BROAD STREET REALTY, INC. The following discussion should be read together with the consolidated financial statements and notes thereto appearing elsewhere in this report. References to "we," "our," "us," and "Company" refer toBroad Street Realty, Inc. , together with its consolidated subsidiaries.
Forward-Looking Statements
We make statements in this Quarterly Report on Form 10-Q (this "report") that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). These forward-looking statements include, without limitation, statements about our estimates, expectations, predictions and forecasts of our future business plans and financial and operating performance and/or results, as well as statements of management's goals and objectives and other similar expressions concerning matters that are not historical facts. When we use the words "may," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "project," "seek," or similar expressions or their negatives, as well as statements in future tense, we intend to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, beliefs and expectations, such forward-looking statements are not predictions of future events or guarantees of future performance, and our actual financial and operating results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such differences are described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year endedDecember 31, 2021 and in other documents that we file from time to time with theSecurities and Exchange Commission (the "SEC"), which factors include, without limitation, the following:
•
our limited access to capital and our ability to repay, refinance, restructure and/or extend our indebtedness as it becomes due?
•
risks associated with our ability to consummate the pending acquisitions, the timing and closing of such transactions and unexpected costs or unexpected liabilities that may arise from the transactions, whether or not consummated?
•
risks related to disruption of management's attention from its ongoing business operations due to the pending transactions?
•
our ability to recognize the benefits of the completed and pending acquisitions;
•
our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate and integrate acquisitions or investments?
•
adverse economic or real estate developments, either nationally or in the markets in which our properties are located;
•
changes in financial markets, interest rates and inflation, or to our business or financial condition?
•
the nature and extent of our competition?
•
other factors affecting the retail industry or the real estate industry generally;
•
availability of financing and capital?
•
the performance of our portfolio? and
•
the impact of any financial, accounting, legal or regulatory issues or litigation, including any legal proceedings, regulatory matters or enforcement matters that have been or in the future may be instituted relating to the merger transactions or that may affect us. Given these uncertainties, undue reliance should not be placed on our forward-looking statements. We assume no duty or responsibility to publicly update or revise any forward-looking statement that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. We urge you to review the disclosures concerning risks in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for further discussion of these and other risks, as well as the risks, uncertainties and other factors discussed in this report and identified in other documents we file with theSEC from time to time. You should carefully consider these risks before making any investment decisions in the Company. New risks and uncertainties may also emerge from time to time that could materially and adversely affect us. 26 --------------------------------------------------------------------------------
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 ofSeptember 30, 2022 , 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. We intend to focus 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 ofSeptember 30, 2022 andDecember 31, 2021 . For additional information, see "-Our Portfolio." As of As of September 30, 2022 December 31, 2021 Number of properties 15 15 Number of states 5 5 Total square feet (in thousands) 1,735 1,737 Anchor spaces 916 917 Inline spaces 819 820 Leased % of rentable square feet (1): Total portfolio 91.3 % 88.1 % Anchor spaces 94.2 % 94.3 % Inline spaces 88.0 % 81.3 % Occupied % of rentable square feet (1): Total portfolio 86.6 % 84.7 % Anchor spaces 91.9 % 91.9 % Inline spaces 80.6 % 76.7 % Average remaining lease term (in years) (2) 4.7 4.7 Annualized base rent per leased square feet (3) $ 14.09 $ 13.83
(1)
Percent leased is calculated as (a) gross leasable area ("GLA") of rentable
commercial square feet occupied or subject to a lease as of September 30, 2022
or December 31, 2021 , as applicable, divided by (b) total GLA September 30, 2022
or December 31, 2021 , as applicable, expressed as a percentage. The total
percent occupied, which excludes leases that have been signed but not commenced,
was 86.6% and 84.7% as of September 30, 2022 and December 31, 2021 ,
respectively.
(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 of September 30, 2022 or December 31, 2021 ,
as applicable.
We are structured as an "Up-C" corporation with substantially all of our
operations conducted through Broad Street Operating Partnership, LP (our
"Operating Partnership") and its direct and indirect subsidiaries. As of
September 30, 2022 , we owned 92.3% of the units of limited partnership interest
in the Operating Partnership ("OP units"), and we are the sole member of the
sole general partner of our Operating Partnership . We began operating in our
current structure on December 27, 2019 upon the completion of certain mergers
that were part of the previously announced series of mergers (collectively, the
"Mergers") on such date, and we operate as a single reporting segment.
