Cover Page
Cover Page - shares | 9 Months Ended | |
Sep. 30, 2020 | Nov. 09, 2020 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Sep. 30, 2020 | |
Document Transition Report | false | |
Entity File Number | 000-55580 | |
Entity Registrant Name | HIGHLANDS REIT, INC. | |
Entity Incorporation, State or Country Code | MD | |
Entity Tax Identification Number | 81-0862795 | |
Entity Address, Address Line One | 332 S Michigan Avenue | |
Entity Address, Address Line Two | Ninth Floor | |
Entity Address, City or Town | Chicago | |
Entity Address, State or Province | IL | |
Entity Address, Postal Zip Code | 60604 | |
City Area Code | 312 | |
Local Phone Number | 583-7990 | |
Title of 12(g) Security | Common Stock | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | true | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 880,063,692 | |
Entity Central Index Key | 0001661458 | |
Amendment Flag | false | |
Entity Ex Transition Period | true | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q3 | |
No Trading Symbol Flag | true |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Investment properties | ||
Land | $ 84,150 | $ 82,877 |
Building and other improvements | 294,794 | 289,351 |
Construction in progress | 1,230 | 0 |
Total | 380,174 | 372,228 |
Less accumulated depreciation | (64,407) | (56,431) |
Net investment properties | 315,767 | 315,797 |
Cash and cash equivalents | 51,874 | 75,404 |
Restricted cash and escrows | 3,113 | 2,651 |
Accounts and rents receivable (net of allowance of $1,668 and $1,178 as of September 30, 2020 and December 31, 2019, respectively) | 2,714 | 3,105 |
Intangible assets, net | 108 | 1,339 |
Deferred costs and other assets, net | 3,426 | 1,936 |
Total assets | 377,002 | 400,232 |
Liabilities | ||
Debt, net | 82,654 | 93,203 |
Accounts payable and accrued expenses | 12,324 | 11,535 |
Intangible liabilities, net | 764 | 842 |
Other liabilities | 2,561 | 4,055 |
Total liabilities | 98,303 | 109,635 |
Commitments and contingencies | ||
Stockholders’ Equity | ||
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 880,025,011 and 876,074,038 shares issued and outstanding as of September 30, 2020 and December 31, 2020, respectively | 8,800 | 8,761 |
Additional paid-in capital | 1,410,376 | 1,408,993 |
Accumulated distributions in excess of net income | (1,139,786) | (1,127,270) |
Accumulated other comprehensive (loss) income | (606) | 18 |
Total Highlands REIT, Inc. stockholders’ equity | 278,784 | 290,502 |
Non-controlling interests | (85) | 95 |
Total equity | 278,699 | 290,597 |
Total liabilities and equity | $ 377,002 | $ 400,232 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Statement of Financial Position [Abstract] | ||
Allowance for accounts and rent receivables | $ 1,668 | $ 1,178 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
Common stock, shares issued | 880,025,011 | 876,074,038 |
Common stock, shares outstanding | 880,025,011 | 876,074,038 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Revenues | ||||
Total revenues | $ 6,616,000 | $ 9,198,000 | $ 21,775,000 | $ 29,857,000 |
Expenses | ||||
Property operating expenses | 2,434,000 | 1,565,000 | 6,426,000 | 5,454,000 |
Real estate taxes | 1,548,000 | 1,156,000 | 4,265,000 | 3,779,000 |
Depreciation and amortization | 3,118,000 | 3,109,000 | 9,672,000 | 8,568,000 |
General and administrative expenses | 3,633,000 | 2,373,000 | 11,084,000 | 9,838,000 |
Total expenses | 10,733,000 | 8,203,000 | 31,447,000 | 27,639,000 |
Gain on sale of investment properties, net | 0 | 0 | 82,000 | 8,841,000 |
(Loss) income from operations | (4,117,000) | 995,000 | (9,590,000) | 11,059,000 |
Interest income | 19,000 | 581,000 | 231,000 | 1,348,000 |
Interest expense | (1,099,000) | (1,058,000) | (3,227,000) | (2,823,000) |
Net (loss) income | (5,197,000) | 518,000 | (12,586,000) | 9,584,000 |
Net loss (income) attributable to non-controlling interests | 30,000 | (10,000) | 70,000 | (10,000) |
Net (loss) income attributable to Highlands REIT, Inc. common stockholders | $ (5,167,000) | $ 508,000 | $ (12,516,000) | $ 9,574,000 |
Net income per common share, basic and diluted (in dollars per share) | $ (0.01) | $ 0 | $ (0.01) | $ 0.01 |
Weighted average number of common shares outstanding, basic and diluted (in shares) | 879,932,514 | 876,007,008 | 879,216,153 | 875,057,625 |
Comprehensive loss | ||||
Net income | $ (5,197,000) | $ 518,000 | $ (12,586,000) | $ 9,584,000 |
Unrealized gain (loss) on derivatives | 75,000 | (96,000) | (734,000) | (96,000) |
Total other comprehensive income (loss) | 75,000 | (96,000) | (734,000) | (96,000) |
Comprehensive (loss) income | (5,122,000) | 422,000 | (13,320,000) | 9,488,000 |
Comprehensive loss attributable to non-controlling interests | 19,000 | 4,000 | 180,000 | 4,000 |
Comprehensive (loss) income attributable to Highlands REIT, Inc. common stockholders | (5,103,000) | 426,000 | (13,140,000) | 9,492,000 |
Rental income | ||||
Revenues | ||||
Total revenues | 6,256,000 | 8,955,000 | 20,309,000 | 29,394,000 |
Other property income | ||||
Revenues | ||||
Total revenues | $ 360,000 | $ 243,000 | $ 1,466,000 | $ 463,000 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Equity - USD ($) $ in Thousands | Total | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Distributions in Excess of Net Income | Total Company's Stockholders' Equity | Non- controlling Interests |
Beginning balance at Dec. 31, 2018 | $ 284,100 | $ 8,717 | $ 1,407,502 | $ 0 | $ (1,132,119) | $ 284,100 | $ 0 |
Beginning balance (in shares) at Dec. 31, 2018 | 871,688,704 | ||||||
Net income (loss) | (455) | (455) | (455) | ||||
Share-based compensation | 1,365 | $ 39 | 1,326 | 1,365 | |||
Share-based compensation (in shares) | 3,900,689 | ||||||
Ending balance at Mar. 31, 2019 | 285,010 | $ 8,756 | 1,408,828 | 0 | (1,132,574) | 285,010 | 0 |
Ending balance (in shares) at Mar. 31, 2019 | 875,589,393 | ||||||
Beginning balance at Dec. 31, 2018 | 284,100 | $ 8,717 | 1,407,502 | 0 | (1,132,119) | 284,100 | 0 |
Beginning balance (in shares) at Dec. 31, 2018 | 871,688,704 | ||||||
Net income (loss) | 9,584 | ||||||
Other comprehensive loss | (96) | ||||||
Ending balance at Sep. 30, 2019 | 295,250 | $ 8,761 | 1,408,993 | (82) | (1,122,545) | 295,127 | 123 |
Ending balance (in shares) at Sep. 30, 2019 | 876,074,038 | ||||||
Beginning balance at Mar. 31, 2019 | 285,010 | $ 8,756 | 1,408,828 | 0 | (1,132,574) | 285,010 | 0 |
Beginning balance (in shares) at Mar. 31, 2019 | 875,589,393 | ||||||
Net income (loss) | 9,521 | 9,521 | 9,521 | ||||
Share-based compensation | 100 | $ 3 | 97 | 100 | |||
Share-based compensation (in shares) | 285,716 | ||||||
Ending balance at Jun. 30, 2019 | 294,631 | $ 8,759 | 1,408,925 | 0 | (1,123,053) | 294,631 | 0 |
Ending balance (in shares) at Jun. 30, 2019 | 875,875,109 | ||||||
Net income (loss) | 518 | 508 | 508 | 10 | |||
Other comprehensive loss | (96) | (82) | (82) | (14) | |||
Non-controlling interest equity contributions | 127 | 127 | |||||
Share-based compensation | 70 | $ 2 | 68 | 70 | |||
Share-based compensation (in shares) | 198,929 | ||||||
Ending balance at Sep. 30, 2019 | 295,250 | $ 8,761 | 1,408,993 | (82) | (1,122,545) | 295,127 | 123 |
Ending balance (in shares) at Sep. 30, 2019 | 876,074,038 | ||||||
Beginning balance at Dec. 31, 2019 | 290,597 | $ 8,761 | 1,408,993 | 18 | (1,127,270) | 290,502 | 95 |
Beginning balance (in shares) at Dec. 31, 2019 | 876,074,038 | ||||||
Net income (loss) | (3,229) | (3,201) | (3,201) | (28) | |||
Other comprehensive loss | (752) | (640) | (640) | (112) | |||
Share-based compensation | 1,253 | $ 35 | 1,218 | 1,253 | |||
Share-based compensation (in shares) | 3,479,792 | ||||||
Ending balance at Mar. 31, 2020 | 287,869 | $ 8,796 | 1,410,211 | (622) | (1,130,471) | 287,914 | (45) |
Ending balance (in shares) at Mar. 31, 2020 | 879,553,830 | ||||||
Beginning balance at Dec. 31, 2019 | 290,597 | $ 8,761 | 1,408,993 | 18 | (1,127,270) | 290,502 | 95 |
Beginning balance (in shares) at Dec. 31, 2019 | 876,074,038 | ||||||
Net income (loss) | (12,586) | ||||||
Other comprehensive loss | (734) | ||||||
Ending balance at Sep. 30, 2020 | 278,699 | $ 8,800 | 1,410,376 | (606) | (1,139,786) | 278,784 | (85) |
Ending balance (in shares) at Sep. 30, 2020 | 880,025,011 | ||||||
Beginning balance at Mar. 31, 2020 | 287,869 | $ 8,796 | 1,410,211 | (622) | (1,130,471) | 287,914 | (45) |
Beginning balance (in shares) at Mar. 31, 2020 | 879,553,830 | ||||||
Net income (loss) | (4,160) | (4,148) | (4,148) | (12) | |||
Other comprehensive loss | (57) | (48) | (48) | (9) | |||
Share-based compensation | 100 | $ 2 | 98 | 100 | |||
Share-based compensation (in shares) | 277,778 | ||||||
Ending balance at Jun. 30, 2020 | 283,752 | $ 8,798 | 1,410,309 | (670) | (1,134,619) | 283,818 | (66) |
Ending balance (in shares) at Jun. 30, 2020 | 879,831,608 | ||||||
Net income (loss) | (5,197) | (5,167) | (5,167) | (30) | |||
Other comprehensive loss | 75 | 64 | 64 | 11 | |||
Share-based compensation | 69 | $ 2 | 67 | 69 | |||
Share-based compensation (in shares) | 193,403 | ||||||
Ending balance at Sep. 30, 2020 | $ 278,699 | $ 8,800 | $ 1,410,376 | $ (606) | $ (1,139,786) | $ 278,784 | $ (85) |
Ending balance (in shares) at Sep. 30, 2020 | 880,025,011 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Cash flows from operating activities: | ||
Net (loss) income | $ (12,586) | $ 9,584 |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||
Depreciation and amortization | 9,672 | 8,568 |
Amortization of above and below market leases, net | (78) | (236) |
Amortization of debt discounts and financing costs | 251 | 208 |
Straight-line rental income | 23 | (180) |
Gain on sale of investment properties, net | (82) | (8,841) |
Non-cash stock-based compensation expense | 1,402 | 2,220 |
Changes in assets and liabilities: | ||
Accounts and rents receivable, net | 368 | (79) |
Deferred costs and other assets, net | (1,127) | (18) |
Accounts payable and accrued expenses | 1,955 | (1,644) |
Other liabilities | (2,230) | 281 |
Net cash flows (used in) provided by operating activities | (2,432) | 9,863 |
Cash flows from investing activities: | ||
Capital expenditures and tenant improvements | (2,136) | (765) |
Acquisition of investment properties, net | (7,372) | (70,921) |
Proceeds from sale of investment properties, net | 1,287 | 53,163 |
Payment of leasing fees | (468) | (447) |
Net cash flows used in investing activities | (8,689) | (18,970) |
Cash flows from financing activities: | ||
Payment of debt issuance costs | (36) | (424) |
Principal payments of mortgage debt | (764) | (465) |
Payment for tax withholding for share-based compensation | (1,147) | (1,177) |
Contributions from non-controlling interests | 0 | 127 |
Net cash flows (used in) provided by financing activities | (11,947) | 46,120 |
Net (decrease) increase in cash, cash equivalents and restricted cash | (23,068) | 37,013 |
Cash, cash equivalents and restricted cash, at beginning of period | 78,055 | 83,741 |
Cash, cash equivalents and restricted cash, at end of period | 54,987 | 120,754 |
Restricted Cash [Abstract] | ||
Total cash, cash equivalents and restricted cash | 54,987 | 120,754 |
Supplemental disclosure of cash flows information: | ||
Cash paid for interest | 3,060 | 2,399 |
Cash paid for taxes | 36 | 36 |
Supplemental schedule of non-cash investing and financing activities: | ||
Non-cash accruals for capital expense and investment in development | 319 | 19 |
Write off of rent receivables | 0 | 153 |
Loss on disposal of tenant improvements | 0 | 299 |
Other liabilities arising from unrealized loss on derivative instruments | 713 | 96 |
Lease assets and liabilities arising from the recognition of right-of-use assets | 219 | 300 |
Assumption of mortgage debt on acquired properties | 0 | 11,449 |
Credit Agreement | ||
Cash flows from financing activities: | ||
Proceeds from debt | 0 | 29,375 |
Mortgage Debt | ||
Cash flows from financing activities: | ||
Proceeds from debt | 0 | 18,684 |
Payoff of term loan related to credit agreement | $ (10,000) | $ 0 |
Organization
Organization | 9 Months Ended |
Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | Organization Highlands REIT, Inc. (“Highlands”), which was formed in December 2015, is a Maryland corporation with a portfolio of industrial assets, retail assets, a correctional facility, multi-family assets, an office asset and unimproved land. Prior to April 28, 2016, Highlands was a wholly-owned subsidiary of InvenTrust Properties Corp. (“InvenTrust” and formerly known as Inland American Real Estate Trust, Inc.). Unless stated otherwise or the context otherwise requires, the terms “we,” “our” and “us” and references to the “Company” refer to Highlands and its consolidated subsidiaries. On April 28, 2016, Highlands was spun-off from InvenTrust through a pro rata distribution by InvenTrust of 100% of the outstanding shares of common stock, $0.01 par value per share (the “Common Stock”), of Highlands to holders of record of InvenTrust's common stock as of the close of business on April 25, 2016 (the “Record Date”). Each holder of record of InvenTrust's common stock received one share of Common Stock for every one share of InvenTrust's common stock held at the close of business on the Record Date (the “Distribution”). As a result, Highlands became an independent, self-advised, non-traded public company. Highlands has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”) for U.S. federal income tax purposes commencing with Highlands' short taxable year ending December 31, 2016. Each of our assets is owned by a separate legal entity, which maintains its own books and financial records, and each entity’s assets are not available to satisfy the liabilities of other affiliated entities, except as otherwise disclosed in Note 7. With the exception of one asset we own through a variable interest entity with a third-party partner (the “Corvue Venture”), we are the sole owner of each of these separate legal entities. As of September 30, 2020, we have an approximate 85% interest in the Corvue Venture and have funded equity contributions to the Corvue Venture in the approximate amount of $9,000. See Note 2 for additional information regarding the basis of presentation of the Corvue Venture, which is consolidated in the accompanying condensed consolidated financial statements. As of September 30, 2020 and December 31, 2019, the Company owned 20 assets and one parcel of unimproved land. Impact of COVID-19 Pandemic The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business. The extent of the pandemic's effect on our operational and financial performance will depend on future developments, including the duration, spread, intensity and any resurgence of the pandemic and the duration of government measures to mitigate the pandemic, all of which continue to be uncertain and difficult to predict. Given the uncertainty, we cannot predict the effect on future periods, but the adverse impact that could occur on the Company's future financial condition, results of operations and cash flows could be material, including, but not limited to, as a result of extended eviction moratoriums, additional rent deferrals, payment plans, lease concessions, waiving late payment fees, charges from potential adjustments to the carrying amount of the receivables, and asset impairment charges. During the nine months ended September 30, 2020, we received rent relief requests from certain tenants at our retail properties, most often in the form of rent deferral and abatement requests. We have evaluated each tenant relief request on an individual basis and have granted deferrals of approximately $275 to 10 of our tenants. In exchange, such tenants agreed to various repayment periods, ranging between three and 24 months. In accordance with the terms set forth in the FASB Q&A Document, we have accounted for the concessions as if no changes to the lease contract were made. Under that accounting, we increase our lease receivable as receivables accrue and recognize rental income in our condensed consolidated financial statements during the deferral period. In connection with these rent deferrals, we increased our allowance for bad debt by approximately $300 during the three months ended September 30, 2020, which includes amounts related to existing deferral agreements. Additionally, during the nine months ended September 30, 2020, we granted abatements in the aggregate of approximately $871 to twelve tenants, the largest of which is LA Fitness at the Sherman Plaza property which accounted for $516 of the total abatement amount. We reviewed each lease agreement in connection with the abatements to determine whether such abatements, including any lease extensions related thereto, qualified as a “lease modification” under the applicable lease agreement, and, after determining that two such abatements constituted “lease modifications” under the respective lease agreement, we accounted for each abatement as such. Our multi-family portfolio was also impacted by the pandemic. While our multi-family portfolio experienced higher collection rates than on our retail portfolio, we had a decrease in occupancy during the nine months ended September 30, 2020, which resulted in decreased rental income. In some circumstances, we granted deferrals to residents who were impacted by the pandemic and offered payment plans for repayment in three to six months. Many state and local municipalities have placed a moratorium on evictions and housing-related litigation, limiting the actions we can take with respect to residents who are not making their rental payments. In addition to the decreased rental income, our bad debt expense increased as a result of reserves recorded on balances that were outstanding for residents impacted by the pandemic. We anticipate that we may receive additional rent deferral or abatement requests, or requests to modify existing lease agreements, as a result of the COVID-19 pandemic and recovery related thereto. We will evaluate each tenant rent relief request on an individual basis and consider a number of factors in determining whether to grant such request. Additionally, as tenants that have been granted some form of rent relief enter into their rent repayment periods, such tenants may be unable to pay the outstanding monthly rent payments, and, as a result, we may see a further increase in our bad debt expense. Our second and third quarter rent collections may not be indicative of collections in any future period and may be influenced by factors such as (i) whether tenants have received loans pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), (ii) whether “stay-at-home” orders have been eased, and (iii) whether we have granted rent assistance requests. