Invesco Real Estate Income Trust 10-Q 2021 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________________________

FORM 10-Q

_______________________________________________________________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                 TO                 

Commission File Number: 333-254931

_______________________________________________________________

Invesco Real Estate Income Trust Inc.

(Exact name of Registrant as specified in its charter)

_______________________________________________________________

Maryland	83-2188696
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2001 Ross Avenue Suite 3400 Dallas, Texas (address of principal executive office)	75201 (Zip Code)
Registrant’s telephone number, including area code: (972)715-7400

_______________________________________________________________

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class Trading Symbol(s) Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	¨
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    Yes  x    No  ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes  ¨    No  x

As of August 12, 2021, the issuer had the following shares outstanding: 91 shares of Class T common stock, 91 shares of Class S common stock, 91 shares of Class D common stock, 495 shares of Class I common stock, 940,174 shares of Class E common stock and 5,305,571 shares of Class N common stock.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	1
ITEM 1.	FINANCIAL STATEMENTS	1
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	1
	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020	2
	Unaudited Condensed Consolidated Statements of Changes in Equity and Redeemable Common Stock for the three and six months ended June 30, 2021 and 2020	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020	5
	Notes to Unaudited Condensed Consolidated Financial Statements	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	46
ITEM 4	CONTROLS AND PROCEDURES	47
PART II.	OTHER INFORMATION	48
ITEM 1.	LEGAL PROCEEDINGS	48
ITEM 1A.	RISK FACTORS	48
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	49
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	49
ITEM 4.	MINE SAFETY DISCLOSURES	49
ITEM 5.	OTHER INFORMATION	49
ITEM 6.	EXHIBITS	50
SIGNATURES		51

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Invesco Real Estate Income Trust Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

$ in thousands except share amounts	June 30, 2021		December 31, 2020
ASSETS
Investments in real estate, net	$	122,605	$	60,773
Investments in unconsolidated real estate entities	98,591		89,284
Investments in real estate-related securities, at fair value	4,747		877
Intangible assets, net	7,497		7,600
Cash and cash equivalents	2,123		2,968
Restricted cash	859		750
Other assets	12,135		586
Total assets	$	248,557	$	162,838
LIABILITIES
Mortgage note and revolving credit facility, net	$	81,281	$	67,700
Due to affiliates	11,623		4,868
Accounts payable, accrued expenses and other liabilities	3,537		1,844
Total liabilities	96,441		74,412
Commitments and contingencies (See Note 14)	0		0
Redeemable common stock, $0.01 par value per share, 5,536,905 and 3,247,457 shares issued and outstanding, respectively	155,169		83,194
EQUITY
Preferred stock, $0.01 par value per share, 100,000,000 shares authorized; 125 shares issued and outstanding ($500.00 per share liquidation preference)	41		41
Common stock, Class T shares, $0.01 par value per share, 600,000,000 shares authorized; 91 and 0 shares issued and outstanding, respectively (see Note 11)	0		0
Common stock, Class S shares, $0.01 par value per share, 600,000,000 shares authorized; 91 and 0 shares issued and outstanding, respectively (see Note 11)	0		0
Common stock, Class D shares , $0.01 par value per share, 600,000,000 shares authorized; 91 and 0 shares issued and outstanding, respectively (See Note 11)	0		0
Common stock, Class I shares, $0.01 par value per share, 600,000,000 shares authorized; 492 and 0 shares issued and outstanding, respectively (See Note 11)	0		0
Common stock, Class E shares, $0.01 par value per share, 600,000,000 shares authorized; 156,066 and 0 shares issued and outstanding, respectively	2		0
Common stock, Class N shares, $0.01 par value per share, 3,600,000,000 shares authorized; 553,690 and 361,374 shares issued and outstanding, respectively	5		4
Additional paid-in capital	8,401		9,276
Accumulated deficit and cumulative distributions	(11,502)		(4,089)
Total equity	(3,053)		5,232
Total liabilities, redeemable common stock and equity	$	248,557	$	162,838

See accompanying notes to condensed consolidated financial statements.

1

Invesco Real Estate Income Trust Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
$ in thousands except share amounts	2021		2020		2021		2020
Revenues
Rental revenue	$	2,452	$	0	$	4,567	$	0
Other revenue	117		0		180		0
Total revenues	2,569		0		4,747		0
Expenses
Rental property operating	599		0		1,111		0
General and administrative	979		353		2,140		1,556
Performance participation allocation	609		0		791		0
Depreciation and amortization	2,037		0		3,562		0
Total expenses	4,224		353		7,604		1,556
Other income (expense), net
Income (loss) from unconsolidated real estate entities, net	(228)		0		1,503		0
Income from real estate-related securities	55		0		64		0
Interest expense	(580)		0		(1,082)		0
Total other income (expense), net	(753)		0		485		0
Net loss attributable to Invesco Real Estate Income Trust Inc.	(2,408)		(353)		(2,372)		(1,556)
Dividends to preferred stockholders	(2)		0		(4)		0
Net loss attributable to common stockholders	$	(2,410)	$	(353)	$	(2,376)	$	(1,556)
Loss per share:
Net loss per share of common stock, basic and diluted	$	(0.39)	$	(44.13)	$	(0.40)	$	(194.50)
Weighted average shares of common stock outstanding, basic and diluted	6,246,332		8,000		5,879,503		8,000

See accompanying notes to condensed consolidated financial statements.

2

Invesco Real Estate Income Trust Inc.

Condensed Consolidated Statements of Changes in Equity and Redeemable Common Stock

(Unaudited)

$ in thousands	Series A Preferred Stock		Class T Common Stock		Class S Common Stock		Class D Common Stock		Class I Common Stock		Class E Common Stock		Class N Common Stock		Additional Paid-in Capital		Accumulated Deficit and Cumulative Distributions		Total Equity		Class N Redeemable Common Stock
Balance at December 31, 2020	$	41	$	0	$	0	$	0	$	0	$	0	$	4	$	9,276	$	(4,089)	$	5,232	$	83,194
Proceeds from issuance of common stock, net of offering costs	—		—		—		—		—		—		3		9,315		—		9,318		61,726
Distribution reinvestment	—		—		—		—		—		—		—		1		—		1		—
Share-based compensation	—		—		—		—		—		—		—		19		—		19		—
Net income	—		—		—		—		—		—		—		—		36		36		—
Preferred stock dividends	—		—		—		—		—		—		—		—		(2)		(2)		—
Common stock distributions	—		—		—		—		—		—		—		—		(2,378)		(2,378)		—
Balance at March 31, 2021	$	41	$	0	$	0	$	0	$	0	$	0	$	7	$	18,611	$	(6,433)	$	12,226	$	144,920
Proceeds from issuance of common stock, net of offering costs (see Note 11)	—		—		—		—		—		—		—		(6)		—		(6)		—
Distribution reinvestment	—		—		—		—		—		—		—		26		—		26		—
Share-based compensation	—		—		—		—		—		—		—		19		—		19		—
Net loss	—		—		—		—		—		—		—		—		(2,408)		(2,408)		—
Exchange of common stock	—		—		—		—		—		2		(2)		—		—		—		—
Preferred stock dividends	—		—		—		—		—		—		—		—		(2)		(2)		—
Common stock distributions	—		—		—		—		—		—		—		—		(2,659)		(2,659)		—
Adjustment to carrying value of redeemable common stock	—		—		—		—		���		—		—		(10,249)		—		(10,249)		10,249
Balance at June 30, 2021	$	41	$	0	$	0	$	0	$	0	$	2	$	5	$	8,401	$	(11,502)	$	(3,053)	$	155,169

See accompanying notes to condensed consolidated financial statements.

3

Invesco Real Estate Income Trust Inc.

Condensed Consolidated Statements of Changes in Equity and Redeemable Common Stock

(Unaudited)

$ in thousands	Series A Preferred Stock		Class T Common Stock		Class S Common Stock		Class D Common Stock		Class I Common Stock		Class E Common Stock		Class N Common Stock		Additional Paid-in Capital		Accumulated Deficit and Cumulative Distributions		Total Equity		Class N Redeemable Common Stock
Balance at December 31, 2019	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	200	$	0	$	200	$	0
Net loss	—		—		—		—		—		—		—		—		(1,203)		(1,203)		—
Balance at March 31, 2020	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	200	$	(1,203)	$	(1,003)	$	0
Net loss	—		—		—		—		—		—		—		—		(353)		(353)		—
Balance at June 30, 2020	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	200	$	(1,556)	$	(1,356)	$	0

See accompanying notes to condensed consolidated financial statements.