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 throughDecember 2021 ; we had no lease modifications related to COVID-19 during the nine months endedSeptember 30, 2022 . Approximately less than$0.1 million of the total deferred rent from all lease modifications sinceApril 2020 remained outstanding and to be billed as ofSeptember 30, 2022 and has a weighted average payback period of approximately 27 months. As ofNovember 14, 2022 , we have given rent deferrals to 36 tenants (approximately 11.1% of our total tenants) with one tenant still on a payment plan. 27 --------------------------------------------------------------------------------
Portfolio Summary
As ofSeptember 30, 2022 , our portfolio was comprised of 15 retail properties consisting of 1,735,171 total square feet of GLA. The following table provides additional information about the properties in our portfolio. Year Total Annualized Base Percentage of Gross Real Built / Percent Annualized Rent per Leased Total Annualized
Estate Assets Property Name City/State Renovated (1) GLA Leased (2) Base Rent (3)
SF (4) Base Rent (in thousands)
Avondale Shops Washington,
D.C. 2010 28,308 100.0 % $ 658,078 $ 23.25 2.9 % $ 8,439
Brookhill
Azalea
Shopping
Center Richmond, VA 2012 163,353 88.7 % 1,554,243 10.73 7.0 % 17,404
Coral Hills Shopping Capitol Center Heights, MD 2012 85,001 100.0 % 1,448,701 17.04 6.5 % 16,683 Crestview Square Shopping Landover Center Hills, MD 2012 74,694 100.0 % 1,468,731 19.66 6.6 %
18,653
Cromwell Field Shopping Glen Burnie, Center MD 2020 233,486 67.2 % 1,627,780 10.37 7.3 %
18,664
Norriton, PA 2017 178,356 97.8 % 2,030,265 11.64 9.1 % 28,448
The Shops at Greenwood Greenwood Village Village, CO 2019 198,822 98.4 % 3,323,189 16.99 14.9 % 31,790 Highlandtown Village Shopping Center Baltimore, MD 1987 57,524 89.8 % 960,751 18.60 4.3 % 7,402 Hollinswood Shopping Center Baltimore, MD 2020 112,648 92.0 % 1,711,815 16.52 7.7 % 25,402 Lamar Station Plaza East Lakewood, CO 1984 42,700 85.7 % 556,998 15.22 2.5 % 6,195 Midtown Williamsburg, Colonial VA 2018 98,067 85.7 % 998,599 11.88 4.5 % 16,809 Midtown Williamsburg, Lamonticello VA 2019 63,157 92.5 % 952,971 16.30 4.2 % 16,279 Spotswood Valley Square Shopping Harrisonburg, Center VA 1997 190,646 100.0 % 1,896,030 9.95 8.5 %
14,675
Vista Shops at Golden Mile Frederick, MD 2009 98,858 98.4 % 1,735,781 17.84 7.8 % 14,937 West Broad Commons Shopping Center Richmond, VA 2017 109,551 93.3 % 1,397,552 13.67 6.2 % 20,014 Total 1,735,171 91.3 %$ 22,321,484 $ 14.09 100.0 %$ 261,794 (1) Represents the most recent year in which a property was built or renovated. For purposes of this table, renovation means significant upgrades, alterations or additions to the property. (2) Percent leased is calculated as (a) GLA of rentable commercial square feet occupied or subject to a lease as ofSeptember 30, 2022 , divided by (b) total GLA, expressed as a percentage. The total percent occupied, which excludes leases that have been signed but not commenced, was 86.6% as ofSeptember 30, 2022 . (3) Total annualized base rent is calculated by multiplying (a) monthly base rent (before abatements) as ofSeptember 30, 2022 , for leases that had commenced as of such date, by (b) 12. Total annualized base rent does not include tenant reimbursements for real estate taxes, insurance, common area maintenance or other operating expenses. (4) Annualized base rent per leased square foot is calculated as total annualized base rent divided by leased GLA as ofSeptember 30, 2022 . 28 --------------------------------------------------------------------------------
Geographic Concentration
The following table contains information regarding the geographic concentration
of the properties in our portfolio as of
Number Percentage of
(dollars in of Gross Real Total Real Estate Rental income for the nine months ended
thousands) Properties Estate Assets Assets September 30,
September September 30,
Location 30, 2022 2022 September 30, 2022 2022 2021
Maryland(1) 6 $ 101,741 38.9 % $ 9,579 $ 7,342
Virginia 5 85,181 32.5 % 5,502 4,456
Pennsylvania 1 28,448 10.9 % 1,589 1,909
Washington D.C. 1 8,439 3.2 % 495 423
Colorado 2 37,985 14.5 % 3,869 499
15 $ 261,794 100.0 % $ 21,034 $ 14,629
(1) Rental income for the nine months ended September 30, 2021 includes less
than $0.1 million of ground rental revenue under the ground lease for the parcel
of land acquired in January 2020 . The ground lease was terminated upon the
completion of the Cromwell Field Shopping Center Merger on May 26, 2021 .
