UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-51609
InvenTrust Properties Corp.
(Exact name of registrant as specified in its charter)
Maryland
34-2019608
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
3025 Highland Parkway, Suite 350, Downers Grove, Illinois
(Address of principal executive offices)
60515
(Zip Code)
(855) 377-0510
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.001 par value per share
(Title of Class)
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 the filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
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 definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging
growth company" in Rule 12b-2 of the Exchange Act).
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 market for the registrant’s shares of common stock. The aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant as of June 29, 2018 (the last business day of the registrant’s most recently completed second quarter) was
approximately $2,431,770,322, based on the estimated per share value of $3.14, as established by the registrant as of May 1, 2018.
As of March 1, 2019, there were 728,558,989 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive "Proxy Statement" for its annual stockholders' meeting to be held on May 9, 2019 are incorporated by
reference in Part III of this Form 10-K.
INVENTRUST PROPERTIES CORP.
TABLE OF CONTENTS
Special Note Regarding Forward-Looking Statements
Item 1.
Business
Executive Officers of Registrant
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Properties
Legal Proceedings
Item 4. Mine Safety Disclosures
Part I
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Part III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Part IV
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K ("Annual Report"), other than purely historical information, are
"forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"), as amended.
These statements include statements about InvenTrust Properties Corp.'s plans, objectives, strategies, financial performance and
outlook, trends, the amount and timing of future cash distributions, prospects or future events, including any potential liquidity
events, and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance,
achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some
cases, forward-looking statements can be identified by the use of words such as "may," "could," "expect," "intend," "plan,"
"seek," "anticipate," "believe," "estimate," "guidance," "predict," "potential," "continue," "likely," "will," "would," "illustrative",
"should" and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such
forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us based
on our knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees
of future performance, and stockholders should not place undue reliance on forward-looking statements.
There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause
our actual results to differ materially from the forward-looking statements contained in this Annual Report. Such risks,
uncertainties and other important factors, include, among others, the risks, uncertainties and factors set forth under "Part I, Item
1A. - Risk Factors" and "Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of
Operations, ("MD&A")" and the risks and uncertainties related to the following:
• market, political and economic volatility experienced by the United States ("U.S.") economy or real estate industry as a
whole, and the regional and local political and economic conditions in the markets in which our retail properties are
located;
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our ability to execute on potential strategic transactions aimed to enhance stockholder value and provide investment
liquidity to stockholders;
our ability to identify, execute and complete disposition opportunities and at expected valuations;
our ability to identify, execute and complete acquisition opportunities and to integrate and successfully operate any
retail properties acquired in the future and manage the risks associated with such retail properties;
our ability to manage the risks of expanding, developing or re-developing some of our current and prospective retail
properties;
loss of members of our senior management team or other key personnel;
changes in governmental regulations and U.S. accounting standards or interpretations thereof;
our ability to access capital for development, re-development and acquisitions on terms and at times that are acceptable
to us;
changes in the competitive environment in the leasing market and any other market in which we operate;
shifts in consumer retail shopping from brick and mortar stores to e-commerce;
declaration of bankruptcy by our retail tenants;
forthcoming expirations of certain of our leases and our ability to re-lease such retail properties;
our ability to collect rent from tenants or to rent space on favorable terms or at all;
the impact of leasing and capital expenditures to improve our retail properties to retain and attract tenants;
events beyond our control, such as war, terrorist attacks, including acts of domestic terrorism, natural disasters and
severe weather incidents, and any uninsured or under-insured loss resulting therefrom;
actions or failures by our joint venture partners, including development partners;
the cost of compliance with and liabilities under environmental, health and safety laws;
changes in real estate and zoning laws and increases in real property tax rates;
the economic success and viability of our anchor retail tenants;
our debt financing, including risk of default, loss and other restrictions placed on us;
our ability to refinance maturing debt or to obtain new financing on attractive terms;
future increases in interest rates;
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the availability of cash flow from operating activities to fund distributions;
our investment in equity and debt securities in companies we do not control;
our status as a real estate investment trust ("REIT") for federal tax purposes; and
changes in federal, state or local tax law, including legislative, administrative, regulatory or other actions affecting
REITs.
These factors are not necessarily all of the important factors that could cause our actual results, performance or achievements to
differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable
factors also could harm our business, financial condition, results of operations or cash flows. All forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth
above. Forward-looking statements speak only as of the date they are made; we do not undertake or assume any obligation to
publicly update any of these forward-looking statements to reflect actual results, new information or future events, changes in
assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable law. If
we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with
respect to those or other forward-looking statements.
PART I
As used throughout this Annual Report, the terms "Company," "InvenTrust," "we," "us," or "our" mean InvenTrust Properties
Corp. and its wholly owned and unconsolidated joint venture investments. Unless otherwise noted, all dollar amounts are stated
in thousands, except per share and per square foot data. Any reference to number of properties, square feet, tenant and occupancy
data are unaudited.
Item 1. Business
General
On October 4, 2004, InvenTrust Properties Corp. was incorporated as Inland American Real Estate Trust, Inc. as a Maryland
corporation and has elected to be taxed, and currently qualifies, as a REIT for federal tax purposes. We changed our name to
InvenTrust Properties Corp. in April 2015. We were originally formed to own, manage, acquire and develop a diversified
portfolio of commercial real estate located throughout the United States, to partially own properties through joint ventures and
to own investments in marketable securities and other assets. On February 3, 2015, we completed the spin-off of Xenia Hotels
& Resorts, Inc. ("Xenia"), which held our remaining lodging properties. On April 26, 2016, we completed the spin-off of
Highlands REIT, Inc. ("Highlands"), which held our remaining non-core properties, and on June 23, 2016, we completed the
sale of University House Communities Group, Inc. ("University House"), formerly our student housing platform. The Company
is now focused on owning, managing, acquiring, and developing a multi-tenant retail platform.
Our wholly owned, consolidated, and managed retail properties include grocery-anchored community and neighborhood
centers and necessity-based power centers. As of December 31, 2018, we manage 71 retail properties, with a gross leasable area
("GLA") of approximately 12.1 million square feet, which includes one retail property classified as a consolidated variable
interest entity ("VIE"), with a GLA of approximately 125,000 square feet, and 13 retail properties with a GLA of approximately
2.6 million square feet owned through an interest in one of our joint ventures, IAGM Retail Fund I, LLC ("IAGM"), an
unconsolidated retail joint venture partnership between the Company as 55% owner and PGGM Private Real Estate Fund
("PGGM").
The following table summarizes our multi-tenant retail platform as of December 31, 2018:
Wholly owned and consolidated
Community and neighborhood center (c)
Power center (d)
Properties held by IAGM
Community and neighborhood center
Power center
Multi-tenant retail platform, totals
No. of Properties
GLA
(square feet)
Economic
Occupancy (a)
ABR per
Square Foot (b)
38
20
58
7
6
13
71
4,248,008
5,227,474
9,475,482
1,266,774
1,339,040
2,605,814
12,081,296
95.0%
94.0%
95.0%
95.0%
88.0%
92.0%
94.0%
$19.12
16.20
17.52
18.72
16.92
17.87
$17.59
(a) Economic occupancy is defined as the percentage of total GLA for which a tenant is obligated to pay rent under the terms of its lease agreement,
regardless of the actual use or occupancy by that tenant of the area being leased. Actual use may be less than economic occupancy.
(b) Annualized Base Rent ("ABR") is computed as revenue for the last month of the period multiplied by twelve months. ABR includes the effect of rent
abatements, lease inducements, straight-line rent GAAP adjustments and ground rent income. ABR per square foot is computed as ABR divided by the
total leased square footage at the end of the period. Specialty leasing represents leases of less than one year in duration for inline space and includes any
term length for a common area space, and is excluded from the ABR and leased square footage figures when computing the ABR per square foot.
(c) Community and neighborhood centers are generally open-air and designed for tenants that offer a wide array of merchandise including groceries, apparel,
other soft goods and convenience-oriented offerings. Our community centers contain large anchor stores and a significant presence of national retail
tenants. Our neighborhood shopping centers are generally smaller open-air centers with a grocery store anchor and/or drugstore, and other small service
type retailers.
(d) Power centers are generally larger and consist of several anchors, such as discount department stores, off-price stores, specialty grocers, and warehouse
clubs or stores that offer a large selection of merchandise. Typically, the number of specialty tenants is limited and most are national or regional in scope.
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Business Objective and Strategy
We are a multi-tenant retail REIT. Our objective is to own and operate the right real estate properties in the right markets. Our
strategy to achieve our business objective includes the following:
• Acquire retail properties in our core markets;
• Opportunistically dispose of retail properties with maximized values and retail properties not located in our core markets;
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Pursue re-development opportunities (which may have a mixed-use component) at our current retail properties; and
• Maintain low leverage and a flexible capital structure.
Acquire retail properties in our core markets. For InvenTrust, the right properties mean open-air grocery anchored and certain
necessity-based power centers, and the right markets mean those with above average growth in population, employment and
wages. InvenTrust's targeted core markets include those with above average population, employment and wage growth. We
believe these conditions create markets that will experience increasing demand for grocery-anchored and necessity-based retail
centers which will enable us to capitalize on potential future rent increases while enjoying sustained occupancy at our centers.
Using these criteria, we have identified 10 to 15 core markets within the metropolitan areas of Atlanta, Austin, Charlotte,
Dallas-Fort Worth-Arlington, Denver, Houston, the greater Los Angeles and San Diego areas, suburban Washington D.C.,
Miami, Orlando, Raleigh-Durham, San Antonio and Tampa.
Opportunistically dispose of retail properties with maximized values and retail properties not located in our core markets. We
continue to opportunistically dispose of properties in low-growth markets or where we believe the properties' values have been
maximized. Additionally, these types of dispositions will allow the Company to re-deploy resources into properties in our core
markets.
Pursue re-development opportunities at our current retail properties. We have a coordinated program to increase rental income
by maximizing existing re-development opportunities and identifying locations in our current multi-tenant retail platform
where we can develop pad sites. In addition, we are working with our tenants to expand rentable square footage at select retail
properties where demand warrants. Certain redevelopment opportunities may include a mixed-use component.
Maintain low leverage and a flexible capital structure. We continually evaluate the economic and credit environment and its
impact on our business. We believe we are appropriately positioned to have significant liquidity to continue executing on our
strategy. We expect to have the ability to repay, refinance or extend any of our debt, and we believe we have adequate sources
of funds to meet short-term cash needs related to these refinancings or extensions.
We believe that the continuing refinement of our multi-tenant retail platform will position us for future success and put us in a
position to evaluate and ultimately execute on potential strategic transactions aimed at achieving liquidity and providing a
return for our stockholders in the long term. While we believe in our ability to execute on our plan, the timing is uncertain and
may be shortened or extended by external and macroeconomic factors including, among others, interest rate movements, local,
regional, national and global economic performance, competitive factors, the impact of e-commerce on the retail industry,
future retailer store closings, retailer bankruptcies, and government policy changes.
Competition
The commercial real estate retail market is highly competitive. We compete for tenants with other owners and operators of
commercial rental properties in all of our markets. We compete based on a number of factors that include location, rental rates,
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 income. We also face significant competition from e-commerce retailers. As retailers increase their e-
commerce presence it may cause them to adjust the size or number of brick and mortar retail locations in the future. This shift
could adversely impact our occupancy and rental rates, which would, in turn, adversely impact our revenues and cash flows.
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. Many real estate investors, including
other REITs, have investment objectives similar to ours. In addition, many real estate investors seek financing through the same
channels that we do. Therefore, we compete in a market where funds for real estate investment may decrease, grow less than
the underlying demand or be unaffordable.
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Environmental Matters
Compliance with federal, state and local environmental laws has not had a material adverse effect on our business, assets, or
results of operations, financial condition and ability to pay distributions, and we do not believe that our existing platform will
require us to incur material expenditures to comply with these laws and regulations. However, we cannot predict the impact of
unforeseen environmental contingencies or new or changed laws or regulations on our properties.
Tax Status
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), beginning with the tax year ended December 31, 2005. Because we qualify for taxation as a REIT, we generally will
not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in
any taxable year, without the benefit of certain relief provisions, we will be subject to federal and state income tax on our
taxable income at regular corporate rates. 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, respectively, and to federal income and excise taxes on our undistributed income.
Employees
As of December 31, 2018, we had 117 employees.
Access to Company Information
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 Securities and Exchange Commission ("SEC"). The SEC maintains a website at
www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file
electronically.
We make available, free of charge, by responding to requests addressed to our investor relations group, the Annual Report,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports on our website,
www.inventrustproperties.com. These reports are available as soon as reasonably practicable after such material is
electronically filed or furnished to the SEC. The information on the Company's website is not incorporated by reference in this
Annual Report.
Executive Officers of Registrant
Set forth below is information concerning our executive officers as of March 7, 2019.
Thomas P. McGuinness, 63. Mr. McGuinness currently serves as our President and Chief Executive Officer and is also a
member of our board of directors. He has served as our President since we initiated our self-management transactions in March
2014 and as our Chief Executive Officer since November 2014. Prior to the self-management transactions, he served as our
President and principal executive officer since September 2012 and President of our former business manager since January
2012. Prior to that time, Mr. McGuinness was the President of our former property manager. Mr. McGuinness previously
served as the president of the Chicagoland Apartment Association and as the regional vice president of the National Apartment
Association. He also served on the board of directors of the Apartment Building Owners and Managers Association, and was a
trustee with the Service Employees' Local No. 1 Health and Welfare Fund and its Pension Fund. Mr. McGuinness is an
Executive Committee member of our retail joint venture entity IAGM.
Ivy Z. Greaner, 58. Ms. Greaner currently serves as our Executive Vice President, Chief Operating Officer. She has served as
our Chief Operating Officer since July 2018. Prior to that time, Ms. Greaner had been Regional Vice President of FivePoint
(previously Lennar Urban) from 2016 to 2018. Prior to Lennar’s combination with Rialto in 2016, she served as Executive Vice
President and COO of Lennar Commercial for two years. From 1999 to 2014, Ms. Greaner was Partner and Chief Operating
Officer of Ram Realty Services, where she oversaw company operations, ground-up development and all aspects of
commercial and residential assets. Previously, Ms. Greaner served as Principal and Owner of Gadinsky & Greaner, a
commercial real estate service and development company. She attended Boston University and holds broker licenses for the
states of Florida and North Carolina. As an active member of the International Council of Shopping Centers ("ICSC"), Ms.
Greaner serves on the National Economic Committee's Infrastructure Task Force, and she served for many years as the
Government Chair for ICSC’s Florida Government Relations Committee. She is a member of Florida State University’s Real
Estate Advisory Board, and is also a founding member of 100+ Women Who Care’s South Florida chapter, and supports Hope
Outreach’s philanthropic mission.
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Christy David, 40. Ms. David currently serves as our Executive Vice President, General Counsel and Corporate Secretary. Ms.
David has served as InvenTrust’s General Counsel since 2017. Ms. David joined InvenTrust in 2014 as Managing Counsel –
Transactions and held that position until November 2016 when she was named Vice President, Deputy General Counsel and
Secretary. Prior to that, Ms. David served at the Inland Group Inc., managing, reviewing and drafting legal documents and
matters for InvenTrust’s acquisitions, dispositions, corporate contracts and spin-offs. Prior to joining the Inland Group, Ms.
David was an Associate Attorney at The Thollander Law Firm and held various positions at David & Associates. Ms. David
serves on the Ravinia Associates Board and Nominating Committee. Ms. David received a Juris Doctor from Washington
University School of Law and a Bachelor of Business Administration in Finance from Loyola University.
Adam M. Jaworski, 45. Mr. Jaworski currently serves as our Senior Vice President, Chief Accounting Officer and Interim
Treasurer (Principal Accounting Officer and Interim Principal Financial Officer). Mr. Jaworski joined InvenTrust in December
2016 as Senior Vice President and Chief Accounting Officer. Prior to joining InvenTrust, he served as Chief Accounting Officer
of the United States platform of Global Logistic Properties, a global owner, manager and developer of modern logistics
facilities, from 2013 to 2016. Prior to this role, Mr. Jaworski served as a Senior Manager at Deloitte & Touche, LLP in the real
estate consulting group from 2011 to 2013. He served as Corporate Controller for Waterton Associates LLC, a multi-family real
estate investor and property management company, and its hotel investment and management division, Ultima Hospitality, LLC
from 2007 to 2011. He has worked previously as an auditor in public accounting for both Arthur Andersen, and Deloitte &
Touche. He has over 20 years of experience in auditing, consulting and accounting. He graduated from Ball State University
with a Bachelor of Science degree in Accounting and a Master of Arts in Organizational Development. He is a Certified Public
Accountant.
Item 1A. Risk Factors
You should carefully consider each of the following risks described below and all of the other information in this Annual Report
in evaluating us. Our business, financial condition, cash flows, results of operations and/or ability to pay distributions to our
stockholders could be materially adversely affected by any of these risks. This Annual Report also contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this
Annual Report. See "Special Note Regarding Forward-Looking Statements."
Risks Related to Our Business
Economic, political and market conditions could negatively impact our business, results of operations and financial condition.
Our business may be affected by market and economic challenges experienced by the U.S. or global economies or the real
estate industry as a whole (and, in particular, the retail sector); by the regional or local economic conditions in the markets in
which our assets are located, including any dislocations in the credit markets; or by competitive business market conditions
experienced by us and/or our retail tenants and shadow anchor retailers (anchor retailers that anchor our assets but whose
properties are not owned or leased by us), such as challenges competing with e-commerce channels. For example, prolonged
lower oil prices may negatively impact the economy in the Houston metropolitan area, where approximately 12.8% of our total
annualized base rental income is concentrated. These conditions may materially affect our tenants, shadow anchor retailers, the
value and performance of our assets and our ability to sell assets, as well as our ability to make principal and interest payments
on, or refinance, outstanding debt when due. Challenging economic conditions may also impact the ability of certain of our
tenants to enter into new leasing transactions or to satisfy rental payments under existing leases. Specifically, these conditions
may have the following consequences:
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the financial condition of our tenants may be adversely affected, which may result in us having to increase
concessions, reduce rental rates or make capital improvements in order to maintain occupancy levels or to negotiate
for reduced space needs, which may result in a decrease in our occupancy levels and cash flows;
significant job loss may occur, which may decrease demand for space and result in lower occupancy levels, which will
result in decreased revenues and could diminish the value of assets that depend, in part, upon the cash flow generated
by our assets;
an increase in the number of bankruptcies or insolvency proceedings of our tenants and lease guarantors, which could
delay our efforts to collect rent and any past due balances under the relevant leases and ultimately could preclude
collection of these sums;
our ability to borrow on terms and conditions that we find acceptable may be limited;
consolidation in the retail sector, including by e-commerce retailers, which could negatively impact the rental rates we
are able to charge and occupancy levels;
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the amount of capital that is available to finance assets could diminish, which, in turn, could lead to a decline in asset
values generally, slow asset transaction activity, and reduce the loan to value ratio upon which lenders are willing to
lend;
the value of certain of our assets may decrease below the amounts we paid for them, which would limit our ability to
dispose of assets at attractive prices or for potential buyers to obtain debt financing secured by these assets and could
reduce our ability to finance our business; and
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changing government regulations, including tax policies.
A consumer shift in retail shopping from brick and mortar stores to e-commerce may have an adverse impact on our
revenues and cash flow.
The majority of national retailers operating brick and mortar stores have made e-commerce sales an important part of their
business model. Although many tenants at our retail properties either provide services or sell groceries, for those tenants that do
not have an online presence, the shift to e-commerce sales may adversely impact their sales, causing those retailers to adjust the
size or number of retail locations in the future. This shift could adversely impact our occupancy and rental rates, which would,
in turn, adversely impact our revenues and cash flows.
Our management and our board of directors (the "Board") routinely evaluate opportunities to position the Company for
various strategic transactions designed to provide liquidity for our stockholders. Such strategic transactions may not occur,
and even if they do occur, they may not be successful in increasing stockholder value or providing liquidity for our
stockholders.
Our management and our Board routinely evaluate opportunities to position the Company for various strategic transactions
designed to ultimately provide liquidity for our stockholders. The timing or the form of any such strategic transaction is
uncertain. Strategic transaction options are subject to factors that are outside of our control, such as economic and market
conditions. Such factors may affect whether any strategic transaction is available to the Company and, if so, whether the
transaction is available on terms satisfactory to the Company or at a time of the Company's choosing. Our Board may decide to
apply to have our shares of common stock listed for trading on a national securities exchange or included for quotation on a
national market system; seek to sell all or substantially all of our assets, liquidate or engage in a merger transaction; contribute
substantial assets to a joint venture in exchange for cash; sell our assets individually or approve a strategic transaction whose
form we cannot yet reasonably anticipate. It is possible that no such strategic transaction will ever occur. Even if a strategic
transaction does occur, it may not be successful in increasing share value or providing liquidity for our stockholders, and may
have the opposite effect, eroding share value and failing to deliver any meaningful liquidity, in which case our stockholders'
investment would lose value.
Our ongoing business strategy involves the selling of assets; however, we may be unable to sell an asset at acceptable terms
and conditions, if at all.
We intend to continue to hold our assets as long-term investments until such time as we determine that a sale or other
disposition appears to be advantageous to achieve our investment objectives or until it appears such objectives will not be met.
As we look to sell these assets, general economic conditions, market conditions, and asset-specific issues may negatively affect
the value of our assets and therefore reduce our return on the investment or prevent us from selling the asset on acceptable
terms or at all. Some of our leases contain provisions giving the tenant a right to purchase the asset, such as a right of first offer
or right of first refusal, which may lessen our ability to freely control the sale of the asset. Debt levels currently exceed the
value of certain assets and debt levels on other assets may exceed the value of those assets in the future, making it more
difficult for us to rent, refinance or sell the assets, which may lead to the asset being subject to foreclosure, a deed in lieu of
foreclosure or another transaction with a lender. In addition, real estate investments are relatively illiquid and often cannot be
sold quickly, limiting our ability to sell our assets when we decide to do so, or in response to such changing economic or asset-
specific issues. Further, economic conditions may prevent potential purchasers from obtaining financing on acceptable terms, if
at all, thereby delaying or preventing our ability to sell our assets.
Our ongoing strategy depends, in part, upon completing future acquisitions and dispositions, and we may not be successful
in identifying attractive acquisition opportunities and consummating these transactions.
As part of our strategy, we intend to tailor and grow our multi-tenant retail platform. We cannot assure our stockholders that we
will be able to identify opportunities or complete transactions on commercially reasonable terms or at all, or that we will
actually realize any anticipated benefits from such acquisitions or investments. There may be high barriers to entry in many key
markets and scarcity of available acquisition and investment opportunities in desirable locations. We face significant
competition for attractive investment opportunities from an indeterminate number of other real estate investors, including
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investors with significant capital resources such as domestic and foreign corporations and financial institutions, sovereign
wealth funds, public and private REITs, private institutional investment funds, domestic and foreign high-net-worth individuals,
life insurance companies and pension funds. As a result of competition, we may be unable to acquire additional properties as
we desire or the purchase price may be significantly elevated. Similarly, we cannot assure our stockholders that we will be able
to obtain financing for acquisitions or investments on attractive terms or at all, or that the ability to obtain financing will not be
restricted by the terms of our credit facility or other indebtedness we may incur.
Additionally, we regularly review our business to identify properties or other assets that we believe are in certain markets or
have certain characteristics that may not benefit us as much as properties in other markets or with different characteristics. One
of our strategies is to selectively dispose of retail properties and use sale proceeds to fund our growth in markets and with
properties that will enhance our multi-tenant retail platform. We cannot assure our stockholders that we will be able to
consummate any such sales on commercially reasonable terms or at all, or that we will actually realize any anticipated benefits
from such sales. Additionally, we may be unable to successfully identify attractive and suitable replacement assets even if we
are successful in completing such dispositions. We may face delays in reinvesting net sales proceeds in new assets, which
would impact the return we earn on our assets. Dispositions of real estate assets can be particularly difficult in a challenging
economic environment when uncertainties exist about the impact of e-commerce on retailers and when financing alternatives
are limited for potential buyers. Our inability to sell assets, or to sell such assets at attractive prices, could have an adverse
impact on our ability to realize proceeds for reinvestment. In addition, even if we are successful in consummating sales of
selected retail properties, such dispositions may result in losses.
Any such acquisitions, investments or dispositions could also demand significant attention from management that would
otherwise be available for our regular business operations, which could harm our business.
Our ongoing strategy depends, in part, on expanding, developing or re-developing some of our current retail properties as
well as properties acquired in the future. We face risks with the expansion, development and re-development of properties
that may impact our financial condition and results of operations.
We seek to expand, develop and re-develop some of our existing properties and such activity is subject to various risks. We
may not be successful in identifying and pursuing expansion, development and re-development opportunities. In addition, like
newly-acquired properties, expanded, developed and re-developed properties may not perform as well as expected. Risks
include the following:
• we may be unable to lease developments to full occupancy on a timely basis;
•
•
•
the occupancy rates and rents of a completed project may not be sufficient to make the project profitable;
actual costs of a project may exceed original estimates, possibly making the project unprofitable;
delays in the development or construction process may increase our costs;
• we may abandon a development project and lose our investment;
•
•
•
•
the size of our development pipeline may strain our labor or capital capacity to complete developments within targeted
timelines and may reduce our investment returns;
a reduction in the demand for new retail space may reduce our future development activities, which in turn may reduce
our net operating income;
changes in the level of future development activity may adversely impact our results from operations by reducing the
amount of certain internal overhead costs that may be capitalized; and
a shift in our development and acquisition thesis, which may include mixed-use properties (with or without joint venture
or development partners), with differing tenant profiles or mixes, and/or multi-story buildings, all in select cases.
If we lose or are unable to retain and obtain key personnel, our ability to implement our business strategies could be delayed
or hindered.
We believe that our future success depends, in large part, on our ability to retain and hire highly-skilled managerial and
operating personnel. Competition for persons with managerial and operational skills is intense, and we cannot assure our
stockholders that we will be successful in retaining or attracting skilled personnel. If we lose or are unable to obtain the
services of our executive officers and other key personnel, or do not establish or maintain the necessary strategic relationships,
our ability to implement our business strategy could be delayed or hindered.
We are increasingly dependent on information technology ("IT"), and potential cyber-attacks, security problems, or other
disruptions present risks.
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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 an
intruder 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.
Although we make efforts to maintain the security and integrity of our IT networks and related systems, and we have
implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security
efforts and measures will be effective or that attempted security breaches would not be successful or damaging. While we
maintain some of our own critical IT systems, we also depend on third parties to provide important IT services relating to
several key business functions. Furthermore, the security measures employed by third-party service providers may prove to be
ineffective at preventing breaches of their systems. Moreover, cyber incidents perpetrated against our tenants, including
unauthorized access to customers' credit card data and other confidential information, could diminish consumer confidence and
consumer spending and negatively impact our business and reputation.
Our primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to
our relationships with our tenants and private data exposure. Our financial results and reputation may be negatively impacted
by such an incident.
A failure of our IT infrastructure could adversely impact our business and operations.
We rely upon the capacity, reliability and security of our IT infrastructure and our ability to expand and continually update this
infrastructure in response to changing needs of our business. We continue to face the challenge of integrating new systems and
hardware into our operations. If there are technological impediments, unforeseen complications, errors or breakdowns in the IT
infrastructure, the disruptions could have an adverse effect on our business and financial condition.
We disclose funds from operations ("FFO"), a non-GAAP (U.S. generally accepted accounting principles, or "GAAP")
financial measure, in communications with investors, including documents filed with the SEC; however, FFO is not
equivalent to our net income or loss as determined under GAAP, and GAAP measures should be considered to be more
relevant to our operating performance.
We use internally, and disclose to investors, FFO, a non-GAAP financial measure. FFO is not equivalent to our net income or
loss as determined under GAAP, and investors should consider GAAP measures to be more relevant to our operating
performance. Because of the manner in which FFO differs from GAAP net income or loss, it may not be an accurate indicator
of our operating performance. Furthermore, FFO is not necessarily indicative of cash flow available to fund cash needs and
should not be considered as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds
available to fund our cash needs, including our ability to make distributions to our stockholders. Neither the SEC nor any other
regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO. Also, because not all
companies calculate FFO the same way, comparisons with other companies may not be meaningful.
We are subject to litigation that could negatively impact our cash flow, financial condition and results of operations.
We are a defendant from time to time in lawsuits and regulatory proceedings relating to our business. Due to the inherent
uncertainties of litigation and regulatory proceedings, we may not be able to accurately predict the ultimate outcome of any
such litigation or proceedings. A significant unfavorable outcome could negatively impact our cash flow, financial condition
and results of operations.
Risks Related to our Real Estate Assets
There are inherent risks with investments in real estate, including the relative illiquidity of such investments.
Investments in real estate are subject to varying degrees of risk. For example, an investment in real estate cannot generally be
quickly sold, and we cannot predict whether we will be able to sell any asset we desire to on the terms set by us or acceptable to
us, or the length of time needed to find a willing purchaser and to close the sale of such asset. Moreover, the Code imposes
restrictions on a REIT’s ability to dispose of assets that are not applicable to other types of real estate companies. In particular,
the tax laws applicable to REITs require that we hold our assets for investment, rather than primarily for sale in the ordinary
course of business, which may cause us to forgo or defer sales of assets that otherwise would be in our best interests. Therefore,
we may not be able to vary our platform promptly in response to changing economic, financial and investment conditions and
dispose of assets at opportune times or on favorable terms, which may adversely affect our cash flows and our ability to make
distributions to stockholders.
Investments in real estate are also subject to adverse changes in general economic conditions. Among the factors that could
7
impact our assets and the value of an investment in us are the following:
•
•
•
•
•
•
•
•
•
risks associated with the possibility that cost increases will outpace revenue increases and that in the event of an
economic slowdown, the high proportion of fixed costs will make it difficult to reduce costs to the extent required to
offset declining revenues;
changes in tax laws and property taxes, or an increase in the assessed valuation of an asset for real estate tax purposes;
adverse changes in the federal, state or local laws and regulations applicable to us, including those affecting zoning,
fuel and energy consumption, water and environmental restrictions, and the related costs of compliance;
changing market demographics;
an inability to finance real estate assets on favorable terms, if at all;
the ongoing need for owner-funded capital improvements and expenditures to maintain or upgrade assets;
fluctuations in real estate values or potential impairments in the value of our assets;
natural disasters, such as earthquakes, floods or other insured or uninsured losses; and
changes in interest rates and availability, cost and terms of financing.
Our assets may be subject to impairment charges that may materially and adversely affect our financial results.
Economic and other conditions may adversely impact the valuation of our assets, resulting in impairment charges that could
have a material adverse effect on our results of operations. On a regular basis, we evaluate our assets for impairments based on
various factors, including changes in the holding periods, projected cash flows of such assets and market conditions as
described in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical
Accounting Policies and Estimates - Impairment of Long Lived Assets." If we determine that an impairment has occurred, we
would be required to make an adjustment to the net carrying value of the asset, which could have a material adverse effect on
our results of operations in the accounting period in which the adjustment is made. Furthermore, changes in estimated future
cash flows due to a change in our plans, policies, or views of market and economic conditions could result in the recognition of
additional impairment losses for already impaired assets, which, under the applicable accounting guidance, could be substantial
and could materially adversely affect our results of operations. We have incurred and we may incur future impairment charges,
which could be material.
We depend on tenants for our revenue, and accordingly, lease terminations, tenant defaults and bankruptcies could
adversely affect the income produced by our assets.
Our business and financial condition depend on the financial stability of our tenants. Certain economic conditions may
adversely affect one or more of our tenants. For example, business failures, downsizings, changing consumer tastes and e-
commerce can contribute to reduced consumer demand for retail products and services, which would impact tenants of our
retail properties. In addition, our retail properties typically are anchored by large, nationally recognized tenants, any of which
may experience a downturn in its business that may weaken significantly its financial condition and thus the performance of the
applicable shopping center. 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. Individual tenants may lease more than one asset or space at
more than one asset. As a result, the financial failure of one tenant could increase vacancy at more than one asset or cause more
than one lease to become non-performing. 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, any of
which could have a material adverse effect on our financial condition, cash flows, results of operations, and our ability to pay
distributions.
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 asset. Specifically, a bankruptcy filing by, or relating to, one of
our tenants or a lease guarantor would bar efforts by us to collect pre-bankruptcy debts from that tenant or lease guarantor, or
its asset, unless we receive an order permitting us to do so from the bankruptcy court. In addition, we cannot evict a tenant
solely because of bankruptcy. The bankruptcy of a tenant or lease guarantor could delay our efforts to collect past-due balances
under the relevant leases, and could ultimately preclude collection of these sums. If a lease is rejected by a tenant in bankruptcy,
we would have only a general, unsecured claim for damages. An unsecured claim would only be paid to the extent that funds
are available and only in the same percentage as is paid to all other holders of general, unsecured claims. Restrictions under the
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bankruptcy laws further limit the amount of any other claims that we can make if a lease is rejected. As a result, it is likely that
we would recover substantially less than the full value of the remaining rent during the term.
Our platform is subject to geographic concentration, which exposes us to risks of oversupply and competition in the relevant
markets. Significant increases in the supply of certain property types without corresponding increases in demand in those
markets could have a material adverse effect on our financial condition, our results of operations and our ability to pay
distributions.
As of December 31, 2018, approximately 40.3% of our total annualized base rental income was generated by properties located
in Texas, with 12.8%, 12.0%, 8.6%, and 6.9% of our total annualized base rental income generated by properties located in the
Houston, Austin, Dallas-Fort Worth-Arlington, and San Antonio metropolitan areas, respectively. An oversupply of retail
properties in any of these markets could have a material adverse effect on our financial condition, our results of operations and
our ability to pay distributions.
Risk associated with expansion into new markets.
If opportunities arise, we may acquire or develop properties in markets where we currently have no presence. Each of the risks
applicable to acquiring or developing properties in our current markets are applicable to acquiring, developing and integrating
properties in new markets. In addition, we may not possess the same level of familiarity with the dynamics and conditions of
the new markets we may enter, which may adversely affect our operating results and investment returns in those markets.
Real estate is a competitive business.
We compete with numerous developers, owners and operators of commercial real estate assets in the leasing market, many of
which own assets similar to, and in the same market areas as, our assets. In addition, some of these competitors may be willing
to accept lower returns on their investments than we are, and many have greater resources than we have and may enjoy
significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating
efficiencies. Principal factors of competition include rents charged, attractiveness of location, the quality of the asset and
breadth and quality of services provided. Our success depends upon, among other factors, trends affecting national and local
economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost
of capital, construction and renovation costs, taxes, governmental regulations, legislation, job creation and population trends.
We also face competition from other real estate investment programs for buyers. We perceive there to be a smaller population
of potential buyers for certain types of assets that comprise our portfolio in comparison to assets in other real estate sectors,
which may make it challenging for us to sell certain of our retail properties.
We may be unable to renew leases, lease vacant space or re-let space as leases expire, thereby increasing or prolonging
vacancies, which could adversely affect our financial condition, cash flows and results of operations.
As of December 31, 2018, our retail properties are 94.0% occupied. As of December 31, 2018, leases representing
approximately 6.5% and 8.3% of our expiring gross leasable area of 11,359,259 square feet of our retail properties are
scheduled to expire in 2019 and 2020, respectively (not taking into account any renewal options). We cannot assure our
stockholders that leases will be renewed or that our properties will be re-leased on terms equal to or better than the current
terms, or at all. We also may not be able to lease space which is currently not occupied on acceptable terms and conditions, if at
all. In addition, some of our tenants have leases that include early termination provisions that permit the lessee to terminate all
or a portion of its lease with us after a specified date or upon the occurrence of certain events with little or no liability to us. We
may be required to offer substantial rent abatements, tenant improvements, early termination rights or below-market renewal
options to retain these tenants or attract new ones. It is possible that, in order to lease currently vacant space, or space that may
become vacant, we will be required to make rent or other concessions to tenants, accommodate requests for renovations, make
tenant improvements and other improvements or provide additional services to our tenants. As a result, we may have to make
significant capital or other expenditures in order to retain tenants whose leases expire or to attract new tenants. Portions of our
assets may remain vacant for extended periods of time. If the rental rates for our assets decrease, our existing tenants do not
renew their leases or we do not re-lease a significant portion of our available space and space for which leases will expire, our
financial condition, cash flows and results of operations could be adversely affected.
We may be required to make significant expenditures to improve our properties in order to retain and attract tenants.
In order to retain tenants whose leases are expiring or to attract replacement tenants, we may be required to provide rent or
other concessions, accommodate requests for renovations, build-to-suit remodeling and other improvements or provide
additional services. As a result, we may have to pay for significant leasing costs or tenant improvements. Additionally, if we
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have insufficient capital reserves, we may need to raise capital to fund these expenditures. If we are unable to do so, we may be
unable to fund the necessary or desirable improvements to our properties. This could result in non-renewals by tenants upon the
expiration of their leases or an inability to attract new tenants, which would result in declines in revenues from operations and
adversely affect our cash flows and results of operations.
Furthermore, deferring necessary improvements to a property may cause the property to suffer from a greater risk of
obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential tenants being attracted
to the property. If this happens, we may not be able to maintain projected rental rates for affected properties, and our results of
operations may be negatively impacted.
Any difficulties in obtaining capital necessary to make tenant improvements, pay leasing commissions and make capital
improvements at our assets could materially and adversely affect our financial condition and results of operations.
Ownership of real estate is a capital intensive business that requires significant capital expenditures to operate, maintain and
renovate assets. Access to the capital that we need to lease, maintain and renovate existing assets is critical to the success of our
business. We may not be able to fund tenant improvements, pay leasing commissions or fund capital improvements at our
existing assets solely from cash provided from our operating activities. Consequently, we may have to rely upon the availability
of debt, net proceeds from the dispositions of our assets or equity capital to fund tenant improvements, pay leasing
commissions or fund capital improvements. The inability to do so could impair our ability to compete effectively and harm our
business.
We are subject to risks from natural disasters and severe weather.
Natural disasters and severe weather such as earthquakes, wildfires, mudslides, tornadoes, hurricanes, blizzards, hailstorms or
floods may result in significant damage to our properties, disrupt operations at our properties and adversely affect both the
value of our properties and the ability of our tenants and operators to make their scheduled rent payments to us. The extent of
our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the
total amount of exposure in the affected area. These losses may not be insured or insurable at commercially reasonable rates.
When we have a geographic concentration, a single catastrophe or destructive weather event affecting a region may have a
significant negative effect on our financial condition, results of operations, and cash flows. As a result, our operating and
financial results may vary significantly from one period to the next. We also are exposed to the risk of an increased need for the
maintenance and repair of our buildings due to inclement weather.
We may obtain only limited warranties when we purchase a property and would have only limited recourse if our due
diligence did not identify issues that could decrease the value of our property after the purchase.
The seller of a property often sells the property to us in its "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, and may also require additional investment to make the
property suitable and competitive.
Actions of our joint venture partners could negatively impact our performance.
With respect to our joint venture investments, we are not in a position to exercise sole decision-making authority regarding the
property or the joint venture. Consequently, our joint venture investments may involve risks not present with other methods of
investing in real estate. For example, our joint venture partner may have economic or business interests or goals which are or
which become inconsistent with our economic or business interests or goals or may take action contrary to our instructions or
requests or contrary to our policies or objectives. We have experienced these events from time to time with our former joint
venture partners, which in some cases have resulted in litigation. An adverse outcome in any lawsuit could have a material
effect on our business, financial condition or results of operations. In addition, any litigation increases our expenses and
prevents our officers and directors from focusing their time and effort on our portfolio and business plans. Our relationships
with our joint venture partners are contractual in nature. These agreements may restrict our ability to sell our interest when we
desire or on advantageous terms and may be terminated or dissolved and, in each event, we may not continue to own or operate
the interests or assets underlying the relationship or may need to purchase the interests or assets at an above-market price to
continue ownership. Such joint venture investments may involve other risks not otherwise present with a direct investment in
real estate, including the following examples:
•
the possibility that the investment may require additional capital that we or our joint venture partner does not have,
which lack of capital could affect the performance of the investment or dilute our interest if our joint venture partner
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were to contribute our share of the capital;
•
•
•
the possibility that our joint venture partner in an investment might breach a loan agreement or other agreement or
otherwise, by action or inaction, act in a way detrimental to us or the investment;
the possibility that we may incur liabilities as the result of the action taken by our joint venture partner; or
that such joint venture partner may exercise buy/sell rights that force us to either acquire the entire investment, or
dispose of our share, at a time, on terms and/or at a price that may not be consistent with our investment objectives.
An increase in real estate taxes may decrease our income from properties.
From time to time, the amount we pay for property taxes may increase as either property values increase or assessment rates are
adjusted. Increases in a property’s value or in the tax assessment rate could result in an increase in the real estate taxes due for
that property. If we are unable to pass the increase in taxes through to our tenants, our net operating income for the property
will decrease.
