The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
Note 1 – Organization and Business Operations
InPoint Commercial Real Estate Income, Inc. (the “Company”) was incorporated in Maryland on September 13, 2016 to originate, acquire and manage a diversified portfolio of commercial real estate (“CRE”) investments primarily comprised of floating-rate CRE debt, including first mortgage loans, subordinate mortgage and mezzanine loans, and participations in such loans. The Company may also invest in floating-rate CRE securities, such as commercial mortgage-backed securities (“CMBS”), and senior unsecured debt of publicly traded real estate investment trusts (“REITs”), and select equity investments in single-tenant, net leased properties. Substantially all of the Company’s business is conducted through InPoint REIT Operating Partnership, LP (the “Operating Partnership”), a Delaware limited partnership. The Company is the sole general partner and directly or indirectly holds all limited partner interests in the Operating Partnership. The Company has elected to be taxed as a REIT for U.S. federal income tax purposes.
The Company is externally managed by Inland InPoint Advisor, LLC (the “Advisor”), a Delaware limited liability company formed in August 2016 that is a wholly owned indirect subsidiary of Inland Real Estate Investment Corporation, a member of The Inland Real Estate Group of Companies, Inc. The Advisor is responsible for coordinating the management of the day-to-day operations and originating, acquiring and managing the Company’s CRE investment portfolio, subject to the supervision of the Company’s board of directors (the “Board”). The Advisor performs its duties and responsibilities as the Company’s fiduciary pursuant to a second amended and restated advisory agreement dated July 1, 2021 among the Company, the Operating Partnership and the Advisor (the “Advisory Agreement”).
The Advisor has delegated certain of its duties to SPCRE InPoint Advisors, LLC (the “Sub-Advisor”), a Delaware limited liability company formed in September 2016 that is a wholly owned subsidiary of Sound Point CRE Management, LP, pursuant to a second amended and restated sub-advisory agreement between the Advisor and the Sub-Advisor dated July 1, 2021. Among other duties, the Sub-Advisor has the authority to identify, negotiate, acquire and originate the Company’s investments and provide portfolio management, disposition, property management and leasing services to the Company. Notwithstanding such delegation to the Sub-Advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the Advisory Agreement, including those duties that the Advisor has not delegated to the Sub-Advisor, such as (i) valuation of the Company’s assets and calculation of the Company’s net asset value (“NAV”); (ii) management of the Company’s day-to-day operations; (iii) preparation of stockholder reports and communications and arrangement of the Company’s annual stockholder meeting; and (iv) monitoring the Company’s ongoing compliance with the REIT qualification requirements.
On October 25, 2016, the Company commenced a private offering (the “Private Offering”) of up to $500,000 of shares of Class P common stock (“Class P shares”). The Company issued 10,258,094 Class P shares in the Private Offering, resulting in gross proceeds of $276,681 and terminated the Private Offering on June 28, 2019.
On March 22, 2019, the Company filed a Registration Statement on Form S-11 (File No. 333-230465) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) to register up to $2,350,000 in shares of common stock (the “IPO”).
On May 3, 2019, the SEC declared effective the Registration Statement and the Company commenced the IPO. The purchase price per share for each class of common stock in the IPO (Class A, Class I, Class D, Class S and Class T) varies and generally equals the prior month’s NAV per share, as determined monthly, plus applicable upfront selling commissions and dealer manager fees. Inland Securities Corporation (the “Dealer Manager”), an affiliate of the Advisor, serves as the Company’s exclusive dealer manager for the IPO on a best efforts basis. On April 28, 2022, the Company filed a Registration Statement on Form S-11 (File No. 333-264540) with the SEC to register up to $2,200,000 in shares of common stock, which has not yet been declared effective.
On March 24, 2020, the Board suspended (i) the sale of shares in the IPO, (ii) the operation of the share repurchase program (the “SRP”), (iii) the payment of distributions to the Company’s stockholders, and (iv) the operation of the distribution reinvestment plan (the “DRP”), effective as of April 6, 2020. In determining to take these actions, the Board considered various factors, including the impact of the COVID-19 pandemic on the economy, the inability to accurately calculate the Company’s NAV per share due to uncertainty, volatility and lack of liquidity in the market, the Company’s need for liquidity due to financing challenges related to additional collateral required by the banks that regularly finance the Company’s assets and these uncertain and rapidly changing economic conditions.
Though the Company did not calculate the NAV for the months of March through May 2020, the Advisor resumed calculating the NAV beginning as of June 30, 2020 following its determination that volatility in the market for the Company’s investments had declined and the U.S. economic outlook had improved. In August 2020, the Company resumed paying distributions monthly to
6
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
stockholders of record for all classes of its common stock. On October 1, 2020, the SEC declared effective the Company’s post-effective amendment to the Registration Statement, thereby permitting the Company to resume offers and sales of shares of common stock in the IPO, including through the DRP.
On March 1, 2021, the SRP was reinstated for the Company’s stockholders requesting repurchase of shares as a result of the death or qualified disability of the holder, and on July 1, 2021, the SRP was reinstated for all stockholders. In accordance with the terms of the SRP that allow the Company to repurchase fewer shares than the maximum amount permitted under the SRP, the Company repurchased fewer shares than the maximum amount permitted for the months of July, August and September 2021 as directed by the Board. Beginning on October 1, 2021, the total amount of aggregate repurchases of shares was limited as set forth in the SRP (no more than 2% of the Company’s aggregate NAV per month as of the last day of the previous calendar month and no more than 5% of the Company’s aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter). Notwithstanding the foregoing, the Company may repurchase fewer shares than these limits in any month, or none. Further, the Board may modify, suspend or terminate the SRP if it deems such action to be in the Company’s best interest and the best interest of its stockholders.
On September 22, 2021, the Company completed an underwritten public offering of 3,500,000 shares of its 6.75% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), with a liquidation preference of $25.00 per share (the “Preferred Stock Offering”). In addition, on October 15, 2021, Raymond James & Associates, Inc., as a representative of the underwriters, partially exercised their over-allotment option to purchase an additional 100,000 shares of Series A Preferred Stock. The Series A Preferred Stock were issued and sold pursuant to a Registration Statement on Form S-11 (File No. 333-258802) filed with the SEC. The Company received net proceeds in the Preferred Stock Offering of $86,310, after underwriter’s discount and issuance costs, and contributed the net proceeds to the Operating Partnership in exchange for an equivalent number of Series A units in the Operating Partnership (with economic terms that mirror those of the Series A Preferred Stock). For more information on the Preferred Stock Offering, see “Note 6 – Stockholders’ Equity.”
Please refer to “Note 15 – Subsequent Events” for updates to the Company’s business after March 31, 2022.
Note 2 – Summary of Significant Accounting Policies
Disclosures discussing all significant accounting policies are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 11, 2022 (the “Annual Report), under the heading “Note 2 – Summary of Significant Accounting Policies.” There have been no changes to the Company’s significant accounting policies for the three months ended March 31, 2022.
Basis of Accounting
The accompanying consolidated financial statements and related footnotes have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reported periods. Actual results could differ from such estimates.