Critical Accounting Policies
Refer to our audited consolidated financial statements and notes thereto for the year endedDecember 31, 2021 for a discussion of our accounting policies, including the critical accounting policies of revenue recognition, real estate investments, asset impairment, income taxes, and our accounting policy on consolidation, which are included in our 2021 Annual Report on Form 10-K, which was filed with theSEC onApril 15, 2022 . During the nine months endedSeptember 30, 2022 , there were no material changes to these policies. See Note 2 "-Recent Accounting Pronouncements" to our consolidated financial statements in Item 1 of this report for recently-adopted accounting pronouncements.
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. 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 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 ofSeptember 30, 2022 , approximately 45.5% of our portfolio (based on GLA) was leased to tenants occupying less than 10,000 square feet. In addition, as ofSeptember 30, 2022 , approximately 8.7% of our GLA was vacant and approximately 10.8% of our leases (based on GLA) were scheduled to expire on or beforeDecember 31, 2023 . 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. 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. OnDecember 21, 2021 , we entered into a purchase and sale agreement (the "MTR Agreement") withBBL Current Owner, LLC ("BBL Current") to acquire a mixed-use property inWilliamsburg, Virginia known asMidtown Row for a purchase price of$122.0 million in cash (the "Midtown Row Acquisition"). OnJuly 1, 2022 , the MTR Agreement automatically terminated in accordance with 29 -------------------------------------------------------------------------------- its terms as a result of the closing not occurring byJune 30, 2022 . OnSeptember 1, 2022 , we entered into a third amendment and reinstatement of the MTR Agreement (the "MTR Amendment") with BBL Current, pursuant to which the MTR Agreement was fully reinstated, subject to the terms of the MTR Amendment. The MTR Amendment increased the purchase price for the Midtown Row Acquisition to$123.3 million . Pursuant to the terms of the MTR Amendment, the purchase price will be paid in cash and not less than$5.0 million of common OP units and newly designated Series A convertible preferred OP units ("Preferred Units"). The common OP units and Preferred Units will be valued at$2.00 per unit for purposes of the MTR Agreement. In connection with the initial execution of the MTR Agreement, we made a deposit of$0.2 million . Pursuant to the MTR Amendment, we were required to make an additional deposit of$0.25 million , as well as pledge$0.3 million in development fees to which one of our subsidiaries is entitled (the "Pledge Deposit"). In addition, we are required to make an additional deposit of$1.25 million (the "Reserve Deposit") upon the release of certain reserve funds held by the Basis Lender (as defined below), the payment of which is guaranteed by us. In the event we default on our obligation to complete theMidtown Row Acquisition, (i) the Reserve Deposit, if not already provided, will become immediately due and payable and (ii) we will forfeit all deposits (including the Pledge Deposit) under the MTR Agreement and the MTR Amendment. Under the MTR Amendment, the outside closing date of the Midtown Row Acquisition was extended toNovember 23, 2022 . The Midtown Row Acquisition is subject to customary closing conditions. There can be no assurances that these conditions will be satisfied or that we will complete the Midtown Row Acquisition on the terms described herein or at all. OnFebruary 8, 2022 , we entered into a purchase and sale agreement (the "Initial Colfax Agreement") to acquire a land parcel for a purchase price of$2.5 million in cash. OnJuly 1, 2022 , the Initial Colfax Agreement automatically terminated in accordance with its terms as a result of the closing not occurring byJune 30, 2022 . In connection with the termination of the Initial Colfax Agreement, we forfeited the$0.3 million deposit ("Colfax Land Parcel Acquisition"). OnSeptember 29, 2022 , we entered into a second purchase and sale agreement (the "Second Colfax Agreement") to acquire the initial land parcel for$2.3 million in cash. Pursuant to the Second Colfax Agreement, we made a deposit of$0.1 million inOctober 2022 . The Second Colfax Agreement is subject to customary closing conditions. There can be no assurances that these conditions will be satisfied or that we will complete the Colfax Land Parcel Acquisition on the terms described herein or at all. We have terminated the merger agreement related to theCypress Point property because we determined the acquisition would not be accretive to our portfolio due to the performance of the property and the property-owning entity's default under the mortgage loan secured by the property. Therefore, as ofSeptember 30, 2022 , we had one remaining pending acquisition (related to theLamar Station Plaza property) pursuant to the agreements and plans of merger that were originally entered into onMay 28, 2019 . At closing, we will issue an aggregate of 573,529 OP units as consideration for the acquisition. Until the closing of the acquisition, we will continue to manage the property and earn a management fee.