4

Invesco Real Estate Income Trust Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
$ in thousands		2021		2020
Cash flows from operating activities:
Net loss		$	(2,372)	$	(1,556)
Adjustments to reconcile net loss to net cash provided by operating activities:
Performance participation allocation		791		0
Income from unconsolidated real estate entities, net		(1,503)		0
Depreciation and amortization		3,562		0
Share-based compensation		39		0
Straight-line rents		(310)		0
Amortization of below-market leases		(98)		0
Amortization of deferred financing costs		318		0
Unrealized gain on real estate-related securities, net		(13)		0
Distributions of earnings from investments in unconsolidated real estate entities		780		0
Other items		31		0
Change in assets and liabilities, net of assets and liabilities acquired in acquisitions:
Increase in other assets		(583)		(924)
Increase in due to affiliates		2,720		2,480
Increase in accounts payable, accrued expenses and other liabilities		285		0
Net cash provided by operating activities		3,647		0
Cash flows from investing activities:
Investments in unconsolidated real estate entities		(11,096)		0
Acquisitions of real estate		(71,015)		0
Capital improvements to real estate		(24)		0
Purchase of real estate-related securities		(4,452)		0
Proceeds from sale of real estate-related securities		564		0
Distributions of capital from investments in unconsolidated real estate entities		2,512		0
Net cash used in investing activities		(83,511)		0
Cash flows from financing activities:
Proceeds from issuance of redeemable common stock		61,726		0
Proceeds from issuance of common stock		9,351		0
Proceeds from revolving credit facility		80,900		0
Repayment of revolving credit facility		(111,700)		0
Borrowings from mortgages payable		45,000		0
Payment of deferred financing costs		(1,457)		0
Common stock distributions		(4,688)		0
Preferred stock dividends		(4)		0
Net cash provided by financing activities		79,128		0
Net change in cash and cash equivalents and restricted cash		(736)		0
Cash and cash equivalents and restricted cash, beginning of period		3,718		200
Cash and cash equivalents and restricted cash, end of period		$	2,982	$	200

5

Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents	$	2,123	$	200
Restricted cash	859		0
Total cash and cash equivalents and restricted cash	$	2,982	$	200
Supplemental disclosures:
Interest paid	$	736	$	0
Non-cash investing and financing activities:
Assumption of assets and liabilities in conjunction with acquisitions of real estate, net	$	68	$	0
Accrued capital expenditures	$	1,438	$	0
Distributions payable	$	825	$	0
Accrued offering costs due to affiliates	$	2,922	$	0
Distribution reinvestment	$	27	$	0
Adjustment to carrying value of redeemable common stock	$	10,249	$	0

See accompanying notes to condensed consolidated financial statements.

6

Invesco Real Estate Income Trust Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.Organization and Business Purpose

Invesco Real Estate Income Trust Inc. (the “Company” or “we”) was incorporated in October 2018 as a Maryland corporation and qualified as a real estate investment trust (“REIT”) for U.S. federal income tax purposes for the taxable year ended December 31, 2020. We are focused on investing in stabilized, income-oriented commercial real estate in the United States. To a lesser extent, we also invest in real estate-related securities to provide a source of liquidity for our share repurchase plan, cash management and other purposes. We own, and expect to continue to own, all or substantially all of our assets through Invesco REIT Operating Partnership L.P. (“INREIT OP”), of which we are the sole general partner. We are externally managed by Invesco Advisers, Inc. (the “Adviser”), a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd. (“Invesco”), a leading independent global investment management firm. Invesco REIT Special Limited Partner L.L.C. (the “Special Limited Partner”), a wholly-owned subsidiary of Invesco, holds a participation interest in INREIT OP. The Company was capitalized in October 2019 by an Invesco affiliate and commenced real estate operations in September 2020.

On May 14, 2021 our Registration Statement on Form S-11 (File No. 333-254931) with respect to our public offering was declared effective by the Securities and Exchange Commission (“SEC”). We have registered with the SEC a public offering of up to $3.0 billion in shares of common stock, consisting of up to $2.4 billion in shares in our primary offering (the “Primary Offering”) and up to $600 million in shares under our distribution reinvestment plan (collectively, the “Offering”). We are offering to sell any combination of 5 classes of shares of our common stock in the Offering: Class T shares, Class S shares, Class D shares, Class I shares and Class E shares, with a dollar value up to the maximum offering amount. The share classes have different upfront selling commissions and dealer manager fees and different ongoing stockholder servicing fees. As of June 30, 2021, we received aggregate proceeds of approximately $21,000 from selling shares of the Company’s common stock through the Offering.

We are conducting a private offering exempt from registration under the Securities Act of 1933, as amended (the “Private Offering”), of our Class N common stock (“Class N shares” or “Class N common stock”). In July 2021, the Private Offering was increased from $400 million to $500.0 million. As of June 30, 2021, we issued 6,090,595 shares of Class N common stock to affiliates of the Company in the Private Offering for total net proceeds of $159.4 million after deducting offering costs of $1.0 million. The initial purchase price per Class N share was $25.00. The price per Class N share for subsequent purchases is based on our Net Asset Value (“NAV”) per Class N share at the time of purchase. As of June 30, 2021, we have aggregate investor commitments from affiliates to purchase an additional $60.2 million of Class N common stock, excluding a $30 million commitment from Invesco Realty, Inc. that collateralizes our revolving credit facility. See Note 8 — “Mortgage Note and Revolving Credit Facility” for further information. In July 2021, we secured additional investor commitments in the Private Offering. See additional information in Note 17 — “Subsequent Events”.

As of June 30, 2021, we owned an office property, a multifamily property, 2 industrial properties and real estate-related securities. We also invested in a joint venture that owns a portfolio of 20 medical office buildings and a limited liability company that owns a multifamily property, as further discussed in Note 4 — “Investments in Unconsolidated Real Estate Entities”.

2.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and consolidate the financial statements of the Company and its controlled subsidiaries. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for a fair statement of our financial condition and results of operations for the periods presented. The unaudited condensed consolidated financial statements should be read in conjunction with the December 31, 2020 consolidated financial statements and notes thereto included in our Registration Statement on Form S-11 (File No. 333-254931).

7

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

The extent to which the ongoing COVID-19 pandemic impacts our results will depend on future developments, many of which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19, future action plans and vaccination distribution and efficacy. Despite recent market rebounds across many asset classes, the ongoing COVID-19 pandemic has caused continued negative economic impacts, market volatility, and business disruption, which could negatively impact our tenants’ ability to pay rent, our ability to lease vacant space and our ability to undertake development and redevelopment projects. These consequences, in turn, could materially impact our results of operations. The estimates and assumptions underlying these condensed consolidated financial statements are based on the information available as of June 30, 2021, including judgments about the financial market and economic conditions which may change over time.

Consolidation

We consolidate entities in which the Company has a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity, we consider whether the entity is a variable interest entity (“VIE”) and whether we are the primary beneficiary. We are the primary beneficiary of a VIE when we have both the power to direct the most significant activities impacting the economic performance of the VIE and the obligation to absorb losses or receive benefits significant to the VIE.

We apply the equity method of accounting if we have significant influence over an entity, typically when we hold 20 percent or more of the voting common stock (or equivalent) of an investee but do not have a controlling financial interest. In certain circumstances, such as with investments in limited liability companies or limited partnerships, we apply the equity method of accounting when we own as little as 3 to 5 percent. See Note 4 — “Investments in Unconsolidated Real Estate Entities” for further information about our investments in partially owned entities.

Cash and Cash Equivalents

We consider all highly liquid investments that have original maturity dates of three months or less when purchased to be cash equivalents. We may have bank balances in excess of federally insured amounts. We mitigate our risk of loss by maintaining cash deposits with high credit-quality institutions and actively monitoring our counterparties to minimize credit risk exposure.

Restricted Cash

As of June 30, 2021, restricted cash primarily consists of an interest reserve that we are contractually required to maintain on deposit under the terms of our preferred membership interest in a limited liability company. Restricted cash also includes amounts in escrow related to a mortgage at one of our properties and security deposits.

Investments in Real Estate

In accordance with the guidance for business combinations, we determine whether the acquisition of a property qualifies as a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the property acquired is not a business, we account for the transaction as an asset acquisition. As of June 30, 2021, we have accounted for all of our property acquisitions as asset acquisitions.

Whether the acquisition of a property acquired is considered a business combination or asset acquisition, we recognize the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity. For transactions that are business combinations, we also evaluate the existence of goodwill or a gain from a bargain purchase. We expense acquisition-related costs associated with business combinations as they are incurred. We capitalize acquisition-related costs associated with asset acquisitions.

