This section provides a discussion of our financial condition and comparative results of operations and should be read in conjunction with the audited consolidated financial statements and the notes thereto included in this report. For more detailed information regarding the basis of presentation for the following information, you should read the notes to the audited consolidated financial statements included in this report.
Overview
We are focused on owning and managing essential grocery-anchored and mixed-use assets located in densely populated technology employment hubs and higher education centers within the Mid-Atlantic, Southeast andColorado markets. As ofDecember 31, 2021 , we owned 15 properties with an additional three properties under contract to be acquired. The properties in our portfolio and the properties we have under contract are dispersed in sub-markets that we believe generally have high population densities, high traffic counts, good visibility and accessibility, which provide our tenants with attractive locations to serve the necessity-based needs of the surrounding communities. As ofDecember 31, 2021 , the properties in our portfolio were 88.1% leased and 84.7% occupied. We are focused on acquiring additional strategically positioned properties in established and developing neighborhoods primarily leased to necessity-based tenants that meet the needs of the surrounding communities in our existing markets, as well as acquiring properties in new markets that meet our investment criteria, including theSoutheastern United States . In addition, we provide commercial real estate brokerage services for our own portfolio and third-party office, industrial and retail operators and tenants. The table below provides certain information regarding our portfolio as ofDecember 31, 2021 and 2020. As of As of December 31, December 31, 2021 2020 Number of properties 15 11 Number of states 5 5 Total square feet (in thousands) 1,737 1,055 Anchor spaces 917 566 Inline spaces 820 489 Leased % of rentable square feet (1): Total portfolio 88.1 % 85.8 % Anchor spaces 94.3 % 93.4 % Inline spaces 81.3 % 77.0 % Occupied % of rentable square feet: Total portfolio 84.7 % 82.6 % Anchor spaces 91.9 % 90.7 % Inline spaces 76.7 % 73.2 % Average remaining lease term (in years) (2) 4.7
5.4
Annualized base rent per leased square feet (3)
13.80 (1) Percent leased is calculated as (a) GLA of rentable commercial square feet occupied or subject to a lease as ofDecember 31, 2021 , divided by (b) total GLA, expressed as a percentage. The total percent occupied, which excludes leases that have been signed but not commenced, was 84.7% as ofDecember 31, 2021 . (2) The average remaining lease term (in years) excludes the future options to extend the term of the lease. (3) Annualized base rent per leased square foot is calculated as total annualized base rent divided by leased GLA as ofDecember 31, 2021 . We are structured as an "Up-C" corporation with substantially all of our operations conducted through ourOperating Partnership and its direct and indirect subsidiaries. As ofDecember 31, 2021 , we owned 91.9% of the OP units in ourOperating Partnership , and we are the sole member of the sole general partner of ourOperating Partnership .
Acquisitions
OnJuly 2, 2020 , we closed one Merger whereby we acquiredLamar Station Plaza East . During 2021, we closed four additional Mergers whereby we acquiredHighlandtown Village Shopping Center ,Cromwell Field Shopping Center ,Spotswood Valley Square Shopping Center and The Shops atGreenwood Village onMay 21, 2021 ,May 26, 2021 ,June 4, 2021 , andOctober 6, 2021 , respectively.
Impact of COVID-19
We continue to monitor and address risks related to the COVID-19 pandemic. Certain tenants experiencing economic difficulties during the pandemic have previously sought rent relief, which had been provided on a case-by-case basis primarily in the form of rent deferrals and, in more limited cases, in the form of rent abatements. SinceApril 2020 , we have entered into lease modifications that deferred approximately$0.6 million and waived approximately$0.3 million of contractual revenue for rent that pertained toApril 2020 36 -------------------------------------------------------------------------------- throughDecember 2020 ; in 2021 we had only one lease modification related to COVID-19, which was approximately$16,000 related to contractual rent owedFebruary 2021 throughApril 2021 . Approximately$0.3 million of the total deferred rent from all lease modifications sinceApril 2020 remained outstanding and to be billed as ofDecember 31, 2021 and has a weighted average payback period of approximately 26 months. As ofApril 15, 2022 , we have given rent deferrals to 36 tenants (approximately 12.0% of our total tenants representing approximately 2.8% of our annualized base rent atDecember 31, 2021 ) with eight tenants still on a payment plan. All but four tenants are compliant with their plan. However, even as conditions improve and governmental restrictions are lifted, the ability of our tenants to successfully operate their businesses and pay rent may continue to be impacted by economic conditions resulting from COVID-19 or public perception of the risk of COVID-19, which could adversely affect foot traffic to our tenants' businesses and our tenants' ability to adequately staff their businesses. The extent of the COVID-19 pandemic's effect on our future operational and financial performance, financial condition and liquidity will depend on future developments, including the duration and intensity of the pandemic, the effectiveness, including the deployment, of COVID-19 vaccines and treatments, the duration of government measures to mitigate the pandemic and how quickly and to what extent normal economic and operating conditions can resume, all of which are uncertain and difficult to predict.
How We Derive Our Revenue
We derive a substantial majority of our revenue from rents received from our tenants at each of our properties. Our leases are generally triple net, pursuant to which the tenant is responsible for property expenses, including real estate taxes, insurance and maintenance, or modified gross, pursuant to which the tenant generally reimburses us for its proportional share of expenses. As ofDecember 31, 2021 , our portfolio (i) had annualized base rent of$21.2 million , (ii) had an annualized base rent per square foot of$13.83 , (iii) was 88.1% leased (84.7% occupied) to a diversified group of tenants and (iv) had no tenant accounting for more than 4.0% of the total annualized base rent. We also operate a third-party property management and brokerage business unit. Our brokerage business primarily consists of representations of commercial tenants for their office and retail real estate needs, either for lease transactions or purchase and sale transactions. Until we close the remaining two Mergers, we will receive property management fees for the management of those properties.
Factors that May Impact Future Results of Operations
Rental Income
Growth in rental income will depend on our ability to acquire additional properties that meet our investment criteria and on filling vacancies and increasing rents on the properties in our portfolio. The amount of rental income generated by the properties in our portfolio depends on our ability to renew expiring leases or re-lease space upon the scheduled or unscheduled termination of leases, lease currently available space and maintain or increase rental rates at our properties. In addition to the factors regarding the COVID-19 pandemic described above, our rental income in future periods could be adversely affected by local, regional or national economic conditions, an oversupply of or a reduction in demand for retail space, changes in market rental rates, our ability to provide adequate services and maintenance at our properties, and fluctuations in interest rates. In addition, economic downturns affecting our markets or downturns in our tenants' businesses that impair our ability to renew or re-lease space and the ability of our tenants to fulfill their lease commitments to us, including as a result of the COVID-19 pandemic, could adversely affect our ability to maintain or increase rent and occupancy.
Scheduled Lease Expirations
Our ability to re-lease expiring space at rental rates equal to or greater than that of current rental rates will impact our results of operations. Our properties are marketed to smaller tenants that generally desire shorter-term leases. As ofDecember 31, 2021 , approximately 60.2% of our portfolio (based on leased GLA) was leased to tenants occupying less than 10,000 square feet. In addition, as ofDecember 31, 2021 , approximately 11.9% of our GLA was vacant and approximately 5.6% of our leases (based on total GLA) were month-to-month or scheduled to expire on or beforeDecember 31, 2022 . See "Item 1 Business-Our Portfolio-Lease Expirations." Although we maintain ongoing dialogue with our tenants, we generally raise the issue of renewal at least 12 months prior to lease renewal often providing concessions for early renewal. If our current tenants do not renew their leases or terminate their leases early, we may be unable to re-lease the space to new tenants on favorable terms or at all, including as a result of the COVID-19 pandemic. Our vacancy trends will be impacted by new properties that we acquire, which may include properties with higher vacancy where we identified opportunities to increase occupancy.