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Refer to the Company’s audited consolidated financial statements for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on March 20, 2020, as certain note disclosures contained in such audited financial statements have been omitted from these interim condensed consolidated financial statements. Principles of Consolidation and Basis of Presentation The accompanying condensed consolidated financial statements reflect the accounts of Highlands and its consolidated subsidiaries. Highlands consolidates its wholly-owned subsidiaries and any other entities which it controls (i) through voting rights or similar rights or (ii) by means other than voting rights if Highlands is the primary beneficiary of a variable interest entity (“VIE”). The portions of the equity and net income of consolidated subsidiaries that are not attributable to the Company are presented separately as amounts attributable to non-controlling interests in our condensed consolidated financial statements. Entities which Highlands does not control, and entities which are VIEs in which Highlands is not a primary beneficiary, if any, are accounted for under appropriate GAAP. Highlands' subsidiaries generally consist of limited liability companies (“LLCs”). The effects of all significant intercompany transactions have been eliminated. Variable Interest Entities A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. Under Accounting Standards Codification (“ASC”) 810 - Consolidation, an entity that holds a variable interest in a VIE and meets certain requirements is considered the primary beneficiary of the VIE and is required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both the power to direct the activities that most significantly impact the economic performance of the VIE, and the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE. As of September 30, 2020 and December 31, 2019, respectively, we have determined we are the primary beneficiary of one VIE, the Corvue Venture, and have consolidated the operations of this entity in the accompanying consolidated financial statements. We reviewed the operating agreement of the Corvue Venture in order to determine our rights and the rights of our third-party partner, including whether those rights are protective or participating. We have determined we are the primary beneficiary of the Corvue Venture because we have (a) the power to direct the activities that most significantly impact the economic performance of the Corvue Venture, (b) the obligation to absorb the losses that could be significant to the Corvue Venture and (c) the right to receive the benefits that could be significant to the Corvue Venture. Included in total assets and liabilities on the Company’s condensed consolidated balance sheets as of September 30, 2020 is $26,835 and $19,483, respectively, related to the Corvue Venture. Included in total assets and liabilities on the Company’s consolidated balance sheets as of December 31, 2019 is $28,073 and $19,074, respectively, related to the Corvue Venture. The assets of the Corvue Venture may only be used to settle obligations of the Corvue Venture and the creditors of the Corvue Venture have no recourse to the general credit of the Company. Revenue Recognition The Company commences revenue recognition on our leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession of, or controls, the physical use of the leased asset. Generally, this occurs on the lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins. If we are the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete. If we conclude we are not the owner, for accounting purposes, of the tenant improvements (i.e., the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives which reduces revenue recognized over the term of the lease. In these circumstances, we begin revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements. We consider a number of different factors to evaluate whether the Company or the lessee is the owner of the tenant improvements for accounting purposes. These factors include: • whether the lease stipulates how and on what a tenant improvement allowance may be spent; • whether the tenant or landlord retains legal title to the improvements; • the uniqueness of the improvements; • the expected economic life of the tenant improvements relative to the length of the lease; and • who constructs or directs the construction of the improvements. The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment. In making that determination, we consider all of the above factors. No one factor, however, necessarily establishes its determination. Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying condensed consolidated balance sheets. Rental income lease-related receivables, which include contractual amounts accrued and unpaid from tenants and accrued straight-line rents receivable, are reduced for credit losses. The Financial Accounting Standards Board (“FASB”) clarified in July 2019 that, under ASC 842, lessors can continue to recognize a reserve (i.e., allowance for uncollectible operating lease receivables) under the loss contingency guidance in ASC 450-20 after applying the collectibility guidance in ASC 842. We evaluate the collectability of lease receivables monthly using several factors, including a lessee’s creditworthiness. We recognize the credit loss on lease-related receivables when, in the opinion of management, collection of substantially all lease payments is not probable. When collectability is determined not probable, any lease income subsequent to recognizing the credit loss is limited to the lesser of the lease income reflected on a straight-line basis or cash collected. The adoption of ASU 2016-02 resulted in an adjustment of $92 to rental income and property operating expenses associated with lease-related receivables where collection of substantially all operating lease payments is not probable during the nine months ended September 30, 2019. During the three and nine months ended September 30, 2020, the adjustment to reduce rental income was $40 in each period and the adjustment to property operating expenses was $270 and $300, respectively, for receivables where collection was determined not probable. The Company records lease termination income, included in other property income, if there is a signed termination agreement, all of the conditions of the agreement have been met and amounts due are considered collectible. Real Estate We allocate the purchase price of real estate to land, building, other building improvements, tenant improvements, and intangible assets and liabilities (such as the value of above- and below-market leases, in-place leases and origination costs associated with in-place leases). The values of above- and below-market leases are recorded as intangible assets, net, and intangible liabilities, net, respectively, in the condensed consolidated balance sheets, and are amortized as either a decrease (in the case of above-market leases) or an increase (in the case of below-market leases) to rental income over the remaining term of the associated tenant lease. The values associated with in-place leases are recorded in intangible assets, net, in the condensed consolidated balance sheets and are amortized to depreciation and amortization expense in the condensed consolidated statements of operations and comprehensive loss over the remaining lease term. The difference between the contractual rental rates and our estimate of market rental rates is measured over a period equal to the remaining non-cancelable term of the leases, including below-market renewal options for which exercise of the renewal option appears to be reasonably assured. The remaining term of leases with renewal options at terms below market reflect the assumed exercise of such below-market renewal options and assume the amortization period would coincide with the extended lease term. In the event of early lease termination, the remaining net book value of any above- or below-market lease intangible is recognized as an adjustment of rental income, and the remaining net book value of any in-place lease intangible is recognized as accelerated amortization expense. We perform, with the assistance of a third-party certified valuation specialist, the following procedures for properties we acquire: • Estimate the value of the property “as if vacant” as of the acquisition date; • Allocate the value of the property among land, building, and other improvements and determine the associated useful life for each; • Calculate the value and associated life of above- and below-market leases on a tenant-by-tenant basis. The difference between the contractual rental rates and our estimate of market rental rates is measured over a period equal to the remaining term of the leases (using a discount rate which reflects the risks associated with the leases acquired, including geographical location, size of leased area, tenant profile and credit risk); • Estimate the fair value of the tenant improvements, legal expenses and leasing commissions incurred to obtain the leases and calculate the associated useful life for each; • Estimate the fair value of assumed debt, if any, and value the favorable or unfavorable debt position acquired; and • Estimate the intangible value of the in-place leases based on lease execution costs of similar leases as well as lost rent payments during an assumed lease-up period and their associated useful lives on a tenant-by-tenant basis. We recognize gains and losses from sales of investment properties and land in accordance with FASB ASC 610-20, “Gains and Losses From the Derecognition of Nonfinancial Assets.” We recognize gains and losses from sales of investment properties and land when we transfer control of a property and when it is probable that we will collect substantially all of the related consideration. Capitalization and Depreciation Real estate is reflected at cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. Depreciation expense is computed using the straight-line method. Building and other improvements are depreciated based upon estimated useful lives of 30 years for building and improvements and 5-15 years for furniture, fixtures and equipment and site improvements. Tenant improvements are amortized on a straight-line basis over the lesser of the life of the tenant improvement or the lease term as a component of depreciation and amortization expense. Leasing fees are amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense. Loan fees are amortized on a straight-line basis, which approximates the effective interest method, over the life of the related loan as a component of interest expense. Direct and indirect costs that are clearly related to the construction and improvements of investment properties are capitalized. Costs incurred for property taxes and insurance are capitalized during periods in which activities necessary to get the asset ready for its intended use are in progress. Interest costs are also capitalized during such periods. Assets Held for Sale In determining whether to classify an investment property as held for sale, the Company considers whether: (i) management has committed to a plan to sell the investment property; (ii) the investment property is available for immediate sale, in its present condition; (iii) the Company has initiated a program to locate a buyer; (iv) the Company believes that the sale of the investment property is probable; (v) the Company has received a significant non-refundable deposit for the purchase of the property; (vi) the Company is actively marketing the investment property for sale at a price that is reasonable in relation to its fair value; and (vii) actions required for the Company to complete the plan indicate that it is unlikely that any significant changes will be made to the plan. If all of the above criteria are met, the Company classifies the investment property as held for sale. On the day that these criteria are met, the Company suspends depreciation on the investment properties held for sale, including depreciation for tenant improvements and additions, as well as on the amortization of acquired in-place leases. The investment properties and liabilities associated with those investment properties that are held for sale are classified separately on the condensed consolidated balance sheets for the most recent reporting period and recorded at the lesser of the carrying value or fair value less costs to sell. There were no assets held for sale on the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019. Impairment The Company assesses the carrying values of the respective long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable, such as a reduction in the expected holding period of the asset. If it is determined that the carrying value is not recoverable because the undiscounted cash flows do not exceed carrying value, the Company records an impairment loss to the extent that the carrying value exceeds fair value. The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on the Company’s continuous process of analyzing each asset and reviewing assumptions about uncertain inherent factors, as well as the economic condition of the asset at a particular point in time. The use of projected future cash flows and related holding period is based on assumptions that are consistent with the estimates of future expectations and the strategic plan the Company uses to manage its underlying business. However, assumptions and estimates about future cash flows and capitalization rates are complex and subjective. Changes in economic and operating conditions and the Company’s ultimate investment intent that occur subsequent to the impairment analyses could impact these assumptions and result in future impairment charges of the real estate assets. Going Concern Basis of Accounting When preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its evaluation, the Company considers, but is not limited to, any risks and/or uncertainties to its results of operations, contractual obligations in the form of near-term debt maturities, dividend requirements, or other factors impacting the Company’s liquidity and capital resources. No conditions or events that raised substantial doubt about the ability to continue as a going concern within one year were identified as of the issuance date of the financial statements contained in this Quarterly Report on Form 10-Q. Recently Issued Accounting Pronouncements On April 10, 2020, the FASB issued a document titled “Staff Q&A, Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 pandemic” (“FASB Q&A document”), which focused on the application of lease guidance for concessions related to the effects of the coronavirus disease 2019 (“COVID-19”) pandemic. In this document, the FASB staff allowed entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842, Leases, (“Topic 842”) as though enforceable rights and obligations for those qualifying concessions existed. The FASB also acknowledged that some concessions will provide a deferral of payments with no substantive changes to the consideration in the original contract. The FASB indicated that a deferral affects the timing of payments, but the amount of consideration is substantially the same as that required under the original contract. The staff expects that there will be multiple ways to account for those deferrals, none of which the staff believes are more preferable than others. Two of those methods are: • Account for the concessions as if no changes to the lease contract were made. Under that accounting, a lessor would increase its lease receivable, and a lessee would increase its accounts payable as receivables accrue. In its statements of operations, a lessor would continue to recognize income, and a lessee would continue to recognize expense during the deferral period. • Account for the deferred payments as a variable lease payment. In cases where we granted a payment deferral as a result of COVID-19, we have accounted for most of the concessions as if no changes to the lease contract were made. Under that accounting, we increased our lease receivable as receivables accrued in our statements of operations and will continue to recognize rental income during the deferral period. Refer also to Note 1, Organization, and Note 5, Leases, for discussion related to the impact on the condensed consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During March 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. Recently Adopted Accounting Pronouncements In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. This modifies the disclosure requirements on fair value measurements. The ASU removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The adoption of this ASU on January 1, 2020 did not have a material impact on our condensed consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, “Leases”, which established ASC 842, Leases, which introduces a lessee model that brings most leases on the balance sheet and, among other changes, eliminates the requirement in current GAAP for an entity to use bright-line tests in determining lease classification. ASC 842 allows for several practical expedients which permit the following: no reassessment of lease classification or initial direct costs; use of the standard’s effective date as the date of initial application; and no separation of non-lease components from the related lease components and, instead, to account for those components as a single lease component if certain criteria are met. We elected these practical expedients, upon adoption, on January 1, 2019, using the effective date as our date of initial application and no transition adjustment was recognized. Therefore, financial information and disclosures under ASC 842 will not be provided for periods prior to January 1, 2019. The Company elected the practical expedient, among others, to not separate lease and non-lease components for all qualifying leases. For leases with a term of twelve months or less, the Company has made a policy election to not recognize lease liabilities and lease assets. Due to the new standard’s narrowed definition of initial direct costs, beginning January 1, 2019, the Company recognizes expense as incurred on certain lease origination costs previously capitalized and amortized to expense over the lease term. Any costs no longer qualifying as initial direct costs are an increase to property operating expenses in the condensed consolidated statements of operations and comprehensive income in the period of adoption and prospectively. As a lessee, beginning January 1, 2019, the Company recognized a right-of-use asset and lease liability included in deferred costs and other assets and other liabilities, respectively, with a balance as of September 30, 2020, on the condensed consolidated balance sheets of approximately $292, which was estimated by utilizing an average discount rate of approximately 4.5%, reflecting the Company's incremental borrowing rate. As a lessor, the Company believes that substantially all of the Company's leases will continue to be classified as operating leases under the new standard and will continue to record revenues from rental properties on a straight-line basis. However, certain ground, anchor, and other long-term leases entered into or acquired have an increased likelihood of being classified as either sales-type or finance-type leases. In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting”. