABR is calculated by annualizing the monthly base rent for leases in-place as of the applicable date, including any tenant concessions, such as rent abatement or allowances, which may have been granted and excluding ground leases. ABR including ground leases averaged $15.08, $14.94 and $14.81 as of December 31, 2019, 2018 and 2017, respectively.

On February 11, 2019, the Company’s board of directors approved a strategic plan (the “Strategic Plan”) with the goals of providing future liquidity to investors and creating long-term stockholder value. The Strategic Plan centers around owning a portfolio of 100% grocery-anchored properties with lower exposure to big box retailers. Consistent with the Strategic Plan, we sold 12 properties during the year ended December 31, 2019 for aggregate net proceeds of $14.9 million and sold three additional properties in January 2020 for aggregate net proceeds of approximately $37.2 million. We used the proceeds to pay down the revolving credit facility. We intend to draw on the revolving credit facility to redeploy the net proceeds from these sales to, among other things, purchase additional assets or redevelop select centers within the current portfolio in the future pursuant to our Strategic Plan. For discussions of these sales, see Note 5 – “Dispositions” and Note 18 – “Subsequent Events” included in our December 31, 2019 Notes to Consolidated Financial Statements in Item 8.

Our management team and our board are considering the opportunistic sale of other assets with the goal of redeploying capital into the acquisition of strategically located grocery-anchored centers, as well as the redevelopment of select centers within the current portfolio. We plan to consider a liquidity event in approximately two years, market conditions permitting, most likely through a listing on a public securities exchange.

In connection with the Strategic Plan, our share repurchase program was amended and restated, effective March 21, 2019, and the business management agreement with the Business Manager was amended and restated on February 11, 2019 to, among other things, eliminate all future acquisition and disposition fees. On March 3, 2020, our board adopted a third amended and restated share repurchase program, which will become effective on April 10, 2020, as further described below under “Share Repurchase Program.” The Strategic Plan may evolve or change over time. For example, we may decide to focus more on redeveloping existing properties relative to investing in new grocery-anchored centers, depending on such factors, including, but not limited to, market prices for our properties, availability of capital for redevelopment and construction costs. There is no assurance we will be able to successfully implement the Strategic Plan, including listing our common stock.

We provide the following programs to facilitate additional investment in our shares and to provide limited liquidity for stockholders.

Through the distribution reinvestment plan (“DRP”), we provide stockholders with the option to purchase additional shares from us by automatically reinvesting distributions, subject to certain share ownership restrictions. We do not pay any selling commissions or a marketing contribution and due diligence expense allowance in connection with the DRP. The price per share for shares of common stock purchased under the DRP is equal to the Estimated Per Share NAV unless and until the shares become listed for trading. On March 11, 2019, we reported an estimated per share NAV of $20.12 and on March 3, 2020, we reported a new Estimated Per Share NAV of $18.15. Beginning with the first quarter 2020 distributions payable in April, shares sold through the DRP will be issued at a price equal to $18.15 until we update the Estimated Per Share NAV in 2021.

Distributions reinvested through the DRP were $19.6 million, $19.3 million and $27.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

We adopted a share repurchase program (as amended, “SRP”) effective October 18, 2012, under which we are authorized to purchase shares from stockholders who purchased their shares from us or received their shares through a non-cash transfer and who have held their shares for at least one year. Purchases are in our sole discretion. In the case of repurchases made upon the death of a stockholder or qualifying disability (“Exceptional Repurchases”), the one year holding period does not apply. The SRP was amended and restated effective January 1, 2018 to change the processing of repurchase requests from a monthly to a quarterly basis to align with the move to quarterly distributions. On February 11, 2019, our board adopted a second amended and restated SRP, which became effective on March 21, 2019. On March 3, 2020, our board adopted a third amended and restated SRP (the “Third A&R SRP”), which will become effective on April 10, 2020.

Under the Third A&R SRP, we are authorized to make ordinary repurchases and Exceptional Repurchases at a price equal to 80.0% of the “share price,” which is defined in the Third A&R SRP as an amount equal to the lesser of: (A) $25, as adjusted under certain circumstances, including, among other things, if the applicable shares were purchased from the Company at a discounted price; or (B) the most recently disclosed estimated value per share. Prior to the amendment, we were authorized to make Exceptional Repurchases at a price equal to 100% of the “share price.” Beginning with repurchases in April 2020, the “share price” will be equal to $18.15 per share until we announce a new Estimated Per Share NAV. Accordingly, ordinary repurchases and Exceptional Repurchases will be at $14.52 per share.

The Third A&R SRP provides our board of directors with the discretion to reduce the funding limit for share repurchases. The Third A&R SRP limits the dollar amount for any repurchases made by us each calendar quarter to an amount equal to a percentage determined in the sole discretion of our board on a quarterly basis that will not be less than 50% of the net proceeds from the DRP during the applicable quarter. For the quarter ended December 31, 2019, our board limited funding for repurchases to 50% of the net proceeds from the DRP. We continue to limit the number of shares repurchased during any calendar year to 5% of the number of shares outstanding on December 31st of the previous calendar year, as adjusted for any stock splits or other combinations.

If either or both of the repurchase limitations prevent us from repurchasing all of the shares offered for repurchase during a calendar quarter, we will repurchase shares, on a pro rata basis within each category below, in accordance with the repurchase limitations in the following order: (a) first, all Exceptional Repurchases and (b) second, all ordinary repurchases. For any quarter ended, unfulfilled repurchase requests will be included in the list of requests for the following quarter unless the request is withdrawn in accordance with the SRP. However, each stockholder who has submitted a repurchase request must submit an acknowledgment annually after we publish a new estimated value per share acknowledging, among other things, that the stockholder wishes to maintain the request. If we do not receive the acknowledgment prior to the repurchase date, we will deem the request to have been withdrawn.

The SRP will immediately terminate if our shares are listed on any national securities exchange. In addition, our board of directors, in its sole discretion, may, at any time, amend, suspend or terminate the SRP. In the event that we amend, suspend or terminate the SRP, however, we will send stockholders notice of the change at least thirty days prior to the change, and we will disclose the change in a report filed with the Securities and Exchange Commission (“SEC”) on either Form 8-K, Form 10-Q or Form 10-K, as appropriate. Further, our board reserves the right in its sole discretion, at any time, and from time to time to reject any requests for repurchases.

Repurchases through the SRP were $9.4 million, $22.5 million and $21.1 million for the years ended December 31, 2019, 2018 and 2017, respectively. At December 31, 2019 and 2018, our liability related to the SRP was $2.3 million and $5.5 million, respectively, recorded in other liabilities on our consolidated balance sheets.

We currently view our real estate portfolio as one reportable segment in accordance with U.S. GAAP. Accordingly, we did not report any other segment disclosure for the years ended December 31, 2019, 2018 and 2017. For information related to our business segment, reference is made to Note 13 – “Segment Reporting” which is included in our December 31, 2019 Notes to Consolidated Financial Statements in Item 8.

We elected to be taxed as a real estate investment trust for U.S. federal income tax purposes (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”), commencing with the tax year ended December 31, 2013. Commencing with such taxable year, we were organized and began operating in such a manner as to qualify for taxation as a REIT under the Internal Revenue Code and believe we have so qualified. As a result, we generally will not be subject to federal income tax on taxable income that is distributed to stockholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distributes at least 90% of its REIT taxable income (subject to certain adjustments and excluding any net capital gain) to its stockholders. We will monitor the business and transactions that may potentially impact our REIT status. If we fail to qualify as a REIT in any taxable year, without the benefit of certain statutory relief provisions, we will be subject to federal and state income tax on our taxable income as a “C corporation.” Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property or net worth and federal income and excise taxes. The earnings of any taxable REIT subsidiaries generally will be subject to U.S. federal corporate income tax applicable to “C corporations.”

The commercial real estate market is highly competitive. We compete in all of our markets with other owners and operators of commercial properties. We compete based on a number of factors that include location, rental rates, security, suitability of the property’s design to tenants’ needs and the manner in which the property is operated and marketed. The number of competing properties in a particular market could have a material effect on a property’s occupancy levels, rental rates and operating expenses.

We are subject to significant competition in seeking real estate investments and tenants. We compete with many third parties engaged in real estate investment activities including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies and other entities. Some of these competitors, including larger REITs, have substantially greater financial resources than we do and generally enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies.

We do not have any employees. In addition, all of our executive officers are officers of IREIC or one or more of its affiliates and are compensated by those entities, in part, for their services rendered to us. We neither separately compensate our executive officers for their service as officers, nor do we reimburse either our Business Manager or Real Estate Manager for any compensation paid to individuals who also serve as our executive officers, or the executive officers of our Business Manager or its affiliates or our Real Estate Manager; provided that, for these purposes, the corporate secretaries of our Company and our Business Manager are not considered “executive officers.”

Certain persons performing services for our Business Manager and Real Estate Manager are employees of IREIC or its affiliates, and may also perform services for its affiliates and other IREIC-sponsored entities. These individuals face competing demands for their time and services and may have conflicts in allocating their time between our business and assets and the business and assets of these other entities. IREIC also may face a conflict of interest in allocating personnel and resources among these entities. In addition, conflicts exist to the extent that we acquire properties in the same geographic areas where properties owned by other IREIC-sponsored programs are located. In these cases, a conflict may arise in the acquisition or leasing of properties if we and another IREIC-sponsored program are competing for the same properties or tenants in negotiating leases, or a conflict may arise in connection with the resale of properties if we and another IREIC-sponsored program are selling similar properties at the same time.

Our charter contains provisions setting forth our ability to engage in certain related party transactions. Our board of directors reviews all of these transactions and, as a general rule, any related party transactions must be approved by a majority of the directors, including a majority of the independent directors, not otherwise interested in the transaction. Further, we may not engage in certain transactions with entities sponsored by, or affiliated with, IREIC unless a majority of our board of directors, including a majority of our independent directors, finds the transaction to be fair and reasonable and on terms no less favorable to us than those from an unaffiliated party under the same circumstances. Our board has adopted a conflicts of interest policy prohibiting us from engaging in the following types of transactions with IREIC-affiliated entities:

This policy does not impact agreements or relationships between us and IREIC and its affiliates, including, for example, agreements with our Business Manager or Real Estate Manager that relate to the day-to-day management of our business.

As an owner of real estate, we are subject to various environmental laws, rules and regulations adopted by various governmental bodies or agencies. Compliance with these laws, rules and regulations has not had a material adverse effect on our business, assets, or results of operations, financial condition and ability to pay distributions. We do not believe that our existing portfolio as of December 31, 2019 will require us to incur material expenditures to comply with these laws and regulations.

We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the SEC. The public may read and copy any of the reports that are filed with the SEC at the SEC’s Internet address located at www.sec.gov. The website contains reports, proxy and information statements and other information regarding issuers that file electronically.

We make available, free of charge, on our website, inland-investments.com/inland-income-trust, or by responding to requests addressed to our investor services group, the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports. These reports are available as soon as reasonably practicable after such material is electronically filed or furnished to the SEC. 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 from time to time, as information is updated and new information is posted.

We have filed with the SEC the certifications required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, which are attached as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K.

The factors described below represent our principal risks. Other factors may exist that we do not consider significant based on information that is currently available or that we are not currently able to anticipate. The occurrence of any of the risks discussed below could have a material adverse effect on our business, financial condition, results of operations and ability to pay distributions to our stockholders.

We have incurred net losses on a basis in accordance with U.S. GAAP for the years ended December 31, 2019, 2018 and 2017 and may incur such net losses in the future, which could have a material adverse impact on our financial condition, operations, cash flow, and our ability to service our indebtedness and pay distributions to our stockholders.

We have incurred net losses on a U.S. GAAP basis for the years ended December 31, 2019, 2018 and 2017 of $11.4 million, $23.3 million and $19.1 million, respectively. Our losses can be attributed, in part, to non-cash expenses, such as depreciation and amortization, acquisition related expenses and impairment charges. We may incur net losses in the future, which could have a material adverse impact on our financial condition, operations, cash flow, and our ability to service our indebtedness and pay distributions to our stockholders. We are subject to all of the business risks and uncertainties associated with any business. We cannot assure our stockholders that, in the future, we will be profitable or that we will realize growth in the value of our assets.

The amount and timing of distributions, if any, may vary. We have paid and may continue to pay distributions from sources other than cash flow from operations, including the proceeds of our DRP.

There are many factors that can affect the availability and timing of distributions paid to our stockholders. We may not generate sufficient cash flow from operations to fund any distributions to our stockholders. The actual amount and timing of distributions, if any, is determined by our board of directors in its discretion, based on its analysis of our actual and expected cash flow, capital expenditures and investments, as well as general financial conditions. Actual cash available for distribution may vary substantially from estimates made by our board. The sale of assets and delayed reinvestment or reinvestment at lower yields will negatively impact the amount available to pay distributions. In addition, to the extent we invest in development or redevelopment projects that do not immediately generate cash flow, or in real estate assets that have significant capital requirements, our ability to make distributions will be negatively impacted. Our board will continue to review our distribution policy as our Strategic Plan evolves. There is no assurance we will continue to pay distributions at the existing amount.

Historically, we have not consistently generated sufficient cash flow from operations to fund distribution payments. Our organizational documents permit us to pay distributions from sources other than cash flow from operations. Specifically, some or all of our distributions may be paid from retained cash flow (if any), borrowings, cash flow from investing activities, the net proceeds from the sale of our assets, or from the proceeds of our DRP. Accordingly, if we cannot generate sufficient cash flow from operations to fully fund distributions, some or all of our distributions may be paid from the other sources described above. We have not established any limit on the extent to which we may use such alternate sources.

Funding distributions from the proceeds of our DRP, borrowings or asset sales will result in us having fewer funds available to acquire properties or other real estate-related investments. Likewise, funding distributions from the sale of additional securities, including shares issued under the DRP, will dilute our stockholders interest in us on a percentage basis and may impact the value of the investment, especially if we sell these securities at prices less than the price our stockholders paid for their shares. As a result, the return our stockholders realize on their investment may be reduced. Doing so may also negatively impact our ability to generate cash flows. A decrease in the level of stockholder participation in the DRP could have an adverse impact on our ability to fund distributions and other operating and capital needs. There is no assurance we will continue to generate sufficient cash flow from operations to cover distributions. If these sources are not available or are not adequate, our board may have to consider reducing or eliminating distributions.

There is no established public trading market for our shares, and our stockholders may not be able to sell their shares under our SRP and, if our stockholders are able to sell their shares under the SRP, or otherwise, they may not be able to recover the amount of their investment in our shares.

There is no established public trading market for our shares and no assurance that one may develop. This may inhibit the transferability of our shares. Our charter does not require our directors to seek stockholder approval to liquidate our assets by a specified date, nor does our charter require our directors to list our shares for trading by a specified date. There is no assurance the board will pursue a listing or other liquidity event at any time in the future. In addition, even if our board decides to seek a listing of our shares of common stock, there is no assurance that we will satisfy the listing requirements or that our shares will be approved for listing. Even if our shares of common stock are approved for listing, we can provide no assurance regarding the price at which our shares may trade. Thus, holders of our common stock should be prepared to hold their shares for an unlimited period of time. Our

charter also prohibits the ownership of more than 9.8% in value of the aggregate of the outstanding shares of our stock or more than 9.8% (in value or number whichever is more restrictive) of the aggregate of the outstanding shares of our common stock by any single investor unless exempted by our board.

Moreover, our SRP contains numerous restrictions that limit our stockholders' ability to sell their shares, including those relating to the number of shares of our common stock that we can repurchase at any time and the type and amount of funds we may use to repurchase shares pursuant to the program. For example, for each of the quarters in 2019, pursuant to our board’s discretion to reduce the funding limit under our SRP, our board limited funding for repurchases to 50% of the net proceeds from the DRP, and our board may continue to limit the amount of repurchases under the SRP. Because of the funding limit, we have not been able to satisfy all properly submitted repurchase requests and have been satisfying requests for ordinary repurchases on a pro rata basis and will continue to be unable to satisfy all repurchase requests. Also, under the SRP, we are only authorized to purchase shares from stockholders who purchased their shares from us or received their shares through a non-cash transfer and who have held their shares for at least one year. Purchases are in our sole discretion.

Our board of directors, in its sole discretion, may amend, suspend (in whole or in part), or terminate our SRP. The SRP will immediately terminate if our shares become listed for trading on a national securities exchange. Further, our board reserves the right in its sole discretion to change the repurchase prices or reject any requests for repurchases. Any amendments to, or suspension or termination of, the SRP may restrict or eliminate our stockholders’ ability to have us repurchase their shares and otherwise prevent our stockholders from liquidating their investment. Therefore, our stockholders may not have the opportunity to make a repurchase request prior to a potential termination of the SRP and our stockholders may not be able to sell any of their shares of common stock back to us. As a result of these restrictions and circumstances, the ability of our stockholders to sell their shares should they require liquidity is significantly restricted. Moreover, under the SRP, any shares accepted for “ordinary repurchases” or “exceptional repurchases” are repurchased at a discount to the then-current estimated per share NAV. Therefore, even if our stockholders are able to sell their shares of common stock back to us pursuant to the SRP, they may be forced to do so at a discount to the purchase price such stockholders paid for their shares.

The Estimated Per Share NAV of our common stock is based on a number of assumptions and estimates that may not be accurate or complete and is also subject to a number of limitations.

On March 3, 2020, we announced an Estimated Per Share NAV of our common stock as of December 31, 2019 equal to $18.15 per share. To assist our board of directors in establishing the Estimated Per Share NAV, we engaged a third party specializing in providing real estate financial services. As with any methodology used to estimate value, the methodology employed by this third party was based upon a number of estimates and assumptions that may not have been accurate or complete. Further, different parties using different assumptions and estimates could have derived a different estimated per share net asset value, which could be significantly different from our Estimated Per Share NAV. The Estimated Per Share NAV will fluctuate over time and does not represent: (i) the price at which our shares would trade on a national securities exchange, (ii) the amount per share a stockholder would obtain if he, she or it tried to sell his, her or its shares, (iii) the amount per share stockholders would receive if we liquidated our assets and distributed the proceeds after paying all our expenses and liabilities or (iv) the price a third party would pay to acquire our Company.

There is also no assurance that the methodology used to estimate our value per share will be acceptable to broker dealers for customer account purposes or to the Financial Industry Regulatory Authority, Inc. (“FINRA”) or that the estimated value per share will satisfy the applicable annual valuation requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the Internal Revenue Code with respect to employee benefit plans subject to ERISA and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code.

Our charter authorizes us to issue additional shares of stock, which may reduce the percentage of our common stock owned by our other stockholders, subordinate stockholders’ rights or discourage a third party from acquiring us.

Existing stockholders do not have preemptive rights to purchase any shares issued by us in the future. Our charter authorizes us to issue up to 1,500,000,000 shares of capital stock, of which 1,460,000,000 shares are classified as common stock and 40,000,000 shares are classified as preferred stock. We may, in the sole discretion of our board and without approval of our common stockholders:

Future issuances of common stock will reduce the percentage of our outstanding shares owned by our other stockholders. Further, our board of directors could authorize the issuance of stock with terms and conditions that could subordinate the rights of the holders of our current common stock, adversely affect the Estimated Per Share NAV or have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for our stockholders.

Market disruptions may adversely impact many aspects of our operating results and operating condition.

The availability of debt financing secured by commercial real estate is subject to underwriting standards that can be tightened in response to adverse changes in real estate or credit market conditions. Further, interest rates may increase in response to changing economic conditions, which may negatively affect U.S. economic conditions as a whole, or real estate industry conditions such as:

For these and other reasons, we cannot assure our stockholders that we will be profitable or that we will realize growth in the value of our investments.

Our board of directors may change our investment policies without stockholder approval, which could alter the nature of our stockholders’ investment.

Our charter requires our independent directors to review our investment policies at least annually to determine that the policies we are following are in the best interest of our stockholders. These policies may change over time. The methods of implementing our investment policies may also vary, as new investment techniques are developed. Our investment policies, including the Strategic Plan, the methods for implementing them, and our other objectives, policies and procedures may be altered by a majority of the directors (which must include a majority of the independent directors), without the approval of our stockholders. As a result, the nature of our stockholders’ investment could change without their consent. A change in our investment strategy may, among other things, increase our exposure to interest rate risk, default risk and commercial real property market fluctuations, all of which could materially adversely affect our ability to achieve our investment objectives.

We may not be able to successfully implement the Strategic Plan adopted by our board of directors on February 11, 2019.

As part of the Strategic Plan, we sold 12 properties during the year ended December 31, 2019 and three additional properties in January 2020. There is no assurance that we will be able to redeploy the proceeds from the properties sold to acquire suitable investments on financially attractive terms, if at all, or that we will be able to sell any additional assets at acceptable prices. We also expect to evaluate the redevelopment of certain of our assets as part of the Strategic Plan. As described herein, redeveloping assets presents additional uncertainties including, among other things, the cost to redevelop and the amount and timing of returns generated by redevelopment. There can be no assurance that we will be able to successfully implement the Strategic Plan or that the execution of the Strategic Plan will positively impact the value of our common stock.

As part of our Strategic Plan, we plan to further analyze and potentially pursue redevelopment of certain assets. Development and redevelopment activities are subject to a number of risks, including, but not limited to:

Further, during the period of time we are developing or redeveloping an asset or assets, our rental income from such properties may be reduced. Delays in completing development may also impact leases with existing tenants or our ability to secure new tenants. Occurrence of any of these events would likely have a material adverse effect on the estimated value of our common stock, our cash flow from operations, ability to pay distributions and ability to pursue a liquidity event for our stockholders. In addition, development costs for a project may increase, which may result in reduced returns, or even losses. In deciding whether to develop or redevelop a particular property, we make certain assumptions regarding the expected future performance of that property. If the property does not perform as expected, our financial performance may be materially and adversely affected, or an impairment charge could occur.

Competition with other non-traditional grocery retailers may reduce our profitability.

Tenants in the grocery industry will face potentially changing consumer preferences and increasing competition from other forms of retailing, such as online grocery retailers and non-traditional grocery retailers such as prepared meal and fresh food delivery services, mass merchandisers, super-centers, warehouse club stores and drug stores. Other retail centers within the market area of our properties and meal and food delivery services both inside and outside these market areas will compete with our properties for customers, affecting our tenants’ cash flows and thus affecting their ability to pay rent.

We have entered into, may continue to enter into, joint ventures with third parties. Our organizational documents do not limit the amount of funds that we may invest in these joint ventures. We intend to develop and acquire properties through joint ventures with other persons or entities when warranted by the circumstances. The venture partners may share certain approval rights over major decisions and these investments may involve risks not otherwise present with other methods of investment in real estate, including, but not limited to:

The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to fund our capital and operating needs and distributions.

The Federal Deposit Insurance Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank. The FDIC insures up to $250,000 per depositor per insured bank account. At December 31, 2019, we had cash and cash equivalents exceeding these federally insured levels. If any of the banking institutions in which we have deposited funds ultimately fail, we may lose our deposits over the federally insured levels. The loss of our deposits would reduce the amount of cash we have available to fund our capital and operating needs and distributions.

We rely on IREIC and its affiliates and subsidiaries to manage and conduct our operations. Any material adverse change in IREIC’s financial condition or our relationship with IREIC could have a material adverse effect on our business and ability to achieve our investment objectives.

We depend on IREIC and its affiliates and subsidiaries to manage and conduct our operations. IREIC, through one or more of its subsidiaries, owns and controls our Business Manager and Real Estate Manager. IREIC has sponsored numerous public and private programs and through its affiliates or subsidiaries has provided offering, asset, property and other management and ancillary services to these entities. From time to time, IREIC or the applicable affiliate or subsidiary has waived or deferred fees or made capital contributions to support these public or private programs. IREIC or its applicable affiliates or subsidiaries may waive or defer fees or make capital contributions in the future. Further, IREIC and its affiliates or subsidiaries may from time to time be parties to litigation or other claims arising from sponsoring these entities or providing these services. As such, IREIC and these other entities may incur costs, liabilities or other expenses arising from litigation or claims that are either not reimbursable or not covered by insurance. Future waivers or deferrals of fees, additional capital contributions or costs, liabilities or other expenses arising from litigation or claims could have a material adverse effect on IREIC’s financial condition and ability to fund our Business Manager or Real Estate Manager to the extent necessary.

If our Business Manager or Real Estate Manager lose or are unable to obtain key personnel, our ability to implement our investment strategies could be hindered.

Our success depends to a significant degree upon the contributions of certain of our executive officers and other key personnel of our Business Manager and Real Estate Manager. Neither we nor our Business Manager or Real Estate Manager has employment agreements with these persons, and we cannot guarantee that all, or any particular one, will continue to be available to provide services to us. If any of the key personnel of our Business Manager or Real Estate Manager were to cease their employment or other relationship with our Business Manager or Real Estate Manager, respectively, our results and ability to pursue our business plan could suffer. Further, we do not intend to separately maintain “key person” life insurance that would provide us with proceeds in the event of death or disability of these persons. We believe our future success depends, in part, upon the ability of our Business Manager and Real Estate Manager to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure our stockholders that our Business Manager or Real Estate Manager will be successful in attracting and retaining skilled personnel. If our Business Manager or Real Estate Manager lose or are unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the value of our stockholders’ investment could decline.

If we become self-managed by internalizing our management functions, we may be unable to retain key personnel, and our ability to achieve our investment objectives could be delayed or hindered, which could adversely affect our ability to pay distributions to our stockholders and the value of their investments.

At some point in the future, we may consider becoming self-managed by internalizing the functions performed for us by our Business Manager. Even if we become self-managed, we may not be able to hire certain key employees of the Business Manager and its affiliates, even if we are allowed to offer them positions with our Company. Although we are generally restricted from soliciting these persons pursuant to certain provisions set forth in the business management agreement, during the one-year period after the Business Manager’s receipt of an internalization notice the Business Manager will permit us to solicit for hire the “key” employees of the Business Manager and its affiliates, including all of the persons serving as the executive officers of our Company or the Business Manager who do not also serve as directors or officers of any other IREIC-sponsored REITs. However, at any given moment, many or all of the executive officers of the Company and the Business Manager may also be serving as a director or officer of one or more other IREIC-sponsored REITs. Failure to hire or retain key personnel could result in increased costs and deficiencies in our disclosure controls and procedures or our internal control over financial reporting. These deficiencies could cause us to incur additional costs and divert management’s attention from most effectively managing our investments, which could result in us being sued and incurring litigation-associated costs in connection with the internalization transaction.