Acquisitions
Over the long-term, we intend to grow our portfolio through the acquisition of additional strategically positioned properties in established and developing neighborhoods primarily leased to necessity-based tenants that meet the needs of the surrounding communities in our existing markets, as well as acquiring properties in new markets that meet our investment criteria, including theSoutheastern United States . We have established relationships with a wide variety of market participants, including tenants, leasing agents, investment sales brokers, property owners and lenders, in our target markets and beyond and, over the long-term, we believe that we will have opportunities to acquire properties that meet our investment criteria at attractive prices. See "Business-Portfolio-Pending Mergers" and "Business-Portfolio-Pending Midtown Row Acquisition." 37 --------------------------------------------------------------------------------
General and Administrative Expenses
General and administrative expenses include employee compensation costs, professional fees, consulting and other general administrative expenses. We expect an increase in general and administrative expenses in the future related to stock issuances to employees. We expect that our general and administrative expenses will rise in some measure as our portfolio grows but that such expenses as a percentage of our revenue will decrease over time due to efficiencies and economies of scale. Capital Expenditures We incur capital expenditures at our properties that vary in amount and frequency based on each property's specific needs. We expect our capital expenditures will be for recurring maintenance to ensure our properties are in good working condition, including parking and roof repairs, façade maintenance and general upkeep. We also will incur capital expenditures related to repositioning and refurbishing properties where we have identified opportunities to improve our properties to increase occupancy, and we may incur capital expenditures related to redevelopment or development consistent with our business and growth strategies.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") inthe United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management considers accounting estimates or assumptions critical in either of the following cases:
•
the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly uncertain and susceptible to change; and
•
the effect of the estimates and assumptions is material to the financial statements.
Management believes the current assumptions used to make estimates in the preparation of the consolidated financial statements are appropriate and not likely to change in the future. However, actual experience could differ from the assumptions used to make estimates, resulting in changes that could have a material adverse effect on our consolidated results of operations, financial position and/or liquidity. These estimates will be made and evaluated on an ongoing basis using information that is available as well as various other assumptions believed to be reasonable under the circumstances. Management has discussed the determination and disclosures of these critical accounting policies with the audit committee of the board of directors. The following presents information about our critical accounting policies including the material assumptions used to develop significant estimates. Certain of these critical accounting policies contain discussion of judgments and estimates that have not yet been required by management but that it believes may be reasonably required of it to make in the future. See Note 2 "Accounting Policies and Related Matters" to the consolidated financial statements for additional information on significant accounting policies and the effect of recent accounting pronouncements.
Principles of Consolidation
The consolidated financial statements include the accounts of our wholly owned subsidiaries, and all material intercompany transactions and balances are eliminated in consolidation. We consolidate entities in which we own less than 100% of the equity interest but have a controlling interest through a variable interest, voting rights or other means. For these entities, we record a noncontrolling interest representing the equity held by other parties. From inception, we continually evaluate all of our transactions and investments to determine if they represent variable interests subject to the variable interest entity ("VIE") consolidation model and then determine which business enterprise is the primary beneficiary of its operations. We make judgments about which entities are VIEs based on an assessment of whether (i) the equity investors as a group, if any, do not have a controlling financial interest or (ii) the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support. We consolidate investments in VIEs when we are determined to be the primary beneficiary. This evaluation is based on our ability to direct and influence the activities of a VIE that most significantly impact that entity's economic performance. For investments not subject to the variable interest entity consolidation model, we will evaluate the type of rights held by the limited partner(s) or other member(s), which may preclude consolidation in circumstances in which the sole general partner or managing member would otherwise consolidate the limited partnership. The assessment of limited partners' or members' rights and their impact on the presumption of control over a limited partnership or limited liability corporation by the sole general partner or managing member should be made when an investor becomes the sole general partner or managing member and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners or members, (ii) the sole general partner or member increases or decreases its ownership in the limited partnership or corporation or (iii) there is an increase or decrease in the number of outstanding limited partnership or membership interests.
Our ability to assess correctly our influence or control over an entity at inception of our involvement or on a continuous basis when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements.
38 -------------------------------------------------------------------------------- Subsequent evaluations of the primary beneficiary of a VIE may require the use of different assumptions that could lead to identification of a different primary beneficiary, resulting in a different consolidation conclusion than what was determined at inception of the arrangement.
Revenue Recognition
Leases ofReal Estate Properties : At the inception of a new lease arrangement, including new leases that arise from amendments, we assess the terms and conditions to determine the proper lease classification. Currently, all of our lease arrangements are classified as operating leases. Rental revenue for operating leases is recognized on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of a leased asset. If we determine that substantially all future lease payments are not probable of collection, we will account for these leases on a cash basis. If the lease provides for tenant improvements, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant or by us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. The determination of ownership of the tenant improvements is subject to significant judgment. If our assessment of the owner of the tenant improvements for accounting purposes were different, the timing and amount of revenue recognized would be impacted. A majority of our leases require tenants to make estimated payments to the Company to cover their proportional share of operating expenses, including, but not limited to, real estate taxes, property insurance, routine maintenance and repairs, utilities and property management expenses. We collect these estimated expenses and are reimbursed by tenants for any actual expense in excess of estimates or reimburse tenants if collected estimates exceed actual operating results. The reimbursements are recorded in rental income, and the expenses are recorded in property operating expenses, as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and bear the credit risk. We assess the probability of collecting substantially all payments under our leases based on several factors, including, among other things, payment history of the lessee, the financial strength of the lessee and any guarantors, historical operations and operating trends and current and future economic conditions and expectations of performance. If our evaluation of these factors indicates it is probable that we will be unable to collect substantially all rents, we recognize a charge to rental income and limit our rental income to the lesser of lease income on a straight-line basis plus variable rents when they become accruable or cash collected. If we change our conclusion regarding the probability of collecting rent payments required by a lessee, we may recognize an adjustment to rental income in the period we make a change to our prior conclusion. Leasing Commissions: We earn leasing commissions as a result of providing strategic advice and connecting tenants to property owners in the leasing of retail space. We record commission revenue on real estate leases at the point in time when the performance obligation is satisfied, which is generally upon lease execution. Terms and conditions of a commission agreement may include, but are not limited to, execution of a signed lease agreement and future contingencies, including tenant's occupancy, payment of a deposit or payment of first month's rent (or a combination thereof). Property and Asset Management Fees: We provide real estate management services for owners of properties, representing a series of daily performance obligations delivered over time. Pricing is generally in the form of a monthly management fee based upon a percentage of property-level cash receipts or some other variable metric. When accounting for reimbursements of third-party expenses incurred on a client's behalf, we determine whether we are acting as a principal or an agent in the arrangement. When we are acting as a principal, our revenue is reported on a gross basis and comprises the entire amount billed to the client and reported cost of services includes all expenses associated with the client. When we are acting as an agent, our fee is reported on a net basis as revenue for reimbursed amounts is netted against the related expenses. Engineering Services: We provide engineering services to property owners on an as needed basis at the properties where we are the property or asset manager. We receive consideration at agreed upon fixed rates for the time incurred plus a reimbursement for costs incurred and revenue is recognized over time because the customer simultaneously receives and consumes the benefits of the services as they are performed. We account for performance obligations using the right to invoice practical expedient. We apply the right to invoice practical expedient to record revenue as the services are provided, given the nature of the services provided and the frequency of billing under the customer contract. Under this practical expedient, we recognize revenue in an amount that corresponds directly with the value to the customer of performance completed to date and for which there is a right to invoice the customer.