General and Administrative Expenses
General and administrative expenses include employee compensation costs, professional fees, consulting, and other general administrative expenses. 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.
Results of Operations
This section provides a comparative discussion on our results of operations and should be read in conjunction with our
30
--------------------------------------------------------------------------------consolidated financial statements, including the accompanying notes.
Comparison of the three months endedSeptember 30, 2022 to the three months endedSeptember 30, 2021 For the Three Months Ended Change September September (dollars in thousands) 30, 2022 30, 2021 $ % Revenues Rental income$ 7,369 $ 5,875 $ 1,494 25 % Commissions 413 854 (441 ) (52 %) Management fees and other income 149 278 (129 ) (46 %) Total revenues 7,931 7,007 924 13 % Expenses Cost of services 315 557 (242 ) (43 %) Depreciation and amortization 4,029 3,426 603 18 % Property operating 1,926 1,426 500 35 % Bad debt expense (recoveries) 12 (31 ) 43 (139 %) General and administrative 3,053 2,781 272 10 % Total operating expenses 9,335 8,159 1,176 14 % Operating loss (1,404 ) (1,152 ) (252 ) 22 % Other income (expense) Interest and other income - 1 (1 ) (100 %) Derivative fair value adjustment 1,249 50 1,199 2,398 % Interest expense (3,073 ) (2,387 ) (686 ) 29 % Gain on extinguishment of debt - 773 (773 ) (100 %) Other expense (9 ) - (9 ) 100 % Total other expense (1,833 ) (1,563 ) (270 ) 17 % Income tax benefit 795 673 122 18 % Net loss$ (2,442 ) $ (2,042 ) $ (400 ) 20 % Plus: Net loss attributable to noncontrolling interest 202 222 (20 ) (9 %) Net loss attributable to common stockholders$ (2,240 ) $ (1,820
)
Revenues for the three months endedSeptember 30, 2022 increased approximately$0.9 million , or 13%, compared to the three months endedSeptember 30, 2021 , as a result of an approximately$1.5 million increase in rental income. This increase was partially offset by approximately$0.4 million and$0.1 million decreases in commissions and management fees and other income, respectively. Rental income primarily increased as a result of the acquisition of one property in the fourth quarter of 2021. The decrease in commissions is due to a lower transaction volume of leasing. The decrease in management fees and other income is mainly attributable to fees recognized in 2021 related to properties that were acquired by the Company in the fourth quarter of 2021 and development fees recognized during the third quarter of 2021. Total operating expenses for the three months endedSeptember 30, 2022 increased approximately$1.2 million , or 14%, compared to the three months endedSeptember 30, 2021 , primarily from: (i) an increase in depreciation and amortization expense of approximately$0.6 million , primarily related to one property that was acquired inOctober 2021 (which comprised$0.8 million of the total depreciation and amortization expense, partially offset by a$0.2 million decrease in amortization of in-place lease tangibles); (ii) an increase in property operating expense of approximately$0.5 million , which is mainly attributable to one property acquired in the fourth quarter of 2021; and (iii) an increase in general and administrative expenses of approximately$0.3 million , which is mainly attributable to an increase in stock compensation expense. The gain on derivative fair value adjustment was approximately$1.2 million for the three months endedSeptember 30, 2022 compared to less than$0.1 million for the three months endedSeptember 30, 2021 . The increase of$1.2 million was primarily due to the interest rate swaps we entered into onJuly 1, 2021 andDecember 27, 2019 . Interest expense for the three months endedSeptember 30, 2022 increased approximately$0.7 million , or 29%, compared to the three months endedSeptember 30, 2021 , primarily due to debt that was originated in connection with a property that was acquired in the fourth quarter of 2021. We had additional net borrowings of approximately$20.9 million afterSeptember 30, 2021 . 