Uninsured losses or premiums for insurance coverage may adversely affect a stockholder’s returns.
Various types of catastrophic losses, like windstorms, earthquakes and floods, and losses from foreign terrorist activities may
not be insurable or may not be economically insurable. Even when insurable, these policies may have high deductibles and/or
high premiums. Lenders may require such insurance. Our failure to obtain such insurance could constitute a default under loan
agreements, and/or our lenders may force us to obtain such insurance at unfavorable rates, which could materially and
adversely affect our profitability.
In the event of a substantial loss, our insurance coverage may not be sufficient to cover the full current market value or
replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all
or a portion of the capital we have invested in an asset, as well as the anticipated future revenue from the asset. In that event,
we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the asset. Inflation,
changes in building codes and ordinances, environmental considerations and other factors might require us to come out of
pocket to replace or renovate an asset after it has been damaged or destroyed. Under those circumstances, the insurance
proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property, which could
materially and adversely affect our profitability.
In addition, insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage
against property and casualty claims. With the enactment of the Terrorism Risk Insurance Program Reauthorization Act of
2007, United States insurers cannot exclude conventional, chemical, biological, nuclear and radiation terrorism losses. These
insurers must make terrorism insurance available under their property and casualty insurance policies; however, this legislation
does not regulate the pricing of such insurance. In many cases, mortgage lenders have begun to insist that commercial property
owners purchase coverage against terrorism as a condition of providing mortgage loans. Such insurance policies may not be
available at a reasonable cost, which could inhibit our ability to finance or refinance our assets. In such instances, we may be
required to provide other financial support to cover potential losses. We may not have adequate coverage for such losses, which
could materially and adversely affect our profitability.
We could incur material costs related to government regulation and litigation with respect to environmental matters, which
could materially and adversely affect our revenues and profitability.
Our assets are subject to various U.S. federal, state and local environmental laws that impose liability for contamination. Under
these laws, governmental entities have the authority to require us, as the current or former owner of an asset, to perform or pay
for the clean-up of contamination (including hazardous substances, asbestos and asbestos-containing materials, waste or
petroleum products) at, on, under or emanating from the asset and to pay for natural resource damages arising from such
contamination. Such laws often impose liability without regard to whether the owner or operator or other responsible party
knew of, or caused such contamination, and the liability may be joint and several. Because these laws also impose liability on
persons who owned an asset at the time it became contaminated, it is possible we could incur cleanup costs or other
environmental liabilities even after we sell assets. Contamination at, on, under or emanating from our assets also may expose us
to liability to private parties for costs of remediation and/or personal injury or property damage. In addition, environmental
laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such
contamination. If contamination is discovered on our assets, environmental laws also may impose restrictions on the manner in
which the assets may be used or businesses may be operated, and these restrictions may require substantial expenditures.
Moreover, environmental contamination can affect the value of an asset and, therefore, an owner’s ability to borrow funds
using the asset as collateral or to sell the asset on favorable terms or at all. Furthermore, persons who sent waste to a waste
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disposal facility, such as a landfill or an incinerator, may be liable for costs associated with cleanup of that facility.
In addition, our assets are subject to various federal, state, and local environmental, health and safety laws and regulations that
address a wide variety of issues, including, but not limited to, storage tanks, air emissions from emergency generators, storm
water and wastewater discharges, lead-based paint, mold and mildew, and waste management. We may handle and use
hazardous or regulated substances and wastes as part of their operations, which substances and wastes are subject to regulation.
We may incur costs to comply with these environmental, health and safety laws and regulations and could be subject to fines
and penalties for non-compliance with applicable requirements.
Environmental laws in the U.S. also require that owners or operators of buildings containing asbestos properly manage and
maintain the asbestos, adequately inform or train those who may come into contact with asbestos and undertake special
precautions, including removal or other abatement, if that asbestos is disturbed during building renovation or demolition. These
laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may
allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos. Some of
our assets may contain asbestos-containing building materials.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the
moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or
irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor
sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants
above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other
reactions. As a result, the presence of significant mold or other airborne contaminants at any of our assets could require us to
undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected asset
or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to
liability to third parties if property damage or personal injury occurs.
Liabilities and costs associated with environmental contamination at, on, under or emanating from our assets, defending against
claims related to alleged or actual environmental issues, or complying with environmental, health and safety laws could be
material and could materially and adversely affect us. We can make no assurances that changes in current laws or regulations or
future laws or regulations will not impose additional or new material environmental liabilities or that the current environmental
condition of our assets will not be affected by our operations, the condition of the assets in the vicinity of our assets, or by third
parties unrelated to us. The discovery of material environmental liabilities at our assets could subject us to unanticipated
significant costs, which could significantly reduce or eliminate our profitability and the cash available for distribution to our
stockholders.
Compliance or failure to comply with the Americans with Disabilities Act and other safety regulations and requirements
could result in substantial costs.
Under the Americans with Disabilities Act of 1990 and the Accessibility Guidelines promulgated thereunder, which we refer to
collectively as the ADA, all public accommodations must meet various federal requirements related to access and use by
disabled persons. Compliance with the ADA’s requirements could require removal of access barriers, and non-compliance
could result in the U.S. government imposing fines or in private litigants winning damages.
Our assets are also subject to various federal, state and local regulatory requirements, such as state and local fire and life safety
requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know
whether existing requirements will change or whether compliance with future requirements would require significant
unanticipated expenditures that would affect our cash flow and results of operations. If we incur substantial costs to comply
with the ADA or other safety regulations and requirements, it could materially and adversely affect our revenues and
profitability.
Risks Related to our Retail Assets
Our retail properties face considerable competition for the tenancy of our lessees and the business of retail shoppers.
There are numerous shopping venues that compete with our retail properties in attracting retailers to lease space and shoppers
to patronize their properties. In addition, our retail tenants face changing consumer preferences and increasing competition
from other forms of retailing, such as e-commerce websites and catalogues as well as other retail centers located within the
geographic market areas of our retail properties that compete with our properties for customers. All these factors may adversely
affect our tenants’ cash flows and, therefore, their ability to pay rent. To the extent that our tenants do not pay their rent or do
not pay on a timely basis, it could have a negative impact on our financial condition and result of operations.
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Retail conditions may adversely affect our income and our ability to make distributions to our stockholders.
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 retail properties are public locations, and any incidents of crime or
violence, including acts of terrorism, could result in a reduction of business traffic to tenant stores in our properties. Any such
incidents may also expose us to civil liability or harm our reputation. 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.
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 business, financial condition
or result of operations.
An economic downturn could have an adverse impact on the retail industry generally. As a result, the retail industry could face
reductions in sales revenues and increased bankruptcies. 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. Such
conditions may also affect shadow anchor retailers in some of our centers, which we cannot control. Although we do not
generate revenue from shadow anchor retailers, their presence drives traffic to some of our centers. Additionally, slow
economic growth could hinder new entrants into the retail market, which may make it difficult for us to fully lease our real
properties. Tenant defaults and decreased demand for retail space would have an adverse impact on the value of our multi-
tenant retail properties and our results of operations.
Our success depends on the success and continued presence of our anchor tenants.
Our properties are largely dependent on the operational success of their anchor tenants (those occupying 10,000 square feet or
more). Anchor tenants occupy significant amounts of square footage, pay a significant portion of the total rents at a property
and contribute to the success of other tenants by drawing consumers to a property. Our net income could be adversely affected
by the loss of revenues in the event a significant tenant becomes bankrupt or insolvent, experiences a downturn in its business,
materially defaults on its leases, does not renew its leases as they expire, or renews at a lower rental rate. In addition, if a
significant tenant vacates a property, co-tenancy clauses may allow other tenants to modify or abate their minimum rent, reduce
their share or the amount of payments for common area operating expenses and property taxes, or terminate their rent or lease
obligations. Co-tenancy clauses have several variants and may allow a tenant to pay reduced levels of rent until a certain
number of tenants open their stores within the same property.
If our non-anchor tenants (tenants occupying less than 10,000 square feet) are not successful and, consequently, terminate
their leases, our cash flow, financial condition and results of operations could be adversely affected.
As of December 31, 2018, approximately 54% of our total annualized base rental income is generated by our non-anchor
tenants. Our non-anchor tenants may be more vulnerable to negative economic conditions as they generally have more limited
resources than our anchor tenants. If a significant number of our non-anchor tenants experience financial difficulties or are
unable to remain open, our cash flow, financial condition and result of operations could be adversely affected.
We may be restricted from re-leasing space at our multi-tenant retail properties.
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.
Our revenue will be 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 stockholder's investments.
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 could result in a reduction or cessation in rental payments to us, which would adversely affect our financial condition
and results of operations. A lease termination by an anchor tenant also 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 reduce customer traffic in the retail center and thereby reduce the income generated by that retail center. A transfer of a
lease to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases in
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accordance with lease terms. If 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.
Our retail leases may contain co-tenancy provisions, which would have an adverse effect on our operation of such retail
properties if exercised.
With respect to any multi-tenant retail properties we own or acquire, we may enter into leases containing co-tenancy
provisions. Co-tenancy provisions may allow a tenant to exercise certain rights if, among other things, another tenant fails to
open for business, delays its opening or ceases to operate, or if a percentage of the property’s gross leasable space or a
particular portion of the property is not leased or subsequently becomes vacant. A tenant exercising co-tenancy rights may be
able to abate minimum rent, reduce its share or the amount of its payments for common area operating expenses and property
taxes or cancel its lease.
Risks Associated with Debt Financing
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 our indebtedness.
The domestic and international commercial real estate debt markets could become very volatile as a result of, among other
things, the tightening of underwriting standards by lenders and credit rating agencies, increased interest rates and changing
regulations. This could result in less availability of credit and increasing costs for what is available. 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
lower overall economic returns potentially reducing future cash flow available for distribution. If these disruptions in the debt
markets were to persist, our ability to borrow funds to finance activities related to real estate assets could be negatively
impacted. In addition, we may find it difficult, costly or impossible to refinance indebtedness that is maturing.
Further, economic conditions could negatively impact commercial real estate fundamentals and result in declining values in our
real estate portfolio and in the collateral securing any loan investments we may make, which could have various negative
impacts. Specifically, the value of collateral securing any loan we hold could decrease below the outstanding principal amounts
of such loans.
Debt service 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, and will continue to acquire, real estate assets by assuming existing financing or borrowing new monies. We
may borrow money for other purposes to, among other things, satisfy the requirement that we distribute at least 90% of our
"REIT taxable income," subject to certain adjustments, annually or as is otherwise necessary or advisable to assure that we
qualify as a REIT for federal income tax purposes. However, payments required on any amounts we borrow reduce the funds
otherwise available for, among other things, capital expenditures or distributions to our stockholders.
If there is a shortfall between the cash flow from our assets and the cash flow needed to service our debts, 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 an asset may result in lenders initiating foreclosure actions. In such a
case, we could lose the asset securing the loan that is in default, thus reducing the value of our stockholders' investments. For
tax purposes, a foreclosure is treated as a sale of the asset or assets for a purchase price equal to the outstanding balance of the
debt secured by the asset or assets. If the outstanding balance of the debt exceeds our tax basis in the asset or assets, we would
recognize taxable gain on the foreclosure action and we would not receive any cash proceeds. We also may fully or partially
guarantee any funds that subsidiaries borrow to operate assets. 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 asset may be affected by a default.
If we are unable to borrow at favorable rates, we may not be able to refinance existing loans at maturity.
If we are unable to borrow money at favorable rates, or at all, we may be unable to refinance existing loans at maturity. Further,
we may 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, thereby reducing our cash flow. Further, during periods of rising interest rates,
we may be forced to sell one or more of our assets earlier than anticipated in order to repay existing loans, which may not
permit us to maximize the return on the particular assets being sold.
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Our existing or future debt agreements will contain covenants that restrict certain aspects of our operations, and our failure
to comply with those covenants could materially and adversely affect us.
The mortgages on our existing assets, and any future mortgages, likely will contain customary covenants such as those that
limit our ability, without the prior consent of the lender, to further mortgage the applicable asset or to discontinue insurance
coverage even if we believe that the insurance premiums are greater than the risk of loss being insured against. In addition,
such loans contain negative covenants that, among other things, preclude certain changes of control, inhibit our ability to incur
additional indebtedness or, under certain circumstances, restrict cash flow necessary to make distributions to our stockholders.
Any credit facility or secured loans that we may enter into likely will contain customary financial covenants, restrictions,
requirements and other limitations with which we must comply. While we may have plans to undertake certain alterations,
developments, re-developments or leasing actions at a property, a lender may have approval rights that prevent us from moving
forward. In addition, our continued ability to borrow under any credit facility that we may obtain will be subject to compliance
with our financial and other covenants, including covenants relating to debt service coverage ratios, leverage ratios, and
liquidity and net worth requirements, and our ability to meet these covenants will be adversely affected if our financial
condition and cash flows are materially adversely affected or if general economic conditions deteriorate.
In addition, our failure to comply with these covenants, as well as our inability to make required payments, could cause a
default under the applicable agreement, which could result in the acceleration of the debt and require us to repay such debt with
capital obtained from other sources, which may not be available to us or may be available only on unattractive terms.
Furthermore, if we default on secured debt, lenders can take possession of the asset or assets securing such debt. In addition,
agreements may contain specific cross-default provisions with respect to specified other indebtedness, giving the lenders the
right to declare a default on its debt and to enforce remedies, including acceleration of the maturity of such debt upon the
occurrence of a default under such other indebtedness. If we default on any of our agreements, it could have a material adverse
effect on our financial condition, cash flows or results of operations.
Our mortgage agreements contain certain provisions that may limit our ability to sell our properties.
In order to assign or transfer our rights and obligations under certain of our mortgage agreements, we generally must obtain the
consent of the lender, pay a fee equal to a fixed percentage of the outstanding loan balance and pay any costs incurred by the
lender in connection with any such assignment or transfer.
These provisions of our mortgage agreements may limit our ability to sell our properties which, in turn, could adversely impact
the price realized from any such sale. To the extent we receive lower sale proceeds, we could experience a material adverse
effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.
Covenants applicable to current or future debt, such as those in our credit line and mortgages, could restrict our ability to
make distributions to our stockholders and, as a result, we may be unable to make distributions necessary to qualify as a
REIT, which could materially and adversely affect us and the value of our common stock.
In order to continue to qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income
(subject to certain adjustments) to our stockholders each year. To the extent that we satisfy this distribution requirement, but
distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our
undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we
distribute to our stockholders in a calendar year is less than a minimum amount specified under the Code. If, as a result of
covenants applicable to our current or future debt, we are restricted from making distributions to our stockholders, we may be
unable to make distributions necessary for us to avoid U.S. federal corporate income and excise taxes and maintain our
qualification as a REIT, which could materially and adversely affect us.
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. In addition, we may be forced to sell one or more of our properties or
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investments in real estate at times that may not permit us to realize the return on the investments we would have otherwise
realized.
Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make
distributions to our stockholders.
As of December 31, 2018, approximately $202.0 million of our debt bore interest at variable rates. Increases in interest rates on
variable rate debt reduces the funds available for other needs, including distributions to our stockholders. As of December 31,
2018, approximately $363.9 million of our total indebtedness bore interest at rates that are fixed. As fixed-rate debt matures, we
may not be able to borrow at rates equal to or lower than the rates on the expiring debt. In addition, if rising interest rates cause
us to need additional capital to repay indebtedness, we may be forced to sell one or more of our properties or investments in
real estate at times that may not permit us to realize the return on the investments we would have otherwise realized.
Increases in interest rates would increase our interest expense on any variable rate debt, as well as any debt that must be
refinanced at higher interest rates at the time of maturity. Our future earnings and cash flows could be adversely affected due to
the increased requirement to service our debt and could reduce the amount we are able to distribute to our stockholders.
The London Inter-bank Offered Rate ("LIBOR") and certain other interest "benchmarks" may be subject to regulatory
guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently
than in the past or cause other unanticipated consequences.
The LIBOR and certain other interest "benchmarks" may be subject to regulatory guidance and/or reform that could cause
interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated
consequences. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that it intends to
stop encouraging or requiring banks to submit LIBOR rates after 2021, and it is unclear if LIBOR will cease to exist or if new
methods of calculating LIBOR will evolve. If LIBOR ceases to exist or if the methods of calculating LIBOR change from their
current form, interest rates on our current or future debt obligations may be adversely affected.
To hedge against interest rate fluctuations, we use derivative financial instruments, which may be costly and ineffective.
From time to time, we use derivative financial instruments to hedge exposures to changes in interest rates on certain loans
secured by our assets. Our derivative instruments currently consist of interest rate swap contracts but may, in the future,
include, 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. 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.
To the extent that we use derivative financial instruments to hedge against interest rate fluctuations, we 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. 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. A counterparty could fail, shut down, file for bankruptcy or be unable to pay out
contracts. The business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result
in a default. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized profits and
force us to cover our resale commitments, if any, at the then-current market price. Additionally, it may not always be possible to
dispose of or close out a hedging position without the consent of the hedging counterparty, and we may not be able to enter into
an offsetting contract to cover our risk. We cannot provide assurance that a liquid secondary market will exist for hedging
instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in
losses.
Further, the REIT provisions of the Code may limit our ability to hedge the risks inherent to our operations. We may be unable
to manage these risks effectively.
We may be contractually obligated to purchase property even if we are unable to secure financing for the acquisition.
In some cases, we finance a portion of the purchase price for properties that we acquire. However, to ensure that our offers are
as competitive as possible, we generally do not 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 other
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purposes, including funding operating costs or paying distributions to our 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, become subject to liquidated or other contractual damages and remedies and suffer reputational harm in
the commercial real estate market, which could make future sellers less likely to accept our bids or cause them to require a
higher purchase price or more onerous contractual terms.
Our special purpose property-owning subsidiaries may default under non-recourse mortgage loans.
Some of our assets are or will be held in special-purpose property-owning subsidiaries. In the future, such special purpose
property-owning subsidiaries may default and/or send notices of imminent default on non-recourse mortgage loans where the
relevant asset is or will be suffering from cash shortfalls on operating expenses, leasing costs and/or debt service obligations.
Any default by our special purpose property-owning subsidiaries under non-recourse mortgage loans would give the lenders the
right to accelerate the payment on the loans and the right to foreclose on the asset underlying such loans. There are several
potential outcomes on the default of a non-recourse mortgage loan, including foreclosure, a deed-in-lieu of foreclosure, a
cooperative short sale, or a negotiated modification to the terms of the loan. There is no assurance that we will be able to
achieve a favorable outcome on a cooperative or timely basis on any defaulted mortgage loan.
Risk Related to our Spin-off Transactions and the Sale of our Student Housing Platform
We could incur significant indemnification liabilities in connection with the spin-off transactions of our former subsidiaries
and in connection with the sale of our student housing platform. It is also possible that our former subsidiaries will not
satisfy their indemnification obligations to us, leaving us with significant liabilities for business and assets that we no longer
own. Any of these outcomes could materially adversely affect our operations.
In 2015 we spun off Xenia and in 2016 we spun off Highlands by distributing 95% and 100%, respectively, of the shares of the
common stock of these former subsidiaries to our stockholders. In connection with each of these spin-off transactions, we
entered into a Separation and Distribution Agreement with Xenia or Highlands, as applicable, which provides for, among other
things, the allocation between us and Xenia or Highlands, as applicable, of our assets, liabilities and obligations attributable to
periods prior to, at and after the applicable share distribution. Among other things, each Separation and Distribution Agreement
also provides that we will indemnify and be financially responsible for liabilities that may exist relating to the assets that were
not included in the spun-off company or for certain liabilities relating to the spin-off transactions. Conversely, each of Xenia
and Highlands agreed to indemnify us related to certain of their assets and businesses and for certain liabilities relating to the
spin-off transactions. However, third parties could seek to hold us responsible for any of the liabilities that these former
subsidiaries agreed to retain, and there can be no assurance that our former subsidiaries will be able to fully satisfy any
indemnification obligations they owe to us in a timely manner or in full. As a result, we may be responsible for substantial
liabilities under the Separation and Distribution Agreements or that relate to Xenia or Highlands.
In June 2016, we completed the sale of University House. In connection with this transaction, we entered into a Stock Purchase
Agreement, as amended, in which we made customary representations, warranties and covenants. As set forth in the Stock
Purchase Agreement, we also may be required to indemnify the buyer against certain liabilities and obligations, and we may be
subject to third-party claims arising out of such transaction. As a result, we may be responsible for liabilities under the Stock
Purchase Agreement and such liabilities may be substantial. See "Item 8. Note 14. Commitments and Contingencies" to the
consolidated financial statements for information on pending indemnification matters under the Stock Purchase Agreement.
Risks Related to Our Common Stock
Since InvenTrust shares are not currently traded on a national stock exchange, there is no established public market for our
shares and our stockholders may not be able to sell their shares.
Our shares of common stock are not listed on a national securities exchange. There is no established public trading market for
our shares and no assurance that one may develop. Our charter prohibits any persons or groups from owning more than 9.8%
(in value or number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of our stock or more
than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of our
common stock unless exempted prospectively or retroactively by our Board. This may inhibit investors from purchasing a large
portion of our shares. Our charter also 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 on a national exchange by a specified date
or provide any other type of liquidity to our stockholders. Although our management and Board are working on positioning the
Company to explore various strategic alternatives, there is no assurance that we will be successful in identifying and executing
on a strategic alternative. In addition, we do not know the timing or what form the alternative would take. Strategic transaction
options are subject to factors that are outside of our control, such as economic and market conditions. Such factors may affect
17
whether any strategic transaction is available to the Company and, if so, whether the transaction is available on terms
satisfactory to the Company or at a time of the Company's choosing. If our Board were to pursue a strategic alternative in the
form of a listing event of our common stock on a national securities exchange or otherwise, there is no assurance that we would
satisfy the listing requirements or that our shares would be approved for listing. Additionally, if and/or when a liquidity event
occurs, there is no guarantee our stockholders will be able to liquidate their common stock at a price equal to its initial
investment value or the current estimated share value. Our estimated share value is generally determined only once a year and
is based on a number of assumptions and estimates that may not be accurate or complete and is subject to a number of
limitations as described below.
The estimated value per share 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 May 9, 2018, we announced an estimated value of our common stock equal to $3.14 per share. Our Board engaged Duff &
Phelps, LLC ("Duff & Phelps"), an independent third-party valuation advisory firm that specializes in providing real estate
valuation services, to advise the Audit Committee and the Board in their estimate of the per share value of our common stock
outstanding as of May 1, 2018. As with any methodology used to estimate value, the methodology employed by Duff & Phelps
and the recommendations made by us were 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 value
per share, which could be significantly different from our estimated value per share. The estimated per share value does not
represent: (i) the expected 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 or (iii) the amount per share stockholders would
receive if we liquidated our assets and distributed the proceeds after paying all our expenses and liabilities. Furthermore, the
estimated share value is generally determined only as of a particular date once a year and could be subject to significant
volatility due to a variety of economic, political, market, competitive and other factors, which could cause the estimated share
value to go up or down over time. Accordingly, with respect to the estimated value per share, we can give no assurance that:
•
•
•
•
•
a stockholder would be able to resell his, her or its shares at this estimated value;
a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation
of our assets and settlement of our liabilities or a sale of the Company;
our shares would trade at a price equal to or greater than the estimated value per share if we listed them on a national
securities exchange;
the estimated transaction costs, closing costs and contingencies related to the disposition of our student housing
platform and certain of our multi-tenant retail properties reflected in our estimated value were incurred at the level
estimated by the Company;
the methodology used to estimate our value per share would be acceptable to the Financial Industry Regulatory Authority
("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 Code with respect to employee
benefit plans subject to ERISA and other retirement plans or accounts subject to Section 4975 of the Code; or
•
this estimated value will increase, stay at the current level, or not continue to decrease, over time.
There is no assurance that we will be able to continue paying cash distributions or that distributions will continue to
increase over time.
Historically we have paid, and we intend to continue to pay, regular cash distributions to our stockholders. On March 2, 2018,
our Board approved an increase to our annual distribution rate effective for the quarterly distribution paid in April 2018, from
$0.0695 per share to $0.0716 per share, on an annualized basis. The adjustment to the distribution rate equates to a 2018
calendar year total distribution of $0.0711 per share (an annual rate of $0.0695 per share paid in January 2018, and an annual
rate of $0.0716 per share paid in April, July and October 2018). On November 7, 2018, our Board approved an increase to our
annual distribution rate effective for the quarterly distribution payable in April 2019, from $0.0716 per share to $0.0737, on an
annualized basis.
Our ability to continue to pay dividends at current rates or to continue to increase our dividend rate will depend on a number of
factors, including, among others, the following:
•
•
•
our financial condition and results of future operations;
the terms of our loan covenants; and
our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates.
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If we do not maintain or periodically increase the dividend on our common stock, it may have an adverse effect on the value of
our common stock and other securities. As we execute on our retail strategy, our Board expects to evaluate our distribution rate
on a periodic basis. See Part I. Item 1. “Business - Current Strategy and Outlook" for more information regarding our retail
strategy.
Factors that can affect the availability and timing of cash distributions include our ability to earn positive yields on our real
estate assets, the yields on securities in which we invest and our operating expense levels, and many others. Our portfolio
strategy may also affect our ability to pay our cash distributions if we are not able to timely reinvest the capital we receive from
our property dispositions. There is no assurance that we will be able to continue paying distributions at the current level or that
the amount of distributions will increase, or not continue to decrease, over time. Even if we are able to continue paying
distributions, the actual amount and timing of distributions is determined by our Board in its discretion and typically depends
on the amount of funds available for distribution, which depends on items such as current and projected cash requirements and
tax considerations. As a result, our distribution rate and payment frequency may vary from time to time.
Funding distributions from sources other than cash flow from operating activities may negatively impact our ability to
sustain or pay future distributions and result in us having less cash available for other uses, such as property purchases.
If our cash flow from operating activities is not sufficient to fully fund the payment of distributions, the level of our
distributions may not be sustainable. For the year ended December 31, 2018, distributions were paid from cash flow from
operations, distributions from unconsolidated entities and proceeds from the sales of properties.
We may pay distributions from sources other than cash flow from operations or funds from operations, including funding such
distributions from external financing sources, which may not be available at commercially attractive terms. Distributions out of
our current or accumulated earnings and profits will be treated as dividends for federal income tax purposes. To the extent that
the aggregate amount of cash distributed with respect to our stock in any given year exceeds the amount of our current and
accumulated earnings and profits allocable to such stock for the same period, the excess amount will be deemed a return of
capital, rather than a dividend, to the extent of the stockholder's tax basis in our stock, and any remaining excess amount will be
treated as capital gain, for federal income tax purposes. Furthermore, in the event that we are unable to fund future distributions
from our cash flows from operating activities, the value of our stockholders' shares may be materially adversely affected.
At any time that we are not generating cash flow from operations sufficient to cover the current distribution rate, we may
determine to pay lower distributions, or to fund all or a portion of our future distributions from other sources. If we utilize
borrowings for the purpose of funding all or a portion of our distributions, we will incur additional interest expense. We have
not established any limit on the extent to which we may use alternate sources of cash for distributions, except that, in
accordance with the law of the State of Maryland and our organizational documents, generally, we may not make distributions
that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business, (ii) cause our total
assets to be less than the sum of our total liabilities, or (iii) jeopardize our ability to maintain our qualification as a REIT for so
long as the Board determines that it is in our best interests to continue to qualify as a REIT.
We may issue additional equity or debt securities in the future in order to raise capital. Additional issuances of equity
securities would dilute the investment of our current stockholders.
Issuing additional equity securities to finance future developments and acquisitions instead of incurring additional debt would
dilute the interests of our existing stockholders. Our ability to execute our business and growth plan depends on our access to
an appropriate blend of capital, which could include a line of credit and other forms of secured and unsecured debt, equity
financing, or joint ventures.
Risks Related to Our Organization and Structure
Stockholders have limited control over changes in our policies and operations.
Our Board determines our major policies, including our investment policies and strategies and policies regarding financing,
debt and equity capitalization, REIT qualification and distributions. Our Board may amend or revise certain of these and other
policies without a vote of the stockholders.
Stockholders’ interest in us will be diluted if we issue additional shares.
Stockholders do not have preemptive rights with respect to any shares issued by us in the future. Our charter authorizes our
Board, without stockholder approval, to amend the charter from time to time to increase or decrease the aggregate number of
shares of stock or the number of shares of stock of any class or series that the Company has authority to issue. Future issuances
of common stock reduce the percentage of our shares owned by our current stockholders who do not participate in future stock
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issuances. Stockholders are not entitled to vote on whether or not we issue additional shares. In addition, depending on the
terms and pricing of an additional offering of our shares and the value of our properties, our stockholders may experience
dilution in the value of their shares. Further, our Board could issue stock on terms and conditions that subordinate the rights of
the holders of our current common stock or have the effect of delaying, deferring or preventing a change in control in us,
including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might
provide a premium price for our stockholders.
Increases in market interest rates may reduce demand for our common stock and result in a decline in the value of our
common stock.
The value of our common stock may be influenced by the distribution yield on our common stock (i.e., the amount of our
quarterly distributions as a percentage of the fair market value of our common stock) relative to market interest rates. An
increase in market interest rates, which are currently low compared to historical levels, may lead prospective purchasers of our
common stock to expect a higher distribution yield, which we may not be able, or may choose not, to provide. Higher interest
rates would also likely increase our borrowing costs and decrease our operating results and cash available for distribution.
Thus, higher market interest rates could cause the value of our common stock to decline.
Stockholders’ returns may be reduced if we are required to register as an investment company under the Investment
Company Act.
We are not registered, and do not intend to register our company or any of our subsidiaries, as an investment company under
the Investment Company Act of 1940, as amended (the "Investment Company Act"). If we or any of our subsidiaries become
obligated to register 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 borrowings),
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 may not be feasible as it 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 believe that neither we nor any subsidiaries we own fall within the definition of an investment company under Section 3(a)
(1) of the Investment Company Act because we primarily engage in the business of acquiring and owning real property, through
our wholly or majority-owned subsidiaries, each of which has at least 60% of its assets in real property. The company intends
to conduct its operations, directly and through wholly or majority-owned subsidiaries, so that neither the company nor any of
its subsidiaries is 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 (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 exclusion from the definition of investment company under Section 3(c)(1) or
Section 3(c)(7) of the Investment Company Act. We and our subsidiaries are primarily engaged in the business of investing in
real property and, as such, we believe we and our subsidiaries should fall outside of the definition of an investment company
under Section 3(a)(1)(A) of the Investment Company Act.
Accordingly, we believe that neither we nor any of our wholly and majority-owned subsidiaries are considered investment
companies under either Section 3(a)(1)(A) or Section 3(a)(1)(C) of the Investment Company Act. We believe we and our
wholly owned or majority-owned subsidiaries are also able to rely on the exclusion provided by Section 3(c)(5)(C) of the
Investment Company Act. To rely upon Section 3(c)(5)(C) of the Investment Company Act as it has been interpreted by the
SEC staff, an entity would have to invest at least 55% of its total assets in "mortgage and other liens on and interests in real
estate," which we refer to as "qualifying real estate investments," and maintain an additional 25% of its total assets in
qualifying real estate investments or other 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 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. The no-action positions are based on factual situations that
may be substantially different from the factual situations we may face, and a number of these no-action positions were issued
more than 20 years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain
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mortgage-backed securities, other mortgage-related instruments, joint venture investments and the equity securities of other
entities may not constitute qualifying real estate assets, and therefore, we may limit our investments in these types of assets.
The SEC or its staff may not concur with the way we classify our assets. Future revisions to the Investment Company Act or
further guidance from the SEC or its staff may cause us to no longer be in compliance with the exclusion from the definition of
an "investment company" provided by Section 3(c)(5)(C) and may force us to re-evaluate our portfolio and our investment
strategy (e.g., in 2011 the SEC staff published a Concept Release in which it reviewed and questioned certain interpretative
positions taken under Section 3(c)(5)(C)). 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.
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 under adverse market conditions, and we could be forced to accept a price below that which we would otherwise
consider acceptable. 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. Any such selling, acquiring or holding of assets driven by
Investment Company Act considerations could negatively affect the value of our common stock, our ability to make
distributions and the sustainability of our business and investment strategies.
If we or our subsidiaries were required to register 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. If we or any of our subsidiaries were deemed an unregistered investment company, we or the applicable
subsidiary could be subject to monetary penalties and injunctive relief and we or the applicable subsidiary could be unable to
enforce contracts with third parties and third parties could seek to obtain rescission of transactions undertaken during the period
we or the applicable subsidiary were deemed an unregistered investment company, unless the court found that under the
circumstances, enforcement (or denial of rescission) would produce a more equitable result than no enforcement (or grant of
rescission) and would not be inconsistent with the Investment Company Act.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
Under Maryland law generally, a director is required to perform his or her duties in good faith, in a manner he or she
reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use
under similar circumstances. Under Maryland law, directors are presumed to have acted in accordance with this standard of
conduct. In addition, our charter eliminates the liability of our directors and officers to us and our stockholders for money
damages, except for liability resulting from the following:
•
•
actual receipt of an improper benefit or profit in money, property or services; or
active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to
the cause of action adjudicated.
Our charter and bylaws obligate us, to the maximum extent permitted by Maryland law in effect from time to time, to
indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to any present or former
director or officer who is made or threatened to be made a party to the proceeding by reason of his or her service to us in that
capacity. As a result, we and our stockholders may have more limited rights against our directors and officers than might
otherwise exist absent the current provisions in our charter and bylaws.
Our charter places limits on the amount of common stock that any person may own.
In order for us to qualify as a REIT under the Code, 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.
Unless exempted by our Board, prospectively or retroactively, our charter prohibits any persons or groups from beneficially or
constructively owning more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of the
outstanding shares of our stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of the
aggregate of the outstanding shares of our common stock. 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.
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Our charter permits our Board to issue preferred stock on terms that may subordinate the rights of the holders of our
current common stock or discourage a third party from acquiring us.
Our Board may classify or reclassify any unissued shares of common or preferred stock into other classes or series of stock and
establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications, and terms or conditions of redemption of the stock and may amend our charter from time to time to
increase or decrease the aggregate number of shares or the number of shares of any class or series that we have authority to
issue without stockholder approval. Thus, our Board could authorize us to issue shares of preferred stock with terms and
conditions that could subordinate the rights of the holders of our common stock or shares of preferred stock or common stock
that could 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 holders of
our common stock.
Certain provisions of Maryland law could inhibit changes in control.
Certain provisions of the Maryland General Corporation Law ("MGCL"), may have the effect of deterring a third party from
making a proposal to acquire us or of impeding a change in our control under circumstances that otherwise could provide the
holders of our common stock with the opportunity to benefit from a sale of our common stock, including the following:
•
•
"business combination" provisions that, subject to limitations, prohibit certain business combinations between us and
an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or
more of the voting power of our outstanding voting stock or an affiliate or associate of ours who was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of our then outstanding stock at any time within the
two-year period immediately prior to the date in question) for five years after the most recent date on which the
stockholder becomes an interested stockholder, and thereafter impose fair price and/or supermajority stockholder
voting requirements on these combinations; and
"control share" provisions that provide that "control shares" of our company (defined as voting shares that, when
aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing
ranges of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect
acquisition of ownership or control of issued and outstanding control shares) have no voting rights except to the extent
approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the
matter, excluding all interested shares.
As permitted by Maryland law, we have elected, by resolution of our Board, to opt out of the business combination provisions
of the MGCL, provided that such business combination has been approved by our Board (including a majority of directors who
are not affiliated with the interested stockholder), and, pursuant to a provision in our bylaws, to exempt any acquisition of our
stock from the control share provisions of the MGCL. However, our Board may by resolution elect to repeal the exemption
from the business combination provisions of the MGCL and may by amendment to our bylaws opt into the control share
provisions of the MGCL at any time in the future.
Certain provisions of the MGCL permit our Board, without stockholder approval and regardless of what is currently provided
in our charter or bylaws, to adopt certain mechanisms, some of which (for example, a classified board) we do not have. These
provisions may have the effect of limiting or precluding a third party from making an acquisition proposal for us or of delaying,
deferring or preventing a change in our control under circumstances that otherwise could provide the holders of our common
stock with the opportunity to benefit from a sale of our common stock.
If our Board were to elect to be subject to the provision of Subtitle 8 providing for a classified board or the business
combination provisions of the MGCL or if the provisions of our bylaws opting out of the control share acquisition provisions of
the MGCL were amended or rescinded, these provisions of the MGCL could have anti-takeover effects.
Our Board or a committee of our Board may change our investment policies without stockholder approval, which could
alter the nature of our stockholders' investment.
Our investment policies may change over time. The methods of implementing our investment policies may also vary, as new
investment techniques are developed. Our investment policies, the methods for implementing them, and our other objectives,
policies and procedures may be altered by our Board or a committee of our Board 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 real property market fluctuations, all of
which could materially and adversely affect our ability to achieve our investment objectives.
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The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay
distributions and make additional investments.
We have deposited our cash and cash equivalents in several banking institutions in an attempt to minimize exposure to the
failure of any one of these entities. However, the Federal Deposit Insurance Corporation ("FDIC") generally only insures
limited amounts per depositor per insured bank. At December 31, 2018, we had cash and cash equivalents and restricted cash
deposited in interest-bearing transaction accounts at certain financial institutions exceeding these federally insured levels. If
any of the banking institutions in which we have deposited funds ultimately fails, we may lose our deposits over the federally
insured levels. The loss of our deposits could reduce the amount of cash we have available to distribute or invest.
Federal Income Tax Risks
Failure to remain qualified as a REIT would cause us to be taxed as a regular corporation, which would substantially
reduce funds available for distributions to our stockholders.
Our qualification as a REIT depends on our ability to continue to meet requirements regarding our organization and ownership,
distributions of our income, the nature and diversification of our income and assets as well as other tests imposed by the Code.
We cannot assure our stockholders that our actual operations for any one taxable year will satisfy these requirements. Further,
new legislation, regulations, administrative interpretations or court decisions could significantly affect our ability to qualify as a
REIT or the federal income tax consequences of our qualification as a REIT. If we fail to qualify as a REIT in any taxable year,
we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders
because of the following:
• we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would
be subject to U.S. federal corporate income tax on our taxable income;
• we could be subject to the U.S. federal alternative minimum tax for the tax years prior to January 1, 2018 and possibly
increased state and local taxes; and
•
unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the
fifth calendar year after the year in which we failed to qualify as a REIT.
In addition, if we fail to qualify as a REIT, we will no longer be required to make distributions. As a result of all these factors,
our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it would adversely affect
the value of our common stock.
REIT distribution requirements could adversely affect our liquidity and may force us to borrow funds or sell assets during
unfavorable market conditions.
To satisfy the REIT distribution requirements, we may need to borrow funds on a short-term basis or sell assets sooner than
anticipated, even if the then-prevailing market conditions are not favorable for these borrowings or sales. Our cash flows from
operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of
income and the recognition of income for U.S. federal income tax purposes, or the effect of non-deductible capital
expenditures, the creation of reserves or required debt service or amortization payments. The insufficiency of our cash flows to
cover our distribution requirements could have an adverse impact on our ability to raise short- and long-term debt or sell equity
securities in order to fund distributions required to maintain our qualification as a REIT.
Even if we continue to qualify as a REIT, we may face other tax liabilities that reduce our cash flows.
Even if we continue to qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our
income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a
foreclosure, and state or local income, property and transfer taxes. In addition, our taxable REIT subsidiaries ("TRSs") are
subject to regular corporate federal, state and local taxes. Any of these taxes would decrease cash available for distributions to
stockholders.
Failure to make required distributions would subject us to federal corporate income tax.
In order to continue to qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income
(subject to certain adjustments) to our stockholders each year (the "90% Distribution Requirement"). To the extent that we
satisfy the 90% Distribution Requirement, but distribute less than 100% of our REIT taxable income, we will be subject to U.S.
federal, state and local corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4%
nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum
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amount specified under the Code.
The prohibited transactions tax may limit our ability to dispose of our properties, and we could incur a material tax liability
if the Internal Revenue Service (the "IRS") successfully asserts that the 100% prohibited transaction tax applies to some or
all of our dispositions.
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other
dispositions of assets, other than foreclosure property, held primarily for sale to customers in the ordinary course of business.