Real Estate Investments
We evaluate each purchase transaction to determine whether the acquired assets and liabilities assumed meet the definition of a business and make estimates as part of our allocation of the purchase prices. For acquisitions accounted for as asset acquisitions, the purchase price, including transaction costs, is allocated to the various components of the acquisition based upon the relative fair value of each component. For acquisitions accounted for as business combinations, the purchase price is allocated at fair value of each component and transaction costs are expensed as incurred.
We assess the fair value of acquired assets and acquired liabilities in accordance with the ASC Topic 805 Business Combinations and allocate the purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize
39 -------------------------------------------------------------------------------- appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market and economic conditions that may affect the property. The most significant components of our allocations are typically the allocation of fair value to land and buildings and in-place leases and other intangible assets. The estimates of the fair value of buildings will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired. For any value assigned to in-place leases and other intangibles, including the assessment as to the existence of any above-or below-market leases, management makes its best estimates based on the evaluation of the specific characteristics of each tenant's lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. These assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in-place leases. The values of any identified above-or below-market leases are based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, or for below-market leases including any bargain renewal option terms. Above-market lease values are recorded as a reduction of rental income over the lease term while below-market lease values are recorded as an increase to rental income over the lease term. The recorded values of in-place lease intangibles are recognized in amortization expense over the initial term of the respective leases. Transaction costs related to asset acquisitions are included in the cost basis of the acquired assets, while transaction costs related to acquisitions that are deemed business combinations are expensed as incurred.
Asset Impairment
Real estate asset impairment losses are recorded when events or changes in circumstances indicate the asset is impaired and the estimated undiscounted cash flows to be generated by the asset are less than its carrying amount. Management assesses if there are triggering events including macroeconomic conditions, loss of an anchor tenant and the ability to re-tenant the space, significant and persistent delinquencies, unanticipated decreases in or sustained reductions of net operating income and government-mandated compliance with an adverse effect to the Company's cost basis or operating costs. If management concludes there are triggering events, we then assess the impairment of properties individually. Impairment losses are calculated as the excess of the carrying amount over the fair value of assets to be held and used, and carrying amount over the fair value less cost to sell in instances where management has determined that we will dispose of the property. In determining fair value, we use current appraisals or other third-party opinions of value and other estimates of fair value such as estimated discounted future cash flows. The determination of undiscounted cash flows requires significant estimates by management. In management's estimate of cash flows, it considers factors such as expected future sale of an asset, capitalization rates, holding periods and the undiscounted future cash flow analysis. Subsequent changes in estimated undiscounted cash flows could affect the determination of whether an impairment exists. Income Taxes We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes us to change our judgment about expected future tax consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes us to change our judgment about the realizability of the related deferred tax asset, is included in the tax provision when such changes occur.
Recently Issued Accounting Standards
See Note 2 "Accounting Policies and Related Matters" in the notes to the consolidated financial statements for information concerning recently issued accounting standards.
40 --------------------------------------------------------------------------------
Results of Operations
This section provides a comparative discussion on our results of operations and should be read in conjunction with our consolidated financial statements, including the accompanying notes. See "Critical Accounting Policies and Estimates" for more information concerning the most significant accounting policies and estimates applied in determining our results of operations.
Comparison of the year endedDecember 31, 2021 to the year endedDecember 31, 2020 For the year ended December 31, Change (dollars in thousands) 2021 2020 $ % Revenues Rental income $ 21,408$ 15,864 $ 5,544 35 % Commissions 2,836 2,437 399 16 % Management and other fees 1,105 1,358 (253 ) (19 %) Total revenues 25,349 19,659 5,690 29 % Expenses Cost of services 1,824 1,685 139 8 % Depreciation and amortization 12,501 9,939 2,562 26 % Property operating 5,694 3,914 1,780 45 % Bad debt expense 34 320 (286 ) (89 %) General and administrative 11,360 8,911 2,449 27 % Total operating expenses 31,413 24,769 6,644 27 % Operating loss (6,064 ) (5,110 ) (954 ) 19 % Other income (expense) Net interest and other income (expense) (33 ) 55 (88 ) (160 %) Derivative fair value adjustment 353 (639 ) 992 155 % Interest expense (9,961 ) (6,676 ) (3,285 ) 49 % Gain on extinguishment of debt 1,528 - 1,528 N/A Other expense (100 ) (187 ) 87 (47 %) Total other income (expense) (8,213 ) (7,447 ) (766 ) 10 % Income tax benefit 3,533 3,033 500 16 % Net loss$ (10,744 ) $ (9,524 ) $ (1,220 ) 13 % Plus: Net loss attributable to noncontrolling interest 1,236 1,379 (143 ) (10 %) Net loss attributable to common stockholders $ (9,508 )$ (8,145 )
Revenues for the year endedDecember 31, 2021 increased approximately$5.7 million , or 29%, compared to the year endedDecember 31, 2020 , as a result of an approximately$5.5 million increase in rental income and an approximately$0.4 million increase in commissions. These increases were partially offset by an approximately$0.3 million decrease in management and other fees. Rental income increased as a result of the acquisition of three properties in the second quarter of 2021 and one property in the fourth quarter of 2021. The increase in commissions is mainly attributable to a larger transaction volume during 2021 due to transactions delayed in 2020 related to COVID-19. The decrease in management and other fees is mainly attributable to fees recognized in 2020 related to the properties acquired by the Company during 2021. Total operating expenses for the year endedDecember 31, 2021 increased approximately$6.6 million , or 27%, compared to the year endedDecember 31, 2020 , primarily from: (i) an increase in depreciation and amortization expense of approximately$2.6 million primarily related to five properties that were acquired sinceJuly 2020 (which comprise$3.8 million of the total depreciation and amortization expense, partially offset by a$1.5 million decrease in amortization of in-place lease tangibles); (ii) an increase in general and administrative expenses of approximately$2.4 million mainly attributable to an increase in professional service fees including legal, audit and tax fees of approximately$0.7 million , an increase in stock compensation expense of approximately$0.6 million , higher payroll and related expenses of approximately$0.6 million , an increase in leasing commissions of approximately$0.3 million , and an increase in fees to operate as a public company, including directors and officers insurance, board of directors fees and filing fees of approximately$0.1 million ; and (iii) an increase in property operating expenses of$1.8 million , of which$1.4 million is related to the five properties acquired sinceJuly 2020 and$0.2 million related to an increase in snow removal expense. The gain on derivative fair value adjustment was approximately$0.4 million for the year endedDecember 31, 2021 compared to a loss of$0.6 million for the year endedDecember 31, 2020 . The increase of approximately$1.0 million was primarily due to the interest rate swaps the Company entered into onJuly 1, 2021 andDecember 27, 2019 . 41 -------------------------------------------------------------------------------- Interest expense for the year endedDecember 31, 2021 increased approximately$3.3 million , or 49%, compared to the year endedDecember 31, 2020 , primarily due to debt that was assumed or originated in connection with the five properties that were acquired sinceJuly 2020 . The gain on extinguishment of debt of approximately$1.5 million for the year endedDecember 31, 2021 is related to the forgiveness of the PPP Loan and Second PPP Loan (each as defined below) described under the heading "Liquidity and Capital Resources-Consolidated Indebtedness and Preferred Equity-PPP Loans".
Income tax benefit increased approximately
Net loss attributable to noncontrolling interest for the year endedDecember 31, 2021 decreased approximately$0.1 million compared to the year endedDecember 31, 2020 . The net loss attributable to noncontrolling interest reflects the proportionate share of the OP units held by outside investments in the operating results of theOperating Partnership from the completion of the Mergers onDecember 27, 2019 .