31 -------------------------------------------------------------------------------- Net loss attributable to noncontrolling interest for the three months endedSeptember 30, 2022 decreased less than$0.1 million compared to the three months endedSeptember 30, 2021 . The net loss attributable to noncontrolling interest reflects the proportionate share of the OP units held by outside investors in the operating results of theOperating Partnership . Comparison of the nine months endedSeptember 30, 2022 to the nine months endedSeptember 30, 2021 For the Nine Months Ended Change September September (dollars in thousands) 30, 2022 30, 2021 $ % Revenues Rental income$ 21,034 $ 14,629 $ 6,405 44 % Commissions 2,142 2,060 82 4 % Management fees and other income 450 934 (484 ) (52 %) Total revenues 23,626 17,623 6,003 34 % Expenses Cost of services 1,588 1,346 242 18 % Depreciation and amortization 12,240 8,415 3,825 45 % Property operating 5,924 3,873 2,051 53 % Bad debt expense 47 15 32 213 % General and administrative 10,150 7,844 2,306 29 % Total operating expenses 29,949 21,493 8,456 39 % Operating loss (6,323 ) (3,870 ) (2,453 ) 63 % Other income (expense) Interest and other income 26 8 18 225 % Derivative fair value adjustment 3,819 261 3,558 1,363 % Interest expense (8,346 ) (7,346 ) (1,000 ) 14 % Gain on extinguishment of debt - 1,530 (1,530 ) (100 %) Other expense (15 ) (12 ) (3 ) 25 % Total other expense (4,516 ) (5,559 ) 1,043 (19 %) Income tax benefit 2,309 2,316 (7 ) (0 %) Net loss$ (8,530 ) $ (7,113 ) $ (1,417 ) 20 % Plus: Net loss attributable to noncontrolling interest 719 886 (167 ) (19 %) Net loss attributable to common stockholders$ (7,811 ) $ (6,227
)
Revenues for the nine months endedSeptember 30, 2022 increased approximately$6.0 million , or 34%, compared to the nine months endedSeptember 30, 2021 , as a result of an approximately$6.4 million increase in rental income and$0.1 million increase in commissions. These increases were partially offset by an approximately$0.5 million decrease in management fees and other income. Rental income increased primarily 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 due to a larger transaction volume of leasing. The decrease in management fees and other income is mainly attributable to fees recognized in 2021 related to properties that were acquired by the Company in the second quarter and fourth quarter of 2021. Total operating expenses for the nine months endedSeptember 30, 2022 increased approximately$8.5 million , or 39%, compared to the nine months endedSeptember 30, 2021 , primarily from: (i) an increase in depreciation and amortization expense of approximately$3.8 million , primarily related to four properties that were acquired sinceMay 2021 (which comprised$4.1 million of the total depreciation and amortization expense, partially offset by a$0.4 million decrease in amortization of in-place lease tangibles); (ii) an increase in general and administrative expenses of approximately$2.3 million mainly attributable to an increase in stock compensation expense of approximately$1.3 million , an increase in payroll and related expenses of approximately$0.4 million , an increase in real estate related acquisition costs of approximately$0.3 million due to writing off pre-acquisition costs relating to the Colfax land parcel, an increase in professional fees of approximately$0.1 million and an increase in board of directors fees of approximately$0.1 million ; and (iii) an increase in property operating expense of approximately$2.1 million , which is mainly attributable to the three properties acquired in the second quarter of 2021 and one property in the fourth quarter of 2021. The gain on derivative fair value adjustment was approximately$3.8 million for the nine months endedSeptember 30, 2022 compared to$0.3 million for the nine months endedSeptember 30, 2021 . The increase of$3.6 million was primarily due to the interest rate swaps we entered into onJuly 1, 2021 andDecember 27, 2019 . Interest expense for the nine months endedSeptember 30, 2022 increased approximately$1.0 million , or 14%, compared to the nine months endedSeptember 30, 2021 , primarily due to debt that was assumed or originated in connection with four properties that were acquired during 2021. We had additional net borrowings of approximately$20.9 million afterSeptember 30, 2021 . 32 -------------------------------------------------------------------------------- The gain on extinguishment of debt of approximately$1.5 million for the nine months endedSeptember 30, 2021 is related to the forgiveness of an unsecured loan of approximately$1.5 million pursuant to the Paycheck Protection Program (the "PPP Program") which was established under the Coronavirus Aid, Relief, and Economic Security Act. Net loss attributable to noncontrolling interest for the nine months endedSeptember 30, 2022 decreased approximately$0.2 million compared to the nine months endedSeptember 30, 2021 . The net loss attributable to noncontrolling interest reflects the proportionate share of OP units held by outside investors in the operating results of theOperating Partnership .