We may be subject to the prohibited transactions tax equal to 100% of net gain upon a disposition of an asset. As part of our
plan to refine our portfolio, we have selectively disposed of certain of our properties in the past and intend to make additional
dispositions of our assets in the future. Although a safe harbor to the characterization of the sale of property by a REIT as a
prohibited transaction is available, not all of our past dispositions have qualified for that safe harbor and some or all of our
future dispositions may not qualify for that safe harbor. We believe that our past dispositions will not be treated as prohibited
transactions, and we intend to avoid disposing of property that may be characterized as held primarily for sale to customers in
the ordinary course of business. To avoid the prohibited transaction tax, we may choose not to engage in certain sales of our
assets or may conduct such sales through a TRS, which would be subject to federal, state and local income taxation. Moreover,
no assurance can be provided that the IRS will not assert that some or all of our future dispositions are subject to the 100%
prohibited transactions tax. If the IRS successfully imposes the 100% prohibited transactions tax on some or all of our
dispositions, the resulting tax liability could be material.
We may fail to qualify as a REIT if the IRS successfully challenges the valuation of our common stock used for purposes of
our dividend reinvestment program.
In order to satisfy the 90% Distribution Requirement, the dividends we paid during our 2014 and prior taxable years must not
have been "preferential." For our 2014 and prior taxable years and for any future taxable year in which we do not qualify as a
"publicly offered REIT" (i.e., a REIT required to file annual and periodic reports with the SEC), a dividend determined to be
preferential will not qualify for the dividends paid deduction. To have avoided paying preferential dividends, we must have
treated every stockholder of a class of stock with respect to which we made a distribution the same as every other stockholder
of that class, and we must not have treated any class of stock other than according to its dividend rights as a class. For example,
if certain stockholder received a distribution that was more or less (on a per-share basis) than the distributions received by other
stockholders of the same class, the distribution would be preferential. If any part of a distribution was preferential, none of that
distribution would be applied towards satisfying the 90% Distribution Requirement.
We suspended our DRP in August 2014, but we may reactivate our DRP in the future. Stockholders who participated in our
DRP received distributions in the form of shares of our common stock rather than in cash. Immediately prior to the suspension
of our DRP, the purchase price per share under our DRP was equal to 100% of the "market price" of a share of our common
stock. Because our common stock was not, and is not yet, listed for trading, for these purposes, "market price" means the fair
market value of a share of our common stock, as estimated by us. In the past, our DRP has offered participants the opportunity
to acquire newly-issued shares of our common stock at a discount to the "market price." Pursuant to an IRS ruling, the
prohibition on preferential dividends does not prohibit a REIT from offering shares under a distribution reinvestment plan at
discounts of up to 5% of fair market value, but a discount in excess of 5% of the fair market value of the shares would be
considered a preferential dividend. Any discount we have offered in the past was intended to fall within the safe harbor for such
discounts set forth in the ruling published by the IRS. However, the fair market value of our common stock has not been
susceptible to a definitive determination. If the purchase price under our DRP is deemed to have been at more than a 5%
discount at any time, we would be treated as having paid one or more preferential dividends. Similarly, we would be treated as
having paid one or more preferential dividends if the IRS successfully asserted that the value of the common stock distributions
paid to stockholders participating in our DRP exceeded on a per-share basis the cash distribution paid to our other stockholders,
which could occur if the IRS successfully asserted that the fair market value of our common stock exceeded the "market value"
used for purposes of calculating the distributions under our DRP. If we are determined to have paid preferential dividends as a
result of our DRP, we would likely fail to qualify as a REIT.
The stock ownership limit imposed by the Code for REITs and our charter may restrict our business combination
opportunities and our stockholders may be restricted from acquiring or transferring certain amounts of our common stock.
The stock ownership restrictions of the Code for REITs and the 9.8% stock ownership limit in our charter may restrict our
business combination opportunities and restrict our stockholders' ability to acquire or transfer certain amounts of our common
stock.
In order to continue to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, beneficially or
constructively, more than 50% in value of our issued and outstanding stock at any time during the last half of a taxable year.
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Attribution rules in the Code determine if any individual or entity beneficially or constructively owns our capital stock under
this requirement. Additionally, at least 100 persons must beneficially own our capital stock during at least 335 days of a taxable
year. To help ensure that we satisfy these tests, our charter restricts the acquisition and ownership of shares of our capital stock.
However, these ownership limits might delay or prevent a transaction or a change in our control or other business combination
opportunities.
Our charter authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT.
Unless exempted by our Board (prospectively or retroactively), our charter prohibits any persons or groups from beneficially or
constructively owning more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of the
outstanding shares of our stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of the
aggregate of the outstanding shares of our common stock. Our Board may not grant an exemption from these restrictions to any
proposed transferee whose ownership in excess of the 9.8% stock ownership limit would result in our failing to qualify as a
REIT. These restrictions on transferability and ownership will not apply, however, if our Board determines that it is no longer in
our best interest to attempt to, or continue to, qualify as a REIT or that compliance is no longer required in order for us to
qualify as a REIT.
If our leases are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT.
To qualify as a REIT, we must satisfy two gross income tests, pursuant to which specified percentages of our gross income
must be passive income such as rent. For the rent we receive under our leases to be treated as qualifying income for purposes of
the gross income tests, the leases must be respected as true leases for federal income tax purposes and must not be treated as
service contracts, joint ventures or some other type of arrangement. There are no controlling Treasury regulations, published
rulings or judicial decisions involving leases with terms substantially the same as our former hotel leases that discuss whether
such leases constitute true leases for federal income tax purposes. We believe that all our leases, including our former hotel
leases, will be respected as true leases for federal income tax purposes. There can be no assurance, however, that the IRS will
agree with this characterization. If a significant portion of our leases were not respected as true leases for federal income tax
purposes, we would not be able to satisfy either of the two gross income tests and we would likely lose our REIT status.
We may fail to qualify as a REIT as a result of our investments in joint ventures and other REITs.
We have owned, and intend to continue to own, limited partner or non-managing member interests in partnerships and limited
liability companies that are joint ventures. In addition, we have owned, and intend to continue to own, significant equity
ownership interests in other REITs. If a partnership or limited liability company in which we own an interest takes or expects to
take actions that could jeopardize our qualification as a REIT or require us to pay tax, we may be forced to dispose of our
interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action which could
cause us to fail a REIT gross income or asset test, and that we would not become aware of such action in time to dispose of our
interest in the partnership or limited liability company or take other corrective action on a timely basis. Similarly, if one of the
REITs in which we own or have owned a significant equity interest were to fail to qualify as a REIT, we would likely fail to
satisfy one or more of the REIT gross income and asset tests. If we failed to satisfy a REIT gross income or asset test as a result
of an investment in a joint venture or another REIT, we would fail to continue to qualify as a REIT unless we are able to qualify
for a statutory REIT "savings" provision, which may require us to pay a significant penalty tax to maintain our REIT
qualification.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum tax rate applicable to "qualified dividend income" payable to U.S. stockholders that are taxed at individual rates
is 20%. Under the federal tax legislation enacted in December 2017, commonly known as the Tax Cuts and Jobs Act (the “2017
Tax Legislation”), U.S. stockholders that are individuals, trusts and estates generally may deduct up to 20% of the ordinary
dividends (e.g., dividends not designated as capital gain dividends or qualified dividend income) received from a REIT for
taxable years beginning after December 31, 2017 and before January 1, 2026. Although this deduction reduces the effective tax
rate of U.S. federal income taxes applicable to certain dividends paid by REITs (generally to 29.6% assuming the stockholder is
subject to the 37% maximum rate), such tax rate is still higher than the tax rate applicable to corporate dividends that constitute
qualified dividend income. Accordingly, investors who are individuals, trusts or estates may perceive investments in REITs to
be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends treated as qualified
dividend income, which could adversely affect the value of the shares of REITs, including our common stock.
Complying with REIT requirements may limit our ability to hedge effectively.
The REIT provisions of the 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 our interest rate risk with respect to
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borrowings made, or to be made, to acquire or carry real estate assets generally will not constitute gross income for purposes of
the 75% and 95% income requirements applicable to REITs, provided that we properly identify the hedging transaction
pursuant to the applicable sections of the Code and Treasury Regulations. To the extent that we enter into other types of
hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both
gross income tests. As a result of these rules, we may be required to limit the use of hedging techniques that might otherwise be
advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.
The ability of our Board to revoke our REIT qualification without stockholder approval may cause adverse consequences to
our stockholders.
Our charter provides that our Board may revoke or otherwise terminate our REIT election, without the approval of our
stockholders, if it determines that it is no longer in our best interest to attempt to, or continue to qualify as a REIT. If we cease
to be a REIT, we would become subject to U.S. federal corporate income tax on our taxable income and would no longer be
required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return
to our stockholders.
If a transaction intended to qualify as a tax deferred like-kind exchange under Section 1031 of the Code ("1031
Exchange") is later determined to be taxable, we may face adverse consequences, and if the laws applicable to such
transactions are amended or repealed, we may be unable to dispose of properties on a tax-deferred basis.
From time to time, we may dispose of properties in transactions that are intended to qualify as 1031 Exchanges. It is possible
that the qualification of a transaction as a 1031 Exchange could be successfully challenged and determined to be currently
taxable. In such case, our taxable income and earnings and profits would increase, which could increase the ordinary dividend
income to our stockholders. In some circumstances, we may be required to pay additional dividends or, in lieu of that, corporate
income tax, possibly including interest and penalties. As a result, we may be required to borrow funds in order to pay additional
dividends or taxes, and the payment of such taxes could cause us to have less cash available to distribute to our stockholders. In
addition, if a 1031 Exchange was later determined to be taxable, we may be required to amend our tax returns for the applicable
year in question, including any information reports we sent our stockholders. Moreover, it is possible that legislation could be
enacted that could modify or repeal the laws with respect to 1031 Exchanges, which could make it more difficult or impossible
for us to dispose of properties on a tax-deferred basis.
We may be subject to adverse legislative or regulatory tax changes that could reduce the value of our common stock.
At any time, the U.S. federal income tax laws governing REITs or the administrative interpretations of those laws may be
amended. We cannot predict when or if any new U.S. federal income tax law, regulation, or administrative interpretation, or any
amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or
become effective and any such law, regulation, or interpretation may take effect retroactively. We and our stockholders could be
adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.
In addition, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an
investment in such other entities more attractive relative to an investment in a REIT.
The 2017 Tax Legislation has significantly changed the U.S. federal income taxation of U.S. businesses and their owners,
including REITs and their stockholders. Changes made by the 2017 Tax Legislation that could affect us and our stockholders
include, among others:
•
•
•
•
•
temporarily reducing individual U.S. federal income tax rates on ordinary income; the highest individual U.S. federal
income tax rate has been reduced from 39.6% to 37% for taxable years beginning after December 31, 2017 and before
January 1, 2026;
permanently eliminating the progressive corporate tax rate structure, which previously imposed a maximum corporate
tax rate of 35%, and replacing it with a flat corporate tax rate of 21%;
permitting a deduction for certain pass-through business income, including dividends received by our stockholders
from us that are not designated by us as capital gain dividends or qualified dividend income, which will allow
individuals, trusts, and estates to deduct up to 20% of such amounts for taxable years beginning after December 31,
2017 and before January 1, 2026;
reducing the highest rate of withholding with respect to our distributions to non-U.S. stockholders that are treated as
attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%;
limiting our deduction for net operating losses arising in taxable years beginning after December 31, 2017 to 80% of
our REIT taxable income (determined without regard to the dividends paid deduction);
26
•
generally limiting the deduction for net business interest expense in excess of 30% of a business's "adjusted taxable
income", except for taxpayers that engage in certain real estate businesses (including most equity REITs) and elect out
of this rule (provided that such electing taxpayers must use an alternative depreciation system with longer depreciation
periods); and
•
eliminating the corporate alternative minimum tax.
Many of these changes that are applicable to us were effective beginning with our 2018 taxable year, without any transition periods
or grandfathering for existing transactions. While some of the changes made by the tax legislation may adversely affect us in one
or more reporting periods and prospectively, other changes may be beneficial on a going forward basis. We continue to work with
our tax advisors and auditors to determine the full impact that the 2017 Tax Legislation as a whole will have on us.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The following table summarizes our multi-tenant retail platform as of December 31, 2018:
Wholly owned and consolidated
Community and neighborhood center
Power center
Properties held by IAGM
Community and neighborhood center
Power center
Multi-tenant retail platform, totals
No. of Properties
GLA
(square feet)
Economic
Occupancy
ABR per
Square Foot
38
20
58
7
6
13
71
4,248,008
5,227,474
9,475,482
1,266,774
1,339,040
2,605,814
12,081,296
95.0%
94.0%
95.0%
95.0%
88.0%
92.0%
94.0%
$19.12
16.20
17.52
18.72
16.92
17.87
$17.59
The following table represents the geographical diversity of our multi-tenant retail platform as of December 31, 2018.
Region
East
Maryland
South Atlantic
Florida
North Carolina
Georgia
Virginia
Alabama
Kentucky
Total South Atlantic
Southwest
Texas
Oklahoma
Total Southwest
West
California
Colorado
Total West
Grand total
No. of Properties
GLA
(square feet)
% of Total GLA
1
9
7
9
2
1
1
29
29
1
30
7
4
11
71
27
125,018
1,770,169
1,488,842
989,529
375,652
207,568
100,926
4,932,686
5,052,307
255,214
5,307,521
1,046,633
669,438
1,716,071
12,081,296
1.0%
14.7%
12.3%
8.2%
3.1%
1.7%
0.8%
40.8%
41.9%
2.1%
44.0%
8.7%
5.5%
14.2%
100.0%
The following table represents information regarding the top 10 tenants by total ABR in our multi-tenant retail platform as of
December 31, 2018.
Tenant Name
Kroger
Publix Super Markets, Inc.
Ross Dress For Less
Bed Bath & Beyond Inc.
Best Buy
Albertson's
TJX Companies
PetSmart, Inc.
H.E.B.
Office Depot, Inc
Totals
Total ABR
Percent of
Total ABR
GLA
(square feet)
Percentage of
Total GLA
$
6,811
5,510
5,104
4,663
4,407
4,334
3,955
3,843
2,913
2,206
3.5%
2.8%
2.6%
2.4%
2.2%
2.2%
2.0%
2.0%
1.5%
1.1%
644,616
534,698
468,245
403,885
319,414
416,992
374,239
280,601
348,445
138,158
5.3%
4.4%
3.9%
3.3%
2.6%
3.5%
3.1%
2.3%
2.9%
1.1%
$
43,746
3,929,293
The following table represents occupied lease expirations of our multi-tenant retail platform as of December 31, 2018.
Lease
Expiration Year
No. of
Expiring
Leases
GLA of
Expiring Leases
(square feet)
ABR of
Expiring Leases
Percent of
Total GLA of
Expiring Leases
Percent of
Total ABR
Expiring ABR
per square foot
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Thereafter
Other (a)
Totals
174
231
251
254
227
127
66
74
101
91
67
228
1,891
735,944
$
939,530
1,323,786
1,659,219
1,371,719
1,367,738
787,677
399,660
791,007
656,123
1,047,437
279,419
13,301
18,902
24,018
30,510
24,655
21,223
11,266
7,736
16,985
11,992
16,097
1,296
11,359,259
$
197,981
6.5%
8.3%
11.7%
14.5%
12.1%
12.0%
6.9%
3.5%
7.0%
5.8%
9.2%
2.5%
100%
6.7%
9.5%
12.1%
15.4%
12.5%
10.7%
5.7%
3.9%
8.6%
6.1%
8.1%
0.7%
100%
$18.07
20.12
18.14
18.39
17.97
15.52
14.30
19.36
21.47
18.28
15.37
4.64
$17.43
(a) Other lease expirations include month-to-month and specialty leases. Specialty leasing represents leases of less than one year in duration for inline space
and includes any term length for a common area space. Examples include retail holiday stores, storage, and short-term clothing and furniture consignment
stores. Specialty leasing includes, but is not limited to, any term length for a common area space, including but not limited to: tent sales, automated teller
machines, cell towers, billboards, and vending.
We believe the percentage of leases expiring annually over the next five years may allow us to capture an appropriate portion of
potential market rent increases while allowing us to manage any potential re-leasing risk. For purposes of preparing the table,
we have not assumed that un-exercised contractual lease renewal or extension options contained in our leases will in fact be
exercised.
Certain of our properties are encumbered by mortgages, totaling $212.9 million as of December 31, 2018. Additional detail
about our retail properties can be found on Schedule III – Real Estate and Accumulated Depreciation.
In 2018, we did not experience any tenant bankruptcies or receivable write-offs that materially impacted our results of
operations. Our retail business is neither highly dependent on specific retailers nor is it subject to lease roll-over concentration.
We believe this minimizes risk to our multi-tenant retail platform from significant revenue variances over time.
Item 3. Legal Proceedings
We are subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While
the resolution of these matters cannot be predicted with certainty, we believe, based on currently available information, that the
final outcome of such matters will not have a material adverse effect on our financial condition, results of operations, or
liquidity.
28
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Market Information
Our shares of common stock are not listed on a national securities exchange and there is not otherwise an established public
trading market for our shares. We publish an estimated per share value of our common stock to assist broker dealers that sold
our common stock in our initial and follow-on "best efforts" offerings to comply with the rules published by FINRA. On May
9, 2018, we announced an estimated value of our common stock as of May 1, 2018 equal to $3.14 per share.
The Audit Committee of our Board and our Board engaged Duff & Phelps, an independent third-party global valuation
advisory and corporate finance consulting firm that specializes in providing real estate valuation services, to advise the Audit
Committee and the Board in their estimate of the per share value of our common stock outstanding as of May 1, 2018. Duff &
Phelps has extensive experience estimating the fair values of commercial real estate. The report furnished to the Audit
Committee and the Board by Duff & Phelps complies with the reporting requirements set forth under Standard Rule 2-2(b) of
the Uniform Standards of Professional Appraisal Practice and is certified by a member of the Appraisal Institute with the MAI
designation. The Duff & Phelps report, dated May 2, 2018, reflects values as of May 1, 2018.
Duff & Phelps does not have any direct or indirect interests in any transaction with us or in any currently proposed transaction
to which we are a party, and there are no conflicts of interest between Duff & Phelps, on one hand, and the Company or any of
our directors, on the other. Previously, Duff & Phelps provided services to us in connection with the allocation of the purchase
price of acquired properties for accounting and financial reporting purposes, but those services are no longer provided.
The Board is ultimately and solely responsible for the determination of the estimated value per share of our common stock. The
estimated value per share was determined and approved by the Board based on the recommendation of the Audit Committee.
Duff & Phelps provided a range of per share values for the Audit Committee and the Board to consider and utilized the "net
asset value" or "NAV" method. This method 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 the real estate assets is equal to the sum of its individual
real estate values. Generally, Duff & Phelps estimated the value of our real estate and real estate-related assets at our ownership
interest using the income capitalization approach, which included using a discounted cash flow calculation of projected net
operating income, less capital expenditures, for each property for the ten-year hold period ending April 30, 2028 or the residual
stabilized year, and applying a market supported discount rate and capitalization rate. For properties under contract for sale,
Duff & Phelps valued the assets at the contractual purchase price. For all other assets, including cash, other current assets, non-
retail joint ventures, land developments and marketable securities, fair value was determined separately. A fair value of our
long-term debt obligations, including current liabilities, was also estimated by Duff & Phelps, by comparing market interest
rates to the contract rates on our long-term debt and discounting to present value the difference in future payments. For the
loans that were in default as of May 1, 2018, Duff & Phelps excluded a fair value estimate of the debt.
Duff & Phelps completed its work in conformance with Investment Program Association Practice Guideline 2013-01,
"Valuations of Publicly Registered Non-Listed REITs," dated April 29, 2013 and guidelines published by FINRA. In addition,
Duff & Phelps determined NAV in a manner consistent with the definition of fair value under U.S. GAAP set forth in Financial
Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 820 Fair Value Measurement and
Disclosures.
The NAV per share provided by Duff & Phelps was estimated by subtracting the fair value of the total liabilities from the fair
value of the total assets and then dividing the result by the number of shares of common stock outstanding as of May 1, 2018.
Duff & Phelps then applied a discount rate sensitivity analysis on the discount rates used to value the multi-tenant retail
properties resulting in a value range of $3.00 to $3.29 per share. The mid-point in that range is $3.14.
On May 9, 2018, our Audit Committee and our Board met to review and discuss Duff & Phelps’s report. Following this review,
the Audit Committee recommended and the Board unanimously determined a new estimated per share value of our common
stock of $3.14 as of May 1, 2018.
29
As with any methodology used to estimate value, the methodology employed and the recommendations made by the Company
were based upon a number of estimates and assumptions that may not be accurate or complete. Further, different parties using
different assumptions and estimates could derive a different estimated value per share, which could be significantly different
from our estimated value per share. The estimated per share value does not represent (i) the amount at which our shares would
trade at on a national securities exchange, (ii) the amount a stockholder would obtain if he or she tried to sell his or her shares,
or (iii) the amount stockholders would receive if we liquidated our assets and distributed the proceeds after paying all of our
expenses and liabilities. Accordingly, with respect to the estimated value per share, we can give no assurance that:
•
•
•
•
a stockholder would be able to resell his or her shares at this estimated value;
a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation
of our assets and settlement of our liabilities or a sale of the Company;
our shares would trade at a price equal to or greater than the estimated value per share if we listed them on a national
securities exchange;
the methodology used to estimate our value per share would be acceptable to 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 Code, with respect to employee benefit plans subject to ERISA and other
retirement plans or accounts subject to Section 4975 of the Code; or
•
this estimated value will increase, stay at the current level, or not continue to decrease, over time.
The estimated value per share was determined by our Board on May 9, 2018 and reflects the fact that the estimate was
calculated at a moment in time. The value of our shares will likely change over time and will be influenced by changes to the
value of our individual assets as well as changes and developments in the real estate and capital markets and the economy as a
whole. We currently anticipate publishing a new estimated share value within one year. Nevertheless, stockholders should not
rely on the estimated value per share in making a decision to buy or sell shares of our common stock.
Stockholders
As of March 1, 2019, we had 148,375 stockholders of record.
Distributions
We have been paying cash distributions since October 2005. In October 2015 we moved from monthly to quarterly
distributions. Our distributions are paid one quarter in arrears.
During the years ended December 31, 2018 and 2017, we paid cash distributions of $54.2 million and $53.4 million,
respectively, or $0.071 and $0.069 per share of common stock, respectively. For federal income tax purposes, for the year
ended December 31, 2018, $0.028 per share, or approximately 39% of the Company's total distributions would be treated as an
ordinary dividend and $0.043 per share, or approximately 61%, of the Company's total distributions would be treated as a non-
taxable return of capital and will reduce the tax basis of each share of the Company's common stock held. For the year ended
December 31, 2017, $0.069 per share, or 100.0%, of the Company's total distributions would be treated as a non-taxable return
of capital and will reduce the tax basis of each share of the Company's common stock held.
Notification Regarding Payments of Distributions
Stockholders should be aware that the method by which a stockholder has chosen to receive his or her distributions affects the
timing of the stockholder's receipt of those distributions. Specifically, under our transfer agent's payment processing
procedures, distributions are paid in the following manner:
(1) those stockholders who have chosen to receive their distributions via wire transfer receive their distributions on the
distribution payment date (as determined by our Board);
(2) those stockholders who have chosen to receive their distributions by paper check are typically mailed those checks on
the distribution payment date, but sometimes paper checks are mailed on the day following the distribution payment date;
and
(3) for those stockholders holding shares through a broker or other nominee, the distribution payments are wired, or paper
checks are mailed, to the broker or other nominee on the day following the distribution payment date.
All stockholders who hold shares directly in record name may change at any time the method through which they receive their
distributions from our transfer agent, and those stockholders will not have to pay any fees to us or our transfer agent to make
such a change. Accordingly, each stockholder may select the timing of receipt of distributions from our transfer agent by
selecting the method above that corresponds to the desired timing for receipt of the distributions. Because all stockholders may
30
elect to have their distributions sent via wire transfer on the distribution payment date, we treat all of our stockholders,
regardless of the method by which they have chosen to receive their distributions, as having constructively received their
distributions from us on the distribution payment date for federal income tax purposes.
Stockholders who hold shares directly in record name and who would like to change their distribution payment method should
complete a "Change of Distribution Election Form." The form is available on our website under "Investor Relations-Forms page."
We note that the payment method for stockholders who hold shares through a broker or nominee is determined by the broker or
nominee. Similarly, the payment method for stockholders who hold shares in a tax-deferred account, such as an individual
retirement account, is generally determined by the custodian for the account. Stockholders that currently hold shares through a
broker or other nominee and would like to receive distributions via wire transfer or paper check should contact their broker or
other nominee regarding their processes for transferring shares to record name ownership. Similarly, stockholders who hold
shares in a tax-deferred account may need to hold shares outside of their tax-deferred accounts to change the method through
which they receive their distributions. Stockholders who hold shares through a tax-deferred account and who would like to
change the method through which they receive their distributions should contact their custodians regarding the transfer process
and should consult their tax advisor regarding the consequences of transferring shares outside of a tax-deferred account.
Recent Sales of Unregistered Securities
None.
31
Item 6. Selected Financial Data
The following table shows selected financial data relating to our consolidated financial condition and results of operations
required by Item 301 of Regulation S-K. Such selected data should be read in conjunction with "Part II, 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 report (dollar amounts are stated in thousands, except share and per share amounts).
Balance Sheet Data:
Total assets (a)
Debt, net (a)
Operating Data:
Total income (a)
Total interest and dividend income (a)
Net income (a)
Net income per common share, basic and diluted
Common Stock Distributions:
Distributions declared on common stock
Distributions paid to common stockholders
Distributions declared per weighted average
common share
Distributions paid per weighted average
common share
Supplemental Non-GAAP Measures:
Funds from operations (b)
Total modified net operating income (c)
Cash Flow Data:
Cash flows provided by operating activities (a)
Cash flows (used in) provided by investing
activities (a)
Cash flows used in financing activities
Other Information:
Weighted average number of common shares
outstanding, basic and diluted
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2018
2,536,006
561,782
242,674
2,044
83,849
0.11
53,782
54,194
0.07
0.07
134,706
157,602
124,657
As of and for the year ended December 31,
2016
2017
2015
$
$
$
$
$
$
$
$
$
$
$
$
$
2,698,604
667,891
251,809
4,249
61,793
0.07
53,758
53,358
0.07
0.07
167,667
168,799
118,152
$
$
$
$
$
$
$
$
$
$
$
$
$
2,786,754
730,605
242,693
11,849
252,722
0.29
83,633
98,606
0.10
0.12
145,188
159,956
133,164
$
$
$
$
$
$
$
$
$
$
$
$
$
4,204,923
1,094,651
257,628
11,767
3,464
0.01
138,614
146,510
0.16
0.17
247,245
178,600
195,615
$
$
$
$
$
$
$
$
$
$
$
$
$
2014
7,497,316
1,991,608
282,709
12,711
486,642
0.55
436,875
438,875
0.50
0.50
442,511
190,664
340,335
175,414
$
(207,096) $
(209,088) $
$
(159,411) $ (1,013,112) $
1,078,749
(164,274) $
1,922,890
(561,206) $ (1,849,312)
761,139,011
773,445,341
854,638,497
861,830,627
878,064,982
(a) Since 2014, we have continued to implement a strategy of focusing, tailoring, and refining our portfolio of real estate
assets, including the following major dispositions classified as discontinued operations: the spin-off of Highlands in 2016,
the sale of University House in 2016, the spin-off of Xenia in 2015, the sale of the select service lodging assets in 2014,
and the net lease asset portfolio disposition in 2014, all as disclosed in our Annual Reports on Form 10-K for prior years.
Information regarding our acquisitions and dispositions in 2017 and 2018 can be found in "Item 8. Note 4. Acquired
Properties" and "Item 8. Note 5. Disposed Properties", in the notes to the consolidated financial statements included herein,
respectively.
(b) The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a
standard known as FFO, or Funds from Operations. Our FFO, which is based on the NAREIT definition, is net income
(loss) in accordance with GAAP excluding gains (or losses) resulting from dispositions of properties, plus depreciation and
amortization and impairment charges on depreciable real property, after adjustments for unconsolidated partnerships and
joint ventures in which we hold an interest. We have adopted the NAREIT definition in our calculation of FFO Applicable
to Common Shares as management considers FFO a widely accepted and appropriate non-GAAP measure of performance
for REITs.
In calculating FFO, impairment charges of depreciable real estate assets are added back even though the impairment charge
may represent a permanent decline in value due to decreased operating performance of the applicable property. Further,
because gains and losses from sales of property are excluded from FFO, it is consistent and appropriate that impairments,
32
which are often early recognition of losses on prospective sales of property, also be excluded. If evidence exists that a loss
reflected in the investment of an unconsolidated entity is due to the impairment of depreciable real estate assets, our share
of these impairments is added back to net income in the determination of FFO.
The Company believes that FFO is a useful measure of properties' operating performance because FFO excludes non-cash
items from GAAP net income. FFO is neither intended to be a substitute to "net income" nor a substitute for "cash flows
from operating activities" as determined by GAAP. Other REITs may use alternative methodologies for calculating
similarly titled measures, which may not be comparable to the Company's calculation of FFO Applicable to Common
Shares. FFO is calculated as follows (dollar amounts are stated in thousands):
Year ended December 31,
2018
2017
2016
$
83,849
$
61,793
$
252,722
Net income
Add:
Depreciation and amortization related to investment properties
Our share of depreciation and amortization of unconsolidated entities
Provision for asset impairment, continuing operations
Provision for asset impairment, discontinued operations
Our share of provision for asset impairment recognized in equity in
(losses) earnings and (impairment), net, of unconsolidated entities
Our share of losses from property dispositions recognized in equity
in (losses) earnings and (impairment), net, of unconsolidated entities
Less:
96,666
11,551
3,510
—
31,953
2,274
93,646
14,773
27,754
—
2,610
1,272
Gains from property sales and transfer of assets, net
95,097
34,181
Gains from sales of investment in unconsolidated entities,
discontinued operations
—
—
FFO Applicable to Common Shares
$
134,706
$
167,667
$
115,317
14,965
11,208
106,514
—
—
354,104
1,434
145,188
The table below reflects additional information related to certain items that significantly impact the comparability of our
FFO and net income (loss). We believe this table provides useful supplemental information that may facilitate comparisons
of our ongoing operating performance between periods, as well as between us and REITs that include similar disclosure.
We believe this information will help our investors assess the sustainability of our operating performance exclusive of non-
cash revenues or expenses, or the impacts of certain transactions that are not related to the ongoing profitability of our
portfolio of properties. Dollar amounts are stated in thousands.
Year ended December 31,
2018
2017
2016
Amortization of above and below market leases, net
$
5,534
$
5,510
$
Amortization of mark to market debt, (premium) and discount, net
Gain (loss) on extinguishment of debt, net
Loss on extinguishment of debt, discontinued operations, net
Straight line rental income adjustment, net
Stock-based compensation expense
Marketable securities, impairment
Acquisition costs, expensed
(202)
9,103
—
4,262
4,330
—
—
(117)
840
(2)
2,202
4,987
—
—
4,255
317
(10,498)
(2,826)
(20)
3,737
1,327
1,287
33
(c) The Company believes modified net operating income ("NOI") provides comparability across periods when evaluating
operating performance. Modified NOI reflects the income from operations excluding lease termination income and
GAAP rent adjustments (such as straight line rent and above/below market lease amortization). NOI excludes interest
expense, depreciation and amortization, general and administrative expenses, and other investment income from
corporate investments.
The following table reflects a reconciliation of total modified NOI to the net income attributable to the Company on
the consolidated statements of operations and comprehensive income, the most comparable GAAP measure, for the
years ended December 31, 2018, 2017 and 2016 (dollar amounts are stated in thousands).
Net income
$
83,849
$
61,793
$
252,722
Year ended December 31,
2018
2017
2016
Adjustments to reconcile to total modified NOI
Net income from discontinued operations
Income tax expense
Realized and unrealized investment (gains) losses and
impairment, net
Equity in losses (earnings) and impairment, net, of
unconsolidated entities
Interest expense
Other expense (income)
(Gain) loss on extinguishment of debt, net
Gain on sale of investment properties, net
Interest and dividend income
Provision for asset impairment
Depreciation and amortization
General and administrative expenses
Other fee income
Adjustments to modified NOI (i)
—
30
(244)
31,393
24,943
(450)
(9,103)
(95,097)
(2,044)
3,510
100,593
35,267
(4,390)
(10,655)
(3,839)
1,324
(46,563)
804
30,155
308
(840)
(24,066)
(4,249)
27,754
95,345
42,661
(4,222)
(7,566)
(133,523)
201
(5,081)
(9,299)
44,135
(2,330)
10,498
(117,848)
(11,849)
11,208
83,685
49,107
(4,348)
(7,322)
Total modified NOI
$
157,602
$
168,799
$
159,956
(i) Adjustments to modified NOI include termination fee income and GAAP rent adjustments (such as straight-line rent and
above/below market lease amortization).
34
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Part
II, Item 6. Selected Financial Data" and our consolidated financial statements included in this Annual Report. In addition to historical
data, this discussion contains forward-looking statements about our business, operations and financial performance based on current
expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including but not limited to those discussed in "Special Note Regarding
Forward-Looking Statements" and "Part I, Item 1A. Risk Factors" included elsewhere in this Annual Report.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis relates to the operations of the Company for the years ended December 31, 2018, 2017
and 2016 and its financial position as of December 31, 2018 and 2017. The following discussion and analysis should be read in
conjunction with our consolidated financial statements and the related notes included in this Annual Report.
Executive Summary
InvenTrust Properties Corp. is a premier retail REIT that owns, leases, redevelops, acquires and manages open-air centers in
key growth markets with favorable demographics. We seek to continue to execute our strategy to enhance our multi-tenant
retail platform by acquiring the right centers in the right markets, driven by focused and disciplined capital allocation.
During the year ended December 31, 2018, we continued to execute on our strategy by opportunistically disposing of properties
not located in our core markets or where we believe the properties' values have been maximized. Our strategy is to redeploy the
proceeds from these sales with a disciplined approach into strategic retail properties in our target markets. However, we face
significant competition for attractive investment opportunities. As a result of this competition, the purchase prices for attractive
and suitable assets may be significantly elevated and may adversely impact our ability to redeploy the proceeds from property
sales for reinvestment. In addition, our disposition activity could continue to cause us to experience dilution in financial
operating performance during the period in which we dispose of properties.
In evaluating our financial condition and operating performance, management focuses on the following financial and non-
financial indicators, discussed in further detail herein:
•
Property NOI, which excludes interest expense, depreciation and amortization, general and administrative expenses,
depreciation and amortization, provision for asset impairment, interest and dividends from corporate investments,
gains (losses) from sales of properties, gains (losses) on extinguishment of debt, other income (expenses), interest
expense, equity in earnings (losses) and (impairment), net, of unconsolidated entities, and realized and unrealized
investment gains, net;
• Modified NOI, which reflects property NOI exclusive of lease termination income and GAAP rent adjustments (such
as straight-line rent and above/below market lease amortization);
•
FFO Applicable to Common Shares, a supplemental non-GAAP measure;
• Cash flow from operations as determined in accordance with GAAP;
• Economic and physical occupancy and rental rates;
• Leasing activity and lease rollover;
• Management of operating expenses;
• Management of general and administrative expenses;
• Debt maturities and leverage ratios; and
• Liquidity levels.
35
Multi-tenant retail platform
Our wholly owned, consolidated, and managed retail properties include grocery-anchored community and neighborhood
centers and necessity-based power centers. As of December 31, 2018, we manage 71 retail properties, with a GLA of
approximately 12.1 million square feet, which includes one retail property classified as a consolidated VIE, with a GLA of
approximately 125,000 square feet, and 13 retail properties with a GLA of approximately 2.6 million square feet owned
through the Company's ownership interest in IAGM. The following table summarizes our multi-tenant retail platform as of
December 31, 2018, 2017, and 2016.
Total Multi-tenant
Retail Platform
Wholly owned and Consolidated
Retail Properties
IAGM
Retail Properties
No. of properties
2018
71
2017
86
2016
86
2018
58
2017
71
2016
71
2018
13
2017
15
2016
15
GLA (square feet)
12,081,296
15,421,106
15,133,416
9,475,482
12,444,703
12,155,909
2,605,814
2,976,403
2,977,507
Economic occupancy
ABR per square foot
94.0%
$17.59
93.5%
$16.23
94.0%
$15.44
95.0%
$17.52
94.2%
$16.11
93.0%
$15.17
92.0%
$17.87
90.9%
$16.76
94.0%
$16.54
Multi-tenant retail platform summary by center type
The following tables summarize our multi-tenant retail platform, by center type, as of December 31, 2018, 2017, and 2016.
Community and neighborhood centers
Total Multi-tenant
Retail Platform
Wholly owned and Consolidated
Retail Properties
IAGM
Retail Properties
No. of properties
2018
45
2017
48
2016
45
2018
38
2017
41
2016
38
2018
7
2017
7
2016
7
GLA (square feet)
5,514,782
5,433,355
4,818,690
4,248,008
4,166,659
3,551,094
1,266,774
1,266,696
1,267,596
Economic occupancy
ABR per square foot
95.0%
$19.03
93.4%
$17.61
92.9%
$16.52
95.0%
$19.12
94.1%
$17.32
93.0%
$15.81
95.0%
$18.72
91.1%
$18.60
92.0%
$18.51
Power centers
Total Multi-tenant
Retail Platform
Wholly owned and Consolidated
Retail Properties
IAGM
Retail Properties
No. of properties
2018
26
2017
38
2016
41
2018
20
2017
30
2016
33
2018
6
2017
8
2016
8
GLA (square feet)
6,566,514
9,987,751
10,314,726
5,227,474
8,278,044
8,604,815
1,339,040
1,709,707
1,709,911
Economic occupancy
ABR per square foot
93.0%
$16.33
93.6%
$15.46
93.8%
$14.94
94.0%
$16.20
94.2%
$15.50
94.0%
$14.90
88.0%
$16.92
90.7%
$15.29
95.0%
$15.04
Multi-tenant retail platform by same-property
The following table summarizes the GLA, economic occupancy and ABR per square foot of the properties included in our
multi-tenant retail platform classified as same-property for the years ended December 31, 2018 and 2017 and the years ended
December 31, 2017 and 2016. For the years ended December 31, 2018 and 2017, properties classified as same-property have
been owned for the entirety of both periods presented and exclude properties sold and/or acquired in 2018 and 2017. For the
years ended December 31, 2017 and 2016, properties classified as same-property have been owned for the entirety of both
periods presented and exclude properties sold and/or acquired in 2018, 2017, and 2016.
Same-property results for the years ended December 31, 2018 and 2017
Total Multi-tenant
Retail Platform
Wholly owned and Consolidated
Retail Properties
IAGM
Retail Properties
2018
60
2017
60
2018
47
2017
47
2018
13
2017
13
9,974,517
9,862,783
7,368,703
7,256,748
2,605,814
2,606,035
93.0%
$16.53
92.9%
$16.18
94.1%
$16.09
94.1%
$15.80
92.0%
$17.87
89.7%
$17.32
No. of properties
GLA (square feet)
Economic occupancy
ABR per square foot
36
Same-property results for the years ended December 31, 2017 and 2016
Total Multi-tenant
Retail Platform
Wholly owned and Consolidated
Retail Properties
IAGM
Retail Properties
2017
52
2016
52
2017
39
2016
39
2017
13
2016
13
8,363,113
8,370,270
5,757,078
5,763,335
2,606,035
2,606,935
92.3%
$15.88
93.7%
$15.72
93.5%
$15.27
94.0%
$15.13
89.7%
$17.32
93.1%
$17.07
No. of properties
GLA (square feet)
Economic occupancy
ABR per square foot
Leasing Activity
The following table summarizes the leasing activity for leases that were executed during the year ended December 31, 2018
compared to expiring or expired leases for the same or previous tenant for renewals and the same unit for new leases at the 71
retail properties in our multi-tenant retail platform. We had GLA totaling 1,420,458 square feet expiring in 2018, of which
998,045 square feet was rolled over. This achieved a retention rate of approximately 70.3%.