Non-GAAP Performance Measures
We present the non-GAAP performance measures set forth below. These measures should not be considered as an alternative to, or more meaningful than, net income (calculated in accordance with GAAP) or other GAAP financial measures, as an indicator of financial performance and are not alternatives to, or more meaningful than, cash flow from operating activities (calculated in accordance with GAAP) as a measure of liquidity. Non-GAAP performance measures have limitations as they do not include all items of income and expense that affect operations, and accordingly, should always be considered as supplemental financial results to those calculated in accordance with GAAP. Our computation of these non-GAAP performance measures may differ in certain respects from the methodology utilized by other real estate companies and, therefore, may not be comparable to similarly titled measures presented by other real estate companies. Investors are cautioned that items excluded from these non-GAAP performance measures are relevant to understanding and addressing financial performance.
Funds From Operations and Adjusted Funds from Operations
Funds from operations ("FFO") is a supplemental non-GAAP financial measure of real estate companies' operating performance.The National Association of Real Estate Investment Trusts ("Nareit") defines FFO as follows: net income (loss), computed in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains and losses from the sale of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Considering the nature of our business as a real estate owner and operator, we believe that FFO is useful to investors in measuring our operating and financial performance because the definition excludes items included in net income that do not relate to or are not indicative of our operating and financial performance, such as depreciation and amortization related to real estate, and items which can make periodic and peer analysis of operating and financial performance more difficult, such as gains and losses from the sale of certain real estate assets and impairment write-downs of certain real estate assets. Specifically, in excluding real estate related depreciation and amortization and gains and losses from sales of depreciable operating properties, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or service indebtedness. Also, FFO should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP. Adjusted FFO ("AFFO") is calculated by excluding the effect of certain items that do not reflect ongoing property operations, including stock-based compensation expense, deferred financing and debt issuance cost amortization, non-real estate depreciation and amortization, straight-line rent and other non-comparable or non-operating items. Management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company's operational performance than FFO. AFFO is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. We believe that Net income/(loss) is the most directly comparable GAAP financial measure to AFFO. 42 -------------------------------------------------------------------------------- Management believes that AFFO is a widely recognized measure of the operations of real estate companies, and presenting AFFO enables investors to assess our performance in comparison to other real estate companies. AFFO should not be considered as an alternative to net income/(loss) (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.
Our reconciliation of net income (loss) to FFO and AFFO for the years ended
For the Year Ended December 31, (dollars in thousands) 2021 2020 Net loss$ (10,744 ) $ (9,524 ) Real estate depreciation and amortization 12,014
9,515
Amortization of direct leasing costs 8 2 FFO attributable to common shares and OP units 1,278 (7 ) Stock-based compensation expense 643 - Deferred financing and debt issuance cost amortization 1,302
906
Non-real estate depreciation and amortization 19 19 Recurring capital expenditures (280 ) (607 ) Straight-line rent revenue (512 ) (855 ) Minimum return on preferred interests (335 ) (982 ) Non cash derivative fair value adjustment (353 )
639
AFFO attributable to common shares and OP units $ 1,762 $
(887 )
Weighted average shares outstanding to common shares Diluted 26,928,510
22,029,408
Net loss attributable to common stockholders per share Diluted (1) $ (0.35 ) $
(0.37 )
Weighted average shares outstanding to common shares and OP units Diluted 29,747,324
24,857,312
FFO attributable to common shares and OP units Diluted (2) $ 0.04 $ - (1) The weighted average common shares outstanding used to compute net loss per diluted common share only includes the common shares. We have excluded the OP units since the conversion of OP units is anti-dilutive in the computation of diluted EPS for the periods presented. (2) The weighted average common shares outstanding used to compute FFO per diluted common share includes OP units that were excluded from the computation of diluted EPS. Conversion of these OP units is dilutive in the computation of FFO per diluted common share but is anti-dilutive for the computation of diluted EPS for the periods presented.
Liquidity and Capital Resources
Overview
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay any outstanding borrowings, fund and maintain our assets and operations and other general business needs.
Our short-term liquidity requirements consist primarily of debt service requirements, operating expenses, recurring capital expenditures (such as repairs and maintenance of our properties), and non-recurring capital expenditures (such as capital improvements and tenant improvements). We expect to meet our short-term liquidity requirements through cash on hand and cash reserves, additional secured and unsecured debt and, subject to market conditions, the issuance of additional shares of common stock, preferred stock or OP units. As ofDecember 31, 2021 andApril 8, 2022 , we had unrestricted cash and cash equivalents of approximately$2.8 million and$1.8 million , respectively, available for current liquidity needs and restricted cash of approximately$8.2 million and$8.7 million , respectively, which is available for debt service shortfall requirements, certain capital expenditures, real estate taxes and insurance. We have two mortgage loans and a mezzanine loan on two properties (Cromwell Field Shopping Center andLamar Station Plaza East ) totaling approximately$17.3 million that mature within the next twelve months. We project that we will not have sufficient cash available to pay off the mortgage and mezzanine loans upon maturity, and we are currently seeking to refinance the loans prior to maturity inJuly 2022 andNovember 2022 . There can be no assurances that we will be successful on the refinance of the mortgage and 43 -------------------------------------------------------------------------------- mezzanine loans on favorable terms or at all. If we are unable to refinance the mortgage and mezzanine loans, the lenders have the right to place the loans in default and ultimately foreclose on the properties. Under this circumstance, we would not have any further financial obligation to the lenders as the value of these properties are in excess of the outstanding loan balances. In addition, the Basis Term Loan and the Basis Preferred Interest totaling approximately$75.4 million mature onJanuary 1, 2023 , subject to two one-year extension options that are subject to certain conditions. Management believes that we will meet the conditions necessary to exercise our extension options under the Basis Term Loan and the Basis Preferred Interest prior to their maturity. Management also is in discussions with other lenders to refinance the Basis Term Loan and the Basis Preferred Interest with new loans, which management believes will be available on acceptable terms based on discussions with lenders and the loan-to-value ratios of the properties securing the Basis Term Loan. There can be no assurances, however, that we will be successful in exercising these extension options or refinancing the Basis Term