In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Credit Facility Payable
The Company has a credit facility to finance the acquisition or origination of commercial mortgage loans. This credit facility, when drawn upon, is accounted for as debt. The fees paid for this credit facility are recorded in deferred debt finance costs on the consolidated balance sheet and are amortized straight line over the period of the agreement to debt finance costs on the consolidated statement of operations. For further information on the credit facility, see “Note 4 – Repurchase Agreements and Credit Facilities.”
7
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include funds on deposit with financial institutions, including demand deposits with financial institutions with original maturities of three months or less. The account balance may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage limits and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage limits. The Company believes that the risk will not be significant, as the Company does not anticipate the financial institutions’ non-performance.
Restricted cash represents cash the Company is required to hold in a segregated account as additional collateral on real estate securities repurchase agreements. As of March 31, 2022 and December 31, 2021, the Company had repaid all outstanding repurchase agreements secured by real estate securities and, therefore, no restricted cash was held.
Accounting Pronouncements Recently Issued but Not Yet Effective
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changed how entities measure credit losses for financial assets carried at amortized cost. ASU 2016-13 eliminated the requirement that a credit loss must be probable before it can be recognized and instead required an entity to recognize the current estimate of all expected credit losses. ASU 2016-13 became effective for SEC filers for reporting periods beginning after December 15, 2019.
In November 2019, the FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”, which grants smaller reporting companies (as defined by the SEC) until reporting periods commencing after December 15, 2022 to implement ASU 2016-13. As a smaller reporting company, the Company will continue to evaluate the future impact ASU 2016-13, once implemented, will have on its allowance for loan losses estimate.
Note 3 – Commercial Mortgage Loans Held for Investment
The tables below show the Company’s commercial mortgage loans held for investment as of March 31, 2022 and December 31, 2021:
March 31, 2022
Loan Type (1) |
|
Number
of Loans |
|
|
Principal
Balance |
|
|
Unamortized (fees)/costs, net |
|
|
Carrying
Value |
|
|
Weighted Average
Interest Rate |
|
|
Weighted Average
Years to Maturity |
|
First mortgage loans |
|
|
39 |
|
|
$ |
715,314 |
|
|
$ |
1,284 |
|
|
$ |
716,598 |
|
|
|
4.2 |
% |
|
|
1.7 |
|
Credit loans |
|
|
2 |
|
|
|
13,500 |
|
|
|
— |
|
|
|
13,500 |
|
|
|
9.6 |
% |
|
|
4.2 |
|
Total and average |
|
|
41 |
|
|
$ |
728,814 |
|
|
$ |
1,284 |
|
|
$ |
730,098 |
|
|
|
4.3 |
% |
|
|
1.8 |
|
December 31, 2021
Loan Type (1) |
|
Number
of Loans |
|
|
Principal
Balance |
|
|
Unamortized (fees)/costs, net |
|
|
Carrying
Value |
|
|
Weighted Average
Interest Rate |
|
|
Weighted Average
Years to Maturity |
|
First mortgage loans |
|
|
36 |
|
|
$ |
650,670 |
|
|
$ |
1,328 |
|
|
$ |
651,998 |
|
|
|
4.5 |
% |
|
|
1.6 |
|
Credit loans |
|
|
2 |
|
|
|
13,500 |
|
|
|
— |
|
|
|
13,500 |
|
|
|
9.6 |
% |
|
|
4.4 |
|
Total and average |
|
|
38 |
|
|
$ |
664,170 |
|
|
$ |
1,328 |
|
|
$ |
665,498 |
|
|
|
4.6 |
% |
|
|
1.7 |
|
(1) |
First mortgage loans are first position mortgage loans and credit loans are mezzanine and subordinated loans. |
8
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
For the three months ended March 31, 2022 and the year ended December 31, 2021, the activity in the Company’s commercial mortgage loans, held-for-investment portfolio was as follows:
|
|
Three Months Ended March 31, 2022 |
|
|
Year Ended December 31, 2021 |
|
Balance at Beginning of Year |
|
$ |
665,498 |
|
|
$ |
441,814 |
|
Loan originations |
|
|
155,810 |
|
|
|
337,033 |
|
Principal repayments |
|
|
(91,166 |
) |
|
|
(114,558 |
) |
Amortization of loan origination, loan extension and deferred exit fees |
|
|
7 |
|
|
|
1,440 |
|
Origination fees and extension fees received on commercial loans |
|
|
(51 |
) |
|
|
(231 |
) |
Balance at End of Period |
|
$ |
730,098 |
|
|
$ |
665,498 |
|
Allowance for Loan Losses
During the three-month periods ended March 31, 2022 and 2021, the Company determined that no loan losses were probable and, therefore, did not record an allowance for loan losses. For further information on the Company’s allowance for loan losses policy, see “Note 2 – Summary of Significant Accounting Policies” in its Annual Report.
Credit Characteristics
As part of the Company’s process for monitoring the credit quality of its investments, it performs a quarterly asset review of the investment portfolio and assigns risk ratings to each of its loans and certain securities it may own, such as CMBS. Risk factors include payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographic location, as well as national and regional economic factors. To determine the likelihood of loss, the loans are rated on a 5-point scale as follows:
Investment
Grade |
Investment Grade Definition |
1 |
Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable. |
2 |
Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable. |
3 |
Performing investment requiring closer monitoring. Trends and risk factors show some deterioration. Collection of principal and interest is still expected. |
4 |
Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative. |
5 |
Underperforming investment with expected loss of interest and some principal. |
All investments are assigned an initial risk rating of 2 at origination or acquisition.
As of March 31, 2022, 36 loans had a risk rating of 2 and five had a risk rating of 3. As of December 31, 2021, 33 loans had a risk rating of 2 and five had a risk rating of 3.
Note 4 – Repurchase Agreements and Credit Facilities
Commercial Mortgage Loans
On February 15, 2018, the Company, through a wholly owned subsidiary, entered into a master repurchase agreement (the “CF Repo Facility”) with Column Financial, Inc. as administrative agent for certain of its affiliates. As the Company’s business has grown, it has increased the borrowing limit and extended the maturity. The most recent extension was in November 2021 for a twelve-month term and the maximum advance amount was increased to $350,000. Advances under the CF Repo Facility accrue interest at a per annum annual rate equal to the Secured Overnight Financing Rate (“SOFR”) plus 1.75% to 2.50% with a 0.15% to 0.75% floor. The CF Repo
9
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
Facility is subject to certain financial covenants. The Company was in compliance with all financial covenant requirements as of March 31, 2022 and December 31, 2021.
On May 6, 2019, the Company, through a wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association. The JPM Repo Facility provides up to $150,000 in advances that the Company expects to use to finance the acquisition or origination of eligible loans and participation interests therein. Advances under the JPM Repo Facility accrue interest at per annum rates equal to the sum of (i) the applicable London Interbank Offered Rate (“LIBOR”) index rate plus (ii) a margin of between 1.75% to 2.50%, depending on the attributes of the purchased assets. The maturity date of the JPM Repo Facility is May 6, 2022. See Note 15 – “Subsequent Events” about the extension of the of the JPM Repo Facility. The JPM Repo Facility is subject to certain financial covenants. The Company was in compliance with all financial covenant requirements as of March 31, 2022 and December 31, 2021.