If we seek to internalize our management functions other than as provided for under our business management agreement, we could incur greater costs and lose key personnel.

Our board may decide that we should pursue an internalization by hiring our own group of executives and other employees or entering into an agreement with a third party, such as a merger, instead of by transitioning the services performed by, and hiring the persons providing services for, our Business Manager. The costs that we would incur in this case are uncertain and may be substantial and we would lose the benefit of the experience of our Business Manager.

Further, if we seek to internalize the functions performed for us by our Real Estate Manager, the purchase price will be separately negotiated by our independent directors, or a committee thereof, and will not be subject to the transition procedures described in our business management agreement.

Our stockholders’ return on investment in our common stock may be reduced if we are required to register as an investment company under the Investment Company Act.

The Company is not registered, and does not intend to register itself or any of its subsidiaries, as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). If we become obligated to register the Company or any of its subsidiaries as an investment company, the registered entity would have to comply with regulation under the Investment Company Act with respect to capital structure (including the registered entity’s ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act) and portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration, and other matters. Compliance with the Investment Company Act would limit our ability to make certain investments and require us to significantly restructure our operations and business plan. The costs we would incur and the limitations that would be imposed on us as a result of such compliance and restructuring would negatively affect the value of our common stock, our ability to make distributions and the sustainability of our business and investment strategies.

We intend to conduct our operations, directly and through wholly or majority-owned subsidiaries, so that neither we nor our subsidiaries are registered or will be required to register as an investment company under the Investment Company Act. Section 3(a)(1) of the Investment Company Act, in relevant part, defines an investment company as (i) any issuer that is, or holds itself out as being, engaged primarily in the business of investing, reinvesting or trading in securities, or (ii) any issuer that is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns, or proposes to acquire, “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of government securities and cash items) on an unconsolidated basis, which we refer to as the “40% test.” The term “investment securities” generally includes all securities except government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exemption from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. We believe we are not considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because we do not engage primarily or hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, we and our subsidiaries are primarily engaged in the business of investing in real property. We also conduct our operations and the operations of our subsidiaries in a manner designed so that we do not come within the definition of an investment company under Section 3(a)(1)(C) because less than 40% of the value of our adjusted total assets on an unconsolidated basis consist of “investment securities.” This requirement limits the types of businesses in which we may engage through our subsidiaries. Furthermore, the assets we and our subsidiaries may originate or acquire are limited by the provisions of the Investment Company Act and the rules and regulations promulgated under the Investment Company Act, which may adversely affect our business.

If we or any of our wholly or majority-owned subsidiaries would ever inadvertently fall within one of the definitions of “investment company,” we intend to rely on the exemption from registration as an investment company pursuant to Section 3(c)(5)(C) of the Investment Company Act , which is available for entities “primarily engaged” in the business of “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” As reflected in no-action letters, the SEC staff's position on Section 3(c)(5)(C) generally requires that at least 55% of an entity’s assets comprise qualifying real estate assets and that at least 80% of its assets must comprise qualifying real estate assets and real estate-related assets under the Investment Company Act. Specifically, we expect any of our subsidiaries relying on Section 3(c)(5)(C) to invest at least 55% of its assets in mortgage loans, certain mezzanine loans and other interests in real estate that constitute qualifying real estate assets in accordance with SEC staff guidance, and an additional 25% of its assets in other types of mortgages, securities of REITs and other real estate-related assets such as debt and equity securities of companies primarily engaged in real estate businesses and securities issued by pass-through entities of which substantially all of the assets consist of qualifying real estate assets and/or real estate-related assets. The remaining 20% of the entity’s assets can consist of miscellaneous assets. These criteria may limit what we buy, sell and hold.

We will classify our assets for purposes of Section 3(c)(5)(C) based in large measure upon no-action letters issued by the SEC staff and other interpretive guidance provided by the SEC and its staff or on our analysis of such guidance published with respect to other types of assets to determine which assets are qualifying real estate assets and real estate-related assets. However, the SEC’s guidance was issued in accordance with factual situations that may be substantially different from the factual situations we may encounter. No assurance can be given that the SEC will concur with how we classify our assets or the assets of our subsidiaries. The SEC may in the future take a view different than or contrary to our analysis with respect to the types of assets we have determined to be qualifying real estate assets or real estate-related assets. For example, on August 31, 2011 the SEC issued a concept release and request for comments regarding the Section 3(c)(5)(C) exemption (Release No. IC-29778) in which it contemplated the possibility of issuing new rules or providing new interpretations of the exemption that might, among other things, define the phrase “liens on and other interests in real estate” or consider sources of income in determining a company’s “primary business.” To the extent that the SEC or its staff provides more specific or different guidance, we may be required to adjust our strategy accordingly. Any additional guidance from the SEC or its staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the strategies we have chosen. If we are required to re-classify our assets, we may no longer be in compliance with the exclusion from the definition of an “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act. There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs, including the SEC or its staff providing more specific or different guidance regarding these exemptions, will not change in a manner that adversely affects our operations.

Certain of our subsidiaries may rely on the exemption provided by Section 3(c)(6) to the extent that they hold mortgage assets through majority-owned subsidiaries that rely on the exemption provided by Section 3(c)(5)(C). The SEC staff has issued little interpretive guidance with respect to Section 3(c)(6) and any guidance published by the staff could require us to adjust our strategy accordingly.

A change in the value of any of our assets could cause us to fall within the definition of “investment company” and negatively affect our ability to be free from registration and regulation under the Investment Company Act. To avoid being required to register the Company or any of its subsidiaries as an investment company under the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. Sales may be required during adverse market conditions, and we could be forced to accept a price below that which we would otherwise consider appropriate. In addition, we may have to acquire additional income- or loss-generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy. Furthermore, if the value of securities issued by our subsidiaries that are exempted from the definition of “investment company” by Sections 3(c)(1) or 3(c)(7) of the Investment Company Act, together with any other investment securities we own, exceeds 40% of our adjusted total assets on an unconsolidated basis, or if one or more of such subsidiaries fail to maintain an exemption from registration under the Investment Company Act, we could, among other things, be required to substantially change the manner in which we conduct our operations to avoid being required to register as an investment company, effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so or register as an investment company. Any of these activities could negatively affect the value of our common stock, our ability to make distributions and the sustainability of our business and investment strategies, which may have a material adverse effect on our business, results of operations and financial condition.

If we were required to register the Company or any of its subsidiaries as an investment company but failed to do so, we or the applicable subsidiary would be prohibited from engaging in our or its business, and criminal and civil actions could be brought against us or the applicable subsidiary. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

The occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Our three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure. We have implemented processes, procedures and controls to help mitigate these risks, but these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident.

A failure of our Business Manager’s information technology (IT) infrastructure could adversely impact our business and operations.

We rely upon the capacity, reliability and security of our Business Manager’s information technology infrastructure and its ability to expand and continually update this infrastructure in response to changing needs of our business. Our Business Manager faces the challenge of supporting older systems and hardware and implementing necessary upgrades to its IT infrastructure. Our Business Manager may not be able to successfully implement these upgrades in an effective manner, which could adversely affect our operations. In addition, our Business Manager may incur significant increases in costs and extensive delays in the implementation and rollout of any upgrades or new systems. If there are technological impediments, unforeseen complications, errors or breakdowns in implementation, the disruptions could have an adverse effect on our business and financial condition.

Investments in real estate assets are subject to varying degrees of risk. For example, an investment in real estate cannot generally be quickly sold, limiting our ability to promptly vary our portfolio in response to changing economic, financial and investment conditions. Investments in real estate assets also are subject to adverse changes in general economic conditions which, for example, reduce the demand for rental space.

Among the factors that could impact our real estate assets and the value of an investment in us are:

In addition, periods of economic slowdown or recession, or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or increased defaults under existing leases.

The outbreak of the novel coronavirus (COVID-19) is growing and its impacts are uncertain and hard to measure but may cause a material adverse effect on our business.

In December 2019, a novel strain of coronavirus emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to other countries and locations, including the United States. The continued spread of the coronavirus globally has had, and could have a significantly greater, material adverse effect on the global and U.S. economies as a whole, as well as the states and cities where we own properties in particular. The extent to which the coronavirus impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the actions taken to contain the coronavirus or mitigate its impact, and the direct and indirect economic effects of the illness and containment measures, among others.

The coronavirus outbreak is negatively impacting almost every industry directly or indirectly, particularly the travel, hotel and retail industries, and businesses that rely on or require close personal contact, such as live entertainment venues, gyms and exercise facilities, health and wellness service providers and beauty salons, restaurants and bars. Due to the scope of the outbreak and the related uncertainties, many other industries and businesses may be directly or indirectly impacted. Our retail tenants rely on customers and many of their businesses require close personal contact. A reduction in customer foot traffic could reduce demand for our tenants’ products and services, diminish the demand and rents for our properties and harm our tenants’ ability or willingness to pay us rent. Moreover, our tenants may be required by the local, state or federal authorities to cease operations thereby preventing them from generating revenue. Enforcing our rights as landlord against tenants who fail to pay rent or otherwise do not comply with the terms of their leases may be costly and may consume valuable time and resources, and even if we obtain a judgment, tenants that have been severely impacted may not be able to pay us what we are owed.

Additionally, many manufacturers of goods in China and other countries have seen a downturn in production due to the suspension of business and temporary closure of factories in an attempt to curb the spread of the illness. This may lead to a disruption in the supply chain and a decline in imported goods, which may negatively impact the business of our tenants.

The business and operating results of our tenants may also be negatively impacted if the outbreak of the coronavirus occurs within the workforce or otherwise disrupts their management and other personnel, their supply chains or their ability to operate their respective businesses. Many companies have implemented policies and procedures designed to protect against the introduction of the coronavirus to the workforce, including permitting or requiring personnel to work offsite, among others. These changes in the work processes of our tenants could lead to disruptions, such as a reduced ability to effectively transact with customers and colleagues and a loss of IT system functionality due to unusual or excess burdens on IT infrastructures.

We rely on the Business Manager to manage our day to day operations. The business and operations of our Business Manager and its affiliates may also be adversely impacted by the coronavirus outbreak, including illness or quarantine of members of its workforce, which may negatively impact on its ability to provide us services to the same degree as it had prior to the outbreak.

Any of these developments, and others, could have a material adverse effect on our business, financial condition and results of operations.

Our real estate assets and other investments may be subject to impairment charges.

Periodically, including in connection with taking actions under our Strategic Plan, we assess whether there are any indicators that the value of our real estate properties and other investments may be impaired. Under U.S. GAAP, a property’s value is impaired only if the estimate of the aggregate future cash flows to be generated by the property is less than the carrying value of the property. The valuation and possible subsequent impairment of real estate properties and other investments is a significant estimate that can change based on our continuous process of analyzing each property and reviewing assumptions about inherently uncertain factors, as well as the economic condition of the property at a particular point in time. We are required to make subjective assessments as to whether there are impairments in the value of our real estate properties and other investments.

Determining whether a property is impaired and, if impaired, the amount of write-down to fair value requires a significant amount of judgment by management and is based on the best information available to management at the time of evaluation. There can be no assurance that we will not take charges in the future related to the impairment of our assets. Because the Strategic Plan contemplates asset sales, we have recognized, and may continue to recognize, greater impairment charges than if we were to continue to hold and operate these properties. Any future impairment could have a material adverse effect on our results of operations in the period in which the charge is taken. For the year ended December 31, 2019, we recognized impairment charges totaling $4.4 million related to three investment properties held for sale as of December 31, 2019, each of which had a carrying value that exceeded their fair value less selling costs. For the year ended December 31, 2018, we recognized an impairment charge to fully impair our investment in Mainstreet Texas Development Fund, LLC a joint venture to develop three transitional care/rapid recovery centers (“Mainstreet JV”), equal to $9.9 million and an impairment charge of $5.5 million to fully impair our note receivable from Mainstreet JV. For the year ended December 31, 2017, we recognized an impairment charge related to an investment property of $8.5 million. For further information related to impairment provision, reference is made to Note 16 – “Fair Value Measurements” which is included in our December 31, 2019 Notes to Consolidated Financial Statements in Item 8.

An economic downturn could have an adverse impact on the retail industry generally. Slow or negative growth in the retail industry could result in defaults by retail tenants which could have an adverse impact on our financial operations.

An economic downturn could have an adverse impact on the real estate industry generally. As a result, the retail industry could face reductions in sales revenues and increased bankruptcies. The continuation of adverse economic conditions may result in an increase in distressed or bankrupt retail companies, which in turn would result in an increase in defaults by tenants at our commercial properties. Additionally, slow economic growth is likely to hinder new entrants into the retail market which may make it difficult for us to fully lease space at our retail properties or retail properties we plan to acquire. Tenant defaults and decreased demand for retail space would have an adverse impact on the value of our retail properties and any additional retail properties we acquire and our results of operations.

The use of the internet by consumers to shop is expected to continue to expand. This increase in internet sales could result in a downturn in the business of our current tenants in their “brick and mortar” locations and could affect the way future tenants lease space. While we devote considerable effort and resources to analyze and respond to tenant trends, preferences and consumer spending patterns, we cannot predict with certainty what future tenants will want, what future retail spaces will look like and how much revenue will be generated at traditional “brick and mortar” locations. If we are unable to anticipate and respond promptly to trends in the market, our occupancy levels and rental amounts may decline.

We face significant competition in the leasing market, which may decrease or prevent increases in the occupancy and rental rates of our properties.

As of December 31, 2019, we owned 47 properties located in 23 states. We compete with numerous developers, owners and operators of commercial properties, many of which own properties similar to, and in the same market areas as, our properties. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates below those we currently charge in order to attract new tenants or retain existing tenants when their leases expire. To the extent we are unable to renew leases or re-let space as leases expire, it would result in decreased cash flow from tenants and reduce the income produced by our properties. Excessive vacancies (and related reduced shopper traffic) at one of our properties may hurt sales of other tenants at that property and may discourage them from renewing leases. Also, if our competitors develop additional properties in locations near our properties, there may be increased competition for creditworthy tenants, which may require us to make capital improvements to properties that we would not have otherwise made.

We depend on tenants for our revenue, and accordingly lease terminations, tenant default, and bankruptcies could adversely affect the income produced by our properties.

The success of our investments depends on the financial stability of our tenants. Certain economic conditions may adversely affect one or more of our tenants. For example, business failures and downsizings may contribute to reduced consumer demand for retail products and services which would impact tenants of our retail properties. In addition, our retail shopping center properties typically are anchored by large, nationally recognized tenants, any of which may experience a downturn in their business that may weaken significantly their financial condition. Further, mergers or consolidations among large retail establishments could result in the closure of existing stores or duplicate or geographically overlapping store locations, which could include tenants at our retail properties.

As a result of these factors, our tenants may delay lease commencements, decline to extend or renew their leases upon expiration, fail to make rental payments, or declare bankruptcy. Any of these actions could result in the termination of the tenants' leases, the

expiration of existing leases without renewal, or the loss of rental income attributable to the terminated or expired leases. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment and re-leasing our property.

Our revenue is impacted by the success and economic viability of our anchor retail tenants. Our reliance on single or significant tenants in certain buildings may decrease our ability to lease vacated space and adversely affect the returns on our stockholders’ investment.

In the retail sector, a tenant occupying all or a large portion of the gross leasable area of a retail center, commonly referred to as an anchor tenant, may become insolvent, may suffer a downturn in business, or may decide not to renew its lease. Any of these events would result in a reduction or cessation in rental payments to us and would adversely affect our financial condition. A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases may permit cancellation or rent reduction if another tenant’s lease is terminated. Similarly, the leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer. The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. A lease transfer to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases in accordance with lease terms. In the event that we are unable to re-lease the vacated space to a new anchor tenant, we may incur additional expenses in order to remodel the space to be able to re-lease the space to more than one tenant.

Bankruptcy filings by our tenants or any guarantor of a tenant’s lease obligation can occur in the course of operations, and in recent years, a number of companies in the retail industry, including certain of our tenants, have declared bankruptcy. A bankruptcy filing of our tenants or any guarantor of a tenant’s lease obligations would bar all efforts to collect pre-bankruptcy debts from these entities or their properties, unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid currently. If a lease is assumed, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would only have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only if the funds were available, and then only in the same percentages as that realized on other unsecured claims.

A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. A tenant or lease guarantor bankruptcy could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the amount available for distributions to our stockholders. In the event of a bankruptcy there can be no assurance that the tenant or its trustee will assume our lease. If a given lease or guaranty of a lease is not assumed, our cash flow and the amounts available for distributions to our stockholders may be adversely affected.

Inflation may adversely affect our financial condition and results of operations.

Increases in the rate of inflation may adversely affect our net operating income from leases with stated rent increases or limits on the tenant’s obligation to pay its share of operating expenses, which could be lower than the increase in inflation at any given time. Inflation could also have an adverse effect on consumer spending, which may impact our tenants’ sales and, with respect to those leases including percentage rent clauses, our average rents.

Leases with retail tenants may contain provisions giving the particular tenant the exclusive right to sell particular types of merchandise or provide specific types of services within the particular retail center. These provisions may limit the number and types of prospective tenants interested in leasing space in a particular retail property.

We have entered into long-term leases with some of our retail tenants, and those leases may not result in fair value over time, which could adversely affect our revenues and ability to make distributions.

We have entered into long-term leases with some of our retail tenants. Long-term leases do not allow for significant changes in rental payments and do not expire in the near term. If we do not accurately judge the potential for increases in market rental rates when negotiating these long-term leases, significant increases in future property operating costs could result in receiving less than fair value from these leases. These circumstances would adversely affect our revenues and funds available for distribution.

A retail property’s revenues and value may be adversely affected by a number of factors, many of which apply to real estate investment generally, but which also include trends in the retail industry and perceptions by retailers or shoppers of the safety, convenience and attractiveness of the retail property. Our properties are located in public places, and any incidents of crime or violence, including acts of terrorism, would result in a reduction of business traffic to tenant stores in our properties. Any such incidents may also expose us to civil liability. In addition, to the extent that the investing public has a negative perception of the retail sector, the value of our retail properties may be negatively impacted.

A number of our retail leases are based on tenant gross sales. Under those leases, our revenue from tenants increases as the sales of our tenants increase. Generally, retailers face declining revenues during downturns in the economy. As a result, the portion of our revenue which may derive from percentage rent leases could be adversely affected by a general economic downturn.

Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.

From time to time, we have acquired multiple properties in a single transaction. Portfolio acquisitions typically are more complex and expensive than single property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions may also result in us owning investments in geographically dispersed markets, placing additional demands on our Business Manager and Real Estate Manager in managing the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate or attempt to dispose of these properties. We also may be required to accumulate a large amount of cash to fund such acquisitions. We would expect the returns that we earn on such cash to be less than the returns on real property. Therefore, acquiring multiple properties in a single transaction may reduce the overall yield on our portfolio.

Some of our properties have short-term leases with tenants. There is no assurance that we will be able to renew these leases as they expire or attract replacement tenants on comparable terms, if at all. Therefore, the returns we earn on this type of investment may be more volatile than the returns generated by properties with longer term leases.

We do not own the land when we are the lessee under a ground lease, so properties that we operate pursuant to a ground lease are subject to unique risks.

We have and may continue to acquire long-term leaseholds commonly known as ground leases to operate properties that are on land owned by third parties. Although we have a right to use the property on land leased to us pursuant to a ground lease, we do not own the underlying land. Accordingly, we will have no economic interest in the land at the expiration of the ground lease and will not share in any increase in value of the land or the improvements once our ground lease ends. If we are found to be in breach of a ground lease, and that breach cannot be cured, we could lose our interest in the improvements and the right to operate the property. Further, because we do not own the underlying land, the lessor could take certain actions to disrupt our use of the property or our tenant’s operation of the property.

Maintaining our REIT qualification and continuing to avoid registration under the Investment Company Act as well as many other factors, such as general economic conditions, the availability of financing, interest rates and the supply and demand for the particular asset type, may limit our ability to sell real estate assets. Many of these factors are beyond our control. We cannot predict whether we will be able to sell any real estate asset on favorable terms and conditions, if at all, or the length of time needed to sell an asset.

Sale leaseback transactions may be re-characterized in a manner unfavorable to us.

We may from time to time enter into a sale leaseback transaction where we purchase a property and then lease the property to the seller. The transaction may, however, be characterized as a financing instead of a sale in the case of the seller’s bankruptcy. In this case, we would not be treated as the owner of the property but rather as a creditor with no interest in the property itself. The seller may have the ability in a bankruptcy proceeding to restructure the financing by imposing new terms and conditions. The transaction also may be re-characterized as a joint venture. In this case, we would be treated as a joint venture with liability, under some circumstances, for debts incurred by the seller relating to the property.

Operating expenses may increase in the future and to the extent these increases cannot be passed on to our tenants, our cash flow and our operating results would decrease.

Operating expenses, such as expenses for fuel, utilities, labor, building materials and insurance, are not fixed and may fluctuate from time to time. Unless specifically provided for in a lease, there is no guarantee that we will be able to pass increases on to our tenants. To the extent these increases cannot be passed on to our tenants, any increases would cause our cash flow and our operating results to decrease, which could have a material adverse effect on our ability to pay or sustain distributions.

We depend on the availability of public utilities and services, especially for water and electric power. Any reduction, interruption or cancellation of these services may adversely affect us.

Public utilities, especially those that provide water and electric power, are fundamental for the operation of our assets. The delayed delivery or any material reduction or prolonged interruption of these services could allow certain tenants to terminate their leases or result in an increase in our costs, as we may be forced to use backup generators, which also could be insufficient to fully operate our facilities and could result in our inability to provide services. Accordingly, any interruption or limitation in the provision of these essential services may adversely affect us.

Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisition of the property. Generally, from time to time our property taxes will increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. In fact, property taxes may increase even if the value of the underlying property declines. An increase in the assessed valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. Although some tenant leases may permit us to pass through the tax increases to the tenants for payment, there is no assurance that renewal leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will adversely affect our cash flow from operations and our ability to pay distributions.

Potential development and construction delays and resulting increased costs and risks may reduce cash flow from operations.

We have acquired, and may continue to acquire, unimproved real property or properties that are under development or construction. Investments in these properties are subject to the uncertainties generally associated with real estate development and construction, including those related to re-zoning land for development, environmental concerns of governmental entities or community groups and the developers’ ability to complete the property in conformity with plans, specifications, budgeted costs and timetables. If a developer fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A developer’s performance may also be affected or delayed by conditions beyond the developer’s control. Delays in completing construction could also give tenants the right to terminate leases. We may incur additional risks when we make periodic progress payments or other advances to developers before they complete construction. These and other factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to lease-up risks associated with newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer.

If we contract with a development company for newly developed property, our earnest money deposit made to the development company may not be fully refunded.

We may enter into one or more contracts, either directly or indirectly through joint ventures with third parties, to acquire real property from a development company that is engaged in construction and development of commercial real estate. We may be required to pay a substantial earnest money deposit at the time of contracting with a development entity. At the time of contracting and the payment of the earnest money deposit by us, the development company typically will have only a contract to acquire land, a development agreement to develop a building on the land and an agreement with one or more tenants to lease all or part of the property upon its completion. If the development company fails to develop the property or all or a specified portion of the pre-leased tenants fail to take possession under their leases for any reason, we may not be able to obtain a refund of our earnest money deposit.

We may obtain only limited warranties when we purchase a property and therefore have only limited recourse in the event our due diligence did not identify any issues that lower the value of our property.

We have acquired, and may continue to acquire, properties in “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property, as well as the loss of rental income from that property.

Uninsured losses or premiums for insurance coverage may adversely affect our returns.

The nature of the activities at certain properties may expose us and our tenants or operators to potential liability for personal injuries and, in certain instances, property damage claims. In addition, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential terrorist acts or increasingly severe weather could sharply increase the premiums we pay for coverage against property and casualty claims. These policies may or may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot provide any assurance that we will have adequate coverage for these losses. In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of the particular asset will likely be reduced by the uninsured loss. In addition, we cannot provide any assurance that we will be able to fund any uninsured losses.

The costs of complying with environmental laws and other governmental laws and regulations may adversely affect us.

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. We also are required to comply with various local, state and federal fire, health, life-safety and similar regulations. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs of investigating or remediating contaminated properties. These laws and regulations often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances. The cost of removing or remediating could be substantial. In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent a property or to use the property as collateral for borrowing.

Environmental laws and regulations also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures by us. Environmental laws and regulations provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances. Compliance with new or more stringent laws or regulations or stricter interpretations of existing laws may require material expenditures by us. For example, various federal, regional and state laws and regulations have been implemented or are under consideration to mitigate the effects of climate change caused by greenhouse gas emissions. Among other things, “green” building codes may seek to reduce emissions through the imposition of standards for design, construction materials, water and energy usage and efficiency, and waste management. These requirements could increase the costs of maintaining or improving our existing properties or developing new properties.

We may acquire properties in regions that are particularly susceptible to natural disasters, which may make us susceptible to the effects of these natural disasters in those areas from adverse climate developments or other causes.

Our properties are located in certain geographical areas that may be impacted by adverse events such as hurricanes, floods, wildfires, earthquakes, blizzards or other natural disasters, which could cause a loss of revenues at our real estate properties. In addition, according to some experts, global climate change could result in heightened severe weather, thus further impacting these geographical areas. Natural disasters in these areas may cause damage to our properties beyond the scope of our insurance coverage, thus requiring us to make substantial expenditures to repair these properties and resulting in a loss of revenues from these properties. Any properties located near either coast will be exposed to more severe weather than properties located inland. These losses may not be insured or insurable at an acceptable cost. Elements such as water, wind, hail, fire damage and humidity in these areas can increase or accelerate wear on the properties’ weatherproofing and mechanical, electrical and other systems, and cause mold issues over time. As a result, we may incur additional operating costs and expenditures for capital improvements at properties in these areas.

Our properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.

The presence of mold at any of our properties could require us to undertake a costly program to remediate, contain or remove the mold. Mold growth may occur when moisture accumulates in buildings or on building materials. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing because exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. The presence of mold could expose us to liability from our tenants, their employees and others if property damage or health concerns arise.

We may incur significant costs to comply with the Americans With Disabilities Act or similar laws.