8

When a transaction is determined to be an asset acquisition, we assess the fair value of acquired tangible and intangible assets and liabilities (including land, buildings, tenant improvements, above-market and below-market leases, acquired in-place leases, other identified intangible assets and assumed liabilities) and allocate the purchase price to the acquired assets and assumed liabilities. The cost of the acquisition is then allocated to the assets acquired and liabilities assumed based on their relative estimated fair values. We assess relative fair value based on estimated cash flow projections that utilize discount and/or capitalization rates that we deem appropriate, as well as other available market information. We estimate future cash flows based on a number of factors including historical operating results, known and anticipated trends and market and economic conditions.

The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. We also consider an allocation of purchase price to acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including but not limited to the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals.

We record acquired above-market and below-market leases at their fair values (using a discount rate that reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amounts to be paid under each in-place lease and (2) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. Other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. When estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. When estimating costs to execute similar leases, we consider leasing commissions, legal and other related expenses.

Intangible assets and intangible liabilities are recorded gross on our condensed consolidated balance sheets. Intangible liabilities are presented as a component of other liabilities. The amortization of acquired above-market and below-market leases is recorded as an adjustment to rental revenue on our condensed consolidated statements of operations. The amortization of in-place leases is a component of depreciation and amortization expense on our condensed consolidated statements of operations.

The cost of buildings and improvements includes the purchase price of our properties and any acquisition-related costs, along with any subsequent improvements to such properties. Our investments in real estate are stated at cost and are generally depreciated on a straight-line basis over the estimated useful lives of the assets as follows:

Description	Depreciable Life
Building	30 - 40 years
Building and land improvements	1 - 10 years
Furniture, fixtures and equipment	1 - 7 years
Lease intangibles and leasehold improvements	Over lease term

Significant improvements to properties are capitalized. When assets are sold or retired, their costs and related accumulated depreciation or amortization are removed from the accounts with the resulting gains or losses reflected in net income or loss for the period.

Repairs and maintenance are expensed to operations as incurred and are included in rental property operating expense on our condensed consolidated statements of operations.

We review our real estate properties for indicators of impairment each quarter or when there is an event or change in circumstances that indicates an impaired value. We assess recoverability based on the estimated undiscounted future cash flows expected to be generated from the operation and eventual disposition of our properties over the period we expect to hold the properties. If the carrying amount of the real estate investment is no longer recoverable and exceeds the fair value of our investment, we recognize an impairment loss. The impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value, or fair value less cost to sell if classified as held for sale. If we change our strategy or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized and such loss could be material to our results. We did not record an impairment loss for the three and six months ended June 30, 2021.

9

Investments in Unconsolidated Real Estate Entities

We account for our investments in unconsolidated real estate entities under the equity method of accounting. Under the equity method of accounting, we record our initial investment in an unconsolidated real estate entity at cost and subsequently adjust the cost for our share of the real estate entity's income or loss and cash contributions and distributions each period. We evaluate the carrying amount of our investment in an unconsolidated real estate entity for potential indicators of impairment if the carrying amount of our investment exceeds its fair value. We record an impairment charge when we determine an impairment is other-than-temporary. To determine whether an impairment is other-than-temporary, we consider whether we have the ability and intent to hold the investment until the carrying amount is fully recovered. The evaluation of an investment in an unconsolidated real estate entity for potential impairment can require us to exercise significant judgment. We did not record any impairment losses on our investments in unconsolidated real estate entities for the three and six months ended June 30, 2021.

Distributions received from equity method investments are classified in the condensed consolidated statements of cash flows as either operating or investing activities based on the cumulative earnings approach. Under the cumulative earnings approach, we compare distributions received to our cumulative equity method earnings since inception. Any distributions received up to the amount of cumulative equity earnings are considered a return on investment and classified in operating activities. Any excess distributions are considered a return of investment and classified in investing activities. The income or loss from equity method investments is included in income from unconsolidated real estate entities, net in our condensed consolidated statements of operations.

Investments in Real Estate-Related Securities

We invest in debt and equity securities of real estate companies. We have elected the fair market value option for accounting for investments in debt securities. We record changes in fair value of debt securities, interest income on debt securities, and bond premium and discount amortization as income from real estate-related securities in our condensed consolidated statement of operations.

We record equity securities with readily determinable market values at fair value. We record dividend income on equity securities when declared. We record changes in fair value of equity securities and dividend income as income from real estate-related securities in our condensed consolidated statement of operations.

Fair Value Measurements

Under normal market conditions, the fair value of an investment is the amount that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). Additionally, there is a hierarchical framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and the state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value are classified and disclosed in one of the following levels within the fair value hierarchy:

Level 1 — quoted prices are available in active markets for identical investments as of the measurement date. The Company does not adjust the quoted price for these investments.

Level 2 — quoted prices are available in markets that are not active or model inputs are based on inputs that are either directly or indirectly observable as of the measurement date.

Level 3 — pricing inputs are unobservable and include instances where there is minimal, if any, market activity for the investment. These inputs require significant judgment or estimation by management or third parties when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.

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Valuation

Our investments in real estate-related securities are reported at fair value. We generally determine the fair value of our real estate-related securities by utilizing third-party pricing service providers and broker-dealer quotations on the basis of last available bid price. The carrying amount of the revolving credit facility and mortgage note approximates fair value. Cost approximates fair value for all other assets and liabilities.

In determining the fair value of a particular investment, pricing service providers may use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models to determine the reported price. The pricing service providers’ internal models for securities such as real estate-related securities generally consider the attributes applicable to a particular class of the security (e.g., credit rating or seniority), current market data, and estimated cash flows for each class and incorporate deal collateral performance such as prepayment speeds and default rates, as available. As of June 30, 2021 and December 31, 2020, investments in real estate-related debt securities were classified as Level 2 and our equity security holdings were classified as Level 1.

Deferred Financing Costs

Direct costs associated with entering into our revolving credit facility are recorded as other assets on the condensed consolidated balance sheet and are being amortized on a straight-line basis, which approximates the effective interest method, over the term of the agreement. Direct costs associated with entering into our mortgage note are recorded as an offset to the related liability and are being amortized over the term of the mortgage note.

Revenue Recognition

We recognize rental revenue on our leases based on a number of factors, including the initial determination that the contract is or contains a lease. Generally, all of our contracts are, or contain leases, and therefore revenue is recognized when the lessee takes possession of or controls the physical use of the leased assets. In most instances this occurs on the lease commencement date. At the inception of a new lease, including new leases that arise from amendments, we assess the terms and conditions of the lease to determine the proper lease classification.

A lease is classified as an operating lease if none of the following criteria are met: (i) ownership transfers to the lessee at the end of the lease term, (ii) the lessee has a purchase option that is reasonably expected to be exercised, (iii) the lease term is for a major part of the economic life of the leased property, (iv) the present value of the future lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the leased property, and (v) the leased property is of such a specialized nature that it is expected to have no future alternative use to the Company at the end of the lease term. If one or more of these criteria are met, the lease will generally be classified as a sales-type lease, unless the lease contains a residual value guarantee from a third party other than the lessee, in which case it would be classified as a direct financing lease under certain circumstances.

Rental revenue primarily consists of fixed contractual base rent arising from tenant leases at our properties under operating leases. Revenue under operating leases that are deemed probable of collection is recognized as revenue on a straight-line basis over the non-cancelable term of the related leases. For leases that have fixed and measurable rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded in the condensed consolidated balance sheets. For leases that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. Our estimate of collectability includes, but is not limited to, factors such as the tenant’s payment history, financial condition, industry and geographic area. These estimates could differ materially from actual results.

Our contracts may contain nonlease components (e.g., charges for management fees, common area maintenance, and reimbursement of third-party maintenance expenses) in addition to lease components (i.e., monthly rental charges). Services related to nonlease components are provided over the same period of time as, and billed in the same manner as, monthly rental charges. We do not segregate the lease components from the nonlease components when accounting for operating leases. Since the lease component is the predominant component under each of these leases, combined revenues from both the lease and nonlease components are reported as rental revenues in the accompanying condensed consolidated statements of operations.

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In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. In accordance with the Lease Modification Q&A, we have made a policy election to not account for concessions as a lease modification if the total cash flows after the lease concessions are substantially the same, or less than, the cash flows in the original lease. However, if in the future, a concession is granted that modifies the terms and significantly alters the cash flows of the original lease, we will account for the changes as a lease modification. We did not make any lease concessions in the six months ended June 30, 2021 as a result of the COVID-19 pandemic.

Income Taxes

We qualified as a REIT under the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”) for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2020. As long as we qualify for taxation as a REIT, we will generally not be subject to federal income tax as long as we distribute at least 100% of our taxable income each year. REITs are subject to a number of organizational and operational requirements. As a REIT, we may still be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income. We may elect to treat certain of our corporate subsidiaries as taxable REIT subsidiaries (“TRSs”). In general, a TRS may perform additional services for our tenants and generally may engage in any real estate or non-real estate-related business. A TRS is subject to federal, state and local corporate income tax. As of June 30, 2021, our tax years 2018 through 2020 remain subject to examination by the United States tax authorities.