On March 10, 2021, the Company, through a wholly owned subsidiary, entered into a loan and security agreement and a promissory note (collectively, the “WA Credit Facility”) with Western Alliance Bank (“Western Alliance”). The WA Credit Facility provides for loan advances up to the lesser of $75,000 or the borrowing base. The borrowing base consists of eligible assets pledged to and accepted by Western Alliance in its discretion up to the lower of (i) 60% to 70% of loan-to-unpaid balance or (ii) 45% to 50% of the loan-to-appraised value (depending on the property type underlying the asset, for both (i) and (ii)). Assets that would otherwise be eligible become ineligible after being pledged as part of the borrowing base for 36 months. Advances under the WA Credit Facility accrue interest at an annual rate equal to one-month LIBOR plus 3.25% with a floor of 4.0%. The initial maturity date of the WA Credit Facility is March 10, 2023. The Company has an option to convert the loan made pursuant to the WA Credit Facility upon its initial maturity to a term loan with the same interest rate and floor and a maturity of two years in exchange for, among other things, a conversion fee of 0.25% of the outstanding amount at the time of conversion. The WA Credit Facility requires maintenance of an average unrestricted aggregate deposit account balance with Western Alliance of not less than $3,750. Failure to meet the minimum deposit balance will result in, among other things, the interest rate of the WA Credit Facility increasing by 0.25% per annum for each quarter in which the compensating balances are not maintained. The Company was in compliance with all financial covenant requirements as of March 31, 2022 and December 31, 2021.
The JPM Repo Facility, CF Repo Facility and WA Credit Facility (collectively, the “Facilities”) are used to finance eligible loans and each act in the manner of a revolving credit facility that can be repaid as the Company’s assets are paid off and re-drawn as advances against new assets.
The tables below show the Facilities as of March 31, 2022 and December 31, 2021:
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Committed Financing |
|
|
Amount
Outstanding (1) |
|
|
Accrued
Interest
Payable |
|
|
Collateral
Pledged |
|
|
Interest
Rate |
|
|
Days to
Maturity |
|
CF Repo Facility |
$ |
350,000 |
|
|
$ |
301,787 |
|
|
$ |
260 |
|
|
$ |
412,017 |
|
|
|
2.27 |
% |
|
|
224 |
|
JPM Repo Facility |
|
150,000 |
|
|
|
108,551 |
|
|
|
95 |
|
|
|
149,110 |
|
|
|
2.26 |
% |
|
|
36 |
|
Total Repurchase Facilities - commercial mortgage loans |
|
500,000 |
|
|
|
410,338 |
|
|
|
355 |
|
|
|
561,127 |
|
|
|
2.27 |
% |
|
|
174 |
|
WA Credit Facility |
|
75,000 |
|
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
4.00 |
% |
|
|
344 |
|
|
$ |
575,000 |
|
|
$ |
410,338 |
|
|
$ |
371 |
|
|
$ |
561,127 |
|
|
|
2.27 |
% |
|
|
174 |
|
10
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Committed Financing |
|
|
Amount
Outstanding (1) |
|
|
Accrued
Interest
Payable |
|
|
Collateral
Pledged |
|
|
Interest
Rate |
|
|
Days to
Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CF Repo Facility |
$ |
350,000 |
|
|
$ |
189,654 |
|
|
$ |
159 |
|
|
$ |
260,691 |
|
|
|
2.16 |
% |
|
|
314 |
|
JPM Repo Facility |
|
150,000 |
|
|
|
117,470 |
|
|
|
92 |
|
|
|
167,704 |
|
|
|
2.02 |
% |
|
|
126 |
|
Total Repurchase Facilities - commercial mortgage loans |
|
500,000 |
|
|
|
307,124 |
|
|
|
251 |
|
|
|
428,395 |
|
|
|
2.11 |
% |
|
|
242 |
|
WA Credit Facility |
|
75,000 |
|
|
|
14,350 |
|
|
|
22 |
|
|
|
20,500 |
|
|
|
4.00 |
% |
|
|
434 |
|
|
$ |
575,000 |
|
|
$ |
321,474 |
|
|
$ |
273 |
|
|
$ |
448,895 |
|
|
|
2.19 |
% |
|
|
251 |
|
(1) |
Excludes $68 and $41 of unamortized debt issuance costs at March 31, 2022 and December 31, 2021, respectively. |
Note 5 – Loan Participations Sold, Net
On November 15, 2021, the Company sold a non-recourse senior participation interest in nine first mortgage loans to a third party. Under the loan participation agreement, in the event of default by the underlying mortgagor, any amounts paid are first allocated to the third party before any amounts are allocated to the Company’s subordinate interest. The Company, as the directing participant in the loan participation agreement, is entitled to exercise, without the consent of the third party, each of the consent approval and control rights under the applicable underlying mortgage loan documents with a few exceptions. The Company requires the third party’s approval for any modification or amendment to the loan, a bankruptcy plan for an underlying mortgagor where the third party would incur an out-of-pocket loss, or any transfer of the underlying mortgaged property if the Company’s approval is required by the underlying mortgage documents. The Company remains the directing participant unless certain conditions are met related to losses on the property or if the mortgagor is an affiliate of the Company. In the former case, the Company may post cash or short-term U.S. government securities as collateral to retain the rights of the directing participant.
The third party, as the senior participation interest holder, will receive interest and principal payments from the borrower until they receive the amounts to which they are entitled. All expenses or losses on the underlying mortgages are allocated first to the Company and then to the third party. If the underlying mortgage is in default, the Company will have the option to purchase the third party’s participation interest and remove it from the loan participation agreement.
The financing or transfer of a portion of a loan by the non-recourse sale of a senior interest in the loan through a participation agreement generally does not qualify as a sale under GAAP. Therefore, in this instance, the Company presents the whole loan as an asset and the loan participation sold as a liability on the consolidated balance sheet until the loan is repaid. The obligation to pay principal and interest on these liabilities is generally based on the performance of the related loan obligation. The gross presentation of loan participations sold does not impact stockholders’ equity or net income.