Loan and the Basis Preferred Interest prior to their maturity. If we are unable to extend or refinance the Basis Term Loan prior to maturity, the lender will have the right to place the loan in default and ultimately foreclose on the six properties securing the loan. If we are unable to extend or redeem the Basis Preferred Interest prior to the mandatory redemption date, the Preferred Investor may remove theOperating Partnership as the manager of the Sub-OP and as the manager of the property-owning entities held under the Sub-OP. Although management believes that we will be able to extend or refinance our debt prior to maturity, including the Basis Term Loan and the Basis Preferred Interest, it is possible that we may be unable extend or refinance such debt, which creates substantial doubt about our ability to continue as a going concern for a period of one year after the date of that the financial statements included in this report are issued, and our independent registered public accounting firm has included an explanatory paragraph regarding our ability to continue as a going concern in its report on our financial statements included in this report. The financial statements included in this report have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. Our long-term liquidity requirements are expected to consist primarily of funds necessary for the repayment of debt at or prior to maturity, capital improvements, development and/or redevelopment of properties and property acquisitions. We expect to meet our long-term liquidity requirements through net cash from operations, additional secured and unsecured debt and, subject to market conditions, the issuance of additional shares of common stock, preferred stock or OP units. Our pending Midtown Row Acquisition has a purchase price of$122.0 million in cash. We are currently looking into various alternatives to be able to fund the acquisition in cash. There can be no assurances that we will be successful and we may need to incur additional indebtedness to fund the acquisition. Our access to capital depends upon a number of factors over which we have little or no control, including general market conditions, the market's perception of our current and potential future earnings and cash distributions, our current debt levels and the market price of the shares of our common stock. Although our common stock is quoted on the OTCQX, there is a very limited trading market for our common stock, and if a more active trading market is not developed and sustained, we will be limited in our ability to issue equity to fund our capital needs. If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or pay dividends to our stockholders. Until we have greater access to capital, we will likely structure future acquisitions through joint ventures or other syndicated structures in which outside investors will contribute a majority of the capital and we will manage the assets. As described below, under our existing debt agreements, we are subject to continuing covenants. As ofDecember 31, 2021 , we were in compliance with all of the covenants under our debt agreements. In the event of a default, the lenders could accelerate the timing of payments under the applicable debt obligations and we may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on our liquidity, financial condition and results of operations. 44 --------------------------------------------------------------------------------
Consolidated Indebtedness and Preferred Equity
Indebtedness Summary
The following table sets forth certain information regarding our outstanding
indebtedness as of
Balance Outstanding at Maturity Interest December 31, (dollars in thousands) Date Rate Type Rate (1) 2021 Basis Term Loan (net of discount January 1, of$745 ) 2023 Floating (2) 6.125% $ 66,811 Basis Preferred Interest (net of January 1, discount of$150 ) (3) 2023 (4) Fixed 14.00% (5) 8,560 December 27, MVB Term Loan 2022 (6) Fixed 6.75% 3,934 December 27, MVB Revolver 2022 (6) Floating (7) 6.75% 1,404 December 1,
Hollinswood Shopping Center Loan 2024 LIBOR + 2.25% (8) 4.06%
13,070 Avondale Shops Loan June 1, 2025 Fixed 4.00% 3,097 Vista Shops at Golden Mile Loan June 24, (net of discount of$39 ) (9) 2023 Fixed 3.83% 11,661 Brookhill Azalea Shopping Center January 31, Loan 2025 LIBOR + 2.75% 2.85% 9,034 Lamar Station Plaza East Loan July 17, (net of discount of$8 ) 2022 (10) LIBOR + 3.00% (11) 4.00% 3,507 Cromwell Field Shopping Center January 10, Land Loan (12) 2023 Fixed 6.75% - First Paycheck Protection April 20, Program Loan 2022 (13) Fixed 1.00% - Second Paycheck Protection March 18, Program Loan 2026 (14) Fixed 1.00% - Lamont Street Preferred Interest September (net of discount of$67 ) (15) 30, 2023 Fixed 13.50% 4,498 Highlandtown Village Shopping Center Loan (net of discount of$46 ) May 6, 2023 Fixed 4.13% 5,364
12,249Cromwell Field Shopping Center Mezzanine Loan (net of discount November 15, of$18 ) 2022 Fixed 10.00% 1,512 Spotswood Valley Square Shopping Center Loan (net of discount of$94 ) July 6, 2023 Fixed 4.82% 12,100
The Shops at
23,296 180,097 Unamortized deferred financing costs, net (1,115 ) Total$ 178,982 _____________________ (1)
At
(2)
The interest rate for the Basis Term Loan is the greater of (i) LIBOR plus 3.850% per annum and (ii) 6.125% per annum. The Company has entered into an interest rate cap that caps the LIBOR rate on this loan at 3.5%.
(3)
The outstanding balance includes approximately
(4)
If the Basis Term Loan is paid in full earlier than its maturity date, the Basis Preferred Interest (as defined below) in the Sub-OP will mature at that time.
(5)
InJune 2020 , the Preferred Investor made additional capital contributions of approximately$2.9 million as described below under the heading "-Basis Preferred Interest" of which$0.9 million was outstanding atDecember 31, 2021 . The Preferred Investor is entitled to a cumulative annual return of 13.0% on the additional contributions.
(6)
InMarch 2022 , the Company entered into a six-month extension on the MVB Term Loan and MVB Revolver (each as defined below) as described under the heading "-MVB Loans."
(7)
The interest rate on the MVB Revolver is the greater of (i) prime rate plus 1.5% and (ii) 6.75%.
(8)
The Company has entered into an interest rate swap which fixes the interest rate of the loan at 4.06%.
(9)
The Company completed the refinance of this loan in
(10)
InJuly 2021 , the Company entered into a modification to theLamar Station Plaza East loan to extend the maturity date toJuly 2022 as described below under the heading "-Other Mortgage Indebtedness".
(11)
The interest rate on the Lamar Station
45 --------------------------------------------------------------------------------
(12)
The Company paid off the remaining principal balance of the Cromwell land loan during the second quarter of 2021.
(13)
During the first quarter of 2021, the Company received forgiveness for its PPP Loan as described below under the heading "-Paycheck Protection Program Loans."
(14)
During the third quarter of 2021, the Company received forgiveness for its Second PPP Loan as described below under the heading "-Paycheck Protection Program Loans."
(15)
The outstanding balance includes approximately$0.6 million of indebtedness as ofDecember 31, 2021 , related to the Lamont Street Minimum Multiple Amount owed toLamont Street as described below under the heading "-Lamont Street Preferred Interest."
(16)
The interest rate on the Cromwell Field Shopping Center Loan is LIBOR plus 5.40% per annum with a minimum LIBOR rate of 0.50%.
(17)
The Company has entered into an interest rate swap which fixes the interest rate of the loan at 4.082%.
The following table sets forth our scheduled principal repayments and maturities
during each of the next five years and thereafter as of
(dollars in thousands)
Amount Percentage Year (1) Due of Total 2022$ 24,851 13.7 % 2023 110,444 61.0 % 2024 13,597 7.5 % 2025 11,095 6.1 % 2026 644 0.4 % Thereafter 20,444 11.3 %$ 181,075 100.0 %
_____________________
(1)
Does not reflect the exercise of any maturity extension options.