Our properties generally are subject to the Americans With Disabilities Act of 1990, as amended, which we refer to as the Disabilities Act. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities.

The requirements of the Disabilities Act could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We attempt to acquire properties that comply with the Disabilities Act or place the burden on the seller or other third party, such as a tenant, to ensure compliance with these laws. However, we cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. We may incur significant costs to comply with these laws.

Terrorist attacks and other acts of violence or war may affect the markets in which we operate our operations and our profitability.

We may acquire properties located in areas that are susceptible to attack. These attacks may directly impact the value of our assets through damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Further, certain losses resulting from these types of events are uninsurable or not insurable at reasonable costs.

More generally, any terrorist attack, other act of violence or war, including armed conflicts, could result in increased volatility in, or damage to, the United States and worldwide financial markets and economy.

Through owning real estate-related equity securities, we will be subject to the risks impacting each entity’s assets.

We may invest in real estate-related securities. Equity securities are always unsecured and subordinated to other obligations of the issuer. Investments in real estate-related equity securities are subject to the risks associated with investing directly in real estate assets and numerous additional risks including: (1) limited liquidity in the secondary trading market in the case of unlisted or thinly traded securities; (2) substantial market price volatility resulting from, among other things, changes in prevailing interest rates in the overall market or related to a specific issuer, as well as changing investor perceptions of the market as a whole, REIT or real estate securities in particular or the specific issuer in question; (3) subordination to the liabilities of the issuer; (4) the possibility that earnings of the issuer may be insufficient to meet its debt service obligations or to pay distributions; and (5) with respect to investments in real estate-related preferred equity securities, the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to redeem the securities. In addition, investments in real estate-related securities involve special risks relating to the particular issuer of the securities, including the financial condition and business outlook of the issuer. Investing in real estate-related securities will expose our results of operations and financial condition to the factors impacting the trading prices of publicly-traded entities.

Investments in CMBS are subject to all of the risks of the underlying mortgage loans and the risks of the securitization process.

CMBS are securities that evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, these securities are subject to all of the risks of the underlying mortgage loans. In a changing interest rate environment, the value of CMBS may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of CMBS may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities market as a whole. In addition, CMBS are subject to the credit risk associated with the performance of the underlying mortgage properties. In certain instances, third-party guarantees or other forms of credit support designed to reduce credit risk may not be effective due, for example, to defaults by third party guarantors.

CMBS are also subject to several risks created through the securitization process. Generally, CMBS are issued in classes or tranches. To the extent that we invest in a subordinate class or tranche, we will be paid interest only to the extent that there are funds available after paying the senior class. To the extent the collateral pool includes delinquent loans, subordinate classes will likely not be fully paid. Subordinate CMBS are also subject to greater credit risk than those CMBS that are more highly rated. Further, the ratings assigned to any particular class of CMBS may prove to be inaccurate. Thus, any particular class of CMBS may be riskier and more volatile than the rating may suggest, all of which may cause the returns on any CMBS investment to be less than anticipated.

Volatility in the financial markets and challenging economic conditions could adversely affect our ability to secure debt financing on attractive terms and our ability to service any future indebtedness that we may incur.

The domestic and international commercial real estate debt markets are subject to volatility, resulting in, from time to time, the tightening of underwriting standards by lenders and credit rating agencies, which could limit the availability of credit and increase costs for what is available. The recent coronavirus outbreak has also adversely affected credit and capital market conditions resulting in extreme volatility and a tightening of credit standards. This may impact our ability to access capital on favorable terms, in a timely manner, or at all, which could make obtaining funding for our capital needs, such as future acquisition and distributions to our stockholders, more challenging or expensive. On March 16, 2020, the U.S. Federal Reserve’s Federal Open Market Committee lowered the target range for the federal funds rate to 0% to 0.25%, but there is no guarantee that this will lower our cost of capital. If the overall cost of borrowing increases, either by increases in the index rates or by increases in lender spreads, the increased costs may result in existing or future acquisitions generating lower overall economic returns and potentially reducing future cash flow available for distribution. If these disruptions in the debt markets persist, our ability to borrow monies to finance the purchase of, or other activities related to, real estate assets will be negatively impacted. In addition, we may find it difficult, costly or impossible to refinance indebtedness which is maturing. If we are unable to borrow monies on terms and conditions that we find acceptable, the return on our properties may be lower.

Further, economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio and in the collateral securing any loan investments we may make.

Borrowings may reduce the funds available for distribution and increase the risk of loss since defaults may cause us to lose the properties securing the loans.

We have acquired properties by either borrowing monies or, in some instances, by assuming existing financing. We typically borrow money to finance a portion of the purchase price of assets we acquire. In some instances, we have acquired properties by borrowing monies in an amount equal to the purchase price of the acquired properties. We may also borrow money for other purposes to, among other things, satisfy the requirement that we distribute at least 90% of our “REIT annual taxable income,” subject to certain adjustments and excluding any net capital gain, or as is otherwise necessary or advisable to assure that we continue to qualify as a REIT for federal income tax purposes. Over the long term, however, payments required on any amounts we borrow reduce the funds available for, among other things, acquisitions, capital expenditures for existing properties or distributions to our stockholders because cash otherwise available for these purposes is used to pay principal and interest on this debt.

If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt secured by a property, then the amount of cash flow from operations available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In such a case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders’ investment. For federal income tax purposes, a foreclosure is treated as a sale of the property or properties for a purchase price equal to the outstanding balance of the debt secured by the property or properties. If the outstanding balance of the debt exceeds our tax basis in the property or properties, we would recognize taxable gain on the foreclosure action and we would not receive any cash proceeds. In this event, we may be unable to pay the amount of distributions required in order to maintain our REIT status. We also may fully or partially guarantee any monies that subsidiaries borrow to purchase or operate properties. In these cases,

we will likely be responsible to the lender for repaying the loans if the subsidiary is unable to do so. If any mortgage contains cross-collateralization or cross-default provisions, more than one property may be affected by a default.

If we are unable to borrow at favorable rates, we may not be able to acquire new properties.

If we are unable to borrow money at favorable rates, we may be unable to acquire additional real estate assets or refinance existing loans at maturity. Further, we have obtained and may continue to enter into loan agreements or other credit arrangements that require us to pay interest on amounts we borrow at variable or “adjustable” rates. Increases in interest rates will increase our interest costs. If interest rates are higher when we refinance our loans, our expenses will increase and we may not be able to pass on this added cost in the form of increased rents, thereby reducing our cash flow and the amount available for distribution to our stockholders. Further, during periods of rising interest rates, we may be forced to sell one or more of our properties in order to repay existing loans, which may not permit us to maximize the return on the particular properties being sold. At December 31, 2019, we had $117.7 million or 17.2% of our total debt that bore interest at variable rates and not fixed by swap agreements with a weighted average interest rate equal to 3.45%. We had variable rate debt subject to swap agreements fixing the rate of $402.2 million or 58.8% of our total debt at December 31, 2019.

Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders.

We have obtained, and may continue to enter into, mortgage indebtedness that does not require us to pay principal for all or a portion of the life of the debt instrument. During the period when no principal payments are required, the amount of each scheduled payment is less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan is not reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal required during this period. After the interest-only period, we may be required either to make scheduled payments of principal and interest or to make a lump-sum or “balloon” payment at or prior to maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan if we do not have funds available or are unable to refinance the obligation.

The financial covenants under our credit agreement may restrict our ability to make distributions and our operating and acquisition activities. If we breach the financial covenants we could be held in default under the credit agreement, which could accelerate our repayment date and materially adversely affect our liquidity and financial condition.

We entered into a credit agreement, as amended, for a $350.0 million credit facility (the “Credit Facility”) consisting of a revolving credit facility providing initial revolving credit commitments in an aggregate amount of $200.0 million (the “Revolving Credit Facility”) and a term loan facility providing initial term loan commitments in an aggregate amount of $150.0 million (the “Term Loan”). The credit agreement provides us with the ability from time to time to increase the size of the Credit Facility, subject to certain conditions. Our performance of the obligations under the credit agreement, including the payment of any outstanding indebtedness, is secured by a minimum pool of ten unencumbered properties with an unencumbered pool value of $200.0 million or above and by a guaranty by certain of our subsidiaries. At December 31, 2019, we had $267.0 million outstanding of the $350 million available under the Credit Facility. Our availability under the Credit Facility was $83.0 million as of December 31, 2019.

The credit agreement requires compliance with certain financial covenants, including, among other conditions, a minimum tangible net worth requirement, restrictions on indebtedness, a distribution limitation and other material covenants. These covenants could inhibit our ability to make distributions to our stockholders and to pursue certain business initiatives or effect certain transactions that might otherwise be beneficial to us. For example, without lender consent, we may not declare and pay distributions or honor any redemption requests if any default under the agreement then exists or if distributions, excluding any distributions reinvested through our DRP, for the then-current quarter and the three immediately preceding quarters would exceed 95% of our Funds from Operations, or “FFO,” excluding acquisition expenses, or “adjusted FFO,” for that period. For the year ended December 31, 2019, distributions did not exceed 95% of our adjusted FFO.

The credit agreement also provides for several customary events of default, including, among other things, the failure to comply with our covenants and the failure to pay when amounts outstanding under the credit agreement become due. Declaration of a default by the lenders under the credit agreement could restrict our ability to borrow additional monies and could cause all amounts to become immediately due and payable, which would materially adversely affect our liquidity and financial condition.

Investing in subordinated debt involves greater risks of loss than senior loans secured by the same properties.

We have invested in, and may continue to invest in, mezzanine debt and other subordinated debt. These types of investments carry a higher degree of risk of loss than senior secured debt investments because in the event of default and foreclosure, holders of senior liens will be paid in full before subordinated investors and, depending on the value of the underlying collateral, there may not be sufficient assets to pay all or any part of amounts owed to subordinated investors. Moreover, mezzanine debt and other subordinated debt investments may have higher loan-to-value ratios than conventional senior lien financing, resulting in less equity in the collateral and increasing the risk of loss of principal. If a borrower defaults or declares bankruptcy, we may be subject to agreements restricting or eliminating our rights as a creditor, including rights to call a default, foreclose on collateral, accelerate maturity or control decisions made in bankruptcy proceedings. In addition, senior lenders may limit the amount or timing of interest and principal payments while the senior secured debt is outstanding.

We may acquire or finance properties with lock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.

The terms and conditions contained in certain of our loan documents preclude us from pre-paying the principal amount of the loan or could restrict us from selling or otherwise disposing of or refinancing properties. For example, lock-out provisions prohibit us from reducing the outstanding indebtedness secured by certain of our properties, refinancing this indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness secured by our properties. Lock-out provisions could impair our ability to take other actions during the lock-out period. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.

Increasing interest rates could increase the amount of our debt payments and adversely affect our ability to pay distributions. We may also be adversely affected by uncertainty surrounding LIBOR.

At December 31, 2019, we had $117.7 million of debt or 17.2% of our total debt bearing interest at variable rates indexed to the London Interbank Offered Rate (“LIBOR”) and not fixed by a swap with a weighted average interest rate equal to 3.45% per annum. We had variable rate debt indexed to LIBOR and subject to swap agreements fixing the rate of $402.2 million or 58.8% of our total debt at December 31, 2019. If interest rates on all debt which bears interest at variable rates as of December 31, 2019 increased by 1% (100 basis points), the increase in interest expense on all debt would decrease earnings and cash flows by $1.2 million annually. If interest rates on all debt which bears interest at variable rates as of December 31, 2019 decreased by 1% (100 basis points), the decrease in interest expense would increase earnings and cash flows by the same amount.

In July 2017, the Financial Conduct Authority, the authority which regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR may be limited or discontinued or when there will be sufficient liquidity in the SOFR market. We are monitoring and evaluating the risks related to potential changes in LIBOR availability, which include potential changes in interest paid on debt and amounts received and paid on interest rate swaps. In addition, the value of debt or derivative instruments tied to LIBOR could also be impacted when LIBOR is limited or discontinued, and contracts must be transitioned to a new alternative rate. In some instances, transitioning to an alternative rate may require negotiation with lenders and other counterparties and could present challenges. The consequences of these developments cannot be entirely predicted and could include an increase in the cost of our variable rate debt.

While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that time. This could occur, for example, if a sufficient number of banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate would be accelerated or magnified. Any of these events, as well as the other uncertainty surrounding the transition to LIBOR, could adversely affect us.

To hedge against interest rate fluctuations, we may use derivative financial instruments that may be costly and ineffective.

From time to time, we have used, and may continue to use, derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions will be determined in light of the facts and circumstances existing at the time of the hedge and may differ from our current hedging strategy. There is no assurance that our hedging strategy will achieve our objectives. We may be subject to costs, such as transaction fees or breakage costs, if we terminate these arrangements.

We use derivative financial instruments to hedge against interest rate fluctuations and are exposed to credit risk, basis risk and legal enforceability risks. In this context, 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 owes us, which creates credit risk for us. Basis risk occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective. Finally, legal enforceability risks encompass general contractual risks including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract, increasing the risk that we may not realize the benefits of these instruments. There is a risk that counterparties could fail, shut down, file for bankruptcy or be unable to pay out contracts. The failure of a counterparty that holds collateral that we post in connection with an interest rate swap agreement could result in the loss of that collateral.

We may be contractually obligated to purchase property even if we are unable to secure financing for the acquisition.

We expect to finance a portion of the purchase price for each property that we acquire. However, to ensure that our offers are as competitive as possible, we do not expect to enter into contracts to purchase property that include financing contingencies. Thus, we may be contractually obligated to purchase a property even if we are unable to secure financing for the acquisition. In this event, we may choose to close on the property by using cash on hand, which would result in less cash available for our operations and distributions to stockholders. Alternatively, we may choose not to close on the acquisition of the property and default on the purchase contract. If we default on any purchase contract, we could lose our earnest money and become subject to liquidated or other contractual damages and remedies.

We may borrow up to 300% of our net assets, equivalent to 75% of the cost of our assets. We may exceed this limit only if our board of directors (including a majority of our independent directors) determines that a higher level is appropriate. This limit could adversely affect our business, including:

IREIC may face a conflict of interest in allocating personnel and resources between its affiliates, our Business Manager and our Real Estate Manager.

We do not have any employees. We rely on persons performing services for our Business Manager and Real Estate Manager and their affiliates to manage our day-to-day operations. Some of these persons also provide services to one or more investment programs currently or previously sponsored by IREIC. These individuals face competing demands for their time and service, and are required to allocate their time between our business and assets and the business and assets of IREIC, its affiliates and the other programs formed and organized by IREIC. Certain of these individuals have fiduciary duties to both us and our stockholders. If these persons are unable to devote sufficient time or resources to our business due to the competing demands of the other programs, they may violate their fiduciary duties to us and our stockholders, which could harm our business and cause us to be unable to maintain or increase the value of our assets, and our operating cash flows and ability to pay distributions could be adversely affected.

In addition, if another investment program sponsored by IREIC decides to internalize its management functions in the future, it may do so by hiring and retaining certain of the persons currently performing services for our Business Manager and Real Estate Manager, and if it did so, it would not allow these persons to perform services for us.

We do not have arm’s-length agreements with our Business Manager, our Real Estate Manager or any other affiliates of IREIC.

The agreements and arrangements with our Business Manager, our Real Estate Manager and any other affiliates of IREIC were not negotiated at arm’s-length. These agreements may contain terms and conditions that are not in our best interest or would not be present if we entered into arm’s-length agreements with third parties.

Our Business Manager, our Real Estate Manager and other affiliates of IREIC face conflicts of interest caused by their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our stockholders.

We pay fees, which may be significant, to our Business Manager, Real Estate Manager and other affiliates of IREIC for services provided to us. Our Business Manager receives fees based on the aggregate book value, including acquired intangibles, of our invested assets. Further, our Real Estate Manager receives fees based on the gross income from properties under management and may also receive leasing and construction management fees. Other parties related to, or affiliated with, our Business Manager or Real Estate Manager may also receive fees or cost reimbursements from us. These compensation arrangements may cause these entities to take or not take certain actions. For example, these arrangements may provide an incentive for our Business Manager to: (1) borrow more money than prudent to increase the amount we can invest; or (2) retain instead of sell assets, even if our stockholders may be better served by a sale or other disposition of the assets. The interests of these parties in receiving fees may conflict with the interest of our stockholders in earning income on their investment in our common stock.

We rely on the real estate professionals employed by IREA and other affiliates of our Sponsor to source potential investments in properties, real estate-related assets and other investments in which we may be interested. Our Sponsor and its affiliates maintain an investment committee (“Investment Committee”) that reviews each potential investment and determines whether an investment is acceptable for acquisition. In determining whether an investment is suitable, the Investment Committee considers investment objectives, portfolio and criteria of all programs currently advised by our Sponsor or its affiliates (collectively referred to as the “Programs”). Other factors considered by the Investment Committee may include cash flow, the effect of the acquisition on portfolio diversification, the estimated income or unrelated business tax effects of the purchase, policies relating to leverage, regulatory restrictions and the capital available for investment. Our Business Manager will not recommend any investments for us unless the investment is approved for consideration in advance by the Investment Committee. Once an investment has been approved for consideration by the Investment Committee, the Programs are advised and provided an opportunity to elect to acquire the investment. If more than one Program is interested in acquiring an investment, then the Program that has had the longest period of time elapse since it was allocated and invested in a contested investment is awarded the investment by the allocation committee. We may not, therefore, be able to acquire properties that we otherwise would be interested in acquiring.

Our properties may compete with the properties owned by other programs sponsored by IREIC or IPCC.

Certain programs sponsored by IREIC or Inland Private Capital Corporation (“IPCC”) own and manage the type of properties that we own or seek to acquire, including in the same geographical areas. Therefore, our properties, especially those located in the same geographical area, may compete for tenants or purchasers with other properties owned and managed by other IREIC- or IPCC-sponsored programs. Persons performing services for our Real Estate Manager may face conflicts of interest when evaluating tenant leasing opportunities for our properties and other properties owned and managed by IREIC- or IPCC-sponsored programs, and these conflicts of interest may have an adverse impact on our ability to attract and retain tenants. In addition, a conflict could arise in connection with the resale of properties in the event that we and another IREIC- or IPCC-sponsored program were to attempt to sell similar properties at the same time, including in particular in the event another IREIC- or IPCC-sponsored program engages in a liquidity event at approximately the same time as us, thus impacting our ability to sell the property or complete a proposed liquidity event.

Our rights, and the rights of our stockholders, to recover claims against our officers, directors, Business Manager and Real Estate Manager are limited.

Under our charter, no director or officer will be liable to us or to any stockholder for money damages to the extent that Maryland law permits the limitation of the liability of directors and officers of a corporation. We may generally indemnify our directors, officers, employees, if any, Business Manager, Real Estate Manager and their respective affiliates for any losses or liabilities suffered by any of them as long as: (1) the directors have determined in good faith that the course of conduct that caused the loss or liability was in our best interest; (2) these persons or entities were acting on our behalf or performing services for us; (3) the loss or liability was not the result of the negligence or misconduct of the directors (gross negligence or willful misconduct with respect to the independent directors), officers, employees, Business Manager, Real Estate Manager or their respective affiliates; and (4) the indemnity or agreement to hold harmless is recoverable only out of our net assets and not from our stockholders. As a result, we and our stockholders may have more limited rights against our directors, officers and employees, our Business Manager, the Real Estate Manager and their respective affiliates, than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by our directors, officers and employees or our Business Manager and the Real Estate Manager and their respective affiliates in some cases.

Our board of directors may, in the future, adopt certain measures under Maryland law without stockholder approval that may have the effect of making it less likely that a stockholder would receive a “control premium” for his or her shares.

Corporations organized under Maryland law with a class of registered securities and at least three independent directors are permitted to protect themselves from unsolicited proposals or offers to acquire the company by electing to be subject, by a charter or bylaw provision or a board of directors resolution and notwithstanding any contrary charter or bylaw provision, to any or all of five provisions:

These provisions may discourage an extraordinary transaction, such as a merger, tender offer or sale of all or substantially all of our assets, all of which might provide a premium price for stockholders’ shares. Our charter does not prohibit our board from opting into any of the above provisions.

Further, under the Maryland Business Combination Act, we may not engage in any merger or other business combination with an “interested stockholder” or any affiliate of that interested stockholder for a period of five years after the most recent date on which the interested stockholder became an interested stockholder. After the five-year period ends, any merger or other business combination with the interested stockholder must be recommended by our board of directors and approved by the affirmative vote of at least:

Our directors have adopted a resolution exempting any business combination involving us and The Inland Group or any affiliate of The Inland Group, including our Business Manager and Real Estate Manager, from the provisions of this law.

Our charter places limits on the amount of common stock that any person may own without the prior approval of our board of directors.

No more than 50% of the outstanding shares of our common stock may be beneficially owned, directly or indirectly, by five or fewer individuals at any time during the last half of each taxable year (other than the first taxable year for which an election to be a REIT has been made). Our charter prohibits any persons or groups from owning more than 9.8% in value of our outstanding stock or more than 9.8% in value or in number of shares, whichever is more restrictive, of our outstanding common stock without the prior approval of our board of directors. These provisions may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction such as a merger, tender offer or sale of all or substantially all of our assets that might involve a premium price for holders of our common stock. Further, any person or group attempting to purchase shares exceeding these limits could be compelled to sell the additional shares and, as a result, to forfeit the benefits of owning the additional shares.

Maryland law limits, in some cases, the ability of a third party to vote shares acquired in a “control share acquisition.”

The Maryland Control Share Acquisition Act provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by stockholders by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by the acquirer, by officers of the acquirer or by employees who are directors of the acquirer, are excluded from shares entitled to vote on the matter. “Control shares” are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer can exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A “control share acquisition” means the acquisition of issued and outstanding control shares. The control share acquisition statute does not apply: (1) to shares acquired in a merger, consolidation or share exchange if the Maryland corporation is a party to the transaction; or (2) to acquisitions approved or exempted by the charter or bylaws of the Maryland corporation. Our bylaws contain a provision exempting from the Control Share Acquisition Act any and all acquisitions of our stock by any person. There can be no assurance that this provision will not be amended or eliminated at any time in the future.

If we fail to remain qualified as a REIT, our operations and distributions to stockholders will be adversely affected.

We elected to be taxed as a REIT, commencing with our taxable year ended December 31, 2013 and intend to operate in a manner that would allow us to continue to qualify as a REIT for U.S. federal income tax purposes. However, we may terminate our REIT qualification, if our board of directors determines that not qualifying as a REIT is in the best interests of our stockholders, or inadvertently. Our qualification as a REIT depends upon our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. We have structured and intend to continue structuring our activities in a manner designed to satisfy all the requirements for qualification as a REIT. However, the REIT qualification requirements are extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is limited. Furthermore, any opinion of our counsel, including tax counsel, as to our eligibility to remain qualified as a REIT is not binding on the Internal Revenue Service (the “IRS”) and is not a guarantee that we will continue to qualify as a REIT. Accordingly, we cannot be certain that we will be successful in operating so we can remain qualified as a REIT. Our ability to satisfy the asset tests depends on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income or quarterly asset requirements also depends on our ability to successfully manage the composition of our income and assets on an ongoing basis. Accordingly, if certain of our operations were to be recharacterized by the IRS, such recharacterization would jeopardize our ability to satisfy all requirements for qualification as a REIT. Furthermore, future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT.

If we were to fail to remain qualified as a REIT, without the benefit of certain statutory relief provisions, in any taxable year:

In addition, if we were to fail to qualify as a REIT, we would not be required to pay distributions to stockholders, and all distributions to stockholders that we did pay would be subject to tax as regular corporate dividends to the extent of our current and accumulated earnings and profits. This means that our U.S. stockholders who are taxed as individuals generally would be taxed on our dividends at capital gains rates and that our corporate stockholders would be entitled to the dividends received deduction with respect to such dividends, subject, in each case, to applicable limitations under the Internal Revenue Code.

In certain circumstances, we may be subject to federal, state and local income taxes as a REIT, which would reduce our cash available to pay distributions.

Even as a REIT, we may be subject to federal, state and local income taxes. For example, if we have net income from a “prohibited transaction,” we will incur taxes equal to the full amount of the net income from the prohibited transaction. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We also may decide to retain income we earn from the sale or other disposition of our property and pay income tax directly on this income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have to file income tax returns to receive a refund of the income tax paid on their behalf. We also may be subject to state and local taxes on our income, property or net worth, either directly or at the level of the other companies through which we indirectly own our assets. Any taxes we pay directly or indirectly will reduce our cash available to pay distributions.

The taxation of distributions to our stockholders can be complex; however, distributions that we make to our stockholders generally will be taxable as ordinary income.

Distributions that we make to our taxable stockholders out of current and accumulated earnings and profits (and not designated as capital gain dividends or qualified dividend income) generally will be taxable as ordinary income. Noncorporate stockholders are entitled to a 20% deduction with respect to these ordinary REIT dividends which would result in a maximum effective federal income tax rate of 29.6% (or 33.4% including the 3.8% surtax on net investment income); however, the 20% deduction will end after December 31, 2025. However, a portion of our distributions may: (1) be designated by us as capital gain dividends generally taxable as long-term capital gain to the extent that they are attributable to net capital gain recognized by us; (2) be designated by us as qualified dividend income, taxable at capital gains rates, generally to the extent they are attributable to dividends we receive from any taxable REIT subsidiaries or certain other taxable “C corporations” in which we own shares of stock; or (3) constitute a return of capital generally to the extent that they exceed our current and accumulated earnings and profits as determined for U.S. federal income tax purposes. A return of capital is not taxable but has the effect of reducing the tax basis of a stockholder’s investment in our common stock. Distributions that exceed our current and accumulated earnings and profits and a stockholder’s tax basis in our common stock generally will be taxable as capital gain.

To maintain our REIT status, we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives and reduce our stockholders’ overall return.

To qualify as a REIT, we must distribute to our stockholders each year at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain. We will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we make with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c) 100% of our undistributed income from prior years. At times, we may not have sufficient funds to satisfy these distribution requirements and may need to borrow funds or sell assets to fund these distributions, maintain our REIT status and avoid the payment of income and excise taxes.

Certain of our business activities are potentially subject to the prohibited transaction tax.