The following table details the Company’s loan participations sold as of March 31, 2022 and December 31, 2021:
|
|
March 31, 2022 |
|
Loan Participations Sold |
|
Count |
|
|
Principal Balance |
|
|
Book Value |
|
|
Yield/Cost (1) |
|
Weighted Average Maximum Maturity |
|
Total Loans |
|
|
9 |
|
|
$ |
137,520 |
|
|
$ |
138,276 |
|
|
L+3.6% |
|
|
1.98 |
|
Senior participations (2)(3) |
|
|
9 |
|
|
$ |
110,016 |
|
|
$ |
110,016 |
|
|
L+2.0% |
|
|
1.98 |
|
11
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
|
|
December 31, 2021 |
|
Loan Participations Sold |
|
Count |
|
|
Principal Balance |
|
|
Book Value |
|
|
Yield/Cost (1) |
|
Weighted Average Maximum Maturity |
|
Total Loans |
|
|
9 |
|
|
$ |
137,215 |
|
|
$ |
137,931 |
|
|
L+3.6% |
|
|
2.22 |
|
Senior participations (2)(3) |
|
|
9 |
|
|
$ |
109,772 |
|
|
$ |
109,772 |
|
|
L+2.0% |
|
|
2.22 |
|
____________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The yield/cost is the present value of all future principal and interest payments on the loan or participation interest and does not include any origination fees or deferred commitment fees. |
(2) |
As of March 31, 2022 and December 31, 2021, the loan participations sold were non-recourse to the Company. |
(3) |
During the three-months ended March 31, 2022, the Company recorded $599 of interest expense related to the loan participations sold. |
Note 6 – Stockholders’ Equity
Preferred Stock Offering
On September 22, 2021, the Company issued and sold 3,500,000 shares of the Series A Preferred Stock at a public offering price of $25.00 per share. In addition, on October 15, 2021, Raymond James & Associates, Inc., as representative of the underwriters, partially exercised their over-allotment option and purchased an additional 100,000 shares of Series A Preferred Stock. The Series A Preferred Stock were issued and sold pursuant to a Registration Statement on Form S-11 (File No. 333-258802) filed with the SEC. The Company received net proceeds of $86,310, after underwriter’s discount and issuance costs, and contributed the net proceeds to the Operating Partnership in exchange for an equivalent number of Series A units in the Operating Partnership.
Dividends on the Series A Preferred Stock are cumulative and payable quarterly in arrears at a rate per annum equal to 6.75% per annum of the $25.00 liquidation preference (the “Initial Rate”). Subject to certain exceptions, upon a Change of Control that occurs on or prior to September 22, 2022 or upon a Downgrade Event (as such terms are defined in the Articles Supplementary designating the Series A Preferred Stock (the “Articles Supplementary”)) or where any shares of the Series A Preferred Stock remain outstanding after September 22, 2026, the Series A Preferred Stock will thereafter accrue cumulative cash dividends at a rate higher than the Initial Rate.
Subject to certain exceptions, beginning on September 22, 2022, upon the occurrence of a Change of Control, each holder of shares of Series A Preferred Stock will have the right to convert some or all of the Series A Preferred Stock held by such holder into a number of the Company’s shares of Class I common stock as provided for in the Articles Supplementary.
The Company may not redeem the Series A Preferred Stock prior to September 22, 2026, except in limited circumstances relating to maintaining the Company’s qualification as a REIT and in connection with a Change of Control. On and after September 22, 2026, the Company may, at its option, redeem the Series A Preferred Stock, in whole or from time-to-time in part, at a price of $25.00 per share of Series A Preferred Stock plus an amount equal to accrued and unpaid dividends (whether or not declared), if any. The Series A Preferred Stock has no maturity date and will remain outstanding indefinitely unless redeemed by the Company or converted by the holder pursuant to its terms (as set forth in the Articles Supplementary).
The Series A Preferred Stock is listed on the New York Stock Exchange under the symbol ICR PR A.
12
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
Share Activity for Common Stock and Preferred Stock
The following tables detail the change in the Company’s outstanding shares of all classes of common and preferred stock, including restricted common stock:
|
|
Preferred Stock |
|
|
Common Stock |
|
Three months ended March 31, 2022 |
|
Series A |
|
|
Class P |
|
|
Class A |
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
Beginning balance |
|
|
3,600,000 |
|
|
|
9,492,939 |
|
|
|
659,270 |
|
|
|
388,099 |
|
|
|
— |
|
|
|
47,298 |
|
|
|
380,218 |
|
Issuance of shares |
|
|
— |
|
|
|
— |
|
|
|
13,961 |
|
|
|
11,290 |
|
|
|
— |
|
|
|
— |
|
|
|
2,490 |
|
Distribution reinvestment |
|
|
— |
|
|
|
— |
|
|
|
2,916 |
|
|
|
1,551 |
|
|
|
— |
|
|
|
446 |
|
|
|
3,004 |
|
Issuance of restricted shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Redemptions |
|
|
— |
|
|
|
(241,999 |
) |
|
|
(7,652 |
) |
|
|
(4,198 |
) |
|
|
— |
|
|
|
(958 |
) |
|
|
(7,604 |
) |
Ending balance |
|
|
3,600,000 |
|
|
|
9,250,940 |
|
|
|
668,495 |
|
|
|
396,742 |
|
|
|
— |
|
|
|
46,786 |
|
|
|
378,108 |
|
|
|
|
|
Common Stock |
|
Three months ended March 31, 2021 |
|
|
|
Class P |
|
|
Class A |
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
Beginning balance |
|
|
|
|
10,151,787 |
|
|
|
655,835 |
|
|
|
398,233 |
|
|
|
— |
|
|
|
50,393 |
|
|
|
381,955 |
|
Issuance of shares |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
64 |
|
Distribution reinvestment |
|
|
|
|
— |
|
|
|
2,431 |
|
|
|
1,148 |
|
|
|
— |
|
|
|
358 |
|
|
|
2,019 |
|
Issuance of restricted shares |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Redemptions |
|
|
|
|
(6,208 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Ending balance |
|
|
|
|
10,145,579 |
|
|
|
658,266 |
|
|
|
399,381 |
|
|
|
— |
|
|
|
50,751 |
|
|
|
384,038 |
|
Distributions – Common Stock
The table below presents the aggregate annualized and monthly distributions declared on common stock by record date for all classes of shares.
Record date |
|
Aggregate annualized gross distribution declared per share |
|
|
Aggregate monthly gross distribution declared per share |
|
January 31, 2021 |
|
$ |
0.9500 |
|
|
$ |
0.0792 |
|
February 28, 2021 |
|
$ |
1.0000 |
|
|
$ |
0.0833 |
|
March 31, 2021 |
|
$ |
1.0500 |
|
|
$ |
0.0875 |
|
April 30, 2021 |
|
$ |
1.1000 |
|
|
$ |
0.0917 |
|
May 31, 2021 |
|
$ |
1.1500 |
|
|
$ |
0.0958 |
|
June 30, 2021 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
July 31, 2021 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
August 31, 2021 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
September 30, 2021 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
October 31, 2021 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
November 30, 2021 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
December 31, 2021 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
January 31, 2022 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
February 28, 2022 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
March 31, 2022 |
|
$ |
1.2500 |
|
|
$ |
0.1042 |
|
The gross distribution was reduced each month for Class D and Class T of the Company’s common stock for applicable class-specific stockholder servicing fees to arrive at a lower net distribution amount paid to those classes. For a description of the stockholder servicing fees applicable to Class D, Class S and Class T shares of the Company’s common stock, please see “Note 10 – Transactions with Related Parties” below. Since the IPO and through March 31, 2022, the Company has not issued any shares of Class S common stock.
13
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
The following table shows the monthly net distribution per share for shares of Class D and Class T common stock.
