InPoint Commercial Real Estate Income, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. Dollar amounts are in millions unless otherwise indicated. The company is an externally managed REIT focused primarily on commercial real estate debt investments.
Financial results and position
| Metric | Q1 2021 / March 31, 2021 | Q1 2020 / December 31, 2020 |
|---|---|---|
| Interest income | $6.451 | $10.356 |
| Net interest income | $4.557 | $6.394 |
| Total income | $5.425 | $6.394 |
| Operating expenses | $4.060 | $1.565 |
| Net income (loss) | $1.365; $0.12 per share | $(37.858); $(3.34) per share |
| Net cash from operating activities | $2.155 | $4.982 |
| Cash and cash equivalents | $52.644 | $72.107 |
| Total assets | $569.239 | $554.991 |
| Repurchase-agreement debt | $305.943 | $290.699 |
| Stockholders’ equity | $238.459 | $240.256 |
- Net interest spread was 3.1%, versus 2.4% in Q1 2020; weighted-average asset yield was 5.7% and financing cost was 2.6%. Average leverage was 186.3% of average equity.
- Q1 investing cash outflow was $33.192, primarily from commercial loan originations; financing cash inflow was $11.574, including $15.244 of net repurchase-agreement borrowings. Cash declined $19.463 during the quarter.
- At March 31, the loan portfolio comprised 31 loans with $474.9 million principal balance and a 5.4% weighted-average interest rate. The company also reported $49.8 million of unencumbered assets.
- Company-reported NAV was $234.515 million, or $20.1508 per share, below GAAP stockholders’ equity. The NAV calculation includes a fair-value adjustment for the hotel and other adjustments.
Material changes and operating developments
- Net income improved from the prior-year loss primarily because Q1 2020 included $38.187 million of unrealized losses on real estate securities and a $4.500 million loan-loss provision; neither recurred in Q1 2021. The company held no real estate securities at March 31, 2021.
- Interest income fell as the average interest-earning asset balance declined, principally following the 2020 sale of securities and loan payoffs. Lower average borrowing costs partly offset the lower income.
- Operating expenses rose to $4.060 million, mainly reflecting the hotel acquired through a deed-in-lieu of foreclosure in August 2020: $2.155 million of hotel operating costs and $0.272 million of depreciation and amortization in Q1 2021.
- The company originated two loans and reported $33.6 million portfolio growth during the quarter. Six loans carried internal risk rating 3 and three rating 4; none were rated 5. Management said all borrowers made scheduled payments through the filing date and no loan risk ratings had changed since quarter-end.
Outlook, risks and unusual items
- Management reported strong demand and competition for new loans, selectively pursuing opportunities, particularly in office, industrial and multifamily. No formal earnings or portfolio guidance was provided.
- The Chicago Renaissance O’Hare hotel remained affected by the pandemic. It generated $0.868 million of revenue and an approximately $1.194 million net loss in Q1. Management estimated a $2.25 million hotel loss for 2021, intends to sell the property, and noted that timing, sale proceeds and future losses remain uncertain. April occupancy and hotel operating indicators improved from Q1 levels.
- The hotel received a $1.093 million Paycheck Protection Program loan in February. The company intends to seek forgiveness, but forgiveness is not assured.
- Distributions were reinstated in August 2020 and Q1 2021 gross monthly per-share amounts increased from $0.95 in January to $1.05 in March. The company cautioned that distributions may be funded from sources other than operating cash flow. Q1 declared distributions totaled $2.892 million; cash distributions paid were $2.626 million.
- The share repurchase program resumed for death or qualified-disability requests on March 1, 2021. The filing states that general repurchases were scheduled to resume July 1, subject to caps: 1% of NAV monthly and 2.5% quarterly for July–September, then the program’s stated 2% monthly and 5% quarterly limits from October. Repurchases may be reduced, suspended or terminated.
- Debt included $305.943 million outstanding under commercial-loan repurchase facilities. The company was in covenant compliance at March 31. The JPMorgan facility was extended on May 6, 2021 to May 6, 2022. Future loan-funding commitments were $56.649 million across 22 loans.
- Key risks include COVID-19 effects on hospitality and retail collateral, hotel operating and disposition uncertainty, short-term secured financing and potential collateral/margin pressures, LIBOR discontinuation and replacement-rate uncertainty, illiquid shares and discretionary repurchases, and REIT qualification. The company disclosed no material pending legal proceedings and effective disclosure controls.
Important facts for investors to verify
- Whether loan performance, risk ratings and borrower payments remain stable, especially for hospitality and retail exposures.
- Hotel operating results, the estimated 2021 loss, PPP forgiveness status and any sale prospects or realized disposition value.
- Liquidity available after loan originations, debt maturities, collateral requirements and the $56.649 million of conditional future funding commitments.
- Whether operating cash flow can support distributions, and the extent to which distributions rely on financing or other non-operating sources.
- Actual availability and limits of share repurchases, alongside updated NAV and the basis for the hotel’s NAV valuation.
- How the company and its lenders and borrowers address LIBOR transition and any resulting changes to financing costs or loan terms.