Our ability to dispose of property during the first two years following acquisition is restricted to a substantial extent as a result of our REIT status. Under applicable provisions of the Internal Revenue Code regarding prohibited transactions by REITs, while we qualify as a REIT and provided we do not meet a safe harbor available under the Internal Revenue Code, we will be subject to a 100% penalty tax on the net income from the sale or other disposition of any property (other than foreclosure property) that we own, directly or indirectly through any subsidiary entity, but generally excluding taxable REIT subsidiaries, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. We intend to avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a taxable REIT subsidiary (but such taxable REIT subsidiary will incur corporate rate income taxes with respect to any income or gain recognized by it), (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or indirectly through any subsidiary, will be treated as a prohibited transaction or (3) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction safe harbor available under the Internal Revenue Code for properties that, among other requirements, have been held for at least two years. Despite our present intention, no assurance can be given that any particular property we own, directly or indirectly through any subsidiary entity, but generally excluding taxable REIT subsidiaries, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

Complying with the REIT requirements may force us to liquidate otherwise attractive investments.

To continue to qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, certain government securities and qualified real estate assets, including shares of stock in other REITs, certain mortgage loans and mortgage-backed securities. The remainder of our investment in securities (other than securities that qualify for the 75% asset test and securities of qualified REIT subsidiaries and taxable REIT subsidiaries) generally cannot exceed 10% of the outstanding voting securities of any one issuer, 10% of the total value of the outstanding securities of any one issuer, or 5% of the value of our assets as to any one issuer. In addition, no more than 25% of the value of our total assets may be securities (other than securities that qualify for the 75% asset test and securities of qualified REIT subsidiaries), no more than 20% of the value of our total assets may consist of stock or securities of one or more taxable REIT subsidiaries and no more than 25% of our assets may be represented by publicly offered REIT debt instruments that do not otherwise qualify under the 75% asset test. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance.

If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within thirty days after the end of the calendar quarter, or otherwise qualify to cure the failure under a relief provision, to avoid losing our REIT status and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.

Our stockholders may have tax liability on distributions that they elect to reinvest in our common stock.

If our stockholders participate in our DRP, they will be deemed to have received, and for income tax purposes will be taxed on, the fair market value of the share of our common stock that they receive in lieu of cash distributions. As a result, unless a stockholder is a tax-exempt entity, it will have to use funds from other sources to pay its tax liability.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge the risks inherent to our operations. Under current law, any income that we generate from derivatives or other transactions intended to hedge risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made, or to be made, to acquire or carry real estate assets or in certain cases to hedge previously acquired hedges entered into to manage risks associated with property that has been disposed of or liabilities that have been extinguished, if properly identified under applicable Treasury Regulations, generally will not constitute gross income for purposes of the 75% and 95% income requirements applicable to REITs. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a taxable REIT subsidiary. This could increase the cost of our hedging activities because taxable REIT subsidiaries would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a taxable REIT subsidiary generally will not provide any tax benefit, except for being carried forward against future taxable income of such taxable REIT subsidiary.

Changes to the tax laws may occur, and any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Our stockholders are urged to consult with an independent tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.

Although REITs generally receive more favorable tax treatment than entities taxed as “C corporations,” it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for federal income tax purposes as a “C corporation.” As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a “C corporation,” without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.

Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is 23.8%, including the 3.8% surtax on net investment income. Dividends payable by REITs, however, generally are not eligible for this reduced rate and, as described above, through December 31, 2025, will be subject to an effective rate of 33.4%, including the 3.8% surtax on net investment income. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our shares. Tax rates could be changed in future legislation.

The table below presents a summary of our investment properties as of December 31, 2019 and 2018.

As of December 31, 2019 and 2018, ABR per square foot averaged $17.54 and $17.30, respectively, for all properties owned. ABR is calculated by annualizing the monthly base rent for leases in-place as of the applicable date, including any tenant concessions, such as rent abatement or allowances, which may have been granted and excluding ground leases. ABR per square foot including ground leases averaged $15.08 and $14.94, as of December 31, 2019 and 2018, respectively.

During the year ended December 31, 2019, we sold 12 properties and recognized a gain of $3,279 included in gain on sale of investment properties on the consolidated statement of operations and comprehensive loss.

The table below presents information for each of our investment properties as of December 31, 2019.

Property	Location	Square Footage		Physical Occupancy			Economic Occupancy			Mortgage Balance		Interest Rate (b)
Newington Fair (a)	Newington, CT		186,205		100.0	%		100.0	%		—		—
Wedgewood Commons (a)	Olive Branch, MS		159,258		98.1	%		98.1	%		—		—
Park Avenue (a)	Little Rock, AR		79,131		59.7	%		82.8	%		—		—
North Hills Square (a)	Coral Springs, FL		63,829		100.0	%		100.0	%		—		—
Mansfield Shopping Center (a)	Mansfield, TX		148,529		96.3	%		96.3	%		—		—
Lakeside Crossing (a)	Lynchburg, VA		67,034		100.0	%		100.0	%		—		—
MidTowne Shopping Center (a)	Little Rock, AR		126,288		88.6	%		88.6	%		—		—
Dogwood Festival (a)	Flowood, MS		187,610		90.9	%		90.9	%		—		—
Pick N Save Center (a)	West Bend, WI		94,000		91.9	%		91.9	%		—		—
Harris Plaza (a)	Layton, UT		125,965		80.4	%		80.4	%		—		—
Dixie Valley	Louisville, KY		119,981		92.5	%		92.5	%		6,798		3.57	%
The Landings at Ocean Isle (a)	Ocean Isle, NC		53,203		94.6	%		94.6	%		—		—
Shoppes at Prairie Ridge (a)	Pleasant Prairie, WI		232,606		91.9	%		91.9	%		—		—
Harvest Square	Harvest, AL		70,590		92.1	%		92.1	%		6,487		4.65	%
Heritage Square	Conyers, GA		22,510		100.0	%		100.0	%		4,460		5.10	%
The Shoppes at Branson Hills (a)	Branson, MO		256,329		80.2	%		80.2	%		—		—
Branson Hills Plaza (a)	Branson, MO		210,201		100.0	%		100.0	%		—		—
Copps Grocery Store (a)	Stevens Point, WI		69,911		100.0	%		100.0	%		—		—
Fox Point Plaza (a)	Neenah, WI		171,121		84.3	%		84.3	%		—		—
Shoppes at Lake Park (a)	West Valley City, UT		52,997		96.1	%		96.1	%		—		—
Plaza at Prairie Ridge (a)	Pleasant Prairie, WI		9,035		100.0	%		100.0	%		—		—
Green Tree Shopping Center	Katy, TX		147,621		98.3	%		98.3	%		13,100		3.24	%
Eastside Junction	Athens, AL		79,700		87.7	%		87.7	%		6,024		4.60	%
Fairgrounds Crossing	Hot Springs, AR		155,127		97.4	%		97.4	%		13,453		5.21	%
Prattville Town Center	Prattville, AL		168,842		100.0	%		100.0	%		15,930		5.48	%
Regal Court	Shreveport, LA		363,061		96.1	%		96.1	%		26,000		4.50	%
Shops at Hawk Ridge (a)	St. Louis, MO		75,951		100.0	%		100.0	%		—		—
Walgreens Plaza	Jacksonville, NC		42,219		83.5	%		83.5	%		4,650		5.30	%
Whispering Ridge (a)	Omaha, NE		69,676		95.7	%		95.7	%		—		—
Frisco Marketplace (a)	Frisco, TX		112,024		94.9	%		94.9	%		—		—
White City	Shrewsbury, MA		257,121		88.8	%		90.1	%		49,400		3.24	%
Treasure Valley (a)	Nampa, ID		133,292		100.0	%		100.0	%		—		—
Yorkville Marketplace (a)	Yorkville, IL		111,591		91.3	%		91.3	%		—		—
Shoppes at Market Pointe	Papillion, NE		253,903		98.2	%		98.2	%		13,700		3.28	%
2727 Iowa Street (a)	Lawrence, KS		85,044		100.0	%		100.0	%		—		—
Settlers Ridge	Pittsburgh, PA		473,821		99.1	%		99.1	%		76,532		3.70	%
Milford Marketplace	Milford, CT		111,720		89.4	%		89.4	%		18,727		4.02	%
Marketplace at El Paseo	Fresno, CA		224,683		98.8	%		98.8	%		38,000		2.95	%
Blossom Valley Plaza (a)	Turlock, CA		111,435		98.9	%		98.9	%		—		—
The Village at Burlington Creek	Kansas City, MO		158,049		75.5	%		76.2	%		17,723		4.25	%
Oquirrh Mountain Marketplace (a)	South Jordan, UT		75,950		97.2	%		97.2	%		—		—
Marketplace at Tech Center	Newport News, VA		210,297		93.7	%		95.0	%		47,550		3.15	%
Coastal North Town Center	Myrtle Beach, SC		304,662		95.6	%		95.6	%		43,680		3.17	%
Oquirrh Mountain Marketplace II (a)	South Jordan, UT		10,150		100.0	%		100.0	%		—		—
Wilson Marketplace (a)	Wilson, NC		311,030		99.1	%		99.1	%		—		—
Pentucket Shopping Center	Plaistow, NH		198,469		98.0	%		98.0	%		14,700		3.65	%
Coastal North Town Center - Phase II	Myrtle Beach, SC		6,588		100.0	%		100.0	%		—		—
Portfolio total			6,758,359		94.0	%		94.4	%	$	416,914		3.69	%

The following table presents information regarding the top ten tenants in our portfolio based on annualized base rent for leases in-place as of December 31, 2019.

The following table sets forth a summary of our tenant diversity for our entire portfolio and is based on leases in-place at December 31, 2019.

The following table sets forth a summary of our property type based on annualized base rent in-place for leases as of December 31, 2019.

The following table sets forth a summary, as of December 31, 2019, of the percent of total annualized base rent and the weighted average lease expiration by size of tenant.

The following table sets forth a summary, as of December 31, 2019, of lease expirations scheduled to occur during each of the calendar years from 2020 to 2029 and thereafter, assuming no exercise of renewal options or early termination rights for leases commenced on or prior to December 31, 2019. Annualized base rent represents the rent in place for the applicable property at December 31, 2019. The table below includes ground leases. If ground leases are excluded, annualized base rent would equal $86,575, or $17.54 per square foot for total expiring leases.

We are not a party to, and none of our properties are subject to, any material pending legal proceedings.

There is no established public trading market for our shares of common stock. Our board will determine when, and if, to apply to have our shares of common stock listed for trading on a national securities exchange, subject to satisfying existing listing requirements. Pursuant to a Strategic Plan adopted by our board on February 11, 2019, we plan to consider a liquidity event in approximately two years, market conditions permitting, most likely through a listing on a national securities exchange. However, there is no assurance that we will list our shares. Further, there is no assurance that stockholders will be able to sell their shares at a time or price acceptable to them. We publish an estimated per share value of our common stock to assist broker dealers that sold our common stock in the Offering to comply with the rules published by FINRA. On March 3, 2020, our board established an Estimated Per Share NAV of our common stock as of December 31, 2019 equal to $18.15 per share. The previously established estimated per share NAV of our common stock as of December 31, 2018 was equal to $20.12 per share.

To assist the Board in establishing the Estimated Per Share NAV as of December 31, 2019, we engaged CBRE Capital Advisors, Inc., a FINRA registered broker dealer firm that specializes in providing real estate financial services (“CBRE Cap”). CBRE Cap provided an analysis of our assets and liabilities (including individual property-level analyses), all of which was used to estimate a range of Estimated Per Share NAVs. The engagement of CBRE Cap was based on a number of factors, including CBRE Cap’s expertise in valuation services and its, and its affiliates, breadth and depth of experience in real estate services. CBRE Cap engaged CBRE Inc.’s Valuation & Advisory Services group, an affiliate of CBRE Cap that conducts appraisals and valuations of real properties (the “MAI Appraisals”), to perform cash flow projections and unlevered, ten-year discounted cash flow analyses from restricted-use appraisals for each of our wholly-owned operating assets as of December 31, 2019 (the “Valuation Date”). Based on the MAI Appraisals, our filings with the SEC and financial materials and other guidance provided by the Business Manager to CBRE Cap, CBRE Cap developed a valuation analysis of our assets and liabilities and provided that analysis to our board in a report presented on March 3, 2020 that contained, among other information, a range of per share net asset values for our common stock as of the Valuation Date (the “Valuation Report”). There have been no changes between December 31, 2019 and the date of the Valuation Report that our Business Manager believes would materially impact the overall Estimated Per Share NAV as of December 31, 2019, and CBRE Cap’s analysis did not cover that period. We are not affiliated with CBRE, CBRE Cap or any of their affiliates. While we and affiliates or related parties of our Business Manager have engaged and may engage CBRE Cap or its affiliates in the future for valuations and commercial real estate-related services of various kinds, we believe that there are no material conflicts of interest with respect to our engagement of CBRE Cap.

To estimate our per share value, CBRE Cap utilized the “net asset value” or “NAV” method, also known as the appraised value methodology, which is based on the fair value of real estate, real estate related investments and all other assets, less the fair value of total liabilities. The fair value estimate of our real estate assets is equal to the sum of their individual real estate values. Generally, CBRE Cap estimated the value of our real estate assets using several methodologies, including a discounted cash flow, or “DCF,” of projected net operating income, less lease-up discounts and deferred maintenance, as appropriate, for each property, for the ten-year period ending December 31, 2029, and applied a discount rate that it believed was consistent with the inherent level of risk associated with the asset. The other methodologies considered consisted of the “direct cap rate” and “sales comparison” approaches. CBRE Cap believed use of the DCF approach was more appropriate because of the large percentage of multi-tenant assets owned by us. For all other (non-real estate) assets, such as other current assets, fair value was determined separately based on book value. The Business Manager determined the fair market value of our debt by comparing current market interest rates to the contract rates on our long-term debt and discounting to present value the difference in future payments. The fair market value of our debt was reviewed by CBRE Valuation & Advisory Services group for reasonableness and utilized in the Valuation Report. The estimated value of the incentive fee payable to the Business Manager is equal to 10% of the amount by which the value of our shares, plus distributions paid, exceeds a return of stockholders’ capital plus a 7% cumulative, pre-tax, non-compounded return to the stockholders. CBRE Cap determined that no incentive fee would be payable under a hypothetical liquidation occurring within the range of values provided in the Valuation Report. CBRE Cap determined NAV in a manner consistent with the definition of fair value under U.S. GAAP set forth in FASB’s Topic ASC 820, Fair Value Measurements and Disclosures.

Net asset value per share was estimated by subtracting the fair value of our total liabilities from the fair value of our total assets and dividing the result by the number of common shares outstanding as of the Valuation Date. CBRE Cap created a valuation range by first establishing a discount rate and terminal capitalization rate for each real estate asset. CBRE Cap then applied a discount rate and terminal capitalization rate sensitivity analysis by varying the discount rate and terminal capitalization rate of each real estate asset by 2.5% in either direction, which represents an approximate 5% sensitivity on the discount rates and terminal capitalization rates, resulting in a value range equal to $17.88 to $20.00 per share. The mid-point in that range was $18.94. Discount rates and terminal capitalization rates were sourced from the MAI Appraisals and varied by location, asset quality and supply and demand metrics. The Estimated Per Share NAV determined by our board of $18.15 assumes a weighted average discount rate equal to 7.88% and a weighted average terminal capitalization rate of 7.22%. The estimated value of our real estate assets reflects an overall decrease of 4.9% compared to our original cost of the real estate assets plus any capital expenditures invested in those real estate assets by us through December 31, 2019.

The terminal capitalization rate and discount rate have a significant impact on the estimated value under the net asset value method. The following chart presents the impact of changes to the Estimated Per Share NAV based on variations in the terminal capitalization rate and discount rate within the range of values determined by CBRE Cap.

The following table summarizes the individual components presented to our board to estimate per share values as of the dates presented:

The primary factors that impacted our board’s determination of the Estimated Per Share NAV as compared to our prior NAV determination as of December 31, 2018 were (i) a decrease in the value of the real estate assets due to the sale of twelve assets, higher terminal capitalization rates, and higher discount rates applied to certain assets and a decrease in rents at certain properties, (ii) a decrease in cash and other assets, net of other liabilities, as a result of a decrease in the cash balance, a decrease in the fair value of derivatives due to a decrease in interest rates, an increase in the liability of due to related parties due to timing of payments, slightly offset by a decrease in the share repurchase program liability (iii) a decrease in the fair market value of debt from paying down mortgages payable and reducing the line of credit balance outstanding with cash and proceeds from the sale of assets partially offset by an increase in the fair market value of debt due to a decrease in market interest rates.

Our board reviewed the Valuation Report, met telephonically with representatives from CBRE Cap and considered the material assumptions and valuation methodologies applied and described therein. Taking into consideration the reasonableness of the valuation methodologies, assumptions, and the conclusions contained in the Valuation Report, on March 3, 2020, our board unanimously determined our total estimated net asset value to be approximately $649.8 million, or $18.15 per share, based on a share count of approximately 35.8 million shares issued and outstanding as of the Valuation Date. The Valuation Report contained a range for the Estimated Per Share NAV of $17.88 to $20.00. The mid-point of the range of values provided by CBRE Cap was $18.94. The Estimated Per Share NAV of $18.15 is lower than the mid-point of the range. While our portfolio is stabilized with an economic occupancy of 94.4%, our board observed that retail real estate continues to experience volatility as a result of, among other things, shifting consumer shopping preferences and Internet competition. Approximately 39% of annualized base rent for leases in-place as of December 31, 2019 is generated from non-grocery big box retailers, a retail sector the Business Manager believes is currently impacted relatively more than certain other retail sectors by shifting consumer preferences and Internet competition and, as a result, experiencing price dislocation. Given these factors, as well as the volatility in the equity markets, our board selected an Estimated Per Share NAV slightly lower than the mid-point of the range of values provided by CBRE Cap.

Our board’s determination of the Estimated Per Share NAV was undertaken in accordance with our valuation policy and the recommendations and methodologies of the Institute for Portfolio Alternatives (formerly known as the Investment Program Association), a trade association for non-listed direct investment vehicles (“IPA”), as set forth in IPA Practice Guideline 2013-01 “Valuations of Publicly Registered Non-Listed REITs” (the “IPA Practice Guideline”). In accordance with the valuation policy and the IPA Practice Guideline, the Estimated Per Share NAV excludes any value adjustments due to the size and diversification of our portfolio of assets.

In performing its analyses, CBRE Cap made numerous assumptions as of various points in time with respect to industry performance, general business, economic and regulatory conditions and other matters, many of which are necessarily subject to change and beyond the control of CBRE Cap and us. The analyses performed by CBRE Cap are not necessarily indicative of actual values, trading values or actual future results of our common stock that might be achieved, all of which may be significantly more or less favorable than suggested by such analyses. The analyses do not purport to be appraisals or to reflect the prices at which the properties may actually be sold, and such estimates are inherently subject to uncertainty. The actual value of our common stock may vary significantly depending on numerous factors that generally impact the price of securities, our financial condition and the state of the real estate industry more generally. Accordingly, with respect to the Estimated Per Share NAV, neither we nor CBRE Cap can give any assurance that:

The Estimated Per Share NAV represents a snapshot in time, will likely change over time, and may not represent the amount a stockholder would receive now or in the future for his or her shares of our common stock. Stockholders should not rely on the Estimated Per Share NAV in making a decision to buy or sell shares of our common stock. The Estimated Per Share NAV is based on a number of assumptions, estimates and data that are inherently imprecise and susceptible to uncertainty and changes in circumstances, including changes to the value of individual assets, changes in interest rates, changes in the composition of our portfolio and changes and developments in the real estate and capital markets, including, for example, market changes and developments that may result from the spread and effects of the coronavirus.

We have engaged CBRE Cap for the past five years, and currently intend to continue to engage CBRE Cap in the future, to assist our board in determinations of our Estimated Per Share NAV. We currently expect to publish an updated Estimated Per Share NAV on at least an annual basis.

We currently pay distributions on a quarterly basis. However, the actual amount and timing of distributions, if any, is determined by our board of directors in its discretion, based on its analysis of our actual and expected cash flow, capital expenditures and investments, as well as general financial conditions.

During the year ended December 31, 2019, we declared quarterly distributions in an amount equal to $0.3018 per share, which represents an annualized rate of 6% based on the estimated per share NAV as of December 31, 2018 of $20.12, payable in arrears the following quarter. During the year ended December 31, 2018, we declared quarterly distributions in an amount equal to $0.335 per share, which represents an annualized rate of 6% based on the estimated per share NAV as of December 31, 2017 of $22.35, payable in arrears the following quarter.

The following table shows the sources for the payment of distributions to common stockholders for the periods indicated (Dollar amounts in thousands):

The following table compares cumulative distributions paid to cumulative net loss (in accordance with U.S. GAAP) for the period from August 24, 2011 (date of inception) through December 31, 2019 (Dollar amounts in thousands):

We adopted the SRP effective October 18, 2012, under which we are authorized to purchase shares from stockholders who purchased their shares from us or received their shares through a non-cash transfer and who have held their shares for at least one year. Purchases are in our sole discretion. In the case of Exceptional Repurchases, the one year holding period does not apply. The SRP was amended and restated effective January 1, 2018 to change the processing of repurchase requests from a monthly to a quarterly basis to align with the move to quarterly distributions. On February 11, 2019, our board adopted a second amended and restated SRP, which became effective on March 21, 2019. On March 3, 2020, our board adopted the Third A&R SRP, which will become effective on April 10, 2020.

The Third A&R SRP provides our board of directors with the discretion to reduce the funding limit for share repurchases. The Third A&R SRP limits the dollar amount for any repurchases made by us each calendar quarter to an amount equal to a percentage determined in the sole discretion of our board on a quarterly basis that will not be less than 50% of the net proceeds from the DRP during the applicable quarter. For the quarter ended December 31, 2019, our board determined a funding limit equal to 50% of the net proceeds from the DRP. We continue to limit the number of shares repurchased during any calendar year to 5% of the number of shares outstanding on December 31st of the previous calendar year, as adjusted for any stock splits or other combinations.

The SRP will immediately terminate if our shares are listed on any national securities exchange. In addition, our board of directors, in its sole discretion, may amend, suspend (in whole or in part), or terminate our SRP. In the event that we amend, suspend or terminate the SRP, however, we will send stockholders notice of the change at least thirty days prior to the change, and we will disclose the change in a report filed with the SEC on either Form 8-K, Form 10-Q or Form 10-K, as appropriate. Further, our board reserves the right in its sole discretion, at any time, and from time to time to reject any requests for repurchases.

The following table summarizes the repurchases of shares under the SRP during the year ended December 31, 2019 (Dollar amounts in thousands except per share amounts):

For information regarding the securities authorized for issuance under our equity compensation plan, reference is made to Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” which is included in this Annual Report on Form 10-K.

The following table shows our selected financial data relating to our consolidated historical financial condition and results of operations. This selected data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. (Dollar amounts in thousands, except per share amounts):

Item 7.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 Annual Report on Form 10-K 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 our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in this Annual Report on Form 10-K and the factors described below:

Forward-looking statements in this Annual Report on Form 10-K reflect our management’s view only as of the date of this 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.

The following discussion and analysis is based on the consolidated financial statements for the years ended December 31, 2019, 2018 and 2017. Our stockholders should read the following discussion and analysis along with our consolidated financial statements and the related notes thereto.

We were formed as a Maryland corporation on August 24, 2011 and elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with the year ended December 31, 2013. We have no employees. We are managed by our business manager, IREIT Business Manager & Advisor, Inc.

We are primarily focused on acquiring and owning retail properties and intend to target a portfolio of 100% grocery-anchored properties as described below. We have invested in joint ventures and may continue to invest in additional joint ventures or acquire other real estate assets such as office and medical office buildings, multi-family properties and industrial/distribution and warehouse facilities if management believes the expected returns from those investments exceed that of retail properties. We also may invest in real estate-related equity securities of both publicly traded and private real estate companies, as well as commercial mortgage-backed securities.

At December 31, 2019, we had total assets of $1.3 billion and owned 47 properties located in 23 states containing 6.8 million square feet. A majority of our properties are multi-tenant, necessity-based retail shopping centers primarily located in major regional markets and growing secondary markets throughout the United States. At December 31, 2019, 83% of our annualized base rental income was generated from grocery anchored or grocery shadow-anchored shopping centers. A grocery shadow-anchored shopping center is a shopping center near a grocery store that generates traffic for the shopping center but is not a part of the shopping center. The portfolio properties have a weighted average economic occupancy of 94.4% and staggered lease maturity dates.

We commenced the Offering on October 18, 2012, and concluded it on October 16, 2015. We sold 33,534,022 shares of common stock in the Offering generating gross proceeds of $834.4 million. On March 3, 2020, our board of directors determined an Estimated Per Share NAV of our common stock as of December 31, 2019 of $18.15. The previously estimated per share net asset value as of December 31, 2018 equal to $20.12 was established on March 5, 2019.

On February 11, 2019, our board of directors approved the Strategic Plan to consider a liquidity event in approximately two years, market conditions permitting, most likely through a listing on a public securities exchange. The Strategic Plan centers around owning a portfolio of 100% grocery-anchored properties with lower exposure to big box retailers. Consistent with the Strategic Plan, we sold 12 properties during the year ended December 31, 2019 and three additional properties in January 2020 as further described below. Our management team and our board are considering the opportunistic sale of certain other assets with the goal of redeploying capital into the acquisition of strategically located grocery-anchored centers, as well as the redevelopment of select centers within the current portfolio. In connection with the Strategic Plan, the business management agreement with the Business Manager was amended and restated on February 11, 2019 to, among other things, eliminate all future acquisition and disposition fees. In addition, our board of directors approved amendments to the SRP providing for ordinary repurchases at a price equal to 80.0% of the “share price,” as defined in the SRP, and providing our board with the discretion to reduce the funding limit for share repurchases. On March 3, 2020, our board adopted the Third A&R SRP, which will become effective on April 10, 2020. For information related to the Third A&R SRP, reference is made to Note 3 – “Equity” which is included in our December 31, 2019 Notes to Consolidated Financial Statements in Item 8. There can be no assurance that the Strategic Plan will not evolve or change over time or that we will be able to successfully implement the Strategic Plan, including listing our common stock.