Record date |
|
Monthly net distribution declared per share of Class D common stock |
|
|
Monthly net distribution declared per share of Class T common stock |
|
January 31, 2021 |
|
$ |
0.0749 |
|
|
$ |
0.0646 |
|
February 28, 2021 |
|
$ |
0.0794 |
|
|
$ |
0.0701 |
|
March 31, 2021 |
|
$ |
0.0832 |
|
|
$ |
0.0729 |
|
April 30, 2021 |
|
$ |
0.0876 |
|
|
$ |
0.0776 |
|
May 31, 2021 |
|
$ |
0.0915 |
|
|
$ |
0.0813 |
|
June 30, 2021 |
|
$ |
0.1000 |
|
|
$ |
0.0900 |
|
July 31, 2021 |
|
$ |
0.0999 |
|
|
$ |
0.0896 |
|
August 31, 2021 |
|
$ |
0.0999 |
|
|
$ |
0.0895 |
|
September 30, 2021 |
|
$ |
0.1000 |
|
|
$ |
0.0900 |
|
October 31, 2021 |
|
$ |
0.0999 |
|
|
$ |
0.0895 |
|
November 30, 2021 |
|
$ |
0.1000 |
|
|
$ |
0.0901 |
|
December 31, 2021 |
|
$ |
0.0999 |
|
|
$ |
0.0897 |
|
January 31, 2022 |
|
$ |
0.0999 |
|
|
$ |
0.0896 |
|
February 28, 2022 |
|
$ |
0.1003 |
|
|
$ |
0.0910 |
|
March 31, 2022 |
|
$ |
0.0999 |
|
|
$ |
0.0898 |
|
The table below presents the aggregate and net distributions declared for each applicable class of common stock during the three months ended March 31, 2022 and 2021. The table excludes distributions declared for any month for a class of shares of stock when there were no shares of that class outstanding on the applicable record date.
|
|
Common Stock |
|
Three months ended March 31, 2022 |
|
Class P |
|
|
Class A |
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
Aggregate gross distributions declared per share |
|
$ |
0.3126 |
|
|
$ |
0.3126 |
|
|
$ |
0.3126 |
|
|
$ |
— |
|
|
$ |
0.3126 |
|
|
$ |
0.3126 |
|
Stockholder servicing fee per share |
|
N/A |
|
|
N/A |
|
|
|
0.0422 |
|
|
|
— |
|
|
|
0.0125 |
|
|
N/A |
|
Net distributions declared per share |
|
$ |
0.3126 |
|
|
$ |
0.3126 |
|
|
$ |
0.2704 |
|
|
$ |
— |
|
|
$ |
0.3001 |
|
|
$ |
0.3126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Three months ended March 31, 2021 |
|
Class P |
|
|
Class A |
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
Aggregate gross distributions declared per share |
|
$ |
0.2500 |
|
|
$ |
0.2500 |
|
|
$ |
0.2500 |
|
|
$ |
— |
|
|
$ |
0.2500 |
|
|
$ |
0.2500 |
|
Stockholder servicing fee per share |
|
N/A |
|
|
N/A |
|
|
|
0.0424 |
|
|
|
— |
|
|
|
0.0125 |
|
|
N/A |
|
Net distributions declared per share |
|
$ |
0.2500 |
|
|
$ |
0.2500 |
|
|
$ |
0.2076 |
|
|
$ |
— |
|
|
$ |
0.2375 |
|
|
$ |
0.2500 |
|
Dividends - Series A Preferred Stock
Series A Preferred Stock dividends are paid quarterly in arrears based on an annualized distribution rate of 6.75% of the $25.00 per share liquidation preference, or $1.6875 per share per annum. During March 2022, the Board declared a quarterly dividend on the Series A Preferred Stock in the amount of $0.421875 per share which was paid on March 30, 2022 to holders of record on March 15, 2022.
As of March 31, 2022, and December 31, 2021, distributions declared but not yet paid amounted to $1,113 and $1,137, respectively.
Note 7 – Net Income (Loss) Per Share
Basic earnings per share (“EPS”) are computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income attributable to common stockholders by the common shares plus common share equivalents. The Company’s common share equivalents are unvested restricted shares. The Company excludes antidilutive restricted shares from the calculation of weighted-average shares for diluted earnings per share. There were zero and 165 antidilutive restricted shares for the three months ended March 31, 2022 and 2021, respectively. For further information about the Company’s restricted shares, see “Note 11 – Equity-Based Compensation.”
14
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
The following table is a summary of the basic and diluted net income (loss) per share computation for the three months ended March 31, 2022 and 2021:
|
|
Three months ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
Net income attributable to common stockholders |
|
$ |
843 |
|
|
$ |
1,365 |
|
Weighted average shares outstanding, basic |
|
|
10,871,052 |
|
|
|
11,640,959 |
|
Dilutive effect of restricted stock |
|
|
196 |
|
|
|
10 |
|
Weighted average shares outstanding, diluted |
|
|
10,871,248 |
|
|
|
11,640,969 |
|
Net income attributable to common stockholders per share, basic and diluted |
|
$ |
0.08 |
|
|
$ |
0.12 |
|
Note 8 – Commitments and Contingencies
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.
The Company has made a commitment to advance additional funds under certain of its CRE loans if the borrower meets certain conditions. As of March 31, 2022, the Company had 33 of such loans with a total remaining future funding commitment of $74,918. As of December 31, 2021, the Company had 32 such loans with a total remaining future funding commitment of $74,518. The Company advances future funds if the borrower meets certain requirements as specified in the individual loan agreements.
Note 9 – Segment Reporting
The Company has one reportable segment as defined by GAAP for the three months ended March 31, 2022 and 2021.
Note 10 – Transactions with Related Parties
As of March 31, 2022, the Advisor had invested $1,000 in the Company through the purchase of 40,040 Class P shares. The purchase price per Class P share for the Advisor’s investment was equal to $25.00. The Advisor has agreed that, for so long as it or its affiliate is serving as the Company’s advisor, (i) it will not sell or transfer at least 8,000 of the Class P shares that it has purchased, accounting for $200 of its investment, to an unaffiliated third party and (ii) repurchase requests made for these Class P shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.
As of March 31, 2022, Sound Point Capital Management, LP (“Sound Point”), an affiliate of the Sub-Advisor, had invested $3,000 in the Company through the purchase of 120,000 Class P shares. The purchase price per Class P share for this investment was $25.00. Sound Point has agreed that, for so long as the Sub-Advisor or its affiliate is serving as the Company’s sub-advisor repurchase requests made for these Class P shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.