Organization and Offering Costs

The Adviser has agreed to advance all of our organization and offering expenses (other than upfront selling commissions, dealer manager fees, and ongoing stockholder servicing fees) incurred through the earlier of (1) the date that our net asset value (“NAV”) reaches $1.0 billion and (2) December 31, 2022, at which time we will reimburse the Adviser for all of our advanced expenses ratably over 60 months. We will reimburse the Adviser for any subsequent organization and offering expenses as incurred.

As of June 30, 2021, the Adviser and its affiliates incurred organization expenses of $1.2 million and offering expenses of $1.0 million (December 31, 2020: $1.2 million and $0.9 million, respectively) on our behalf for the Private Offering that are recorded as a component of due to affiliates on our condensed consolidated balance sheets. Private Offering organization and offering expenses became a liability of the Company on January 16, 2020, the date on which the Private Offering commenced. We recorded the organization expenses associated with the Private Offering as general and administrative expenses and recorded the offering costs as an offset to Class N common stock based on the relative proceeds raised in the Private Offering.

As of June 30, 2021, the Adviser and its affiliates have incurred organization expenses of $0.3 million and offering costs of $2.9 million on our behalf for the Offering that are recorded as a component of due to affiliates on our condensed consolidated balance sheets. Organization and offering expenses related to the Offering became a liability of the Company on May 14, 2021, the date on which the Offering commenced. We recorded the organization expenses associated with the Offering as general and administrative expenses and recorded the offering costs as a component of other assets on our condensed consolidated balance sheets. Offering costs will be recorded as an offset to additional paid-in capital as proceeds are raised in the Offering. As of December 31, 2020, the Adviser incurred organization and offering costs on our behalf for the Offering of $0.2 million and $1.6 million, respectively; however, we did not record organization and offering expenses related to the Offering in our consolidated financial statements as of December 31, 2020, because these expenses were not our obligation until the Offering commenced on May 14, 2021.

Invesco Distributors, Inc. (the “Dealer Manager”) is serving as the dealer manager for the Primary Offering. See Note 12 — “Related Party Transactions” for more information on our relationship to the Dealer Manager and a description of selling commissions and dealer manager fees.

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Earnings (Loss) per Share

We calculate basic earnings (loss) per share by dividing net earnings (loss) attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period, including redeemable common stock. All classes of common stock are allocated net earnings (loss) at the same rate per share and receive the same gross distribution per share. We calculate diluted net earnings (loss) per share by dividing net income (loss) attributable to common stockholders for the period by the weighted average number of common shares and common share equivalents outstanding (unless their effect is antidilutive) for the period. As of June 30, 2021 and 2020, there are no common share equivalents outstanding that would have a dilutive effect as a result of our net income, and accordingly, the weighted average number of common shares outstanding is identical for the period for both basic and diluted shares.

Share-Based Compensation

Under the terms of our 2019 Equity Incentive Plan, our independent directors are eligible to receive awards of fully-vested common stock as part of their compensation for services as directors. In addition, we may compensate the officers and employees of our Adviser and its affiliates with share-based awards under the terms of our Advisory Agreement; however, as of June 30, 2021, we have not compensated any officers or employees of our Adviser and its affiliates with share-based awards. See Note 11 — “Equity” for additional information regarding share-based compensation.

Share-based compensation arrangements may include options, stock appreciation rights, restricted stock and other share-based awards. We recognize compensation expense related to share-based awards to our independent directors in our condensed consolidated financial statements based on the fair value of the award on the date of grant.

Pending Accounting Pronouncements

In January 2021, the FASB expanded existing accounting guidance for evaluating the effects of reference rate reform on financial reporting. The new guidance expands the temporary optional expedients and exceptions to GAAP for contract modifications, hedge accounting and other relationships that reference the London Interbank Offered Rate (“LIBOR”) to apply to all derivative instruments affected by the market-wide change in the interest rates used for discounting, margining or contract price alignment (commonly referred to as the discounting transition). The guidance can be applied as of January 1, 2020. We will evaluate our contracts that are eligible for modification relief and may apply the elections prospectively as needed. We are currently evaluating what impact the guidance will have on our condensed consolidated financial statements.

3.Investments in Real Estate, net

Investments in real estate, net consist of:

$ in thousands	June 30, 2021		December 31, 2020
Building and improvements	$	98,396	$	44,317
Land and land improvements	24,859		16,483
Furniture, fixtures and equipment	796		0
Total	124,051		60,800
Accumulated depreciation	(1,446)		(27)
Investments in real estate, net	$	122,605	$	60,773

We acquired 100% of a multifamily real estate property in St. Louis, MO (the “Cortona Apartments”) for $71.1 million in January 2021. We did 0t acquire any properties during the three months ended June 30, 2021.

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The following table summarizes the allocation of the total cost for the Cortona Apartments:

$ in thousands	Amount
Building and building improvements	$	52,619
Land and land improvements	8,376
Lease intangibles (1)	1,867
Capitalized tax abatement (2)	7,427
Furniture, fixtures and equipment	794
Total purchase price (3)	$	71,083

(1)Lease intangibles consist of in-place leases with a weighted average amortization period of 0.5 years.

(2)We obtained a tax abatement in conjunction with our purchase of the Cortona Apartments with an expiration date of December 31, 2038 and are amortizing the tax abatement over the remaining useful life of the tax abatement.

(3)Includes acquisition-related costs.

4.Investments in Unconsolidated Real Estate Entities

We formed a joint venture with Invesco U.S. Income Fund L.P., an affiliate of Invesco, (the “Invesco JV”) to acquire an interest in a portfolio of medical office buildings located throughout the United States (the “Sunbelt Medical Office Portfolio”). As of June 30, 2021, the Invesco JV owns an 85% interest in a joint venture (“Vida JV LLC”) with an unaffiliated third party. As of June 30, 2021, Vida JV LLC owns a portfolio of 20 separate medical office buildings. We own a 42.5% interest in Vida JV LLC through our ownership in the Invesco JV and account for our investment using the equity method of accounting.

As of June 30, 2021, we own an investment in San Simeon Holdings LLC (“San Simeon Holdings”), a limited liability company that owns a multifamily property. Our investment is structured as a preferred membership interest. Our preferred membership interest is mandatorily redeemable on December 15, 2023, although there are certain conditions that may accelerate the redemption date. The common member of San Simeon Holdings has 2 one-year options that extend the mandatory redemption date of our preferred membership interest to December 15, 2025. The redemption amount includes the preferred investment outstanding balance, the preferred accrued return and any unpaid accrued interest. The investment yields a current pay rate of 6.00%, increasing 0.50% annually during the initial term and 0.25% during each extension term, as well as a preferred accrued return of 4.00% due upon redemption. We account for our investment using the equity method of accounting. See Note 14 — “Commitments and Contingencies” for additional information regarding our future capital commitment to San Simeon Holdings.

As our investment San Simeon Holdings is structured as a preferred membership interest and our membership interest is structured to receive a fixed return, we do not participate in any economic upside or downside of San Simeon Holdings. Further, because there is a mandatory redemption feature associated with our preferred membership interest, our future involvement with San Simeon Holdings is limited. We have concluded that San Simeon Holdings is a VIE and that we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact San Simeon Holding’s economic performance. Our economic risk with respect to our investment is limited to our equity ownership and any uncollected distributions.