In connection with the Strategic Plan, we sold 12 properties for aggregate net proceeds of $14.9 million and recorded a gain on sale of investment properties of $3.3 million. We also completed the sale of three additional properties in January 2020 that are classified as held for sale on the consolidated balance sheet as of December 31, 2019. In connection with these properties we recorded a $4.4 million provision for asset impairment on the consolidated statement of operations and comprehensive loss.

We paid gross distributions of $44.2 million, generated proceeds received from the sale of shares pursuant to the DRP of $19.6 million, and repurchased $12.6 million of shares pursuant to the SRP.

In advance of selling the 12 properties during the year, we paid off two outstanding mortgage loans with a principal balance totaling $7.4 million. We also made net repayments on the Credit Facility of $17.5 million.

While strategic plan initiatives are paving our path forward, we believe our 2019 operating results are a testament to the quality of our necessity-based portfolio and our strong management capabilities. We believe the portfolio comprises properties in desirable locations throughout markets with high demand for necessity-based community shopping centers. Our team of real estate experts produced strong leasing volume in 2019 with 128 signed leases totaling nearly 800,000 square feet, maintaining our multi-year track record of occupancy above 94 percent.

The strategic plan centers around owning a primarily grocery-anchored portfolio with lower exposure to big box retailers. Our goal is to proactively reduce our exposure to property design concepts that we believe have less relevance in today’s changing retail marketplace and aim to minimize portfolio risk by repositioning away from big box retail centers. The 15 recent asset sales positively impacted our portfolio composition, reducing big box exposure from 17 percent to 14 percent and increasing the percent of our portfolio anchored or shadow-anchored by a grocer from 82 percent to 86 percent. In addition, all single-tenant assets have been sold, creating a more homogenous, core portfolio of grocery-anchored or shadow-anchored properties.

Retail continues to evolve, and business went well, in general, for retailers that kept consumer preferences in mind. Economic hallmarks of 2019 included low inflation, high employment, wage gains and low interest rates, supporting personal consumption expenditures up by 1.8% in the fourth quarter of 2019 according to the Bureau of Economic Analysis of the U.S. Department of Commerce. Currently, the outbreak of the coronavirus is growing in the U.S. Its impacts are uncertain, hard to measure, and may adversely impact our business in 2020. For additional information, see “Item 1A – Risk Factors – The outbreak of the novel coronavirus (COVID-19) is growing and its impacts are uncertain and hard to measure but may cause a material adverse effect on our business.”

We expect to fund our future short-term operating liquidity requirements through a combination of cash on hand, net cash provided by our property operations, proceeds from shares issued through the DRP and proceeds from our Credit Facility. We may also generate additional liquidity through property dispositions and, to the extent available, secured or unsecured borrowings. At December 31, 2019, our cash and cash equivalents balance was $4.5 million. Our principal demands for funds are for payment of our operating and administrative expenses, including fees payable to our Business Manager and Real Estate Manager, interest and principal payments on mortgage loans and Credit Facility, repurchases of shares under the SRP and cash distributions to our stockholders.

The net proceeds of $14.9 million from the sale of 12 properties during the year ended December 31, 2019 were used to make repayments on the Credit Facility. Three additional properties were sold during January 2020, and the proceeds were also used to make repayments on the Credit Facility as discussed in Note 18 – “Subsequent Events” in the Notes to the Consolidated Financial Statements in Item 8. We intend to draw on the Credit Facility to, among other things, redeploy the net proceeds from these sales to purchase additional assets or redevelop select centers within the current portfolio in the future pursuant to our Strategic Plan. Failure to timely redeploy the net proceeds to acquire investments that generate yield equal to or greater than the assets sold as part of the Strategic Plan may impact our ability to generate sufficient cash flow to cover distributions to our stockholders.

At December 31, 2019, we had $117.0 million outstanding under the Revolving Credit Facility and $150.0 million outstanding under the Term Loan. At December 31, 2019, the interest rate on the Revolving Credit Facility and the Term Loan was 3.45% and 4.29%, respectively. The Revolving Credit Facility matures on August 1, 2022, and we have the option to extend the maturity date for one additional year subject to the payment of an extension fee and certain other conditions. The Term Loan matures on August 1, 2023. As of December 31, 2019, we had $83.0 million available for borrowing under the Revolving Credit Facility.

As of December 31, 2019, we had total debt outstanding of $683.9 million, excluding mortgage premiums and unamortized debt issuance costs, which bore interest at a weighted average interest rate of 3.78% per annum. As of December 31, 2019, the weighted average years to maturity for our debt was 3.5 years. As of December 31, 2019 and December 31, 2018, our borrowings were 49% and 50%, respectively, of the purchase price of our investment properties.

As of December 31, 2019, we had $1.3 billion in investment properties, at cost, some of which are pledged as collateral for our mortgages payable. In addition, at December 31, 2019, 28 properties were included in the pool of unencumbered properties comprising the borrowing base under the Credit Facility. This real estate is only available to serve as collateral or satisfy other debts and obligations if it is first removed from the borrowing base under the Credit Facility, which would reduce the amount available to us on the Credit Facility. For information on the properties included in the pool of unencumbered properties and mortgage balances associated with our investment properties, reference is made to Item 2, “Properties.” For information on balances of investment properties, held and used, reference is made to Schedule III – “Real Estate and Accumulated Depreciation” in Item 8.

For information related to our debt maturities reference is made to Note 8 – “Debt and Derivative Instruments” which is included in our December 31, 2019 Notes to Consolidated Financial Statements in Item 8.

Cash provided by operating activities increased $1.7 million during 2019 compared to 2018 and decreased $5.8 million during 2018 compared to 2017. The increase from 2018 to 2019 was due to the timing of real estate tax and business manager fee payments partially offset by an increase in interest payments. The decrease from 2017 to 2018 was due to the timing of real estate tax payments and a decrease in prepaid rent.

During the year ended December 31, 2019, cash was provided by investing activities compared to a use of cash in 2018, primarily due to proceeds from sale of investment properties in 2019. In addition, we did not fund any additional investments in the Mainstreet JV during 2019, compared to our funding of $2.7 million in equity investment and $5.4 million in related note receivable for which an impairment charge was recognized at the end of 2018. During the year ended December 31, 2018, cash used in investing activities was lower than 2017 primarily due to the fact that no properties were purchased during 2018. This decrease was offset by an increase in capital expenditures for existing properties. The line item for “Other assets and other liabilities” in 2018 includes the note receivable of $5.4 million from the Mainstreet JV, which was fully funded in 2018.

During 2019, proceeds provided by debt decreased $38.6 million from 2018, primarily due to net paydowns on the credit facility and settlement of two mortgages associated with properties sold during 2019 compared to significant net drawings on the credit facility in the prior year, a majority of which was used to pay off a significant balance of mortgages with the residual used to fund other activities during 2018. During 2018, proceeds provided by debt decreased $71.6 million from 2017, primarily due to the funding of investment property purchases during 2017 compared to no purchases during 2018. During the years ended December 31, 2019, 2018 and 2017, we generated proceeds from the sale of shares pursuant to the DRP of $19.6 million, $19.3 million and $27.1 million, respectively. For the years ended December 31, 2019, 2018 and 2017, share repurchases were $12.6 million, $19.6 million and $20.0 million, respectively. During the years ended December 31, 2019, 2018 and 2017, we paid $44.2 million, $40.3 million and $53.3 million, respectively, in distributions. During 2018, we received cash of $1.2 million related to the early termination of interest rate swap agreements.

A summary of the distributions declared, distributions paid and cash flows provided by operations for the years ended December 31, 2019, 2018 and 2017 follows (Dollar amounts in thousands, except per share amounts):

The following discussion is based on our consolidated financial statements for the years ended December 31, 2019, 2018 and 2017.

This section describes and compares our results of operations for the years ended December 31, 2019, 2018 and 2017. We generate primarily all of our net operating income from property operations. In order to evaluate our overall portfolio, management analyzes the net operating income of properties that we have owned and operated for the periods presented, in their entirety, referred to herein as “same store” properties. By evaluating the property net operating income of our "same store" properties, management is able to monitor the operations of our existing properties for comparable periods to measure the performance of our current portfolio and determine the effects of our new acquisitions on net income. (Dollar amounts in thousands)

We consider property net operating income an important 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 us is comparable to similarly titled metrics used by other REITs.

We calculate property net operating income using net income and excluding adjustments to straight-line income (expense) on operating leases, amortization of intangibles and lease incentives, general and administrative expenses, acquisition related costs, the business management fee, provisions for impairment, depreciation and amortization, interest expense, gains on sale of investment properties, gains on termination of interest rate swap agreements, losses on extinguishment of debt, and interest or other income.

A total of 44 investment properties that were acquired on or before January 1, 2018 and classified as held and used at December 31, 2019 represent our “same store” properties during the years ended December 31, 2019 and 2018. “Non-same store,” as reflected in the table below, consists of properties sold after January 1, 2018 or classified as held for sale at December 31, 2019. For the years ended December 31, 2019 and 2018, 15 properties constituted non-same store properties.

The following table presents the property net operating income broken out between same store and non-same store, prior to straight-line income, net, amortization of intangibles, interest, and depreciation and amortization for the years ended December 31, 2019 and 2018, along with a reconciliation to net loss, calculated in accordance with U.S. GAAP.

	Total									Same Store							Non-Same Store
	For the year ended December 31,									For the year ended December 31,							For the year ended December 31,
	2019			2018			Change			2019		2018		Change			2019		2018		Change
Rental income	$	125,673		$	125,712		$	(39	)	$	120,031	$	120,173	$	(142	)	$	5,642	$	5,539	$	103
Other property income		254			284			(30	)		254		284		(30	)		—		—		—
Total income	$	125,927		$	125,996		$	(69	)	$	120,285	$	120,457	$	(172	)	$	5,642	$	5,539	$	103

Property operating expenses	$	22,279		$	22,114		$	165		$	21,642	$	21,544	$	98		$	637	$	570	$	67
Real estate tax expense		15,869			15,841			28			14,760		14,758		2			1,109		1,083		26
Total property operating expenses	$	38,148		$	37,955		$	193		$	36,402	$	36,302	$	100		$	1,746	$	1,653	$	93

Property net operating income	$	87,779		$	88,041		$	(262	)	$	83,883	$	84,155	$	(272	)	$	3,896	$	3,886	$	10

Straight-line income, net	$	840		$	1,180		$	(340	)
Amortization of intangibles and lease incentives		1,337			867			470
General and administrative expenses		(5,040	)		(4,869	)		(171	)
Acquisition related costs		—			(29	)		29
Business management fee		(9,342	)		(9,345	)		3
Provision for asset impairment		(4,420	)		—			(4,420	)
Depreciation and amortization		(57,691	)		(57,835	)		144
Interest expense		(28,305	)		(27,137	)		(1,168	)
Gain on sale of investment properties		3,279			—			3,279
Gain on early termination of interest rate swap agreements		—			1,151			(1,151	)
Loss on extinguishment of debt		—			(411	)		411
Interest and other income		143			516			(373	)
Provision for impairment of investment in and note receivable from unconsolidated entities		—			(15,405	)		15,405
Net loss	$	(11,420	)	$	(23,276	)	$	11,856

Net loss. Net loss was $11,420 and $23,276 for the years ended December 31, 2019 and 2018, respectively.

Total property net operating income. On a “same store” basis, comparing the results of operations of investment properties owned during the year ended December 31, 2019 with the results of the same investment properties owned during the year ended December 31, 2018, property net operating income decreased $272, total property income decreased $172, and total property operating expenses including real estate tax expense increased $100.

The decrease in “same store” total property income is primarily due to an increase in bad debt partially offset by an increase in base rental income. The increase in “same store” total property operating expenses is primarily due to an increase in current year non-recoverable property expenses.

“Non-same store” total property net operating income remained relatively flat, increasing $10 during 2019 as compared to 2018. The change was minimized due to the dispositions being at the very end of 2019. On a “non-same store” basis, total property income increased $103 and total property operating expenses increased $93 during the year ended December 31, 2019.

Straight-line income, net. Straight-line rent income decreased $340 in 2019 compared to 2018. This decrease is primarily due to rent steps that reduced straight-line income.

Intangible amortization. Intangible amortization income increased $470 in 2019 compared to 2018. The increase is primarily attributable to intangible assets and liabilities being written off due to tenants that vacated early.

General and administrative expenses. General and administrative expenses increased $171 in 2019 compared to 2018. This increase is primarily due to higher legal costs and an increase in state tax estimates.

Acquisition related costs. Acquisition related expenses decreased $29 in 2019 compared to 2018. The decrease is attributable to the fact that there were no acquisition related costs (recoveries) in 2019.

Business management fee. Business management fees remained relatively flat in 2019 compared to 2018. There have been no acquisitions since 2017 and any disposals during 2019 occurred near the end of the year.

Provision for asset impairment. During the year ended December 31, 2019, we recorded $4,420 of impairment charges for our investment properties that were classified as held for sale at December 31, 2019, because these properties had a carrying value that exceeded the fair value less selling costs. No asset impairment charges were recorded during the year ended December 31, 2018.

Depreciation and amortization. Depreciation and amortization decreased $144 in 2019 compared to 2018. The decrease is primarily due to fully amortized acquired lease intangible assets partially offset by site improvement write-offs.

Interest expense. Interest expense increased $1,168 in 2019 compared to 2018. The increase is primarily due to higher average interest rates and an increase in average debt outstanding in 2019 compared to 2018. Average interest rates increased 0.12% in 2019 compared to 2018 and average debt outstanding increased approximately $3,100 in 2019 compared to 2018.

Gain on sale of investment properties. During the year ended December 31, 2019, we recorded a gain of $3,279 related to the sale of 12 investment properties.

Gain on early termination of interest rate swap agreements. During the year ended December 31, 2018, we recorded a gain of $1,151 related to the early termination of certain interest rate swap agreements that had corresponding early mortgage pay-offs.

Loss on extinguishment of debt. During the year ended December 31, 2018, we realized a loss on extinguishment of debt on the consolidated statement of operations and comprehensive loss of $411 due to the write-off of the unamortized balance of debt issuance costs associated with ten loans that were repaid prior to maturity.

Interest and other income. Interest and other income decreased $373 in 2019 compared to 2018. The decrease is primarily due to interest earned on our note receivable which was fully impaired at the end of 2018.

Provision for impairment of investment in and note receivable from unconsolidated entities. During the year ended December 31, 2018, we recorded an impairment to its investment in and note receivable from Mainstreet JV of $9,865 and $5,540, respectively, as it determined that recovery is improbable. Both amounts represent a full impairment of such investments. As we do not intend to fund any more investments in Mainstreet JV and we do not expect to recover any of our previous investments, we determined that an impairment for both our investment and notes receivable from Mainstreet JV is appropriate.

We calculate property net operating income using net income and exclude adjustments to straight-line income (expense) on operating leases, amortization of intangibles and lease incentives, general and administrative expenses, acquisition related costs, the business management fee, provisions for impairment, depreciation and amortization, interest expense, gains on sale of investment properties, gains on termination of interest rate swap agreements, losses on extinguishment of debt, and interest or other income.

A total of 56 investment properties that were acquired on or before January 1, 2017 represent our “same store” properties during the years ended December 31, 2018 and 2017. “Non-same store,” as reflected in the table below, consists of properties acquired after January 1, 2017. For the years ended December 31, 2018 and 2017, three properties constituted non-same store properties.

The following table presents the property net operating income broken out between same store and non-same store, prior to straight-line income, net, amortization of intangibles, interest, and depreciation and amortization for the years ended December 31, 2018 and 2017, along with a reconciliation to net loss, calculated in accordance with U.S. GAAP.

	Total									Same Store							Non-Same Store
	For the year ended December 31,									For the year ended December 31,							For the year ended December 31,
	2018			2017			Change			2018		2017		Change			2018		2017		Change
Rental income	$	125,712		$	125,086		$	626		$	119,487	$	119,746	$	(259	)	$	6,225	$	5,340	$	885
Other property income		284			302			(18	)		282		300		(18	)		2		2		—
Total income	$	125,996		$	125,388		$	608		$	119,769	$	120,046	$	(277	)	$	6,227	$	5,342	$	885

Property operating expenses	$	22,114		$	21,681		$	433		$	21,213	$	20,911	$	302		$	901	$	770	$	131
Real estate tax expense		15,841			15,992			(151	)		15,260		15,472		(212	)		581		521		60
Total property operating expenses	$	37,955		$	37,673		$	282		$	36,473	$	36,383	$	90		$	1,482	$	1,291	$	191

Property net operating income	$	88,041		$	87,715		$	326		$	83,296	$	83,663	$	(367	)	$	4,745	$	4,051	$	694

Straight-line income, net	$	1,180		$	1,678		$	(498	)
Amortization of intangibles and lease incentives		867			1,403			(536	)
General and administrative expenses		(4,869	)		(5,200	)		331
Acquisition related costs		(29	)		(754	)		725
Business management fee		(9,345	)		(9,196	)		(149	)
Provision for asset impairment		—			(8,530	)		8,530
Depreciation and amortization		(57,835	)		(61,804	)		3,969
Interest expense		(27,137	)		(24,582	)		(2,555	)
Gain on early termination of interest rate swap agreements		1,151			—			1,151
Loss on extinguishment of debt		(411	)		—			(411	)
Interest and other income		516			147			369
Provision for impairment of investment in and note receivable from unconsolidated entities		(15,405	)		—			(15,405	)
Equity in earnings (loss) of unconsolidated entity		—			21			(21	)
Net loss	$	(23,276	)	$	(19,102	)	$	(4,174	)

Net loss. Net loss was $23,276 and $19,102 for the years ended December 31, 2018 and 2017, respectively.

Total property net operating income. On a “same store” basis, comparing the results of operations of investment properties owned during the year ended December 31, 2018 with the results of the same investment properties owned during the year ended December 31, 2017, property net operating income decreased $367, total property income decreased $277, and total property operating expenses including real estate tax expense increased $90.

The decrease in “same store” total property income is primarily due to a decrease in tenant recovery income. The increase in “same store” total property operating expenses is primarily due to an increase in current year non-recoverable property expenses offset by a decrease in real estate tax expense.

“Non-same store” total property net operating income increased $694 during 2018 as compared to 2017. The increase is a result of acquiring three retail properties after January 1, 2017. On a “non-same store” basis, total property income increased $885 and total property operating expenses increased $191 during the year ended December 31, 2018 as compared to 2017 as a result of these acquisitions.

Straight-line income, net. Straight-line rent income decreased $498 in 2018 compared to 2017. This decrease is due to certain tenant rent increases in 2018 that decreased straight-line rental income.

Intangible amortization. Intangible amortization income decreased $536 in 2018 compared to 2017. The decrease is primarily attributable to intangible assets and liabilities being written off or fully amortized.

General and administrative expenses. General and administrative expenses decreased $331 in 2018 compared to 2017. This decrease is primarily due to lower legal costs, lower salary expense reimbursements and a decrease in conference costs, partially offset by an increase in state tax expense.

Acquisition related costs. Acquisition related expenses decreased $725 in 2018 compared to 2017. The decrease is attributable to the fact that there were no acquisitions in 2018 as well as an adjustment to the deferred investment property acquisition obligations.

Business management fee. Business management fees increased $149 in 2018 compared to 2017. The increase is due to the 2017 acquisitions of real estate which increased assets under management. There were no acquisitions in 2018.

Provision for asset impairment. During the year ended December 31, 2017, we recorded an impairment charge for one of our investment properties that was previously leased to Sports Authority based on the results of our evaluations for impairment due to a low occupancy rate, difficulty in leasing space, declining market rents and the related cost of re-leasing.

Depreciation and amortization. Depreciation and amortization decreased $3,969 in 2018 compared to 2017. The decrease is primarily due to write-offs of replaced assets and a redevelopment in 2017.

Interest expense. Interest expense increased $2,555 in 2018 compared to 2017. The increase is primarily due to additional financing of properties after January 1, 2017, increased amounts drawn under the Credit Facility and higher interest rates on our floating debt. Average debt outstanding increased $40,649 in 2018 compared to 2017.

Interest and other income. Interest and other income increased $369 in 2018 compared to 2017. The increase is primarily due to interest earned on our note receivable which was funded in 2018 and settlement income.

The following table sets forth leasing activity during the year ended December 31, 2019. Leases with terms of less than 12 months have been excluded from the table.

Accounting for real estate assets in accordance with U.S. 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 U.S. GAAP accounting may not present a complete view of their performance. We use Funds from Operations, or “FFO”, a widely accepted metric to evaluate our performance. FFO provides a supplemental measure to compare our performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or “NAREIT”, has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT. On November 7, 2018, NAREIT’s Executive Board approved the White Paper restatement, effective December 15, 2018. The purpose of the restatement was not to change the fundamental definition of FFO but to clarify existing guidance. The restated definition of FFO by NAREIT is net income (loss) computed in accordance with U.S. GAAP, excluding depreciation and amortization related to real estate, excluding gains (or losses) from sales of certain real estate assets, excluding impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate and excluding gains and losses from change in control. We have adopted the restated NAREIT definition for computing FFO. Previously presented periods were not impacted.

Under U.S. GAAP, acquisition related costs are treated differently if the acquisition is a business combination or an asset acquisition. An acquisition of a single property will likely be treated as an asset acquisition as opposed to a business combination and acquisition related costs will be capitalized rather than expensed when incurred. Publicly registered, non-listed REITs typically engage in a significant amount of acquisition activity in the early years of their operations, and thus incur significant acquisition related costs, during these initial years. Although other start up entities may engage in significant acquisition activity during their initial years, publicly registered, non-listed REITs are unique in that they typically have a limited timeframe during which they acquire a significant number of properties and thus incur significant acquisition related costs. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Institute for Portfolio Alternatives, or “IPA”, an industry trade group, published a standardized measure known as Modified Funds from Operations, or “MFFO”, which the IPA has promulgated as a supplemental measure for publicly registered non-listed REITs and which may be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that, when compared year-over-year, both before and after we have deployed all of our Offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.

MFFO excludes expensed costs associated with investing activities, some of which are acquisition related costs that affect our operations only in periods in which properties are acquired, and other non-operating items that are included in FFO, such as straight-lining of rents as required by U.S. GAAP. By excluding costs that we consider more reflective of acquisition activities and other non-operating items, the use of MFFO provides another measure of our operating performance once our portfolio is stabilized. Because MFFO may be a recognized measure of operating performance within the non-listed REIT industry, MFFO and the adjustments used to calculate it may be useful in order to evaluate our performance against other non-listed REITs. Like FFO, MFFO is not equivalent to our net income or loss as determined under U.S. GAAP, as detailed in the table below, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we continue to acquire a significant amount of properties. MFFO should only be used as a measurement of our operating performance while we are acquiring a significant amount of properties because it excludes, among other things, acquisition costs incurred during the periods in which properties were acquired.

We believe our definition of MFFO, a non-U.S. GAAP measure, is consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the “Practice Guideline,” issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of U.S. GAAP net income: acquisition fees and expenses; amounts relating to straight-line rents and amortization of above and below market lease assets and liabilities, accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.

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

Our FFO and MFFO for the years ended December 31, 2019, 2018 and 2017 are calculated as follows (Dollar amounts in thousands):

Our accounting policies have been established to conform with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Our significant accounting policies are described in Note 2 – “Summary of Significant Accounting Policies” which is included in our December 31, 2019 Notes to Consolidated Financial Statements in Item 8. We have identified Impairment of Investment Properties and Equity Method Investments as a critical accounting policy.

We consider this policy to be critical because it requires our management to use judgment in the application of 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or 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 our results of operations to those of companies in similar businesses.

We assess the carrying values of the respective long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. If it is determined that the carrying value is not recoverable because the undiscounted cash flows do not exceed the carrying value, we will be required to record an impairment loss to the extent that the carrying value exceeds fair value. The valuation and possible subsequent impairment of investment properties will be a significant estimate that can change based on our continuous process of analyzing each property and reviewing assumptions about inherently uncertain factors, as well as the economic condition of the property at a particular point in time.

For information related to recently issued accounting pronouncements, reference is made to Note 2 – “Summary of Significant Accounting Policies” which is included in our December 31, 2019 Notes to Consolidated Financial Statements in Item 8.

Our mortgages payable are generally non-recourse to us. We have, however, guaranteed the full amount of each of the mortgages payable by our subsidiaries in the event that the applicable subsidiary fails to provide access or information to the properties or fails to obtain a lender’s prior written consent to any liens on or transfers of any of the properties, and in the event of any losses, costs or damages incurred by a lender as a result of fraud or intentional misrepresentation of the subsidiary borrower, gross negligence or willful misconduct, material waste of the properties and the breach of any representation or warranty concerning environmental laws, among other things.

The table below presents, on a consolidated basis, our obligations and commitments to make future payments under debt obligations (including interest) and ground leases as of December 31, 2019. The ground lease commenced on July 1, 2007 and extends through June 30, 2037, with six 5-year options. Debt obligations under debt which is subject to variable rates reflect interest rates as of December 31, 2019 (Dollar amounts in thousands).

We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We are exposed to various market risks, including those caused by changes in interest rates and commodity prices. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and commodity prices. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We have entered into, and may continue to enter into, financial instruments to manage and reduce the impact of changes in interest rates. The counterparties are, and are expected to continue to be, major financial institutions.

We are 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 December 31, 2019, we had outstanding debt of $683.9 million, excluding mortgage premium and unamortized debt issuance costs, bearing interest rates ranging from 2.95% to 5.48% per annum. The weighted average interest rate was 3.78%, which includes the effect of interest rate swaps. As of December 31, 2019, the weighted average years to maturity for our mortgages and credit facility payable was 3.5 years.

As of December 31, 2019, our fixed-rate debt consisted of secured mortgage financings with a carrying value of $164.0 million and a fair value of $168.9 million. Changes in interest rates do not affect interest expense incurred on our fixed-rate debt until their maturity or earlier repayment, but interest rates do affect the fair value of our fixed rate debt obligations. If market interest rates were to increase by 1% (100 basis points), the fair market value of our fixed-rate debt would decrease by $6.8 million at December 31, 2019. If market interest rates were to decrease by 1% (100 basis points), the fair market value of our fixed-rate debt would increase by $7.2 million at December 31, 2019.

At December 31, 2019, we had $117.7 million of debt or 17.2% of our total debt bearing interest at variable rates not fixed by swap agreements with a weighted average interest rate equal to 3.45% per annum. We had variable rate debt subject to swap agreements fixing the rate of $402.2 million or 58.8% of our total debt at December 31, 2019.