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 withU.S. generally accepted accounting principles ("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. 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 three and nine
months ended
33
--------------------------------------------------------------------------------
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
(dollars in thousands) 2022 2021 2022 2021
Net loss $ (2,442 ) $ (2,042 ) $ (8,530 ) $ (7,113 )
Real estate depreciation and
amortization 3,933 3,275 11,859 8,067
Amortization of direct leasing
costs 17 2 31 6
FFO attributable to common shares
and OP units 1,508 1,235 3,360 960
Stock-based compensation expense 380 76 1,566 220
Deferred financing and debt
issuance cost amortization 404 371 1,172 919
Non-real estate depreciation and
amortization 1 4 13 14
Recurring capital expenditures (950 ) 47 (1,429 ) (93 )
Straight-line rent revenue (234 ) (9 ) (619 ) (291 )
Minimum multiple on preferred
interests (182 ) (379 ) (929 ) 45
Non cash derivative fair value
adjustment (1,249 ) (50 ) (3,819 ) (261 )
AFFO attributable to common
shares and OP units $ (322 ) $ 1,295 $
(685 )
Weighted average shares outstanding to common shares Diluted 32,079,861 28,825,677
32,030,500 25,399,433
Net loss attributable to common stockholders per share Diluted (1)$ (0.07 ) $ (0.06 ) $
(0.24 )
Weighted average shares outstanding to common shares and OP units Diluted 34,775,561 31,653,581
34,769,896 28,227,337
FFO attributable to common shares and OP units Diluted (2)$ 0.04 $ 0.04 $ 0.10 $ 0.03 (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 net loss per share 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 net loss per share. 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). As of
As ofSeptember 30, 2022 , we have five mortgage loans and a mezzanine loan on five properties (Cromwell Field Shopping Center ,Lamar Station Plaza East ,Highlandtown Village Shopping Center ,Spotswood Valley Square Shopping Center andVista Shops at Golden Mile Loan) totaling approximately$46.2 million that will mature within twelve months of the date that the financial statements included in this report are issued. One of the mortgage loans with a balance of$3.5 million as ofSeptember 30, 2022 matured onOctober 17, 2022 and remains outstanding. The lender gave us a forbearance throughNovember 23, 2022 to repay the loan. We project that we will not have sufficient cash available to pay off the other mortgage and mezzanine loans upon maturity, and we are currently seeking to refinance the loans prior to maturity or cure period inDecember 2022 ,May 2023 ,June 2023 andJuly 2023 . There can be no assurances that we will be successful in refinancing the mortgage and 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. 34 -------------------------------------------------------------------------------- The MVB Term Loan, MVB Revolver and Second MVB Term Loan (each as defined below, and collectively, the "MVB Loans"), totaling approximately$6.7 million as ofSeptember 30, 2022 , mature inJune 2023 . We are required to pay an exit fee to the lender in an amount equal to two percent multiplied by the aggregate principal balance of the MVB Loans at the time of the maturity date or just prior to such repayments. Management is in discussions with other lenders to refinance the MVB Loans; however, there can be no assurances that we will be successful in refinancing the MVB Loans. The Lamont Street Preferred Interest (as defined below) has an outstanding balance of$4.1 million as ofSeptember 30, 2022 , with a redemption date ofSeptember 30, 2023 . The redemption date can be extended by us toSeptember 30, 2024 andSeptember 30, 2025 , in each case subject to certain conditions. There can be no assurance that we will be successful in exercising these extension options or refinancing the Lamont Street Preferred Interest prior to its maturity. If we are unable to extend or refinance the Lamont Street Preferred Interest prior to the redemption date,Lamont Street (as defined below) may remove theOperating Partnership as the manager of the BSV Highlandtown and BSV Spotswood (each as defined below). In addition, the Basis Term Loan and the Basis Preferred Interest (each as defined below) totaling approximately$75.0 million mature onJanuary 1, 2023 , subject to two one-year extension options that are subject to certain conditions, including a material adverse change clause. Management is in discussions with Basis (as defined below) regarding the exercise of these extension options and is in discussions with other parties to refinance the Basis Term Loan and the Basis Preferred Interest with new loans or preferred equity, 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 (as defined below) may remove theOperating Partnership as the manager of the Sub-OP (as defined below) 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 that the financial statements included in this report are issued. 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 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 Best Market, 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. 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. As ofSeptember 30, 2022 , we were in compliance with all of the other covenants under our debt agreements.