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. The adoption of ASU 2018-07 on January 1, 2019 did not have a material impact on our condensed consolidated financial statements. In December 2018, the FASB issued ASU 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors,” which addresses specific issues in the leasing guidance, including sales taxes and other similar taxes collected from lessees, certain lessor costs paid directly by lessees, and recognition of variable payments for contracts with lease and non-lease components. Prior to the adoption of ASU 2018-20, the Company recognized tenant recovery income regardless of whether the third party was paid by the lessor or lessee. Effective January 1, 2019, such tenant recoveries are only recognized to the extent that the Company pays the third party directly and are classified as rental income on the Company’s condensed consolidated statements of operations and comprehensive loss. |
Acquired Properties
Acquired Properties | 9 Months Ended |
Sep. 30, 2020 | |
Asset Acquisitions [Abstract] | |
Acquired Properties | Acquired Properties The Company records identifiable assets and liabilities acquired at fair value. During the nine months ended September 30, 2020, the Company acquired one multi-family asset for a gross acquisition price of $7,372. Under ASU 2017-01, the Company determined this transaction should be accounted for as an asset acquisition. Accordingly, the Company capitalized transaction costs of approximately $72. Property Location Acquisition Date Acquisition Price The Sterling San Diego, California April 22, 2020 $ 7,372 The purchase price has been allocated as follows: Land $ 1,849 Building and other improvements 5,407 Intangible assets, net 116 Total assets $ 7,372 During the nine months ended September 30, 2019, the Company acquired five multi-family assets for a gross acquisition price of $82,377, including capitalized transaction costs of approximately $377. Property Location Acquisition Date Acquisition Price The Detroit and Detroit Terraces Denver, Colorado January 8, 2019 $ 19,070 The View San Diego, California April 5, 2019 16,420 The Tennyson44 Denver, Colorado June 11, 2019 19,191 The Locale Allendale, MI August 16, 2019 27,696 $ 82,377 The purchase price allocation for each acquisition has been recorded as follows: The Detroit and Detroit Terraces The View Tennyson44 The Locale Total Land $ 3,370 $ 7,272 $ 1,533 $ 4,295 $ 16,470 Building and other improvements 15,006 8,862 17,410 22,460 63,738 Intangible assets, net 301 286 248 941 1,776 Total assets $ 18,677 $ 16,420 $ 19,191 $ 27,696 $ 81,984 Debt discount on mortgage assumption 393 — — — 393 Total liabilities $ 393 $ — $ — $ — $ 393 Total acquisition price $ 19,070 $ 16,420 $ 19,191 $ 27,696 $ 82,377 |
Disposed Properties
Disposed Properties | 9 Months Ended |
Sep. 30, 2020 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Disposed Properties | Disposed PropertiesThe following table reflects the property dispositions during the nine months ended September 30, 2020. The Company recognized a net gain on sale of investment properties of $82. Property Location Disposition Date Gross Disposition Price Sale Proceeds, Net Gain on Sale Citizens Providence, Rhode Island March 31, 2020 $ 1,425 $ 1,287 $ 82 The following table reflects the property dispositions during the nine months ended September 30, 2019. The Company recognized a net gain on sale of investment properties of $8,841. Property Location Disposition Date Gross Disposition Price Sale Proceeds, Net Gain on Sale RDU land Raleigh, North Carolina May 29, 2019 $ 600 $ 554 $ 29 Lincoln Center Lincoln, Rhode Island June 21, 2019 55,750 52,609 8,812 $ 56,350 $ 53,163 $ 8,841 |
Leases
Leases | 9 Months Ended |
Sep. 30, 2020 | |
Leases [Abstract] | |
Leases | Leases Leasing as a lessor Revenue Recognition We lease multifamily properties under operating leases with terms of generally one year or less. We lease commercial properties (our net lease, office and retail segments) under operating leases with remaining lease terms that range from less than one year to ten years as of September 30, 2020 and December 31, 2019. We recognize rental income from our multifamily and commercial leases when earned on a straight-line basis over the lease term. Recognition of rental income commences when control of the leased space has been transferred to the tenant. We recognize cost reimbursement income from pass-through expenses on an accrual basis over the periods in which the expenses were incurred. Pass-through expenses are comprised of real estate taxes, operating expenses and common area maintenance costs which are reimbursed by tenants in accordance with specific allowable costs per tenant lease agreements. Parking revenues are derived from leases and monthly parking agreements. We recognize parking revenues from leases on a straight-line basis over the lease term and other parking revenues as earned. Upon adoption of ASU 2016-02, we elected not to bifurcate lease contracts into lease and non-lease components, since the timing and pattern of revenue is not materially different and the non-lease components are not the primary component of the lease. Accordingly, both lease and non-lease components are presented in rental income in our condensed consolidated financial statements. The adoption of ASU 2016-02 did not result in a material change to our recognition of real estate rental revenue. Lease related receivables, which include contractual amounts accrued and unpaid from tenants and accrued straight-line rents receivable, are reduced for credit losses. Such amounts are recognized as a reduction to real estate rental revenues. The FASB clarified in July 2019 that, under ASC 842, lessors can continue to recognize a reserve (i.e., allowance for uncollectible operating lease receivables) under the loss contingency guidance in ASC 450-20 after applying the collectibility guidance in ASC 842. We evaluate the collectability of lease receivables monthly using several factors including a lessee’s creditworthiness. We recognize the credit loss on lease related receivables when, in the opinion of management, collection of substantially all lease payments is not probable. When collectability is determined not probable, any lease income subsequent to recognizing the credit loss is limited to the lesser of the lease income reflected on a straight-line basis or cash collected. In December 2019, the Company executed an amendment to its lease with Alta Devices, Inc. (“Alta”) for one building of our office asset located in San Jose, California. The amendment with Alta acknowledged Alta was in payment default of its lease, and we collected on a letter of credit. The lease terminated during the first fiscal quarter of 2020 and $671 was recognized in rental income and $768 was recognized in other property income from the proceeds of the letter of credit that secured Alta's obligations under the lease. On August 2, 2019, we received a notice of non-renewal from The GEO Group, Inc. (“GEO”), indicating that it would not be seeking an extension of its lease on our Hudson correctional facility asset. The lease on this asset expired in January 2020 and GEO has vacated the facility. Approximately 2.6% and 25.1% of our revenue was derived from GEO's net lease on our Hudson correctional facility asset for the nine months ended September 30, 2020 and 2019, respectively. A non-renewal by GEO was contemplated when we recorded an impairment of the asset of $3,765 during the fourth quarter of 2018. While we continue to seek to re-lease or find alternative users for this asset, given the nature of the property, its location and its extended period of vacancy, we expect it will continue to be very difficult to re-lease or find alternative users for this property. Even if we are successful in finding alternative users, we expect it will take an extended period of time to do so, if at all. Further, we believe it is unlikely that we will be able to find alternative users on similar terms. As we do not expect to find alternative users, re-lease the property, or re-lease on similar terms in the foreseeable future, the expiration of this lease has had a material adverse effect on our financial condition, cash flows and results of operations. Notwithstanding the expiration of this lease, we believe we have sufficient liquidity and capital resources to fund our operations for the foreseeable future. Lease income related to the Company's operating leases is comprised of the following: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Lease income related to fixed lease payments $ 5,413 $ 7,805 $ 17,653 $ 24,480 Lease income related to variable lease payments 843 1,150 2,656 4,914 Other (1) 360 243 1,466 463 Lease income $ 6,616 $ 9,198 $ 21,775 $ 29,857 (1) For the three and nine months ended September 30, 2020 and 2019, respectively, other is primarily comprised of parking revenues and termination fees related to early lease expirations. Future Minimum Rental Income As of September 30, 2020, commercial operating leases provide for future minimum rental income, assuming no expiring leases are renewed, as follows. Apartment leases are not included as the terms are generally for one year or less. 2020 (remaining) $ 2,333 2021 9,842 2022 7,966 2023 7,316 2024 6,878 Thereafter 26,641 Total $ 60,976 Some of our commercial operating leases provide for the payment of fixed base rent paid monthly in advance, and for the reimbursement by tenants to the Company for the tenant’s pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the landlord and recoverable under the terms of the lease. Under these leases, the landlord pays all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid. Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed base rent as well as all costs and expenses associated with occupancy. Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included in the consolidated statements of operations and comprehensive loss. Under leases where all expenses are paid by the landlord, subject to reimbursement by the tenant, the expenses are included within property operating expenses and reimbursements, and are included in rental income on the condensed consolidated statements of operations and comprehensive loss. Leasing as a Lessee We lease a portion of the land underlying one of our retail assets, Sherman Plaza, from a third party through a ground lease covering such land with a lease term expiring in October 2042. Upon adoption of ASU 2016-02, we recognized a right of use asset (included in deferred costs and other assets) and lease liability (included in other liabilities). At September 30, 2020, the balance was $292 and was recorded in the condensed consolidated balance sheets. We used a discount rate of approximately 4.5%, reflecting the Company's incremental borrowing rate as of January 1, 2019. During the nine months ended September 30, 2020, we recognized a right of use asset (included in deferred costs and other assets) and lease liability (included in other liabilities) for leased assets from a third party for our corporate office space with a lease term expiring in December 2021. At September 30, 2020, the balance was $219 and was recorded in the condensed consolidated balance sheets. We used a discount rate of approximately 3.3%, reflecting the Company's incremental borrowing rate as of January 1, 2020. The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments on our leases at September 30, 2020 and a reconciliation of those cash flows to the operating lease liability at September 30, 2020. 2020 (remaining) $ 49 2021 200 2022 21 2023 21 2024 21 Thereafter 373 685 Imputed interest (174) Lease liability $ 511 |
Leases | Leases Leasing as a lessor Revenue Recognition We lease multifamily properties under operating leases with terms of generally one year or less. We lease commercial properties (our net lease, office and retail segments) under operating leases with remaining lease terms that range from less than one year to ten years as of September 30, 2020 and December 31, 2019. We recognize rental income from our multifamily and commercial leases when earned on a straight-line basis over the lease term. Recognition of rental income commences when control of the leased space has been transferred to the tenant. We recognize cost reimbursement income from pass-through expenses on an accrual basis over the periods in which the expenses were incurred. Pass-through expenses are comprised of real estate taxes, operating expenses and common area maintenance costs which are reimbursed by tenants in accordance with specific allowable costs per tenant lease agreements. Parking revenues are derived from leases and monthly parking agreements. We recognize parking revenues from leases on a straight-line basis over the lease term and other parking revenues as earned. Upon adoption of ASU 2016-02, we elected not to bifurcate lease contracts into lease and non-lease components, since the timing and pattern of revenue is not materially different and the non-lease components are not the primary component of the lease. Accordingly, both lease and non-lease components are presented in rental income in our condensed consolidated financial statements. The adoption of ASU 2016-02 did not result in a material change to our recognition of real estate rental revenue. Lease related receivables, which include contractual amounts accrued and unpaid from tenants and accrued straight-line rents receivable, are reduced for credit losses. Such amounts are recognized as a reduction to real estate rental revenues. The FASB clarified in July 2019 that, under ASC 842, lessors can continue to recognize a reserve (i.e., allowance for uncollectible operating lease receivables) under the loss contingency guidance in ASC 450-20 after applying the collectibility guidance in ASC 842. We evaluate the collectability of lease receivables monthly using several factors including a lessee’s creditworthiness. We recognize the credit loss on lease related receivables when, in the opinion of management, collection of substantially all lease payments is not probable. When collectability is determined not probable, any lease income subsequent to recognizing the credit loss is limited to the lesser of the lease income reflected on a straight-line basis or cash collected. In December 2019, the Company executed an amendment to its lease with Alta Devices, Inc. (“Alta”) for one building of our office asset located in San Jose, California. The amendment with Alta acknowledged Alta was in payment default of its lease, and we collected on a letter of credit. The lease terminated during the first fiscal quarter of 2020 and $671 was recognized in rental income and $768 was recognized in other property income from the proceeds of the letter of credit that secured Alta's obligations under the lease. On August 2, 2019, we received a notice of non-renewal from The GEO Group, Inc. (“GEO”), indicating that it would not be seeking an extension of its lease on our Hudson correctional facility asset. The lease on this asset expired in January 2020 and GEO has vacated the facility. Approximately 2.6% and 25.1% of our revenue was derived from GEO's net lease on our Hudson correctional facility asset for the nine months ended September 30, 2020 and 2019, respectively. A non-renewal by GEO was contemplated when we recorded an impairment of the asset of $3,765 during the fourth quarter of 2018. While we continue to seek to re-lease or find alternative users for this asset, given the nature of the property, its location and its extended period of vacancy, we expect it will continue to be very difficult to re-lease or find alternative users for this property. Even if we are successful in finding alternative users, we expect it will take an extended period of time to do so, if at all. Further, we believe it is unlikely that we will be able to find alternative users on similar terms. As we do not expect to find alternative users, re-lease the property, or re-lease on similar terms in the foreseeable future, the expiration of this lease has had a material adverse effect on our financial condition, cash flows and results of operations. Notwithstanding the expiration of this lease, we believe we have sufficient liquidity and capital resources to fund our operations for the foreseeable future. Lease income related to the Company's operating leases is comprised of the following: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Lease income related to fixed lease payments $ 5,413 $ 7,805 $ 17,653 $ 24,480 Lease income related to variable lease payments 843 1,150 2,656 4,914 Other (1) 360 243 1,466 463 Lease income $ 6,616 $ 9,198 $ 21,775 $ 29,857 (1) For the three and nine months ended September 30, 2020 and 2019, respectively, other is primarily comprised of parking revenues and termination fees related to early lease expirations. Future Minimum Rental Income As of September 30, 2020, commercial operating leases provide for future minimum rental income, assuming no expiring leases are renewed, as follows. Apartment leases are not included as the terms are generally for one year or less. 2020 (remaining) $ 2,333 2021 9,842 2022 7,966 2023 7,316 2024 6,878 Thereafter 26,641 Total $ 60,976 Some of our commercial operating leases provide for the payment of fixed base rent paid monthly in advance, and for the reimbursement by tenants to the Company for the tenant’s pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the landlord and recoverable under the terms of the lease. Under these leases, the landlord pays all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid. Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed base rent as well as all costs and expenses associated with occupancy. Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included in the consolidated statements of operations and comprehensive loss. Under leases where all expenses are paid by the landlord, subject to reimbursement by the tenant, the expenses are included within property operating expenses and reimbursements, and are included in rental income on the condensed consolidated statements of operations and comprehensive loss. Leasing as a Lessee We lease a portion of the land underlying one of our retail assets, Sherman Plaza, from a third party through a ground lease covering such land with a lease term expiring in October 2042. Upon adoption of ASU 2016-02, we recognized a right of use asset (included in deferred costs and other assets) and lease liability (included in other liabilities). At September 30, 2020, the balance was $292 and was recorded in the condensed consolidated balance sheets. We used a discount rate of approximately 4.5%, reflecting the Company's incremental borrowing rate as of January 1, 2019. During the nine months ended September 30, 2020, we recognized a right of use asset (included in deferred costs and other assets) and lease liability (included in other liabilities) for leased assets from a third party for our corporate office space with a lease term expiring in December 2021. At September 30, 2020, the balance was $219 and was recorded in the condensed consolidated balance sheets. We used a discount rate of approximately 3.3%, reflecting the Company's incremental borrowing rate as of January 1, 2020. The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments on our leases at September 30, 2020 and a reconciliation of those cash flows to the operating lease liability at September 30, 2020. 2020 (remaining) $ 49 2021 200 2022 21 2023 21 2024 21 Thereafter 373 685 Imputed interest (174) Lease liability $ 511 |
Accounts Payable and Accrued Ex
Accounts Payable and Accrued Expenses | 9 Months Ended |
Sep. 30, 2020 | |
Payables and Accruals [Abstract] | |
Accounts Payable and Accrued Expenses | Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following: September 30, 2020 December 31, 2019 Accrued real estate taxes $ 6,568 $ 6,372 Accrued compensation 3,758 3,606 Accrued interest payable 285 369 Other accrued expenses 1,713 1,188 $ 12,324 $ 11,535 |
Debt
Debt | 9 Months Ended |
Sep. 30, 2020 | |
Debt Disclosure [Abstract] | |
Debt | DebtTotal debt outstanding as of September 30, 2020 and December 31, 2019 was as follows: As of September 30, As of December 31, Debt, gross $ 84,161 94,926 Mortgage discount (315) (349) Deferred financing costs, net (1,192) (1,374) Total Debt, Net $ 82,654 $ 93,203 As of September 30, 2020, scheduled maturities for the Company’s outstanding mortgage indebtedness and the credit facility had various due dates through August 2027, as follows: Debt maturing during the year As of September 30, 2020 Weighted average interest rate 2020 (remaining) $ — — % 2021 — — % 2022 9,011 5.24 % 2023 18,377 3.28 % (1) 2024 20,000 2.06 % Thereafter 36,773 4.38 % Total $ 84,161 3.68 % (1) See below for discussion of the swap agreement entered into with the mortgage loan obtained in connection with the acquisition of The Locale asset. The weighted average interest rate reflected is the strike rate. The Company's ability to pay off the mortgages when they become due is dependent upon the Company's ability either to refinance the related mortgage debt or to sell the related asset. With respect to each mortgage loan, if the applicable wholly-owned property-owning subsidiary is unable to refinance or sell the related asset, or in the event that the estimated asset value is less than the mortgage balance, the applicable wholly-owned property-owning subsidiary may, if appropriate, satisfy a mortgage obligation by transferring title of the asset to the lender or permitting a lender to foreclose. As of September 30, 2020 and December 31, 2019, none of our mortgage debt was recourse to the Company, although Highlands or its subsidiaries may act as guarantor under customary, non-recourse, carve-out guarantees in connection with obtaining mortgage loans on certain of our properties. Some of the mortgage loans require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations. As previously reported, we had not made monthly payments due under the mortgages encumbering the State Street, Buckhorn Plaza and Market at Hilliard properties because certain tenants at these properties failed to pay their minimum rental payments. As of September 30, 2020, we have made the required payments to bring each of these mortgages current. We currently intend to continue to make monthly mortgage payments when due for each of the State Street, Buckhorn Plaza and Market at Hilliard properties, but this is dependent on the tenants at these properties continuing to make their monthly rental payments. The loan documents governing the mortgage encumbering the State Street property include a “cash trap” provision that is triggered if DICK'S Sporting Goods, which is an anchor tenant at the State Street property, fails to renew its lease agreement. During September, 2020, we were informed that DICK'S Sporting Goods will not renew its lease at the State Street property. As a result, we received notice that the lender under the State Street mortgage exercised its right to trigger this “cash trap” provision, and, during the fourth quarter, all of the revenue from the State Street property which would otherwise have been available for our use will be trapped into a blocked account controlled by the lender until a substitute lease is approved. If, during that period, the terms of the loan agreement are not satisfied, those funds will be swept in mandatory prepayment of the mortgage. On January 8, 2019, the Company assumed a mortgage loan in the principal amount of $11,089, net of a debt discount of $360 in connection with the acquisition of The Detroit and Detroit Terraces. The contractual rate and terms of the assumed debt was marked to market as of the acquisition date. According to the terms of the note agreement, the contractual fixed interest rate is 3.99% and payments are interest-only through September 30, 2022. The maturity date of the mortgage loan is on August 31, 2027. The Company obtained a mortgage loan in the principal amount of $18,750 in connection with the acquisition of The Locale on August 16, 2019. The Company entered into a swap agreement with respect to the loan, effective through its September 1, 2023 maturity date, to swap the variable interest rate to a fixed rate of approximately 3.27% per annum. The interest rate is based on the London Interbank Offered Rate (“LIBOR”) plus the applicable spread. The effective interest rate as of September 30, 2020, is approximately 1.91%. Credit Agreement On February 15, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”) by and among the Company, as borrower, The Huntington National Bank (“HNB”), individually and as administrative agent, issuing lender, lead arranger, book manager and syndication agent, and certain other lenders thereunder. The Credit Agreement provides for (i) a secured revolving credit facility (the “Revolving Credit Facility”) with revolving commitments in an aggregate principal amount of $50,000, including a letter of credit subfacility for 10% of the then available revolving commitments, and (ii) a secured term loan credit facility (the “Term Loan Facility” and together with the Revolving Credit Facility, the “Credit Facility”) with term loan commitments in an aggregate principal amount of $50,000. During the quarter ended September 30, 2020, the Company repaid $10,000 of the outstanding principal balance of the Term Loan Facility and, as of September 30, 2020, the Company has an outstanding principal balance of $20,000 under the Term Loan Facility and no outstanding borrowings under the Revolving Credit Facility. The Credit Agreement provides that, subject to customary conditions, including obtaining lender commitments and compliance with its financial covenants under the Credit Agreement, the Company may seek to increase the aggregate lending commitments under the Credit Agreement by up to $100,000, with such increase in total lending commitments to be allocated to increasing the revolving commitments and/or establishing one or more new tranches of term loans at the Company’s request. The Revolving Credit Facility has a maturity date of February 15, 2022, but can be extended at the Company’s option for two additional one The interest rates applicable to loans under the Revolving Credit Facility are, at the Company’s option, equal to either a base rate plus a margin ranging from 1.0% to 1.3% per annum or LIBOR plus a margin ranging from 2.0% to 2.3% per annum based on the debt to assets ratio of the Company and its consolidated subsidiaries. The interest rates applicable to loans under the Term Loan Facility are, at the Company’s option, equal to either a base rate plus a margin ranging from 0.9% to 1.2% per annum or LIBOR plus a margin ranging from 1.9% to 2.2% per annum based on the debt to assets ratio of the Company and its consolidated subsidiaries. The Company has chosen the second option for the interest rate applicable to the current loan under the term loan facility during the nine months ended September 30, 2020. In addition, the Company pays (a) an unused facility fee on the revolving commitments under the Revolving Credit Facility ranging from 0.15% to 0.25% per annum, calculated daily based on the average unused commitments under the Revolving Credit Facility, and (b) with respect to any amount of the Term Loan Facility that remains undrawn during the period beginning thirty (30) days after the execution of the Credit Agreement and ending one year after execution of the Credit Agreement, an unused facility fee of 0.25% per annum, calculated daily based on the undrawn portion of the Term Loan Facility. The Credit Facility is guaranteed, jointly and severally, by certain subsidiaries of the Company (the “Subsidiary Guarantors”), and is secured by a pledge of equity interests in the Subsidiary Guarantors. The Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to incur indebtedness, grant liens on their assets, make certain types of investments, engage in acquisitions, mergers or consolidations, sell assets, enter into hedging transactions, enter into certain transactions with affiliates and make distributions. The Credit Agreement requires the Company to comply with financial covenants to be tested quarterly, including a maximum debt to asset value ratio, a minimum fixed charge coverage ratio, a minimum tangible net worth, a maximum variable rate debt to asset value ratio, a prohibition on recourse debt and a maximum amount of cross-collateralized non- recourse debt. The Credit Agreement also contains certain covenants around the value and diversity of the properties owned by the Subsidiary Guarantors. The Credit Agreement also contains certain customary events of default, including the failure to make timely payments under the Credit Facility or other material indebtedness, the failure to satisfy certain covenants and specified events of bankruptcy and insolvency. As of September 30, 2020, the Company did not expect to be in compliance with two financial covenants under the Credit Facility. Following discussions with the lender regarding such covenants, on November 6, 2020, the Company entered into an amendment to the Credit Agreement (the “Credit Agreement Amendment”), pursuant to which the lender under the Credit Facility waived the Company’s obligation to comply with such covenants for the period from July 1, 2020 to December 31, 2020 and restricted the Company from drawing on the Revolving Credit Facility in amounts in excess of $20,000 until the Company is in compliance with all such covenants. Additionally, because the Company no longer needed the Term Loan Facility due to the Company’s capital resources and anticipated spending, the Company “right-sized” the Credit Facility by eliminating the Term Loan Facility previously available under the Credit Agreement, and, in connection with the execution of the Credit Agreement Amendment, the Company borrowed sufficient funds under the Revolving Credit Facility to repay all of its obligations under the Term Loan Facility. See also Note 14 (Subsequent Events) for additional discussion. |
Fair Value Measurements
Fair Value Measurements | 9 Months Ended |
Sep. 30, 2020 | |
Fair Value Disclosures [Abstract] | |
Fair Value Measurements | Fair Value Measurements In accordance with ASC 820, Fair Value Measurement and Disclosures, the Company defines fair value based on the price that would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below: • Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. • Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. • Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The Company has estimated fair value using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that would be realized upon disposition. Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis Risk Management Objective of Using Derivatives The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of debt funding and, to a limited extent, the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments, described below, are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company may use interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. We do not enter into derivative financial instruments for speculative purposes. As of September 30, 2020, we had one derivative financial instrument designated as a cash flow hedge, with a notional amount of $18,750 and a maturity date of September 1, 2023. This derivative is an interest rate swap that is measured at fair value on a recurring basis. For derivatives designated, and that qualify, as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income or loss on the condensed consolidated balance sheets and is subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. The amount recorded as accumulated other comprehensive loss related to the unrealized loss on our derivative financial instrument was $713 as of September 30, 2020 and $96 as of September 30, 2019. Realized gains and losses will be recognized as they accrue in interest expense. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on our variable rate debt. For the three and nine months ended September 30, 2020, $75 was recognized in unrealized gain and $734 was recognized in unrealized loss, respectively, on derivatives in the condensed consolidated statements of operations and comprehensive loss. For the three and nine months ended September 30, 2019, $96 was recognized in unrealized loss on derivatives in the condensed consolidated statements of operations and comprehensive income. The Company estimates that $253 will be reclassified as an increase to interest expense over the next twelve months. The table below presents the fair value of the Company’s derivative financial instrument as well as its classification on the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively. September 30, 2020 Level 1 Level 2 Level 3 Total Derivative financial instruments designated as cash flow hedges: Classified as liabilities in “Other liabilities” $ — $ 713 $ — $ 713 December 31, 2019 Derivative financial instruments designated as cash flow hedges: Level 1 Level 2 Level 3 Total Classified as assets in “Deferred costs and other assets, net” $ — $ 21 $ — $ 21 The fair value of our derivative financial instrument was determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of the derivative financial instrument. This analysis reflected the contractual terms of the derivative, including the period to maturity, and used observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While it was determined that the majority of the inputs used to value the derivative fall within Level 2 of the fair value hierarchy under authoritative accounting guidance, the credit valuation adjustments associated with the derivative also utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of September 30, 2020, the significance of the impact of the credit valuation adjustments on the overall valuation of the derivative financial instrument was assessed, and it was determined that these adjustments were not significant to the overall valuation of the derivative financial instrument. As a result, it was determined that the derivative financial instrument in its entirety should be classified in Level 2 of the fair value hierarchy. Non-Recurring Measurements In accordance with ASC 360-10, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. During the three and nine months ended September 30, 2020, events and circumstances indicated that certain retail and multi-family properties might be impaired. However, the Company's estimates of undiscounted cash flows indicated that such carrying amounts were expected to be recovered. Nonetheless, it is reasonably possible that the estimate of undiscounted cash flows may change in the future resulting in the need to write down assets to fair value. The Company did not identify any impairment triggers during the three and nine months ended September 30, 2019. Financial Instruments Not Measured at Fair Value The table below represents the fair value of financial instruments presented at carrying values in the condensed consolidated financial statements as of September 30, 2020 and as of December 31, 2019. September 30, 2020 December 31, 2019 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Debt $ 84,161 $ 81,420 $ 94,926 $ 94,934 The Company estimates the fair value of its debt instruments using a weighted average market effective interest rate of 4.34% and 3.93% per annum as of September 30, 2020 and December 31, 2019, respectively. The Company estimates the fair value of its mortgage loans and term loan facility by discounting the anticipated future cash flows of each instrument at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are based on credit spreads observed in the marketplace during the quarter for similar debt instruments, and a floor rate that the Company has derived using its subjective judgment for each asset segment. Based on this, the Company determines the appropriate rate for each of its individual mortgage loans and term loan facility based upon the specific terms of the agreement, including the term to maturity, the quality and nature of the underlying property and its leverage ratio. The weighted average market effective interest rates used range from 2.55% to 6.24% as of September 30, 2020. For certain debt, the Company estimates the fair value of debt instruments based on the fair value of the underlying collateral. The Company has determined that its debt instrument valuations are classified in Level 2 of the fair value hierarchy. In July 2017, the Financial Conduct Authority, the authority that regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing RATE (“SOFR”) is the rate that represents best practice as the alternative to U.S. Dollar LIBOR (“USD-LIBOR”) for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan as it relates to derivatives and cash markets exposed to USD-LIBOR. There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or financing costs to borrowers. We have material contracts that are indexed to USD-LIBOR, and we are monitoring this activity and evaluating related risks. |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2020 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income TaxesThe Company is taxed and operates in a manner that will allow the Company to continue to qualify as a REIT for U.S. federal income tax purposes. So long as it maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed to stockholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its REIT taxable income (subject to certain adjustments) to its stockholders each year. If the Company fails to continue to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and would not be able to re-elect REIT status during the four years following the year of the failure. Although the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and U.S. federal income and excise taxes on its undistributed income.During the nine months ended September 30, 2020 and 2019, no income tax benefit or expense was included in the condensed consolidated statements of operations and comprehensive loss. |
Segment Reporting
Segment Reporting | 9 Months Ended |
Sep. 30, 2020 | |
Segment Reporting [Abstract] | |
Segment Reporting | Segment Reporting GAAP has established guidance for reporting information about a company’s operating segments. The Company monitors and reviews its segment reporting structure in accordance with guidance under ASC Topic 280, Segment Reporting (“ASC 280”) to determine whether any changes have occurred that would impact its reportable segments. The Company currently has four business segments, consisting of (i) net lease, (ii) retail, (iii) multi-tenant office and (iv) multi-family. The net lease segment consists of single-tenant office and industrial assets, as well as the Company’s correctional facility. The Company’s unimproved land assets are presented below in Other. The following table summarizes net property operations by segment for the three months ended September 30, 2020. Three Months Ended September 30, 2020 Total Net Lease Retail Multi-Tenant Multi-family Other Rental income $ 6,256 $ 526 $ 2,305 $ — $ 3,425 $ — Other property income 360 — 132 — 228 — Total income 6,616 526 2,437 — 3,653 — Operating expenses 3,982 355 1,413 180 1,897 137 Net operating income (loss) $ 2,634 $ 171 $ 1,024 $ (180) $ 1,756 $ (137) Non-allocated expenses (a) (6,751) Other income and expenses (b) (1,080) Net loss attributable to non-controlling interests 30 Net loss attributable to Highlands REIT, Inc. common stockholders $ (5,167) (a) Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. (b) Other income and expenses consists of interest income and interest expense. The following table summarizes net property operations by segment for the three months ended September 30, 2019. Three Months Ended September 30, 2019 Total Net Lease Retail Multi-Tenant Multi-family Other Rental income $ 8,955 $ 3,083 $ 2,740 $ 754 $ 2,360 $ 18 Other property income 243 — 111 — 132 — Total income 9,198 3,083 2,851 754 2,492 18 Operating expenses 2,721 174 1,280 184 975 108 Net operating income (loss) $ 6,477 $ 2,909 $ 1,571 $ 570 $ 1,517 $ (90) Non-allocated expenses (a) (5,482) Other income and expenses (b) (477) Net income attributable to non-controlling interests (10) Net income attributable to Highlands REIT, Inc. common stockholders $ 508 (a) Non-allocated expenses consist of general and administrative expenses and depreciation and amortization. (b) Other income and expenses consists of interest income and interest expense. The following table summarizes net property operations by segment for the nine months ended September 30, 2020. Total Net Lease Retail Multi-Tenant Multi-family Other Rental income $ 20,309 $ 2,192 $ 6,729 $ 699 $ 10,689 $ — Other property income 1,466 — 132 768 566 — Total income 21,775 2,192 6,861 1,467 11,255 — Operating expenses 10,691 1,053 3,666 568 4,996 408 Net operating income (loss) $ 11,084 $ 1,139 $ 3,195 $ 899 $ 6,259 $ (408) Non-allocated expenses (a) (20,756) Other income and expenses (b) (2,996) Gain on sale of investment properties (c) 82 Net loss attributable to non-controlling interests 70 Net loss attributable to Highlands REIT, Inc. common stockholders $ (12,516) Balance Sheet Data Real estate assets, net (d) $ 315,875 $ 32,398 $ 65,380 $ 26,018 $ 183,113 $ 8,966 Non-segmented assets (e) 61,127 Total assets $ 377,002 Capital expenditures $ 2,136 $ — $ 1,278 $ 16 $ 826 $ 16 (a) Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. (b) Other income and expenses consists of interest income and interest expense. (c) Gain on the sale of investment properties is related to one net lease asset. (d) Real estate assets include intangible lease assets, net of amortization. (e) Non-segmented assets include cash and cash equivalents, restricted cash and escrows, accounts and rents receivable and deferred costs and other assets. The following table summarizes net property operations by segment for the nine months ended September 30, 2019. Total Net Lease Retail Multi-Tenant Multi-family Other Rental income $ 29,394 $ 9,433 $ 12,557 $ 2,238 $ 5,166 $ — Other property income 463 — 135 — 328 — Total income 29,857 9,433 12,692 2,238 5,494 — Operating expenses 9,233 475 5,605 542 2,163 448 Net operating income (loss) $ 20,624 $ 8,958 $ 7,087 $ 1,696 $ 3,331 $ (448) Non-allocated expenses (a) (18,406) Other income and expenses (b) (1,475) Gain on sale of investment properties (c) 8,841 Net income attributable to non-controlling interests (10) Net income $ 9,574 Balance Sheet Data Real estate assets, net (d) $ 271,289 $ 35,146 $ 66,950 $ 26,533 $ 133,708 $ 8,952 Non-segmented assets (e) 129,893 Total assets $ 401,182 Capital expenditures $ 765 $ — $ 315 $ — $ 450 $ — (a) Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. (b) Other income and expenses consists of interest income and interest expense. (c) Gain on the sale of investment properties is related to one retail asset and one land parcel. (d) Real estate assets include intangible lease assets, net of amortization. (e) Non-segmented assets include cash and cash equivalents, restricted cash and escrows, accounts and rents receivable and deferred costs and other assets. |
Earnings Per Share
Earnings Per Share | 9 Months Ended |
Sep. 30, 2020 | |
Earnings Per Share [Abstract] | |
Earnings Per Share | Earnings Per Share Basic earnings per common share is calculated by dividing net income attributable to Highlands REIT, Inc. common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing net income attributable to Highlands REIT, Inc. common stockholders by the weighted-average number of common shares outstanding during the period, plus any additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The following table reconciles net income attributable to the Company to basic and diluted EPS (in thousands, except share and per share data). Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator: Net (loss) income attributable to Highlands REIT, Inc. common stockholders $ (5,167) $ 508 $ (12,516) $ 9,574 Denominator: Weighted average number of common shares outstanding - basic and diluted 879,932,514 876,007,008 879,216,153 875,057,625 Basic and diluted earnings per share: Net (loss) income per common share $ (0.01) $ 0.00 $ (0.01) $ 0.01 |
Share Based Compensation
Share Based Compensation | 9 Months Ended |
Sep. 30, 2020 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Share Based Compensation | Share Based Compensation Incentive Award Plan On April 28, 2016, the board of directors adopted, ratified and approved the Highlands REIT, Inc. 2016 Incentive Award Plan (the “Incentive Award Plan”), under which the Company may grant cash and equity-based incentive awards to eligible employees, directors, and consultants. Prior to the Company’s spin-off from InvenTrust, the board of directors of the Company (then a wholly-owned subsidiary of InvenTrust) adopted, and InvenTrust, as the sole stockholder of Highlands, approved, the Incentive Awards Plan. For the nine months ended September 30, 2020, the Company granted 6,625,002 shares of common stock with an aggregate value of $2,385 based on an estimated net asset value per share of $0.36. During the nine months ended September 30, 2019, the Company granted 6,100,002 of fully vested shares of common stock with an aggregate value of $2,135 based on an estimated net asset value per share of $0.35. Under the Incentive Award Plan, the Company is authorized to grant up to 43,000,000 shares of the Company's common stock pursuant to awards under the plan. As of September 30, 2020, 10,493,213 shares were available for future issuance under the Incentive Award Plan. A summary of the Company's stock awards activity as of September 30, 2020 is as follows: Non-Vested stock awards Stock Awards Weighted Average Grant Date Fair Value Balance at January 1, 2020 357,143 $ 0.35 Granted 6,625,002 0.36 Vested (6,972,224) 0.36 Other (1) (9,921) — Balance at September 30, 2020 — $ — (1) Represents the change in the number of shares granted in 2019 based on an estimated net asset value per share of $0.35 and the actual shares vesting in 2020 based on an estimated net asset value per share of $0.36 For the three months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense, included in general and administrative expenses in the accompanying condensed consolidated statements of operations, of $7 and $43, respectively, related to the Incentive Award Plan. For the nine months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense in the amount of $2,434 and $2,220, respectively, related to the Incentive Award Plan. For the nine months ended September 30, 2020 and 2019, the Company paid $1,147 and $1,177, respectively, related to tax withholding for share-based compensation. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters may have a material adverse effect on the financial statements of the Company. Highlands has also agreed to indemnify InvenTrust against all taxes related to the Company, its subsidiaries and its assets, including taxes attributable to periods prior to the separation and distribution. InvenTrust has agreed to indemnify the Company for any taxes attributable to a failure by InvenTrust or MB REIT (Florida), Inc., a subsidiary of the Company, to qualify as a REIT for any taxable year ending on or before December 31, 2016. In April 2020, the Company executed a lease with Northwestern Medical Group for approximately 29,000 square feet at our Sherman Plaza asset, replacing Barnes and Noble whose lease was terminated after the signing of this new lease. The lease requires a significant amount of landlord work, a tenant allowance and a broker commission. We currently estimate this commitment to be approximately $3.9 million, including costs incurred for the nine months ended September 30, 2020, however, costs could increase if additional landlord work becomes necessary to deliver the space to the tenant in the condition specified in the lease. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events As a result of the COVID-19 pandemic, we have experienced and may continue to experience difficulty collecting timely rental payments from tenants that are experiencing financial difficulties and/or are (or have been) subject to governmental restrictions on their operations. As of September 30, 2020, the Company did not expect to be in compliance with two financial covenants under the Credit Agreement, and as a result, on November 6, 2020, the Company entered into the Credit Agreement Amendment, pursuant to which the lender under the Credit Facility waived the Company’s obligation to comply with such covenants for the period from July 1, 2020 to December 31, 2020 and restricted the Company from drawing on the Revolving Credit Facility in amounts in excess of $20,000 until the Company is in compliance with all such covenants. Additionally, because the Company no longer needed the Term Loan Facility due to the Company’s capital resources and anticipated spending, the Company “right-sized” the Credit Facility by eliminating the Term Loan Facility previously available under the Credit Agreement, and, in connection with the execution of the Credit Agreement Amendment, the Company borrowed sufficient funds under the Revolving Credit Facility to repay all of its obligations under the Term Loan Facility. As of November 6, 2020, the Company has borrowed the full amount it is currently able to borrow under the Revolving Credit Facility. On October 30, 2020, the Company entered into a Separation Agreement and General Release (the “Separation Agreement”) with Paul A. Melkus, former Chief Financial Officer, Treasurer and principal financial officer of the Company. The Separation Agreement sets forth the terms of Mr. Melkus’ separation from the Company effective October 30, 2020, including, among other things, a general release of claims in favor of the Company and its affiliates, as well as certain confidentiality, non-assistance, non-solicitation and cooperation undertakings. Upon the Separation Agreement becoming effective and non-revocable, the Company agrees to provide Mr. Melkus with the following severance pay: (a) $1,000 within 14 days, of which, $81 will be paid to Mr. Melkus’ attorney; and (b) $1,000 on or before May 31, 2022 (the “Second Payment”). In connection with the agreement, the Company accrued $1,324, which is equal to the minimum expected termination amount that was due Mr. Melkus’ under his employment agreement, for termination without cause, and is included in accounts payable and accrued expenses on the condensed consolidated balance sheet at September 30, 2020 and in general and administrative expenses on the condensed statement of operations and comprehensive income (loss) for the three and nine months ended September 30, 2020. The Second Payment will be accelerated to the closing date of any transaction in which all or substantially all of the assets or equity of the Company is sold, if such date precedes May 31, 2022. Under the Separation Agreement, the Company also agrees to pay out Mr. Melkus’ accrued vacation pay in the amount of approximately $44 on or before November 13, 2020. The foregoing payments are subject to all applicable withholding and other employment taxes. After the Separation Agreement becomes effective and non-revocable, the Company will also repurchase all of Mr. Melkus’ common stock in the Company within 14 days for an aggregate purchase price equal to $830. For additional information regarding this event, refer to the Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission by the Company on November 4, 2020. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2020 | |
Accounting Policies [Abstract] | |