15
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
The following table summarizes the Company’s related party transactions for the three months ended March 31, 2022 and 2021 and the amount due to related parties at March 31, 2022 and December 31, 2021:
|
|
Three months ended
March 31, |
|
|
Payable as of
March 31, |
|
|
Payable as of
December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Organization and offering expense reimbursement (1) |
|
$ |
4 |
|
|
$ |
— |
|
|
$ |
4 |
|
|
$ |
— |
|
Selling commissions and dealer manager fee (2) |
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Advisory fee (3) |
|
|
950 |
|
|
|
737 |
|
|
|
314 |
|
|
|
321 |
|
Loan fees(4) |
|
|
1,920 |
|
|
|
558 |
|
|
|
1,989 |
|
|
|
1,983 |
|
Accrued stockholder servicing fee (5) |
|
|
14 |
|
|
|
— |
|
|
|
591 |
|
|
|
590 |
|
Operating expense reimbursement to advisor (6) |
|
|
— |
|
|
|
15 |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
2,909 |
|
|
$ |
1,310 |
|
|
$ |
2,898 |
|
|
$ |
2,894 |
|
(1) |
The Company reimburses the Advisor, the Sub-Advisor and their respective affiliates for costs and other expenses related to the IPO, provided the Advisor has agreed to reimburse the Company to the extent that the organization and offering expenses that the Company incurs exceeds 15% of its gross proceeds from the IPO. |
(2) |
For the IPO, the Dealer Manager is entitled to receive (a) upfront selling commissions of up to 6.0%, and upfront dealer manager fees of up to 1.25%, of the transaction price of each Class A share sold in the primary offering, however such amounts may vary at certain participating broker-dealers provided that the sum will not exceed 7.25% of the transaction price; (b) upfront selling commissions of up to 3.0%, and upfront dealer manager fees of 0.5%, of the transaction price of each Class T share sold in the primary offering, however such amounts may vary at certain participating broker-dealers provided that the sum will not exceed 3.5% of the transaction price; and (c) upfront selling commissions of up to 3.5% of the transaction price of each Class S share sold in the primary offering. No upfront selling commissions or dealer manager fees are paid with respect to purchases of Class D shares, Class I shares or shares of any class sold pursuant to the DRP. All upfront selling commissions and dealer manager fees will be reallowed (paid) by the Dealer Manager to participating broker-dealers. |
(3) |
The Advisor is entitled to receive an advisory fee comprised of two separate components: (1) a fixed component payable monthly and (2) a performance component payable annually. Prior to July 1, 2021, the fixed component of the advisory fee was paid in an amount equal to 1/12th of 1.25% per annum of the gross value of the Company’s assets, paid monthly in arrears, provided that any such monthly payment could not exceed 1/12th of 2.5% of the Company’s NAV. Effective July 1, 2021, the fixed component of the advisory fee is paid in an amount equal to 1/12th of 1.25% of the Company’s average NAV for each month, paid monthly in arrears. The performance component of the advisory fee is calculated and paid annually, such that for any year in which the Company’s total return per share exceeds 7% per annum, the Advisor will receive 20% of the excess total return allocable to shares of the Company’s common stock; provided that in no event will the performance fee exceed 15% of the aggregate total return allocable to shares of the Company’s common stock for such year. For the three months ended March 31, 2022, the Advisor did not waive any of the fixed component of the advisory fees. For the three months ended March 31, 2021, the Advisor waived $737 of the fixed component of the advisory fees. The Advisor pays fees to the Sub-Advisor for the services it delegates to the Sub-Advisor or may direct the Company to pay a portion of the fees otherwise payable to the Advisor directly to the Sub-Advisor. |
(4) |
The Company pays the Advisor all new loan origination and administrative fees related to CRE loans held for investment, to the extent that such fees are paid by the borrower. Pursuant to the Sub-Advisory Agreement, the Advisor generally will reallow a portion of loan fees and all administrative fees to the Sub-Advisor. |
16
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
(5) |
Subject to the Financial Industry Regulatory Authority, Inc. limitations on underwriting compensation, the Company pays the Dealer Manager selling commissions over time as stockholder servicing fees for ongoing services rendered to stockholders by participating broker-dealers or broker-dealers servicing stockholders’ accounts as follows: (a) for Class T shares only, 0.85% per annum of the NAV of the Class T shares; (b) for Class S shares only, 0.85% per annum of the aggregate NAV for the Class S shares; and (c) for Class D shares only, 0.25% per annum of the aggregate NAV for the Class D shares. The Company will cease paying the stockholder servicing fee with respect to any Class T share, Class S share or Class D share held in a stockholder’s account upon the occurrence of certain events. The Company accrues the full cost of the stockholder servicing fee as an offering cost at the time the Company sells Class T, Class S, and Class D shares. The Dealer Manager does not retain any of these fees, all of which are retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers for ongoing stockholder services performed by such broker-dealers. |
(6) |
Prior to July 1, 2021, the Company reimbursed the Advisor for expenses that it (or the Sub-Advisor acting on the Advisor’s behalf) incurs in connection with providing services to the Company, provided that the Company did not reimburse overhead costs, including rent and utilities or personnel costs (including salaries, bonuses, benefits and severance payments) and the Company only reimbursed the Advisor for fees payable to its affiliates if they are incurred for legal or marketing services rendered on the Company’s behalf. Effective July 1, 2021, the Company is obligated to reimburse for all of the expenses attributable to the Company or its subsidiaries, including the Operating Partnership, and paid or incurred and submitted to the Company for reimbursement by the Advisor, the Sub-Advisor or their respective affiliates in providing services to the Company under the Advisory Agreement, including personnel and related employment costs. |
Expense Limitation Agreement
Pursuant to an expense limitation agreement (the “Expense Limitation Agreement”) dated July 1, 2021, the Advisor and Sub-Advisor agree to waive reimbursement of or pay, on a quarterly basis, certain of the Company’s ordinary operating expenses for each class of shares to the extent necessary to ensure that the ordinary operating expenses do not exceed 1.5% of the average monthly net assets on an annualized basis (the “1.5% Expense Limit”). Amounts waived or paid by the Advisor or Sub-Advisor pursuant to the Expense Limitation Agreement are subject to conditional repayment on a quarterly basis by the Company during the three years following the quarter in which the expenses were incurred, but only to the extent such repayment does not cause the Company to exceed its then-current expenses limitation, if any, for such quarter. Any waiver or reimbursement by the Advisor or Sub-Advisor not repaid by the Company within the three-year period will be deemed permanently waived and not subject to repayment under the Expense Limitation Agreement. During the three months ended March 31, 2022, the amounts of ordinary operating expenses either submitted for reimbursement by the Advisor and Sub-Advisor or incurred by the Company directly that were subject to the Expense Limitation Agreement did not exceed the 1.5% Expense Limit.
Separately from the limitation on ordinary operating expenses under the Expense Limitation Agreement, the Advisor and Sub-Advisor voluntarily chose not to seek reimbursement for certain expenses that they incurred or paid on behalf of the Company during the three months ended March 31, 2022, and for which they may have been entitled to be reimbursed. The Advisory Agreement and Sub-Advisory Agreement provide that expenses will be submitted monthly to the Company for reimbursement, and the amount of expenses submitted for reimbursement in any particular month is not necessarily indicative of the total amount of expenses actually incurred by the Advisor and the Sub-Advisor in providing services to the Company and for which reimbursement could have been received by the Advisor or Sub-Advisor.