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The following tables provide summarized balance sheets of our investments in unconsolidated real estate entities and a reconciliation to our equity investment:

	June 30, 2021
$ in thousands	Vida JV LLC		San Simeon Holdings		Total
Total assets	$	413,922	$	114,989	$	528,911
Total liabilities	(219,047)		(78,136)		(297,183)
Total equity of unconsolidated real estate entities	194,875		36,853		231,728
INREIT's share	82,822		15,520		98,342
INREIT outside basis	249		0		249
INREIT investment in unconsolidated real estate entities	$	83,071	$	15,520	$	98,591

	December 31, 2020
$ in thousands	Vida JV LLC		San Simeon Holdings		Total
Total assets	$	366,482	$	112,594	$	479,076
Total liabilities	(187,882)		(76,322)		(264,204)
Total equity of unconsolidated real estate entities	178,600		36,272		214,872
INREIT's share	75,914		13,118		89,032
INREIT outside basis	252		0		252
INREIT investment in unconsolidated real estate entities	$	76,166	$	13,118	$	89,284

The following tables provide summarized operating data of our investments in unconsolidated real estate entities along with a reconciliation to the net income (loss) from unconsolidated entities:

	Three Months Ended June 30, 2021
$ in thousands	Vida JV LLC		San Simeon Holdings		Total
Total revenue	$	9,251	$	2,123	$	11,374
Loss from unconsolidated real estate entities	(1,643)		(495)		(2,138)
INREIT's share	(697)		471		(226)
Amortization of INREIT outside basis	(2)		0		(2)
INREIT income (loss) from unconsolidated real estate entities	$	(699)	$	471	$	(228)

	Six Months Ended June 30, 2021
$ in thousands	Vida JV LLC		San Simeon Holdings		Total
Total revenue	$	17,840	$	4,379	$	22,219
Income (loss) from unconsolidated real estate entities	1,388		(719)		669
INREIT's share	590		918		1,508
Amortization of INREIT outside basis	(5)		0		(5)
INREIT income from unconsolidated real estate entities	$	585	$	918	$	1,503

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5.Investments in Real Estate-Related Securities

The following tables summarize our investments in real estate-related debt securities by asset type:

	June 30, 2021
$ in thousands	Principal Balance		Unamortized Premium (Discount)		Amortized Cost		Unrealized Gain (Loss), Net		Fair Value		Period-end Weighted Average Yield	Weighted-Average Maturity Date
Non-agency CMBS	$	2,846	$	152	$	2,998	$	3	$	3,001	2.52 %	12/1/2033
Corporate debt	1,125		94		1,219		7		1,226		1.90 %	5/3/2024
Total	$	3,971	$	246	$	4,217	$	10	$	4,227

	December 31, 2020
$ in thousands	Principal Balance		Unamortized Premium (Discount)		Amortized Cost		Unrealized Gain (Loss), Net		Fair Value		Period-end Weighted Average Yield		Weighted-Average Maturity Date
Non-agency CMBS	$	716	$	11	$	727	$	2	$	729	3.39	%	1/22/2032
Corporate debt	125		9		134		3		137		2.55	%	1/15/2025
Total	$	841	$	20	$	861	$	5	$	866

As of June 30, 2021 and December 31, 2020, we also hold investments in preferred stock of real estate investment trusts with a fair value of $0.5 million and approximately $11,000, respectively, and a period-end weighted average yield of 6.64 % and 6.52%, respectively.

6.Intangibles

The gross carrying amount and accumulated amortization of our intangible assets and liabilities are:

	June 30, 2021
$ in thousands	Total Cost		Accumulated Amortization		Intangible Assets, net
Intangible assets, net:
In-place lease intangibles	$	7,341	$	(1,864)	$	5,477
Leasing commissions	2,136		(116)		2,020
Total intangible assets, net	$	9,477	$	(1,980)	$	7,497
	Total Cost		Accumulated Amortization		Intangible Liabilities, net
Intangible liabilities, net:
Below-market lease intangibles	$	1,605	$	(98)	$	1,507
Total intangible liabilities, net	$	1,605	$	(98)	$	1,507

	December 31, 2020
$ in thousands	Total Cost		Accumulated Amortization		Intangible Assets, net
Intangible assets, net:
In-place lease intangibles	$	5,475	$	(7)	$	5,468
Leasing commissions	2,136		(4)		2,132
Total intangible assets, net	$	7,611	$	(11)	$	7,600
	Total Cost		Accumulated Amortization		Intangible Liabilities, net
Intangible liabilities, net:
Below-market lease intangibles	$	1,605	$	0	$	1,605
Total intangible liabilities, net	$	1,605	$	0	$	1,605

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The estimated future amortization of our intangibles for each of the next five years and thereafter as of June 30, 2021 is:

$ in thousands	In-place Lease Intangibles		Leasing Commissions		Below-market Lease Intangibles
2021 (remainder)	$	611	$	114	$	(97)
2022	601		227		(194)
2023	601		227		(194)
2024	601		227		(194)
2025	601		227		(194)
2026	601		227		(194)
Thereafter	1,861		771		(440)
	$	5,477	$	2,020	$	(1,507)

7.Other Assets

The following table summarizes the components of other assets:

$ in thousands	June 30, 2021		December 31, 2020
Capitalized tax abatement, net (1)	$	7,254	$	0
Offering costs(2)	2,882		0
Deferred financing costs, net	959		440
Prepaid expenses	616		130
Other	424		16
Total	$	12,135	$	586

(1)We obtained a tax abatement in conjunction with our purchase of the Cortona Apartments with an expiration date of December 31, 2038 and are amortizing the tax abatement over the remaining useful life of the tax abatement as a component of depreciation and amortization in the condensed consolidated statements of operations.

(2)Represents offering costs paid by the Adviser on our behalf for the Offering that are in excess of proceeds received to date in the Offering.

8.Mortgage Note and Revolving Credit Facility

The following tables summarize certain characteristics of our mortgage note and revolving credit facility:

	June 30, 2021
$ in thousands	Principal Balance Outstanding		Weighted Average Interest Rate(2)		Maturity Date(3)	Maximum Facility Size(4)
Variable rate loans:
Variable rate mortgage loan	$	45,000	2.65	%	6/1/2028	N/A
Variable rate revolving credit facility(1)	36,900		1.70	%	1/22/2024	$	100,000
Total variable rate loans	81,900		1.91	%
Deferred financing costs, net(5)	(619)
Mortgage note and revolving credit facility, net	$	81,281

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	December 31, 2020
$ in thousands	Principal Balance Outstanding		Weighted Average Interest Rate(2)		Maturity Date(3)	Maximum Facility Size
Variable rate loans:
Variable rate revolving credit facility(1)	$	67,700	2.00	%	9/22/2021	$	75,000
Deferred financing costs, net	0
Mortgage note and revolving credit facility, net	$	67,700

(1)During the six months ended June 30, 2021, we entered into a new revolving credit facility (“Revolving Credit Facility”) and repaid our previous revolving credit facility.

(2)Borrowings under the Revolving Credit Facility bear interest at a rate equal to one-month LIBOR or a base rate, where the base rate is the highest of (1) federal funds rate plus 0.5%, (2) the rate of interest as publicly announced by Bank of America as its “prime rate” or (3) the one-month LIBOR rate plus 1.0%, in each case, plus an applicable margin that is based on our leverage ratio.

(3)For loans where the Company, at its sole discretion, has extension options, the maximum maturity date has been assumed.

(4)INREIT OP may increase the maximum aggregate principal amount of the Revolving Credit Facility to up to $150 million in accordance with the terms of the Revolving Credit Facility. As of June 30, 2021, the borrowing capacity on the Revolving Credit Facility is $6.1 million. We have the ability to increase the borrowing capacity in connection with the acquisition of additional investments in real estate, which allows us to utilize the full maximum facility size up to $100 million or $150 million, as applicable.

(5)Deferred financing costs relate to the variable rate mortgage loan.

The following table presents the future principal payment due under our mortgage note and Revolving Credit Facility as of June 30, 2021:

Year ($ in thousands)	Amount
2021 (remaining)	$	0
2022	0
2023	0
2024	36,900
2025	0
2026	0
Thereafter	45,000
Total	$	81,900

On May 25, 2021, we entered into a seven-year mortgage loan with an unaffiliated lender for $45.0 million (the “Cortona Loan”) secured by the Cortona Apartments. The Cortona Loan bears interest at the greater of (a) 2.65% or (b) the sum of (i) 2.40% plus (ii) one-month LIBOR and matures on June 1, 2028. The Cortona Loan contains customary conditions to funding and various affirmative and negative financial covenants.

We are subject to various financial and operational covenants under the executed mortgage note and Revolving Credit Facility agreement. These covenants require the Company to maintain certain financial ratios, which may include leverage, debt yield, and debt service coverage, among others. As of June 30, 2021, the Company believes it was in compliance with all of its loan covenants that could result in a default under such agreements.

9.Accounts Payable, Accrued Expenses and Other Liabilities

The following table summarizes the components of accounts payable, accrued expenses and other liabilities:

$ in thousands	June 30, 2021		December 31, 2020
Accounts payable and accrued expenses	$	1,653	$	36
Intangible liabilities, net	1,507		1,605
Tenant security deposits	206		130
Accrued interest expense	101		73
Real estate taxes payable	63		0
Prepaid rental income	7		0
Total	$	3,537	$	1,844

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10.Redeemable Common Stock

As of June 30, 2021, Massachusetts Mutual Life Insurance Company (“MassMutual”) has committed to purchase up to $200.0 million of Class N shares in the Private Offering (the “MassMutual Capital Commitment”). MassMutual is an affiliate of Invesco. The MassMutual Capital Commitment expires on September 28, 2021. The initial purchase price per Class N share was $25.00. The price per Class N share for subsequent purchases is based on our NAV per Class N share at the time of purchase.