Impact of COVID-19 Pandemic | Impact of COVID-19 Pandemic The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business. The extent of the pandemic's effect on our operational and financial performance will depend on future developments, including the duration, spread, intensity and any resurgence of the pandemic and the duration of government measures to mitigate the pandemic, all of which continue to be uncertain and difficult to predict. Given the uncertainty, we cannot predict the effect on future periods, but the adverse impact that could occur on the Company's future financial condition, results of operations and cash flows could be material, including, but not limited to, as a result of extended eviction moratoriums, additional rent deferrals, payment plans, lease concessions, waiving late payment fees, charges from potential adjustments to the carrying amount of the receivables, and asset impairment charges. During the nine months ended September 30, 2020, we received rent relief requests from certain tenants at our retail properties, most often in the form of rent deferral and abatement requests. We have evaluated each tenant relief request on an individual basis and have granted deferrals of approximately $275 to 10 of our tenants. In exchange, such tenants agreed to various repayment periods, ranging between three and 24 months. In accordance with the terms set forth in the FASB Q&A Document, we have accounted for the concessions as if no changes to the lease contract were made. Under that accounting, we increase our lease receivable as receivables accrue and recognize rental income in our condensed consolidated financial statements during the deferral period. In connection with these rent deferrals, we increased our allowance for bad debt by approximately $300 during the three months ended September 30, 2020, which includes amounts related to existing deferral agreements. Additionally, during the nine months ended September 30, 2020, we granted abatements in the aggregate of approximately $871 to twelve tenants, the largest of which is LA Fitness at the Sherman Plaza property which accounted for $516 of the total abatement amount. We reviewed each lease agreement in connection with the abatements to determine whether such abatements, including any lease extensions related thereto, qualified as a “lease modification” under the applicable lease agreement, and, after determining that two such abatements constituted “lease modifications” under the respective lease agreement, we accounted for each abatement as such. Our multi-family portfolio was also impacted by the pandemic. While our multi-family portfolio experienced higher collection rates than on our retail portfolio, we had a decrease in occupancy during the nine months ended September 30, 2020, which resulted in decreased rental income. In some circumstances, we granted deferrals to residents who were impacted by the pandemic and offered payment plans for repayment in three to six months. Many state and local municipalities have placed a moratorium on evictions and housing-related litigation, limiting the actions we can take with respect to residents who are not making their rental payments. In addition to the decreased rental income, our bad debt expense increased as a result of reserves recorded on balances that were outstanding for residents impacted by the pandemic. |
Principles of Consolidation and Basis of Presentation | Principles of Consolidation and Basis of Presentation The accompanying condensed consolidated financial statements reflect the accounts of Highlands and its consolidated subsidiaries. Highlands consolidates its wholly-owned subsidiaries and any other entities which it controls (i) through voting rights or similar rights or (ii) by means other than voting rights if Highlands is the primary beneficiary of a variable interest entity (“VIE”). The portions of the equity and net income of consolidated subsidiaries that are not attributable to the Company are presented separately as amounts attributable to non-controlling interests in our condensed consolidated financial statements. Entities which Highlands does not control, and entities which are VIEs in which Highlands is not a primary beneficiary, if any, are accounted for under appropriate GAAP. Highlands' subsidiaries generally consist of limited liability companies (“LLCs”). The effects of all significant intercompany transactions have been eliminated. |
Variable Interest Entities | Variable Interest EntitiesA VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. Under Accounting Standards Codification (“ASC”) 810 - Consolidation, an entity that holds a variable interest in a VIE and meets certain requirements is considered the primary beneficiary of the VIE and is required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both the power to direct the activities that most significantly impact the economic performance of the VIE, and the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE. |
Revenue Recognition | Revenue Recognition The Company commences revenue recognition on our leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession of, or controls, the physical use of the leased asset. Generally, this occurs on the lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins. If we are the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete. If we conclude we are not the owner, for accounting purposes, of the tenant improvements (i.e., the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives which reduces revenue recognized over the term of the lease. In these circumstances, we begin revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements. We consider a number of different factors to evaluate whether the Company or the lessee is the owner of the tenant improvements for accounting purposes. These factors include: • whether the lease stipulates how and on what a tenant improvement allowance may be spent; • whether the tenant or landlord retains legal title to the improvements; • the uniqueness of the improvements; • the expected economic life of the tenant improvements relative to the length of the lease; and • who constructs or directs the construction of the improvements. The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment. In making that determination, we consider all of the above factors. No one factor, however, necessarily establishes its determination. Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying condensed consolidated balance sheets. Rental income lease-related receivables, which include contractual amounts accrued and unpaid from tenants and accrued straight-line rents receivable, are reduced for credit losses. The Financial Accounting Standards Board (“FASB”) clarified in July 2019 that, under ASC 842, lessors can continue to recognize a reserve (i.e., allowance for uncollectible operating lease receivables) under the loss contingency guidance in ASC 450-20 after applying the collectibility guidance in ASC 842. We evaluate the collectability of lease receivables monthly using several factors, including a lessee’s creditworthiness. We recognize the credit loss on lease-related receivables when, in the opinion of management, collection of substantially all lease payments is not probable. When collectability is determined not probable, any lease income subsequent to recognizing the credit loss is limited to the lesser of the lease income reflected on a straight-line basis or cash collected. The adoption of ASU 2016-02 resulted in an adjustment of $92 to rental income and property operating expenses associated with lease-related receivables where collection of substantially all operating lease payments is not probable during the nine months ended September 30, 2019. During the three and nine months ended September 30, 2020, the adjustment to reduce rental income was $40 in each period and the adjustment to property operating expenses was $270 and $300, respectively, for receivables where collection was determined not probable. The Company records lease termination income, included in other property income, if there is a signed termination agreement, all of the conditions of the agreement have been met and amounts due are considered collectible. |
Real Estate | Real Estate We allocate the purchase price of real estate to land, building, other building improvements, tenant improvements, and intangible assets and liabilities (such as the value of above- and below-market leases, in-place leases and origination costs associated with in-place leases). The values of above- and below-market leases are recorded as intangible assets, net, and intangible liabilities, net, respectively, in the condensed consolidated balance sheets, and are amortized as either a decrease (in the case of above-market leases) or an increase (in the case of below-market leases) to rental income over the remaining term of the associated tenant lease. The values associated with in-place leases are recorded in intangible assets, net, in the condensed consolidated balance sheets and are amortized to depreciation and amortization expense in the condensed consolidated statements of operations and comprehensive loss over the remaining lease term. The difference between the contractual rental rates and our estimate of market rental rates is measured over a period equal to the remaining non-cancelable term of the leases, including below-market renewal options for which exercise of the renewal option appears to be reasonably assured. The remaining term of leases with renewal options at terms below market reflect the assumed exercise of such below-market renewal options and assume the amortization period would coincide with the extended lease term. In the event of early lease termination, the remaining net book value of any above- or below-market lease intangible is recognized as an adjustment of rental income, and the remaining net book value of any in-place lease intangible is recognized as accelerated amortization expense. We perform, with the assistance of a third-party certified valuation specialist, the following procedures for properties we acquire: • Estimate the value of the property “as if vacant” as of the acquisition date; • Allocate the value of the property among land, building, and other improvements and determine the associated useful life for each; • Calculate the value and associated life of above- and below-market leases on a tenant-by-tenant basis. The difference between the contractual rental rates and our estimate of market rental rates is measured over a period equal to the remaining term of the leases (using a discount rate which reflects the risks associated with the leases acquired, including geographical location, size of leased area, tenant profile and credit risk); • Estimate the fair value of the tenant improvements, legal expenses and leasing commissions incurred to obtain the leases and calculate the associated useful life for each; • Estimate the fair value of assumed debt, if any, and value the favorable or unfavorable debt position acquired; and • Estimate the intangible value of the in-place leases based on lease execution costs of similar leases as well as lost rent payments during an assumed lease-up period and their associated useful lives on a tenant-by-tenant basis. We recognize gains and losses from sales of investment properties and land in accordance with FASB ASC 610-20, “Gains and Losses From the Derecognition of Nonfinancial Assets.” We recognize gains and losses from sales of investment properties and land when we transfer control of a property and when it is probable that we will collect substantially all of the related consideration. Capitalization and Depreciation Real estate is reflected at cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. Depreciation expense is computed using the straight-line method. Building and other improvements are depreciated based upon estimated useful lives of 30 years for building and improvements and 5-15 years for furniture, fixtures and equipment and site improvements. Tenant improvements are amortized on a straight-line basis over the lesser of the life of the tenant improvement or the lease term as a component of depreciation and amortization expense. Leasing fees are amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense. Loan fees are amortized on a straight-line basis, which approximates the effective interest method, over the life of the related loan as a component of interest expense. Direct and indirect costs that are clearly related to the construction and improvements of investment properties are capitalized. Costs incurred for property taxes and insurance are capitalized during periods in which activities necessary to get the asset ready for its intended use are in progress. Interest costs are also capitalized during such periods. |
Assets Held for Sale | Assets Held for SaleIn determining whether to classify an investment property as held for sale, the Company considers whether: (i) management has committed to a plan to sell the investment property; (ii) the investment property is available for immediate sale, in its present condition; (iii) the Company has initiated a program to locate a buyer; (iv) the Company believes that the sale of the investment property is probable; (v) the Company has received a significant non-refundable deposit for the purchase of the property; (vi) the Company is actively marketing the investment property for sale at a price that is reasonable in relation to its fair value; and (vii) actions required for the Company to complete the plan indicate that it is unlikely that any significant changes will be made to the plan. If all of the above criteria are met, the Company classifies the investment property as held for sale. On the day that these criteria are met, the Company suspends depreciation on the investment properties held for sale, including depreciation for tenant improvements and additions, as well as on the amortization of acquired in-place leases. The investment properties and liabilities associated with those investment properties that are held for sale are classified separately on the condensed consolidated balance sheets for the most recent reporting period and recorded at the lesser of the carrying value or fair value less costs to sell. |
Impairment | Impairment The Company assesses the carrying values of the respective long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable, such as a reduction in the |
Recently Issued Accounting Pronouncements and Recently Adopted Accounting Pronouncements | Recently Issued Accounting Pronouncements On April 10, 2020, the FASB issued a document titled “Staff Q&A, Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 pandemic” (“FASB Q&A document”), which focused on the application of lease guidance for concessions related to the effects of the coronavirus disease 2019 (“COVID-19”) pandemic. In this document, the FASB staff allowed entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842, Leases, (“Topic 842”) as though enforceable rights and obligations for those qualifying concessions existed. The FASB also acknowledged that some concessions will provide a deferral of payments with no substantive changes to the consideration in the original contract. The FASB indicated that a deferral affects the timing of payments, but the amount of consideration is substantially the same as that required under the original contract. The staff expects that there will be multiple ways to account for those deferrals, none of which the staff believes are more preferable than others. Two of those methods are: • Account for the concessions as if no changes to the lease contract were made. Under that accounting, a lessor would increase its lease receivable, and a lessee would increase its accounts payable as receivables accrue. In its statements of operations, a lessor would continue to recognize income, and a lessee would continue to recognize expense during the deferral period. • Account for the deferred payments as a variable lease payment. In cases where we granted a payment deferral as a result of COVID-19, we have accounted for most of the concessions as if no changes to the lease contract were made. Under that accounting, we increased our lease receivable as receivables accrued in our statements of operations and will continue to recognize rental income during the deferral period. Refer also to Note 1, Organization, and Note 5, Leases, for discussion related to the impact on the condensed consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During March 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. Recently Adopted Accounting Pronouncements In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. This modifies the disclosure requirements on fair value measurements. The ASU removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The adoption of this ASU on January 1, 2020 did not have a material impact on our condensed consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, “Leases”, which established ASC 842, Leases, which introduces a lessee model that brings most leases on the balance sheet and, among other changes, eliminates the requirement in current GAAP for an entity to use bright-line tests in determining lease classification. ASC 842 allows for several practical expedients which permit the following: no reassessment of lease classification or initial direct costs; use of the standard’s effective date as the date of initial application; and no separation of non-lease components from the related lease components and, instead, to account for those components as a single lease component if certain criteria are met. We elected these practical expedients, upon adoption, on January 1, 2019, using the effective date as our date of initial application and no transition adjustment was recognized. Therefore, financial information and disclosures under ASC 842 will not be provided for periods prior to January 1, 2019. The Company elected the practical expedient, among others, to not separate lease and non-lease components for all qualifying leases. For leases with a term of twelve months or less, the Company has made a policy election to not recognize lease liabilities and lease assets. Due to the new standard’s narrowed definition of initial direct costs, beginning January 1, 2019, the Company recognizes expense as incurred on certain lease origination costs previously capitalized and amortized to expense over the lease term. Any costs no longer qualifying as initial direct costs are an increase to property operating expenses in the condensed consolidated statements of operations and comprehensive income in the period of adoption and prospectively. As a lessee, beginning January 1, 2019, the Company recognized a right-of-use asset and lease liability included in deferred costs and other assets and other liabilities, respectively, with a balance as of September 30, 2020, on the condensed consolidated balance sheets of approximately $292, which was estimated by utilizing an average discount rate of approximately 4.5%, reflecting the Company's incremental borrowing rate. As a lessor, the Company believes that substantially all of the Company's leases will continue to be classified as operating leases under the new standard and will continue to record revenues from rental properties on a straight-line basis. However, certain ground, anchor, and other long-term leases entered into or acquired have an increased likelihood of being classified as either sales-type or finance-type leases. In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting”. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. The adoption of ASU 2018-07 on January 1, 2019 did not have a material impact on our condensed consolidated financial statements. In December 2018, the FASB issued ASU 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors,” which addresses specific issues in the leasing guidance, including sales taxes and other similar taxes collected from lessees, certain lessor costs paid directly by lessees, and recognition of variable payments for contracts with lease and non-lease components. Prior to the adoption of ASU 2018-20, the Company recognized tenant recovery income regardless of whether the third party was paid by the lessor or lessee. Effective January 1, 2019, such tenant recoveries are only recognized to the extent that the Company pays the third party directly and are classified as rental income on the Company’s condensed consolidated statements of operations and comprehensive loss. |