Basis Loan Agreement
InDecember 2019 , six of our subsidiaries, as borrowers (collectively, the "Borrowers"), andBig Real Estate Finance I, LLC , a subsidiary of a real estate fund managed byBasis Management Group, LLC ("Basis"), as lender (the "Basis Lender"), entered into a loan agreement (the "Basis Loan Agreement") pursuant to which the Basis Lender made a senior secured term loan of up to$66.9 million (the "Basis Term Loan") to the Borrowers. Pursuant to the Basis Loan Agreement, the Basis Term Loan is secured by mortgages on the following properties:Coral Hills , Crestview, Dekalb, Midtown Colonial, Midtown Lamonticello and West Broad. The Basis Term Loan matures onJanuary 1, 2023 , subject to two one-year extension options, subject to certain conditions. The Basis Term Loan bears interest at a rate equal to the greater of (i) LIBOR plus 3.850% per annum and (ii) 6.125% per annum. The Borrowers have entered into an interest rate cap that effectively caps LIBOR at 3.50% per annum. As ofDecember 31, 2021 , the interest rate of the Basis Term Loan was 6.125% and the balance outstanding was$66.9 million . Certain of the Borrowers' obligations under the Basis Loan Agreement are guaranteed by the Company and byMichael Z. Jacoby , the Company's chairman and chief executive officer, andThomas M. Yockey , a director of the Company. The Company has agreed to indemnifyMr. Yockey for any losses he incurs as a result of his guarantee of the Basis Term Loan. The Basis Loan Agreement contains certain customary representations and warranties and affirmative negative and restrictive covenants, including certain property related covenants for the properties owned by the Sub-OP, including a requirement that certain capital improvements be made. The Basis Lender has certain approval rights over amendments or renewals of material leases (as defined in the Basis Loan Agreement) and property management agreements for the properties securing the Basis Term Loan. If (i) an event of default exists, (ii) the Company's subsidiary serving as the property manager ("BSR") or any other subsidiary of the Company serving as property manager for one of the secured parties becomes bankrupt, insolvent or a debtor in an insolvency proceeding, or there is a change of control of BSR or such other subsidiary without approval by the Basis Lender, (iii) a default occurs under the applicable management agreement, or (iv) the property manager has engaged in fraud, willful misconduct, misappropriation of funds or is grossly negligent with regard to the applicable property, the Basis Lender may require a Borrower to replace BSR or such other subsidiary of the Company as the property manager and hire a third party manager approved by the Basis Lender to manage the applicable property. The Borrowers are generally prohibited from selling the properties securing the Basis Term Loan and the Company is prohibited from transferring any interest in any of the Borrowers, in each case without consent from the Basis Lender. The Company is prohibited from engaging in transactions that would result in a Change in Control (as defined in the Basis Loan Agreement) of the Company. Under 46 -------------------------------------------------------------------------------- the Basis Loan Agreement, among other things, it is deemed a Change in Control ifMichael Z. Jacoby ceases to be the chairman and chief executive officer of the Company and actively involved in the daily activities and operations of the Company and the Borrowers and a competent and experienced person is not approved by the Basis Lender to replaceMr. Jacoby within 90 days of him ceasing to serve in such roles. The Basis Loan Agreement provides for standard events of default, including nonpayment of principal and other amounts when due, non-performance of covenants, breach of representations and warranties, certain bankruptcy or insolvency events and changes in control. If an event of default occurs and is continuing under the Basis Loan Agreement, the Basis Lender may, among other things, require the immediate payment of all amounts owed thereunder. In addition, if there is a default by the Company under the MVB Loan, byMr. Jacoby under his guarantee of the MVB Loan or byMr. Jacoby under a certain personal loan as long as he has pledged OP units as collateral for such loan, and such default has not been waived or cured, then the Basis Lender will have the right to sweep the Borrowers' cash account in which they collect and retain rental payments from the properties securing the Basis Term Loan on a daily basis in order for the Basis Lender to create a cash reserve that will serve as collateral for the Basis Term Loan. The Basis Loan Agreement includes a debt service coverage calculation based on the trailing twelve month's results which includes an adjustment for tenants that are more than one-month delinquent in paying rent. A debt service coverage ratio below 1.10x is a Cash Trap Trigger Event (as defined in the Basis Loan Agreement), which gives the Basis Lender the right to institute a cash management period until the trigger is cured. A debt service coverage ratio below 1.05x for two consecutive calendar quarters gives the Basis Lender the right to remove the Company as manager of the properties. The debt service coverage calculation for the twelve months endedDecember 31, 2021 , was approximately 1.42x.
Basis Preferred Interest
InDecember 2019 , theOperating Partnership andBig BSP Investments, LLC , a subsidiary of a real estate fund managed by Basis (the "Preferred Investor"), entered into an amended and restated operating agreement (the "Sub-OP Operating Agreement") ofBroad Street BIG First OP, LLC a subsidiary of theOperating Partnership (the "Sub-OP"). Pursuant to the Sub-OP Operating Agreement, among other things, the Preferred Investor committed to make an investment of up to$10.7 million in the Sub-OP, of which$6.9 million had been funded as ofDecember 31, 2021 , in exchange for a 1.0% membership interest in the Sub-OP designated as Class A units. Pursuant to the Sub-OP Operating Agreement, the Preferred Investor is entitled to a cumulative annual return of 14.0% on its initial capital contribution (the "Class A Return"), and the Preferred Investor will be entitled to a 20% return (the "Enhanced Class A Return") on any capital contribution made to the Sub-OP in excess of the$10.7 million commitment. The Preferred Investor's interests must be redeemed on or before the earlier of: (i)January 1, 2023 and (ii) the date on which the Basis Term Loan is paid in full (the "Redemption Date"). The Redemption Date may be extended toDecember 31, 2023 andDecember 31, 2024 , in each case subject to certain conditions, including the payment of a fee equal to 0.25% of the Preferred Investor's net invested capital for the first extension option and a fee of 0.50% of the Preferred Investor's net invested capital for the second extension option. If the redemption price is paid on or before the Redemption Date, then the redemption price will be equal to (a) all unreturned capital contributions made by the Preferred Investor, (b) all accrued but unpaid Class A Return, (c) all accrued but unpaid Enhanced Class A Return and (d) all costs and other expenses incurred by the Preferred Investor in connection with the enforcement of its rights under the Sub-OP Operating Agreement. Additionally, at the Redemption Date, the Preferred Investor is entitled to an amount equal to (a) the product of (i) the aggregate amount of capital contributions made and (ii) 0.4, less (b) the aggregate amount of Class A return payments made to the Preferred Investor (the "Minimum Multiple Amount"). As ofDecember 31, 2021 and 2020, the Minimum Multiple Amount was approximately$0.8 million and$1.8 million , respectively, which is included as indebtedness on the consolidated balance sheet.The Operating Partnership serves as the managing member of the Sub-OP. However, the Preferred Investor has approval rights over certain major decisions (as defined in the Sub-OP Operating Agreement), including, but not limited to, (i) the incurrence of new indebtedness or modification of existing indebtedness by the Sub-OP or its direct or indirect subsidiaries, (ii) capital expenditures over$250,000 , (iii) any proposed change to a property directly or indirectly owned by the Sub-OP, (iv) direct or indirect acquisitions of new properties, (v) the sale or other disposition of any property directly or indirectly owned by the Sub-OP, (v) the issuance of additional membership interests in the Sub-OP, (vi) the entry into any new material lease or any amendment to an existing material lease and (vii) decisions regarding the dissolution, winding up or liquidation of the Sub-OP or the filing of any bankruptcy petition by the Sub-OP. Under certain circumstances, including in the event that the Preferred Investor's interests are not redeemed on or prior to the Redemption Date (as it may be extended), the Preferred Investor may remove theOperating Partnership as the manager of the Sub-OP and as the manager for each of the property-owning entities held under the Sub-OP. The obligations of theOperating Partnership under the Sub-OP Operating Agreement are guaranteed by the Company,Mr. Jacoby , the Company's chairman and chief executive officer, andMr. Yockey , a director of the Company. The Company has agreed to indemnifyMr. Yockey for any losses he incurs as a result of this guarantee.
The Preferred Investor's interests in the Sub-OP under the Sub-OP Operating Agreement are mandatorily redeemable, and, as a result, are characterized as indebtedness in the accompanying consolidated financial statements.
47 -------------------------------------------------------------------------------- OnJune 16, 2020 , the Preferred Investor made two additional capital contributions available to the Sub-OP in the aggregate amount of approximately$2.9 million , which is classified as debt. The two capital contributions consisted of: (i) a$2.4 million capital contribution to the Sub-OP that the Sub-OP contributed to the Borrowers for purposes of making debt service payments under the Basis Loan Agreement and (ii) a$0.5 million capital contribution to the Sub-OP that the Sub-OP contributed to certain of its other property owning subsidiaries for purposes of making debt service payments on mortgage debt secured by the properties owned by such subsidiaries and making payments of the Class A return due to the Preferred Investor pursuant to the Sub-OP Operating Agreement. The Preferred Investor is entitled to a cumulative annual return of 13.0% on the additional capital contributions. As described below under the heading "-Other Mortgage Indebtedness," the Company repaid approximately$0.8 million of these funds with the proceeds from theVista Shops mortgage refinance. Additionally, approximately$0.3 million of availability under the capital contributions was returned to the Preferred Investor and is no longer available to the Company. OnOctober 1, 2021 , approximately$1.0 million of availability under the capital contributions was returned to the Preferred Investor and is no longer available to the Company. As of the date of this report, there is no remaining availability to the Company from these capital contributions. MVB Loans InDecember 2019 , the Company, theOperating Partnership and BSR entered into a loan agreement (the "MVB Loan Agreement") withMVB Bank, Inc. ("MVB") with respect to a$6.5 million loan consisting of a$4.5 million term loan (the "MVB Term Loan") and a$2.0 million revolving credit facility (the "MVB Revolver"). The MVB Term Loan matures onDecember 27, 2022 and the MVB Revolver had an original maturity date ofDecember 27, 2020 , which has been extended toDecember 27, 2022 under the terms described below. The MVB Term Loan has a fixed interest rate of 6.75% per annum and the MVB Revolver carries an interest rate of the greater of (i) prime rate plus 1.5% and (ii) 6.75%.