No. of Leases
Executed
as of
Dec. 31, 2018
GLA SF
New
Contractual
Rent ($PSF)
(b)
Prior
Contractual
Rent ($PSF)
(b)
% Change
over Prior
Contract
Rent (b)
Weighted
Average
Lease Term
(Years)
Tenant
Improvement
Allowance
($PSF)
Lease
Commissions
($PSF)
All tenants
Comparable
Renewal
Leases (a)
Comparable New
Leases (a)
Non-Comparable
Renewal and New
Leases
Total
172
29
115
316
923,822
$18.27
$17.57
4.0%
77,975
$27.80
$25.02
11.1%
514,956
1,516,753
$19.61
$19.01
n/a
$18.15
n/a
4.7%
Anchor tenants (leases over 10,000 square feet)
Comparable
Renewal Leases (a)
Comparable New
Leases (a)
Non-Comparable
Renewal and New
Leases
Total
20
1
12
33
571,436
$12.32
$11.94
3.2%
15,331
$14.00
$16.00
(12.5)%
224,378
811,145
$13.74
$12.37
n/a
$12.05
n/a
2.7%
Non-anchor tenants (leases under 10,000 square feet)
Comparable
Renewal Leases (a)
Comparable New
Leases (a)
Non-Comparable
Renewal and New
Leases
Total
152
28
103
283
352,386
$27.92
$26.69
4.6%
62,644
$31.18
$27.23
14.5%
290,578
705,608
$24.18
$28.41
n/a
$26.77
N/A
6.1%
5.1
9.7
8.3
6.4
5.1
10.7
9.5
6.4
5.0
9.5
7.4
6.4
$0.53
$0.12
$12.60
$10.10
$18.56
$7.27
$0.66
$—
$15.93
$4.87
$6.40
$2.76
$0.16
$9.08
$4.56
$1.55
$0.32
$0.06
$15.69
$10.35
$20.60
$10.03
$7.81
$4.16
(a) Comparable leases are leases that meet all of the following criteria: terms greater than one year, unit was vacant one year or less prior to
occupancy, square footage of unit remains unchanged or within 10% of prior unit square footage, and has a rent structure consistent with the
previous tenant.
(b) Non-comparable leases are not included in totals.
37
Highlights for the year ended December 31, 2018
Acquisitions
During the year ended December 31, 2018, we continued to execute on our strategy to enhance our multi-tenant retail platform
with the following acquisitions of retail properties, all of which are classified as community or neighborhood centers, in our
core markets:
Acquisition Date
May 16, 2018
Property
PGA Plaza
Metropolitan Statistical Area (MSA)(a)
Miami-Fort Lauderdale-West Palm Beach, FL $
Gross
Acquisition Price
88,000
May 30, 2018
Kennesaw Marketplace
Atlanta-Sandy Springs-Roswell, GA
September 13, 2018 Kennesaw Marketplace, Phase 3 Atlanta-Sandy Springs-Roswell, GA
December 13, 2018
Peachland Promenade, Phase 2
Cape Coral-Fort Myers, FL
December 21, 2018
Sandy Plains Centre (b)
Atlanta-Sandy Springs-Roswell, GA
64,300
7,500
18,700
44,100
Total
$
222,600
Square Feet
120,000
117,000
13,000
95,000
125,000
470,000
(a) As defined by the United States Office of Management and Budget.
(b) This retail property has been classified as a consolidated VIE.
Dispositions
During the year ended December 31, 2018, we continued to execute on our strategy to opportunistically dispose of properties
not located in our core markets or where we believe the properties' values have been maximized. The following retail properties
were disposed of during the year ended December 31, 2018:
Date
Property
MSA
Gross
Disposition Price
Square Feet
January 9, 2018
Sherman Town Center I & II
Dallas-Fort Worth, TX
$
January 25, 2018
Grafton Commons
Milwaukee-Racine-Waukesha, WI
March 8, 2018
Lakeport Commons
Sioux City-Vermillion, IA-SD
March 21, 2018
March 31, 2018
Stonecrest Marketplace (a)
Northwest Marketplace (b)
Atlanta-Sandy Springs-Roswell, GA
Houston-The Woodlands-Sugar Land, TX
April 17, 2018
Market at Morse/Hamilton
Columbus, OH
May 24, 2018
June 20, 2018
June 26, 2018
June 28, 2018
Siegen Plaza
Baton Rouge, LA
Tomball Town Center
Houston-The Woodlands-Sugar Land, TX
Bellerive Plaza (c)
Lexington-Fayette, KY
Parkway Centre North
Columbus, OH
September 14, 2018 Tulsa Hills
Tulsa, OK
October 5, 2018
October 5, 2018
McKinney Town Center
Riverstone Shopping Center
Dallas-Fort Worth-Arlington, TX
San Antonio, TX
October 23, 2018
Hiram Pavilion
Atlanta-Sandy Springs-Roswell, GA
November 19, 2018
Poplin Place
November 20, 2018 Walden Park
Charlotte-Concord-Gastonia, NC-SC
Austin-Round Rock, TX
December 20, 2018
Streets of Cranberry
Pittsburgh, PA
63,000
33,500
31,000
—
—
10,000
29,000
22,750
—
23,700
70,000
51,000
27,750
44,350
28,300
5,325
26,500
485,000
239,000
283,000
265,000
—
45,000
156,000
67,000
76,000
143,000
473,000
243,000
273,000
363,000
228,000
34,000
108,000
$
466,175
3,481,000
(a) On March 21, 2018, the Company surrendered Stonecrest Marketplace to the lender in satisfaction of non-recourse debt.
(b) The Company completed a partial condemnation at this retail property.
(c) On June 26, 2018, the Company surrendered Bellerive Plaza to the lender in satisfaction of non-recourse debt.
Credit agreements
Unsecured term loans
On December 21, 2018, the Company entered into an amended and restated unsecured term loan credit agreement with a
syndicate of lenders led by Wells Fargo Bank, National Association, as administrative agent (the "Term Loan Agreement"). The
Term Loan Agreement, which amends and restates the Company’s prior term loan agreement in its entirety, provides for $400.0
38
million in unsecured term loans. The Term Loan Agreement consists of two tranches of term loans: a $250.0 million 5-year
tranche maturing on December 21, 2023 and a $150.0 million 5.5-year tranche maturing on June 21, 2024. Interest rates are
based on the Company's total leverage ratio or, at the Company's one-time irrevocable option, upon the Company's
achievement of an investment grade credit rating. Based upon the Company's total leverage ratio, as of December 31, 2018, all
of the outstanding term loans bear interest at a rate of 1-Month LIBOR plus 1.20%. A fee is charged on the unused portion of
the term loans at a rate ranging from 0.15% to 0.25% depending on the Company’s total leverage ratio. Based on the
Company's total leverage ratio as of December 31, 2018, the unused fee was 0.15%.
As of the closing date of the Term Loan Agreement, the Company borrowed $226.0 million under the 5-year tranche and
$126.0 million under the 5.5-year tranche, of which $26.0 million from each tranche was used to pay off a $52.0 million
outstanding unsecured revolving line of credit balance that was borrowed on July 12, 2018. As of December 31, 2018, the
Company had $24.0 million available for borrowing under the 5-year tranche and $24.0 million available for borrowing under
the 5.5-year tranche.
Unsecured revolving line of credit
On December 21, 2018, the Company entered into a second amended and restated unsecured revolving credit agreement with a
syndicate of lenders led by KeyBank National Association, as administrative agent (the "Revolving Credit Agreement"). The
Revolving Credit Agreement, which amends and restates the Company’s prior revolving credit agreement in its entirety,
provides for a $350.0 million unsecured revolving line of credit. The Revolving Credit Agreement has a 4-year term maturing
on December 21, 2022 with two six month extension options. Interest rates are based on the Company's total leverage ratio or,
at the Company's one-time irrevocable option, upon achievement of an investment grade credit rating. Based upon the
Company's total leverage ratio, as of December 31, 2018, outstanding revolving loans bear interest at a rate of LIBOR plus
1.05%. A facility fee accrues on the aggregate commitments at a rate ranging from 0.15% to 0.30% depending on the
Company’s total leverage ratio. Based on the Company's total leverage ratio as of December 31, 2018, the facility fee was
0.15%. As of December 31, 2018, the Company had $350.0 million available for borrowing under the Revolving Credit
Agreement.
Joint venture activity
On February 28, 2018, IAGM disposed of Bryant Square for a gross disposition price of $38.0 million and recognized a loss on
the sale of this retail property of $3.9 million. On October 5, 2018, IAGM disposed of Victory Lakes Shopping Center for a
gross disposition price of $53.0 million and recognized a loss on the sale of this retail property of $0.2 million. The Company's
share of these aggregate losses was $2.3 million and is included in equity in (losses) earnings and (impairment), net, of
unconsolidated entities on the consolidated statements of operations and comprehensive income for the year ended December
31, 2018.
During the year ended December 31, 2018, IAGM recorded an aggregate provision for asset impairment of $3.7 million on
three retail properties based on purchase contracts.
On June 30, 2018, IAGM entered into an extension to June 30, 2019 on a non-recourse mortgage loan with a balance of $15.1
million related to one retail property.
On November 2, 2018, IAGM entered into a senior secured term loan facility of $152.0 million to refinance its mortgages
payable maturing in 2018. The senior secured term loan facility matures in November 2023 and contains two twelve-month
extension options that IAGM may exercise upon payment of an extension fee equal to 0.10% of the commitment amount on the
first day of the extension term and subject to certain other conditions. The senior secured term loan facility bears interest at a
rate equal to LIBOR daily floating rate plus 1.55% and requires the maintenance of certain financial covenants. As a result of
this refinance, no IAGM mortgages payable are recourse to the Company.
During the year ended December 31, 2018, the Company evaluated its investment in Downtown Railyard Venture, LLC
("DRV") for potential other-than-temporary impairment due to a reduction in expected holding period. The Company obtained
a third party independent appraisal to assist in establishing a range of estimated fair values of the underlying assets as of
December 31, 2018. The Company's estimated fair value relating to its investment in DRV reflects the expected future cash
distributions stemming from the value of the underlying assets at a point within that established range that management
believes is most probable of realization, which, if liquidated, would result in an amount due to the Company based on the joint
venture partners' respective waterfall distribution, pursuant to the terms of the Second Amended and Restated Limited Liability
Company Agreement of Downtown Railyard Venture, LLC, dated as of September 30, 2015. The Company selected the point
within the range of estimated fair values established by the third-party independent appraisal that most appropriately reflects
the underlying facts and circumstances of the investment, and as a result the Company recorded an other-than-temporary
39
impairment of $29,933 related to DRV on the consolidated statement of operations and comprehensive income for the year
ended December 31, 2018.
Distribution rate
On March 2, 2018, our Board approved an increase to our annual distribution rate effective for the quarterly distribution paid in
April 2018, from $0.0695 per share to $0.0716 per share, on an annualized basis.
On November 7, 2018, our Board approved an increase to our annual distribution rate effective for the quarterly distribution
payable in April 2019, from $0.0716 per share to $0.0737, on an annualized basis.
Tender offer
On August 15, 2018, the Company announced and commenced a modified "Dutch Auction" tender offer (the "2018 Offer") to
purchase for cash up to $75.0 million in value of shares of the Company's common stock, par value $0.001 per share (the
"Shares"), subject to the Company's ability to increase the number of Shares accepted for payment in the 2018 Offer by up to
2% of the Company's outstanding Shares, without amending or extending the 2018 Offer in accordance with the rules
promulgated by the SEC. The Company exercised that option and increased the 2018 Offer by 10,706,774 shares, or $22.5
million, to avoid any proration for the stockholders tendering shares. The 2018 Offer expired on September 13, 2018.
As a result of the 2018 Offer, the Company accepted for purchase 46,559,289 shares of its common stock (which represented
approximately 6.0% of the shares of common stock outstanding at the time) at a purchase price of $2.10 per share, for a cost of
approximately $97.8 million, excluding fees and expenses as of December 31, 2018. Aggregate costs of $98.5 million were
recorded as reductions to common stock and additional paid-in capital on the consolidated statement of equity for the year
ended December 31, 2018.
Recent Activities
In preparing our consolidated financial statements, we have evaluated events and transactions occurring after December 31,
2018 through the date the financial statements were issued for recognition and disclosure purposes. On January 31, 2019, the
Company acquired Commons at University Place, a 92,100 square foot neighborhood center located in the Raleigh-Cary, NC
MSA, for a gross acquisition price of $23.3 million.
Current Strategy and Outlook
For InvenTrust, the right properties include open-air grocery-anchored and certain necessity-based power centers, and the right
markets mean those with above average growth in population, employment and wages. We believe these conditions create
markets that are poised to experience increasing tenant demand for grocery-anchored and necessity-based retail centers, which
will then position us to capitalize on potential future rent increases while enjoying sustained occupancy at our centers. Using
these criteria, we have identified 10 to15 core markets within the metropolitan areas of Atlanta, Austin, Charlotte, Dallas-Fort
Worth-Arlington, Denver, Houston, the greater Los Angeles and San Diego areas, suburban Washington, D.C., Miami, Orlando,
Raleigh-Durham, San Antonio and Tampa.
We have a coordinated program designed to increase rental income by maximizing re-development opportunities (which may
have a mixed-use component) and identifying locations in our current multi-tenant retail platform where we can develop pad
sites. We are continuing to work with our tenants to expand rentable square footage at select retail properties where demand
warrants. In addition, due to our properties as both retail centers and community focal points, we are able to identify short-term
and specialty leasing opportunities that generate revenue from areas of the properties which are typically vacant.
Our grocery-anchored community and neighborhood centers bring consumers to our well-located properties, while our larger-
format necessity-based power center retailers continue to adapt their business models to embrace omni-channel retail and
appeal to consumers' continuing focus on value. Our property management team is focused on enhancing the consumer
shopping experience at our centers by maintaining strong tenant relationships, controlling expenses, and investing in
sustainability programs at a number of our retail properties with initiatives such as LED lighting, trash recycling, water
conservation and other programs to reduce energy consumption and expenses.
In addition, our leasing staff continues to focus on leasing space at our retail properties at favorable rental rates while
establishing a more favorable tenant mix and identifying complementary uses to maximize tenant performance. We believe our
strong locations have allowed and will continue to allow us to backfill the vacancies created by such tenants.
We believe that the continuing refinement of our multi-tenant retail platform will position us for future success and put us in a
position to evaluate and ultimately execute on potential strategic transactions aimed at achieving liquidity for our stockholders
40
in the long term. While we believe in our ability to execute on our plan, the speed of its completion is uncertain and may be
shortened or extended by external and macroeconomic factors including, among others, interest rate movements, local,
regional, national and global economic performance, competitive factors, the impact of e-commerce on the retail industry,
future retailer store closings, retailer bankruptcies, and government policy changes.
41
Results of Operations
Comparison of Results for the years ended December 31, 2018 and 2017
The following section describes and compares our consolidated results of operations for the years ended December 31, 2018
and 2017. We generate substantially all of our net income from property operations. All dollar amounts shown in tables are
stated in thousands unless otherwise noted.
Operating Income and Expenses:
Income
Rental income
Tenant recovery income
Other property income
Other fee income
Total income
Expenses
General and administrative expenses
Property operating expenses
Real estate taxes
Depreciation and amortization
Provision for asset impairment
Total expenses
Operating income
Interest and dividend income
Gain on sale and transfer of investment properties, net
Gain on extinguishment of debt, net
Other income (expense)
Interest expense, net
Equity in losses and impairment of unconsolidated entities
Realized and unrealized investment gains (losses) and
(impairment), net
Income from continuing operations before income taxes
Income tax expense
Net income from continuing operations
Net income from discontinued operations
Net income
Rental, Tenant recovery and Other property income
Year ended December 31,
2018
2017
Increase
(Decrease)
Variance
$
176,640
$
188,235
$
(11,595)
57,993
3,651
4,390
242,674
35,267
34,822
35,205
100,593
3,510
209,397
33,277
2,044
95,097
9,103
450
(24,943)
(31,393)
244
83,879
(30)
83,849
—
57,192
2,160
4,222
251,809
42,661
35,656
35,566
95,345
27,754
236,982
14,827
4,249
24,066
840
(308)
(30,155)
(804)
46,563
59,278
(1,324)
57,954
3,839
$
83,849
$
61,793
$
801
1,491
168
(9,135)
(6.2)%
1.4%
69.0%
4.0%
(3.6)%
(7,394)
(17.3)%
(834)
(361)
5,248
(24,244)
(27,585)
18,450
(2,205)
71,031
8,263
758
(5,212)
(2.3)%
(1.0)%
5.5%
(87.4)%
(11.6)%
124.4%
(51.9)%
295.2%
(983.7)%
(246.1)%
(17.3)%
(30,589)
3,804.6%
(46,319)
24,601
(1,294)
25,895
(3,839)
22,056
(99.5)%
41.5%
(97.7)%
44.7%
(100.0)%
35.7%
Rental income consists of basic monthly rent, straight-line rent adjustments, amortization of acquired above and below market
leases and percentage of sales rental income recorded pursuant to tenant leases. Tenant recovery income consists of contractual
reimbursements for real estate taxes, common area maintenance costs, management fees, and insurance costs. Other property
income consists of lease termination fees and other miscellaneous property income.
Rental, tenant recovery, and other property income decreased $9.3 million when comparing the year ended December 31, 2018
to the same period in 2017, primarily as a result of a decrease of $41.5 million related to the disposition of 24 retail properties
since January 1, 2017. This decrease was offset by increases of $23.7 million from eight retail properties acquired in 2017, $6.5
million from the acquisitions of three retail properties and two retail parcels adjacent to two existing retail properties in 2018,
and $2.0 million from 47 retail properties classified as same-property.
42
Property operating and Depreciation and amortization expense
Property operating expenses consist of recurring repair and maintenance, utilities, and insurance (most of which are recoverable
from the tenant).
Aggregate property operating and depreciation and amortization expenses increased $4.4 million when comparing the year
ended December 31, 2018 to the same period in 2017 as a result of $15.2 million related to eight retail properties acquired in
2017, $5.4 million from 47 retail properties classified as same-property, and $5.1 million from the acquisition of three retail
properties and two retail parcels adjacent to two existing retail properties in 2018. These increases were offset by $21.3 million
in total property operating and depreciation and amortization expenses related to the disposition of 24 retail properties since
January 1, 2017.
General and administrative expenses
General and administrative expenses decreased $7.4 million when comparing the year ended December 31, 2018 to the same
period in 2017 primarily as a result of the Company's smaller and more focused operating platform, a continued focus on managing
general and administrative expenses, and a decrease in compensation expenses resulting from reductions in our workforce.
Real estate taxes
Real estate taxes decreased $0.4 million when comparing the year ended December 31, 2018 to the same period in 2017
primarily as a result of a decrease in real estate tax expense of $7.3 million related to the disposition of 24 retail properties
since January 1, 2017. This decrease was offset by increases in real estate tax expense of $4.6 million from eight retail
properties acquired in 2017, $1.7 million from 47 retail properties classified as same-property, and $0.6 million from the
acquisition of three retail properties and two retail parcels adjacent to two existing retail properties in 2018.
Provision for asset impairment
During the year ended December 31, 2018, the Company identified three retail properties that had reductions in their expected
holding periods. As a result, the Company recorded an additional provision for asset impairment of $0.8 million on the disposal
of one retail property and recorded a provision for asset impairment of $2.7 million on two retail properties as a result of the
fair value (the agreed upon price with the buyers) in the sales contracts being lower than the properties' carrying values during
the year ended December 31, 2018.
During the year ended December 31, 2017, the Company identified six retail properties that had reductions in their expected
holding periods. As a result, the Company recorded a provision for asset impairment of $5.4 million on one retail property
based on a 10-year discounted cash flow model and $22.4 million on five retail properties as a result of the fair value (the
agreed upon price with the buyers) in the sales contracts being lower than the properties' carrying values.
Interest and dividend income
Interest and dividend income decreased $2.2 million when comparing the year ended December 31, 2018 to the same period in
2017 primarily as a result of divesting of substantially all the Company's marketable securities portfolio. The Company's investment
in marketable securities of $183.9 million as of January 1, 2017 was substantially liquidated prior to December 31, 2018.
Gain on sale and transfer of investment properties, net
During the year ended December 31, 2018, the Company recognized a gain of $93.1 million related to the sale of 16 retail
properties, a gain on transfer of assets, net, of $1.8 million related to the surrender of Stonecrest Marketplace and Bellerive
Plaza to the lender (in satisfaction of non-recourse debt), and a gain of $0.2 million related to the completion of a partial
condemnation at one retail property.
During the year ended December 31, 2017, the Company recognized a gain of $20.6 million related to the sale of seven retail
properties, a gain of $3.1 million on the sale of two single-user outparcels, a gain on sale of $0.5 million related to the
completion of a partial condemnation at one retail property, and a loss on transfer of assets, net, of $0.1 million related to the
surrender of Intech Retail to the lender (in satisfaction of non-recourse debt).
Gain on extinguishment of debt, net
During the year ended December 31, 2018, the Company recognized gains on extinguishment of debt of $10.8 million related
to the surrender of Stonecrest Marketplace and $1.7 million related to the surrender of Bellerive Plaza (both to their lenders in
43
satisfaction of non-recourse debt). In addition, the Company recognized a loss on extinguishment of debt of $3.3 million related
to the loan pay-offs on four retail properties at disposition (primarily as a result of $3.1 million in prepayment penalties).
During the year ended December 31, 2017, the Company recognized a gain on extinguishment of debt of $0.9 million related to
the surrender of Intech Retail (in satisfaction of non-recourse debt) and a loss on extinguishment of debt of $0.04 million
related to the loan pay-offs on two retail properties at disposition.
Interest expense, net
Interest expense decreased $5.2 million when comparing the year ended December 31, 2018 to the same period in 2017
primarily as a result of decreases in interest expense of $3.5 million related to three retail properties surrendered to the lender
(in satisfaction of non-recourse debt) since January 1, 2017, a decrease of $2.8 million related to the pay-offs and deed-in-lieu
of mortgage debt from the disposal of six retail properties since January 1, 2017, and a decrease of $1.0 million related to the
pay-off of one mortgage in 2018. These decreases were offset by a $2.1 million increase in interest expense when comparing
the year ended December 31, 2018 to the same period in 2017 as a result of increasing LIBOR rates since January 1, 2017
related to the Company's variable rate unsecured term loans.
Equity in losses and impairment of unconsolidated entities
During the year ended December 31, 2018, the Company evaluated its investment in DRV for potential other-than-temporary
impairment due to a reduction in expected holding period. The Company obtained a third party independent appraisal to assist
in establishing a range of estimated fair values of the underlying assets as of December 31, 2018. The Company's estimated fair
value relating to its investment in DRV reflects the expected future cash distributions stemming from the value of the
underlying assets at a point within that established range that management believes is most probable of realization, which, if
liquidated, would result in an amount due to the Company based on the joint venture partners' respective waterfall distributions.
The Company selected the point within the range of estimated fair values established by the third-party independent appraisal
that most appropriately reflects the underlying facts and circumstances of the investment, and as a result the Company recorded
an other-than-temporary impairment of $29,933 related to DRV on the consolidated statement of operations and comprehensive
income for the year ended December 31, 2018.
Realized and unrealized investment gains (losses) and (impairment), net
Realized and unrealized investment gains (losses) and (impairment), net, decreased $46.3 million when comparing the year
ended December 31, 2018 to the same period in 2017 primarily as a result of divesting of substantially all the Company's
marketable securities portfolio during 2017.
Net income from discontinued operations
Net income from discontinued operations of $3.8 million for the year ended December 31, 2017 is primarily related to the gain
of $10.1 million from the sale of the Company's remaining non-core office property, Worldgate Plaza, and was offset by interest
expense, income taxes, and other miscellaneous income related to Worldgate Plaza of $6.7 million.
Net operating income
We evaluate the performance of our wholly owned and consolidated retail properties based on NOI and modified NOI.
Modified NOI reflects the income from operations excluding lease termination income and GAAP rent adjustments (such as
straight-line rent and above/below market lease amortization). We believe NOI, modified NOI, same-property modified NOI,
and modified NOI from other investment properties, which are supplemental non-GAAP financial measures, provide added
comparability across periods when evaluating the financial condition and operating performance that is not readily apparent
from "Operating income" or "Net income" in accordance with GAAP.
44
Comparison of same-property results for the years ended December 31, 2018 and 2017
A total of 47 wholly owned retail properties met our same-property criteria for the years ended December 31, 2018 and 2017.
Modified NOI from other investment properties in the table below for the years ended December 31, 2018 and 2017 includes
retail properties that did not meet our same-property criteria, including retail properties sold and/or acquired in 2018 and 2017.
The following table represents the reconciliation of net income, the most directly comparable GAAP measure, to same-property
modified NOI for the years ended December 31, 2018 and 2017.
Net income
$
83,849
$
61,793
$
22,056
35.7%
Year ended December 31,
2018
2017
Increase
(Decrease)
Variance
Adjustments to reconcile to same-property modified NOI
Net income from discontinued operations
Income tax expense
Realized and unrealized investment (gains) losses and
impairment, net
Equity in losses and impairment of unconsolidated entities
Interest expense
Other (income) expense
Gain on extinguishment of debt, net
Gain on sale and transfer of investment properties, net
Interest and dividend income
Provision for asset impairment
Depreciation and amortization
General and administrative expenses
Other fee income
Adjustments to modified NOI (a)
Total modified NOI
Modified NOI from other investment properties
—
30
(244)
31,393
24,943
(450)
(9,103)
(95,097)
(2,044)
3,510
100,593
35,267
(4,390)
(10,655)
157,602
57,950
(3,839)
1,324
(46,563)
804
30,155
308
(840)
(24,066)
(4,249)
27,754
95,345
42,661
(4,222)
(7,566)
168,799
68,915
Same-property modified NOI
$
99,652
$
99,884
$
(3,839)
(1,294)
(100.0)%
(97.7)%
(46,319)
(30,589)
(5,212)
758
8,263
71,031
(2,205)
(24,244)
5,248
(7,394)
168
3,089
(11,197)
(10,965)
(232)
(99.5)%
3,804.6%
(17.3)%
(246.1)%
(983.7)%
295.2%
(51.9)%
(87.4)%
5.5%
(17.3)%
4.0%
40.8%
(6.6)%
(15.9)%
(0.2)%
(a) Adjustments to modified NOI include termination fee income and GAAP rent adjustments (such as straight-line rent and above/below
market lease amortization).
Comparison of the components of same-property modified NOI for the years ended December 31, 2018 and 2017
Rental income
Tenant recovery income
Other property income
Property operating expenses
Real estate taxes
Year ended December 31,
2018
2017
$
106,323
$
105,858
$
35,487
2,115
143,925
22,023
22,250
44,273
34,614
1,636
142,108
21,678
20,546
42,224
Increase
(Decrease)
Variance
465
873
479
1,817
345
1,704
2,049
0.4%
2.5%
29.3%
1.3%
1.6%
8.3%
4.9%
Same-property modified NOI
$
99,652
$
99,884
$
(232)
(0.2)%
Same property modified NOI remained unchanged when comparing the year ended December 31, 2018 to the same period in
2017. Increases in rental income of $0.5 million and tenant recovery income attributed to real estate taxes of $1.5 million were
offset by increases of $0.6 million in non-recoverable property operating expenses and increases in real estate tax expenses of
$1.7 million.
45
Results of Operations
Comparison of Results for the years ended December 31, 2017 and 2016
The following section describes and compares our consolidated results of operations for the years ended December 31, 2017
and 2016. We generate substantially all of our net income from property operations. All dollar amounts shown in tables are
stated in thousands unless otherwise noted.
Operating Income and Expenses:
Income
Rental income
Tenant recovery income
Other property income
Other fee income
Total income
Expenses
General and administrative expenses
Property operating expenses
Real estate taxes
Depreciation and amortization
Provision for asset impairment
Total expenses
Operating income
Interest and dividend income
Gain on sale and transfer of investment properties, net
Gain (loss) on extinguishment of debt, net
Other (expense) income
Interest expense, net
Equity in (losses) earnings of unconsolidated entities
Realized and unrealized investment gains (losses) and
(impairment), net
Income from continuing operations before income taxes
Income tax expense
Net income from continuing operations
Net income from discontinued operations
Net income
Rental, Tenant recovery and Other property income
Year ended December 31,
2017
2016
Increase
(Decrease)
Variance
$
188,235
$
181,481
$
57,192
2,160
4,222
251,809
42,661
35,656
35,566
95,345
27,754
236,982
14,827
4,249
24,066
840
(308)
(30,155)
(804)
46,563
59,278
(1,324)
57,954
3,839
53,218
3,646
4,348
242,693
49,107
35,364
35,703
83,685
11,208
215,067
27,626
11,849
117,848
(10,498)
2,330
(44,135)
9,299
5,081
119,400
(201)
119,199
133,523
$
61,793
$
252,722
$
6,754
3,974
(1,486)
(126)
9,116
(6,446)
292
(137)
11,660
16,546
21,915
(12,799)
(7,600)
(93,782)
11,338
(2,638)
(13,980)
(10,103)
41,482
(60,122)
1,123
(61,245)
(129,684)
(190,929)
3.7 %
7.5 %
(40.8)%
(2.9)%
3.8 %
(13.1)%
0.8 %
(0.4)%
13.9 %
147.6 %
10.2 %
(46.3)%
(64.1)%
(79.6)%
108.0 %
(113.2)%
(31.7)%
(108.6)%
816.4 %
(50.4)%
558.7 %
51.4 %
(97.1)%
(75.5)%
Rental, tenant recovery, and other property income increased $9.2 million when comparing the year ended December 31, 2017
to the same period in 2016 primarily as a result of an increase in rental, tenant recovery, and other property income of $40.5
million related to properties acquired prior to December 31, 2017 and was offset by a decrease in rental, tenant recovery, and
other property income of $31.3 million related to properties sold prior to December 31, 2018. The decrease of $1.5 million in
other property income when comparing the year ended December 31, 2017 to the same period in 2016 is a primarily a result of
termination fee income received from two former tenants totaling $1.4 million during the year ended December 31, 2016. No
such termination fee income was received during the year ended December 31, 2017.
46
Property operating and Depreciation and amortization expense
Property operating expenses and depreciation and amortization increased $12.0 million when comparing the year ended
December 31, 2017 to the same period in 2016 primarily as a result of an increase in property operating and depreciation and
amortization expense of $27.9 million related to properties acquired prior to December 31, 2017 and was offset by a decrease in
property operating and depreciation and amortization expense of $15.9 million related to properties sold prior to December 31,
2018.
General and administrative expense
General and administrative expenses decreased $6.4 million when comparing the year ended December 31, 2017 to the same
period in 2016 primarily as a result of the Company's smaller and more focused operating platform, a continued focus on managing
general and administrative expenses, and a decrease in compensation expenses resulting from reductions in our workforce.
Real estate taxes
Real estate taxes remained flat when comparing the year ended December 31, 2017 to the same period in 2016. Real estate
taxes increased $5.0 million related to properties acquired prior to December 31, 2017 and decreased $5.2 million related to
properties sold prior to December 31, 2018.
Provision for asset impairment
During the year ended December 31, 2017, the Company identified six retail properties that had reductions in their expected
holding periods. As a result, the Company recorded a provision for asset impairment of $5.4 million on one retail property
based on a 10-year discounted cash flow model and $22.4 million on five retail properties as a result of the fair value (the
agreed upon price with the buyers) in the sales contracts being lower than the properties' carrying values.
During the year ended December 31, 2016, the Company identified three retail properties that had reductions in their expected
holding periods. As a result, the Company recorded a provision for asset impairment of $2.8 million on one retail property
based on a 10-year discounted cash flow model and $8.4 million on two retail properties as a result of the fair value (the agreed
upon price with the buyers) in the sales contracts being lower than the properties' carrying values.
Interest and dividend income
Interest and dividend income decreased $7.6 million when comparing the year ended December 31, 2017 to the same period in
2016 primarily as a result of divesting of substantially all the Company's marketable securities portfolio. The Company's
investment in marketable securities decreased $179.1 million, from $183.9 million as of December 31, 2016, to $4.8 million as
of December 31, 2017.
Gain on sale and transfer of investment properties, net
During the year ended December 31, 2017, the Company recognized a gain of $20.6 million related to the sale of seven retail
properties, a gain of $3.1 million on the sale of two single-user outparcels, a gain of $0.5 million on the completion of a partial
condemnation at one retail property, and a loss on transfer of assets, net, of $0.1 million related to the surrender of Intech Retail
to the lender (in satisfaction of non-recourse debt).
During the year ended December 31, 2016, the Company recognized a gain of $117.8 million related to the sale of 28 retail
properties.
Gain (loss) on extinguishment of debt, net
During the year ended December 31, 2017, the Company recognized a gain on extinguishment of debt of $0.9 million related to
the surrender of Intech Retail to the lender (in satisfaction of non-recourse debt) and a loss on extinguishment of debt of $0.04
million related to the loan pay-offs on two retail properties at disposition.
During the year ended December 31, 2016, the Company recognized a loss on extinguishment of debt, net, of $10.5 million
primarily as a result of the pay-off of debt during the year on 20 retail properties and the pay-off of debt at disposal of 19 retail
properties.
47
Other (expense) income
Other (expense) income decreased $2.6 million when comparing the year ended December 31, 2017 to the same period in
2016. Other expense for the year ended December 31, 2017 included the $0.6 million portion of the final settlement paid
related to a legal claim. See "Item 8. Note 14. Commitments and Contingencies" to the consolidated financial statements. Other
income of $2.3 million for the year ended December 31, 2016 includes $0.9 million received related to leases terminated as part
of a former tenant's bankruptcy. No such income was received during the year ended December 31, 2017.
Interest expense
Interest expense decreased $14.0 million when comparing the year ended December 31, 2017 to the same period in 2016. The
decrease is primarily a result of the pay-off of mortgage debt during the year on 20 retail properties and the pay-off of mortgage
debt at disposal of 19 retail properties during the year ended December 31, 2016, which resulted in a decrease to interest
expense of $19.2 million. These decreases in mortgage debt were offset by an increase of $150.0 million on the unsecured term
loan in the fourth quarter of 2016, which resulted in an increase to interest expense of $3.4 million, and the assumption of
mortgage debt of $41.7 million on one retail property acquired in 2017, which resulted in an increase to interest expense of
$1.8 million.
Equity in (losses) earnings of unconsolidated entities
Equity in (losses) earnings of unconsolidated entities decreased $10.1 million when comparing the year ended December 31,
2017 to the same period in 2016 primarily as the result of distributions received in 2016 in excess of the investments' carrying
value by $5.2 million and a decrease in equity in earnings recognized from one joint venture of $2.4 million. In addition, during
the year ended December 31, 2017, a provision for asset impairment of $4.7 million was recognized on a retail property in the
IAGM joint venture, resulting in a decrease to the Company's share of equity in earnings of $2.6 million for the year ended
December 31, 2017.
Realized and unrealized investment gains (losses) and (impairment), net
Realized and unrealized investment gains (losses) and (impairment), net, increased $41.5 million when comparing the year
ended December 31, 2017 to the same period in 2016 primarily as a result of divesting of substantially all the Company's
marketable securities portfolio during 2017, which decreased the Company's marketable securities by $179.1 million. In
addition, during the year ended December 31, 2016, we recorded an other-than-temporary impairment on one available-for-sale
security of $1.3 million.
Net income from discontinued operations
Net income from discontinued operations of $3.8 million for the year ended December 31, 2017 is primarily related to the gain
of $10.1 million from the sale of Worldgate Plaza and was offset by interest expense, income taxes, and other miscellaneous
income related to Worldgate Plaza of $6.7 million. Net income from discontinued operations of $133.5 million for the year
ended December 31, 2016 is primarily related to the gain of $236.3 million from the sale of University House and was offset by
provision for asset impairment of $106.5 million, of which $76.6 million was related to Highlands and $29.9 million related to
Worldgate Plaza.
Net operating income
Comparison of same-property results for the years ended December 31, 2017 and 2016
A total of 39 wholly owned retail properties met our same-property criteria for the years ended December 31, 2017 and 2016.
Modified NOI from other investment properties in the table below for the years ended December 31, 2017 and 2016 includes
retail properties that did not meet our same-property criteria, including retail properties sold and/or acquired in 2018, 2017, and
2016. The following table represents the reconciliation of net income, the most directly comparable GAAP measure, to same-
property modified NOI for the years ended December 31, 2017 and 2016.
48
Net income
$
61,793
$
252,722
$
(190,929)
(75.5)%
Year ended December 31,
2017
2016
Increase
(Decrease)
Variance
Adjustments to reconcile to same-property modified NOI
Net income from discontinued operations
Income tax expense
Realized and unrealized investment (gains) losses and
impairment, net
Equity in losses (earnings) of unconsolidated entities
Interest expense
Other expense (income)
(Gain) loss on extinguishment of debt, net
Gain on sale and transfer of investment properties, net
Interest and dividend income
Provision for asset impairment
Depreciation and amortization
General and administrative expenses
Other fee income
Adjustments to modified NOI (a)
Total modified NOI
Modified NOI from other investment properties
(3,839)
1,324
(46,563)
804
30,155
308
(840)
(24,066)
(4,249)
27,754
95,345
42,661
(4,222)
(7,566)
168,799
92,293
(133,523)
201
(5,081)
(9,299)
44,135
(2,330)
10,498
(117,848)
(11,849)
11,208
83,685
49,107
(4,348)
(7,322)
159,956
85,198
Same-property modified NOI
$
76,506
$
74,758
$
(129,684)
1,123
97.1%
558.7%
41,482
(10,103)
(13,980)
(2,638)
(11,338)
(93,782)
(7,600)
16,546
11,660
(6,446)
(126)
244
8,843
7,095
1,748
816.4%
(108.6)%
(31.7)%
(113.2)%
(108.0)%
(79.6)%
(64.1)%
147.6%
13.9%
(13.1)%
(2.9)%
3.3%
5.5%
8.3%
2.3%
(a) Adjustments to modified NOI include termination fee income and GAAP rent adjustments (such as straight-line rent and above/below
market lease amortization).
Comparison of the components of same-property modified NOI for the years ended December 31, 2017 and 2016
Year ended December 31,
Rental income
Tenant recovery income
Other property income
Property operating expenses
Real estate taxes
2017
2016
$
81,336
$
80,854
$
25,406
1,364
108,106
16,983
14,617
31,600
26,477
1,259
108,590
17,252
16,580
33,832
Same-property modified NOI
$
76,506
$
74,758
$
Increase
(Decrease)
482
(1,071)
105
(484)
(269)
(1,963)
(2,232)
1,748
Variance
0.6%
(4.0)%
8.3%
(0.4)%
(1.6)%
(11.8)%
(6.6)%
2.3%
Same-property modified net operating income increased when comparing the year ended December 31, 2017 to the same period
in 2016 primarily as a result of a decrease in real estate tax expense of $2.0 million, as a result of a prior year adjustment of real
estate tax expense of $1.1 million (which was offset by $1.0 million of tenant recovery income), and lower property level
compensation expenses of $0.8 million as a result of being a smaller, more focused company with a smaller operating platform.
49
Critical Accounting Policies and Estimates
General
The accompanying consolidated financial statements have been prepared in accordance with GAAP, which requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Significant estimates, judgments and assumptions are required in a number of areas,
including, but not limited to, evaluating the impairment of long-lived assets, allocating the purchase price of acquired assets,
determining the fair value of debt and evaluating the collectability of accounts receivable. We base these estimates, judgments
and assumptions on historical experience and various other factors that we believe to be reasonable under the circumstances.
Actual results may differ from these estimates.
Consolidation
We evaluate our investments in limited liability companies ("LLCs") and limited partnerships ("LPs") to determine whether
each such entity may be a variable interest entity ("VIE"). If the entity is a VIE, the determination of whether we are the
primary beneficiary must be made. The primary beneficiary determination is based on a qualitative assessment as to whether
we have (i) power to direct significant activities of the VIE and (ii) an obligation to absorb losses or the right to receive benefits
that could be potentially significant to the VIE. We will consolidate a VIE if we are deemed to be the primary beneficiary, as
defined in ASC 810, Consolidation. The equity method of accounting is applied to entities in which we are not the primary
beneficiary as defined in ASC 810, or the entity is not a VIE and we do not have control, but can exercise influence over the
entity with respect to its operations and major decisions. Investments in entities that we do not control and over which we do
not exercise significant influence are carried at the lower of cost or estimated fair value, as appropriate. Our ability to correctly
assess control over an entity affects the presentation of these investments in our consolidated financial statements.
Real Estate
The Company evaluates the inputs, processes and outputs of each asset acquired to determine if the transaction is a business
combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded
as an expense in the consolidated statements of operations and comprehensive income. If an acquisition qualifies as an asset
acquisition, the related transaction costs are generally capitalized and amortized over the useful life of the acquired assets.
We allocate the purchase price of real estate to land, building, other building improvements, tenant improvements, and
intangible assets and liabilities (such as the value of above- and below-market leases, in-place leases and origination costs
associated with in-place leases). The values of above- and below-market leases are recorded as intangible assets, net, and
intangible liabilities, net, respectively, in the consolidated balance sheets, and are amortized as either a decrease (in the case of
above-market leases) or an increase (in the case of below-market leases) to rental income over the remaining term of the
associated tenant lease. The values associated with in-place leases are recorded in intangible assets, net in the consolidated
balance sheets and are amortized to depreciation and amortization expense in the consolidated statements of operations and
comprehensive income over the remaining lease term.
The difference between the contractual rental rates and our estimate of market rental rates is measured over a period equal to
the remaining non-cancelable term of the leases, including below-market renewal options, if reasonably assured. For the
amortization period, the remaining term of leases with renewal options at terms below market reflect the assumed exercise of
such below-market renewal options, if reasonably assured.