Acquired Properties (Tables)
Acquired Properties (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Asset Acquisitions [Abstract] | |
Schedule of Real Estate Acquired | Property Location Acquisition Date Acquisition Price The Sterling San Diego, California April 22, 2020 $ 7,372 The purchase price has been allocated as follows: Land $ 1,849 Building and other improvements 5,407 Intangible assets, net 116 Total assets $ 7,372 During the nine months ended September 30, 2019, the Company acquired five multi-family assets for a gross acquisition price of $82,377, including capitalized transaction costs of approximately $377. Property Location Acquisition Date Acquisition Price The Detroit and Detroit Terraces Denver, Colorado January 8, 2019 $ 19,070 The View San Diego, California April 5, 2019 16,420 The Tennyson44 Denver, Colorado June 11, 2019 19,191 The Locale Allendale, MI August 16, 2019 27,696 $ 82,377 The purchase price allocation for each acquisition has been recorded as follows: The Detroit and Detroit Terraces The View Tennyson44 The Locale Total Land $ 3,370 $ 7,272 $ 1,533 $ 4,295 $ 16,470 Building and other improvements 15,006 8,862 17,410 22,460 63,738 Intangible assets, net 301 286 248 941 1,776 Total assets $ 18,677 $ 16,420 $ 19,191 $ 27,696 $ 81,984 Debt discount on mortgage assumption 393 — — — 393 Total liabilities $ 393 $ — $ — $ — $ 393 Total acquisition price $ 19,070 $ 16,420 $ 19,191 $ 27,696 $ 82,377 |
Disposed Properties (Tables)
Disposed Properties (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Schedule of Disposal Group | The following table reflects the property dispositions during the nine months ended September 30, 2020. The Company recognized a net gain on sale of investment properties of $82. Property Location Disposition Date Gross Disposition Price Sale Proceeds, Net Gain on Sale Citizens Providence, Rhode Island March 31, 2020 $ 1,425 $ 1,287 $ 82 The following table reflects the property dispositions during the nine months ended September 30, 2019. The Company recognized a net gain on sale of investment properties of $8,841. Property Location Disposition Date Gross Disposition Price Sale Proceeds, Net Gain on Sale RDU land Raleigh, North Carolina May 29, 2019 $ 600 $ 554 $ 29 Lincoln Center Lincoln, Rhode Island June 21, 2019 55,750 52,609 8,812 $ 56,350 $ 53,163 $ 8,841 |
Leases (Tables)
Leases (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Leases [Abstract] | |
Lease Income | Lease income related to the Company's operating leases is comprised of the following: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Lease income related to fixed lease payments $ 5,413 $ 7,805 $ 17,653 $ 24,480 Lease income related to variable lease payments 843 1,150 2,656 4,914 Other (1) 360 243 1,466 463 Lease income $ 6,616 $ 9,198 $ 21,775 $ 29,857 (1) For the three and nine months ended September 30, 2020 and 2019, respectively, other is primarily comprised of parking revenues and termination fees related to early lease expirations. |
Payments to be received under Topic 842 | As of September 30, 2020, commercial operating leases provide for future minimum rental income, assuming no expiring leases are renewed, as follows. Apartment leases are not included as the terms are generally for one year or less. 2020 (remaining) $ 2,333 2021 9,842 2022 7,966 2023 7,316 2024 6,878 Thereafter 26,641 Total $ 60,976 |
Operating lease liability under Topic 842 | The following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments on our leases at September 30, 2020 and a reconciliation of those cash flows to the operating lease liability at September 30, 2020. 2020 (remaining) $ 49 2021 200 2022 21 2023 21 2024 21 Thereafter 373 685 Imputed interest (174) Lease liability $ 511 |
Accounts Payable and Accrued _2
Accounts Payable and Accrued Expenses (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Payables and Accruals [Abstract] | |
Schedule of Accounts Payable and Accrued Expenses | Accounts payable and accrued expenses consist of the following: September 30, 2020 December 31, 2019 Accrued real estate taxes $ 6,568 $ 6,372 Accrued compensation 3,758 3,606 Accrued interest payable 285 369 Other accrued expenses 1,713 1,188 $ 12,324 $ 11,535 |
Debt (Tables)
Debt (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Debt Disclosure [Abstract] | |
Schedule of Debt Outstanding | Total debt outstanding as of September 30, 2020 and December 31, 2019 was as follows: As of September 30, As of December 31, Debt, gross $ 84,161 94,926 Mortgage discount (315) (349) Deferred financing costs, net (1,192) (1,374) Total Debt, Net $ 82,654 $ 93,203 |
Scheduled Maturities of Mortgage Indebtedness | As of September 30, 2020, scheduled maturities for the Company’s outstanding mortgage indebtedness and the credit facility had various due dates through August 2027, as follows: Debt maturing during the year As of September 30, 2020 Weighted average interest rate 2020 (remaining) $ — — % 2021 — — % 2022 9,011 5.24 % 2023 18,377 3.28 % (1) 2024 20,000 2.06 % Thereafter 36,773 4.38 % Total $ 84,161 3.68 % (1) See below for discussion of the swap agreement entered into with the mortgage loan obtained in connection with the acquisition of The Locale asset. The weighted average interest rate reflected is the strike rate. |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Fair Value Disclosures [Abstract] | |
Derivative Liabilities Measured On A Recurring Basis | The table below presents the fair value of the Company’s derivative financial instrument as well as its classification on the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively. September 30, 2020 Level 1 Level 2 Level 3 Total Derivative financial instruments designated as cash flow hedges: Classified as liabilities in “Other liabilities” $ — $ 713 $ — $ 713 December 31, 2019 Derivative financial instruments designated as cash flow hedges: Level 1 Level 2 Level 3 Total Classified as assets in “Deferred costs and other assets, net” $ — $ 21 $ — $ 21 |
Schedule of the Fair Value of Financial Instruments | The table below represents the fair value of financial instruments presented at carrying values in the condensed consolidated financial statements as of September 30, 2020 and as of December 31, 2019. September 30, 2020 December 31, 2019 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Debt $ 84,161 $ 81,420 $ 94,926 $ 94,934 |
Segment Reporting (Tables)
Segment Reporting (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Segment Reporting [Abstract] | |
Summary of Net Property Operations | The following table summarizes net property operations by segment for the three months ended September 30, 2020. Three Months Ended September 30, 2020 Total Net Lease Retail Multi-Tenant Multi-family Other Rental income $ 6,256 $ 526 $ 2,305 $ — $ 3,425 $ — Other property income 360 — 132 — 228 — Total income 6,616 526 2,437 — 3,653 — Operating expenses 3,982 355 1,413 180 1,897 137 Net operating income (loss) $ 2,634 $ 171 $ 1,024 $ (180) $ 1,756 $ (137) Non-allocated expenses (a) (6,751) Other income and expenses (b) (1,080) Net loss attributable to non-controlling interests 30 Net loss attributable to Highlands REIT, Inc. common stockholders $ (5,167) (a) Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. (b) Other income and expenses consists of interest income and interest expense. The following table summarizes net property operations by segment for the three months ended September 30, 2019. Three Months Ended September 30, 2019 Total Net Lease Retail Multi-Tenant Multi-family Other Rental income $ 8,955 $ 3,083 $ 2,740 $ 754 $ 2,360 $ 18 Other property income 243 — 111 — 132 — Total income 9,198 3,083 2,851 754 2,492 18 Operating expenses 2,721 174 1,280 184 975 108 Net operating income (loss) $ 6,477 $ 2,909 $ 1,571 $ 570 $ 1,517 $ (90) Non-allocated expenses (a) (5,482) Other income and expenses (b) (477) Net income attributable to non-controlling interests (10) Net income attributable to Highlands REIT, Inc. common stockholders $ 508 (a) Non-allocated expenses consist of general and administrative expenses and depreciation and amortization. (b) Other income and expenses consists of interest income and interest expense. The following table summarizes net property operations by segment for the nine months ended September 30, 2020. Total Net Lease Retail Multi-Tenant Multi-family Other Rental income $ 20,309 $ 2,192 $ 6,729 $ 699 $ 10,689 $ — Other property income 1,466 — 132 768 566 — Total income 21,775 2,192 6,861 1,467 11,255 — Operating expenses 10,691 1,053 3,666 568 4,996 408 Net operating income (loss) $ 11,084 $ 1,139 $ 3,195 $ 899 $ 6,259 $ (408) Non-allocated expenses (a) (20,756) Other income and expenses (b) (2,996) Gain on sale of investment properties (c) 82 Net loss attributable to non-controlling interests 70 Net loss attributable to Highlands REIT, Inc. common stockholders $ (12,516) Balance Sheet Data Real estate assets, net (d) $ 315,875 $ 32,398 $ 65,380 $ 26,018 $ 183,113 $ 8,966 Non-segmented assets (e) 61,127 Total assets $ 377,002 Capital expenditures $ 2,136 $ — $ 1,278 $ 16 $ 826 $ 16 (a) Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. (b) Other income and expenses consists of interest income and interest expense. (c) Gain on the sale of investment properties is related to one net lease asset. (d) Real estate assets include intangible lease assets, net of amortization. (e) Non-segmented assets include cash and cash equivalents, restricted cash and escrows, accounts and rents receivable and deferred costs and other assets. The following table summarizes net property operations by segment for the nine months ended September 30, 2019. Total Net Lease Retail Multi-Tenant Multi-family Other Rental income $ 29,394 $ 9,433 $ 12,557 $ 2,238 $ 5,166 $ — Other property income 463 — 135 — 328 — Total income 29,857 9,433 12,692 2,238 5,494 — Operating expenses 9,233 475 5,605 542 2,163 448 Net operating income (loss) $ 20,624 $ 8,958 $ 7,087 $ 1,696 $ 3,331 $ (448) Non-allocated expenses (a) (18,406) Other income and expenses (b) (1,475) Gain on sale of investment properties (c) 8,841 Net income attributable to non-controlling interests (10) Net income $ 9,574 Balance Sheet Data Real estate assets, net (d) $ 271,289 $ 35,146 $ 66,950 $ 26,533 $ 133,708 $ 8,952 Non-segmented assets (e) 129,893 Total assets $ 401,182 Capital expenditures $ 765 $ — $ 315 $ — $ 450 $ — (a) Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. (b) Other income and expenses consists of interest income and interest expense. (c) Gain on the sale of investment properties is related to one retail asset and one land parcel. (d) Real estate assets include intangible lease assets, net of amortization. (e) Non-segmented assets include cash and cash equivalents, restricted cash and escrows, accounts and rents receivable and deferred costs and other assets. |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Earnings Per Share [Abstract] | |
Reconciliation of Net (Loss) Income to Basic and Diluted EPS | The following table reconciles net income attributable to the Company to basic and diluted EPS (in thousands, except share and per share data). Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator: Net (loss) income attributable to Highlands REIT, Inc. common stockholders $ (5,167) $ 508 $ (12,516) $ 9,574 Denominator: Weighted average number of common shares outstanding - basic and diluted 879,932,514 876,007,008 879,216,153 875,057,625 Basic and diluted earnings per share: Net (loss) income per common share $ (0.01) $ 0.00 $ (0.01) $ 0.01 |
Share Based Compensation (Table
Share Based Compensation (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Summary of Stock Award Activity | A summary of the Company's stock awards activity as of September 30, 2020 is as follows: Non-Vested stock awards Stock Awards Weighted Average Grant Date Fair Value Balance at January 1, 2020 357,143 $ 0.35 Granted 6,625,002 0.36 Vested (6,972,224) 0.36 Other (1) (9,921) — Balance at September 30, 2020 — $ — (1) Represents the change in the number of shares granted in 2019 based on an estimated net asset value per share of $0.35 and the actual shares vesting in 2020 based on an estimated net asset value per share of $0.36 |
Organization (Details)
Organization (Details) $ / shares in Units, $ in Thousands | Aug. 16, 2019USD ($) | Apr. 28, 2016$ / sharesshares | Sep. 30, 2020USD ($)propertytenant$ / shares | Sep. 30, 2020USD ($)propertytenant$ / shares | Dec. 31, 2019parcel$ / shares |
Conversion of Stock [Line Items] | |||||
Common stock, par value (in dollars per share) | $ / shares | $ 0.01 | $ 0.01 | $ 0.01 | $ 0.01 | |
Number of assets (in property) | property | 20 | 20 | |||
Parcels of land | parcel | 1 | ||||
Deferred rent receivable | $ 275 | ||||
Number of tenants deferring rent | tenant | 10 | ||||
Increase in allowance for bad debt | $ 300 | ||||
Aggregate abatements granted | $ 871 | ||||
Number of tenants receiving abatements | tenant | 12 | ||||
LA Fitness, Sherman Plaza | |||||
Conversion of Stock [Line Items] | |||||
Aggregate abatements granted | $ 516 | ||||
Common stock | |||||
Conversion of Stock [Line Items] | |||||
Shares issued for each share held at date of spin-off (in shares) | shares | 1 | ||||
Corvue Venture | |||||
Conversion of Stock [Line Items] | |||||
Ownership percentage | 85.00% | ||||
Equity investment contributions | $ 9,000 |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies - Additional Information (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020USD ($) | Sep. 30, 2020USD ($) | Sep. 30, 2019USD ($) | Dec. 31, 2019USD ($) | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Assets | $ 377,002 | $ 377,002 | $ 401,182 | $ 400,232 |
Liabilities | 98,303 | 98,303 | 109,635 | |
Adjustment to rental income and property operating expense | 92 | |||
Adjustment to rental income | 40 | 40 | ||
Adjustment to property operating expense | 270 | 300 | ||
ROU asset | 219 | 219 | 292 | |
Restricted cash | 3,113 | 3,113 | $ 4,419 | 2,651 |
Variable Interest Entity, Primary Beneficiary | Corvue Venture | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Assets | 26,835 | 26,835 | 28,073 | |
Liabilities | 19,483 | 19,483 | $ 19,074 | |
ASU 2016-02 | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
ROU asset | $ 292 | $ 292 | ||
Buildings and improvements | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Useful life | 30 years | |||
Minimum | Furniture, Fixtures, Equipment and Site Improvements | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Useful life | 5 years | |||
Maximum | Furniture, Fixtures, Equipment and Site Improvements | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Useful life | 15 years | |||
Discount rate | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Measurement input | 0.045 | 0.045 |
Acquired Properties - Additiona
Acquired Properties - Additional Information (Details) $ in Thousands | 9 Months Ended | |
Sep. 30, 2020USD ($)building | Sep. 30, 2019USD ($)building | |
Schedule of Asset Acquisitions, by Acquisition [Line Items] | ||
Acquisition of investment properties | $ 7,372 | $ 70,921 |
Multi-family | ||
Schedule of Asset Acquisitions, by Acquisition [Line Items] | ||
Number of properties acquired | building | 1 | 5 |
Acquisition of investment properties | $ 82,377 | |
Capitalized transaction costs | $ 72 | 377 |
The Sterling | Multi-family | ||
Schedule of Asset Acquisitions, by Acquisition [Line Items] | ||
Acquisition of investment properties | 7,372 | |
The Detroit and Detroit Terraces | Multi-family | ||
Schedule of Asset Acquisitions, by Acquisition [Line Items] | ||
Acquisition of investment properties | $ 19,070 | 19,070 |
The View | Multi-family | ||
Schedule of Asset Acquisitions, by Acquisition [Line Items] | ||
Acquisition of investment properties | 16,420 | |
The Tennyson44 | Multi-family | ||
Schedule of Asset Acquisitions, by Acquisition [Line Items] | ||
Acquisition of investment properties | 19,191 | |
The Locale | Multi-family | ||
Schedule of Asset Acquisitions, by Acquisition [Line Items] | ||
Acquisition of investment properties | $ 27,696 |
Acquired Properties - Purchase
Acquired Properties - Purchase Price Allocation (Details) - USD ($) $ in Thousands | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Real Estate [Line Items] | |||
Land | $ 84,150 | $ 82,877 | |
Building and other improvements | 294,794 | 289,351 | |
Total | 380,174 | $ 372,228 | |
Total acquisition price | 7,372 | $ 70,921 | |
Multi-family | |||
Real Estate [Line Items] | |||
Land | 16,470 | ||
Building and other improvements | 63,738 | ||
Intangible assets, net | 1,776 | ||
Total | 81,984 | ||
Debt discount on mortgage assumption | 393 | ||
Total liabilities | 393 | ||
Total acquisition price | 82,377 | ||
The Sterling | Multi-family | |||
Real Estate [Line Items] | |||
Land | 1,849 | ||
Building and other improvements | 5,407 | ||
Intangible assets, net | 116 | ||
Total | 7,372 | ||