If interest rates on all debt which bears interest at variable rates as of December 31, 2019 increased by 1% (100 basis points), the increase in interest expense on all debt would decrease earnings and cash flows by $1.2 million annually. If interest rates on all debt which bears interest at variable rates as of December 31, 2019 decreased by 1% (100 basis points), the decrease in interest expense would increase earnings and cash flows by the same amount.

With regard to variable rate financing, our Business Manager assesses our interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. Our Business Manager maintains risk management control systems to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions.

We use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions are determined in light of the facts and circumstances existing at the time of the hedge. We have used derivative financial instruments, specifically interest rate swap contracts, to hedge against interest rate fluctuations on variable rate debt, which exposes us to both credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us because the counterparty may not perform. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We seek to manage the market risk associated with interest-rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. There is no assurance we will be successful.

In July 2017, the Financial Conduct Authority, which regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the SOFR as its preferred alternative to LIBOR in derivatives and other financial contracts. The Company is not able to predict when LIBOR may be limited or discontinued or when there will be sufficient liquidity in the SOFR market. We have material contracts that are indexed to LIBOR and are monitoring this activity and evaluating the related risks.

For information related to derivatives, reference is made to Note 8 – “Debt and Derivative Instruments” which is included in our December 31, 2019 Notes to Consolidated Financial Statements in Item 8.

All schedules other than the one listed in the Index have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

We have audited the accompanying consolidated balance sheets of Inland Real Estate Income Trust, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, equity, and cash flows for each of the years in the three‑year period ended December 31, 2019, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

	Number of Shares			Common Stock			Additional Paid in Capital			Accumulated Distributions and Net Loss			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2016		35,262,283		$	35		$	792,531		$	(140,417	)	$	2,305		$	654,454

Distributions declared ($1.50 per share)		—			—			—			(53,364	)		—			(53,364	)
Proceeds from distribution reinvestment plan		1,197,415			1			27,068			—			—			27,069
Shares repurchased		(961,698	)		(1	)		(21,065	)		—			—			(21,066	)
Unrealized gain on derivatives		—			—			—			—			1,043			1,043
Reclassification adjustment for amounts included in net loss		—			—			—			—			2,405			2,405
Equity based compensation		444			—			33			—			—			33
Net loss		—			—			—			(19,102	)		—			(19,102	)

Balance at December 31, 2017		35,498,444			35			798,567			(212,883	)		5,753			591,472

Distributions declared ($1.34 per share)		—			—			—			(47,700	)		—			(47,700	)
Proceeds from distribution reinvestment plan		864,039			1			19,338			—			—			19,339
Shares repurchased		(1,020,223	)		(1	)		(22,544	)		—			—			(22,545	)
Unrealized gain on derivatives		—			—			—			—			291			291
Reclassification adjustment for amounts included in net loss		—			—			—			—			(551	)		(551	)
Equity based compensation		996			—			48			—			—			48
Net loss		—			—			—			(23,276	)		—			(23,276	)

Balance at December 31, 2018		35,343,256			35			795,409			(283,859	)		5,493			517,078

Distributions declared ($1.2072 per share)		—			—			—			(43,162	)		—			(43,162	)
Proceeds from distribution reinvestment plan		949,012			1			19,641			—			—			19,642
Shares repurchased		(494,435	)		—			(9,381	)		—			—			(9,381	)
Unrealized gain on derivatives		—			—			—			—			(11,513	)		(11,513	)
Reclassification adjustment for amounts included in net loss		—			—			—			—			(754	)		(754	)
Cumulative reversal of recognized hedge ineffectiveness (see Note 2)		—			—			—			134			(134	)		—
Cumulative-effect adjustment recognized upon adoption of ASC 842 (see Note 2)											(24	)					(24	)
Equity based compensation		1,555			—			53			—			—			53
Net loss		—			—			—			(11,420	)		—			(11,420	)

Balance at December 31, 2019		35,799,388		$	36		$	805,722		$	(338,331	)	$	(6,908	)	$	460,519

	2019			2018			2017
Cash flows from operating activities:
Net loss	$	(11,420	)	$	(23,276	)	$	(19,102	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		57,691			57,835			61,804
Gain on sale of investment properties		(3,279	)		—			—
Provision for asset impairment		4,420			—			8,530
Provision for impairment of investment in and note receivable from unconsolidated entities		—			15,405			—
Amortization of debt issuance costs and mortgage premiums, net		604			596			397
Loss on extinguishment of debt		—			411			—
Amortization of acquired market leases, net		(1,405	)		(917	)		(1,415	)
Amortization of equity based compensation		53			48			33
Amortization of right-of-use asset		485			—			—
Straight-line income, net		(1,644	)		(1,180	)		(1,678	)
Equity in (earnings) loss of unconsolidated entity		—			—			(21	)
Distributions from unconsolidated entity		—			—			146
Adjustment of contingent earnout liability		—			(853	)		575
Gain on early termination of interest rate swap agreements		—			(1,151	)		—
Other non-cash adjustments		36			149			(40	)
Changes in assets and liabilities:
Accounts payable and accrued expenses		(196	)		(1,848	)		3,249
Accounts and rent receivable		(672	)		906			(1,020	)
Other assets		(1,671	)		(1,510	)		(297	)
Due to related parties		2,408			(33	)		(188	)
Operating lease liability		319			—			—
Other liabilities		1,034			469			(102	)
Net cash flows provided by operating activities		46,763			45,051			50,871

Cash flows from investing activities:
Purchase of investment properties		—			—			(69,953	)
Proceeds from sale of investment properties		14,872			—			—
Capital expenditures		(10,012	)		(10,087	)		(6,209	)
Investment in unconsolidated joint ventures		—			(2,736	)		(6,917	)
Other assets and other liabilities		—			(5,800	)		(203	)
Net cash flows provided by (used in) investing activities		4,860			(18,623	)		(83,282	)

Cash flows from financing activities:
Payment of credit facility		(25,001	)		(56,278	)		(43,000	)
Proceeds from credit facility		7,500			257,000			95,800
Proceeds from mortgages payable		—			—			39,179
Payment of mortgages payable		(7,660	)		(184,947	)		(6,494	)
Proceeds from the distribution reinvestment plan		19,642			19,339			27,069
Shares repurchased		(12,566	)		(19,612	)		(19,984	)
Distributions paid		(44,245	)		(40,313	)		(53,315	)
Early termination of interest rate swap agreements		—			1,192			—
Payment of deferred investment property acquisition obligation		—			(1,050	)		(6,415	)
Payment of debt issuance costs		—			(2,363	)		(442	)
Net cash flows (used in) provided by financing activities		(62,330	)		(27,032	)		32,398

Net decrease in cash, cash equivalents and restricted cash		(10,707	)		(604	)		(13	)
Cash, cash equivalents and restricted cash, at beginning of the year		16,240			16,844			16,857
Cash, cash equivalents and restricted cash, at end of the year	$	5,533		$	16,240		$	16,844

Inland Real Estate Income Trust, Inc. (the “Company”) was formed on August 24, 2011 to acquire and manage a portfolio of commercial real estate investments located in the United States. The Company is primarily focused on acquiring retail properties and targets a portfolio of 100% grocery-anchored properties. The Company has invested in joint ventures and may continue to invest in additional joint ventures or acquire other real estate assets if its management believes the expected returns from those investments exceed that of retail properties. The Company also may invest in real estate-related equity securities of both publicly traded and private real estate companies, as well as commercial mortgage-backed securities.

The Company has no employees. The Company is managed by IREIT Business Manager & Advisor, Inc. (the “Business Manager”), an indirect wholly owned subsidiary of Inland Real Estate Investment Corporation (the “Sponsor”), pursuant to a Business Management Agreement with the Business Manager.

On January 16, 2018, the Company effected a 1-for-2.5 reverse stock split of its issued and outstanding common stock whereby every 2.5 shares of issued and outstanding common stock were converted into one share of its common stock (the “Reverse Stock Split”). In accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), all share information presented has been retroactively adjusted to reflect the Reverse Stock Split.

On February 11, 2019, the Company’s board of directors approved a strategic plan (the “Strategic Plan”) with the goals of providing future liquidity to investors and creating long-term stockholder value. The Strategic Plan centers around owning a portfolio of 100% grocery-anchored properties with lower exposure to big box retailers. Consistent with the Strategic Plan, the Company sold 12 properties in 2019 and three additional properties in 2020, as further described in Note 5 – “Dispositions” and Note 18 – “Subsequent Events.” The Company’s management team and board are considering the opportunistic sale of certain other assets with the goal of redeploying capital into the acquisition of strategically located grocery-anchored centers, as well as the redevelopment of select centers within the current portfolio. The Company is considering moving toward a liquidity event in approximately two years, market conditions permitting, most likely through a listing on a public securities exchange.

In connection with the Strategic Plan, the Company’s share repurchase program (as amended, the “SRP”) was amended and restated, effective March 21, 2019, and the Business Management Agreement with the Business Manager was amended and restated on February 11, 2019 to, among other things, eliminate all future acquisition and disposition fees. On March 3, 2020, the Company’s SRP was amended and restated (the “Third A&R SRP”), which will become effective on April 10, 2020, as further described below in Note 3 – “Equity”. The Strategic Plan may evolve or change over time. For example, the Company may decide to focus more on redeveloping existing properties relative to investing in new grocery-anchored centers, depending on such factors, including, but not limited to, market prices for its properties, availability of capital for redevelopment and construction costs. There is no assurance the Company will be able to successfully implement the Strategic Plan, including listing the Company’s common stock.

On March 3, 2020, as reported in the Company’s Form 8-K filed with the Securities and Exchange Commission on the same date, the Company announced that the Company’s board of directors unanimously approved: (i) an estimated per share net asset value (the “Estimated Per Share NAV”) as of December 31, 2019; (ii) the same per share purchase price for shares issued under the Company’s distribution reinvestment plan (as amended, the “DRP”) beginning with the first quarter distribution payment to stockholders in April 2020 until the Company announces a new Estimated Per Share NAV, and (iii) that, in accordance with the SRP, beginning with repurchases in April 2020 and until the Company announces a new Estimated Per Share NAV, any shares accepted for ordinary repurchases and “exceptional repurchases” will be repurchased at 80% of the Estimated Per Share NAV.

At December 31, 2019, the Company owned 47 retail properties, totaling 6,758,359 square feet. The properties are located in 23 states. At December 31, 2019, the portfolio had a weighted average physical occupancy of 94.0% and economic occupancy of 94.4%.

The consolidated financial statements have been prepared in accordance with U.S. GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In the opinion of management, all adjustments necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods are presented. Actual results could differ from those estimates. Information with respect to square footage and occupancy is unaudited.

Certain amounts in the prior period consolidated financial statements have been reclassified to conform with the current year presentation.

The consolidated financial statements include the accounts of the Company, as well as all wholly owned subsidiaries. Wholly owned subsidiaries generally consist of limited liability companies (“LLCs”). All intercompany balances and transactions have been eliminated in consolidation. Each property is owned by a separate legal entity which maintains its own books and financial records and each entity’s assets are not available to satisfy the liabilities of other affiliated entities.

The Company will consolidate the operations of a joint venture if the Company determines that it is either the primary beneficiary of a variable interest entity (VIE) or has substantial influence and control of the entity. In instances where the Company determines that it is not the primary beneficiary of a VIE or the Company does not control the joint venture but can exercise influence over the entity with respect to its operations and major decisions, the Company will use the equity method of accounting. Under the equity method, the operations of a joint venture will not be consolidated with the Company’s operations but instead its share of operations will be reflected as equity in earnings (loss) of unconsolidated entity on its consolidated statements of operations and comprehensive loss. Additionally, the Company’s net investment in the joint venture will be reflected as investment in unconsolidated entity on the consolidated balance sheets.

Upon acquisition of real estate investment properties, the Company allocates the total purchase price of each property that is accounted for as an asset acquisition based on the relative fair value of the tangible and intangible assets acquired and liabilities assumed based on Level 3 inputs, such as comparable sales values, discount rates, capitalization rates, revenue and expense growth rates and lease-up assumptions, from a third party appraisal or other market sources. The acquisition date is the date on which the Company obtains control of the real estate investment property and transaction costs are capitalized.

Assets and liabilities acquired typically include land, building and site improvements and identified intangible assets and liabilities, consisting of the value of above market and below market leases and the value of in-place leases. The portion of the purchase price allocated to above market lease values is included in acquired lease intangible assets, net and is amortized on a straight-line basis over the term of the related lease as a reduction to rental income. The portion allocated to below market lease values is included in acquired intangible liabilities, net and is amortized as an increase to rental income over the term of the lease including any renewal periods with fixed rate renewals. The portion of the purchase price allocated to acquired in-place lease value is included in acquired lease intangible assets, net and is amortized on a straight-line basis over the acquired leases’ weighted average remaining term.

The Company determines the fair value of the tangible assets consisting of land and buildings by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings. The Company determines the fair value of assumed debt by calculating the net present value of the mortgage payments using interest rates for debt with similar terms and maturities. Differences between the fair value and the stated value is recorded as a discount or premium and amortized over the remaining term using the effective interest method.

Certain of the Company’s properties included earnout components to the purchase price, meaning the Company did not pay a portion of the purchase price of the property at closing, although the Company owns the entire property. The Company is not obligated to settle the contingent portion of the purchase price unless space which was vacant at the time of acquisition is later leased by the seller within the time limits and parameters set forth in the related acquisition agreements. The Company’s policy is to record earnout components when estimable and probable. At December 31, 2019, there is no earnout liability outstanding.

The Company assesses the carrying values of its respective long-lived assets whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Recoverability of the assets is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows. In order to review its assets for recoverability, the Company considers current market conditions, as well as its intent with respect to holding or disposing of the asset. If the Company’s analysis indicates that the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, the Company recognizes an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the real estate property. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third party appraisals, where considered necessary (Level 3 inputs).

The Company estimates the future undiscounted cash flows based on management’s intent as follows: (i) for real estate properties that the Company intends to hold long-term, including land held for development, properties currently under development and operating buildings, recoverability is assessed based on the estimated future net rental income from operating the property and termination value; and (ii) for real estate properties that the Company intends to sell, including land parcels, properties currently under development and operating buildings, recoverability is assessed based on estimated net proceeds, including net rental income during the holding period, from disposition that are estimated based on future net rental income of the property and utilizing expected market capitalization rates.

The use of projected future cash flows is based on assumptions that are consistent with our estimates of future expectations and the strategic plan the Company uses to manage its underlying business. However, assumptions and estimates about future cash flows, including comparable sales values, discount rates, capitalization rates, revenue and expense growth rates and lease-up assumptions which impact the discounted cash flow approach to determining value are complex and subjective. Changes in economic and operating conditions and the Company’s ultimate investment intent that occur subsequent to the impairment analysis could impact these assumptions and result in future impairment charges of real estate properties.

On a quarterly basis, management assesses whether there are any indicators that the carrying value of the Company’s investment in unconsolidated entities and notes receivable may be other than temporarily impaired as a loss in value that is other than a temporary decline is required to be recognized. Indicators include significant delays in construction, significant costs over budget and financial concerns. To the extent indicators suggest that a loss in value may have occurred, the Company will evaluate both quantitative and qualitative factors to determine if the loss in value is other than temporary. If a potential loss in value is determined to be other than temporary, the Company will recognize an impairment loss based on the estimated fair value of the investment.

During the year ended December 31, 2019, the Company recorded an impairment charge of $4,420 which is included in provision for asset impairment on the consolidated statement of operations and comprehensive loss. During the year ended December 31, 2018, the Company recorded an impairment charge of $9,865 related to its investment in Mainstreet Texas Development Fund, LLC, a joint venture formed to develop three transitional care/rapid recovery centers (“Mainstreet JV”). The Company determined that, as of December 31, 2018, collection of its note receivable from Mainstreet JV is improbable and therefore, recorded an impairment charge of $5,540 to reduce the note receivable balance to zero. Both impairment charges related to Mainstreet JV are included in provision for impairment of investment in and note receivable from unconsolidated entities on the consolidated statement of operations and comprehensive loss. During the year ended December 31, 2017, the Company recorded an impairment charge of $8,530 which is included in provision for asset impairment on the consolidated statement of operations and comprehensive loss.

The Company elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ended December 31, 2013. Commencing with such taxable year, the Company was organized and began operating in such a manner as to qualify for taxation as a REIT under the Internal Revenue Code and believes it has so qualified. As a result, the Company generally will not be subject to federal income tax on taxable income that is distributed to stockholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distributes at least 90% of its REIT taxable income (subject to certain adjustments and excluding any net capital gain) to its stockholders. The Company will monitor the business and transactions that may potentially impact its REIT status. If the Company fails to qualify as a REIT in any taxable year, without the benefit of certain statutory relief provisions, the Company will be subject to tax as a “C corporation.” Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and federal income and excise taxes. Any taxable REIT subsidiaries generally will be subject to federal income tax applicable to “C corporations.”

The Company considers all demand deposits, money market accounts and all short-term investments with a maturity of three months or less, at the date of purchase, to be cash equivalents. The account balance may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes that the risk will not be significant, as the Company does not anticipate the financial institutions’ non-performance.

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 our existing properties. These amounts also include post close escrows for tenant improvements, leasing commissions, master lease, general repairs and maintenance, and are classified as restricted cash on the Company’s consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Company’s consolidated balance sheets to such amounts shown on the Company’s consolidated statements of cash flows:

The Company takes into consideration certain factors that require judgments to be made as to the collectability of receivables. Collectability factors taken into consideration are the amounts outstanding and payment history of the tenant. The Company includes both billed and accrued charges in its evaluation of the collectability of a tenant’s receivable balance. For tenant receivables that the Company determines to be uncollectible, the Company records an offset for uncollectable tenant revenues directly to rental income.

Real estate properties held and used are recorded at cost less accumulated depreciation. Real estate properties held for sale are recorded at the lesser of their carrying value or fair value less selling costs. Improvement and betterment costs are capitalized, and ordinary repairs and maintenance are expensed as incurred.

Real estate properties are classified as held for sale when the Company concludes that a sale is likely. Criteria that may be considered in this determination include obtaining a signed purchase and sale agreement, the completion and waiving of due diligence by the seller, and the receipt of non-refundable earnest money from the seller.

Cost capitalization and the estimate of useful lives require judgment and include significant estimates that can and do change. Depreciation expense is computed using the straight-line method. The Company anticipates the estimated useful lives of its assets by class to be generally:

Depreciation expense was $39,304, $38,040 and $39,497 for the years ended December 31, 2019, 2018 and 2017, respectively. Amortization of leasing fees were $546, $360, and $168 for the years ended December 31, 2019, 2018 and 2017, respectively.

Debt issuance costs are amortized on a straight-line basis, which approximates the effective interest method, over the term, or anticipated repayment date, of the related agreements as a component of interest expense. These costs are reported as a direct deduction to the Company’s outstanding mortgages and credit facility payable.

The Company has estimated fair value using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that would be realized upon disposition.

The Company defines fair value based on the price that it believes would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

The Company’s cash equivalents, accounts receivable and payables and accrued expenses all approximate fair value due to the short term nature of these financial instruments. The Company’s financial instruments measured on a recurring basis include derivative interest rate instruments.

The Company uses derivative instruments, such as interest rate swaps, primarily to manage exposure to interest rate risks inherent in variable rate debt. The Company may also enter into forward starting swaps or treasury lock agreements to set the effective interest rate on a planned fixed-rate financing. The Company’s interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In a forward starting swap or treasury lock agreement that the Company cash settles in anticipation of a fixed rate financing or refinancing, the Company will receive or pay an amount equal to the present value of future cash flow payments based on the difference between the contract rate and market rate on the settlement date. The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging.

The Company commences revenue recognition for its operating leases on the commencement date of the lease, which the Company considers is the date on which it makes the leased space available to the lessee.

The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset. If the Company is the owner, for accounting purposes, of the tenant improvements, then the tenant improvements are capitalized and depreciated over the life of the lease. If the Company concludes it is not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded by the Company under the lease are treated as lease incentives which reduce revenue recognized over the term of the lease. The Company considers a number of different factors to evaluate whether it or the lessee is the owner of the tenant improvements for accounting purposes.

Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rent receivable on the consolidated balance sheets. Due to the impact of the straight-line basis, rental income generally will be greater than the cash collected in the early years and will decrease in the later years of a lease.

Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the applicable expenses are incurred. The Company makes certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. The Company does not expect the actual results to materially differ from the estimated reimbursement. The Company made the election for these reimbursements, which are non-lease components, to be combined with rental income.

The Company records lease termination income if there is a signed termination agreement, all of the conditions of the agreement have been met and amounts due are considered collectible. Such termination fees are recognized on a straight-line basis over the remaining lease term in rental income.

As a lessor, the Company defers the recognition of contingent rental income, such as percentage rent, until the specified target that triggered the contingent rental income is achieved.

The Company has restricted shares and units outstanding at December 31, 2019 and 2018. The Company recognizes expense related to the fair value of equity-based compensation awards as general and administrative expense on the consolidated statements of operations and comprehensive loss. The Company primarily recognizes expense based on the fair value at the grant date on a straight-line basis over the vesting period representing the requisite service period and adjusts expense for forfeitures as they occur. See Note 9 - "Equity-Based Compensation" for further information.

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. Among other things, the guidance eliminated the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. As ASU 2017-12 was effective for fiscal years beginning after December 15, 2018, the Company adopted the ASU on January 1, 2019 with a modified retrospective transition. For cash flow hedges existing at January 1, 2019, the Company eliminated the separate measurement of ineffectiveness by means of a cumulative reversal of recognized hedge ineffectiveness with a credit to the opening balance of accumulated distributions and net loss and a debit to accumulated other comprehensive income of $134 on its consolidated balance sheet and consolidated statement of equity.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) which amends the guidance in ASC Topic 840, Leases. The Company adopted the lease standard effective January 1, 2019. As a lessor, the Company’s recognition of rental income remained mainly consistent with previous guidance. As a result of the adoption of ASC 842, the Company includes both billed and accrued charges in its quarterly evaluation of the collectability of a tenant’s receivable balance. Prior to the adoption of ASC 842, uncollectible tenant revenues were recorded as bad debt expense in property operating expenses on its consolidated statements of operations and comprehensive loss. For tenant receivables that the Company determines to be uncollectible, the Company now records an offset for uncollectible tenant revenues directly to rental income. Upon adoption of ASC 842 on January 1, 2019, a cumulative-effect adjustment of $24 was recognized for uncollectible tenant revenues as a result of this change. The standard’s changes related to capitalized initial direct costs did not impact the Company’s accounting for such costs, because historically, the Company capitalized initial direct costs (commissions) that are still considered capitalizable under the new standard.

As part of its adoption of the lease standard, the Company has elected and qualifies to utilize the practical expedient in ASU No. 2018-11, Targeted Improvements, Leases (Topic 842) issued in July 2018, which allows, by class of underlying assets, to not separate non-lease components from the related lease components and, instead, to account for those components as a single lease. This practical expedient for lessors is limited to circumstances in which the non-lease component or components would be accounted for under the new revenue guidance and both (1) the timing and pattern of transfer are the same for the non-lease component(s) and associated lease component and (2) the lease component, if accounted for separately, would be classified as an operating lease.

The Company also elected the package of practical expedients in ASU No. 2018-11, which permitted the Company to adopt the new leases standard under a transition method whereby it initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Therefore, the Company adopted ASU No. 2016-02 on its effective date without restating comparative periods and utilized the practical expedients available in the amendment as part of its adoption. The package of practical expedients included relief from re-assessing a lease using the standard’s new definition of a lease, relief from re-assessing the classification of a lease and allowing previously capitalized initial direct costs (see above) to continue to be amortized. The adoption of the package of practical expedients, as a lessor, did not require the Company to recognize a cumulative effect adjustment.

For lessees, ASU No. 2016-02 establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The Company is the lessee of a ground lease. The Company has elected the practical expedient that, for leases that commenced before the effective date, the lessee need not reassess whether the contract is a lease nor reassess lease classification for existing leases. The lease liability for the ground lease was based on the present value of the ground lease’s future lease payments using an interest rate which it considers reasonable and within the range of the Company’s incremental borrowing rate. At January 1, 2019, the Company recorded a lease liability of $23,377 and a ROU asset of $15,963 on its consolidated balance sheet. Rental expense for lease payments related to the operating lease will continue to be recognized on a straight-line basis over the lease term.

The Company commenced an initial public “best efforts” offering (the “Offering”) on October 18, 2012, which concluded on October 16, 2015. The Company sold 33,534,022 shares of common stock generating gross proceeds of $834,399 from the Offering. On March 3, 2020, the Company’s board of directors determined an estimated per share NAV of the Company’s common stock as of December 31, 2019. The previously estimated per share NAV of the Company’s common stock as of December 31, 2018 was established on March 5, 2019.

The Company provides the following programs to facilitate additional investment in the Company’s shares and to provide limited liquidity for stockholders.

On October 19, 2015, the Company registered 25,000,000 shares of common stock to be issued under its distribution reinvestment plan (“DRP”) pursuant to a registration statement on Form S-3D. The Company provides stockholders with the option to purchase additional shares from the Company by automatically reinvesting cash distributions through the DRP, subject to certain share ownership restrictions. The Company does not pay any selling commissions or a marketing contribution and due diligence expense allowance in connection with the DRP. Pursuant to the DRP, the price per share for shares of common stock purchased under the DRP is equal to the estimated value of a share, as determined by the Company’s board of directors and reported by the Company from time to time, until the shares become listed for trading, if a listing occurs, assuming that the DRP has not been terminated or suspended in connection with such listing.

Distributions reinvested through the DRP were $19,642, $19,339 and $27,069 for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company adopted a share repurchase program (as amended, “SRP”) effective October 18, 2012, under which the Company is authorized to purchase shares from stockholders who purchased their shares from the Company or received their shares through a non-cash transfer and who have held their shares for at least one year. Purchases are in the Company’s sole discretion. In the case of repurchases made upon the death of a stockholder or qualifying disability (“Exceptional Repurchases”), as defined in the SRP, the one year holding period does not apply. The SRP was amended and restated effective January 1, 2018 to change the processing of repurchase requests from a monthly to a quarterly basis to align with the move to quarterly distributions. On February 11, 2019, the Company’s board of directors adopted a second amended and restated SRP, effective March 21, 2019. On March 3, 2020 the Company’s board of directors adopted the Third A&R SRP. Under the Third A&R SRP, the Company is authorized to make ordinary repurchases and Exceptional Repurchases at a price equal to 80.0% of the “share price,” which is defined in the Third A&R SRP as an amount equal to the lesser of: (A) $25, as adjusted under certain circumstances, including, among other things, if the applicable shares were purchased from the Company at a discounted price; or (B) the most recently disclosed estimated value per share. Prior to the amendment, the Company was authorized to make Exceptional Repurchases at a price equal to 100% of the “share price.”