We perform, with the assistance of a third-party valuation specialist, the following procedures for properties we acquire:
• Estimate the value of the property "as if vacant" as of the acquisition date;
• Allocate the value of the property among land, building, and other building improvements and determine the
associated useful life for each;
• Calculate the value and associated life of above- and below-market leases on a tenant-by-tenant basis. The difference
between the contractual rental rates and our estimate of market rental rates is measured over a period equal to the
remaining term of the leases (using a discount rate which reflects the risks associated with the leases acquired,
including geographical location, size of leased area, tenant profile and credit risk);
• Estimate the fair value of the tenant improvements, legal costs and leasing commissions incurred to obtain the leases
and calculate the associated useful life for each;
50
• Estimate the fair value of assumed debt, if any; and
• Estimate the intangible value of the in-place leases based on lease execution costs of similar leases as well as lost rent
payments during an assumed lease-up period and their associated useful lives on a tenant-by-tenant basis.
As of January 1, 2018, we derecognize real estate and recognize the related gains or losses on sale of investment properties
when (i) the parties to the sale contract have approved the contract and are committed to perform their respective obligations;
(ii) we can identify each party’s rights regarding the property transferred; (iii) we can identify the payment terms for the
property transferred; (iv) the contract has commercial substance (that is, the risk, timing or amount of the entity’s future cash
flows is expected to change as a result of the contract); and (v) we have satisfied our performance obligations by transferring
control of the property. The timing of payment and satisfaction of performance obligations typically occur simultaneously on
the disposition date upon transfer of the property’s ownership, at which point we recognize a gain or loss equal to the difference
between the amount of consideration transferred and the carrying amount of the investment property.
Historically, we have recognized gains and losses from the sale of investment property at the time of sale using the full accrual
method based on the following criteria in Topic 360-20, Property, Plant and Equipment - Real Estate Sales: sales were
consummated; usual risks and rewards of ownership were transferred to buyers; we had no substantial continuing involvement
with the property; and any sales related receivables were not subject to future subordination. If these criteria were not all met,
we deferred the gains and recognized them when the criteria were met. If the full accrual method was not followed, we used
either the installment, deposit or cost recovery methods, as appropriate in the circumstances.
Investment Properties Held for Sale
In determining whether to classify an investment property as held for sale, we consider whether: (i) management has committed
to a plan to sell the investment property; (ii) the investment property is available for immediate sale, in its present condition;
(iii) we have initiated a program to locate a buyer; (iv) we believe that the sale of the investment property is probable; (v) we
have received a significant non-refundable deposit for the purchase of the property; (vi) we are actively marketing the
investment property for sale at a price that is reasonable in relation to its estimated fair value; and (vii) actions required for us
to complete the plan indicate that it is unlikely that any significant changes will be made to the plan.
If all of the above criteria are met, we classify the investment property as held for sale. When these criteria are met, we suspend
depreciation on the investment properties held for sale, including depreciation for tenant improvements and additions, as well
as on the amortization of acquired in-place and above/below-market lease intangibles. The properties held for sale and
associated liabilities are classified separately on the consolidated balance sheets. Such properties are recorded at the lesser of
the carrying value or estimated fair value less costs to sell. Additionally, if the sale represents a strategic shift that has (or will
have) a major effect on the entity's results and operations, the operations are classified on the consolidated statements of
operations and comprehensive income as discontinued operations for all periods presented.
Impairment of Long Lived Assets
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, such as a reduction in the expected holding period of the asset. If
it is determined that the carrying value is not recoverable because the expected undiscounted cash flows do not exceed carrying
value, we record an impairment loss to the extent that the carrying value exceeds estimated fair value. The valuation and
possible subsequent impairment of investment properties is a significant estimate that can and does change based on our
continuous process of analyzing each property and reviewing assumptions about uncertain inherent factors, as well as the
economic condition of the property at a particular point in time.
The use of projected future cash flows and related holding period is based on assumptions that are consistent with the estimates
of future expectations and the strategic plan we use to manage our underlying business. However, assumptions and estimates
about future cash flows and capitalization rates are complex and subjective. Changes in economic and operating conditions and
our ultimate investment intent that occur subsequent to the impairment analyses could impact these assumptions and result in
additional impairment of the properties.
Periodically, management assesses whether there are any indicators that the carrying value of our investments in
unconsolidated entities may be other than temporarily impaired. To the extent impairment has occurred, the loss is measured as
the excess of the carrying value of the investment over the estimated fair value of the investment. The estimated fair value of
the investment is generally derived from the cash flows generated from the underlying real property investments of the
investee.
51
Real Estate Capitalization and Depreciation
Real estate is reflected at cost less accumulated depreciation within investment property on the consolidated balance sheets.
Ordinary repairs and maintenance are expensed as incurred.
Depreciation expense is computed using the straight line method. Buildings within investment property on the consolidated
balance sheets is depreciated based upon an estimated useful life of 30 years, and 5-15 years for furniture, fixtures and
equipment and site improvements within other improvements in building and other improvements on the consolidated balance
sheets.
Tenant improvements are amortized on a straight line basis over the lesser of the life of the tenant improvement or the lease
term as a component of depreciation and amortization expense on the consolidated statements of operations.
Direct and indirect costs that are clearly related to the construction and improvements of investment properties are capitalized.
Costs incurred for property taxes and insurance are capitalized during periods in which activities necessary to get the property
ready for its intended use are in progress. Interest costs are also capitalized during such periods. Additionally, we treat
investments accounted for by the equity method as assets qualifying for interest capitalization, if significant, provided (i) the
investee has activities in progress necessary to commence its planned principal operations and (ii) the investee’s activities
include qualifying expenditures.
Revenue Recognition
We commence revenue recognition on leases based on a number of factors. In most cases, revenue recognition under a lease
begins when the lessee takes possession of, or controls the physical use of, the leased asset. Generally, this occurs on the lease
commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements determines
the nature of the leased asset and when revenue recognition under a lease begins. If we are the owner, for accounting purposes,
of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes
possession of the finished space, typically when the improvements are substantially complete. If we conclude we are 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 under the lease are treated as lease incentives which reduce revenue
recognized over the term of the lease. In these circumstances, we begin revenue recognition when the lessee takes possession of
the unimproved space to construct their own improvements. We consider a number of different factors to evaluate whether we
or the lessee is the owner of the tenant improvements for accounting purposes. These factors include:
• whether the lease stipulates how and on what a tenant improvement allowance may be spent;
• whether the tenant or landlord retains legal title to the improvements;
•
•
the uniqueness of the improvements;
the expected economic life of the tenant improvements relative to the length of the lease; and
• who constructs or directs the construction of the improvements.
The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment. In
making that determination, we consider all of the above factors. No one factor, however, is determinative.
Rental income is recognized on a straight-line basis over the term of each lease. The cumulative difference between rental
income earned and recognized on a straight-line basis in the consolidated statements of operations and comprehensive income
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 rents receivable in the accompanying consolidated balance sheets.
Based on the terms of certain leases, we may pay all operating expenses and are subsequently reimbursed by the tenant for their
pro rata share of recoverable expenses paid, including real estate taxes, special assessments, insurance, utilities, common area
maintenance, management fees, and certain building repairs. We record tenant recovery income to the extent the operating
expenses are recoverable under the terms of the lease.
We record lease termination income when there is a signed termination agreement, all of the conditions of the termination
agreement have been met, the tenant is no longer occupying the property and termination income amounts due are considered
collectible.
We defer recognition of contingent rental income (i.e. percentage/excess rent) until the specified target that triggers the
contingent rental income is achieved.
52
Income Taxes
We qualify and have elected to be taxed as a REIT under the Code for federal income tax purposes commencing with the tax
year ended December 31, 2005. Since we qualify for taxation as a REIT, 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 distribute at least 90% of its REIT taxable income (subject to certain
adjustments) to its stockholders. If we fail to qualify as a REIT in any taxable year, without the benefit of certain relief
provisions, we will be subject to federal and state income tax on our taxable income at regular corporate tax rates. 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 on our undistributed income. We have elected to treat certain of our consolidated subsidiaries,
and may in the future elect to treat newly formed subsidiaries, as TRSs pursuant to the Code. Among other activities, TRSs may
participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to federal and
state income tax at regular corporate tax rates.
Liquidity and Capital Resources
Capital expenditures and re-development activity
The following table summarizes capital resources used through development, re-development and leasing activities at the
Company’s retail properties owned during the year ended December 31, 2018. These costs are classified as cash used in capital
expenditures and tenant improvements on the consolidated statements of cash flows for the year ended December 31, 2018.
Direct costs
Indirect costs
Total
Development
Re-development
Leasing
Total
$
$
3,613 (a)
$
18,985 (a)
$
6,810 (c)
$
183 (b)
1,438 (b)
3,796
$
20,423
$
—
6,810
$
29,408
1,621
31,029
(a) Direct development and re-development costs relate to construction of buildings at our retail properties.
(b) Indirect development and re-development costs relate to the capitalized payroll attributed to improvements at our retail properties.
(c) Direct leasing costs relate to improvements to a tenant space that are either paid directly or reimbursed to the tenants.
Short-Term Liquidity and Capital Resources
On a short-term basis, our principal demands for funds are to pay our operating, corporate, and transaction readiness expenses,
as well as property capital expenditures, make distributions to our stockholders, and pay interest and principal on our
indebtedness. We expect to meet our short-term liquidity requirements from cash flows from operations, distributions from our
joint venture investments, sales of our retail properties and available capacity on our unsecured term loans and revolving credit
agreements.
On August 15, 2018, we announced and commenced the 2018 Offer. As a result of the 2018 Offer, we accepted for purchase
46,559,289 shares of our common stock at a purchase price of $2.10 per share, for a cost of approximately $97.8 million,
excluding fees and expenses.
Long-Term Liquidity and Capital Resources
Our objectives are to maximize revenue generated by our multi-tenant retail platform, to further enhance the value of our retail
properties to produce attractive current yield and long-term risk-adjusted returns for our stockholders, and to generate
sustainable and predictable cash flow from our operations to distribute to our stockholders. We are seeking to increase our
operating cash flows over time through the execution of our strategy.
Our Board approved an increase to our annual distribution rate effective for the quarterly distribution paid in April 2018. As we
execute on our retail strategy, our Board has been and will continue to evaluate our distribution rate and, if the Board deems
appropriate, adjust the rate to take into account our progress in refining and balancing our multi-tenant retail platform. See "Part
I, Item 1A.Risk Factors - There is no assurance that we will be able to continue paying cash distributions or that distributions
will increase over time."
53
Our primary sources and uses of capital are as follows:
Sources
• Operating cash flows from our real estate investments, which consists of our retail properties;
Uses
• Distributions from our joint venture investments;
•
•
•
Proceeds from sales of properties;
Proceeds from mortgage loan borrowings on properties;
Proceeds from corporate borrowings; and
• Cash and cash equivalents.
• To pay our operating expenses;
• To make distributions to our stockholders;
• To service or pay down our debt;
• To fund capital expenditures and leasing related costs;
• To invest in properties and portfolios of properties;
• To fund development or re-development investments; and
• To repurchase our common stock.
We may, from time to time, seek to retire or purchase additional amounts of our outstanding equity through cash purchases or
exchanges for other securities. Such purchases or exchanges, if any, will depend on our liquidity requirements, contractual
restrictions, and other factors. The amounts involved may be material.
Acquisitions and Dispositions of Real Estate Investments
In 2018, we acquired three retail properties, including one retail property classified as a consolidated VIE, and the acquisition
of two retail parcels adjacent to two existing retail properties. During the year ended December 31, 2017, we acquired eight
retail properties, including two retail properties classified as consolidated VIEs. These acquisitions were funded with available
cash, disposition proceeds, and mortgage indebtedness. During the years ended December 31, 2018 and 2017, we invested net
cash of approximately $220.8 million and $589.4 million, respectively, for these acquisitions.
In 2018, we disposed of 16 retail properties, including the surrender of two properties to their respective lenders in satisfaction
of non-recourse debt, and completed a partial condemnation at one retail property for an aggregate gross disposition price of
$466.2 million. During the year ended December 31, 2017, we disposed of eight retail properties, including the surrender of
one property to the lender (in satisfaction of non-recourse debt), one non-core office property, two single-user outparcels, and
completed a partial condemnation at one retail property for an aggregate gross disposition price of $244.1 million.
Distributions
In 2018, we declared cash distributions to our stockholders totaling $53.8 million and paid cash distributions of $54.2 million.
As we execute on our retail strategy, our Board has been and expects to continue evaluating our distribution rate on a periodic
basis. See "Part I. Item 1. Business - Current Strategy and Outlook" for more information regarding our retail strategy. The
following table presents a historical summary of distributions declared, paid and reinvested.
Distributions declared
Distributions paid
Distributions reinvested
Year ended December 31,
2018
2017
2016
2015
2014
$
53,782
$
53,758
$
83,633
$
138,614
$
54,194
—
53,358
—
98,606
—
146,510
—
436,875
438,875
95,832
54
Borrowings
Mortgages payable, maturities
The following table shows the scheduled maturities for the Company's mortgages payable as of December 31, 2018 for each of
the next five years and thereafter:
Mortgages payable
$
— $
41,000
$
12,557
$
50,748
$
41,740
$
67,880
$ 213,925
Maturities during the year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Credit agreements, maturities
As of December 31, 2018, the Company had the following borrowings outstanding under its unsecured term loans:
$250.0 million 5 year - swapped to fixed rate (a)
$
$250.0 million 5 year - swapped to fixed rate (b)
$250.0 million 5 year - variable rate (c)
$250.0 million 5 year - variable rate (d)
$150.0 million 5.5 year - variable rate (c)
$150.0 million 5.5 year - variable rate (d)
Total unsecured term loans
$
Principal Balance
Interest Rate
Maturity Date
90,000
60,000
50,000
26,000
100,000
26,000
352,000
2.5510%
2.5525%
3.5493%
3.6794%
3.5493%
3.6794%
December 21, 2023
December 21, 2023
December 21, 2023
December 21, 2023
June 21, 2024
June 21, 2024
(a) The Company swapped $90,000 of variable rate debt at an interest rate of 1-Month LIBOR plus 1.2% to a fixed rate of 2.5510%. The
swap has an effective date of December 10, 2015, a termination date of December 1, 2019, and a notional amount of $90,000.
(b) The Company swapped $60,000 of variable rate debt at an interest rate of 1-Month LIBOR plus 1.2% to a fixed rate of 2.5525%. The
swap has an effective date of December 10, 2015, a termination date of December 1, 2019, and a notional amount of $60,000.
(c) Interest rate reflects 1-Month LIBOR plus 1.20% as of December 3, 2018.
(d) Interest rate reflects 1-Month LIBOR plus 1.20% as of December 21, 2018.
Summary of Cash Flows
Cash provided by operating activities
Cash provided by (used in) investing activities
Cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash, cash equivalents, and restricted cash at beginning of year
Cash, cash equivalents, and restricted cash at end of year
Operating activities
Year ended December 31,
2017
2016
2018
124,657
175,414
(207,096)
92,975
171,878
264,853
$
$
118,152
(209,088)
(159,411)
(250,347)
422,225
171,878
$
$
133,164
1,078,749
(1,013,112)
198,801
223,424
422,225
$
$
Cash provided by operating activities of $124.7 million and $118.2 million for the years ended December 31, 2018 and 2017,
respectively, was generated primarily from income from property operations and operating distributions from unconsolidated
entities. Cash provided by operating activities increased $6.5 million when comparing the year ended December 31, 2018 to the
same period in 2017 primarily as a result of the acquisition of three retail properties and two retail parcels adjacent to two
existing retail properties in 2018 and the acquisition of eight retail properties in 2017 now contributing a full year of
operational cash flows. These increases were offset by the disposal of 16 and 7 retail properties during the years ended
December 31, 2018 and 2017, respectively.
Cash provided by operating activities of $133.2 million for the year ended December 31, 2016 was generated primarily from
operating income from property operations and operating distributions from unconsolidated entities. Cash provided by
operating activities decreased $15.0 million when comparing the year ended December 31, 2017 to the same period in 2016
primarily as a result of the disposition of 35 retail and two non-core properties since January 1, 2016, the spin-off of Highlands
on April 28, 2016, the sale of University House on June 21, 2016, and a decrease of $2.6 million in operating distributions from
55
unconsolidated entities. Cash provided by properties included in the spin-off of Highlands and the sale of University House was
$21.2 million for the year ended December 31, 2016. These decreases were offset by the acquisition of 16 retail properties since
January 1, 2016.
Investing activities
Cash provided by investing activities of $175.4 million for the year ended December 31, 2018 was primarily generated by net
proceeds from sale of investment properties of $430.5 million from the disposal of 16 retail properties during the year ended
December 31, 2018. These proceeds were offset by cash used for acquisitions of investment properties of $205.5 million,
capital expenditures and tenant improvements of $27.2 million, and acquired in-place and market lease intangibles, net, of
$15.4 million related to the acquisition of three retail properties and two retail parcels adjacent to two existing retail properties
during the year ended December 31, 2018.
Cash used in investing activities of $209.1 million for the year ended December 31, 2017 was primarily the result of cash used
in the acquisition of eight retail properties, including $539.2 million for the purchase of investment properties and $50.2 million
from acquired in-place and market lease intangibles, net. In addition, $15.9 million of cash was used in capital expenditures and
tenant improvements during the year ended December 31, 2017. These investing activities were partially offset by proceeds
from the sale of seven retail properties, one non-core property, and an outparcel of land aggregating $233.7 million and
proceeds from the sale of marketable securities of $171.7 million during the year ended December 31, 2017.
Cash provided by investing activities was $1,078.7 million for the year ended December 31, 2016. During the year ended
December 31, 2016, cash provided by investing activities from the sale of University House was $1,230.4 million. In addition,
cash was provided from the sale of 28 retail properties and one non-core property aggregating $353.9 million, offset by the cash
used in development projects of $53.1 million. During the year ended December 31, 2016, cash was used in eight acquisitions,
including $423.6 million for the purchase of retail properties and $25.6 million from acquired in-place and market lease
intangibles, net.
Financing activities
Cash used in financing activities of $207.1 million for the year ended December 31, 2018 was primarily the result of pay-offs
of debt, debt prepayment penalties, principal payments of mortgage debt, and payment of loan fees and other deposits
aggregating $231.9 million, the 2018 Offer of $98.4 million, and distributions paid of $54.2 million. These cash outlays were
offset by cash provided by proceeds from debt of $179.3 million related to the Term Loan Agreement.
Cash used in financing activities of $159.4 million for the year ended December 31, 2017 was primarily the result of pay-offs
of debt, debt prepayment penalties, principal payments of mortgage debt, and payment of loan fees and other deposits
aggregating $105.8 million, including the loan pay-off of the disposed non-core property of $60.0 million and $44.0 million
used to pay off loans of three retail properties upon disposition, and to pay distributions of $53.4 million.
Cash used in financing activities of $1,013.1 million for the year ended December 31, 2016 was primarily the result of cash
used for pay-offs of debt, debt prepayment penalties, principal payments of mortgage debt, and payment of loan fees and other
deposits of $1,094.2 million, cash used for the repurchasing of shares of $241.0 million, distributions paid of $98.6 million,
cash contributed to Highlands at spin-off of $27.1 million, and was offset by proceeds from debt of $449.3 million.
We consider all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements
with a maturity of three months or less, at the date of purchase, to be cash equivalents. We maintain our cash and cash
equivalents at financial institutions. The combined account balances at one or more institutions generally exceed the Federal
Depository Insurance Corporation ("FDIC") insurance coverage. As a result, there is what we believe to be insignificant credit
risk related to amounts on deposit in excess of FDIC insurance coverage.
Off Balance Sheet Arrangements
We do not have material off-balance sheet arrangements.
Contractual Obligations
We have obligations related to our mortgage loans, term loan, and credit facility as described in "Note 9. Debt" in the
consolidated financial statements. In addition, we have one retail property subject to a long term ground lease where a third
party owns the underlying land and has leased it to us for our use. The unconsolidated entities in which we have an investment
have third party mortgage debt of $275.3 million at December 31, 2018, as described in "Note 6. Investment in Consolidated
56
and Unconsolidated Entities" in the consolidated financial statements. It is anticipated that our unconsolidated entities will be
able to repay or refinance all of their debt on a timely basis.
The following table presents, on a consolidated basis, obligations and commitments to make future payments under debt
obligations and lease agreements. It excludes third-party debt associated with our unconsolidated entities and debt premiums
and discounts that are not future cash obligations as of December 31, 2018.
2019
2020
2021
2022
2023
Thereafter
Total
Payments due by year ending December 31,
Long term debt:
Fixed rate debt, principal (a)
$
— $
41,000
$
12,557
$
50,748
$
191,740
$
67,880
$
363,925
Variable rate debt, principal
Interest
Total long term debt
Operating lease obligations (b)
Capital lease obligations (c)
—
22,063
22,063
717
532
—
20,518
61,518
611
532
—
19,599
32,156
494
519
—
17,859
68,607
466
317
76,000
16,434
284,174
479
40
126,000
6,058
199,938
1,041
—
202,000
102,531
668,456
3,808
1,940
Grand total
$
23,312
$
62,661
$
33,169
$
69,390
$
284,693
$
200,979
$
674,204
(a)
Includes $150.0 million of variable rate unsecured term loan debt that has been swapped to a fixed rate as of December 31, 2018.
(b)
Includes leases on corporate office spaces and a long term ground lease on one underlying retail property.
(c)
Includes contracts for property improvements which have been deemed to contain capital leases.
Inflation
A number of our leases contain provisions designed to partially mitigate any adverse impact of inflation. With respect to current
economic conditions and governmental fiscal policy, inflation may become a greater risk. Our leases typically require the
tenant to pay its share of operating expenses, including common area maintenance, real estate taxes and insurance. By sharing
these costs with our tenants, we may reduce our exposure to increases in costs and operating expenses resulting from inflation.
A portion of our leases also include clauses enabling us to receive percentage rents based on a tenant’s gross sales above
predetermined levels or escalation clauses which are typically related to increases in the Consumer Price Index or similar
inflation indices. Furthermore, many of our leases are for terms of 10 years or less, allowing us to seek to adjust rents upon
renewal.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risk associated with changes in interest rates both in terms of variable-rate debt and the price of new
fixed-rate debt upon maturity of existing debt and for acquisitions.
Interest Rate Risk
Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to
lower our overall borrowing costs. As of December 31, 2018, our debt included outstanding variable rate term loans of $352.0
million, of which $150.0 million has been swapped to a fixed rate. If market rates of interest on all variable rate debt as of
December 31, 2018 permanently increased and decreased by 1%, the annual increase and decrease in interest expense on the
variable rate debt and future earnings and cash flows would be $2.0 million.
With regard to our variable rate financing, we assess interest rate cash flow risk by continually identifying and monitoring
changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging
opportunities. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both
outstanding or forecasted debt obligations as well as our potential offsetting hedge positions. The risk management control
systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of
changes in interest rates on our future cash flows. We continue to assess retaining cash flows that may assist us in maintaining a
flexible low debt balance sheet and managing the impact of upcoming debt maturities.
We monitor interest rate risk using a variety of techniques, including periodically evaluating fixed interest rate quotes on all
variable rate debt and the costs associated with converting the debt to fixed rate debt. In addition, existing fixed and variable
rate loans that are scheduled to mature within the next two years are evaluated for possible early refinancing and/or extension
due to consideration given to current interest rates. Refer to our Borrowings table in Item 7 of this Annual Report for debt
principal amounts and expected maturities by year to evaluate the expected cash flows and sensitivity to interest rate changes.
57
We may use financial instruments to hedge exposures to changes in interest rates on loans. To the extent we do, we are exposed
to credit risk and market risk. Credit risk is the risk of failure of the counterparty to perform under the terms of the derivative
contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us.
When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not pose credit risk. We
seek to minimize the credit risk in derivative instruments by entering into transactions with what we believe are high-quality
counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest
rates.
As of December 31, 2018, we had two interest rate swaps. The following table summarizes those interest rate swap contracts:
Variable Rate
Debt Swapped
to Fixed Rate
5 year - fixed
portion
5 year - fixed
portion
Total 5 year, fixed portion
Effective
Date
Termination
Date
Bank Pays
Variable
Rate of
InvenTrust
Pays Fixed
Rate of
Notional
Amount as of
December 31, 2018
Fair Value as of
December 31,
2018
December 31,
2017
Dec 10, 2015
Dec 1, 2019
Dec 10, 2015
Dec 1, 2019
1-Month LIBOR
+ 1.3%
1-Month LIBOR
+ 1.3%
2.5510%
2.5525%
$
$
90,000
$
983
$
60,000
150,000
$
654
1,637
$
1,003
667
1,670
The gains or losses resulting from marking-to-market our derivatives at the end of each reporting period are recognized as an
increase or decrease in other comprehensive income on our consolidated statements of operations and comprehensive income.
Item 8. Consolidated Financial Statements and Supplementary Data
See the Index to Consolidated Financial Statements and financial statements commencing on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act, our management, including our
principal executive officer and our principal financial officer evaluated as of December 31, 2018, the effectiveness of our
disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and Rule 15d-15(e). Based on that evaluation,
our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures, as of
December 31, 2018, were effective for the purpose of ensuring that information required to be disclosed by us in this report is
recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act
and is accumulated and communicated to management, including the principal executive officer and our principal financial
officer as appropriate to allow timely decisions regarding required disclosures.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management, including our principal executive officer and
principal financial officer, evaluated as of December 31, 2018, 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 (2013). Based on its evaluation, our management has concluded that we maintained effective
internal control over financial reporting as of December 31, 2018.
The rules of the SEC do not require us to have, and this Annual Report on Form 10-K does not include, an attestation report of
an independent registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2018 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
58
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding our executive officers is included under the heading “Executive Officers of the Registrant” in Item 1 of
this Annual Report. Information regarding our directors and corporate governance under the following captions in our Proxy
Statement for our annual meeting of stockholders to be held on May 9, 2019 is incorporated by reference herein.
"Proposal No. 1 - Election of Directors"
"Stock Ownership - Section 16(a) Beneficial Ownership Reporting Compliance"
"Stockholder Proposals - Nominations of Director Candidates for the 2019 Annual Meeting"
"Corporate Governance Principles"
Our Board has adopted a code of ethics and business conduct (the "Code of Ethics and Business Conduct") applicable to our
directors, officers and employees, which is available on our website at www.inventrustproperties.com through the "Investor
Relations - Corporate Governance" tab. In addition, printed copies of the Code of Ethics and Business Conduct are available to
any stockholder, without charge, by writing us at InvenTrust Properties Corp., 3025 Highland Parkway, Suite 350, Downers
Grove, Illinois, 60515, Attention: Investor Relations. In the event that the Company amends or waives any of the provisions of
the Code of Ethics and Business Conduct that applies to the Company's Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer or Controller, and other senior financial officers performing similar functions, the Company
intends to disclose such amendment or waiver information on its website.
Item 11. Executive Compensation
Information regarding executive compensation under the following captions in our Proxy Statement is incorporated by
reference herein.
"Executive Compensation"
"Compensation Committee Report"
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information related to the beneficial ownership of our common stock is presented under the caption “Stock Ownership - Stock
Owned by Certain Beneficial Owners and Management” in our Proxy Statement and is incorporated by reference herein.
Equity Compensation Plan Information
The following table provides information regarding our equity compensation plans as of December 31, 2018.
Equity compensation plans not approved by security holders:
InvenTrust Properties Corp. 2015 Incentive Award Plan (c)
Inland American Real Estate Trust, Inc. 2014 Share Unit Plan "Retail Plan" (d)
I
II
Number of Shares or
Share Units Issuable
Upon Vesting of
Outstanding RSU Awards
and Share Unit Awards
(a)
1,548,150
433,631
Number of Securities
Remaining Available for
Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in column I) (b)
23,626,050
—
(a) Represents RSU Awards outstanding under the Incentive Award Plan and Annual Share Unit Awards and Contingency Share Unit Awards
outstanding under the Inland American Real Estate Trust, Inc. 2014 Share Unit Plan, which we refer to as the Retail Plan, as of December 31,
2018. The number of share units subject to each share unit award reflects the value of the award and does not necessarily correspond to an
equivalent number of shares of common stock of the Company.
(b)
Includes shares of common stock available for future grants under the Incentive Award Plan as of December 31, 2018.
(c) The weighted average grant date price per share of common stock underlying the unvested restricted stock units based on total outstanding
restricted stock units as of December 31, 2018 was $3.18.
(d) Effective June 19, 2015, in connection with the adoption of the Incentive Award Plan, we terminated the Retail Plan. Awards outstanding as of
the termination of the plan will remain outstanding and subject to the terms of the plan and the applicable award agreement. No additional
awards will be granted under the Retail Plan, which expires on March 12, 2019.
59
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions, and director independence under the following captions in
our Proxy Statement is incorporated by reference herein.
"Certain Relationships and Related Person Transactions"
"Corporate Governance Principles - Director Independence"
Item 14. Principal Accounting Fees and Services
Information regarding principal accounting fees and services under the caption "Proposal No. 2 - Ratify Appointment of KPMG
LLP" in our Proxy Statement is incorporated by reference herein.
60
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this Annual Report
Report of Independent Registered Public Accounting Firm
1 Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2018, 2017, and 2016
Consolidated Statements of Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
2 Consolidated Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation
All schedules other than those indicated 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.
Page
F-2
F-3
F-4
F-5
F-6
F-9
F-40
3 EXHIBITS
The following documents are filed as exhibits to this report:
EXHIBIT
NO.
DESCRIPTION
2.1
2.2
2.3
2.4
2.5
2.6
2.7
3.1
3.2
4.2
Master Modification Agreement, dated as of March 12, 2014, by and among Inland American Real Estate Trust, Inc., Inland American
Business Manager & Advisor, Inc., Inland American Lodging Corporation, Inland American Holdco Management LLC, Inland American
Retail Management LLC, Inland American Office Management LLC, Inland American Industrial Management LLC and Eagle I Financial
Corp. (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on March 13, 2014)
Asset Acquisition Agreement, dated as of March 12, 2014, by and among Inland American Real Estate Trust, Inc., Inland American
Holdco Management LLC, Inland American Retail Management LLC, Inland American Office Management LLC, Inland American
Industrial Management LLC and Eagle I Financial Corp. (incorporated by reference to Exhibit 2.2 to the Registrant’s Form 8-K, as
filed by the Registrant with the SEC on March 13, 2014)
Separation and Distribution Agreement by and between Inland American Real Estate Trust, Inc. and Xenia Hotels & Resorts, Inc.,
dated as of January 20, 2015 (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, as filed by the Registrant with the
SEC on January 23, 2015)
Separation and Distribution Agreement by and between InvenTrust Properties Corp. and Highlands REIT, Inc., dated as of April 14,
2016 (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on April 14, 2016)
Stock Purchase Agreement by and among InvenTrust Properties Corp., University House Communities Group, Inc. and UHC
Acquisition Sub LLC, dated as of January 3, 2016 (incorporated by reference to Exhibit 2.1 to the Registrant's Form 10-Q, as filed by
the Registrant on May 10, 2016)
Amendment No. 1 to Stock Purchase Agreement, dated as of May 30, 2016, by and among InvenTrust Properties Corp., University
House Communities Group, Inc. and UHC Acquisition Sub LLC (incorporated by reference to Exhibit 2.2 to the Registrant's Form 8-
K, as filed by the Registrant on June 27, 2016)
Amendment No. 2 to Stock Purchase Agreement, dated as of June 20, 2016, by and among InvenTrust Properties Corp., University
House Communities Group, Inc. and UHC Acquisition Sub LLC (incorporated by reference to Exhibit 2.3 to the Registrant's Form 8-
K, as filed by the Registrant on June 27, 2016)
Seventh Articles of Amendment and Restatement of InvenTrust Properties Corp., as amended (incorporated by reference to Exhibit 3.1
to the Registrant’s Form 10-Q, as filed by the Registrant with the SEC on May 14, 2015)
Amended and Restated Bylaws of InvenTrust Properties Corp., as amended by Amendment No. 1 (incorporated by reference to Exhibit
3.2 to the Registrant’s Form 10-Q, as filed by the Registrant with the SEC on November 12, 2015)
Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request
and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.4 to the Registrant’s
Amendment No. 1 to Form S-11 Registration Statement, as filed by the Registrant with the SEC on July 31, 2007 (file number
333-139504))
61
EXHIBIT
NO.
DESCRIPTION
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8.1^
10.8.2^
10.8.3^
10.8.4^
10.8.5^
10.8.6^
10.8.7^
10.8.8^
10.8.9^
10.9
10.10.1^
10.10.2^
10.10.3^
10.10.4^
10.10.5^
10.10.6^
Amended and Restated Master Management Agreement, dated as of March 12, 2014, by and between Inland American Real Estate
Trust, Inc. and Inland American Retail Management LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as
filed by the Registrant with the Securities and Exchange Commission on March 13, 2014)
Amended and Restated Master Management Agreement, dated as of March 12, 2014, by and between Inland American Real Estate
Trust, Inc. and Inland American Office Management LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K, as
filed by the Registrant with the Securities and Exchange Commission on March 13, 2014)
Amended and Restated Master Management Agreement, dated as of March 12, 2014, by and between Inland American Real Estate
Trust, Inc. and Inland American Industrial Management LLC (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K,
as filed by the Registrant with the Securities and Exchange Commission on March 13, 2014)
Articles of Association of Oak Real Estate Association by and among Inland Real Estate Corporation, Inland Real Estate Trust, Inc.,
Inland Western Retail Real Estate Trust, Inc. and Inland American Real Estate Trust, Inc., dated September 29, 2006 (incorporated by
reference to Exhibit 10.139 to the Registrant’s Quarterly Report on Form 10-Q, as filed by the Registrant with the SEC on November
7, 2006)
Operating Agreement of Oak Property and Casualty L.L.C. by and among Inland Real Estate Corporation, Inland Retail Real Estate
Trust, Inc., Inland Western Retail Real Estate Trust, Inc. and Inland American Real Estate Trust, Inc, dated September 29, 2006
(incorporated by reference to Exhibit 10.140 to the Registrant’s Quarterly Report on Form 10-Q, as filed by the Registrant with the
SEC on November 7, 2006)
Oak Property and Casualty L.L.C. Membership Participation Agreement by and among Inland Real Estate Corporation, Inland Retail
Real Estate Trust, Inc., Inland Western Retail Real Estate Trust, Inc., Inland American Real Estate Trust, Inc., and Oak Property and
Casualty L.L.C. dated September 29, 2006 (incorporated by reference to Exhibit 10.141 to the Registrant’s Quarterly Report on Form
10-Q, as filed by the Registrant with the SEC on November 7, 2006)
Indemnity Agreement, dated as of August 8, 2014, by and between Inland American Real Estate Trust, Inc., and Xenia Hotels &
Resorts, Inc., and Inland American Lodging Group, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q, as filed by the Registrant with the SEC on August 14, 2014)
Amended and Restated Executive Employment Agreement, dated as of June 19, 2015, between InvenTrust Properties Corp. and
Thomas P. McGuinness (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with the
SEC on June 24, 2015)
Amended and Restated Executive Employment Agreement, dated as of June 19, 2015, between InvenTrust Properties Corp. and Michael
Podboy (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on June 24,
2015)
First Amendment to Amended and Restated Executive Employment Agreement, dated as of November 9, 2017, between InvenTrust
Properties Corp. and Michael Podboy (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q, as filed by the
Registrant with the SEC on November 9, 2017)
Amended and Restated Executive Employment Agreement, dated as of June 19, 2015, between InvenTrust Properties Corp. and David F. Collins
(incorporated by reference to Exhibit 10.8.5 to the Registrant’s Form 10-K, as filed by the Registrant with the SEC on March 18, 2016)
Separation and Consulting Agreement, dated as of September 6, 2017, between InvenTrust Properties Corp. and David F. Collins (incorporated
by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 7, 2017)
First Amendment to Separation and Consulting Agreement, dated as of December 8, 2017, between InvenTrust Properties Corp. and David F.
Collins (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on December 11, 2017)
Second Amendment to Separation and Consulting Agreement, dated as of October 5, 2018, between InvenTrust Properties Corp. and David F.
Collins (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on October 9, 2018)
Employment Offer Letter, dated as of May 10, 2018, by and between InvenTrust Properties Corp. and Ivy Greaner
Severance Agreement and General Release, dated as of August 27, 2018, by and between Michael E. Podboy and InvenTrust Properties
Corp. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on August 27,
2018)
Asset Purchase Agreement, dated as of September 17, 2014, by and among Inland American Real Estate Trust, Inc., IHP I Owner JV,
LLC, IHP West Homestead (PA) Owner LLC and Northstar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to the
Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014)
The Inland American Real Estate Trust, Inc. 2014 Share Unit Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Form
8-K, as filed by the Registrant with the SEC on September 22, 2014)
Form of Inland American Real Estate Trust, Inc. Share Unit Award Agreement (Annual Award) (incorporated by reference to Exhibit
10.6 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014)
Form of Inland American Real Estate Trust, Inc. Share Unit Award Agreement (Contingency) (incorporated by reference to Exhibit
10.9 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014)
InvenTrust Properties Corp. 2015 Incentive Award Plan (incorporated by reference to Exhibit 99.1 to the Registrant’s Form S-8
Registration Statement, as filed by the Registrant with the SEC on June 19, 2015)
First Amendment to InvenTrust Properties Corp. 2015 Incentive Award Plan, dated May 6, 2016 (incorporated by reference to Exhibit
10.3 to the Registrant’s Form 10-Q, as filed by the Registrant with the SEC on August 15, 2016)
Form of Time-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q, as
filed by the Registrant with the SEC on August 10, 2017)
62
EXHIBIT
NO.
10.10.7^
10.10.8^
10.10.9^
DESCRIPTION
Form of Director Restricted Stock Unit Agreement for 2016 Pro Rata Awards (incorporated by reference to Exhibit 10.10.3 to the
Registrant's Form 10-K, as filed by the Registrant with the SEC on March 17, 2017)
Form of Director Restricted Stock Unit Agreement for 2017 Annual Pro Rata Awards (incorporated by reference to Exhibit 10.3 to the
Registrant’s Form 10-Q, as filed by the Registrant with the SEC on August 10, 2017)
Form of Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q, as filed
by the Registrant with the SEC on August 10, 2017)
10.10.10^
InvenTrust Properties Corp. Director Compensation Program (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-
Q, as filed by the Registrant with the SEC on August 10, 2017)
10.10.11^
InvenTrust Properties Corp. Executive Severance and Change of Control Plan (incorporated by reference to Exhibit 10.1 to the
Registrant’s Form 8-K, as filed by the Registrant on July 13, 2018)
10.11
10.12
10.13
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
101
*
^
First Amendment to Indemnity Agreement by and among Inland American Real Estate Trust, Inc. and Xenia Hotels & Resorts, Inc.,
dated as of February 3, 2015 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K, as filed by the Registrant with
the SEC on February 9, 2015)
Amended and Restated Term Loan Credit Agreement dated as of December 21, 2018, among InvenTrust Properties Corp., as
Borrower, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A and U.S. Bank National
Association, as tranche A-1 Co-Syndication Agents, PNC Bank, National Association and U.S. Bank National Association, as tranche
A-2 Co-Syndication Agents, BMO Harris Bank, N.A. and Fifth Third Bank, as tranche A-1 Co-Documentation Agents, KeyBank
National Association, as tranche A-2 Documentation Agent, and the other lenders from time to time party thereto (incorporated by
reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on December 31, 2018)
Second Amended and Restated Credit Agreement dated as of December 21, 2018, among InvenTrust Properties Corp., as borrower,
KeyBank National Association, as Administrative Agent, KeyBanc Capital Markets Inc. and Wells Fargo Securities, LLC, as Joint
Book Managers, KeyBanc Capital Markets Inc., Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., Bank of America, N.A.,
PNC Bank, National Association, and BMO Harris Bank, N.A., as Joint Lead Arrangers, Wells Fargo Bank, National Association, and
JPMorgan Chase Bank, N.A., as Co-Syndication Agents, Bank of America, N.A., PNC Bank, National Association, and BMO Harris
Bank, N.A., as Co-Documentation Agents, and the other lenders from time to time party thereto (incorporated by reference to Exhibit
10.3 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on December 31, 2018)
Subsidiaries of the Registrant
Consent of KPMG LLP
Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification by Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following financial information from our Annual Report for the year ended December 31, 2018, filed with the Securities and
Exchange Commission on March 7, 2019, is formatted in Extensible Business Reporting Language ("XBRL"): (i) Consolidated
Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated Statements of Equity, (iv)
Consolidated Statements of Cash Flows (v) Notes to Consolidated Financial Statements (tagged as blocks of text).
Filed as part of this Annual Report
Management contract or compensatory plan or arrangement.
63
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
INVENTRUST PROPERTIES CORP.