Total acquisition price | 7,372 | ||
The Detroit and Detroit Terraces | Multi-family | |||
Real Estate [Line Items] | |||
Land | 3,370 | ||
Building and other improvements | 15,006 | ||
Intangible assets, net | 301 | ||
Total | 18,677 | 18,677 | |
Debt discount on mortgage assumption | 393 | ||
Total liabilities | 393 | 393 | |
Total acquisition price | $ 19,070 | 19,070 | |
The View | Multi-family | |||
Real Estate [Line Items] | |||
Land | 7,272 | ||
Building and other improvements | 8,862 | ||
Intangible assets, net | 286 | ||
Total | 16,420 | ||
Debt discount on mortgage assumption | 0 | ||
Total liabilities | 0 | ||
Total acquisition price | 16,420 | ||
The Tennyson44 | Multi-family | |||
Real Estate [Line Items] | |||
Land | 1,533 | ||
Building and other improvements | 17,410 | ||
Intangible assets, net | 248 | ||
Total | 19,191 | ||
Debt discount on mortgage assumption | 0 | ||
Total liabilities | 0 | ||
Total acquisition price | 19,191 | ||
The Locale | Multi-family | |||
Real Estate [Line Items] | |||
Land | 4,295 | ||
Building and other improvements | 22,460 | ||
Intangible assets, net | 941 | ||
Total | 27,696 | ||
Debt discount on mortgage assumption | 0 | ||
Total liabilities | 0 | ||
Total acquisition price | $ 27,696 |
Disposed Properties - Narrative
Disposed Properties - Narrative (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Discontinued Operations and Disposal Groups [Abstract] | ||||
Gain on sale of investment properties | $ 0 | $ 0 | $ 82 | $ 8,841 |
Disposed Properties - Disposals
Disposed Properties - Disposals (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Gross Disposition Price | $ 56,350 | $ 56,350 | ||
Sale Proceeds, Net | $ 1,287 | 53,163 | ||
Gain on Sale | $ 0 | 0 | 82 | 8,841 |
Citizens | ||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Gross Disposition Price | $ 1,425 | 1,425 | ||
Sale Proceeds, Net | 1,287 | |||
Gain on Sale | $ 82 | |||
RDU land | ||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Gross Disposition Price | 600 | 600 | ||
Sale Proceeds, Net | 554 | |||
Gain on Sale | 29 | |||
Lincoln Center | ||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Gross Disposition Price | $ 55,750 | 55,750 | ||
Sale Proceeds, Net | 52,609 | |||
Gain on Sale | $ 8,812 |
Leases - Narrative (Details)
Leases - Narrative (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | |
Mar. 31, 2019USD ($) | Sep. 30, 2020USD ($)leased_asset | Sep. 30, 2019USD ($) | |
Lessor, Lease, Description [Line Items] | |||
Lessor, Operating Lease Termination, Rental Income | $ 671 | ||
Amount recognized in other property income | 768 | ||
ROU asset | $ 219 | $ 292 | |
Number of leased assets | leased_asset | 1 | ||
Impairment of asset | $ 3,765 | ||
Minimum | |||
Lessor, Lease, Description [Line Items] | |||
Lease terms | 1 year | ||
Maximum | |||
Lessor, Lease, Description [Line Items] | |||
Lease terms | 10 years | ||
ASU 2016-02 | |||
Lessor, Lease, Description [Line Items] | |||
ROU asset | $ 292 | ||
Discount rate | 3.30% | 4.50% | |
Customer concentration risk | Revenue | The GEO Group, Inc | |||
Lessor, Lease, Description [Line Items] | |||
Concentration percentage | 2.60% | 25.10% |
Leases - Lease Income (Details)
Leases - Lease Income (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Leases [Abstract] | ||||
Lease income related to fixed lease payments | $ 5,413 | $ 7,805 | $ 17,653 | $ 24,480 |
Lease income related to variable lease payments | 843 | 1,150 | 2,656 | 4,914 |
Other | 360 | 243 | 1,466 | 463 |
Lease income | $ 6,616 | $ 9,198 | $ 21,775 | $ 29,857 |
Leases - Receivable Maturity (D
Leases - Receivable Maturity (Details) $ in Thousands | Sep. 30, 2020USD ($) |
Leases [Abstract] | |
2020 | $ 2,333 |
2021 | 9,842 |
2022 | 7,966 |
2023 | 7,316 |
2024 | 6,878 |
Thereafter | 26,641 |
Total | $ 60,976 |
Leases - Operating Lease Liabil
Leases - Operating Lease Liability Maturity (Details) $ in Thousands | Sep. 30, 2020USD ($) |
Leases [Abstract] | |
2020 (remaining) | $ 49 |
2021 | 200 |
2022 | 21 |
2023 | 21 |
2024 | 21 |
Thereafter | 373 |
Total | 685 |
Imputed interest | (174) |
Lease liability | $ 511 |
Accounts Payable and Accrued _3
Accounts Payable and Accrued Expenses (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Payables and Accruals [Abstract] | ||
Accrued real estate taxes | $ 6,568 | $ 6,372 |
Accrued compensation | 3,758 | 3,606 |
Accrued interest payable | 285 | 369 |
Other accrued expenses | 1,713 | 1,188 |
Total accounts payable and accrued expenses | $ 12,324 | $ 11,535 |
Debt - Outstanding Debt (Detail
Debt - Outstanding Debt (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Debt Disclosure [Abstract] | ||
Debt, gross | $ 84,161 | $ 94,926 |
Mortgage discount | (315) | (349) |
Deferred financing costs, net | (1,192) | (1,374) |
Total Debt, Net | $ 82,654 | $ 93,203 |
Debt - Scheduled Maturities (De
Debt - Scheduled Maturities (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Debt Instrument [Line Items] | ||
Total | $ 84,161 | $ 94,926 |
Mortgages | ||
Debt Instrument [Line Items] | ||
2020 (remaining) | 0 | |
2021 | 0 | |
2022 | 9,011 | |
2023 | 18,377 | |
2024 | 20,000 | |
Thereafter | 36,773 | |
Total | $ 84,161 | |
Weighted average interest rate | ||
2020 (remaining) | 0.00% | |
2021 | 0.00% | |
2022 | 5.24% | |
2023 | 3.28% | |
2024 | 2.06% | |
Thereafter | 4.38% | |
Total | 3.68% |
Debt - Additional Information (
Debt - Additional Information (Details) $ in Thousands | Aug. 16, 2019USD ($) | Feb. 15, 2019USD ($)extension_option | Jan. 08, 2019USD ($) | Sep. 30, 2020USD ($) | Nov. 06, 2020USD ($) |
Revolving Credit Facility | Subsequent event | |||||
Debt Instrument [Line Items] | |||||
Principal amount | $ 20,000 | ||||
Line of Credit | |||||
Debt Instrument [Line Items] | |||||
Additional borrowing | $ 100,000 | ||||
Line of Credit | Revolving Credit Facility | |||||
Debt Instrument [Line Items] | |||||
Principal amount | $ 50,000 | ||||
Repayments of outstanding principal | $ 10,000 | ||||
Number of extension options | extension_option | 2 | ||||
Extension fee percentage | 0.15% | ||||
Extension period | 1 year | ||||
Line of Credit | Revolving Credit Facility | Minimum | |||||
Debt Instrument [Line Items] | |||||
Unused facility fee | 0.15% | ||||
Line of Credit | Revolving Credit Facility | Maximum | |||||
Debt Instrument [Line Items] | |||||
Unused facility fee | 0.25% | ||||
Line of Credit | Revolving Credit Facility | Base Rate | Minimum | |||||
Debt Instrument [Line Items] | |||||
Variable rate | 1.00% | ||||
Line of Credit | Revolving Credit Facility | Base Rate | Maximum | |||||
Debt Instrument [Line Items] | |||||
Variable rate | 1.30% | ||||
Line of Credit | Revolving Credit Facility | LIBOR | Minimum | |||||
Debt Instrument [Line Items] | |||||
Variable rate | 2.00% | ||||
Line of Credit | Revolving Credit Facility | LIBOR | Maximum | |||||
Debt Instrument [Line Items] | |||||
Variable rate | 2.30% | ||||
Line of Credit | Letter of Credit | |||||
Debt Instrument [Line Items] | |||||
Percentage of borrowings available | 10.00% | ||||
Line of Credit | Revolving Credit Facility, Term Loan Commitments | |||||
Debt Instrument [Line Items] | |||||
Principal amount | $ 50,000 | ||||
Current borrowing capacity | $ 20,000 | ||||
Unused facility fee | 0.25% | ||||
Line of Credit | Revolving Credit Facility, Term Loan Commitments | Base Rate | Minimum | |||||
Debt Instrument [Line Items] | |||||
Variable rate | 0.90% | ||||
Line of Credit | Revolving Credit Facility, Term Loan Commitments | Base Rate | Maximum | |||||
Debt Instrument [Line Items] | |||||
Variable rate | 1.20% | ||||
Line of Credit | Revolving Credit Facility, Term Loan Commitments | LIBOR | Minimum | |||||
Debt Instrument [Line Items] | |||||
Variable rate | 1.90% | ||||
Line of Credit | Revolving Credit Facility, Term Loan Commitments | LIBOR | Maximum | |||||
Debt Instrument [Line Items] | |||||
Variable rate | 2.20% | ||||
The Detroit and Detroit Terraces | |||||
Debt Instrument [Line Items] | |||||
Debt assumed | $ 11,089 | ||||
Debt discount on mortgage assumption | $ 360 | ||||
The Detroit and Detroit Terraces | Mortgages | |||||
Debt Instrument [Line Items] | |||||
Fixed rate | 3.99% | ||||
The Locale | |||||
Debt Instrument [Line Items] | |||||
Debt assumed | $ 18,750 | ||||
The Locale | LIBOR | |||||
Debt Instrument [Line Items] | |||||
Variable rate | 3.27% | ||||
The Locale | Mortgages | |||||
Debt Instrument [Line Items] | |||||
Fixed rate | 1.91% |
Fair Value Measurements - Narra
Fair Value Measurements - Narrative (Details) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2020USD ($)derivative_instrument | Sep. 30, 2019USD ($) | Sep. 30, 2020USD ($)derivative_instrument | Sep. 30, 2019USD ($) | Dec. 31, 2019 | |
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
Unrealized loss on derivatives | $ (75,000) | $ 96,000 | $ 734,000 | $ 96,000 | |
Cash flow hedges to be reclassified in the next twelve months | $ 253,000 | ||||
Discount rate | Long-term debt | |||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
Measurement input percentage | 0.0434 | 0.0434 | 0.0393 | ||
Discount rate | Long-term debt | Minimum | |||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
Measurement input percentage | 0.0255 | 0.0255 | |||
Discount rate | Long-term debt | Maximum | |||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
Measurement input percentage | 0.0624 | 0.0624 | |||
Cash Flow Hedging | |||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
Unrealized loss on derivatives | $ 713,000 | ||||
Cash Flow Hedging | Interest Rate Swap | |||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
Number of derivative instruments | derivative_instrument | 1 | 1 | |||
Notional amount | $ 18,750,000 | $ 18,750,000 |
Fair Value Measurements - Deriv
Fair Value Measurements - Derivative Liabilities (Details) - Recurring - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Derivative liabilities | $ 713 | $ 21 |
Level 1 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Derivative liabilities | 0 | 0 |
Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Derivative liabilities | 713 | 21 |
Level 3 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Derivative liabilities | $ 0 | $ 0 |
Fair Value Measurements - Not M
Fair Value Measurements - Not Measured at Fair Value (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Carrying Value | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Debt | $ 84,161 | $ 94,926 |
Estimated Fair Value | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Debt | $ 81,420 | $ 94,934 |
Income Taxes (Details)
Income Taxes (Details) | 9 Months Ended |
Sep. 30, 2019USD ($) | |
Income Tax Disclosure [Abstract] | |
Income tax benefit | $ 0 |
Segment Reporting - Narrative (
Segment Reporting - Narrative (Details) | 9 Months Ended |
Sep. 30, 2020segment | |
Segment Reporting [Abstract] | |
Number of business segments (in segments) | 4 |
Segment Reporting - Net Propert
Segment Reporting - Net Property Operations (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2020USD ($) | Sep. 30, 2019USD ($) | Sep. 30, 2020USD ($)leased_asset | Sep. 30, 2019USD ($) | Dec. 31, 2019USD ($) | |
Segment Reporting Information [Line Items] | |||||
Total revenues | $ 6,616 | $ 9,198 | $ 21,775 | $ 29,857 | |
Operating expenses | 3,982 | 2,721 | 10,691 | 9,233 | |
Net operating income (loss) | 2,634 | 6,477 | 11,084 | 20,624 | |
Gain on sale of investment properties | 0 | 0 | 82 | 8,841 | |
Net loss (income) attributable to non-controlling interests | 30 | (10) | 70 | (10) | |
Net income attributable to Highlands REIT, Inc. common stockholders | (5,167) | 508 | (12,516) | 9,574 | |
Total assets | 377,002 | 401,182 | 377,002 | 401,182 | $ 400,232 |
Capital expenditures | 2,136 | 765 | |||
Rental income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 6,256 | 8,955 | 20,309 | 29,394 | |
Other property income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 360 | 243 | 1,466 | 463 | |
Other | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 0 | 18 | 0 | 0 | |
Operating expenses | 137 | 108 | 408 | 448 | |
Net operating income (loss) | (137) | (90) | (408) | (448) | |
Total assets | 8,966 | 8,952 | 8,966 | 8,952 | |
Capital expenditures | 16 | 0 | |||
Other | Rental income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 0 | 18 | 0 | 0 | |
Other | Other property income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 0 | 0 | 0 | 0 | |
Reconciling items | |||||
Segment Reporting Information [Line Items] | |||||
Non-allocated expenses | (6,751) | (5,482) | (20,756) | (18,406) | |
Other income and expenses | (1,080) | (477) | (2,996) | (1,475) | |
Total assets | 61,127 | 129,893 | 61,127 | 129,893 | |
Operating Segments And Corporate, Non-Segment | |||||
Segment Reporting Information [Line Items] | |||||
Total assets | 315,875 | 271,289 | 315,875 | 271,289 | |
Net Lease | Operating segments | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 526 | 3,083 | 2,192 | 9,433 | |
Operating expenses | 355 | 174 | 1,053 | 475 | |
Net operating income (loss) | 171 | 2,909 | 1,139 | 8,958 | |
Total assets | 32,398 | 35,146 | 32,398 | 35,146 | |
Capital expenditures | 0 | 0 | |||
Net Lease | Operating segments | Rental income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 526 | 3,083 | 2,192 | 9,433 | |
Net Lease | Operating segments | Other property income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 0 | 0 | $ 0 | 0 | |
Retail | |||||
Segment Reporting Information [Line Items] | |||||
Number of leased assets | leased_asset | 1 | ||||
Retail | Operating segments | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 2,437 | 2,851 | $ 6,861 | 12,692 | |
Operating expenses | 1,413 | 1,280 | 3,666 | 5,605 | |
Net operating income (loss) | 1,024 | 1,571 | 3,195 | 7,087 | |
Total assets | 65,380 | 66,950 | 65,380 | 66,950 | |
Capital expenditures | 1,278 | 315 | |||
Retail | Operating segments | Rental income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 2,305 | 2,740 | 6,729 | 12,557 | |
Retail | Operating segments | Other property income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 132 | 111 | 132 | 135 | |
Multi-Tenant Office | Operating segments | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 0 | 754 | 1,467 | 2,238 | |
Operating expenses | 180 | 184 | 568 | 542 | |
Net operating income (loss) | (180) | 570 | 899 | 1,696 | |
Total assets | 26,018 | 26,533 | 26,018 | 26,533 | |
Capital expenditures | 16 | 0 | |||
Multi-Tenant Office | Operating segments | Rental income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 0 | 754 | 699 | 2,238 | |
Multi-Tenant Office | Operating segments | Other property income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 0 | 0 | 768 | 0 | |
Multi-family | Operating segments | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 3,653 | 2,492 | 11,255 | 5,494 | |
Operating expenses | 1,897 | 975 | 4,996 | 2,163 | |
Net operating income (loss) | 1,756 | 1,517 | 6,259 | 3,331 | |
Total assets | 183,113 | 133,708 | 183,113 | 133,708 | |
Capital expenditures | 826 | 450 | |||
Multi-family | Operating segments | Rental income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 3,425 | 2,360 | 10,689 | 5,166 | |
Multi-family | Operating segments | Other property income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | $ 228 | $ 132 | $ 566 | $ 328 |
Earnings Per Share (Details)
Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Numerator: | ||||
Net income attributable to Highlands REIT, Inc. common stockholders | $ (5,167) | $ 508 | $ (12,516) | $ 9,574 |
Denominator: | ||||
Weighted average shares outstanding - basic and diluted (in shares) | 879,932,514 | 876,007,008 | 879,216,153 | 875,057,625 |
Basic and diluted earnings per share: | ||||
Net income per common share (in dollars per share) | $ (0.01) | $ 0 | $ (0.01) | $ 0.01 |
Share Based Compensation (Detai
Share Based Compensation (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2020 | Mar. 31, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Apr. 28, 2016 | |
Weighted Average Grant Date Fair Value | ||||||
Stock-based compensation expense | $ 7 | $ 43 | ||||
Payment for tax withholding for share-based compensation | $ 1,147 | $ 1,177 | ||||
Incentive awards | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Aggregate value of shares granted | $ 2,385 | $ 2,135 | $ 2,385 | $ 2,135 | ||
Number of shares authorized to grant (up to) (in shares) | 43,000,000 | |||||
Shares available for future issuance (in shares) | 10,493,213 | 10,493,213 | ||||
Stock Awards | ||||||
Beginning balance (in shares) | 357,143 | 357,143 | ||||
Granted (in shares) | 6,625,002 | 6,100,002 | ||||
Vested (in shares) | (6,972,224) | |||||
Forfeited (in shares) | (9,921) | |||||
Ending balance (in shares) | 0 | 0 | ||||
Weighted Average Grant Date Fair Value | ||||||
Beginning balance (in dollars per share) | $ 0.35 | $ 0.35 | ||||
Granted (in dollars per share) | $ 0.35 | 0.36 | $ 0.35 | |||
Vested (in dollars per share) | 0.36 | |||||
Forfeited (in dollars per share) | 0 | |||||
Ending balance (in dollars per share) | $ 0 | $ 0 | ||||
Incentive Award Plan | ||||||
Weighted Average Grant Date Fair Value | ||||||
Stock-based compensation expense | $ 2,434 | $ 2,220 |
Commitments and Contingencies (
Commitments and Contingencies (Details) $ in Thousands | 1 Months Ended | |
Apr. 30, 2020ft² | Sep. 30, 2020USD ($) | |
Commitments and Contingencies Disclosure [Abstract] | ||
Leased area (in square feet) | ft² | 29,000 | |
Current estimated commitment | $ | $ 3,900 |
Subsequent Events (Details)
Subsequent Events (Details) - Subsequent event - USD ($) $ in Thousands | Nov. 13, 2020 | May 31, 2022 | Nov. 06, 2020 | Oct. 30, 2020 |
Former Chief Financial Officer | ||||
Subsequent Event [Line Items] | ||||
Accrued cost for termination without cause | $ 1,324 | |||
Forecast | Former Chief Financial Officer | ||||
Subsequent Event [Line Items] | ||||
Severance pay | $ 1,000 | $ 1,000 | ||
Payment of accrued vacation | 44 | |||
Payments for repurchase of common stock | 830 | |||
Forecast | Attorney of Former CFO | ||||
Subsequent Event [Line Items] | ||||
Severance pay | $ 81 | |||
Revolving Credit Facility | ||||
Subsequent Event [Line Items] | ||||
Revolving credit facility, maximum borrowing capacity | $ 20,000 |