The Third A&R SRP provides the Company’s board of directors with the discretion to reduce the funding limit for share repurchases. The Third A&R SRP limits the dollar amount for any repurchases made by the Company each calendar quarter to an amount equal to a percentage determined in the sole discretion of the board on a quarterly basis that will not be less than 50% of the net proceeds from the DRP during the applicable quarter. The Company continues to limit the number of shares repurchased during any calendar year to 5% of the number of shares outstanding on December 31st of the previous calendar year, as adjusted for any stock splits or other combinations.

If either or both of the repurchase limitations prevent the Company from repurchasing all of the shares offered for repurchase during a calendar quarter, the Company will repurchase shares, on a pro rata basis within each category below, in accordance with the repurchase limitations in the following order: (a) first, all Exceptional Repurchases and (b) second, all ordinary repurchases. The SRP will immediately terminate if the Company’s shares become listed for trading on a national securities exchange. For any quarter ended, unfulfilled repurchase requests will be included in the list of requests for the following quarter unless the request is withdrawn in accordance with the SRP. However, each stockholder who has submitted a repurchase request must submit an acknowledgment annually after we publish a new estimated value per share acknowledging, among other things, that the stockholder wishes to maintain the request. If we do not receive the acknowledgment prior to the repurchase date, we will deem the request to have been withdrawn.

Repurchases through the SRP were $9,381, $22,545 and $21,066 for the years ended December 31, 2019, 2018 and 2017, respectively. At December 31, 2019 and 2018, the liability related to the SRP was $2,278 and $5,463, respectively, recorded in other liabilities on the Company’s consolidated balance sheets.

During the year ended December 31, 2019, the Company did not acquire any additional properties.

During the year ended December 31, 2018, the Company did not acquire any additional properties.

During the year ended December 31, 2017, the Company acquired, through its wholly owned subsidiaries, the three properties listed below from unaffiliated third parties. The acquisitions were financed with proceeds from the Company’s credit facility (the “Credit Facility”).

The above acquisitions were accounted for as asset acquisitions. For the year ended December 31, 2017, the Company incurred $2,213 of total acquisition costs and fees, $1,459 of which are capitalized as the acquisition of net investment properties on the consolidated balance sheet. An adjustment to the deferred investment property acquisition obligation of $574 and $180 of acquisition and dead deal costs are included in acquisition related costs on the consolidated statement of operations and comprehensive loss. For properties acquired during the year ended December 31, 2017, the Company recorded total income of $5,202 and property net income of $325, which excludes expensed acquisition related costs.

The following table presents certain additional information regarding the Company’s acquisitions during the year ended December 31, 2017. The amounts recognized for major assets acquired and liabilities assumed as of the acquisition date are as follows:

In connection with the Strategic Plan, the Company completed the sale of 12 properties during 2019, generating cash proceeds of $14,872. The Company recognized a gain of $3,279, reflected in gain on sale of investment properties on the consolidated statement of operations and comprehensive loss.

The Company also has three additional properties that met the criteria to be classified as held for sale on the consolidated balance sheet at December 31, 2019. The criteria was met for these properties because, amongst other criteria, the Company had collected non-refundable earnest money from the seller. For these properties, an impairment charge of $4,420, reflected in provision for asset impairment on the consolidated statement of operations and comprehensive loss during the year ended December 31, 2019. The Company completed the sale of the three properties in January 2020 as discussed in Note 18 – “Subsequent Events”.

The following table reflects the major components of the assets and liabilities associated with investment properties held for sale as of December 31, 2019:

In August 2017, the Company, through a wholly owned taxable REIT subsidiary, made an equity commitment to Mainstreet JV to develop, construct, lease, finance and sell parcels of land and related building improvements including personal property which were to be operated as rapid recovery healthcare facilities located in Beaumont, Amarillo and Temple, Texas.

In conjunction with its equity investment in Mainstreet JV, the Company also agreed to provide subsidiaries of Mainstreet JV mezzanine loans in the aggregate amount of $5,400. The loan term was for 48 months with the Company earning interest at a rate of 14.5% per annum and receiving monthly interest payments based on a 10.5% pay rate. The remaining unpaid interest was to be due at maturity or upon certain defined events. The mezzanine loans were guaranteed by one of the other members of the joint venture. The borrowers could draw on the mezzanine loans as needed in connection with the construction of the rapid recovery healthcare facilities, however, did not draw on the mezzanine loans until the Company had fully funded its equity commitment to Mainstreet JV. As of December 31, 2017, the Company had not loaned any funds related to the mezzanine loans.

During 2018, the Company funded its remaining equity commitment to Mainstreet JV, as well as the full $5,400 of mezzanine loans. Subsequently, during 2018, the Company identified several indicators that suggested it was probable that the Company would not recover its equity investment in or the mezzanine loans advanced to Mainstreet JV. Such indicators included construction overruns, loss of a planned tenant and the related cost of re-leasing. Additionally, the construction mortgage lender to Mainstreet JV stopped funding the construction draws for two of the properties and began foreclosure proceedings. As the Company does not intend to fund any more investments in Mainstreet JV and it does not expect to recover any of its previous investments, the Company determined an impairment for both its investment in and notes receivable from Mainstreet JV is appropriate.

During the year ended December 31, 2018, the Company recorded an impairment to its investment in Mainstreet JV of $9,865 and an impairment to its notes receivable from unconsolidated entities of $5,540, both included in provision for impairment of investment in and note receivable from unconsolidated entities on the consolidated statement of operations and comprehensive loss. Both amounts represent a full impairment of such investments.

The following table summarizes the Company’s identified intangible assets and liabilities as of December 31, 2019 and 2018:

The portion of the purchase price allocated to acquired above market lease value and acquired below market lease value is amortized on a straight-line basis over the term of the related lease as an adjustment to rental income. For below market lease values, the amortization period includes any renewal periods with fixed rate renewals. Prior to January 1, 2019, the acquired above market ground lease was amortized on a straight-line basis as an adjustment to property operating expense over the term of the lease and included renewal periods. At date of the adoption of ASC 842 on January 1, 2019, the remaining balance of the intangible related to the above market ground lease was derecognized as a cumulative-effect adjustment to establish the operating lease ROU asset. 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.

Amortization pertaining to acquired in-place lease value, above market ground lease, above market lease value and below market lease value is summarized below:

Estimated amortization of the respective intangible lease assets and liabilities as of December 31, 2019 for each of the five succeeding years and thereafter is as follows:

As of December 31, 2019 and 2018, the Company had the following mortgages and credit facility payable:

The Company’s indebtedness bore interest at a weighted average interest rate of 3.78% per annum at December 31, 2019, which includes the effects of interest rate swaps. The Company estimates the fair value of its total debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by the Company’s lenders using Level 3 inputs. The carrying value of the Company’s debt excluding mortgage premium and unamortized debt issuance costs was $683,936 and $709,097 as of December 31, 2019 and 2018, respectively, and its estimated fair value was $689,790 and $709,737 as of December 31, 2019 and 2018, respectively.

As of December 31, 2019, scheduled principal payments and maturities on the Company’s debt were as follows:

The Company’s credit facility (the “Credit Facility”) consisting of a $200,000 revolving credit facility (the “Revolving Credit Facility”) and a $150,000 term loan (the “Term Loan”) has an accordion feature that allows for an increase in available borrowings up to $700,000, subject to certain conditions.

At December 31, 2019, the Company had $117,022 outstanding under the Revolving Credit Facility and $150,000 outstanding under the Term Loan. At December 31, 2019 the interest rate on the Revolving Credit Facility and the Term Loan was 3.45% and 4.29%, respectively. The Revolving Credit Facility matures on August 1, 2022, and the Company has the option to extend the maturity date for one additional year subject to the payment of an extension fee and certain other conditions. The Term Loan matures on August 1, 2023. As of December 31, 2019 the Company had $82,978 available for borrowing under the Revolving Credit Facility.

The Company’s performance of the obligations under the Credit Facility, including the payment of any outstanding indebtedness under the Credit Facility, is guaranteed by certain subsidiaries of the Company, including each of the subsidiaries of the Company which owns or leases any of the properties included in the pool of unencumbered properties comprising the borrowing base. Additional properties will be added to and removed from the pool from time to time to support amounts borrowed under the Credit Facility. At December 31, 2019, there were 28 properties included in the pool of unencumbered properties. During the year ended December 31, 2019, the Company paid-off two mortgage loans with a principal balance of $7,447.

The Credit Facility requires compliance with certain covenants, including a minimum tangible net worth requirement, a distribution limitation, restrictions on indebtedness and investment restrictions, as defined. It also contains customary default provisions including the failure to comply with the Company's covenants and the failure to pay when amounts outstanding under the Credit Facility become due. The Company is in compliance with all financial covenants related to the Credit Facility.

During the year ended December 31, 2018, the Company recorded a net gain of $1,151 of which $1,192 was received in cash, related to the early termination of certain interest rate swap agreements that had corresponding early mortgage pay-offs.

During the year ended December 31, 2018, the Company realized a loss on extinguishment of debt on the consolidated statement of operations and comprehensive loss of $411 due to the write-off of the unamortized balance of debt issuance costs associated with ten loans that were repaid prior to maturity.

The mortgage loans require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations. As of December 31, 2019, the Company was current on all of the payments and in compliance with all financial covenants. All of the Company’s mortgage loans are secured by first mortgages on the respective real estate assets. As of December 31, 2019, the weighted average years to maturity for the Company’s mortgages payable was 3.7 years.

The Company entered into interest rate swaps to fix certain of its floating LIBOR based debt under variable rate loans to a fixed rate to manage its risk exposure to interest rate fluctuations. The Company will generally match the maturity of the underlying variable rate debt with the maturity date on the interest swap. See Note 16 - "Fair Value Measurements" for further information.

The following table summarizes the Company’s interest rate swap contracts outstanding as of December 31, 2019.

On January 1, 2019, the Company adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities which eliminated the requirement to separately measure and report hedge ineffectiveness. For derivative instruments that are designated and qualify as a cash flow hedge, the entire change in fair value of the hedging instrument included in the assessment of hedge effectiveness should be recorded in other comprehensive income (OCI). When the amounts recorded in OCI are reclassified to earnings, they should be presented in the same income statement line item as the effect of the hedged item. The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive loss for the years ended December 31, 2019, 2018 and 2017.

The total amount of interest expense presented on the consolidated statements of comprehensive loss was $28,305, $27,137 and $24,582 for the years ended December 31, 2019, 2018 and 2017, respectively. The location of the net gain or loss reclassified into income from accumulated other comprehensive loss is reported in interest expense on the consolidated statements of comprehensive loss. The amount that is expected to be reclassified from accumulated other comprehensive loss into income in the next 12 months is $1,743.

Under the Company’s Employee and Director Restricted Share Plan (“RSP”), restricted shares and restricted share units generally vest over a one to three year vesting period from the date of the grant, subject to the specific terms of the grant. On June 4, 2019, we issued 2,237 restricted shares and 746 restricted share units to our independent directors pursuant to the automatic grant provisions of the RSP, which become vested in equal installments of 33-1/3% on each of the first three anniversaries of June 4, 2019, subject to certain exceptions. In accordance with the RSP, restricted shares and restricted share units were issued to non-employee directors as compensation. Each restricted share and restricted share unit entitles the holder to receive one common share when it vests. Restricted shares and restricted share units are included in common stock outstanding on the date of the vesting. The grant-date value of the restricted shares and restricted share units is amortized over the vesting period representing the requisite service period. Compensation expense associated with the restricted shares and restricted share units issued to the non-employee directors was $53, $48 and $33 in the aggregate, for the year ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, the Company had $55 of unrecognized compensation expense related to the unvested restricted shares and restricted share units, in the aggregate. The weighted average remaining period that compensation expense related to unvested restricted shares and restricted share units will be recognized is 1.5 years. The total fair value at the vesting date for restricted shares and restricted share units that vested during the years ended December 31, 2019, 2018 and 2017 was $43, $30 and $14, respectively.

A summary of the Company’s restricted share and restricted share unit activity during the years ended December 31, 2019, 2018 and 2017 is as follows:

The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended, for federal income tax purposes. In order to maintain the Company’s status as a REIT, the Company must annually distribute at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, to its stockholders. For the years ended December 31, 2019, 2018 and 2017, the Company’s REIT taxable income was $988 (unaudited), $9,073 (unaudited) and $10,045 (unaudited), respectively.

The Company had no uncertain tax positions as of December 31, 2019 or 2018. The Company expects no significant increases or decreases in uncertain tax positions due to changes in tax positions within one year of December 31, 2019. The Company had no interest or penalties relating to income taxes recognized on the consolidated statements of operations and comprehensive loss for the years ended December 31, 2019, 2018 or 2017. As of December 31, 2019, returns for the calendar years 2016, 2017, 2018 and 2019 remain subject to examination by U.S. and various state and local tax jurisdictions.

As a result of the $15,405 impairment for the Mainstreet JV recorded on the Company’s consolidated statement of operations and comprehensive loss during the year ended December 31, 2018, the Company will likely recognize either a capital or net operating loss or a combination thereof, for income tax purposes, from this venture in the future. The Company’s investment in Mainstreet JV is held through a taxable REIT subsidiary. Based on an effective tax rate of 28.51%, which is calculated by combining a 21% Federal tax rate and an IL tax rate of 7.51% (9.5% state rate net of the Federal benefit), the deferred tax benefit related to the impairment is approximately $4,400. Since the taxable REIT subsidiary does not currently conduct any activities outside the investment in Mainstreet JV, management does not believe it is more likely than not that the taxable REIT subsidiary will be able to utilize these losses in future tax periods. As a result, management recorded a full valuation allowance of $4,400 to account for this uncertainty during the year ended December 31, 2018. No income tax expense or benefit was recorded during the years ended December 31, 2019, 2018 or 2017.

In 2019, the Company paid quarterly distributions in an amount equal to $0.3018 per share, which represented an annualized rate of 6% based on the previously estimated per share NAV as of December 31, 2018, payable in arrears the following quarter. In 2018, the Company paid quarterly distributions in an amount equal to $0.335 per share, which represented an annualized rate of 6% based on the previously estimated per share NAV as of December 31, 2017, payable in arrears the following quarter. The Company paid distributions based on daily record dates, payable in arrears the following month, equal to a daily amount of $0.00410959 per share, based upon a 365-day period for 2017. The table below presents the distributions paid and declared for the years ended December 31, 2019, 2018 and 2017.

The table below presents the distributions paid and declared for the years ended December 31, 2019, 2018 and 2017.

For federal income tax purposes, distributions may consist of ordinary dividend income, qualified dividend income, non-taxable return of capital, capital gains or a combination thereof. Distributions to the extent of the Company’s current and accumulated earnings and profits for federal income tax purposes are taxable to the recipient as either ordinary dividend income or, if so declared by the Company, qualified dividend income or capital gain dividends. Distributions in excess of these earnings and profits (calculated for income tax purposes) constitute a non-taxable return of capital rather than ordinary dividend income or a capital gain dividend and reduce the recipient’s tax basis in the shares to the extent thereof. Distributions in excess of earnings and profits that reduce a recipient’s tax basis in the shares have the effect of deferring taxation of the amount of the distribution until the sale of the stockholder’s shares. If the recipient's tax basis is reduced to zero, distributions in excess of the aforementioned earnings and profits (calculated for income tax purposes) constitute taxable gain.

The following table sets forth the taxability of distributions on common shares, on a per share basis, paid in 2019, 2018 and 2017:

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the “common shares”). Diluted EPS is computed by dividing net income (loss) by the common shares plus common share equivalents. The Company excludes antidilutive restricted shares and units from the calculation of weighted-average shares for diluted EPS. As a result of a net loss for the years ended December 31, 2019, 2018 and 2017, 2,902 shares, 2,625 shares and 1,507 shares, respectively, were excluded from the computations of diluted EPS, because they would have been antidilutive.

The acquisition of certain of the Company’s properties included an earnout component to the purchase price that was recorded as a deferred investment property acquisition obligation (“Earnout liability”). At December 31, 2019 and 2018, there is no earnout liability outstanding.

The table below presents the change in the Company’s Earnout liability for the year ended December 31, 2018:

The Company may be subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material adverse effect on the consolidated financial statements of the Company.

The Company has one reportable segment, retail real estate, as defined by U.S. GAAP for the years ended December 31, 2019, 2018 and 2017.

The following table summarizes the Company’s related party transactions for the years ended December 31, 2019, 2018 and 2017. Certain compensation and fees payable to the Business Manager for services provided to the Company are limited to maximum amounts.

The Company is lessor on over 700 retail operating leases. The remaining lease terms for the Company’s leases range from less than one year to 17 years. The Company considers the date on which it makes a leased space available to a lessee as the commencement date of the lease. At commencement, the Company determines the lease classification utilizing the classification tests under ASC 842. Options to extend a lease are included in the lease term when it is reasonably certain that the tenant will exercise its option to extend. Termination penalties are included in income when there is a termination agreement, all the conditions of the agreement have been met and amounts due are considered collectible. Such termination fees are recognized on a straight-line basis over the remaining lease term in rental income. If an operating lease is modified and the modification is not accounted for as a separate contract, the Company accounts for the modification as if it were a termination of the existing lease and the creation of a new lease. The Company considers any prepaid or accrued rentals relating to the original lease as part of the lease payments for the modified lease. The Company includes options to modify the original lease term when it is reasonably certain that the tenant will exercise its option to extend.

Most of the revenue from the Company’s properties consists of rents received under long-term operating leases. Most leases require the tenant to pay fixed base rent paid monthly in advance, and to reimburse the Company for the tenant’s pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the Company and recoverable under the terms of the lease. Under these leases, the Company pays all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid.

Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed base rent as well as all costs and expenses associated with occupancy. Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included on the consolidated statements of operations and comprehensive loss. Under leases where all expenses are paid by the Company, subject to reimbursement by the tenant, the expenses are included within property operating expenses. As of January 1, 2019, the date on which the Company adopted the new leasing standard, reimbursements for common area maintenance are considered non-lease components that are permitted to be combined with rental income. The combined lease component and reimbursements for insurance and taxes are reported as rental income on the consolidated statements of operations and comprehensive loss.

Rental income related to the Company's operating leases is comprised of the following for the year ended December 31, 2019:

The future base rent payments to be received under operating leases including ground leases as of December 31, 2019 for the years indicated, assuming no expiring leases are renewed, are as follows:

The Company is the lessee under one ground lease. The ground lease, which commenced on July 1, 2007, was assumed as part of a property purchased in October 2015 and extends through June 30, 2037 with six 5-year renewal options which the Company assumes will be exercised. When the Company acquired the lease, the Company considered the lease terms and lease classification. As reassessment is not required under practical expedients accorded in ASC 842, the Company will continue to account for the ground lease as an operating lease with an established lease term and payment schedule. At January 1, 2019, the Company recorded a lease liability of $23,377 and a ROU asset of $15,963 on its consolidated balance sheet. The lease liability was based on the present value of the ground lease’s future lease payments using an interest rate of 6.225% which the Company considers reasonable and within the range of the Company’s incremental borrowing rate. For the years ended December 31, 2019, 2018 and 2017, total rent expense was $1,944, $1,891 and $1,891, respectively, recorded in property operating expenses on the consolidated statements of operations and comprehensive loss.

Lease payments for the ground lease as of December 31, 2019 for each of the five succeeding years and thereafter is as follows:

The Company has estimated the fair value of its financial and non-financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes.

For assets and liabilities measured at fair value on a recurring basis, the table below presents the fair value of the Company’s cash flow hedges as well as their classification on the consolidated balance sheets as of December 31, 2019 and 2018, respectively.

The fair value of derivative instruments was estimated based on data observed in the forward yield curve which is widely observed in the marketplace. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the counterparty's nonperformance risk in the fair value measurements which utilize Level 3 inputs, such as estimates of current credit spreads. The Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative interest rate swap agreements and therefore has classified these in Level 2 of the hierarchy.

As of December 31, 2019, the Company reviewed the carrying value of three investment properties that met held for sale criteria. The criteria was met for these properties because, amongst other criteria, the Company had collected non-refundable earnest money from the seller. Properties classified as held for sale must be recorded at the lesser of their carrying value or the fair value as of the balance sheet date less selling costs in accordance with GAAP. The fair value of these investment properties, classified as Level 2 of the fair value hierarchy, was estimated based on the signed purchase and sale agreements with the seller. All of these properties had a carrying value that exceeded the fair value less selling costs, and therefore, for the year ended December 31, 2019 an impairment loss totaling $4,420 was recorded in provision for asset impairment on the consolidated statement of operations and comprehensive loss. The Company completed the sale of these properties in January 2020.

During the year ended December 31, 2018, the Company incurred no impairment charges for investment properties or any other non-recurring fair value measurements. For discussion of full impairment reserve recorded for the Company’s investment in the Mainstreet JV and the related notes receivable, please refer to Note 6 – “Investment In and Notes Receivable from Unconsolidated Entities”.

As of December 31, 2017, the Company identified indicators of impairment at one of its investment properties. Such indicators included a low occupancy rate, difficulty in leasing space, declining market rents and the related cost of re-leasing. The fair value of this investment property, classified as Level 3 in the fair value hierarchy, was estimated using the 10-year discounted cash flow model, which included estimated inflows and outflows over a specific holding period and estimated net disposition proceeds at the end of the 10-year period. The Company utilized a capitalization rate of 7.50% and a discount rate of 8.50% which it believed were reasonable based on the then-current market rates. For the year ended December 31, 2017, the Company recognized an asset impairment charge of $8,530 to reflect an investment at its estimated fair value, which is included in provision for asset impairment on the consolidated statement of operations and comprehensive loss.

The following represents the results of operations, for each quarterly period, during 2019 and 2018.

In January 2020, the Company sold the investment properties 2727 Iowa Street, Whispering Ridge and Treasure Valley for aggregate net proceeds of approximately $37,200. The Company used these net proceeds to make repayments on the Credit Facility.

On March 3, 2020, the Company announced that the Company’s board of directors unanimously approved: (i) an Estimated Per Share NAV as of December 31, 2019; (ii) the same per share purchase price for shares issued under the DRP beginning with the first quarter distribution payment to stockholders to be paid in April 2020 until the Company announces a new Estimated Per Share NAV, and (iii) that, in accordance with the Third A&R SRP, which will be effective April 10, 2020, beginning with repurchases in April 2020 and until the Company announces a new Estimated Per Share NAV, any shares accepted for ordinary repurchases and Exceptional Repurchases will be repurchased at 80% of the Estimated Per Share NAV.

On March 17, 2020, the Company’s board of directors declared the first quarter distribution in an amount equal to $0.226875 per share payable to stockholders of record as of the close of business on March 31, 2020. The amount of distribution declared represents an annualized rate of 5% based on the Estimated Per Share NAV as of December 31, 2019. The first quarter distribution is expected to be paid on April 1, 2020.