By:
Name:
/s/ Thomas P. McGuinness
Thomas P. McGuinness
President and Chief Executive Officer (Principal Executive Officer)
Date:
March 7, 2019
Pursuant to the requirements of the Securities 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.
Signature
Title
Date
By:
/s/ Thomas P. McGuinness
President and Chief Executive Officer (Principal Executive Officer)
March 7, 2019
Name:
Thomas P. McGuinness
/s/ Adam M. Jaworski
By:
Name: Adam M. Jaworski
Senior Vice President, Chief Accounting Officer and Interim Treasurer (Principal
Accounting Officer and Interim Principal Financial Officer)
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
March 7, 2019
By:
/s/ Stuart Aitken
Director
Name:
Stuart Aitken
By:
/s/ Amanda Black
Director
Name: Amanda Black
By:
/s/ Thomas F. Glavin
Director
Name:
Thomas F. Glavin
By:
/s/ Scott A. Nelson
Director
Name:
Scott A. Nelson
By:
/s/ Paula J. Saban
Director
Name:
Paula J. Saban
By:
/s/ Michael A. Stein
Director
Name: Michael A. Stein
By:
/s/ Julian E. Whitehurst
Director
Name:
Julian E. Whitehurst
64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Consolidated Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2018,
2017 and 2016
Consolidated Statements of Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Schedule III - Real Estate and Accumulated Depreciation
Schedules not filed:
Page
F-2
F-3
F-4
F-5
F-6
F-9
F-40
All schedules other than the ones listed in the index have been omitted as the required information is inapplicable or the
information is presented in the financial statements or related notes thereto.
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
InvenTrust Properties Corp.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of InvenTrust Properties Corp. and subsidiaries (the Company)
as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive income, equity, and
cash flows for each of the years in the three year period ended December 31, 2018, 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, 2018 and 2017, and the results
of its operations and its cash flows for each of the years in the three year period ended December 31, 2018, in conformity with
U.S. generally accepted accounting principles.
Basis for Opinion
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.
/s/ KPMG LLP
We have served as the Company’s auditor since 2005.
Chicago, Illinois
March 7, 2019
F-2
INVENTRUST PROPERTIES CORP.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
Assets
Investment properties
Land
Building and other improvements
Construction in progress
Total
Less accumulated depreciation
Net investment properties
Cash and cash equivalents
Restricted cash
Investment in marketable securities
Investment in unconsolidated entities
Intangible assets, net
Accounts and rents receivable (net of allowance of $1,703 and $1,266)
Deferred costs and other assets, net
Total assets
Liabilities
Debt, net
Accounts payable and accrued expenses
Distributions payable
Intangible liabilities, net
Other liabilities
Total liabilities
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.001 par value, 40,000,000 shares authorized, none outstanding
Common stock, $.001 par value, 1,460,000,000 shares authorized,
728,558,989 shares issued and outstanding as of December 31, 2018 and 774,293,197
shares issued and outstanding as of December 31, 2017, respectively
Additional paid-in capital
Distributions in excess of accumulated net income
Accumulated comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
As of December 31,
2018
2017
$
$
$
558,817
1,670,678
12,788
2,242,283
(286,330)
1,955,953
260,131
4,722
—
156,132
108,005
27,087
23,976
2,536,006
561,782
32,784
13,029
46,985
29,112
683,692
628,487
1,887,598
4,975
2,521,060
(348,337)
2,172,723
162,747
9,131
4,758
180,764
115,411
30,522
22,548
2,698,604
667,861
37,798
13,441
53,532
20,250
792,882
—
—
729
5,585,758
(3,735,810)
1,637
1,852,314
2,536,006
$
773
5,681,912
(3,778,908)
1,945
1,905,722
2,698,604
$
$
$
$
See accompanying notes to the consolidated financial statements.
F-3
INVENTRUST PROPERTIES CORP.
Consolidated Statements of Operations and Comprehensive Income
(in thousands, except share and per share amounts)
Income
Rental income
Tenant recovery income
Other property income
Other fee income
Total income
Expenses
General and administrative expenses
Property operating expenses
Real estate taxes
Depreciation and amortization
Provision for asset impairment
Total expenses
Operating income
Interest and dividend income
Gain on sale and transfer of investment properties, net
Gain (loss) on extinguishment of debt, net
Other income (expense)
Interest expense, net
Equity in (losses) earnings and (impairment), net, of unconsolidated entities
Realized and unrealized investment gains (losses) and (impairment), net
Income from continuing operations before income taxes
Income tax expense
Net income from continuing operations
Net income from discontinued operations
Net income
Year Ended December 31,
2017
2016
2018
$
$
$
176,640
57,993
3,651
4,390
242,674
$
188,235
57,192
2,160
4,222
251,809
35,267
34,822
35,205
100,593
3,510
209,397
33,277
2,044
95,097
9,103
450
(24,943)
(31,393)
244
83,879
(30)
83,849
—
83,849
$
42,661
35,656
35,566
95,345
27,754
236,982
14,827
4,249
24,066
840
(308)
(30,155)
(804)
46,563
59,278
(1,324)
57,954
3,839
61,793
$
181,481
53,218
3,646
4,348
242,693
49,107
35,364
35,703
83,685
11,208
215,067
27,626
11,849
117,848
(10,498)
2,330
(44,135)
9,299
5,081
119,400
(201)
119,199
133,523
252,722
Weighted average number of common shares outstanding, basic and diluted
761,139,011
773,445,341
854,638,497
Net income per common share, from continuing operations, basic and diluted
$
Net income per common share, from discontinued operations, basic and diluted $
Net income per common share, basic and diluted
$
0.11
$
— $
$
0.11
0.07
$
— $
$
0.07
0.14
0.15
0.29
Comprehensive income
Net income
Unrealized (loss) gain on investment securities
Unrealized gain on derivatives
Reclassification for amounts recognized in net income
Comprehensive income
$
$
83,849
—
923
(956)
83,816
$
$
61,793
(11,734)
1,183
(46,563)
4,679
$
$
252,722
24,540
623
(3,394)
274,491
See accompanying notes to the consolidated financial statements.
F-4
INVENTRUST PROPERTIES CORP.
Consolidated Statements of Equity
(in thousands, except share amounts)
Number of
Shares
862,205,672
—
—
—
—
—
601,774
(89,502,449)
—
773,304,997
—
—
—
—
—
988,200
—
774,293,197
—
—
774,293,197
—
—
—
—
825,081
(46,559,289)
728,558,989
$
$
$
$
Common
Stock
Additional
Paid-in
Capital
Distributions
in excess of
accumulated
net income
Accumulated
Comprehensive
Income
Total
862
—
—
—
—
—
—
(89)
—
773
—
—
—
—
—
—
—
773
—
—
773
—
—
—
—
1
(45)
729
$
$
$
$
6,066,583
—
—
—
—
—
2,088
(240,927)
(151,105)
5,676,639
—
—
—
—
—
3,344
1,929
5,681,912
—
—
5,681,912
—
—
—
—
2,292
(98,446)
5,585,758
$
$
(3,956,032) $
252,722
—
—
—
(83,633)
—
—
—
(3,786,943) $
61,793
—
—
—
(53,758)
—
—
$
(3,778,908) $
275
12,756
(3,765,877)
83,849
—
—
(53,782)
—
—
$
(3,735,810) $
37,290
$
24,540
623
(3,394)
—
—
—
—
59,059
—
(11,734)
1,183
(46,563)
—
—
—
1,945
(275)
—
1,670
—
923
(956)
—
—
—
1,637
$
$
$
2,148,703
252,722
24,540
623
(3,394)
(83,633)
2,088
(241,016)
(151,105)
1,949,528
61,793
(11,734)
1,183
(46,563)
(53,758)
3,344
1,929
1,905,722
—
12,756
1,918,478
83,849
923
(956)
(53,782)
2,293
(98,491)
1,852,314
Beginning balance January 1, 2016
Net income
Unrealized gain on investment securities
Unrealized gain on derivatives
Reclassification for amounts recognized in net income
Distributions declared
Stock-based compensation, net
Repurchase of common stock
Equity effect of spin-off of Highlands REIT, Inc.
Ending balance, December 31, 2016
Net income
Unrealized loss on investment securities
Unrealized gain on derivatives
Reclassification for amounts recognized in net income
Distributions declared
Stock-based compensation, net
Refund of excess funds associated with 2016 tender offer
Ending balance, December 31, 2017
Impact of ASU No. 2016-01 (a)
Impact of ASU No. 2017-05 (a)
Adjusted balance at January 1, 2018
Net income
Unrealized gain on derivatives
Reclassification for amounts recognized in net income
Distributions declared
Stock-based compensation, net
Repurchase of common stock
Ending balance, December 31, 2018
(a) See Note 2. Basis of Presentation and Summary of Significant Accounting Policies.
See accompanying notes to the consolidated financial statements.
F-5
INVENTRUST PROPERTIES CORP.
Consolidated Statements of Cash Flows
(Amounts in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Amortization of above and below-market leases, net
Amortization of debt premiums, discounts, and financing costs, net
Straight-line rental income
Provision for asset impairment
Gain on sale and transfer of investment properties, net
(Gain) loss on extinguishment of debt, net
Equity in losses (earnings) and impairment, net,
of unconsolidated entities
Distributions from unconsolidated entities
Gain on sale of investment in unconsolidated entity
Realized and unrealized investment (gains) losses and impairment,
net
Non-cash share-based compensation, net
Changes in assets and liabilities:
Accounts and rents receivable, net
Deferred costs and other assets
Accounts payable and accrued expenses
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of investment properties
Acquired in-place and market lease intangibles, net
Capital expenditures and tenant improvements
Investment in development and re-development projects
Proceeds from sale and transfer of investment properties, net
Proceeds from sale of marketable securities, net
Proceeds from sale of and return of capital from unconsolidated entity
Contributions to unconsolidated entities
Distributions from unconsolidated entities
Lease commissions and other leasing costs
Other assets
Other liabilities
Net cash provided by (used in) investing activities
Year Ended December 31,
2017
2016
2018
$
83,849
$
61,793
$
252,722
100,780
(5,534)
1,048
(4,262)
3,510
(95,097)
(9,103)
31,393
8,032
—
(244)
4,330
(218)
1,426
2,499
2,248
124,657
(205,462)
(15,369)
(27,233)
(3,796)
430,514
4,696
—
(2,782)
745
(6,029)
(127)
257
175,414
96,734
(5,510)
1,219
(2,202)
27,754
(34,181)
(838)
804
2,443
—
(46,563)
3,355
(1,048)
2,051
5,561
6,780
118,152
(539,242)
(50,207)
(15,910)
(3,630)
233,686
171,666
—
(6,875)
1,592
(4,356)
439
3,749
(209,088)
116,424
(4,255)
5,206
20
117,722
(354,104)
13,324
(9,319)
5,014
(1,434)
(5,081)
2,178
(45)
6,701
(8,129)
(3,780)
133,164
(423,563)
(25,584)
(13,721)
(53,077)
1,580,994
12,846
6,344
(7,200)
10,433
(3,836)
(2,402)
(2,485)
1,078,749
F-6
INVENTRUST PROPERTIES CORP.
Consolidated Statements of Cash Flows
(Amounts in thousands)
Year Ended December 31,
2017
2016
2018
(1,567) $
(98,447)
(54,194)
—
179,333
(221,358)
(3,088)
(1,924)
(5,544)
(307)
—
(207,096)
92,975
171,878
264,853
260,131
4,722
264,853
24,096
463
13,029
12,756
1,679
104
4,690
4,319
$
$
$
$
$
$
$
$
$
$
$
(2,192) $
—
(53,358)
1,929
—
(104,032)
—
(1,390)
(368)
—
—
(159,411)
(250,347)
422,225
171,878
162,747
9,131
171,878
$
$
$
(1,493)
(241,016)
(98,606)
—
449,306
(1,072,166)
(11,140)
(10,832)
(56)
—
(27,109)
(1,013,112)
198,801
223,424
422,225
397,250
24,975
422,225
31,196
$
56,980
625
13,441
$
$
— $
$
1,593
376
$
— $
$
5,916
966
13,041
—
1,322
143
—
3,820
— $
— $
123,996
Cash flows from financing activities:
Payment of tax withholdings for share-based compensation
Shares repurchased
Distributions
Refund received of excess funds associated with 2016 tender offer
Proceeds from debt
Payoffs of debt
Debt prepayment penalties and defeasance costs
Principal payments of mortgage debt
Payment of loan fees and deposits
Payment of capital lease liabilities
Cash contribution to Highlands REIT, Inc.
Net cash used in financing activities
Net increase (decrease) in cash, cash equivalents,
and restricted cash
Cash, cash equivalents, and restricted cash at beginning of year
Cash, cash equivalents, and restricted cash at end of year
Reconciliation of cash, cash equivalents, and restricted cash to
consolidated balance sheets:
Cash and cash equivalents
Restricted cash
Cash, cash equivalents, and restricted cash at end of year
Supplemental disclosure of cash flow information:
Cash flow disclosure, including non-cash investing and financing
activities:
Cash paid for interest net of capitalized interest of $0, $0, and $1,147
for 2018, 2017, and 2016, respectively
Cash paid for income taxes, net of refunds of $1,703, $918, and
$1,575 for 2018, 2017, and 2016, respectively
Distributions payable
Recognition of partially deferred gains on property sales
Accrued capital expenditures and tenant improvements
Accrued lease commissions and other leasing costs
Accrued tenant building construction
Gross issuance of shares for share-based compensation
Net equity distributed to Highlands REIT, Inc. (net of cash and
restricted cash contributed)
$
$
$
$
$
$
$
$
$
$
$
$
$
F-7
INVENTRUST PROPERTIES CORP.
Consolidated Statements of Cash Flows
(Amounts in thousands)
Purchase of investment properties:
Net investment properties
Accounts and rents receivable, lease intangibles, and deferred
costs and other assets
Accounts payable and accrued expenses, lease intangibles, and
other liabilities
Assumption of mortgage debt
Cash outflow for purchase of investment properties, net
Assumption of mortgage principal
Capitalized acquisition costs
Construction escrow accounts
Credits and other changes in cash outflow, net
Gross acquisition price of investment properties
Sale and transfer of investment properties:
Net investment properties
Accounts and rents receivable, lease intangibles, and deferred
costs and other assets
Accounts payable and accrued expenses, lease intangibles, and
other liabilities
Debt extinguished through transfer of properties
Debt assumed by buyer through disposition of properties
Settlement of derivative instrument through disposition of property
Gain on sale and transfer of investment properties, net
Gain (loss) on extinguishment of debt, net
Debt prepayment penalties and defeasance costs
Proceeds from sale and transfer of investment properties, net
Assumption of mortgage principal by buyer
Surrender of mortgage escrows for transferred properties
Credits and other changes in cash inflow, net
$
$
Gross disposition price of investment properties
$
Year Ended December 31,
2017
2016
2018
$
206,763
$
582,660
$
439,335
21,631
69,617
45,029
(7,563)
—
220,831
—
(430)
975
1,224
222,600
$
(21,111)
(41,717)
589,449
41,000
(1,911)
1,649
3,238
633,425
$
(19,217)
(16,000)
449,147
16,000
(220)
—
250
465,177
382,241
$
200,399
$
1,372,795
14,692
6,658
16,451
(13,035)
(44,331)
(16,395)
—
95,097
9,157
3,088
430,514
16,600
2,160
16,901
466,175
$
(5,047)
(3,343)
—
—
34,181
838
—
233,686
—
6,024
4,356
244,066
$
(34,125)
—
(129,051)
3,004
354,104
(13,324)
11,140
1,580,994
131,189
—
212,167
1,924,350
See accompanying notes to the consolidated financial statements.
F-8
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
1. Organization
On October 4, 2004, InvenTrust Properties Corp. (the "Company","we","us","our") was incorporated as Inland American Real
Estate Trust, Inc. as a Maryland corporation and has elected to be taxed, and currently qualifies, as a real estate investment trust
("REIT") for federal tax purposes. The Company changed its name to InvenTrust Properties Corp. in April of 2015. The
Company was originally formed to own, manage, acquire, and develop a diversified portfolio of commercial real estate located
throughout the United States and to partially own properties through joint ventures and to own investments in marketable
securities and other assets. The Company is now focused on owning, managing, acquiring, and developing a multi-tenant retail
platform.
Unless otherwise noted, all dollar amounts are stated in thousands, except per share and per square foot data. Any reference to
number of assets, square feet, tenant and occupancy data are unaudited.
The accompanying consolidated financial statements include the accounts of the Company, and all wholly owned subsidiaries
and any consolidated variable interest entities ("VIEs"). Subsidiaries generally consist of limited liability companies ("LLCs")
and limited partnerships ("LPs"). All significant intercompany balances and transactions have been eliminated.
Each retail property is owned by a separate legal entity that maintains its own books and financial records, and each separate legal
entity's assets are not available to satisfy the liabilities of other affiliated entities, except as otherwise disclosed in "Note 9. Debt".
As of December 31, 2018, the Company's investment properties consisted of 58 retail properties, with a gross leasable area
("GLA") of approximately 9.5 million square feet, which includes one retail property classified as a consolidated VIE, with a
gross leasable area of approximately 125,000 square feet. As of December 31, 2017, the Company's investment properties
consisted of 71 retail properties, with a combined GLA of approximately 12.4 million square feet, which includes two retail
properties classified as consolidated VIEs, with a GLA of approximately 501,000 square feet. As of December 31, 2016, the
Company's investment properties consisted of 71 retail properties, with a GLA of approximately 12.2 million square feet, and
one non-core office property, Worldgate Plaza.
In addition, as of December 31, 2018, 2017, and 2016, the Company had investments in two unconsolidated real estate joint
ventures, one of which owns an interest in 13, 15, and 15 operating retail properties, respectively, with a GLA of approximately
2.6 million, 3.0 million, and 3.0 million square feet, respectively, managed by the Company. The other joint venture owns land
to be developed in Sacramento, California.
Segment Reporting
As disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, on April 26, 2016, the
Company completed the spin-off of Highlands REIT, Inc. ("Highlands"), which held its remaining non-core properties, and on
June 23, 2016, it completed the sale of University House Communities Group, Inc. ("University House"), its former student
housing platform. Following the Highlands spin-off and sale of University House in 2016, the Company no longer has a non-
core or student housing segment, respectively, as previously reported. In addition, the Company disposed of its remaining non-
core office property, Worldgate Plaza, on August 30, 2017, which represented the conclusion of the Company's strategic shift
away from wholly owned real estate assets not classified as multi-tenant retail.
These previously reported segments were classified as discontinued operations as they represented a strategic shift that had a
major effect on the Company's operations and financial results. Accordingly, the Company believes it has a single reportable
segment for disclosure purposes in accordance with U.S. generally accepted accounting principles ("GAAP") as of
December 31, 2018. The operations reflected in discontinued operations on the consolidated statements of operations and
comprehensive income for the year ended December 31, 2017 includes Worldgate Plaza and for the year ended December 31,
2016 also includes Highlands and University House.
F-9
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
2. Basis of Presentation and Summary of Significant Accounting Policies
Estimates, Risks, and Uncertainties
The accompanying consolidated financial statements have been prepared in accordance with GAAP, which requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Significant estimates, judgments and assumptions are required in a number of areas,
including, but not limited to, evaluating the impairment of long-lived assets, allocating the purchase price of acquired assets,
determining the fair value of debt and evaluating the collectability of accounts receivable. The Company bases these estimates,
judgments and assumptions on historical experience and various other factors that the Company believes to be reasonable under
the circumstances. Actual results may differ from these estimates.
Reclassifications
The Company has made certain reclassifications to the consolidated statements of operations and comprehensive income for the
years ended December 31, 2017 and 2016 to conform to the 2018 presentation, including a $3,706 and $4,877 reclassification,
respectively, of certain payroll costs from general and administrative expenses to property operating expenses based on the
determination by the Company that certain functions' activities were more directly associated with the operations of the retail
properties than corporate-level activities.
Upon the adoption of Accounting Standards Update ("ASU") No. 2016-18, Statement of Cash Flows, the Company has made
certain reclassifications to the consolidated statements of cash flows for the years ended December 31, 2017 and 2016 to
conform to the 2018 presentation. For the years ended December 31, 2017 and 2016, the adoption resulted in a net $9,194
decrease and $8,200 increase, respectively, in net cash provided by (used in) investing activities. In addition, the Company
determined that the reflection of funds held in escrow for potential future property acquisitions as restricted cash most
appropriately reflects the nature of the restrictions on the balances and underlying transactions; historically, the funds were
recorded as deferred costs and other assets, net. This reclassification increased restricted cash on the consolidated balance
sheets by $0, $6,650 and $4,100 as of December 31, 2017, 2016 and 2015, respectively. As a result, the Company made certain
reclassifications to the consolidated statements of cash flows for the years ended December 31, 2017 and 2016 to conform to
the 2018 presentation, including a $6,650 decrease and $2,550 increase, respectively, in net cash provided by (used in) investing
activities resulting from the reclassification of funds held in escrow for potential future property acquisitions.
Consolidation
The Company evaluates its investments in LLCs and LPs to determine whether each such entity may be a VIE. If the entity is a
VIE, the determination of whether the Company is the primary beneficiary must be made. The primary beneficiary
determination is based on a qualitative assessment as to whether the Company has (i) power to direct significant activities of the
VIE and (ii) an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. The
Company will consolidate a VIE if it is deemed to be the primary beneficiary, as defined in the Financial Accounting Standards
Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation. The equity method of accounting is applied
to entities in which the Company is not the primary beneficiary as defined in ASC 810, or the entity is not a VIE and the
Company does not have control, but can exercise influence over the entity with respect to its operations and major decisions.
Investments in entities that the Company does not control and over which it does not exercise significant influence are carried
at the lower of cost or estimated fair value, as appropriate. The Company’s ability to correctly assess control over an entity
affects the presentation of these investments in the Company’s consolidated financial statements.
From time to time, the Company may enter into purchase agreements structured as a reverse like-kind exchange under Section
1031 of the Internal Revenue Code of 1986, as amended (the "Code") ("Reverse 1031 Exchange") in order to acquire retail
properties. For a Reverse 1031 Exchange in which the Company purchases a new asset that is similar in nature, character, or
class prior to selling the asset to be matched in the like-kind exchange (the Company refers to a new asset being acquired in the
Reverse 1031 Exchange prior to the sale of the related asset as a "Parked Asset"), legal title to the Parked Asset is held by a
wholly owned subsidiary (the "EAT Subsidiary") of an Exchange Accommodation Titleholder ("EAT") engaged to execute the
Reverse 1031 Exchange until the sale transaction and the Reverse 1031 Exchange is completed.
F-10
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The Company, through a subsidiary, enters into a master lease agreement with the EAT Subsidiary whereby the EAT Subsidiary
leases the Parked Asset and all other rights in connection with the acquisition to the Company. The master lease terminates on
the earlier of (i) the date that the Parked Asset is transferred to the Company, or an affiliate, (ii) the date that the EAT transfers
to the Company, or an affiliate of the Company, its ownership in the EAT Subsidiary, or (iii) 180 days from the date that legal
title to the Parked Asset was transferred to the EAT Subsidiary. The EAT is classified as a VIE, as it does not have sufficient
equity investment at risk to finance its activities without additional subordinated financial support. The Company generally
structures the purchase agreements in a manner which results in the Company being deemed the primary beneficiary as it has
the ability to direct the activities of the entities that most significantly impact economic performance and has all of the risks and
rewards of ownership. Accordingly, the Company consolidates properties acquired through active Reverse 1031 Exchanges.
The Company may hold investment properties which consist of wholly owned multi-tenant retail space and an undivided
interest in certain common elements as tenants-in-common. An undivided interest is an ownership arrangement in which two or
more parties jointly own property, and title is held individually to the extent of each party’s interest. The ownership of the
common elements are reviewed for control and, based upon ability to effectively participate in the decisions that most
significantly impact economic performance, the Company may apply proportionate consolidation of the common elements.
Real Estate
The Company evaluates the inputs, processes and outputs of each asset acquired to determine if the transaction is a business
combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded
as an expense in the consolidated statements of operations and comprehensive income. If an acquisition qualifies as an asset
acquisition, the related transaction costs are generally capitalized and amortized over the useful life of the acquired assets.
The Company allocates the purchase price of real estate to land, building, other building improvements, tenant improvements,
and intangible assets and liabilities (such as the value of above- and below-market leases, in-place leases and origination costs
associated with in-place leases). The values of above- and below-market leases are recorded as intangible assets, net, and
intangible liabilities, net, respectively, on the consolidated balance sheets, and are amortized as either a decrease (in the case of
above-market leases) or an increase (in the case of below-market leases) to rental income over the remaining term of the
associated tenant lease. The values, if any, associated with in-place leases are recorded in intangible assets, net on the
consolidated balance sheets and are amortized to depreciation and amortization expense on the consolidated statements of
operations and comprehensive income over the remaining lease term.
The difference between the contractual rental rates and the Company’s estimate of market rental rates is measured over a period
equal to the remaining non-cancelable term of the leases, including below-market renewal options, if reasonably assured. For
the amortization period, the remaining term of leases with renewal options at terms below market reflect the assumed exercise
of such below-market renewal options, if reasonably assured.
If a tenant vacates its space prior to the contractual expiration of the lease and no rental payments are being made on the lease,
any unamortized balance of the related intangible asset or liability is written off. Tenant improvements are depreciated and
origination costs are amortized over the remaining term of the lease or charged against earnings if the lease is terminated prior
to its contractual expiration date.
The Company performs, with the assistance of a third-party valuation specialist, the following procedures for assets the
Company acquires:
• Estimate the value of the property "as if vacant" as of the acquisition date;
• Allocate the value of the property among land, building, and other building improvements and determine the
associated useful life for each;
• Calculate the value and associated life of above- and below-market leases on a tenant-by-tenant basis. The difference
between the contractual rental rates and the Company’s estimate of market rental rates is measured over a period equal
to the remaining term of the leases (using a discount rate which reflects the risks associated with the leases acquired,
including geographical location, size of leased area, tenant profile and credit risk);
• Estimate the fair value of the tenant improvements, legal costs and leasing commissions incurred to obtain the leases
and calculate the associated useful life for each;
F-11
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
• Estimate the fair value of assumed debt, if any; and
• Estimate the intangible value of the in-place leases based on lease execution costs of similar leases as well as lost rent
payments during an assumed lease-up period and their associated useful lives on a tenant-by-tenant basis.
As of January 1, 2018, the Company's derecognition of real estate and the related gains or losses on sale of investment
properties are recognized when (i) the parties to the sale contract have approved the contract and are committed to perform their
respective obligations; (ii) the Company can identify each party’s rights regarding the property transferred; (iii) the Company
can identify the payment terms for the property transferred; (iv) the contract has commercial substance (that is, the risk, timing
or amount of the entity’s future cash flows is expected to change as a result of the contract); and (v) the Company has satisfied
its performance obligations by transferring control of the property. The timing of payment and satisfaction of performance
obligations typically occur simultaneously on the disposition date upon transfer of the property’s ownership, at which point the
Company recognizes a gain or loss equal to the difference between the amount of consideration transferred and the carrying
amount of the investment property.
Historically, the Company recognized gains and losses from sales of investment properties at the time of sale using the full
accrual method based on the following criteria in ASC 360-20, Property, Plant and Equipment - Real Estate Sales: sales were
consummated; usual risks and rewards of ownership were transferred to buyers; the Company had no substantial continuing
involvement with the property; and any sales related receivables were not subject to future subordination. If these criteria were
not all met, the Company deferred the gains and recognized them when the criteria were met. If the full accrual method was not
followed, the Company used either the installment, deposit or cost recovery methods, as appropriate in the circumstances.
Investment Properties Held for Sale
In determining whether to classify an investment property as held for sale, the Company considers whether: (i) management has
committed to a plan to sell the investment property; (ii) the investment property is available for immediate sale, in its present
condition; (iii) the Company has initiated a program to locate a buyer; (iv) the Company believes that the sale of the investment
property is probable; (v) the Company has received a significant non-refundable deposit for the purchase of the property; (vi)
the Company is actively marketing the investment property for sale at a price that is reasonable in relation to its estimated fair
value; and (vii) actions required for the Company to complete the plan indicate that it is unlikely that any significant changes
will be made to the plan.
If all of the above criteria are met, the Company classifies the investment property as held for sale. When these criteria are met,
the Company suspends depreciation on the investment properties held for sale, including depreciation for tenant improvements
and additions, as well as the amortization of acquired in-place and above/below-market lease intangibles. The properties held
for sale and associated liabilities are classified separately on the consolidated balance sheets. Such properties are recorded at the
lesser of the carrying value or estimated fair value less costs to sell. Additionally, if the sale represents a strategic shift that has
(or will have) a major effect on the entity's results and operations, the operations are classified on the consolidated statements of
operations and comprehensive income as discontinued operations for all periods presented.
Impairment of Long Lived Assets
The Company assesses 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, such as a reduction in the expected holding
period of the asset. If it is determined that the carrying value is not recoverable because the expected undiscounted cash flows
do not exceed carrying value, the Company records an impairment loss to the extent that the carrying value exceeds the
estimated fair value. The valuation and possible subsequent impairment of investment properties is a significant estimate that
can and does change based on the Company's continuous process of analyzing each property's economic condition at a point in
time and reviewing assumptions about uncertain inherent factors, including observable inputs such as contractual revenues and
unobservable inputs such as forecasted revenues and expenses, estimated net disposition proceeds, and discount rate. These
unobservable inputs are based on market conditions and the Company's expected growth rates.
However, assumptions and estimates about future cash flows and capitalization rates are complex and subjective. Changes in
economic and operating conditions and the Company’s ultimate investment intent that occur subsequent to the impairment
analyses could impact these assumptions and result in additional impairment of the investment properties.
F-12
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Periodically, management assesses whether there are any indicators that the carrying value of the Company’s investments in
unconsolidated entities may be other than temporarily impaired. To the extent other-than-temporary impairment has occurred,
the loss is measured as the excess of the carrying value of the investment over the estimated fair value of the investment. The
estimated fair value of the investment is generally derived from the cash flows generated from the underlying real property
investments of the investee.
Real Estate Capitalization and Depreciation
Real estate is reflected at cost less accumulated depreciation within investment properties on the consolidated balance sheets.
Ordinary repairs and maintenance are expensed as incurred.
Depreciation expense is computed using the straight-line method. Buildings within investment properties on the consolidated
balance sheets are depreciated based upon an estimated useful life of 30 years and 5-15 years for furniture, fixtures and
equipment and site improvements within building and other improvements on the consolidated balance sheets. Capital lease
assets are amortized using the straight-line method over the shorter of the lease term or the useful life that would be assigned if
the asset were owned. Capital lease amortization is included in depreciation and amortization on the consolidated statements of
operations and comprehensive income.
Tenant improvements are amortized on a straight-line basis over the lesser of the life of the tenant improvement or the lease
term as a component of depreciation and amortization expense on the consolidated statements of operations and comprehensive
income.
Direct and indirect costs that are clearly related to the construction and improvements of investment properties are capitalized.
Costs incurred for property taxes and insurance are capitalized during periods in which activities necessary to prepare the
property for its intended use are in progress. Interest costs, if significant, are also capitalized during such periods. Additionally,
the Company treats investments accounted for by the equity method as assets qualifying for interest capitalization, if
significant, provided (i) the investee has activities in progress necessary to commence its planned principal operations and (ii)
the investee’s activities include the use of such funds to acquire qualifying assets.
The Company makes subjective assessments as to the useful lives of the Company’s assets. These assessments have a direct
impact on the Company’s results of operations. Should the Company lengthen the expected useful life of an asset, it would be
depreciated over a longer period, resulting in less annual depreciation expense and higher annual net income. Should the
Company shorten the expected useful life of an asset, it would be depreciated over a shorter period resulting in more annual
depreciation expense and lower annual net income.
Cash and Cash Equivalents
The Company considers all demand deposits, money market accounts and investments in certificates of deposit and repurchase
agreements with a maturity of three months or less, at the date of purchase, to be cash equivalents. The Company maintains its
cash and cash equivalents at financial institutions. The combined account balances at one or more institutions generally exceed
the Federal Deposit Insurance Corporation ("FDIC") insurance coverage. As a result, there is what we believe to be
insignificant credit risk related to amounts on deposit in excess of FDIC insurance coverage.
Restricted Cash
Restricted cash consists of lenders’ escrows, operating real estate (escrows for taxes, insurance, capital expenditures and
payments required under certain lease agreements), and funds restricted through lender or other agreements, including funds
held in escrow for future acquisitions and potential like-kind exchanges under Section 1031 of the Code.
Derivative Instruments
In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company’s objective in
using interest rate derivatives is to manage its exposure to interest rate movements and add stability to interest expense. To
accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest
rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for the
Company making fixed rate payments over the life of the agreement without exchange of the underlying notional amount.
F-13
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The Company has a policy of only entering into contracts with established financial institutions based upon their credit ratings
and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to
hedge, the Company has not sustained a material loss from those instruments nor does it anticipate any material adverse effect
on its net income or financial position in the future from the use of derivatives.
The Company recognizes all derivatives on the consolidated balance sheets at fair value. Additionally, the fair value
adjustments will affect either equity or net income depending on whether the derivative instruments qualify as a hedge for
accounting purposes and, if so, the nature of the hedging activity. When the underlying transaction is terminated or completed
all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period
until the instrument matures. Any derivative instrument used for risk management that does not meet the criteria for hedge
accounting is marked-to-market each period on the consolidated statements of operations and comprehensive income. The
Company does not use derivatives for trading or speculative purposes.
Fair Value Measurements
The carrying amounts of cash and cash equivalents, restricted cash, accounts and rents receivables, other assets, accounts
payable, accrued expenses and other liabilities reasonably approximate fair value, in management’s judgment, because of their
short-term nature. Fair value information relating to marketable securities, derivative financial instruments, investment
properties, investments in unconsolidated entities and debt is provided in "Note 10. Fair Value Measurements".
Revenue Recognition
The Company commences revenue recognition on its leases based on a number of factors. In most cases, revenue recognition
under a lease begins when the lessee takes possession of, or controls the physical use of, the leased asset. Generally, this occurs
on the lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements
determines the nature of the leased asset and when revenue recognition under a lease begins. If the Company is the owner, for
accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins
when the lessee takes possession of the finished space, typically when the improvements are substantially complete. 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 under the lease are treated as lease
incentives which reduce revenue recognized over the term of the lease. In these circumstances, the Company begins revenue
recognition when the lessee takes possession of the unimproved space to construct their own improvements. 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. These factors include:
• whether the lease stipulates how and on what a tenant improvement allowance may be spent;
• whether the tenant or landlord retains legal title to the improvements;
•
•
the uniqueness of the improvements;
the expected economic life of the tenant improvements relative to the length of the lease; and
• who constructs or directs the construction of the improvements.
The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment. In
making that determination, the Company considers all of the above factors. No one factor, however, is determinative.
Rental income is recognized on a straight-line basis over the term of each lease. The cumulative difference between rental
income earned and recognized on a straight-line basis on the consolidated statements of operations and comprehensive income
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 rents receivable in the accompanying consolidated balance sheets.
Some leases provide for fixed base rent paid monthly in advance, and for the reimbursement by tenants to 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. These expenses are included within property operating expenses and reimbursements are
included in tenant recovery income on the consolidated statements of operations and comprehensive income.
F-14
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The Company records lease termination income when there is a signed termination agreement, all of the conditions of the
termination agreement have been met, the tenant is no longer occupying the property and termination income amounts due are
considered collectible.
The Company defers recognition of contingent rental income (i.e. percentage/excess rent) until the specified target that triggers
the contingent rental income is achieved.
As a result of the adoption of ASC 606, Revenue from Contracts with Customers ("Topic 606"), the Company has changed its
accounting policy from ASC 605, Revenue Recognition, ("Topic 605") for revenue recognized through other fee income on the
consolidated statement of operations and comprehensive income. The Company adopted Topic 606 through the modified
retrospective method on January 1, 2018. Therefore, the comparative prior period information has not been adjusted and
continues to be reported under Topic 605. For the comparative prior period information reported under Topic 605, the Company
recognized the fees as revenue when the related services were performed. The implementation of Topic 606 generally did not
change the timing or pattern of revenue recognition for other fee income. As a result, there was no cumulative effect adjustment
recognized in distributions in excess of accumulated net income on January 1, 2018 relating to other fee income. The Company
has elected to apply Topic 606 to new and existing contracts that are not completed contracts as of January 1, 2018.
Contract Balances
The Company recognizes revenue when it satisfies a performance obligation. These rights to consideration most often result in
receivables that are settled through recurring monthly customer payments for the services provided over the term of the
contract. The Company generally does not receive prepayments for services or recognize revenue prior to being legally entitled
to payment from the customer. As a result, the Company does not record material contract assets or contract liabilities.
Property Management and Asset Management Fees
The Company earns property management and asset management fees from services provided to our joint venture partnerships.
Property management and asset management fees are recognized over time as services are rendered. The bundled services of
the property management performance obligation and asset management performance obligation each qualify as a series of
distinct services satisfied over time. The variable consideration related to each of the performance obligations is recognized in
each of the periods that directly relate to the Company's efforts to provide those services. Accordingly, the Company has elected
the optional exemption provided by Topic 606 and does not disclose information about remaining wholly unsatisfied
performance obligations. The variability in timing of the property management and asset management fees, which generally
relate to the fluctuation in cash receipts from tenants and potential changes in equity capitalization, are resolved on a monthly
basis.
For certain services, the Company acts as an agent on behalf of the customer to arrange for performance by a third party. Based
on the Company's judgment, both the underlying asset management service activities and the underlying property management
service activities are not distinct but are inputs (or fulfillment activities) to provide the combined output (either the overall asset
management service or the overall property management service).
Leasing Commissions and Other Fees
The Company earns leasing commissions and other fees from services provided to our joint venture partnerships. Leasing
commissions and other fees are recognized at a point in time consistent with the underlying service. The leasing performance
obligation and other performance obligations are satisfied at the point in time which the customer is transferred control over and
consumes the benefit of the service. The uncertainty of the leasing commissions and other fees are resolved upon delivery of the
underlying service. Generally, the first and second installments of leasing commissions are paid upon lease executions and rent
commencement, respectively.
Income Taxes
The Company is qualified and has elected to be taxed as a REIT under the Code for federal income tax purposes commencing
with the tax year ended December 31, 2005. Since the Company qualifies for taxation as a REIT, the Company generally will
not be subject to federal income tax on taxable income that is distributed to stockholders. In order to continue to qualify as a
F-15
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
REIT, the Company is generally required to distribute at least 90% of its REIT taxable income (subject to certain adjustments)
to its stockholders each year (the "90% Distribution Requirement"). If the Company fails to qualify as a REIT in any taxable
year, without the benefit of certain relief provisions, the Company will be subject to federal and state income tax on its taxable
income at regular corporate tax rates. 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 on its undistributed
income.
The Company has elected to treat certain of its consolidated subsidiaries, and may in the future elect to treat newly formed
subsidiaries, as taxable REIT subsidiaries ("TRSs") pursuant to the Code. Among other activities, TRSs may participate in non-
real estate related activities and/or perform non-customary services for tenants and are subject to federal and state income tax at
regular corporate tax rates. The Company accounts for income taxes using the asset and liability method under which deferred
tax assets and liabilities are recognized for the estimated future tax consequences attributed to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or
settled.
Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on
consideration of available evidence, including future reversal of existing taxable temporary differences, future projected taxable
income, and tax-planning strategies. In assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences
become deductible. The Company's analysis in determining the deferred tax asset valuation allowance involves management
judgment and assumptions.
Share Based Compensation
The Company recognizes the grant-date fair value of stock-based compensation issued to employees and directors in general
and administrative expenses on the consolidated statements of operations and comprehensive income. The Company's stock-
based compensation awards, which are generally equity classified, are measured at grant date fair value, and amortized on a
straight-line basis over the vesting period and are not subsequently re-measured. At December 31, 2018, the Company had one
share based compensation plan, which is discussed in "Note 13. Stock-Based Compensation". The compensation cost is based
on awards that are scheduled to vest and adjusted for forfeitures at the time the forfeitures occur.
Recently Issued Accounting Pronouncements Adopted
Standard
ASU No. 2014-09,
Revenue from
Contracts with
Customers (Topic
606) and related
updates
Description
Under ASU No. 2014-09, an entity is
required to recognize revenue to depict the
transfer of promised goods or services to
customers in an amount that reflects the
consideration to which the entity expects to
be entitled in exchange for those promised
goods or services. The standard allows
either a full or modified retrospective
method of adoption.
ASU No. 2016-01,
Recognition and
Measurement of
Financial Assets
and Financial
Liabilities
Under ASU No. 2016-01, investments in
equity securities are generally required to
be measured at fair value with changes in
fair value recognized in net income.
Historically, changes in fair value were
reported as a separate component of
comprehensive income until realized.