As of June 30, 2021, MassMutual had purchased 5,536,905 Class N shares for $144.9 million, net of offering costs. The Class N shares have been classified as redeemable common stock on our condensed consolidated balance sheets because MassMutual has the contractual right to redeem the shares under certain circumstances, as described below. MassMutual's redemption rights are not transferable.

At MassMutual's written request, we are required to repurchase MassMutual's Class N shares and any other shares of our common stock held by MassMutual (collectively, “MassMutual Shares”) at the earlier of (i) the third anniversary of the date we commenced the Offering, or (ii) the date that our aggregate NAV is at least $1.5 billion. When we are required to begin repurchasing the MassMutual Shares, we will repurchase the shares on a monthly basis at MassMutual's request. The repurchase price will generally be equal to the NAV per share for the class of shares being repurchased as of the prior month end. The aggregate amount (based upon aggregate repurchase price) of MassMutual Shares that we are required to repurchase in any month is limited to the lesser of (i) 15% of the net proceeds from the sale of shares of common stock in the Offering to persons other than MassMutual and its affiliates in the month prior to when MassMutual submits their purchase request, and (ii) 1.5% of our aggregate NAV as of the last day of the month prior to when MassMutual submits their purchase request.

We began to recognize changes in the value of the MassMutual Shares when redemption of the shares became probable. The redemption of the MassMutual shares became probable when the SEC declared our Registration Statement on Form S-11 (File No. 333-254931) effective on May 14, 2021. As of June 30, 2021, we recorded an increase to redeemable common stock and a decrease to additional paid-in capital of $10.2 million to adjust the value of the MassMutual Shares to our June 30, 2021 NAV per Class N share. We will limit any adjustment in the carrying amount of the redeemable common stock to the initial amount reported as redeemable common stock on the condensed consolidated balance sheet. The change in the redemption value does not affect income available to common stockholders.

We have entered into an exchange rights and registration agreement with MassMutual (the “Registration Rights Agreement”). After September 28, 2025, MassMutual may require us to exchange all or a portion of its Class N shares for any class of shares of our common stock being sold in the Primary Offering and file and maintain an effective registration statement with the SEC (for no longer than three years) registering the offer and sale of the new shares issued in the exchange. MassMutual's rights under the Registration Rights Agreement will terminate when its shares of our common stock have an aggregate NAV of less than $20.0 million.

On July 29, 2021, MassMutual committed to purchase an additional $200.0 million of Class N shares in the Private Offering and modified their redemption rights in connection with the new subscription agreement. See additional information in Note 17 — “Subsequent Events”.

11.Equity

Preferred Stock

On November 20, 2020, we sold 125 shares of 12.5% Series A Redeemable Cumulative Preferred Stock (“Series A Preferred Stock”) for $500.00 per share in a private placement exempt from registration under the Securities Act of 1933, as amended. NaN additional shares have been sold as of June 30, 2021. The offering was effected for the purpose of the Company having at least 100 stockholders to satisfy one of the requirements for qualification as a REIT under the Internal Revenue Code. Total proceeds from the sale of the Series A Preferred Stock were $62,500 before issuance costs of $21,900. Holders of the Series A Preferred Stock are entitled to receive dividends at an annual rate of 12.5% of the liquidation preference of $500.00 per share, or $62.50 per share per annum. Dividends are cumulative and payable semi-annually commencing with the first dividend payment date on December 31, 2020. We have the option to redeem shares of our Series A Preferred Stock in whole or in part at any time for the price of $500.00 per share, plus any accrued and unpaid dividends through the date of redemption. If a redemption occurs on or before December 31, 2022, we will pay an additional $50.00 per share redemption premium.

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Common Stock

The following tables detail the movement in the Company’s outstanding shares of common stock:

	Six Months Ended June 30, 2021
	Class T Shares	Class S Shares	Class D Shares	Class I Shares	Class E Shares	Class N Shares	Total
Balance at December 31, 2020	0	0	0	0	0	3,608,830	3,608,830
Issuance of common stock	0	0	0	0	0	2,636,645	2,636,645
Distribution reinvestment	0	0	0	0	0	32	32
Balance at March 31, 2021	0	0	0	0	0	6,245,507	6,245,507
Issuance of common stock	91	91	91	0	0	1,154	1,427
Exchange of common stock(1)	0	0	0	0	156,066	(156,066)	0
Distribution reinvestment(2)	0	0	0	492	0	0	492
Balance at June 30, 2021	91	91	91	492	156,066	6,090,595	6,247,426

	Six Months Ended June 30, 2020
	Class T Shares	Class S Shares	Class D Shares	Class I Shares	Class E Shares	Class N Shares	Total
Balance at December 31, 2019	0	0	0	0	0	8,000	8,000
Balance at March 31, 2020	0	0	0	0	0	8,000	8,000
Balance at June 30, 2020	0	0	0	0	0	8,000	8,000

(1)On May 14, 2021, we exchanged 156,066 Class N shares of our common stock held by our directors and employees of the Adviser and its affiliates, for no additional consideration, on a one-for-one basis into Class E shares of our common stock.

(2)As of June 30, 2021, certain of our directors and employees of the Adviser and its affiliates who held Class E shares elected distribution reinvestment which are granted in Class I shares.

As discussed in Note 10 — “Redeemable Common Stock,” 5,536,905 of our Class N shares have been classified as redeemable common stock as of June 30, 2021 (December 31, 2020: 3,247,457 shares) because the stockholder, MassMutual, has the contractual right to redeem the shares under certain circumstances. The remaining 553,690 Class N shares that were issued as of June 30, 2021 (December 31, 2020: 361,374 shares) have been recorded as common stock.

As of June 30, 2021, our affiliates have committed to purchase an additional $60.2 million of Class N common stock, including the MassMutual Capital Commitment of $54.2 million discussed in Note 10 — “Redeemable Common Stock” and a commitment from other affiliates of Invesco of $6.0 million described in Note 12 — “Related Party Transactions”. Our investor commitments exclude a $30.0 million commitment from Invesco Realty, Inc. that collateralizes our Revolving Credit Facility. We may be required to call capital under this commitment to repay outstanding obligations under our Revolving Credit Facility in the event of default, however this commitment is not available to fund our operating or investing activities.

Distributions

We generally intend to distribute substantially all of our taxable income to our stockholders each year to comply with the REIT provisions of the Internal Revenue Code. Taxable income does not necessarily equal net income as calculated in accordance with GAAP.

For the three and six months ended June 30, 2021, we declared distributions of $2.7 million and $5.0 million, respectively. We accrued $0.8 million and $0.5 million for distributions payable as a component of due to affiliates in our condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, respectively. We did 0t declare any distributions for the three and six months ended June 30, 2020.

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The following tables detail the aggregate distributions declared per share for each applicable class of stock for the three and six months ended June 30, 2021:

	Three Months Ended June 30, 2021
	Series A Preferred Stock		Class T Common Stock		Class S Common Stock		Class D Common Stock		Class I Common Stock		Class E Common Stock		Class N Common Stock
Aggregate distributions declared per share	$	31.2500	$	0.1320	$	0.1320	$	0.1320	$	0.2622	$	0.2622	$	0.4242
Stockholder servicing fee per share(1)	0		(0.0195)		(0.0195)		(0.0057)		0		0		0
Net distributions declared per share	$	31.2500	$	0.1125	$	0.1125	$	0.1263	$	0.2622	$	0.2622	$	0.4242

	Six Months Ended June 30, 2021
	Series A Preferred Stock		Class T Common Stock		Class S Common Stock		Class D Common Stock		Class I Common Stock		Class E Common Stock		Class N Common Stock
Aggregate distributions declared per share	$	31.2500	$	0.1320	$	0.1320	$	0.1320	$	0.2622	$	0.2622	$	0.8522
Stockholder servicing fee per share(1)	0		(0.0195)		(0.0195)		(0.0057)		0		0		0
Net distributions declared per share	$	31.2500	$	0.1125	$	0.1125	$	0.1263	$	0.2622	$	0.2622	$	0.8522

(1)See Note 12 — “ Related Party Transactions” for a discussion of our stockholder servicing fee.

Distribution Reinvestment Plan

We have adopted a distribution reinvestment plan whereby stockholders (other than stockholders residing in certain states, as discussed below) will have their cash distributions automatically reinvested in additional shares of common stock unless they elect to receive their distributions in cash. Stockholders residing in Alabama, Idaho, Kansas, Kentucky, Maryland, Massachusetts, Nebraska, New Jersey, North Carolina, Ohio, Oregon, Vermont and Washington will automatically receive their distributions in cash unless they elect to have their cash distributions reinvested in additional shares of common stock. The per share purchase price for shares purchased under the distribution reinvestment plan will be equal to the offering price before upfront selling commissions and dealer manager fees (the “transaction price”) at the time the distribution is payable. The transaction price will generally be equal to our prior month’s NAV per share for that share class. Stockholders will not pay upfront selling commissions or dealer manager fees when purchasing shares under the distribution reinvestment plan. The stockholder servicing fees for shares of our Class T shares, Class S shares and Class D shares are calculated based on the NAV for those shares and may reduce the NAV or, alternatively, the distributions payable with respect to shares of each such class, including shares issued in respect of distributions on such shares under the distribution reinvestment plan.