Consolidated Indebtedness and Preferred Equity
Indebtedness Summary
The following table sets forth certain information regarding our outstanding
indebtedness as of
35
--------------------------------------------------------------------------------
Balance
Outstanding at
Maturity Interest September 30,
(dollars in thousands) Date Rate Type Rate (1) 2022
Basis Term Loan (net of January 1,
discount of $84 ) 2023 Floating (2) 6.125% $ 67,100
Basis Preferred Interest (net January 1, 14.00%
of discount of $18 ) (3) 2023 (4) Fixed (5) 7,883
June 27,
MVB Term Loan 2023 (6) Fixed 6.75% 3,663
June 27,
Second MVB Term Loan 2023 Fixed 6.75% 2,000
June 27,
MVB Revolver 2023 (6) Floating (7) 7.75% 1,047
Hollinswood Shopping Center December 1,
Loan 2024 LIBOR + 2.25% (8) 4.06% 12,839
Avondale Shops Loan June 1, 2025 Fixed 4.00% 3,013
Vista Shops at Golden Mile
Loan (net of discount of $19 ) June 24,
(9) 2023 Fixed 3.83% 11,543
Brookhill Azalea Shopping January 31,
Center Loan 2025 LIBOR + 2.75% 5.89% 8,783
October 17,
Lamar Station Plaza East Loan 2022 (10) WSJ Prime (11) 6.14% 3,516
Lamont Street Preferred
Interest (net of discount of September
$38 ) (12) 30, 2023 Fixed 13.50% 4,330
Highlandtown Village Shopping
Center Loan (net of discount
of $21 ) May 6, 2023 Fixed 4.13% 5,273
Cromwell Field Shopping
Center Loan (net of discount December 31,
of $16 ) 2022 (13) LIBOR + 5.40% (14) 8.54% 12,377
Cromwell Field Shopping
Center Mezzanine Loan (net of December 31,
discount of $2 ) 2022 (13) Fixed 10.00% 1,528
Spotswood Valley Square
Shopping Center Loan (net of
discount of $47 ) July 6, 2023 Fixed 4.82% 11,913
The Shops at Greenwood
Village (net of discount of October 10,
$98 ) 2028 Prime - 0.35% (15) 4.08% 22,907
$ 179,715
Unamortized deferred
financing costs, net (579 )
Total Mortgage and Other
Indebtedness $ 179,136
(1)
At
(2)
The interest rate for the Basis Term Loan is the greater of (i) SOFR (as defined below) plus 3.97% per annum and (ii) 6.125% per annum. OnAugust 1, 2022 , the interest rate cap that capped the prior-LIBOR rate was modified to cap the SOFR 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 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 approximately$0.9 million was outstanding atSeptember 30, 2022 . The Preferred Investor is entitled to a cumulative annual return of 13.0% on the additional contributions.
(6)
In
(7)
The interest rate on the MVB Revolver is the greater of (i) prime rate plus 1.5% and (ii) 6.75%.
(8)
We have entered into an interest rate swap which fixes the interest rate of the loan at 4.06%.
(9)
We completed the refinance of this loan in
(10)
InAugust 2022 , we entered into a modification to theLamar Station Plaza East loan to extend the maturity date toOctober 17, 2022 , effectiveJuly 17, 2022 .The Lamar Station Plaza East loan is still outstanding, and the lender gave us a forbearance throughNovember 23, 2022 to repay the loan.
(11)
As a result of the loan modification we entered into in
(12)
The outstanding balance includes approximately$0.3 million of indebtedness as ofSeptember 30, 2022 related to the Lamont Street Minimum Multiple Amount (as defined below) owed toLamont Street as described below under the heading "-Lamont Street Preferred Interest."
(13)
On
36
--------------------------------------------------------------------------------(14)
The interest rate on the
(15)
The Company entered into an interest rate swap which fixes the interest rate of this loan at 4.082%
Basis Term Loan 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. OnJune 29, 2022 , the Basis Loan Agreement was amended and restated, effectiveDecember 27, 2019 , to replace LIBOR with the Secured Overnight Financing Rate ("SOFR"). The Basis Term Loan bears interest at a rate equal to the greater of (i) SOFR plus 3.97% per annum and (ii) 6.125% per annum. The Borrowers had entered into an interest rate cap that effectively capped the prior-LIBOR rate at 3.50% per annum. OnAugust 1, 2022 , the interest rate cap was modified to cap the SOFR rate at 3.50% per annum. As ofSeptember 30, 2022 , 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 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 Agreement (as defined below), byMr. Jacoby under his guarantee of the loans under the MVB Loan Agreement 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 endedSeptember 30, 2022 was approximately 1.51x. 37 --------------------------------------------------------------------------------
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 ofSeptember 30, 2022 , 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 ofSeptember 30, 2022 andDecember 31, 2021 , the Minimum Multiple Amount was approximately$0.1 million and$0.8 million , respectively, which is included as indebtedness on the consolidated balance sheets.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.
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. 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. 38 --------------------------------------------------------------------------------
MVB Loan
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 had an original maturity date ofDecember 27, 2022 , which has been extended toJune 27, 2023 under the terms described below, and the MVB Revolver had an original maturity date ofDecember 27, 2020 , which has been extended toJune 27, 2023 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 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 eliminated 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 of our then-pending Mergers of theHighlandtown and Spotswood properties, (b) the earlier ofSeptember 30, 2021 or the closing 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 ,September 30, 2021 andMarch 31, 2022 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 . 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$250,000 payment owed on or beforeSeptember 30, 2022 was extended toDecember 31, 2022 . 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 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%.