Date of
adoption
January 2018
January 2018
Effect on the financial statements or other
significant matters
The Company adopted ASU No. 2014-09 and
the related subsequent updates on a modified
retrospective basis. The Company has included
"Note 3. Revenue Recognition" to address the
incremental disclosures pertaining to the new
standard which enable users of financial
statements to understand the nature, amount,
timing, and uncertainty of revenue and cash
flows arising from contracts with customers.
The Company adopted ASU No. 2016-01 on a
modified retrospective basis. The Company
adopted ASU No. 2016-01 on January 1, 2018,
resulting in a net unrealized gain of $275 on
available-for-sale equity securities as an
adjustment to accumulated comprehensive
income with a corresponding adjustment to the
opening balance of distributions in excess of
accumulated net income.
F-16
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Recently Issued Accounting Pronouncements Adopted, continued
Standard
ASU No. 2016-15,
Statement of Cash
Flows
Description
ASU No. 2016-15 reduces existing
diversity in practice in how certain cash
receipts and cash payments are presented
and classified in the statement of cash
flows, including payment of debt
extinguishment costs, settlement of zero-
coupon bonds, insurance claim proceeds,
and distributions from equity method
investees.
ASU No. 2016-18,
Statement of Cash
Flows
ASU No. 2016-18 requires an entity to
explain the changes in the combined total
of restricted and unrestricted cash in the
statement of cash flows.
January 2018
ASU No. 2017-05,
Other Income-
Gains and Losses
from the
Derecognition of
Nonfinancial
Assets (Subtopic
610-20)
ASU No. 2017-05, which adds guidance for
partial sales of nonfinancial assets and
clarifies the scope of Subtopic 610-20,
Gains and Losses from the Derecognition of
Nonfinancial Assets, applies to the
derecognition of all nonfinancial assets
(including real estate) for which the
counterparty is not a customer. The new
guidance requires an entity to derecognize a
nonfinancial asset in a partial sale
transaction when it ceases to have a
controlling financial interest in the asset
and has transferred control of the asset and
generally requires full gain be recognition.
Date of
adoption
January 2018
Effect on the financial statements or other
significant matters
The Company adopted ASU No. 2016-15 on a
retrospective basis. The Company determined
that this standard did not have a significant
impact on the consolidated financial statements.
January 2018 Upon the Company’s retrospective method
adoption, the Company includes amounts
generally described as restricted cash with cash
and cash equivalents. For the years ended
December 31, 2017 and 2016, the adoption
resulted in a net $9,194 decrease and $8,200
increase, respectively, in net cash provided by
(used in) investing activities.
For property sales where the Company has no
continuing involvement, there should be no
change to the Company's timing of gain or loss
recognition. The Company adopted ASU No.
2017-05 in conjunction with the new revenue
standard on January 1, 2018, resulting in
deferred gains of $12,756 recognized through
beginning distributions in excess of accumulated
net income, as discussed in "Note 6. Investment
in Consolidated and Unconsolidated Entities".
ASU No. 2017-12,
Derivatives and
Hedging: Targeted
Improvements to
Accounting for
Hedging Activities
ASU No. 2017-12 is intended to better
align the results of cash flow and fair value
hedge accounting with risk-management
activities through changes to both the
designation and measurement guidance for
qualifying hedging relationships in the
financial statements.
October 2018 The Company early adopted ASU No. 2017-12
on a modified retrospective basis. The Company
determined that this standard did not have a
significant impact on the consolidated financial
statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
Standard
Description
ASU No. 2018-13,
Fair Value
Measurement
(Topic 820):
Disclosure
Framework -
Changes to the
Disclosure
Requirements for
Fair Value
Measurement
ASU No. 2018-13 is intended to improve
the effectiveness of the disclosures required
by Topic 820, Fair Value Measurement by
eliminating, amending, or adding certain
disclosures. Certain amendments require a
prospective transition method, while others
require a retrospective transition method.
The guidance is effective for all entities for
fiscal years beginning after December 15,
2019, and early adoption is permitted.
Date of
adoption
Effect on the financial statements or other
significant matters
January 2020
The Company is continuing to evaluate this
guidance, but expects the standard to only
impact fair value measurement disclosures and
therefore should have no impact on the
Company's financial position, results of
operations, or cash flows.
F-17
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Recently Issued Accounting Pronouncements Not Yet Adopted, continued
Standard
ASU No. 2016-02,
Leases, (Topic 842)
and related
updates
Date of
adoption
January 2019
Description
ASU No. 2016-02 amends the existing
guidance for lease accounting for both
parties to a lease contract (i.e. lessees and
lessors). ASU No. 2016-02 will be
effective for annual reporting periods
beginning after December 15, 2018, and
early adoption is permitted. The new
standard requires a modified retrospective
transition method for all leases existing at
the date of initial application, with an
option to use certain practical expedients
available.
Lessee Accounting:
The new standard establishes a right of-
use model (“ROU”) that requires a lessee
to recognize a ROU asset and lease
liability on the balance sheet for all leases
with a term longer than 12 months. Leases
will be classified as finance or operating,
with classification affecting the pattern and
classification of expense recognition in the
income statement.
Lessor Accounting
Topic 842 requires lessors to classify leases
as a sales-type, direct financing, or
operating lease. A lease is a sales-type
lease if any one of five criteria are met,
each of which indicate that the lease, in
effect, transfers control of the underlying
asset to the lessee. If none of those five
criteria are met, but two additional criteria
are both met, indicating that the lessor has
transferred substantially all the risks and
benefits of the underlying asset to the
lessee and a third party, the lease is a direct
financing lease. All leases that are not
sales-type or direct financing leases are
operating leases.
The new standard also includes a change to
the treatment of internal leasing costs and
legal costs, which can no longer be
capitalized. Only incremental costs of a
lease that would not have been incurred if
the lease had not been obtained may be
deferred as initial direct costs.
Effect on the financial statements or other
significant matters
The Company will adopt the new standard and
related updates on a modified retrospective basis
on January 1, 2019 and will apply the effective
date method in which the elected practical
expedients will be applied consistently to all
leases commenced before the effective date of
January 1, 2019. The Company's comparative
periods will not be restated.
As a lessee, the most significant impact to the
Company will be the recognition of a new
operating lease ROU asset and lease liability on
the consolidated balance sheet of approximately
$3,000, which was estimated by utilizing an
average discount rate of approximately 4.4%,
reflecting the Company's incremental borrowing
rate. The Company intends to record the ROU
asset and lease liability associated with the
Company’s corporate office and ground lease
arrangements as of December 31, 2018.
As a lessor, the Company's existing leases will
continue to be classified as operating leases.
Leases entered into after the effective date of the
new standard may be classified as operating or
sales-type leases, based on specific classification
criteria. The Company believes that substantially
all of the Company's leases will continue to be
classified as operating leases under the new
standard. Operating leases will continue to have a
similar pattern of recognition as under current
GAAP. Sales-type lease accounting, however,
will result in the recognition of selling-profit at
lease commencement, with interest income
recognized over the life of the lease.
As a lessor, the Company will elect the
accounting policy, among others, to not separate
lease and non-lease components for all qualifying
leases. In effect, this will generally relieve the
Company from the requirement to account for
certain consideration under the new revenue
standard. While the timing of recognition should
remain the same, the Company expects to no
longer present rental income and tenant recovery
income separately on the consolidated statements
of operations and comprehensive income
beginning January 1, 2019.
Due to the new standard’s narrowed definition of
initial direct costs, the Company expects to
expense as incurred certain lease origination
costs currently capitalized and amortized to
expense over the lease term. Any costs no longer
qualifying as initial direct costs will result in an
increase to general and administrative expense on
the consolidated statements of operations and
comprehensive income in the period of adoption
and prospectively. However, the Company does
not believe this change will have a material
impact on its consolidated financial statements.
Any other recently issued accounting standards or pronouncements not disclosed above have been excluded as they are either not
relevant to the Company, or are not expected to have a material effect on the consolidated financial statements of the Company.
F-18
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
3. Revenue Recognition
Operating Leases
The majority of revenue recognized from the Company’s retail properties consists of rents received under long-term operating
leases. In addition to base rent paid monthly in advance, some leases provide for the reimbursement of the tenant’s pro rata
share of certain operating expenses incurred by the landlord including real estate taxes, special assessments, insurance, utilities,
common area maintenance, management fees and certain capital repairs, subject to the terms of the respective lease. 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 in the consolidated statements of operations and comprehensive income. Under leases
where all expenses are paid by the landlord, subject to reimbursement by the tenant, the expenses are included within property
operating expenses or real estate taxes and reimbursements are included in tenant recovery income on the consolidated
statements of operations and comprehensive income. The remaining lease terms range from one year to forty-one years.
Minimum lease payments to be received under long-term operating leases and short-term specialty leases, excluding additional
percentage rent based on tenants' sales volume and tenant reimbursements of certain operating expenses, and assuming no
exercise of renewal options or early termination rights, are as follows:
For the year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Contracts with Customers
Minimum Lease Payments
$
$
151,874
139,290
124,366
103,204
83,744
282,629
885,107
During the years ended December 31, 2018, 2017 and 2016, the Company earned other fee income of $4,390, $4,222, and
$4,348, respectively, which are fees derived from services provided to IAGM Retail Fund I, LLC ("IAGM"), an unconsolidated
retail joint venture partnership between the Company as 55% owner and PGGM Private Real Estate Fund ("PGGM"), as
disclosed in "Note 6. Investment in Consolidated and Unconsolidated Entities", and therefore deemed to be related party
transactions. The property management, asset management, leasing and other services are provided over the term of the contract
which has a remaining original duration through 2023. The Company had receivables of $778, $515 and $513 as of December
31, 2018, 2017 and 2016, respectively, which are included in deferred costs and other assets, net on the consolidated balance
sheets. The following table reflects the disaggregation of other fee income:
Property management fee
Asset management fee
Leasing commissions and other fees
Other fee income
Year Ended December 31,
2018
2017
2016
$
$
$
2,626
1,080
684
$
2,794
1,213
215
4,390
$
4,222
$
2,701
1,213
434
4,348
F-19
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
4. Acquired Properties
The following table reflects the retail properties acquired, accounted for as asset acquisitions, during the year ended
December 31, 2018:
Acquisition Date
May 16, 2018
Property
PGA Plaza (a)
Metropolitan Statistical Area ("MSA")
Miami-Fort Lauderdale-West Palm Beach, FL $
Gross
Acquisition Price
88,000
May 30, 2018
Kennesaw Marketplace (a)
Atlanta-Sandy Springs-Roswell, GA
September 13, 2018 Kennesaw Marketplace, Phase 3 Atlanta-Sandy Springs-Roswell, GA
December 13, 2018
Peachland Promenade, Phase 2 Cape Coral-Fort Myers, FL
December 21, 2018
Sandy Plains Centre (a)
Atlanta-Sandy Springs-Roswell, GA
64,300
7,500
18,700
44,100
Total
$
222,600
Square Feet
120,000
117,000
13,000
95,000
125,000
470,000
(a) These acquisitions were made through three consolidated VIEs and used to facilitate Reverse 1031 Exchanges. During the last quarter of
2018, the title of PGA Plaza and Kennesaw Marketplace transferred to the Company through the completions of an exchange and
expiration of the 180-day waiting period, respectively.
The following table reflects the retail properties acquired, accounted for as asset acquisitions, during the year ended
December 31, 2017:
Acquisition Date
Property
MSA
January 6, 2017
Campus Marketplace (a)
San Diego-Carlsbad, CA
February 1, 2017
Paraiso Parc and Westfork Plaza Miami-Fort Lauderdale-West Palm Beach, FL
February 21, 2017
The Shops at Town Center
Washington-Arlington-Alexandria, DC-VA-
MD-WV
August 14, 2017
Cary Park Town Center
Raleigh-Cary, NC
August 18, 2017
The Parke
Austin-Round Rock, TX
August 18, 2017
The Plaza Midtown
Atlanta-Sandy Springs-Roswell, GA
September 14, 2017 River Oaks (b)
San Jose-Sunnyvale-Santa Clara, CA
September 21, 2017 Kyle Marketplace (b)
Austin-Round Rock, TX
Total
Gross
Acquisition Price
Square Feet
$
$
73,350
163,000
53,550
25,000
112,250
31,800
115,000
59,475
633,425
144,000
393,000
125,000
93,000
364,000
70,000
275,000
226,000
1,690,000
(a) As part of this acquisition, the Company assumed mortgage debt of $41,717 as reported within non-cash financing activities on the
consolidated statements of cash flows for the year ended December 31, 2017.
(b) These asset acquisitions were structured as Reverse 1031 Exchanges. During the first quarter of 2018, the title of Kyle Marketplace and
River Oaks transferred to the Company through the completion of an exchange and expiration of the 180-day waiting period, respectively.
The Company incurred transaction costs of $430 and $1,911 during the years ended December 31, 2018 and 2017, which were
capitalized and included in building and other improvements on the Company's consolidated balance sheets.
The following table summarizes the estimated fair value of the retail properties' assets acquired and liabilities assumed for the
years ended December 31, 2018 and 2017:
Land
Building and other improvements
Total investment properties
Intangible assets (a)
Intangible liabilities (b)
Net other assets and liabilities
Total fair value of assets acquired and liabilities assumed
(a) Intangible assets include in-place leases and above-market leases.
(b) Intangible liabilities include below-market leases.
F-20
2018 Acquisitions
2017 Acquisitions
$
$
40,435
$
166,058
206,493
21,584
(6,215)
738
222,600
$
125,990
440,204
566,194
69,306
(19,099)
17,024
633,425
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
5. Disposed Properties
Continuing operations
The following retail properties were disposed of during the year ended December 31, 2018:
Date
Property
Square Feet
Gross
Disposition Price
Gain (Loss) on
Sale and Transfer
of Investment
Properties, net
Gain (Loss) on
Extinguishment of
Debt (d)
January 9, 2018
Sherman Town Center I & II
485,000
$
63,000
$
12,382
$
January 25, 2018
Grafton Commons
March 8, 2018
Lakeport Commons
March 21, 2018
Stonecrest Marketplace (a)
March 31, 2018
Northwest Marketplace (b)
April 17, 2018
Market at Morse/Hamilton
May 24, 2018
June 20, 2018
June 26, 2018
June 28, 2018
Siegen Plaza
Tomball Town Center
Bellerive Plaza (c)
Parkway Centre North
September 14, 2018
Tulsa Hills
October 5, 2018
McKinney Town Center
October 5, 2018
Riverstone Shopping Center
October 23, 2018
Hiram Pavilion
November 19, 2018
Poplin Place
November 20, 2018 Walden Park
December 20, 2018
Streets of Cranberry
239,000
283,000
265,000
—
45,000
156,000
67,000
76,000
143,000
473,000
243,000
273,000
363,000
228,000
34,000
108,000
33,500
31,000
—
—
10,000
29,000
22,750
—
23,700
70,000
51,000
27,750
44,350
28,300
5,325
26,500
6,564
(666)
1,777
248
1,592
3,849
7,184
(22)
5,357
13,476
15,430
(320)
22,124
2,841
5
3,276
—
—
—
10,752
—
—
(54)
—
1,694
(1,695)
—
—
(1,540)
—
—
—
—
3,481,000
$
466,175
$
95,097
$
9,157
(a) On March 21, 2018, the Company surrendered Stonecrest Marketplace, with a carrying value of $23,932, to the lender in satisfaction of
non-recourse debt with an initial maturity date of March 1, 2017 and recognized a gain on transfer of assets, net, of $1,777. The
Company is not aware of any material outstanding commitments and contingencies related to Stonecrest Marketplace.
(b) The Company recognized a gain on sale of $248 related to the completion of a partial condemnation at this retail property.
(c) On June 26, 2018, the Company surrendered Bellerive Plaza, with a carrying value of $4,771, to the lender in satisfaction of non-
recourse debt with an initial maturity date of June 1, 2017. The Company recognized a loss on transfer of assets, net, of $22. The
Company is not aware of any material outstanding commitments and contingencies related to Bellerive Plaza.
(d) In addition to the gain or loss on extinguishment of debt recognized as a result of the disposition of retail properties, the Company
extinguished an additional loan on a retail property resulting in a loss on debt extinguishment of $4.
In aggregate, the Company recognized net proceeds of $430,514 from the sales, surrender, and condemnation of these retail
properties on the consolidated statement of cash flows during the year ended December 31, 2018.
F-21
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The following retail properties were disposed of during the year ended December 31, 2017:
Date
Property
January 10, 2017
Penn Park
May 17, 2017
May 19, 2017
June 23, 2017
June 30, 2017
July 31, 2017
July 31, 2017
Intech Retail (a)
Sparks Crossing
Lincoln Village
Market at Westlake (b)
Pavilions at Hartman Heritage
Legacy Crossing
September 28, 2017 Heritage Plaza
November 7, 2017
Crossroads at Chesapeake (c)
December 21, 2017
Scofield Crossing (d)
December 28, 2017
Dothan Plaza
Square Feet
Gross
Disposition Price
Gain (Loss) on
Sale and Transfer
of Investment
Properties, net
Gain (Loss) on
Extinguishment of
Debt
242,000
$
29,050
$
1,021
$
—
336,000
164,000
—
223,000
134,000
132,000
—
—
327,000
—
40,280
30,000
—
21,700
10,250
21,350
1,250
2,936
33,750
(52)
10,559
2,355
473
(1,736)
(211)
9,189
834
2,247
(613)
1,558,000
$
190,566
$
24,066
$
—
882
—
—
—
—
(1)
(41)
—
—
—
840
(a) On May 17, 2017, the Company surrendered Intech Retail, with a carrying value of $2,338, to the lender in satisfaction of non-recourse debt
with an initial maturity date of November 1, 2016 and recognized a loss on transfer of assets, net, of $52. The Company is not aware of any
material outstanding commitments and contingencies related to Intech Retail.
(b) The Company recognized a gain on sale of $473 related to the completion of a partial condemnation at this retail property.
(c) The Company recognized a gain on sale of $834 from the disposal of a single-user outparcel at this retail property.
(d) The Company recognized a gain on sale of $2,247 from the disposal of a single-user outparcel at this retail property.
In aggregate, the Company recognized net proceeds of $233,686 from the sales, surrender, and condemnation of these retail
properties and the disposition of Worldgate Plaza on the consolidated statement of cash flows during the year ended December
31, 2017.
Discontinued operations
On August 30, 2017, the Company sold Worldgate Plaza for a gross disposition price of $53,500, and recognized a gain on the
sale of this property of $10,115 as part of income from discontinued operations on the 2017 consolidated statements of
operations and comprehensive income. Discontinued operations for the year ended December 31, 2016 also includes Highlands
and University House.
Year ended December 31,
2017
2016
Total income
Depreciation and amortization expense
Other expenses
Provision for asset impairment
Operating income (loss) from discontinued operations
Interest expense, income taxes, and other miscellaneous income
Equity in losses of unconsolidated entity
Gain on sale of investment in unconsolidated entity
Gain on sale of properties, net
Loss on extinguishment of debt
Net income from discontinued operations
Net income from discontinued operations attributable to Company
Weighted average number of common shares outstanding, basic and diluted
Net income per common share, from discontinued operations, basic and diluted
$
$
F-22
$
3,935
$
1,205
2,308
—
422
(6,696)
—
—
10,115
(2)
3,839
3,839
$
92,329
32,667
36,487
106,514
(83,339)
(17,983)
(19)
1,434
236,256
(2,826)
133,523
133,523
773,445,341
854,638,497
— $
0.15
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
6. Investment in Consolidated and Unconsolidated Entities
Consolidated Entities
At December 31, 2018, Sandy Plains Centre was the Company's only VIE through an active Reverse 1031 Exchange. As of
December 31, 2017, River Oaks and Kyle Marketplace were the Company's only VIEs through active Reverse 1031 Exchanges.
The following were the assets and liabilities of the consolidated VIEs. The liabilities of the VIEs are not recourse to the
Company, and the assets must be used first to settle obligations of the VIEs.
Net investment properties
Other assets
Total assets
Other liabilities
Total liabilities
Net assets
December 31, 2018
December 31, 2017
$
$
39,634
$
4,457
44,091
385
385
43,706
$
165,875
18,630
184,505
11,343
11,343
173,162
During the year ended December 31, 2017, the Company acquired The Plaza Midtown (see "Note 4. Acquired Properties"),
consisting of wholly owned multi-tenant retail space, and an undivided interest in certain common elements as tenants-in-
common. The common elements primarily consist of a parking garage adjacent to the wholly owned multi-tenant retail space.
The ownership of The Plaza Midtown's common elements was deemed to not be subject to joint control, as the other tenant-in-
common lacked the ability to effectively participate in the decisions that most significantly impact economic performance of
The Plaza Midtown's common elements. Accordingly, the Company has applied proportionate consolidation of the common
elements. The parking garage had an estimated proportionate fair value of $10,790, which has been recognized in land and
building and other improvements of $1,963 and $8,827, respectively, as of the acquisition date. All intercompany transactions
and balances have been eliminated in consolidation.
Unconsolidated Entities
The entities listed below are owned by the Company and other unaffiliated parties in joint ventures. Net income, distributions
and capital transactions for these entities are allocated to the Company and its joint venture partners in accordance with the
respective partnership agreements.
The Company analyzed the joint venture agreements and determined that the joint ventures were not VIEs. The Company also
considered the joint venture partners' participating rights under the joint venture agreements and determined that the joint
venture partners have the ability to participate in major decisions, which equates to shared decision making. Accordingly, the
Company has significant influence but does not control the joint ventures. Therefore, these joint ventures are not consolidated
by the Company and the equity method of accounting is used to account for these investments. Under the equity method of
accounting, the net equity investment of the Company and the Company's share of net income or loss from the unconsolidated
entity are reflected in the consolidated balance sheets and the consolidated statements of operations and comprehensive income.
Entity
IAGM Retail Fund I, LLC (a)
Downtown Railyard Venture, LLC (b) Land development
Other unconsolidated entities
Description
Multi-tenant retail shopping centers
Various real estate investments
Ownership %
55%
90%
Various
Carrying Value of
Investment at December 31,
2018
2017
$
$
126,195
30,049
(112)
156,132
$
$
123,693
57,183
(112)
180,764
(a) On April 17, 2013, the Company entered into a joint venture, IAGM, for the purpose of acquiring, owning, managing,
supervising, and disposing of properties and sharing in the profits and losses from those properties and its activities. The
Company is the managing member of IAGM, responsible for the day-to-day activities and earns fees for venture
management, property management, leasing and other services provided.
F-23
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The Company contributed 14 properties to IAGM during the year ended December 31, 2013, and treated the contribution
as a partial sale under ASC 360-20, Property, Plant and Equipment - Real Estate Sales, and deferred an aggregate gain
of $15,625 as a result of the property sales into the joint venture. Through December 31, 2017, the Company was
amortizing the basis adjustment over 30 years, consistent with the depreciation period of the investee's underlying assets. In
accordance with the provisions of ASU No. 2017-05, full gain recognition may be required for property sales in which the
Company has continuing involvement, where those gains may have been deferred under prior GAAP. As of January 1,
2018, with the adoption of ASU No. 2017-05, the Company's remaining $12,756 of the aforementioned deferred gain has
been recognized through beginning distributions in excess of accumulated net income.
(b) On September 30, 2015, the Company was admitted as a member to Downtown Railyard Venture, LLC ("DRV"), which is
a joint venture established in order to develop and sell a land development in Sacramento, California. Simultaneously, the
Company structured and closed the sale of a non-core land development to DRV, which for accounting purposes is treated
as a contribution of the land development to DRV in exchange for an equity interest of $46,174 in DRV. Concurrent with
the formation of the joint venture, and included in the basis of the Company's investment in DRV, the Company established
an $18,088 loan to DRV at a 4.0% interest rate, compounded annually. The loan matures on June 30, 2023. The Company's
ownership percentage in DRV is based upon a waterfall calculation outlined in the operating agreement. The joint venture
partner is the developer and managing member of DRV, responsible for the day-to-day activities and earns fees for
managing the venture.
During the year ended December 31, 2018, the Company recorded an other-than-temporary impairment of $29,933 on DRV, as
disclosed in "Note 10. Fair Value Measurements." During the years ended December 31, 2017 and 2016, the Company recorded
no impairment on its unconsolidated entities. During the year ended December 31, 2017, the Company received a final
distribution from one unconsolidated entity of $366, which reduced the Company's investment in the unconsolidated entity to
zero as of December 31, 2017. No gain or loss was recognized as part of the transaction.
During the year ended December 31, 2016, a gain on the sale of a joint venture for the development of a student housing
community of $1,434 was recorded and is included as part of net income from discontinued operations on the consolidated
statements of operations and comprehensive income as the Company's exit from the student housing market is a strategic shift
that has had a major effect on the Company's operations and financial results.
During the year ended December 31, 2018, IAGM recognized a provision for asset impairment of $3,673 on three retail
properties and a loss on sale of $4,135 on two retail properties. For the year ended December 31, 2018, the Company's share of
IAGM's provision for asset impairment and loss on sale was $2,020 and $2,274, respectively.
Combined Financial Information
The following tables present the combined financial information for the Company’s investments in unconsolidated entities.
As of
December 31, 2018
December 31, 2017
(unaudited)
(unaudited)
Assets:
Real estate assets, net of accumulated depreciation
$
494,583
$
Other assets
Total assets
Liabilities and equity:
Mortgage debt, net
Other liabilities
Equity
Total liabilities and equity
Company’s share of equity
Impairment of investment in unconsolidated entity
Cost of investments in excess of the Company's share of underlying net book value, net
of accumulated amortization of $0 and $2,647, respectively.
Carrying value of investments in unconsolidated entities
F-24
103,565
598,148
272,629
42,569
282,950
598,148
185,814
(29,933)
251
$
156,132
$
586,671
73,423
660,094
311,574
49,032
299,488
660,094
193,572
—
(12,808)
180,764
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Revenues
Expenses:
Depreciation and amortization
Operating expenses, ground rent and general and administrative expenses
Provision for asset impairment
Total operating expenses
Operating income
Interest expense and loan cost amortization
(Loss) gain on sale of real estate
Loss on debt extinguishment
Net (loss) income
Company's share of net (loss) income, net of excess basis depreciation of $0, $520, and
$520, respectively
Distributions from unconsolidated entities in excess of the investments' carrying value
Impairment of investment in unconsolidated entity
Equity in (losses) earnings and (impairment), net, of unconsolidated entities
Year ended December 31,
2018
2017
2016
(unaudited)
(unaudited)
(unaudited)
$
58,322
$
62,367
$
70,385
21,001
19,732
3,673
44,406
13,916
(13,205)
(4,123)
(20)
26,860
22,304
4,745
53,909
8,458
27,209
21,671
—
48,880
21,505
(13,419)
(13,015)
434
—
—
—
(3,432) $
(4,527) $
8,490
(1,870) $
(1,930) $
410
(29,933)
1,126
—
(31,393) $
(804) $
4,109
5,190
—
9,299
$
$
$
The following table shows the scheduled maturities of the Company's unconsolidated entities' total third party mortgage debt of
$275,308 as of December 31, 2018, for each of the next five years, and thereafter:
Maturities during the year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Mortgages payable
$
31,353
$
— $
23,150
$
— $
180,125
$
40,680
$
275,308
On June 30, 2018, IAGM entered into a one year extension on a non-recourse mortgage loan with a balance of $15,103 related
to one retail property.
On October 5, 2018, IAGM disposed of Victory Lakes Shopping Center and used proceeds from the sale to extinguish $38,300
of mortgages payable at two retail properties maturing in 2018 and pay down $3,830 of mortgages payable at six retail properties.
On November 2, 2018, IAGM entered into a senior secured term loan facility of $152,000 to refinance its mortgages payable
maturing in 2018. The senior secured term loan facility matures in November 2023 and contains two twelve-month extension
options that IAGM may exercise upon payment of an extension fee equal to 0.10% of the total commitment amount on the first
day of the extension term and subject to certain other conditions. The senior secured term loan facility bears interest at a rate
equal to the London Inter-bank Offered Rate ("LIBOR") daily floating rate plus 1.55% and requires the maintenance of certain
financial covenants. As a result of the refinance, the outstanding mortgages payable increased $5,205. As a result of this
refinance, no IAGM mortgages payable are recourse to the Company.
It is anticipated that the joint ventures will be able to repay, refinance or extend all of their debt on a timely basis.
7. Investment in Marketable Securities
The Company sold substantially all remaining marketable securities during the year ended December 31, 2018. Investment in
marketable securities of $4,758 at December 31, 2017 consisted primarily of preferred and common stock investments in other
REITs and certain real estate related bonds which are classified as available-for-sale securities and recorded at fair value. The
cost basis, net of impairments of available-for-sale securities, was $4,482 at December 31, 2017.
F-25
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Prior to the adoption of ASU No. 2016-01 on January 1, 2018, changes in the fair value of the Company's marketable securities,
representing unrealized holding gains and losses on available-for-sale securities, were reported as a separate component of
comprehensive income until realized. As of December 31, 2017 and 2016, the Company reported net accumulated
comprehensive income related to its marketable securities of $275 and $58,572, respectively, which includes gross unrealized
losses of $72 and $598, respectively. Securities with gross unrealized losses have a related fair value of $3,276 as of December
31, 2017.
During the year ended December 31, 2016, an other-than-temporary impairment to available-for-sale securities of $1,327 was
recorded on one security which is included as a component of realized and unrealized investment gains and (impairment), net on
the consolidated statements of operations and comprehensive income. During the year ended December 31, 2017 the Company
recorded no impairment on available-for-sale securities.
Dividend income is recognized when received. During the years ended December 31, 2018, 2017 and 2016, dividend income
from marketable securities of $181, $2,857 and $10,490, respectively, was recognized and is included as a part of continuing
operations in interest and dividend income on the consolidated statements of operations and comprehensive income.
8. Intangible Assets, Liabilities, and Deferred Leasing Costs
The following table summarizes the Company’s identified intangible assets, liabilities, and deferred leasing costs as of
December 31, 2018 and 2017.
Intangible assets:
Acquired in-place leases
Acquired above-market leases
Intangible assets
Accumulated amortization:
Accumulated amortization, acquired in-place leases
Accumulated amortization, above-market leases
Accumulated amortization
Intangible assets, net
Intangible liabilities:
Acquired below-market leases
Accumulated amortization, acquired below-market leases
Intangible liabilities, net
Deferred leasing costs:
Leasing costs
Accumulated amortization
Deferred leasing costs, net
As of December 31,
2018
2017
156,004
$
22,353
178,357
(58,203)
(12,149)
(70,352)
108,005
$
74,312
(27,327)
46,985
18,236
(8,018)
10,218
$
$
$
$
226,515
29,670
256,185
(123,043)
(17,731)
(140,774)
115,411
80,862
(27,330)
53,532
17,355
(8,642)
8,713
$
$
$
$
$
$
The values of above-market leases are recorded as intangible assets, net, on the consolidated balance sheets, and are amortized
as a decrease to rental income over the remaining term of the associated tenant lease. The values, if any, associated with in-
place leases are recorded in intangible assets, net on the consolidated balance sheets, and are amortized to depreciation and
amortization expense on the consolidated statements of operations and comprehensive income over the remaining term of the
associated tenant lease.
The values of below-market leases are recorded as intangible liabilities, net, on the consolidated balance sheets and are
amortized as an increase to rental income over the remaining term of the associated tenant lease. The difference between the
contractual rental rates and the Company's estimate of market rental rates is measured over a period equal to the remaining non-
cancelable term of the leases, including below-market renewal options, if reasonably assured. For the amortization period, the
F-26
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
remaining term of leases will include renewal options that are at terms below-market if it is reasonably assured the options will
be exercised.
The values of deferred leasing costs are recorded as deferred costs and other assets, net on the consolidated balance sheets and
are amortized to depreciation and amortization expense on the consolidated statements of operations and comprehensive
income over the remaining term of the associated tenant lease.
The following table provides a summary of the amortization related to intangible assets, liabilities, and deferred leasing costs
for the years ended December 31, 2018, 2017 and 2016:
Intangible assets:
In-place lease intangibles (a)
Above-market leases (b)
Amortization of intangible assets
Intangible liabilities:
Amortization of below-market leases (c)
Deferred leasing costs:
Amortization of deferred leasing costs (a)
(a) Amounts are recorded as depreciation and amortization.
(b) Amounts are recorded as a reduction to rental income.
(c) Amounts are recorded as an increase to rental income.
Year ended December 31,
2018
2017
2016
$
$
$
$
22,523
3,036
25,559
8,570
2,036
$
$
$
$
22,580
3,053
25,633
8,563
1,806
$
$
$
$
18,298
2,581
20,879
6,676
1,703
The following table provides a summary of the amortization during the next five years and thereafter related to deferred costs
and intangible assets and liabilities as of December 31, 2018:
Year ending December 31,
In-place leases
Above market leases
Deferred leasing costs
Below market leases
2019
2020
2021
2022
2023
Thereafter
Total
$
$
19,243
$
2,220
$
2,475
$
16,114
12,794
9,742
8,000
31,908
1,870
1,512
982
777
2,843
1,724
1,581
1,369
966
2,103
97,801
$
10,204
$
10,218
$
7,349
6,596
5,578
4,478
3,438
19,546
46,985
F-27
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
9. Debt
As of December 31, 2018, the Company's total debt, net, was $561,782, which consists of mortgages payable, net, of $212,927
and credit agreements, net, of $348,855. The Company believes that it has the ability to repay, refinance or extend any of its
debt, and that it has adequate sources of funds to meet short-term cash needs related to its mortgages payable and credit
agreements. It is anticipated that the Company will use proceeds from property sales, cash on hand, and available capacity on
credit agreements, if any, to repay, refinance or extend the mortgages payable maturing in the near term.
Mortgages payable
As of December 31, 2018 and 2017, the Company had the following mortgages payable outstanding:
Mortgages payable (a)
Premium, net of accumulated amortization
Discount, net of accumulated amortization
Debt issuance costs, net of accumulated amortization
Total mortgages payable, net
December 31, 2018
December 31, 2017
$
$
213,925
$
239
(158)
(1,079)
212,927
$
370,804
478
(195)
(1,611)
369,476
(a) Mortgages payable had fixed interest rates ranging from 3.49% to 5.49%, with a weighted average interest rate of 4.33% as of
December 31, 2018, and 3.49% to 10.45% (for both conforming loans and loans in default), with a weighted average interest rate of
5.13% as of December 31, 2017.
Some of the mortgage loans require compliance with certain covenants, such as debt service coverage ratios, investment
restrictions and distribution limitations. As of December 31, 2018, the Company was in compliance with all mortgage loan
requirements.
As of December 31, 2017, the Company was in compliance with all mortgage loan requirements except two non-recourse loans
in default and receivership, Stonecrest Marketplace and Bellerive Plaza. During the year ended December 31, 2018, these
properties were surrendered to the lender in satisfaction of non-recourse debt as disclosed in "Note 5. Disposed Properties".
The following table shows the scheduled maturities of the Company's mortgages payable as of December 31, 2018, for each of
the next five years, and thereafter:
Maturities during the year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Mortgages payable
$
— $
41,000
$
12,557
$
50,748
$
41,740
$
67,880
$
213,925
Credit agreements
Unsecured term loans
On December 21, 2018, the Company entered into an amended and restated unsecured term loan credit agreement with a
syndicate of lenders led by Wells Fargo Bank, National Association, as administrative agent (the "Term Loan Agreement"). The
Term Loan Agreement, which amends and restates the Company’s prior term loan agreement in its entirety, provides for
$400,000 in unsecured term loans. The Term Loan Agreement consists of two tranches of term loans: a $250,000 5-year tranche
maturing on December 21, 2023 and a $150,000 5.5-year tranche maturing on June 21, 2024. Interest rates are based on the
Company's total leverage ratio or, at the Company's one-time irrevocable option, upon achievement of an investment grade
credit rating. Based upon the Company's total leverage ratio, as of December 31, 2018, the outstanding 5-year tranche loans
bear interest at a rate of 1-Month LIBOR plus 1.20% and the outstanding 5.5-year tranche loans bear interest at a rate of 1-
Month LIBOR plus 1.20%. An unused fee is charged on the unused portion of the term loans at a rate ranging from 0.15% to
0.25% depending on the Company’s total leverage ratio. Based on the Company's total leverage ratio, as of December 31, 2018,
the unused fee was 0.15%.
As of the closing date of the Term Loan Agreement, the Company borrowed $226,000 under the 5-year tranche and $126,000
under the 5.5-year tranche, of which $26,000 from each tranche was used to pay off a $52,000 outstanding unsecured revolving
F-28
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
line of credit balance that was borrowed on July 12, 2018. As of December 31, 2018, the Company had $24,000 available for
borrowing under the 5-year tranche and $24,000 available for borrowing under the 5.5-year tranche.
On November 5, 2015, the Company entered into a term loan credit agreement for a $300,000 unsecured credit facility with an
accordion feature that allowed the Company to increase the size of the unsecured term loan credit facility to $600,000, subject
to certain conditions. The term loan credit facility is subject to maintenance of certain financial covenants. As of December 31,
2017, the Company was in compliance with all of the covenants and default provisions under the credit agreement.
Unsecured revolving line of credit
On December 21, 2018, the Company entered into a second amended and restated unsecured revolving credit agreement with a
syndicate of lenders led by KeyBank National Association, as administrative agent (the "Revolving Credit Agreement"). The
Revolving Credit Agreement, which amends and restates the Company’s prior revolving credit agreement in its entirety,
provides for a $350,000 unsecured revolving line of credit. The Revolving Credit Agreement has a 4-year term maturing on
December 21, 2022 with two six month extension options. Interest rates are based on the Company's total leverage ratio or, at
the Company's one-time irrevocable option, upon achievement of an investment grade credit rating. Based upon the Company's
total leverage ratio, as of December 31, 2018, outstanding revolving loans bear interest at a rate of LIBOR plus 1.05%. A
facility fee accrues on the aggregate commitments at a rate ranging from 0.15% to 0.30% depending on the Company’s total
leverage ratio. Based on the Company's total leverage ratio, as of December 31, 2018, the facility fee was 0.15%. As of
December 31, 2018, the Company had $350,000 available for borrowing under the Revolving Credit Agreement.
On February 3, 2015, the Company entered into an amended and restated credit agreement for a $300,000 unsecured revolving
line of credit with an accordion feature that allows the Company to increase the size of its unsecured line of credit up to
$600,000, subject to certain conditions. The unsecured revolving line of credit matures on February 2, 2019 and contains one
twelve-month extension option that the Company may exercise upon payment of an extension fee equal to 0.15% of the
commitment amount on the maturity date and subject to certain other conditions. The unsecured revolving line of credit bears
interest at a rate equal to 1-Month LIBOR plus 1.40% and requires the maintenance of certain financial covenants. On July 12,
2018, the Company drew $52,000 on the unsecured revolving line of credit to repay some of the Company's mortgages payable.
As of December 31, 2018, the Company had the following borrowings outstanding under its unsecured term loans:
Principal Balance
Interest Rate
Maturity Date
$250.0 million 5 year - swapped to fixed rate (a)
$250.0 million 5 year - swapped to fixed rate (b)
$250.0 million 5 year - variable rate (c)
$250.0 million 5 year - variable rate (d)
$150.0 million 5.5 year - variable rate (c)
$150.0 million 5.5 year - variable rate (d)
Total unsecured term loans
Issuance costs, net of accumulated amortization (e)
Total outstanding credit agreements, net
$
$
90,000
60,000
50,000
26,000
100,000
26,000
352,000
(3,145)
348,855
2.5510%
2.5525%
3.5493%
3.6794%
3.5493%
3.6794%
December 21, 2023
December 21, 2023
December 21, 2023
December 21, 2023
June 21, 2024
June 21, 2024
(a) The Company swapped $90,000 of variable rate debt at an interest rate of 1-Month LIBOR plus 1.2% to a fixed rate of 2.5510%. The
swap has an effective date of December 10, 2015, a termination date of December 1, 2019, and a notional amount of $90,000.
(b) The Company swapped $60,000 of variable rate debt at an interest rate of 1-Month LIBOR plus 1.2% to a fixed rate of 2.5525%. The
swap has an effective date of December 10, 2015, a termination date of December 1, 2019, and a notional amount of $60,000.
(c) Interest rate reflects 1-Month LIBOR plus 1.20% as of December 3, 2018.
(d) Interest rate reflects 1-Month LIBOR plus 1.20% as of December 21, 2018.
(e) Reflects issuance costs, net of accumulated amortization, of $1,966 related to the December 21, 2018 term loans, and $1,179 related to
the November 5, 2015 term loans. In accordance with the Company's accounting policy for debt modification, the Company did not
write-off the issuance costs associated with the modification of the November 5, 2015 term loans as it did not meet the criteria of a
substantial modification.