Revolving Credit Liquidity Letter Agreements
Inland Real Estate Investment Corporation (“IREIC”), the Company’s sponsor, and Sound Point have agreed under separate letter agreements dated July 20, 2021, and July 15, 2021, respectively, to make revolving credit loans to the Company in an aggregate principal amount outstanding at any one time not to exceed $5,000 and $15,000, respectively (the “IREIC-Sound Point Commitments”) from time to time until the Termination Date (defined below) of the letter agreements. These letter agreements are identical to each other in all material respects other than the commitment amounts. Use of the IREIC-Sound Point Commitments is limited to satisfying requirements to maintain cash or cash equivalents under the Company’s repurchase and other borrowing arrangements. The “Termination Date” is the earliest of (i) the Maturity Date (defined below) (ii) the first date on which the Company’s balance sheet equity is equal to or greater than $500,000, (iii) the date IREIC or one of its affiliates is no longer the Company’s Advisor or Sound Point or one of its affiliates is no longer the Company’s Sub-Advisor and (iv) such earlier date on which the commitment will terminate as provided in the letter agreements, for example, because of an event of default. The “Maturity Date” is one year from the date of the agreement, and the Maturity Date will be automatically extended every year for an additional year, unless (a) the lender delivers notice of termination 60 days prior to an anniversary of the letter agreements or (b) an Event of Default (defined below) has occurred and is continuing. Each revolving loan will bear interest at 6.00% per annum. Interest is payable in
17
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
arrears when principal is paid or repaid and on the Termination Date. Each of the following constitutes an “Event of Default” under the letter agreements: (y) the Company fails to perform or observe any covenant or condition to be performed or observed under the letter agreement (including the obligation to repay a loan in full on the Termination Date) and such failure is not remedied within three business days of its receipt of notice thereof; or (z) the Company becomes insolvent or the subject of any bankruptcy proceeding.
Note 11 – Equity-Based Compensation
With each stock grant, the Company awards each of its three independent directors an equal number of shares. The table below summarizes total stock grants made at each grant date as of March 31, 2022.
Grant Date |
|
Class of common stock granted |
|
Total number of shares granted |
|
|
Grant Date Fair Value Per Share |
|
|
Total Fair Value of Grant |
|
|
Proportion of total shares that vest annually |
|
Vesting Date Year 1 |
|
Vesting Date Year 2 |
|
Vesting Date Year 3 |
March 1, 2018 |
|
Class P |
|
|
1,200 |
|
|
$ |
25.00 |
|
|
$ |
30 |
|
|
1/3 |
|
3/1/2019 |
|
3/1/2020 |
|
3/1/2021 |
January 7, 2019 |
|
Class P |
|
|
1,200 |
|
|
$ |
25.00 |
|
|
$ |
30 |
|
|
1/3 |
|
1/7/2020 |
|
1/7/2021 |
|
1/7/2022 |
December 2, 2019 |
|
Class I |
|
|
1,197 |
|
|
$ |
25.07 |
|
|
$ |
30 |
|
|
1/3 |
|
12/2/2020 |
|
12/2/2021 |
|
12/2/2022 |
December 1, 2020 |
|
Class I |
|
|
1,393 |
|
|
$ |
21.54 |
|
|
$ |
30 |
|
|
1/3 |
|
12/1/2021 |
|
12/1/2022 |
|
12/1/2023 |
October 14, 2021 |
|
Class I |
|
|
1,477 |
|
|
$ |
20.31 |
|
|
$ |
30 |
|
|
1/3 |
|
10/14/2022 |
|
10/14/2023 |
|
10/14/2024 |
Under the Company’s Independent Director Restricted Share Plan, restricted shares generally vest over a three-year vesting period from the date of the grant, subject to the specific terms of the grant. Restricted shares are included in common stock outstanding on the grant date. The grant-date value of the restricted shares is amortized over the vesting period representing the requisite service period. Compensation expense associated with the restricted shares issued to the independent directors was $7 and $10, in the aggregate, for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the Company had $48 of unrecognized compensation expense related to the unvested restricted shares, in the aggregate. The weighted average remaining period that compensation expense related to unvested restricted shares will be recognized is 1.30 years. The total fair value at the vesting date for restricted shares that vested during the three months ended March 31, 2022 and 2021 was $8 and $16, respectively.
A summary table of the status of the restricted shares is presented below:
|
|
Restricted Shares |
|
|
Weighted
Average
Grant Date
Fair Value Per Share |
|
Outstanding at December 31, 2021 |
|
|
3,205 |
|
|
$ |
21.85 |
|
Granted |
|
|
— |
|
|
- |
|
Vested |
|
|
(400 |
) |
|
|
25.00 |
|
Converted |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
Outstanding at March 31, 2022 |
|
|
2,805 |
|
|
$ |
21.40 |
|
18
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
Note 12 – Fair Value of Financial Instruments
GAAP requires the disclosure of fair value information about financial instruments, whether or not they are recognized at fair value in the consolidated balance sheets, for which it is practicable to estimate that value. The following table details the carrying amount and estimated fair value of the Company’s financial instruments at the dates below:
|
March 31, 2022 |
|
|
December 31, 2021 |
|
|
Carrying
Amount |
|
|
Estimated Fair
Value |
|
|
Carrying
Amount |
|
|
Estimated Fair
Value |
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
76,320 |
|
|
$ |
76,320 |
|
|
$ |
57,268 |
|
|
$ |
57,268 |
|
Commercial mortgage loans, net |
|
730,098 |
|
|
|
729,931 |
|
|
|
665,498 |
|
|
|
667,405 |
|
Total |
$ |
806,418 |
|
|
$ |
806,251 |
|
|
$ |
722,766 |
|
|
$ |
724,673 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements - commercial mortgage
loans |
$ |
410,270 |
|
|
$ |
410,270 |
|
|
$ |
307,083 |
|
|
$ |
307,083 |
|
Credit facility payable |
|
— |
|
|
|
— |
|
|
|
14,350 |
|
|
|
14,350 |
|
Loan participations - sold |
|
110,016 |
|
|
|
110,016 |
|
|
|
109,772 |
|
|
|
109,772 |
|
Total |
$ |
520,286 |
|
|
$ |
520,286 |
|
|
$ |
431,205 |
|
|
$ |
431,205 |
|
The following describes the Company’s methods for estimating the fair value for financial instruments:
• |
The estimated fair values of restricted cash, cash and cash equivalents were based on the bank balance and was a Level 1 fair value measurement. |
• |
The estimated fair value of commercial mortgage loans, net is a Level 3 fair value measurement. The Sub-Advisor estimates the fair values of commercial loans based on a discounted cash flow methodology that analyzes various factors including capitalization rates, occupancy rates, sponsorship, geographic concentration, collateral type, market conditions and actions of other lenders. |
• |
The estimated fair values of the repurchase agreements – commercial mortgage loans, credit facility payable and loan participations sold are Level 3 fair value measurements based on expected present value techniques. This method discounts future estimated cash flows using rates the Company determined best reflect current market interest rates that would be offered for repurchase agreements, credit facilities and loan participations sold with similar characteristics and credit quality. |
Note 13 – Real Estate Owned
The following table summarizes the Company’s real estate owned assets as of March 31, 2022:
Acquisition Date |
|
Property Type |
|
Primary Location(s) |
|
Building and Improvements |
|
|
Furniture, Fixtures and Equipment |
|
|
Accumulated Depreciation |
|
|
Real Estate Owned, Net |
|
August 2020 (1)(2) |
|
Hotel |
|
Chicago, IL |
|
$ |
26,683 |
|
|
$ |
6,412 |
|
|
$ |
(1,774 |
) |
|
$ |
31,321 |
|
(1) |
Refer to “Note 2 – Summary of Significant Accounting Policies” in the Annual Report for useful life of the above assets. |
(2) |
Represents assets acquired by the Company by completing a deed-in-lieu of foreclosure transaction. |
During February 2021, the Company received a loan under the Paycheck Protection Program (“PPP”) related to the operations of the Company’s 362-room hotel located in Chicago, Illinois known as the Renaissance Chicago O’Hare Suites Hotel (the “Renaissance O’Hare”). This five-year loan was for $1,093 with a fixed interest rate of 1.00% that does not compound. The PPP was created as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). To be eligible to receive a loan, companies must make a number of certifications related to its operations, employees and size of the business on an application. Companies may also
19
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
subsequently apply for loan forgiveness under the program provided that it meets requirements limiting any reduction in workforce or in pay.