The Company was in compliance with all debt service calculation as of
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.
Lamont Street Preferred Interest
In connection with the closing of theHighlandtown and Spotswood Mergers onMay 21, 2021 andJune 4, 2021 , respectively,Lamont Street Partners LLC ("Lamont Street") contributed an aggregate of$3.9 million in exchange for a 1.0% preferred membership interest inBSV Highlandtown Investors LLC ("BSVHighlandtown ") andBSV Spotswood Investors LLC ("BSV Spotswood") designated as Class A units (the "Lamont Street Preferred Interest"). 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 39 -------------------------------------------------------------------------------- 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% of Lamont Street's net invested capital for the first extension option and a fee of 0.50% of Lamont 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 by Lamont Street, (b) all accrued but unpaid Lamont Street Class A Return and (c) all costs and other expenses incurred by Lamont 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 of Lamont Street Class A Return payments made to Lamont 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 ofSeptember 30, 2022 , the remaining Lamont Street Minimum Multiple Amount was approximately$0.3 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 or 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 or 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 BSVHighlandtown or 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 or BSV Spotswood or their subsidiaries. Under certain circumstances, including an event whereby Lamont 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.
Other Mortgage Indebtedness
As of
Minimum Debt Service Coverage
Hollinswood Shopping Center 1.40 to 1.00
Vista Shops at Golden Mile 1.50 to 1.00
Brookhill Azalea Shopping Center 1.30 to 1.00
Highlandtown Village Shopping Center 1.25 to 1.00
Cromwell Field Shopping Center 1.00 to 1.00
Spotswood Valley Square Shopping Center 1.15 to 1.00
The Shops at Greenwood Village 1.40 to 1.00
As of
On
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%. OnJune 29, 2022 , the Basis Loan Agreement was amended and restated, effectiveDecember 27, 2019 , to replace LIBOR with SOFR. OnAugust 1, 2022 , the interest rate cap for the Basis Term Loan was modified to cap the SOFR 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 theGreenwood 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 three and nine months endedSeptember 30, 2022 , we recognized$1.2 million and$3.8 million gain, respectively, as a component of "Derivative fair value adjustment" on the consolidated statements 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 nine months ended
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For the Nine Months Ended September 30,
(in thousands) 2022 2021 Change
Cash and cash equivalents and restricted
cash at beginning of period $ 11,024 $ 9,983 $ 1,041
Net cash provided by (used in) operating
activities 393 (3,994 ) 4,387
Net cash (used in) provided by investing
activities (4,548 ) 403 (4,951 )
Net cash provided by financing activities (113 ) 4,622 (4,735 )
Cash and cash equivalents and restricted
cash at end of period $ 6,756 Operating Activities- Cash provided by operating activities increased by approximately$4.4 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Operating cash flows were primarily impacted by (i) a net increase in changes in operating assets and liabilities of approximately$3.7 million , which was primarily related to the change in accounts payable and accrued liabilities and (ii) an increase in net cash provided by operating activities, before net changes in operating assets and liabilities, of approximately$0.7 million mainly due to an increase in rental income as a result of the acquisition of three properties in the second quarter of 2021 and one property in the fourth quarter of 2021. Investing Activities- Cash used in investing activities during the nine months endedSeptember 30, 2022 increased by approximately$5.0 million compared to the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2021 , the Company closed on three Mergers which resulted in a net cash inflow of approximately$2.5 million , which was not repeated during the nine months endedSeptember 30, 2022 . In addition, the Company had an approximately$1.7 million increase in capital expenditures for real estate and an approximately$0.8 million increase in capitalized pre-acquisition costs during the nine months endedSeptember 30, 2022 as compared to the corresponding period in 2021. Financing Activities- Cash used in financing activities was approximately$0.1 million for the nine months endedSeptember 30, 2022 compared to approximately$4.6 million of cash provided for the nine months endedSeptember 30, 2021 . The decrease of approximately$4.7 million , resulted primarily from an increase in net borrowings during the first nine months in 2021 under debt agreements, which includes (i) a$3.9 million increase related to the Lamont Street Preferred Interest (ii) a net increase in theVista Shops mortgage loan of approximately$2.8 million from the refinance of the loan; (iii) the receipt of a second unsecured loan under the PPP Program of approximately$0.8 million ; and (iv) a$1.4 million decrease related to the payoff of the Cromwell land loan. These net increases were offset by a net decrease in scheduled principal payments on loans of approximately$0.3 million as compared to the prior year period. Additionally, debt origination and discount fees decreased by approximately$0.7 million during the nine months endedSeptember 30, 2022 as compared to the prior year period. 41
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