Share Repurchase Plan

We have adopted a share repurchase plan. On a monthly basis, our stockholders may request that we repurchase all or any portion of their shares. We may choose, in our discretion, to repurchase all, some or none of the shares that have been requested to be repurchased at the end of any month, subject to any limitations in the share repurchase plan. The total amount of share repurchases under the plan is limited to 2% of our aggregate NAV per month and 5% of our aggregate NAV per calendar quarter. Shares will be repurchased at a price equal to the transaction price on the applicable repurchase date, subject to any early repurchase deduction. Our transaction price will generally equal our prior month's NAV per share for that share class. Shares repurchased within one year of the date of issuance will be repurchased at 95% of the current transaction price (the “Early Repurchase Deduction”). The Early Repurchase Deduction will not apply to shares acquired through the distribution reinvestment plan, and we may waive the Early Repurchase Deduction in the case of repurchases resulting from a stockholder’s death, qualifying disability or divorce. Due to the illiquid nature of investments in real estate, we may not have sufficient liquid resources to fund repurchase requests, and we have established limitations on the amount of funds we may use for repurchases during any calendar month and quarter. Our board of directors may modify or suspend the share repurchase plan.

Share-Based Compensation Plan

During the three and six months ended June 30, 2021, we awarded independent members of our board of directors 703 and 1,422 shares, respectively, of Class N common stock under our 2019 Equity Incentive Plan (the “Incentive Plan”) and recognized approximately $19,000 and $39,000, respectively, of compensation expense related to these awards. In May 2021, all Class N common stock awarded to the board of directors were converted on a one-for-one basis into Class E shares of our common stock. As of June 30, 2021, 193,453 shares of common stock remain available for future issuance under the Incentive Plan.

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12.Related Party Transactions

Due to Affiliates

The following table details the components of due to affiliates:

$ in thousands	June 30, 2021		December 31, 2020
Other general and administrative expenses	$	4,661	$	2,205
Advanced organization expenses	1,474		1,210
Advanced offering costs	3,853		931
Distributions payable	825		503
Performance participation allocation	791		0
Share-based compensation payable	19		19
Accrued management fee(1)	0		0
Total	$	11,623	$	4,868

(1)As of June 30, 2021, the accrued management fee is not presented due to rounding.

On May 14, 2021, our Registration Statement on Form S-11 (File No. 333-254931) with respect to our Offering was declared effective by the SEC. At that time, we recorded organization expenses of $0.3 million and offering costs of $2.4 million related to the Offering that were advanced by our Adviser as an increase in due to affiliates on our condensed consolidated balance sheet. As discussed in Note 2 - “Summary of Significant Accounting Policies”, these costs were not our obligation until the Offering commenced.

Management Fee and Performance Participation Allocation

We are externally managed by the Adviser, a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco. The Adviser is at all times subject to the supervision and oversight of our board of directors and has only such functions and authority as we delegate to it.

We will pay the Adviser a management fee equal to 1.0% of NAV for Class T shares, Class S shares, Class D shares and Class I shares per annum calculated and payable monthly. We will not pay a management fee on the Class E shares issued in the Offering. Commencing on January 16, 2030, ten years after the commencement of the Private Offering of Class N shares, we will pay the Adviser a management fee equal to 1.0% of NAV for Class N shares per annum. Under the terms of our amended Advisory Agreement dated July 14, 2021, the Adviser can elect to receive its management fee in cash, shares of our Class E common stock, INREIT OP Class I units or INREIT OP Class E units.

The Adviser and its affiliates provide us with our management team, including our officers and appropriate support personnel. Each of our officers is an employee of the Adviser or one of its affiliates. We do not have any employees. The Adviser is not obligated to dedicate any of its employees exclusively to us, nor is the Adviser obligated to dedicate any specific portion of time to our business. The Adviser or the Adviser's affiliates may provide us services that would otherwise be performed by third parties. Such services may include accounting and internal audit services, account management services, corporate and secretarial services, data management services, directorship services, information technology services, finance/budget services, human resources, judicial processes, legal services, operational services, risk management services, tax services, treasury services, loan management services, construction management services, property management services, leasing services, transaction support services, transaction consulting services and other similar operational matters. In such event, we will reimburse the Adviser or the Adviser's affiliate, as applicable, the cost of performing such services (including employment costs and related expenses allocable thereto) provided that such reimbursements will not exceed the amount that would be payable if such services were provided by a third party in an arms-length transaction. During the three and six months ended June 30, 2021, we incurred $0.2 million and $0.4 million, respectively, for costs of support personnel that were provided by the Adviser.

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The Special Limited Partner holds a performance participation interest in INREIT OP that entitles it to receive an allocation from INREIT OP equal to (1) with respect to all INREIT OP units other than Class N units and Class E units, 12.5% of the Total Return, subject to a 6.0% Hurdle Amount and a High Water Mark, with a Catch-Up (each such term as defined in the limited partnership agreement of INREIT OP), and (2) with respect to Class N units, 10.0% of the Class N Total Return, subject to a 7.0% Class N Hurdle Amount and a Class N High Water Mark, with a Catch-Up (each such term as defined in the limited partnership agreement of INREIT OP). The allocations started to accrue in March 2021 and are calculated and payable on an annual basis. As of June 30, 2021, we accrued $0.8 million for the Special Limited Partner's performance participation interest. Under the terms of our amended Operating Partnership Agreement dated July 14, 2021, the Special Limited Partner may elect to receive payment of the performance participation interest in cash, INREIT OP Class I units or INREIT OP Class E units.

Accrued Stockholder Servicing Fee

The Dealer Manager is a registered broker-dealer affiliated with the Adviser. We have entered into an agreement (the “Dealer Manager Agreement”) with the Dealer Manager in connection with the Primary Offering. The Dealer Manager is entitled to receive selling commissions and stockholder servicing fees for certain classes of shares. As of June 30, 2021, we have not incurred any selling commissions or stockholder servicing fees.

The following table presents the upfront selling commissions and dealer manager fees for each class of shares sold in the Offering, and the stockholder servicing fee per annum based on the aggregate outstanding NAV:

	Class T Shares	Class S Shares	Class D Shares	Class I Shares	Class E Shares
Maximum Upfront Selling Commissions (% of Transaction Price)	up to 3.0%	up to 3.5%	up to 1.5%	—	—
Maximum Upfront Dealer Manager Fees (% of Transaction Price)	0.50%	—	—	—	—
Stockholder Servicing Fee (% of NAV)	0.85%(1)	0.85%	0.25%	—	—

(1)Consists of an advisor stockholder servicing fee (0.65% per annum) and a dealer stockholder servicing fee (0.20% per annum).

We will cease paying the stockholder servicing fee with respect to any Class T share, Class S share or Class D share held in a stockholder’s account at the end of the month in which the Dealer Manager in conjunction with the transfer agent determines that total upfront selling commissions, dealer manager fees and stockholder servicing fees paid with respect to the shares held by such stockholder within such account would exceed, in the aggregate, 8.75% (or, in the case of Class T shares sold through certain participating broker-dealers, a lower limit as set forth in the applicable agreement between the Dealer Manager and a participating broker-dealer at the time such Class T shares were issued) of the gross proceeds from the sale of such shares (including the gross proceeds of any shares issued under our distribution reinvestment plan upon the reinvestment of distributions paid with respect thereto or with respect to any shares issued under our distribution reinvestment plan directly or indirectly attributable to such shares). At the end of such month, each such Class T share, Class S share or Class D share will convert into a number of Class I shares (including any fractional shares), with an equivalent aggregate NAV as such share. We accrue the cost of the stockholder servicing fee as an offering cost at the time each Class T, Class S and Class D share is sold during the Primary Offering. There is not a stockholder servicing fee with respect to Class I and Class E shares.

Related Party Share Ownership

As of June 30, 2021, all of our Class T, Class S, Class D, Class I, Class E and Class N common stock is held by affiliates and MassMutual is the sole owner of our Class N redeemable common stock. MassMutual is an affiliate of the Company and is considered an affiliate of Invesco and the Adviser.