The Company has no additional availability under the MVB Term Loan and the MVB
Revolver as of
The MVB Loan Agreement is secured by certain personal property of the Company, theOperating Partnership and BSR. In addition,Mr. Jacoby has pledged a portion of his shares of the Company's common stock and a portion of his OP units in theOperating Partnership as collateral under the MVB Loan Agreement. The obligations of the Company and theOperating Partnership under the MVB Loan Agreement are guaranteed byMr. Jacoby , in his individual capacity. The MVB Loan Agreement contains certain customary representations and warranties and affirmative and negative covenants. The MVB Loan Agreement also requires the Company to maintain (as such terms are defined in the MVB Loan Agreement) (i) a debt service coverage ratio of at least 1.30 to 1.00, (ii) an EBITDA to consolidated funded debt ratio of at least 8.0%, (iii) an aggregate minimum unencumbered cash, including funds available under other lines of credit, of greater than$5.0 million (the "Minimum Liquidity Requirement"), and (iv) one or more deposit accounts with MVB with an aggregate minimum balance of$3.0 million (the "Deposit Requirement"). The failure to comply with the Deposit Requirement is not a default under the MVB Loan Agreement but will increase the interest rate under the MVB Term Loan and MVB Revolver by 1.0% until the Deposit Requirement has been satisfied. As described below, MVB agreed to require interest-only payments for three months in 2021 (April, May, and June) and deferred covenant tests untilJune 30, 2021 andDecember 31, 2021 . InDecember 2020 , we entered into an amendment to the MVB Loan Agreement which extended the maturity date of the MVB Revolver toDecember 27, 2021 and inMarch 2021 , we entered into another amendment to the MVB Loan Agreement which further extended the maturity date of the MVB Revolver toDecember 27, 2022 . The amendments also eliminate the revolving nature of the facility, require monthly principal payments as calculated over a 10-year amortization schedule, and require the repayment of$250,000 on each of the following dates (a) the earlier ofMarch 31, 2021 or the closing date of our then-pending mergers of the Highlandtown and Spotswood properties, (b) the earlier ofSeptember 30, 2021 or the closing date of the then-pending merger of the Greenwood property, (c)March 31, 2022 , and (d)September 30, 2022 . The$250,000 payments owed byMarch 31, 2021 andSeptember 30, 2021 have been paid. Additionally, the amendments (i) deferred testing for covenants related to the Deposit Requirement, Minimum Liquidity Requirement and the debt service coverage ratio untilJune 30, 2021 , (ii) deferred testing for the covenant related to the Company's EBITDA to consolidated funded debt ratio untilDecember 31, 2021 , (iii) modified the debt service coverage ratio to 1.00 to 1 and (iv)modified the Minimum Liquidity Requirement to$3.0 million . These amendments were treated as modifications under the accounting standards. The Company is in compliance with all financial coverage as ofDecember 31, 2021 . The MVB Loan Agreement provides for standard events of default, including nonpayment of principal and other amounts when due, non-performance of covenants, breach of representations and warranties, certain bankruptcy or insolvency events and changes in control. If an event of default occurs and is continuing under the MVB Loan Agreement, MVB may, among other things, require the immediate payment of all amounts owed thereunder. OnMarch 22, 2022 , we entered into agreements (the "MVB Amendments") with respect to the MVB Term Loan and the MVB Revolver, which further extended the maturity date of each toJune 27, 2023 . The MVB Amendments require the repayment of$250,000 on each of the following dates (i) on or beforeMarch 31, 2022 ; (ii) on or beforeSeptember 30, 2022 and (iii) on or beforeMarch 31, 2023 . The$250,000 payment owed byMarch 31, 2022 has been paid. The MVB Amendments also provide for a$2.0 million term loan (the "Second MVB Term Loan"). The Second MVB Term Loan has a fixed interest rate of 6.75% per annum and matures onJune 27, 2023 . We are required to pay an exit fee to MVB in an amount equal to two percent multiplied by the aggregate principal balance of the 48 -------------------------------------------------------------------------------- MVB Term Loan, the MVB Revolver and the Second MVB Term Loan at the time of the maturity date or just prior to such repayments. Additionally, the MVB Amendments modified the EBITDA to consolidated funded debt ratio from a minimum of 8.0% to 7.0%.
Lamont Street Preferred Interest
In connection with the closing of the Highlandtown and Spotswood Mergers onMay 21, 2021 andJune 4, 2021 , respectively,Lamont Street contributed an aggregate of$3.9 million in exchange for a 1.0% preferred membership interest inBSV Highlandtown Investors LLC ("BSV Highlandtown") andBSV Spotswood Investors LLC ("BSV Spotswood") designated as Class A units.Lamont Street is entitled to a cumulative annual return of 13.5% (the "Lamont Street Class A Return"), of which 10.0% is paid current and 3.5% is accrued.Lamont Street's interests are to be redeemed on or beforeSeptember 30, 2023 (the "Lamont Street Redemption Date"). The Lamont Street Redemption Date may be extended by us toSeptember 30, 2024 andSeptember 30, 2025 , in each case subject to certain conditions, including the payment of a fee equal to 0.25% ofLamont Street's net invested capital for the first extension option and a fee of 0.50% ofLamont Street's net invested capital for the second extension option. If the redemption price is paid on or before the Lamont Street Redemption Date, then the redemption price will be equal to (a) all unreturned capital contributions made byLamont Street , (b) all accrued but unpaidLamont Street Class A Return and (c) all costs and other expenses incurred byLamont Street in connection with the enforcement of its rights under the agreements. Additionally, at the Lamont Street Redemption Date,Lamont Street is entitled to (i) a redemption fee of 0.50% of the capital contributions returned and (ii) an amount equal to (a) the product of (i) the aggregate amount of capital contributions made and (ii) 0.26 less (b) the aggregate amount ofLamont Street Class A Return payments made toLamont Street (the "Lamont Street Minimum Multiple Amount"). The Lamont Street Minimum Multiple Amount of approximately$1.0 million was recorded as interest expense in the consolidated statement of operations during the second quarter of 2021. As ofDecember 31, 2021 , the remaining Lamont Street Minimum Multiple Amount was approximately$0.6 million . OurOperating Partnership serves as the managing member of BSV Highlandtown and BSV Spotswood. However,Lamont Street has approval rights over certain major decisions, including, but not limited to (i) the incurrence of new indebtedness or modification of existing indebtedness by BSV Highlandtown and BSV Spotswood, or their direct or indirect subsidiaries, (ii) capital expenditures over$100,000 , (iii) any proposed change to a property directly or indirectly owned by BSV Highlandtown and BSV Spotswood, (iv) direct or indirect acquisitions of new properties by BSV Highlandtown or BSV Spotswood, (v) the sale or other disposition of any property directly or indirectly owned by BSV Highlandtown or BSV Spotswood, (vi) the issuance of additional membership interests in BSV Highlandtown and BSV Spotswood, (vii) any amendment to an existing material lease related to the properties and (viii) decisions regarding the dissolution, winding up or liquidation of BSV Highlandtown or BSV Spotswood or the filing of any bankruptcy petition by BSV Highlandtown and BSV Spotswood or their subsidiaries. Under certain circumstances, including an event wherebyLamont Street's interests are not redeemed on or prior to the Lamont Street Redemption Date (as it may be extended),Lamont Street may remove ourOperating Partnership as the manager of BSV Highlandtown and BSV Spotswood.
