Executive Summary: 2018 Annual Report

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Mitchell A. Sabshon Director, President and Chief Executive Officer

From corner stores to department stores to shopping malls to ecommerce, retailing is constantly evolving.

The companies depicted in the photographs herein are tenants of Inland Real Estate Income Trust, Inc. These companies may have proprietary interests in their trademarks and trade names and nothing herein shall be considered an endorsement, authorization or approval of Inland Income Trust or its subsidiaries.

These materials contain "forward-looking statements" made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The statements may be identified by terminology such as "may", “can”, "would", “will”, "expect", "intend", "estimate", "anticipate", "plan", “goal”, "seek", "appear", or "believe". Such statements reflect the current view of Inland Income Trust with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, the uncertainties related to the acquisition of any property, general economic conditions, unforeseen events affecting the real estate industry or particular markets, and other factors detailed under Risk Factors in our most recent Form 10-K as of December 31, 2018 filed on March 20, 2019 with the Securities and Exchange Commission.

Although Inland Income Trust believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. You should exercise caution when considering forward-looking statements and not place undue reliance on them. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein. Except as required by federal securities laws, Inland Income Trust undertakes no obligation to publicly update or revise any written or oral forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this letter. All subsequent written and oral forward-looking statements attributable to Inland Income Trust or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements.

The Inland name and logo are registered trademarks being used under license.

Shifting Consumer Preferences

“The end of the traditional big-box era is creating a new landscape where mom-and-pop retailers are the new credit tenants...”

National Real Estate Investor. Retail Landlords Turn to Mom-and-Pop Shops to Fill Credit Tenant Void. December 20, 2018.

“Store closures have affected many shopping centers in the last few years as growing e-commerce sales challenge some traditional retailers. Landlords have responded in various ways, such as slicing up big boxes to accommodate smaller stores and leasing to non-traditional retailers …”

CoStar. United States Retail National Report. January 22, 2019.

“When Digital
Transformation Does Not Happen: Big Box Retailers that Closed Their Doors in 2018”

Forbes. When Digital Transformation Does Not Happen: Big Box Retailers that Closed Their Doors in 2018. January 22, 2019.
Inland Income Trust 2018 Highlights
  • Refinanced existing line of credit with a new and expanded senior unsecured credit facility, allowing for enhanced financial flexibility
  • Tenant retention rate of 86% with 92% retention for anchors and 80% for non-anchors
  • Executed 28 new leases and renewed 83 existing leases, perpetuating our multi-year track record of occupancy at 94% or higher
  • Backfilled a former Sports Authority space with Ross Dress for Less and Five Below, two popular discount retailers
  • Achieved 11.3% and 0.8% comparable leasing spread on new leases and renewals, respectively, since a year ago
  • Realized 5.5% small shop (tenants occupying less than 10,000 square feet) comparable leasing spread on renewals since a year ago
  • Fully covered distributions from operating cash flows

Inland Income Trust Portfolio Highlights

as of December 31, 2018

Portfolio Overview

  • 59 Properties

  • 24 States

  • 94.7% Economic Occupancy

  • 750 Tenants

  • 6.9 Million sq. ft.

Diverse geographic footprint with 12% of our portfolio in the west, 26% in the south, 22% in the midwest, and 41% in the east

Top 10 Tenants

Based on ABR for leases in-place as of 12/31/18

  • 3.6%

  • 3.5%

  • 3.3%

  • 2.9%

  • 2.5%

  • 2.4%

  • 2.3%

  • 1.9%

  • 1.9%

  • 1.9%

Grocery Anchored Centers Generate Highest ABR

Grocers in the Inland Income Trust portfolio generate the highest annualized base rent, or ABR, of the four retail property types that make up the portfolio

Financial Highlights

Cumulative Distributions Paid to Investors*

(in thousands)

*There can be no guarantee that the Company will continue to declare distributions. The actual amount and timing of distributions, if any, is determined by the board of directors in its discretion, based on its analysis of the Company's actual and expected cash flow, capital expenditures and investments, as well as general financial conditions. Approximately 19 percent of cumulative distributions paid to investors through December 31, 2018 came from offering proceeds.

Modified Funds from Operations (MFFO)

(in thousands)

(in thousands) 12/31/18 12/31/17 12/31/16 12/31/15
Balance Sheet Data:
Total Assets $1,320,069 $1,375,370 $1,357,560 $1,401,368
Mortgage Loans and Credit Facility Payable, net 705,884 691,465 606,025 584,499
Operating Data:
Net Income (Loss) (23,276) (19,102) (7,961) (13,436)
Funds from Operations (FFO) 49,964 51,232 51,899 21,137
Modified Funds from Operations (MFFO) 47,291 48,893 47,367 32,652

Inland Real Estate Income Trust, Inc. FFO and MFFO are calculated as follows.

For the year ended December 31
(in thousands) 2018 2017 2016 2015
Net Loss: $(23,276) $(19,102) $(7,961) $(13,436)
ADD: Depreciation and amortization related to investment properties 57,835 61,804 59,860 34,573
  Provision for impairment of investment property - 8,530 - -
  Provisions for impairment of investment in and notes receivable from unconsolidated entities 15,405 - - -
  Funds from Operations (FFO) 49,964 51,232 51,899 21,137
ADD: Acquisition related costs 29 754 (1,556) 13,903
  Loss of extinguishment of debt 411 - - -
  Mark to market adjustments 135 - - -
LESS: Amortization of acquired market lease tangibles, net (917) (1,415) (812) (652)
  Straight-line income, net (1,180) (1,678) (2,164) (1,736)
  Gain on early termination of interest rate swap agreements (1,151) - - -
  Modified Funds from Operations (MFFO) 47,291 48,893 47,367 32,652