			Initial cost (A)							Gross amount carried at end of period (B)
Property Name	Encum- brance		Land		Buildings and Improve- ments		Cost Capita-lized Subse- quent to Acquisi- tions (C)			Land(D)		Buildings and Improve-ments (D)		Total (D)		Accumu- lated Deprecia- tion (E)			Date Con- structed		Date Acquired		Depre- ciable Lives
Blossom Valley Plaza	$	-	$	9,515	$	11,142	$	580		$	9,515	$	11,722	$	21,237	$	(1,904	)		1988		2015	15-30
Turlock, CA
Branson Hills Plaza		—		3,787		6,039		174			3,787		6,213		10,000		(1,174	)		2005		2014	15-30
Branson, MO
Coastal North Town Center		43,680		13,725		49,673		(1,293	)		13,725		48,380		62,105		(6,511	)		2014		2016	15-30
Myrtle Beach, SC
Coastal North Town Center -Phase II		—		365		3,034		—			365		3,034		3,399		(272	)		2016		2017	15-30
Myrtle Beach, SC
Dixie Valley		6,798		2,807		9,053		955			2,807		10,008		12,815		(1,974	)		1988		2014	15-30
Louisville, KY
Dogwood Festival		—		4,500		41,865		3,206			4,500		45,071		49,571		(9,058	)		2002		2014	5-30
Flowood, MO
Eastside Junction		6,024		2,411		8,393		53			2,411		8,446		10,857		(1,554	)		2008		2015	15-30
Athens, AL
Fairgrounds Crossing		13,453		6,069		22,637		1,072			6,069		23,709		29,778		(3,950	)		2008		2015	15-30
Hot Springs, AR
Fox Point Plaza		—		3,518		12,681		1,103			3,518		13,784		17,302		(2,736	)		2008		2014	15-30
Neenah, WI
Frisco Marketplace		—		6,618		3,315		—			6,618		3,315		9,933		(723	)		2002		2015	15-30
Frisco, TX
Green Tree Shopping Center		13,100		7,218		17,846		829			7,218		18,675		25,893		(3,120	)		1997		2015	5-30
Katy, TX
Harris Plaza		—		6,500		19,403		2,007			6,500		21,410		27,910		(4,742	)	2001-2008			2014	15-30
Layton, UT
Harvest Square		6,487		2,186		9,330		139			2,186		9,469		11,655		(1,885	)		2008		2014	15-30
Harvest, AL
Heritage Square		4,460		2,028		5,538		364			2,028		5,902		7,930		(1,134	)		2010		2014	15-30
Conyers, AL
Kroger - Copps Grocery Store (D)		—		1,440		11,799		—			1,440		11,799		13,239		(2,173	)		2012		2014	15-30
Stevens Point, WI
Kroger - Pick n Save Center		—		3,150		14,283		2,284			3,150		16,567		19,717		(2,924	)		2011		2014	15-30
West Bend, WI
Lakeside Crossing		—		1,460		16,999		432			1,460		17,431		18,891		(3,548	)		2013		2014	15-30
Lynchburg, VA
Landing at Ocean Isle Beach		—		3,053		7,081		105			3,053		7,186		10,239		(1,515	)		2009		2014	15-30
Ocean Isle, NC
Mansfield Pointe		—		5,350		20,002		798			5,350		20,800		26,150		(4,336	)		2008		2014	15-30
Mansfield, TX
Marketplace at El Paseo		38,000		16,390		46,971		(507	)		16,390		46,464		62,854		(7,045	)		2014		2015	15-30
Fresno, CA
Marketplace at Tech Center		47,550		10,684		68,580		(77	)		10,684		68,503		79,187		(9,842	)		2015		2015	15-30
Newport News, VA
MidTowne Shopping Center		—		8,810		29,699		706			8,810		30,405		39,215		(6,501	)	2005/2008			2014	5-30
Little Rock, AR
Milford Marketplace		18,727		—		35,867		939			—		36,806		36,806		(5,570	)		2007		2015	15-30
Milford, CT
Newington Fair		—		7,833		8,329		550			7,833		8,879		16,712		(2,847	)	1994/2009			2012	15-30
Newington, CT
North Hills Square		—		4,800		5,493		460			4,800		5,953		10,753		(1,228	)		1997		2014	15-30
Coral Springs, FL
Oquirrh Mountain Marketplace		—		4,254		14,467		177			4,254		14,644		18,898		(2,137	)	2014-2015			2015	15-30
Jordan, UT
Oquirrh Mountain Marketplace Phase II		—		1,403		3,727		(54	)		1,403		3,673		5,076		(491	)	2014-2015			2016	15-30
Jordan, UT
Park Avenue Shopping Center		—		5,500		16,365		3,130			5,500		19,495		24,995		(3,996	)		2012		2014	15-30
Little Rock, AR
Pentucket Shopping Center		14,700		5,993		11,251		257			5,993		11,508		17,501		(1,181	)		1986		2017	15-30

Plaistow, NH
Plaza at Prairie Ridge		—		618		2,305		—		618		2,305		2,923		(399	)		2008	2015	15-30
Pleasant Prairie, WI
Prattville Town Center		15,930		5,336		27,672		195		5,336		27,867		33,203		(4,885	)		2007	2015	15-30
Prattville, AL
Regal Court		26,000		5,873		41,181		1,937		5,873		43,118		48,991		(7,473	)		2008	2015	5-30
Shreveport, LA
Settlers Ridge		76,532		25,961		98,156		589		25,961		98,745		124,706		(15,753	)		2011	2015	15-30
Pittsburgh, PA
Shoppes at Lake Park		—		2,285		8,527		62		2,285		8,589		10,874		(1,526	)		2008	2015	15-30
West Valley City. UT
Shoppes at Market Pointe		13,700		12,499		8,388		895		12,499		9,283		21,782		(2,151	)	2006-2007		2015	15-30
Papillion, NE
Shoppes at Prairie Ridge		—		7,521		22,468		351		7,521		22,819		30,340		(4,194	)		2009	2014	15-30
Pleasant Prairie, WI
The Shoppes at Branson Hills		—		4,418		37,229		1,018		4,418		38,247		42,665		(6,887	)		2005	2014	15-30
Branson, MO
Shops at Hawk Ridge		—		1,329		10,341		251		1,329		10,592		11,921		(1,916	)		2009	2015	5-30
St. Louis, MO
Village at Burlington Creek		17,723		10,789		19,385		1,299		10,789		20,684		31,473		(3,349	)	2007 & 2015		2015	5-30
Kansas City, MO
Walgreens Plaza		4,650		2,624		9,683		410		2,624		10,093		12,717		(1,812	)		2011	2015	15-30
Jacksonville, NC
Wedgewood Commons		—		2,220		26,577		280		2,220		26,857		29,077		(5,692	)	2009-2013		2013	5-30
Olive Branch, MS
White City		49,400		18,961		70,423		1,823		18,961		72,246		91,207		(12,253	)		2013	2015	15-30
Shrewsbury, MA
Wilson Marketplace		—		11,155		27,498		1,020		11,155		28,518		39,673		(3,048	)		2007	2017	15-30
Wilson, NC
Yorkville Marketplace		—		4,990		13,928		781		4,990		14,709		19,699		(2,860	)	2002 & 2007		2015	15-30
Yorkville, IL
Total:	$	416,914	$	267,946	$	954,623	$	29,300	$	267,946	$	983,923	$	1,251,869	$	(170,269	)

The Company’s management has evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s 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 the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in Internal Control - Integrated Framework (2013) issued by the COSO, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to permanent rules adopted by the SEC, permitting the Company to provide only management’s report in this annual report.

There have not been any changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The information required by this Item will be presented in our definitive proxy statement for our 2020 annual meeting of stockholders which we anticipate filing with the SEC no later than 120 days after the end of the fiscal year, and is incorporated by reference into this Item 10.

We have adopted a code of ethics, which is available on our website free of charge at inland-investments.com/inland-income-trust. We will provide the code of ethics free of charge upon request to our investor services group.

The information required by this Item will be presented in our definitive proxy statement for our 2020 annual meeting of stockholders which we anticipate filing with the SEC no later than 120 days after the end of the fiscal year and is incorporated by reference into this Item 12.

The information required by this Item will be presented in our definitive proxy statement for our 2020 annual meeting of stockholders which we anticipate filing with the SEC no later than 120 days after the end of the fiscal year and is incorporated by reference into this Item 13.

The consolidated financial statements of the Company are set forth in the report in Item 8.

Financial statement schedule for the year ended December 31, 2019 is submitted herewith.

The list of exhibits filed as part of this Annual Report is set forth on the Exhibit Index attached hereto.

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

All schedules other than those indicated in the index as set forth in Item 8 have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Maryland		45-3079597
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2901 Butterfield Road, Oak Brook, Illinois		60523
(Address of principal executive offices)		(Zip Code)

		Page
	Part I

Item 1.	Business	1
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	29
Item 2.	Properties	29
Item 3.	Legal Proceedings	32
Item 4.	Mine Safety Disclosures	32

	Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
Item 6.	Selected Financial Data	38
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 8.	Financial Statements and Supplementary Data	53
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	84
Item 9A.	Controls and Procedures	84
Item 9B.	Other Information	84

	Part III

Item 10.	Directors, Executive Officers and Corporate Governance	85
Item 11.	Executive Compensation	85
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	85
Item 13.	Certain Relationships and Related Transactions, and Director Independence	85
Item 14.	Principal Accounting Fees and Services	85

	Part IV

Item 15.	Exhibits and Financial Statement Schedules	86
Item 16.	Form 10-K Summary	86

	Signatures	90

	As of December 31, 2019			As of December 31, 2018
Number of properties		47			59
Purchase price	$	1,399,289		$	1,414,253
Total square footage		6,758,359			6,870,124
Weighted average physical occupancy		94.0	%		94.1	%
Weighted average economic occupancy		94.4	%		94.7	%
Weighted average remaining lease term (years)		5.5			6.0

Tenant Name	Number of Leases		Annualized Base Rent		Percent of Total Portfolio Annualized Base Rent			Annualized Base Rent Per Square Foot		Square Footage		Percent of Total Portfolio Square Footage
The Kroger Co		4	$	3,374		3.5	%	$	13.52		249,493		3.7	%
Dicks Sporting Goods, Inc		6		3,269		3.4	%		11.84		276,038		4.1	%
TJ Maxx/HomeGoods/Marshalls		13		3,219		3.3	%		9.78		329,253		4.9	%
PetSmart		10		2,926		3.0	%		15.08		194,077		2.9	%
Ross Dress for Less, Inc		10		2,633		2.7	%		10.15		259,487		3.8	%
Albertsons/Jewel/Shaw’s		2		2,304		2.4	%		18.02		127,892		1.9	%
Ulta Salon, Cosmetics & Fragrance		10		2,281		2.4	%		21.87		104,276		1.6	%
LA Fitness (Fitness International)		2		1,890		2.0	%		21.09		89,600		1.3	%
Kohl's Department Stores		4		1,888		2.0	%		5.68		332,461		4.9	%
Giant Eagle		1		1,805		1.9	%		13.96		129,340		1.9	%
Top ten tenants		62	$	25,589		26.6	%	$	12.23		2,091,917		31.0	%

Tenant Type	Gross Leasable Area – Square Footage		Percent of Total Gross Leasable Area			Percent of Total Annualized Base Rent
Discount and Department Stores		1,478,583		23.2	%		11.6	%
Home Goods		1,002,550		15.7	%		9.2	%
Grocery		950,042		14.9	%		14.1	%
Lifestyle, Health Clubs, Books & Phones		801,688		12.6	%		15.9	%
Restaurant		538,790		8.4	%		16.1	%
Apparel & Accessories		429,711		6.7	%		9.7	%
Sporting Goods		333,719		5.2	%		4.7	%
Pet Supplies		288,642		4.5	%		4.7	%
Consumer Services, Salons, Cleaners, Banks		253,689		4.0	%		7.2	%
Health, Doctors & Health Foods		159,091		2.5	%		4.7	%
Other		143,437		2.3	%		2.1	%
Total		6,379,942		100.0	%		100.0	%

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging growth company	☐

Property Type	Percent of Total Annualized Base Rent
Grocery		52	%
Grocery Shadow-Anchored		31	%
Community Center		10	%
Power Center		7	%
Total		100	%

Size of Tenant	Description - Square Footage	Percent of Total Annualized Base Rent			Weighted Average Lease Expiration – Years
Anchor	10,000 and over		53	%		6.5
Junior Box	5,000-9,999		13	%		5.4
Small Shop	Less than 5,000		34	%		4.0
Total			100	%		5.5

Lease Expiration Year	Number of Expiring Leases		Gross Leasable Area of Expiring Leases - Square Footage		Percent of Total Gross Leasable Area of Expiring Leases			Total Annualized Base Rent of Expiring Leases		Percent of Total Annualized Base Rent of Expiring Leases			Annualized Base Rent per Leased Square Foot
2020 (including month-to-month)		81		293,788		4.6	%	$	5,279		5.5	%	$	17.97
2021		88		358,778		5.6	%		7,149		7.4	%		19.93
2022		98		603,397		9.5	%		11,265		11.7	%		18.67
2023		112		825,695		13.0	%		12,533		13.0	%		15.18
2024		111		804,255		12.6	%		14,984		15.6	%		18.63
2025		98		892,421		14.0	%		14,690		15.3	%		16.46
2026		42		461,301		7.2	%		6,365		6.6	%		13.80
2027		22		260,796		4.1	%		3,396		3.5	%		13.02
2028		30		683,144		10.7	%		6,228		6.5	%		9.12
2029		14		243,084		3.8	%		3,120		3.3	%		12.83
Thereafter		30		953,283		14.9	%		11,174		11.6	%		11.72
Leased Total		726		6,379,942		100.0	%	$	96,183		100.0	%	$	15.08

	Range of Value and Rate
	Low			Estimated Value			Mid-point			High
Share Price	$	17.88		$	18.15		$	18.94		$	20.00
Terminal Capitalization Rate		7.24	%		7.22	%		7.09	%		6.89	%
Discount Rate		7.93	%		7.88	%		7.73	%		7.54	%

	Per Share as of December 31, 2019			Per Share as of December 31, 2018
Real Estate Assets	$	38.13		$	40.33
Cash and Other Assets, Net of Other Liabilities (1)		(0.72	)		(0.13	)
Fair Market Value of Debt (2)		(19.26	)		(20.08	)
Estimated Per Share NAV	$	18.15		$	20.12

	Year Ended December 31, 2019						Year Ended December 31, 2018
				% of Distributions						% of Distributions
Distributions:
Distributions paid in cash	$	24,603					$	20,974
Distributions reinvested through DRP		19,642						19,339
Total distributions	$	44,245					$	40,313
Source of distribution coverage:
Cash flows provided by operating activities	$	44,245			100	%	$	40,313			100	%
Proceeds from DRP		—			0	%		—			0	%
Total source of distribution coverage	$	44,245			100	%	$	40,313			100	%
Cash flows provided by operating activities (U.S. GAAP basis)	$	46,763					$	45,051
Net loss (in accordance with U.S. GAAP)	$	(11,420	)				$	(23,276	)

	For the Period from August 24, 2011 (Date of Inception) to December 31, 2019
Distributions paid:
Common stockholders in cash	$	123,779
Common stockholders reinvested through DRP		120,584
Total distributions paid	$	244,363
Reconciliation of net loss:
Revenues	$	606,680
Acquisition and transaction related expenses		(19,669	)
Provision for asset impairment		(12,950	)
Depreciation and amortization		(280,487	)
Other operating expenses		(250,957	)
Provision for impairment of investment in and note receivable from unconsolidated entities		(15,405	)
Other non-operating expenses		(110,450	)
Net loss (in accordance with U.S. GAAP) ⁽¹⁾	$	(83,238	)
Funds from operations ⁽²⁾	$	222,326
Cash flows provided by operating activities	$	207,387

Period	Total Shares Requested to be Repurchased		Total Number of Shares Repurchased		Average Price Paid per Share		Amount of Shares Repurchased		Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
January 2019		—		—		—		—		—		1,767,163
February 2019		—		—		—		—		—		1,767,163
March 2019		320,108		140,288	$	17.12	$	2,402		140,288		1,626,875
April 2019		—		—		—		—		—		1,626,875
May 2019		—		—		—		—		—		1,626,875
June 2019		368,423		117,452	$	20.12	$	2,363		117,452		1,509,423
July 2019		—		—		—		—		—		1,509,423
August 2019		—		—		—		—		—		1,509,423
September 2019		482,609		118,606	$	19.47	$	2,309		118,606		1,390,817
October 2019		—		—		—		—		—		1,390,817
November 2019		—		—		—		—		—		1,390,817
December 2019		825,086		118,089	$	19.54	$	2,307		118,089		1,272,728
Total		1,996,226		494,435	$	18.97	$	9,381		494,435

	As of December 31,
	2019		2018		2017		2016		2015
Balance Sheet Data:
Total assets	$	1,254,559	$	1,320,069	$	1,375,370	$	1,357,560	$	1,401,368
Mortgages and credit facility payable, net (a)	$	681,327	$	705,884	$	691,465	$	606,025	$	584,499

	For the year ended December 31
	2019			2018			2017			2016			2015
Total income	$	128,908		$	128,701		$	129,157		$	121,498		$	76,542
Net loss (b)	$	(11,420	)	$	(23,276	)	$	(19,102	)	$	(7,961	)	$	(13,436	)
Net loss per common share, basic and diluted (c)	$	(0.32	)	$	(0.65	)	$	(0.54	)	$	(0.23	)	$	(0.48	)
Distributions paid to common stockholders	$	44,245		$	40,313		$	53,315		$	52,358		$	42,537
Distributions declared to common stockholders	$	43,162		$	47,700		$	53,364		$	52,449		$	44,908
Distributions declared per common share	$	1.21		$	1.34		$	1.50		$	1.50		$	1.58
Cash flows provided by operating activities	$	46,763		$	45,051		$	50,871		$	36,203		$	27,080
Cash flows provided by (used in) investing activities	$	4,860		$	(18,623	)	$	(83,282	)	$	(89,991	)	$	(740,542	)
Cash flows (used in) provided by financing activities	$	(62,330	)	$	(27,032	)	$	32,398		$	(21,151	)	$	691,434
Weighted average number of common shares outstanding, basic and diluted		35,748,672			35,589,729			35,571,249			34,963,827			27,737,301

Year Ended December 31, (1)	Distributions Declared		Distributions Declared Per Share			Cash		Reinvested via DRP		Total		Cash Flows From Operations
2019	$	43,162	$	1.21	(2)	$	24,603	$	19,642	$	44,245	$	46,763
2018	$	47,700	$	1.34	(3)	$	20,974	$	19,339	$	40,313	$	45,051
2017	$	53,364	$	1.50		$	26,246	$	27,069	$	53,315	$	50,871

	Number of Leases Signed		Gross Leasable Area		New Contractual Rent per Square Foot		Prior Contractual Rent per Square Foot		% Change over Prior Annualized Base Rent			Weighted Average Lease Term		Tenant Improvements per Square Foot
Comparable Renewal Leases		92		545,587	$	15.99	$	15.43		3.6	%		5.0	$	—
Comparable New Leases		4		31,499	$	13.50	$	11.58		16.6	%		8.6	$	5.13
Non-Comparable New and Renewal Leases (a)		32		222,901	$	13.20	N/A		N/A				5.8	$	7.62
Total		128		799,987

	Payments due by period
	2020		2021		2022		2023		2024		Thereafter		Total
Principal payments on debt	$	897	$	84,280	$	219,184	$	241,556	$	341	$	137,678	$	683,936
Interest payments on debt		26,206		24,050		18,728		10,853		5,479		5,412		90,728
Rental payments on ground lease		1,140		1,140		1,202		1,264		1,264		87,112		93,122
Total	$	28,243	$	109,470	$	239,114	$	253,673	$	7,084	$	230,202	$	867,786

		Page

Report of Independent Registered Public Accounting Firm		54

Financial Statements:

Consolidated Balance Sheets at December 31, 2019 and 2018		55

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017		56

Consolidated Statements of Equity for the years ended December 31, 2019, 2018 and 2017		57

Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017		58

Notes to Consolidated Financial Statements		60

Real Estate and Accumulated Depreciation (Schedule III)		82

	December 31, 2019			December 31, 2018
ASSETS
Assets:
Investment properties held and used:
Land	$	267,946		$	277,229
Building and other improvements		983,923			1,021,607
Total		1,251,869			1,298,836
Less accumulated depreciation		(170,269	)		(139,134	)
Net investment properties held and used		1,081,600			1,159,702
Investment properties and related assets held for sale		38,752			—
Cash and cash equivalents		4,516			15,239
Restricted cash		1,017			1,001
Accounts and rent receivable		17,231			16,176
Acquired lease intangible assets, net		89,352			115,357
Operating lease right-of-use asset, net		15,478			—
Other assets		6,613			12,594
Total assets	$	1,254,559		$	1,320,069

LIABILITIES AND EQUITY
Liabilities:
Mortgages and credit facility payable, net	$	681,327		$	705,884
Accounts payable and accrued expenses		7,951			8,849
Operating lease liability		23,696			—
Distributions payable		10,841			11,924
Acquired intangible liabilities, net		46,820			57,462
Due to related parties		5,023			2,604
Liabilities associated with investment properties held for sale		1,716			—
Other liabilities		16,666			16,268
Total liabilities		794,040			802,991

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $.001 par value, 40,000,000 shares authorized, none outstanding		—			—
Common stock, $.001 par value, 1,460,000,000 shares authorized, 35,799,388 and 35,343,256 shares issued and outstanding as of December 31, 2019 and 2018, respectively		36			35
Additional paid in capital		805,722			795,409
Accumulated distributions and net loss		(338,331	)		(283,859	)
Accumulated other comprehensive income		(6,908	)		5,493
Total stockholders’ equity		460,519			517,078
Total liabilities and stockholders’ equity	$	1,254,559		$	1,320,069

Supplemental disclosure of cash flow information:	2019		2018		2017
In conjunction with the purchase of investment property, the Company acquired assets and assumed liabilities as follows:
Land	$	—	$	—	$	17,513
Building and improvements		—		—		41,793
Acquired in-place lease intangibles		—		—		6,740
Acquired above market lease intangibles		—		—		8,645
Acquired below market lease intangibles		—		—		(4,589	)
Assumed liabilities, net		—		—		(149	)
Purchase of investment properties	$	—	$	—	$	69,953

Cash paid for interest, net of amounts capitalized	$	27,749	$	26,874	$	24,206

Supplemental schedule of non-cash investing and financing activities:

Establishment of operating lease right-of-use asset	$	15,963	$	—	$	—

Establishment of operating lease liability	$	23,377	$	—	$	—

Accrued capital expenditures	$	727	$	527	$	712

Accrued SRP	$	2,278	$	5,463	$	2,530

Distributions payable	$	10,841	$	11,924	$	4,537

	December 31,
	2019		2018
Cash and cash equivalents	$	4,516	$	15,239
Restricted cash		1,017		1,001
Total cash, cash equivalents, and restricted cash	$	5,533	$	16,240

Building and other improvements		30 years
Site improvements		5-15 years
Furniture, fixtures and equipment		5-15 years
Tenant improvements		Shorter of the life of the asset or the term of the related lease
Leasing fees		Term of the related lease

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.

	December 31, 2019
Investment properties and related assets held for sale:
Land	$	6,275
Building and other improvements		27,758
Accounts and rent receivable		1,167
Acquired lease intangible assets, net		3,337
Deferred costs, net		186
Other assets		29
Investment properties and related assets held for sale	$	38,752
Liabilities associated with investment properties held for sale:
Accounts payable and accrued expenses	$	691
Due to related parties		6
Acquired intangible liabilities, net		743
Other liabilities		276
Liabilities associated with investment properties held for sale	$	1,716

	December 31, 2019			December 31, 2018
Intangible assets:
Acquired in-place lease value	$	160,214		$	165,182
Acquired above market lease value		45,783			45,824
Accumulated amortization		(113,308	)		(95,649	)
Less: Assets related to investment properties held for sale		(3,337	)		—
Acquired lease intangibles, net	$	89,352		$	115,357
Intangible liabilities:
Acquired below market lease value	$	71,153		$	71,551
Above market ground lease		—			5,169
Accumulated amortization		(23,590	)		(19,258	)
Less: Liabilities related to investment properties held for sale		(743	)		—
Acquired below market lease intangibles, net	$	46,820		$	57,462

Amortization recorded as amortization expense:	2019			2018			2017
Acquired in-place lease value	$	17,841		$	19,410		$	22,104
Amortization recorded as a reduction to property operating expense:
Above market ground lease	$	—		$	94		$	94
Amortization recorded as a (reduction) increase to rental income:
Acquired above market leases	$	(3,502	)	$	(3,891	)	$	(4,379	)
Acquired below market leases		4,907			4,714			5,700
Net rental income increase	$	1,405		$	823		$	1,321

	Acquired In-Place Leases		Above Market Leases		Below Market Leases
2020	$	12,953	$	3,020	$	(3,896	)
2021		10,539		2,953		(3,715	)
2022		7,900		2,664		(3,482	)
2023		6,673		2,477		(3,224	)
2024		5,667		2,308		(3,047	)
Thereafter		18,703		13,495		(29,456	)
Total	$	62,435	$	26,917	$	(46,820	)

	December 31, 2019						December 31, 2018
Type of Debt	Principal Amount			Weighted Average Interest Rate			Principal Amount			Weighted Average Interest Rate
Fixed rate mortgages payable	$	163,986			4.25	%	$	171,646			4.25	%
Variable rate mortgages payable with swap agreements		252,244			3.33	%		252,244			3.33	%
Variable rate mortgages payable		684			3.29	%		684			3.95	%
Mortgages payable	$	416,914			3.69	%	$	424,574			3.71	%
Credit facility payable		267,022			3.92	%		284,523			4.22	%
Total debt before unamortized mortgage premiums and debt issuance costs including impact of interest rate swaps	$	683,936			3.78	%	$	709,097			3.91	%
Add: Unamortized mortgage premiums		1,051						1,683
Less: Unamortized debt issuance costs		(3,660	)					(4,896	)
Total debt	$	681,327					$	705,884

	December 31, 2019
Scheduled Principal Payments and Maturities by Year:	Scheduled Principal Payments		Maturities of Mortgage Loans		Maturity of Credit Facility		Total
2020	$	897	$	—	$	—	$	897
2021		1,540		82,740		—		84,280
2022		625		101,537		117,022		219,184
2023		326		91,230		150,000		241,556
2024		341		—		—		341
Thereafter		295		137,383		—		137,678
Total	$	4,024	$	412,890	$	267,022	$	683,936

Date Entered	Effective Date	Maturity Date	Pay Fixed Rate (a)			Notional Amount		Fair Value at December 31, 2019
Assets
January 25, 2016	February 1, 2016	February 1, 2021		1.40	%	$	38,000	$	82
June 7, 2016	July 1, 2016	July 1, 2023		1.42	%		43,680		198
July 21, 2016	August 1, 2016	August 1, 2023		1.30	%		47,550		435
						$	129,230	$	715

Liabilities
February 11, 2015	March 2, 2015	March 1, 2022		2.02	%	$	6,114	$	(62	)
April 7, 2015	April 7, 2015	April 7, 2022		1.74	%		49,400		(214	)
September 17, 2015	September 17, 2015	September 17, 2022		1.90	%		13,700		(128	)
October 2, 2015	November 1, 2015	November 1, 2022		1.79	%		13,100		(90	)
December 23, 2015	December 23, 2015	January 2, 2026		2.30	%		26,000		(952	)
June 5, 2017	May 31, 2017	May 15, 2022		1.90	%		14,700		(122	)
August 23, 2018	September 4, 2018	August 1, 2023		2.73	%		60,000		(2,420	)
August 23, 2018	September 4, 2018	August 1, 2023		2.74	%		25,000		(1,009	)
August 23, 2018	September 4, 2018	August 1, 2023		2.74	%		25,000		(1,012	)
August 23, 2018	September 4, 2018	August 1, 2023		2.73	%		40,000		(1,613	)

						$	273,014	$	(7,622	)

	Year Ended December 31,
Derivatives in Cash Flow Hedging Relationships:	2019			2018			2017
Effective portion of derivatives	$	(11,513	)	$	291		$	1,043
Reclassification adjustment for amounts included in net gain or loss (effective portion)	$	(888	)	$	(551	)	$	2,405
Ineffective portion of derivatives	$	—		$	(176	)	$	7

	Restricted Shares			Restricted Share Units
Outstanding at December 31, 2016		1,330			460
Granted (at grant date fair value of $22.63 per share)		1,657			600
Vested		(444	)		(156	)
Outstanding at December 31, 2017		2,543			904
Granted (at grant date fair value of $22.35 per share)		1,677			650
Vested		(996	)		(353	)
Outstanding at December 31, 2018		3,224			1,201
Granted (at grant date fair value of $20.12 per share)		2,237			849
Vested		(1,555	)		(570	)
Outstanding at December 31, 2019		3,906			1,480

	December 31, 2018
Earnout liability-beginning of period	$	1,050
Increases:
Additional earnout liability		816
Amortization expense		24
Decreases:
Earnout payments		(1,865	)
Other:
Adjustments to acquisition related costs		(25	)
Earnout liability – end of period	$	—