Paycheck Protection Program Loans
OnApril 20, 2020 , a wholly owned subsidiary of the Company entered into a promissory note with MVB with respect to an unsecured loan of approximately$0.8 million (the "PPP Loan") pursuant to the Paycheck Protection Program (the "PPP"), which was established under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and is administered by theU.S. Small Business Administration (the "SBA"). The PPP Loan bore interest at a rate of 1.0% per year. During the first quarter of 2021, the Company received forgiveness for its entire balance of the PPP Loan from the SBA and recognized a$0.8 million gain on debt extinguishment in the Company's statement of operations. OnMarch 18, 2021 , a wholly owned subsidiary of the Company entered into a promissory note with MVB with respect to an unsecured loan of approximately$0.8 million (the "Second PPP Loan") pursuant to the PPP. The Second PPP Loan bore interest at a rate of 1.0% per year. During the third quarter of 2021, the Company received forgiveness for its entire balance of the Second PPP Loan from the SBA and recognized a$0.8 million gain on debt extinguishment in the Company's statement of operations.
Other Mortgage Indebtedness
As ofDecember 31, 2021 and 2020, we had approximately$94.9 million and$38.1 million , respectively, of outstanding mortgage indebtedness secured by individual properties. The Hollinswood mortgage,Vista Shops mortgage, Brookhill mortgage, Highlandtown mortgage, Cromwell mortgage, Spotswood mortgage andGreenwood Village mortgage require the Company to maintain a debt service coverage ratio (as such terms are defined in the respective loan agreements) as follows in the table below. 49
-------------------------------------------------------------------------------- Minimum Debt Service CoverageHollinswood Shopping Center 1.40 to 1.00Vista Shops at Golden Mile 1.50 to 1.00Brookhill Azalea Shopping Center 1.30 to 1.00Highlandtown Village Shopping Center 1.30 to 1.00Cromwell Field Shopping Center 1.00 to 1.00Spotswood Valley Square Shopping Center 1.15 to 1.00 The Shops atGreenwood Village 1.40 to 1.00
The debt service coverage ratio required for the
InMarch 2021 , the Company completed the refinance of theVista Shops mortgage loan. The new loan has a principal balance of$11.7 million , matures inJune 2023 , and carries an interest rate of 3.83% per annum. The Company deposited approximately$1.9 million of the proceeds from the refinance with the Basis Lender, which was applied as follows during the second quarter of 2021: (i) repaid approximately$0.75 million of the outstanding principal balance on the capital contributions, which are treated as debt, provided to the Company inJune 2020 under the Basis Preferred Interest as described above under the heading "-Basis Preferred Interest", (ii) paid approximately$46,000 in accrued interest on these funds and (iii) contributed approximately$1.1 million into an escrow account with the Basis Lender which will be used to pay down the outstanding principal balance of the capital contribution upon satisfaction of certain conditions. InJuly 2021 , the Company entered into a modification of theLamar Station Plaza East mortgage loan, which extended the maturity date of the loan toJuly 2022 . The amendment also waived the debt service coverage ratio test for the period endingJune 30, 2021 and requires a debt service coverage ratio of (i) 1.05 to 1.0 for the three months endedSeptember 30, 2021 ; (ii) 1.15 to 1.0 for the six months endedDecember 31, 2021 ; and (iii) 1.25 to 1.0 for the twelve months endedMarch 31, 2022 . In connection with the closing of the Merger whereby the Company acquired The Shops atGreenwood Village as described in Notes to Consolidated Financial Statements-Note 3 under the heading "-2021 Real Estate Acquisitions", onOctober 6, 2021 , the Company entered into a$23.5 million mortgage loan secured by the property, which bears interest at prime rate less 0.35% per annum and matures onOctober 10, 2028 . The Company has entered into an interest rate swap which fixes the interest rate of the loan at 4.082%. In connection with the closings of the two remaining Mergers, we expect to incur or assume approximately$24.4 million of additional mortgage indebtedness. Our pending Midtown Row Acquisition has a purchase price of$122.0 million in cash. We are currently looking into various alternatives to be able to fund the acquisition in cash. There can be no assurances that we will be successful and we may need to incur additional indebtedness to fund the acquisition.
As of
Interest Rate Derivatives We may use interest rate derivatives from time to time to manage our exposure to interest rate risks. OnDecember 27, 2019 , we entered into an interest rate cap agreement on the full$66.9 million Basis Term Loan to cap the variable LIBOR interest rate at 3.5%. We also entered into two interest rate swap agreements on the Hollinswood loan to fix the interest rate at 4.06%. The swap agreements are effective as ofDecember 27, 2019 on the outstanding balance of$10.2 million and onJuly 1, 2021 for the additional availability of$3.0 million under the Hollinswood loan. OnOctober 6, 2021 , the Company entered into an interest rate swap agreement on the Greenwood Village Loan to fix the interest rate at 4.082%. Since our derivative instruments are not designated as hedges nor do they meet the criteria for hedge accounting, the fair value is recognized in earnings. For the year endedDecember 31, 2021 , we recognized a$0.4 million gain as a component of "Derivative fair value adjustment" on the consolidated statement of operations. Cash Flows The table below sets forth the sources and uses of cash reflected in our consolidated statements of cash flows for the years endedDecember 31, 2021 and 2020. For the year ended December 31, (in thousands) 2021 2020 Change Cash and cash equivalents and restricted cash at beginning of period $ 9,983$ 11,595 $ (1,612 ) Net cash used in operating activities (5,586 ) (2,418 ) (3,168 ) Net cash used in investing activities (20,235 ) (6,247 ) (13,988 ) Net cash provided by financing activities 26,862 7,053 19,809 Cash and cash equivalents and restricted cash at end of period $ 11,024 $
9,983
Operating Activities- Cash used in operating activities increased by approximately$3.2 million for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . Operating cash flows were primarily impacted by a net increase in changes in operating assets and liabilities of approximately$3.1 million , of which approximately$4.0 million and$0.5 million are related to the 50 --------------------------------------------------------------------------------
change in accounts payable and accrued liabilities and other assets,
respectively. This was partially offset by approximately
Investing Activities- Cash used in investing activities during the year endedDecember 31, 2021 increased by approximately$14.0 million compared to the year endedDecember 31, 2020 . This increase is the result of the acquisitions of four properties during the year endedDecember 31, 2021 as compared to the acquisition of one property and one parcel of land during the year endedDecember 31, 2020 . Financing Activities- Cash provided by financing activities for the year endedDecember 31, 2021 increased by approximately$19.8 million compared to the year endedDecember 31, 2020 . The change resulted primarily from an increase in net borrowings relating to the acquisition ofGreenwood Village of$23.5 million , theLamont Street contribution of$3.9 million , the Lamont Street Minimum Multiple of$1.0 million and the Second PPP Loan of$0.8 million . This was partially offset by an increase in debt repayments during 2021 of approximately$9.9 million . Inflation Substantially all of our leases provide for the recovery of increases in real estate taxes and operating expenses. In addition, substantially all of our leases provide for annual rent increases. We believe that inflationary increases may be offset in part by the contractual rent increases and expense escalations previously described.
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