The Company qualified and applied for loan forgiveness and was granted forgiveness by the U.S. Small Business Administration. The Company accounted for this PPP loan using a government grant accounting approach. The grant proceeds were initially recorded in accrued expenses on the consolidated balance sheet. Each month, those proceeds were applied as a reduction to payroll-related costs within real estate owned operating expenses on the consolidated statement of operations until the proceeds have been fully absorbed by the payroll-related expenses. As of March 31, 2022, no balance remains recorded in accrued expenses for the PPP loan to be absorbed by payroll-related expenses.
Note 14 – Leases
The Company is the lessee under one ground lease. The ground lease, which commenced on April 1, 1999, was assumed as part of the Renaissance O’Hare acquired through a deed-in-lieu of foreclosure transaction on August 20, 2020 and extends through March 31, 2098. The lease is classified as a finance lease. Under the ground lease, the Company is prohibited from mortgaging the land but is not prohibited from making a leasehold mortgage for property constructed on the land. The Company may terminate the lease as of March 31, 2049, March 31, 2065 and March 31, 2081 provided that twelve months’ notice is provided to the lessor prior to those respective dates.
Upon assumption of the lease, the Company recorded a lease liability of $16,827 and a right-of-use asset of $5,549 on its consolidated balance sheet. The lease liability was based on the present value of the ground lease’s future payments using an interest rate of 11.37%, which the Company considers reasonable and within the range of the Company’s incremental borrowing rate. For the three months ended March 31, 2022 and 2021, total finance lease cost recorded to real estate owned operating expenses on the Company’s consolidated statements of operations was comprised as follows:
|
|
Three months ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Amortization of right-of-use assets |
|
$ |
18 |
|
|
$ |
18 |
|
Interest on lease liabilities |
|
|
487 |
|
|
|
478 |
|
Total finance lease cost |
|
$ |
505 |
|
|
$ |
496 |
|
The table below shows the Company’s finance lease right of use asset, net of amortization as of March 31, 2022 and December 31, 2021:
|
|
March 31, |
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
Finance lease right of use asset, gross |
|
$ |
5,549 |
|
|
$ |
5,549 |
|
Accumulated amortization |
|
|
(113 |
) |
|
|
(95 |
) |
Finance lease right of use asset, net of amortization |
|
$ |
5,436 |
|
|
$ |
5,454 |
|
20
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
Remaining lease payments for the ground lease as of March 31, 2022 for each of the five succeeding years and thereafter is as follows:
|
|
Lease Payments |
|
2022 (remaining) |
|
$ |
1,208 |
|
2023 |
|
|
1,611 |
|
2024 |
|
|
1,745 |
|
2025 |
|
|
1,772 |
|
2026 |
|
|
1,772 |
|
Thereafter |
|
|
269,686 |
|
Total undiscounted lease payments |
|
$ |
277,794 |
|
Less: Amount representing interest |
|
|
(260,605 |
) |
Present value of lease liability |
|
$ |
17,189 |
|
Note 15 – Subsequent Events
The Company has evaluated subsequent events through May 10, 2022, the date the financial statements were issued. The following are updates on the Company’s operations since March 31, 2022.
Common Stock Distributions
On April 29, 2022, the Company announced that the Board authorized distributions to stockholders of record as of April 30, 2022, payable on or about May 18, 2022 for each class of its common stock in the amount per share set forth below:
|
|
Common Stock |
|
|
|
Class P |
|
|
Class A |
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
Aggregate gross distributions declared per share |
|
$ |
0.1042 |
|
|
$ |
0.1042 |
|
|
$ |
0.1042 |
|
|
$ |
— |
|
|
$ |
0.1042 |
|
|
$ |
0.1042 |
|
Stockholder servicing fee per share |
|
N/A |
|
|
N/A |
|
|
|
0.0139 |
|
|
|
— |
|
|
|
0.0041 |
|
|
N/A |
|
Net distributions declared per share |
|
$ |
0.1042 |
|
|
$ |
0.1042 |
|
|
$ |
0.0903 |
|
|
$ |
— |
|
|
$ |
0.1001 |
|
|
$ |
0.1042 |
|
Loan Originations
The following table presents each of our commercial mortgage loans originated since March 31, 2022 as of May 10, 2022 ($ in thousands):
|
|
Origination
Date |
|
Loan
Type (1) |
|
Principal
Balance |
|
|
Cash Coupon (2) |
|
All-in
Yield (2) |
|
|
Maximum
Maturity (3) |
|
State |
|
Property
Type |
|
LTV (4) |
|
1 |
|
4/7/22 |
|
First mortgage |
|
$ |
12,700 |
|
|
S+3.25% |
|
4.0% |
|
|
4/9/27 |
|
SC |
|
Multifamily |
|
|
69 |
% |
2 |
|
4/19/22 |
|
First mortgage |
|
|
18,230 |
|
|
S+3.40% |
|
4.2% |
|
|
5/9/26 |
|
TX |
|
Multifamily |
|
|
76 |
% |
(1) |
First mortgage loans are first position mortgage loans and credit loans are mezzanine and subordinated loans. |
(2) |
Cash coupon is the stated rate on the loan. All-in yield is the present value of all future principal and interest payments on the loan and does not include any origination fees or deferred commitment fees. Our first mortgage loans are all floating rate and each contains a minimum SOFR floor. “SOFR” or “S” means CME Group One-Month Term Secured Overnight Financing Rate. The All-in yield is based on a SOFR rate as of May 5, 2022 of 0.80% |
(3) |
Maximum maturity assumes all extension options are exercised by the borrower, however loans may be repaid prior to such date. |
(4) |
Loan-to-value (“LTV”) was determined at loan origination and is not updated for subsequent property valuations or loan modifications. The total is the weighted average LTV. |
21
InPoint Commercial Real Estate Income, Inc.
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited, dollar amounts in thousands, except share data)
Follow-On Registered Public Offering of Common Stock
On April 28, 2022, the Company filed a Registration Statement on Form S-11 (File No. 333-264540) with the SEC to register up to $2,200,000 in shares of common stock. This registration statement has not been declared effective by the SEC.
Extension of JPM Repo Facility
On May 3, 2022, the Company extended the maturity date of the JPM Repo Facility to May 6, 2023 with no other changes to any other loan terms or debt covenants.
22