F-29
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
As of December 31, 2017, the Company had the following borrowings outstanding under its unsecured term loan:
Principal Balance
Interest Rate
Maturity Date
5 year - swapped to fixed rate (a)
5 year - swapped to fixed rate (b)
5 year - variable rate (c)
7 year - variable rate (d)
Total unsecured term loans
Issuance costs, net of accumulated amortization
Total outstanding credit agreements, net
$
$
90,000
60,000
50,000
100,000
300,000
(1,615)
298,385
2.6510%
2.6525%
2.6607%
2.9607%
January 15, 2021
January 15, 2021
January 15, 2021
November 5, 2022
(a) The Company swapped the $90,000 of variable rate debt at an interest rate of 1-Month LIBOR plus 1.3% to a fixed rate of 2.6510%. The
swap has an effective date of December 10, 2015, a termination date of December 1, 2019, and a notional amount of $90,000.
(b) The Company swapped $60,000 of variable rate debt at an interest rate of 1-Month LIBOR plus 1.3% to a fixed rate of 2.6525%. The
swap has an effective date of December 10, 2015, a termination date of December 1, 2019, and a notional amount of $60,000.
(c) Interest rate reflects 1-Month LIBOR plus 1.3% as of December 31, 2017.
(d) Interest rate reflects 1-Month LIBOR plus 1.6% as of December 31, 2017.
For the years ending December 31, 2018 and 2017, each of the Company's interest rate swaps are in an asset position and
included within deferred costs and other assets, net on the accompanying consolidated balance sheets. The Company has
designated these interest rate swaps as cash flow hedges. The following table represents the effect of the derivative financial
instruments on the accompanying consolidated financial statements:
Location and amount of gain
recognized in accumulated
comprehensive income
Location and amount of gain (loss)
reclassified from accumulated
comprehensive income into net income
Total interest expense presented in the
consolidated statements of operations in which the
effects of cash flow hedges are recorded
2018
2017
2016
2018
2017
2016
2018
2017
2016
Unrealized
gain on
derivatives $
923
1,183
623
Interest
expense,
net
$
956
(423)
(1,295)
Interest
expense,
net
$ 24,943
30,155
44,135
As the Company's interest rate swaps have a termination date of December 1, 2019, all net deferred amounts in accumulated
comprehensive income will be reclassified into earnings during the next 11 months. As of December 31, 2018 and 2017, the
Company's interest rate swap agreements had a notional value of $150,000.
10. Fair Value Measurements
In accordance with ASC 820, Fair Value Measurement and Disclosures, the Company defines fair value based on the price that
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 uses a fair value hierarchy that prioritizes observable and
unobservable inputs used to measure fair value. The fair value hierarchy consists of the three broad levels described below:
• Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
• Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and
liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data.
• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
The Company has estimated the fair value of its financial and non-financial instruments using available market information and
valuation methodologies the Company believes to be appropriate for these purposes. 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.
F-30
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Recurring Measurements
For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major
category of assets and liabilities is presented below:
Derivative interest rate swaps
Total assets
Available-for-sale marketable securities
Real estate related bonds
Derivative interest rate swaps
Total assets
Level 1
Fair Value Measurements at December 31, 2018
Level 1
Level 2
Level 3
— $
— $
1,637
1,637
$
$
Fair Value Measurements at December 31, 2017
Level 1
Level 2
Level 3
4,431
$
—
—
4,431
$
— $
327
1,670
1,997
$
—
—
—
—
—
—
$
$
$
$
At December 31, 2018, the Company had no level one recurring fair value measurements. At December 31, 2017 the fair value
of the marketable equity securities has been determined based upon quoted market prices.
Level 2
To calculate the fair value of the real estate related bonds and the derivative interest rate instruments, the Company primarily
uses quoted prices for similar securities and contracts. For the real estate related bonds, the Company reviews price histories for
similar market transactions. For the derivative interest rate instruments, the Company uses inputs based on data that is observed
in the forward yield curve that is widely observable in the marketplace. The Company also incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in
the fair value measurements which utilizes Level 3 inputs, such as estimates of current credit spreads.
As of December 31, 2018 and 2017, the Company determined that the credit valuation adjustments are not significant to the
overall valuation of its derivatives. As a result, the Company's derivative valuations in their entirety are classified in Level 2 of
the fair value hierarchy.
Level 3
At December 31, 2018 and 2017, the Company had no level three recurring fair value measurements.
Non-Recurring measurements
Investment properties, continuing operations
During the year ended December 31, 2018, the Company identified three retail properties that had reductions in the expected
holding periods. The Company's estimated fair value was based on executed purchase contracts. The Company recorded a
provision for asset impairment of $3,510 on three retail properties on the consolidated statement of operations and
comprehensive income for the year ended December 31, 2018.
During the year ended December 31, 2017, the Company identified certain retail properties that had reductions in the expected
holding periods and reviewed the probability of these properties' disposition. The Company's estimated fair value relating to the
investment retail properties' impairment analyses were based on, as applicable to the particular retail property, purchase
contracts, broker opinions of value, letters of intent and 10-year discounted cash flow models, which include estimated inflows
and outflows over a specific holding period and estimated net disposition proceeds at the end of the 10-year period. The
discounted cash flow models consist of observable inputs such as contractual revenues and unobservable inputs such as
forecasted revenues and expenses and estimated net disposition proceeds at the end of the 10-year period. These unobservable
inputs are based on market conditions and the Company’s expected growth rates. Capitalization rates ranging from 7.00% to
F-31
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
8.00% and discount rates ranging from 8.00% to 9.00% were utilized in the 10-year discounted cash flow model and were
based upon observable rates that the Company believed to be within a reasonable range of current market rates. As a result of
these analyses, the Company recorded a provision for asset impairment of $27,754 on six retail properties on the consolidated
statement of operations and comprehensive income for the year ended December 31, 2017.
During the year ended December 31, 2016, the Company identified certain retail properties that had reductions in the expected
holding period and reviewed the probability of these properties' disposition. The Company's estimated fair value relating to the
investment properties' impairment analyses were based on, as applicable to the particular retail property, purchase contracts and
a 10-year discounted cash flow model. Capitalization rates ranging from 6.00% to 7.00% and discount rates ranging from
7.00% to 8.00% were utilized in the 10-year discounted cash flow model and were based upon observable rates that the
Company believed to be within a reasonable range of current market rates. As a result of these analyses, the Company recorded
a provision for asset impairment of $11,208 on three retail properties on the consolidated statement of operations and
comprehensive income for the year ended December 31, 2016.
Investment properties, discontinued operations
In connection with the Highlands spin-off in 2016, the Company evaluated Highlands as a disposal group for impairment. The
Company's estimated fair value relating to the disposal group's impairment analysis was based on 10-year discounted cash flow
models, which included contractual inflows and outflows over a specific holding period. The cash flows consisted of observable
inputs such as contractual revenues and unobservable inputs forecasted revenues and expenses. These unobservable inputs were
based on market conditions and the Company's expected growth rates. As of the spin-off date, capitalization rates ranging from
6.75% to 10.00% and discount rates ranging from 7.75% to 15.25% were utilized in the model and were based upon observable
rates that the Company believed to be within a reasonable range of current market rates. As a result of this analysis, the
Company recorded a provision for asset impairment related to Highlands of $76,583 in discontinued operations on the
consolidated statement of operations and comprehensive income for the year ended December 31, 2016 as the net book value of
the disposal group exceeded its estimated fair value.
During the year ended December 31, 2016, the Company identified one non-core office property with a reduced expected
holding period based on a review of the probability of the property's disposition. The Company's estimated fair value relating to
this property's impairment analysis was based on a ten-year undiscounted cash flow model. Capitalization rates ranging from
6.75% to 7.00% and discount rates ranging from 7.00% to 8.00% were utilized in the model and were based upon observable
market rates that the Company believed to be within a reasonable range. As a result of this analysis, the Company recorded a
provision for asset impairment on this non-core office property of $29,931 in discontinued operations on the consolidated
statement of operations and comprehensive income for the year ended December 31, 2016, resulting in a total provision for
asset impairment of $106,514 in discontinued operations on the consolidated statement of operations and comprehensive
income for the year ended December 31, 2016.
Investment in unconsolidated entities
During the year ended December 31, 2018, the Company evaluated its investment in DRV for potential other-than-temporary
impairment due to a reduction in expected holding period. The Company obtained a third-party independent appraisal to assist
in establishing a range of estimated fair values of the underlying assets as of December 31, 2018. The Company's estimated fair
value relating to its investment in DRV reflects the expected future cash distributions stemming from the value of the
underlying assets at a point within that established range that management believes is most probable of realization, which, if
liquidated, would result in an amount due to the Company based on the joint venture partners' respective waterfall distributions,
pursuant to the terms of the Second Amended and Restated Limited Liability Company Agreement of DRV, dated as of
September 30, 2015. The appraisal utilized a discounted cash flow model, which included inflows and outflows over a specific
holding period. The cash flows consist of unobservable inputs such as forecasted revenues and expenses. These unobservable
inputs are based on market conditions and expected growth rates. Capitalization rates ranging from 5.00% to 8.00% and
discount rates ranging from 10.00% to 35.00% were utilized in the model and are based upon observable rates that the
Company believes to be within a reasonable range of current market rates based on the nature of the underlying investment and
associated risks. The Company selected the point within the range of estimated fair values established by the third-party
independent appraisal that most appropriately reflects the underlying facts and circumstances of the investment, and as a result
the Company recorded an other-than-temporary impairment of $29,933 related to DRV on the consolidated statement of
operations and comprehensive income for the year ended December 31, 2018.
F-32
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The following table summarizes activity for the Company’s assets measured at fair value on a non-recurring basis and the
related impairment losses for the years ended December 31, 2018, 2017, and 2016:
Investment properties,
continuing operations
Investment properties,
discontinued operations
Investment in
unconsolidated entities
Total
As of December 31, 2018
As of December 31, 2017
As of December 31, 2016
Level 3
Impairment Loss
Level 3
Impairment Loss
Level 3
Impairment Loss
$
64,075
$
3,510
$
105,900
$
27,754
$
66,323
$
11,208
—
30,049
$
—
29,933
33,443
—
—
—
—
$
27,754
584,358
106,514
—
—
$
117,722
Financial Instruments Not Measured at Fair Value
The following table represents the estimated fair value of financial instruments presented at carrying values in the consolidated
financial statements as of December 31, 2018 and 2017:
December 31, 2018
December 31, 2017
Carrying Value
Estimated Fair Value
Carrying Value
Estimated Fair Value
Mortgages payable
Term loans
Line of credit and term loans
$
$
213,925
352,000
$
$
n/a
212,572
352,006
n/a
$
$
370,804
n/a
300,000
$
$
372,962
n/a
299,770
The Company estimated the fair value of its mortgages payable using a weighted average effective market interest rate of
4.38% as of December 31, 2018 compared to 4.20% as of December 31, 2017. The fair value estimate of the line of credit and
term loans approximates the carrying value due to limited market volatility in pricing. The assumptions reflect the terms
currently available on similar borrowing terms to borrowers with credit profiles similar to the Company's. As a result, the
Company used a weighted average interest rate of 3.63% as of December 31, 2018 to estimate the fair value of its term loans,
and 3.48% as of December 31, 2017 to estimate the fair value of its line of credit and term loans. The Company has determined
that its debt instrument valuations are classified in Level 2 of the fair value hierarchy.
11. Income Taxes
The Company has elected and has operated so as to qualify to be taxed as a REIT under the Code commencing with the tax year
ended December 31, 2005. So long as it qualifies as a REIT, the Company generally will not be subject to federal income tax on
taxable income that is distributed currently to stockholders. A REIT is subject to a number of organizational and operational
requirements including a requirement that it currently distribute at least 90% of its REIT taxable income (subject to certain
adjustments) to its stockholders each year. If the Company fails to qualify as a REIT in any taxable year, without the benefit of
certain relief provisions, the Company will be subject to federal and state income tax on its taxable income at regular corporate
tax rates and would not be able to re-elect REIT during the four years following the year of the failure. 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 on its undistributed income.
The Company has elected to treat certain of its consolidated subsidiaries, and may in the future elect to treat newly formed
subsidiaries, as TRSs pursuant to the Code. Among other activities, TRSs may participate in non-real estate related activities
and/or perform non-customary services for tenants and are subject to federal and state income tax at regular corporate tax rates.
F-33
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
The components of income tax expense for the years ended December 31, 2018, 2017, and 2016 are as follows:
Federal
2018
State
Total
Federal
2017
State
Total
Federal
Current
Deferred
$
(169) $
199
$
—
—
30
—
$
781
$
543
$
1,324
$
130
$
—
—
—
—
2016
State
Total
$
71
—
201
—
Income tax provision
from continuing
operations
Income tax (benefit)
provision from
discontinued
operations
$
$
(169) $
199
$
30
$
781
$
543
$
1,324
$
130
$
71
$
201
— $
— $
— $
(3) $
(5) $
(8) $
(1) $
268
$
267
Deferred tax assets and liabilities are included within deferred costs and other assets and other liabilities in the consolidated balance
sheets, respectively. The components of the deferred tax assets and liabilities at December 31, 2018 and 2017 were as follows:
Basis difference on investment in unconsolidated entities (a) (b)
Total deferred tax assets
Less: Valuation allowance
Net deferred tax assets
Deferred tax liabilities
2018
2017
27,351
$
27,351
(27,351)
—
— $
27,916
27,916
(27,916)
—
—
$
$
(a) Primarily relates to the basis difference in land of a non-core land development held by DRV.
(b) As a result of recent U.S. federal income tax reform, the Company has applied a federal corporate tax rate of 21% and a California state
rate of 8.84% to determine deferred tax assets and liabilities at December 31, 2018.
Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on
consideration of available evidence, including future reversal of existing taxable temporary differences, future projected taxable
income, and tax-planning strategies. Management believes it is more likely than not that the Company will not realize the
benefits of these deductible differences, accordingly, a valuation allowance of $27,351 has been recognized to reduce the
deferred tax asset to zero at December 31, 2018.
Uncertain Tax Positions
The Company had no unrecognized tax benefits as of or during the three year period ended December 31, 2018. The Company
expects no significant changes in unrecognized tax benefits due to changes in tax positions within one year of December 31,
2018. The Company has accrued no material interest or penalties relating to income taxes recognized in the consolidated
statements of operations and comprehensive income for the years ended December 31, 2018, 2017 and 2016 or in the
consolidated balance sheets as of December 31, 2018 and 2017. As of December 31, 2018, the Company’s 2016, 2015, and
2014 tax years remain subject to examination by U.S. and various state tax jurisdictions.
Distributions
For federal income tax purposes, distributions may consist of ordinary income, qualifying dividends, 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 ordinary dividends, qualified dividends or capital gain distributions.
Distributions in excess of these earnings and profits will constitute a non-taxable return of capital and will reduce the recipient’s
basis in the shares. Distributions in excess of the Company’s current and accumulated earnings and profits and in excess of the
recipient’s basis in the shares will be taxable as capital gain.
F-34
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
A summary of the taxable nature of the Company’s common distributions paid for each of the years in the three year period
ended December 31, 2018 is as follows:
Ordinary income
Capital gain
Return of capital
Total distributions per share
12. Earnings Per Share and Equity Transactions
For the year ended December 31,
2018
2017
2016
$
$
0.028
$
— $
—
0.043
—
0.069
0.071
$
0.069
$
0.080
0.240
0.150
0.470
Basic earnings per share ("EPS") are computed using the two-class method by dividing net income by the weighted average
number of common shares outstanding for the period (the "common shares"). The restricted share awards issued pursuant to the
Incentive Award Plan are deemed to be participating securities. Diluted EPS is computed using the treasury method if more
dilutive, by dividing net income by the common shares plus potential common shares issuable upon exercising options or other
contracts. The following table reconciles the amounts used in calculating basic and diluted income per share:
Numerator:
Net income from continuing operations
Earnings allocated to unvested restricted shares
Net income from continuing operations attributable to common shareholders
Net income from discontinued operations attributable to common shareholders
Denominator:
Weighted average number of common shares outstanding - basic
Effect of unvested restricted shares
Weighted average number of common shares outstanding - diluted
Basic and diluted income per common share:
Net income from continuing operations per share
Net income from discontinued operations per share
Net income per share
Year ended December 31,
2017
2016
2018
83,849
(95)
83,754
$
$
— $
57,954
(15)
57,939
3,839
$
$
$
119,199
(10)
119,189
133,523
761,139,011
773,445,341
854,638,497
926,463
1,155,138
62,258
762,065,474
774,600,479
854,700,755
0.11
—
0.11
$
$
0.07
—
0.07
$
$
0.14
0.15
0.29
$
$
$
$
$
On August 15, 2018, the Company announced and commenced a modified "Dutch Auction" tender offer (the "2018 Offer") to
purchase for cash up to $75,000 in value of shares of the Company's common stock, par value $0.001 per share (the "Shares"),
subject to its ability to increase the number of Shares accepted for payment by up to 2% of the Company's outstanding Shares.
The Company exercised that option and increased the 2018 Offer by 10,706,774 shares, or $22,500, to avoid any proration for
the stockholders tendering shares. The 2018 Offer expired on September 13, 2018.
As a result of the 2018 Offer, the Company accepted for purchase 46,559,289 shares of its common stock (which represented
approximately 6.0% of the shares of common stock outstanding at the time) at a purchase price of $2.10 per share, for a cost of
approximately $97,775, excluding fees and expenses. Aggregate costs of $98,491 were recorded as reductions to common stock
and additional paid-in capital on the consolidated statements of equity for the year ended December 31, 2018.
On October 27, 2016, the Company announced and commenced a modified "Dutch Auction" tender offer (the "2016 Offer") to
purchase for cash up to $200,000 in value of shares of the Company's common stock, par value $0.001 per share (the "2016
Shares"), subject to the Company's ability to increase the number of 2016 Shares accepted for payment in the 2016 Offer by up
to 2% of the Company's outstanding 2016 Shares, without amending or extending the 2016 Offer in accordance with the rules
F-35
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
promulgated by the SEC. The Company exercised that option and increased the 2016 Offer by 14,186,716 shares, or $37,700,
to avoid any proration for the stockholders tendering shares. The 2016 Offer expired on December 1, 2016.
As a result of the 2016 Offer, the Company accepted for purchase 89,502,449 shares of its common stock (which represented
approximately 10.4% of the shares of common stock outstanding at the time) at a purchase price of $2.66 per share, for a cost
of approximately $238,077, excluding fees and expenses. Aggregate costs of $241,016 were recorded as reductions to common
stock and additional paid-in capital on the consolidated statements of equity for the year ending December 31, 2016. On April
17, 2017, the Company received $1,929 of excess funds related to the 2016 Offer.
13. Stock-Based Compensation
Share Unit Plans
During 2014, the Company adopted the Inland American Real Estate Trust, Inc. 2014 Share Unit Plan (the "Retail Plan"), with
respect to the Company's retail business and the Inland American Communities Group, Inc. 2014 Share Unit Plan (the "Student
Housing Plan"), with respect to the Company's student housing business (collectively, the "Share Unit Plans"). Each Share Unit
Plan provided for the grant of "share unit" awards to eligible participants. The value of a "share unit" was estimated based on a
phantom capitalization of the Company's retail/non-core business and student housing business, and does not necessarily
correspond to the value of a share of common stock of the Company or Inland American Communities Group, Inc. (University
House Communities Group, Inc.), as applicable. Vesting of the share units is conditioned upon the occurrence of a triggering
event, such as a listing or a change in control of the applicable business, and if no triggering event occurs within five years
following the applicable grant date, then the share units are forfeited. The Company does not recognize share-based
compensation expense with respect to the Share Unit Plans until the occurrence of a triggering event.
The closing of the student housing platform sale on June 21, 2016 was a triggering event under the Student Housing Plan. As of
June 20, 2016, share unit awards granted in 2016, 2015 and 2014 with an aggregate vested value of $2,246, $1,796, and $833,
respectively, were outstanding under the Student Housing Plan, and were paid as part of the closing of the student housing
platform sale and recorded as an offset of the gain on the student housing platform sale, which was included in discontinued
operations on the consolidated statements of operations and comprehensive income for year ended December 31, 2016. Certain
share unit awards vested under the Student Housing Plan during the year ended December 31, 2016, with an aggregate value of
$313, were included in continuing operations on the consolidated statements of operations and comprehensive income.
As of June 19, 2015, in connection with the adoption of the Incentive Award Plan (as defined below), the Company terminated
the Retail Plan. Awards outstanding as of June 19, 2015 under the Retail Plan will remain outstanding and subject to the terms
of the Retail Plan and the applicable award agreement. The Company does not anticipate the Retail Plan Awards will experience
a triggering event prior to its expiration on March 12, 2019.
As a triggering event has not occurred with respect to the Company's retail business, the Company did not recognize stock-
based compensation expense related to the Retail Plan for the years ended December 31, 2018, 2017, or 2016.
Incentive Award Plan
Effective as of June 19, 2015, the Company's Board adopted and approved the InvenTrust Properties Corp. 2015 Incentive
Award Plan (as amended, the "Incentive Award Plan"), under which the Company may grant cash and equity incentive awards
to eligible employees, directors, and consultants. The restricted share units granted under the Incentive Award Plan to
employees vest equally on each of three anniversaries subsequent to the grant date, and annually for those shares granted to
directors, subject to the recipients' continued service to the Company.
Under the Incentive Award Plan, the Company is authorized to grant up to 30,000,000 shares of the Company's common stock
pursuant to awards under the plan. As of December 31, 2018, 23,626,050 shares were available for future issuance under the
Incentive Award Plan.
F-36
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
A summary of the Company's restricted stock unit activity during the years ended December 31, 2018, 2017 and 2016 is as
follows:
Unvested Restricted
Stock Units
Weighted Average Grant
Date Price Per Share (a)
Outstanding as of January 1, 2016
Shares granted
Shares vested
Shares forfeited
Outstanding as of December 31, 2016
Shares granted
Shares vested
Shares forfeited
Outstanding as of December 31, 2017
Shares granted
Shares vested
Shares forfeited
Outstanding as of December 31, 2018
951,555
2,410,341
(1,096,480)
(618,893)
1,646,523
2,019,078
(1,750,773)
(379,323)
1,535,505
1,950,307
(1,349,852)
(587,810)
1,548,150
$4.00
$3.14
$3.48
$3.47
$3.29
$3.29
$3.38
$3.25
$3.19
$3.14
$3.20
$3.19
$3.18
(a) On an annual basis, the Company engages an independent third-party valuation advisory consulting firm to estimate the per share value
of the Company's common stock.
As of December 31, 2018, there was $4,503 of total unrecognized compensation expense related to unvested stock-based
compensation arrangements granted under the Incentive Award Plan related to 1,062,563 and 485,587 unvested shares vesting
in 2019 and 2020, respectively. The restricted stock units outstanding as of December 31, 2018 have vesting schedules through
December 2019 or 2020, as applicable. Stock-based compensation expense will be amortized on a straight-line basis over the
vesting period. The Company recognized stock-based compensation expense of $4,330, $5,782 and $3,737 related to the
Incentive Award Plan for the years ended December 31, 2018, 2017 and 2016, respectively.
F-37
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
14. Commitments and Contingencies
Legal Matters
The Company is subject, from time to time, to various types of third-party legal claims or litigation that arise in the ordinary
course of business, including, but not limited to, employee matters, property loss claims, personal injury or other damages
resulting from contact with the Company’s properties. These claims and lawsuits and any resulting damages are generally
covered by the Company's insurance policies. The Company accrues for legal costs associated with loss contingencies when
these costs are probable and reasonably estimable. While the resolution of these matters cannot be predicted with certainty,
management does not expect, based on currently available information, that the final outcome of any pending claims or legal
proceedings will have a material adverse effect on the financial condition, results of operations or cash flows of the Company.
Legacy Corner Apartments
As previously disclosed in our Annual Report for the year ended December 31, 2017, on September 6, 2013, a former tenant at
the Legacy Corner Apartments property in Midwest City, Oklahoma filed a complaint in the District Court of Oklahoma County
against the Company and other named defendants alleging premises liability and negligent maintenance. In April 2017, a jury
trial commenced and ultimately resulted in a verdict against the Company’s subsidiary and the other named defendants in favor
of the plaintiff. In July 2017, the plaintiff asserted a demand against the Company’s subsidiary and the other named defendants
to settle the lawsuit through arbitration in exchange for an amount less than the total damages awarded. Subsequent to
negotiations with the Company's insurance carrier, the Company recorded a $553 legal expense to other expenses on the
consolidated statements of operations and comprehensive income related to its portion of the final settlement paid by the
Company during the year ended December 31, 2017.
University House Communities Group, Inc., Indemnity Claims
The Company received an indemnity notice from UHC Acquisition Sub LLC ("UHC") regarding certain matters under the
Stock Purchase Agreement, dated January 3, 2016, for University House Communities Group, Inc., which was sold in June
2016. The notice sets forth various items for which UHC believes they are entitled to indemnification from the Company. In the
normal course of property dispositions, pursuant to the purchase and sale agreements, certain indemnification claims can be
made against the Company by the purchaser, in which the Company will continue to adjust the financial statements, as
necessary, based on those claims. Based on the facts and circumstances of the indemnification claims made, guidance provided
by third-party specialists and counsel, and management’s ongoing assessment of the UHC claims, in 2017 the Company
accrued a potential loss contingency representing their best estimate of the potential loss related to these claims. However, due
to the uncertain nature of this matter, the ultimate resolution could result in a loss of up to $5,000 in excess of the amount
accrued. As of December 31, 2018, no material additional information has come to the attention of management that would
change their best estimate of the potential loss related to these claims. These claims and any resulting damages are not expected
to be covered by the Company's insurance policies.
Operating and Capital Lease Commitments
The Company has non-cancelable operating leases for office space used in its business. During the years ended December 31,
2018, 2017 and 2016, the Company recognized rent expense associated with these leases of $1,114, $1,411, and $1,415, respectively,
as a part of general and administrative expenses on the consolidated statements of operations and comprehensive income.
The Company has non-cancelable contracts for property improvements which have been deemed to contain capital leases. At
December 31, 2018, the Company has recognized total capital lease assets of $2,097 and accumulated amortization of $104 as a
part of building and other improvements and accumulated depreciation, respectively, on the consolidated balance sheet. During
the year ended December 31, 2018, the Company recognized interest expense associated with these leases of $104 as a part of
interest expense, net on the consolidated statement of operations and comprehensive income.
F-38
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
December 31, 2018, 2017 and 2016
Future minimum lease obligations under these leases as of December 31, 2018, were as follows:
2019
2020
2021
2022
2023
Thereafter
Total expected minimum lease obligations
Less: Amount representing interest (a)
Present value of net minimum lease payments (b)
$
$
Future Minimum Base Rent Payments
Operating Leases
Capital Leases
717
611
494
466
479
1,041
3,808
$
$
532
532
519
317
40
—
1,940
(151)
1,789
(a) Interest includes the amount necessary to reduce the total expected minimum lease obligations to present value calculated at the
Company's incremental borrowing rate.
(b) The present value of net minimum lease payments are presented in other liabilities in the accompanying consolidated balance sheets.
15. Subsequent Events
In preparing its consolidated financial statements, the Company evaluated events and transactions occurring after December 31,
2018 through the date the financial statements were issued for recognition and disclosure purposes. On January 31, 2019, the
Company acquired Commons at University Place, a 92,100 square foot neighborhood center located in the Raleigh-Cary, NC
MSA, for a gross acquisition price of $23,300.
16. Quarterly Supplemental Financial Information (unaudited)
The following table represents the results of operations, for each quarterly period, during 2018 and 2017:
Total income
Net income
Net income per common share, basic and diluted (a)
Weighted average number of common shares
outstanding, basic and diluted (a)
For the quarter ended
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
$
56,491
$
60,493
$
61,774
$
17,507
$0.03
8,947
$0.01
23,163
$0.03
63,916
34,232
$0.04
727,904,818
768,385,770
774,391,881
774,311,254
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
For the quarter ended
Total income
$
64,521
$
62,849
$
62,152
$
Net income from continuing operations
Net income from discontinued operations
Net income
Net income per common share, basic and diluted (a)
Weighted average number of common shares
outstanding, basic and diluted (a)
8,285
(4,474)
3,811
$—
12,243
9,722
21,965
$0.03
34,753
(833)
33,920
$0.04
62,287
2,673
(576)
2,097
$—
773,562,942
773,517,492
773,381,165
773,316,262
(a) Quarterly net income per common share amounts may not total to the annual amounts due to rounding and the changes in the number of
weighted average common shares outstanding.
F-39
INVENTRUST PROPERTIES CORP.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2018
Initial Cost (A)
Gross amount at which carried at end of period
Encumbrance
Land
Buildings and
Improvements
Adjustments to
Land Basis (B)
Adjustments to
Basis (B)
Land and
Improvements
Buildings and
Improvements
Total (C)
Accumulated
Depreciation
(D,E)
Date of
Completion of
Construction or
Date of
Acquisition
$
13,020
$
3,523
$
12,384
$
— $
245
$
3,523
$
12,629
$
16,152
$
4,580
PROPERTY NAME
Location
BEAR CREEK
VILLAGE CENTER
Wildomar, CA
BENT TREE PLAZA
Raleigh, NC
BOYNTON
COMMONS
Miami, FL
BROOKS CORNER
San Antonio, TX
BUCKHEAD
CROSSING
Atlanta, GA
CAMPUS
MARKETPLACE
San Marcos, CA
CARY PARK TOWN
CENTER
Cary, NC
CENTERPLACE OF
GREELEY
Greeley, CO
CHESAPEAKE
COMMONS
Chesapeake, VA
CHEYENNE
MEADOWS
Colorado Springs, CO
COWETA
CROSSING
Newnan, GA
CROSSROADS AT
CHESAPEAKE
SQUARE
Chesapeake, VA
—
—
12,557
1,983
7,093
11,400
10,600
17,315
13,648
—
7,565
27,104
41,000
26,928
43,445
—
5,555
17,280
14,087
3,904
14,715
2,669
10,839
2,023
6,991
1,143
4,590
—
—
—
—
1,646
1,983
8,739
10,722
2,809
2,213
3,469
11,400
10,600
19,528
17,117
30,928
27,717
5,827
7,751
2009
2009
2010
2006
1,013
7,565
28,117
35,682
9,933
2009
(90)
26,983
43,355
70,338
3,109
2017
—
655
62
399
16
5,555
17,280
22,835
899
2017
3,904
15,370
19,274
5,717
2009
2,669
10,901
13,570
4,705
2007
2,023
7,390
9,413
2,776
2009
1,143
4,606
5,749
1,713
2009
—
—
—
—
55
—
—
—
—
—
3,970
13,732
(296)
2,033
3,674
15,765
19,439
7,017
2007
F-40
INVENTRUST PROPERTIES CORP.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2018
Initial Cost (A)
Gross amount at which carried at end of period
Encumbrance
Land
Buildings and
Improvements
Adjustments to
Land Basis (B)
Adjustments to
Basis (B)
Land and
Improvements
Buildings and
Improvements
Total (C)
Accumulated
Depreciation
(D,E)
Date of
Completion of
Construction or
Date of
Acquisition
PROPERTY NAME
Location
CUSTER CREEK
VILLAGE
Richardson, TX
ELDRIDGE TOWN
CENTER
Houston, TX
GARDEN VILLAGE
San Pedro, CA
GATEWAY MARKET
CENTER
Tampa, FL
KENNESAW
MARKETPLACE
Kennesaw, GA
KYLE
MARKETPLACE
Kyle, TX
MARKET AT
WESTLAKE
Westlake Hills, TX
NORTHCROSS
COMMONS
Charlotte, NC
NORTHWEST
MARKETPLACE
Houston, TX
OLD GROVE
MARKETPLACE
Oceanside, CA
PARAISO PARC
AND WESTFORK
PLAZA
Pembroke Pines, FL
PAVILION AT
LAQUINTA
LaQuinta, CA
—
—
—
—
—
—
—
—
—
—
—
4,750
12,245
3,200
3,188
16,663
16,522
13,600
4,992
12,587
51,860
6,076
48,220
1,200
6,274
7,591
21,303
—
—
—
—
—
—
(64)
—
355
771
173
4,750
12,600
17,350
5,187
2007
3,200
3,188
17,434
16,695
20,634
19,883
8,362
5,794
2005
2009
1,082
13,600
6,074
19,674
2,257
2010
—
308
80
341
12,587
51,860
64,447
1,009
2018
6,076
48,528
54,604
2,156
2017
1,136
6,354
7,490
2,660
2007
7,591
21,644
29,235
1,705
2016
3,870
30,340
(31)
1,119
3,839
31,459
35,298
12,742
2007
12,545
8,902
28,267
124,019
23,641
15,200
20,947
46
12,545
8,948
21,493
807
2016
4,862
28,267
128,881
157,148
8,120
2017
941
15,200
21,888
37,088
7,637
2009
—
—
—
F-41
INVENTRUST PROPERTIES CORP.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2018
Initial Cost (A)
Gross amount at which carried at end of period
Encumbrance
Land
Buildings and
Improvements
Adjustments to
Land Basis (B)
Adjustments to
Basis (B)
Land and
Improvements
Buildings and
Improvements
Total (C)
Accumulated
Depreciation
(D,E)
Date of
Completion of
Construction or
Date of
Acquisition
1,742
6,502
4,158
7,754
5,900
14,256
20,156
360
2009
15,155
26,713
10,414
75,730
3,705
5,295
5,540
9,579
5,171
6,300
23,946
22,414
40,086
96,141
26,903
24,598
88,418
6,000
9,649
5,931
1,443
23,922
5,630
12,366
27,270
—
—
—
(1,022)
—
—
—
—
—
—
—
—
—
568
24
1,783
2,432
3,722
133
10,414
75,730
86,144
1,499
2018
3,705
5,295
4,518
9,579
6,868
23,970
24,197
42,518
10,573
29,265
28,715
52,097
1,217
1,067
7,939
5,898
26,713
99,863
126,576
10,115
5,171
27,036
32,207
3,077
2014
2017
2009
2014
2016
2015
(112)
24,598
88,306
112,904
4,037
2017
6,000
10,426
16,426
4,343
2007
5,931
1,443
23,923
29,854
6,139
7,582
1,897
2,118
2016
2009
12,366
27,270
39,636
—
2018
777
1
509
—
F-42
PROPERTY NAME
Location
PEACHLAND
PROMENADE
Port Charlotte, FL
PGA PLAZA
Palm Beach Gardens,
FL
PLANTATION
GROVE
Ocoee, FL
PLAZA MIDTOWN
Atlanta, GL
PROMENADE
FULTONDALE
Fultondale, AL
QUEBEC SQUARE
Denver, CO
RENAISSANCE
CENTER
Durham, NC
RIO PINOR PLAZA
Orlando, FL
RIVER OAKS
SHOPPING CENTER
Valencia, CA
RIVERVIEW
VILLAGE
Arlington, TX
RIVERWALK
MARKET
Flower Mound, TX
ROSE CREEK
Woodstock, GA
SANDY PLAINS
CENTRE
Marietta, GA
—
—
7,300
—
—
23,550
—
—
—
—
—
—
INVENTRUST PROPERTIES CORP.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2018
Initial Cost (A)
Gross amount at which carried at end of period
PROPERTY NAME
Location
Encumbrance
Land
Buildings and
Improvements
Adjustments to
Land Basis (B)
Adjustments to
Basis (B)
Land and
Improvements
Buildings and
Improvements
Total (C)
Accumulated
Depreciation
(D,E)
Date of
Completion of
Construction or
Date of
Acquisition
12,000
25,823
—
4,221
12,000
30,044
42,044
8,711
2010
8,100
4,992
(576)
317
7,524
5,309
12,833
2,200
2007
SARASOTA
PAVILION
Sarasota, FL
SCOFIELD
CROSSING
Austin, TX
SHOPS AT THE
GALLERIA
Austin, TX
SILVERLAKE
Erlanger, KY
SONTERRA
VILLAGE
San Antonio, TX
STEVENSON
RANCH
Stevenson Ranch, CA
SUNCREST
VILLAGE
Orlando, FL
SYCAMORE
COMMONS
Matthews, NC
THE CENTER AT
HUGH HOWELL
Tucker, GA
THE PARKE
Cedar Park, TX
THE POINTE AT
CREEDMOOR
Raleigh, NC
THE SHOPS AT
TOWN CENTER
Germantown, MD
—
—
—
—
—
—
52,104
75,651
2,031
6,975
5,150
15,095
29,519
39,190
8,400
6,742
6,403
—
—
—
—
—
12,500
31,265
2,250
9,271
11,091
83,078
7,507
5,454
19,996
29,776
—
—
—
—
—
—
—
—
—
—
577
(10)
325
20
614
52,104
76,228
128,332
2,031
6,965
8,996
7,659
2,704
2016
2009
5,150
15,420
20,570
1,634
2015
29,519
39,210
68,729
3,840
2016
6,742
7,017
13,759
1,256
2014
1,782
12,500
33,047
45,547
11,717
2010
806
311
6
2,250
9,271
11,897
83,389
14,147
92,660
5,223
3,989
2007
2017
7,507
5,460
12,967
551
2016
114
19,996
29,890
49,886
1,916
2017
F-43
INVENTRUST PROPERTIES CORP.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2018
Initial Cost (A)
Gross amount at which carried at end of period
Encumbrance
Land
Buildings and
Improvements
Adjustments to
Land Basis (B)
Adjustments to
Basis (B)
Land and
Improvements
Buildings and
Improvements
Total (C)
Accumulated
Depreciation
(D,E)
Date of
Completion of
Construction or
Date of
Acquisition
PROPERTY NAME
Location
THE SHOPS AT
WALNUT CREEK
Westminster, CO
THOMAS
CROSSROADS
Newnan, GA
UNIVERSITY OAKS
SHOPPING CENTER
Round Rock, TX
WEST CREEK
SHOPPING CENTER
Austin, TX
WESTPARK
SHOPPING CENTER
Glen Allen, VA
WHITE OAK
CROSSING
Garner, NC
WINDERMERE
VILLAGE
Houston, TX
WINDWARD
COMMONS
Alpharetta, GA
WOODBRIDGE
Wylie, TX
WOODLAKE
CROSSING
San Antonio, TX
Total Corporate Assets
28,630
10,132
44,089
—
1,622
8,322
26,585
7,250
25,326
5,151
8,659
7,462
24,164
19,000
70,275
1,220
6,331
12,823
13,779
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,309
10,132
45,398
55,530
6,034
2015
1,246
1,622
9,568
11,190
3,224
2009
8,098
7,250
33,424
40,674
10,204
2010
37
5,151
8,696
13,847
1,700
2015
(5,568)
7,462
18,596
26,058
2,428
2013
2,123
19,000
72,398
91,398
18,746
2011
1,267
1,220
7,598
8,818
3,548
2005
299
12,823
—
—
9,509
41,617
9,509
3,420
—
14,153
—
—
—
3,508
14,104
3,420
—
14,078
41,617
17,661
14,104
26,901
51,126
21,081
14,104
1,192
12,932
5,858
10,225
2016
2013
2009
-
Total
$
213,925
$
547,084
$
1,554,225
$
11,733
$
116,453
$
558,817
$
1,670,678
$
2,229,495
$
286,330
F-44
INVENTRUST PROPERTIES CORP.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2018
Notes:
The Company had $12,788 of assets included in construction in progress at December 31, 2018, which have been omitted from the prior table. The aggregate cost of real estate owned
at December 31, 2018 for federal income tax purposes was approximately $2,449,497 (unaudited).
(A)
(B)
The initial cost to the Company represents the original purchase price of the asset, including amounts incurred subsequent to acquisition which were contemplated at the time
the property was acquired.
Cost capitalized subsequent to acquisition includes additional tangible costs associated with investment properties, including any earnout of tenant space. Amount also
includes impairment charges recorded subsequent to acquisition to reduce basis.
(C)
Reconciliation of real estate owned:
Balance at January 1,
Acquisitions and capital improvements
Disposals and write-offs
Properties classified as discontinued operations
Balance at December 31,
(D)
Reconciliation of accumulated depreciation:
Balance at January 1,
Depreciation expense, continuing operations
Depreciation expense, properties classified as discontinued operations
Accumulated depreciation expense, properties classified as discontinued operations
Disposal and write-offs
Balance at December 31,
(E)
Depreciation is computed based upon the following estimated lives:
Buildings and improvements
Tenant improvements
Furniture, fixtures and equipment
F-45
2018
2017
2016
2,516,085
$
2,180,252
$
2,259,631
237,439
(524,029)
—
598,843
(263,010)
—
497,646
(534,458)
(42,567)
2,229,495
$
2,516,085
$
2,180,252
2018
2017
2016
348,337
$
73,021
—
—
(135,028)
286,330
$
351,389
$
70,959
974
—
(74,985)
348,337
$
394,904
63,684
27,397
(2,601)
(131,995)
351,389
$
$
$
$
30 years
Life of the lease
5 - 15 years