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As of June 30, 2021, affiliates had purchased the following amounts of our common stock:

$ in thousands, except share amounts	Class T Shares	Class S Shares	Class D Shares	Class I Shares	Class E Shares(1)	Class N Shares	Total Purchase Price
MassMutual	0	0	0	0	0	5,536,905	$	145,777
Invesco Realty, Inc.	91	91	91	0	0	553,690	14,585
Members of our board of directors and employees of our Adviser	0	0	0	492	149,519	0	4,018
	91	91	91	492	149,519	6,090,595	$	164,380

(1)On May 14, 2021, we exchanged a total 156,066 Class N shares of our common stock for no additional consideration, on a one-for-one basis into Class E shares of our common stock. These shares consisted of 149,519 purchased by our directors and employees of the Adviser and its affiliates and 6,547 Class E shares that have been awarded to our board of directors under our Incentive Plan.

As of June 30, 2021, our affiliates have committed to purchase an additional $60.2 million of Class N common stock, including the MassMutual Capital Commitment of $54.2 million. Our investor commitments exclude a $30.0 million commitment from Invesco Realty, Inc. that collateralizes our Revolving Credit Facility. We may be required to call capital under this commitment to repay outstanding obligations under our Revolving Credit Facility in the event of default, however this commitment is not available to fund our operating or investing activities.

13.Economic Dependency

We are dependent on the Adviser and its affiliates for certain essential services, including the sale of shares of our common stock, acquisition and disposition decisions, and certain other responsibilities. If the Adviser and its affiliates are unable to provide such services, we would be required to find alternative service providers.

14.Commitments and Contingencies

Commitments and contingencies may arise in the ordinary course of business. Our material off-balance sheet commitments and contingencies as of June 30, 2021 are discussed below.

As discussed in Note 4 — “Investments in Unconsolidated Real Estate Entities”, we have committed to fund improvements to a multifamily property owned by San Simeon Holdings. We are required to fund our commitment as requested through December 31, 2023. As of June 30, 2021, our undrawn capital commitment was $8.8 million.

We have also committed to fund up to $3.5 million of tenant improvements at our Willows Facility through December 31, 2021.

As of June 30, 2021 and December 31, 2020, we were not subject to any material litigation or aware of any pending or threatened material litigation.

15.Tenant Leases

Our real estate properties are leased to tenants under operating lease agreements that expire on various dates. Certain leases have the option to extend or terminate at the tenant’s discretion and have termination options that may result in additional fees due to the Company.

Rental revenue is recognized on a straight-line basis over the life of the lease, including any rent steps or abatement provisions. The leases do not have material variable payments, material residual value guarantees or material restrictive covenants.

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The following table details the components of operating lease income from leases in which the Company is the lessor:

	Three Months Ended June 30,				Six Months Ended June 30,
$ in thousands	2021		2020		2021		2020
Fixed lease payments	$	2,149	$	0	$	4,003	$	0
Variable lease payments	303		0		564		0
Rental revenue	$	2,452	$	0	$	4,567	$	0

Aggregate minimum annual rentals for our wholly-owned real estate investments through the non-cancelable lease term are as follows:

$ in thousands
Year	Future Minimum Rents
2021 (remainder)	$	1,768
2022	3,610
2023	3,708
2024	3,808
2025	3,912
2026	4,018
Thereafter	16,554
Total	$	37,378

Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts or contractual increases as defined in the lease agreement. These contractual contingent rentals are not included in the table above.

16.Segment Reporting

As of June 30, 2021, we operated in 4 reportable segments: healthcare properties, office properties, industrial properties and multifamily properties. We allocate resources and evaluate results based on the performance of each segment individually. We believe that segment net operating income is the key performance metric that captures the unique operating characteristics of each segment. We define segment net operating income as real estate revenues and property operating expenses and the net of revenues and property operating expenses of unconsolidated real estate entities that is allocable to the Company's ownership interest.

The following table summarizes our total assets by segment:

$ in thousands	June 30, 2021		December 31, 2020
Healthcare	$	83,071	$	76,166
Office	38,359		35,788
Industrial	31,015		31,143
Multifamily	84,694		13,118
Corporate and other	11,418		6,623
Total assets	$	248,557	$	162,838

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The following table summarizes our financial results by segment for the three months ended June 30, 2021:

$ in thousands	Healthcare		Office		Industrial		Multifamily		Corporate and Other		Total
Revenues:
Rental revenue	$	0	$	691	$	566	$	1,195	$	0	$	2,452
Other revenue	0		0		0		117		0		117
Total revenues	0		691		566		1,312		0		2,569
Expenses:
Rental property operating	0		121		119		359		0		599
Total expenses	0		121		119		359		0		599
Income from unconsolidated real estate entities	4,584		0		0		471		0		5,055
Income from real estate-related securities	0		0		0		0		55		55
Segment net operating income	$	4,584	$	570	$	447	$	1,424	$	55	$	7,080
Depreciation and amortization	$	(5,283)	$	(297)	$	(214)	$	(1,526)	$	0	$	(7,320)
General and administrative											(979)
Interest expense											(580)
Performance participation allocation											(609)
Net loss attributable to Invesco Real Estate Income Trust Inc.											(2,408)
Dividends to preferred stockholders											(2)
Net loss attributable to common stockholders											$	(2,410)

The following table reconciles our segment income from unconsolidated real estate entities to loss from unconsolidated real estate entities, net on our condensed consolidated statement of operations for the three months ended June 30, 2021:

$ in thousands
Segment income from unconsolidated real estate entities	$	5,055
Depreciation and amortization attributable to unconsolidated real estate entities	(5,283)
Loss from unconsolidated real estate entities	$	(228)

The following table reconciles our segment depreciation and amortization to depreciation and amortization on our condensed consolidated statement of operations for the three months ended June 30, 2021:

$ in thousands
Segment depreciation and amortization	$	(7,320)
Depreciation and amortization attributable to unconsolidated real estate entities	5,283
Depreciation and amortization	$	(2,037)

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The following table summarizes our financial results by segment for the six months ended June 30, 2021:

$ in thousands	Healthcare		Office		Industrial		Multifamily		Corporate and Other		Total
Revenues:
Rental revenue	$	0	$	1,378	$	1,132	$	2,057	$	0	$	4,567
Other revenue	0		0		0		180		0		180
Total revenues	0		1,378		1,132		2,237		0		4,747
Expenses:
Rental property operating	0		217		282		612		0		1,111
Total expenses	0		217		282		612		0		1,111
Income from unconsolidated real estate entities	10,542		0		0		918		0		11,460
Income from real estate-related securities	0		0		0		0		64		64
Segment net operating income	$	10,542	$	1,161	$	850	$	2,543	$	64	$	15,160
Depreciation and amortization	$	(9,957)	$	(595)	$	(425)	$	(2,542)	$	0	$	(13,519)
General and administrative											(2,140)
Interest expense											(1,082)
Performance participation allocation											(791)
Net loss attributable to Invesco Real Estate Income Trust Inc.											(2,372)
Dividends to preferred stockholders											(4)
Net loss attributable to common stockholders											$	(2,376)

The following table reconciles our segment income from unconsolidated real estate entities to income from unconsolidated real estate entities, net on our condensed consolidated statement of operations for the six months ended June 30, 2021:

$ in thousands
Segment income from unconsolidated real estate entities	$	11,460
Depreciation and amortization attributable to unconsolidated real estate entities	(9,957)
Income from unconsolidated real estate entities	$	1,503

The following table reconciles our segment depreciation and amortization to depreciation and amortization on our condensed consolidated statement of operations for the six months ended June 30, 2021:

$ in thousands
Segment depreciation and amortization	$	(13,519)
Depreciation and amortization attributable to unconsolidated real estate entities	9,957
Depreciation and amortization	$	(3,562)

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17.Subsequent Events

Proceeds from the Issuance of Common Stock

Subsequent to June 30, 2021, we received total net proceeds of $22.0 million from the issuance of common stock.

MassMutual Subscription Agreement

In July 2021, MassMutual entered into a subscription agreement (the “Subscription Agreement”) to purchase up to $200.0 million of Class N shares of our common stock in the Private Offering upon our request at one or more closings held prior to January 29, 2023. MassMutual previously agreed to purchase up to $200.0 million of Class N Shares under its initial subscription agreement with us (as amended, the “Initial Subscription Agreement”). We will call the entirety of MassMutual’s commitment under the Initial Subscription agreement before issuing any capital calls under the Subscription Agreement. As of the date of this Quarterly Report, MassMutual has purchased $123.8 million of Class N common shares under the Initial Subscription Agreement. All MassMutual shares, whether under the Subscription Agreement or the Initial Subscription Agreement, will be classified as redeemable common stock because MassMutual has the contractual right to redeem the shares under certain circumstances as described below. MassMutual has committed a total of $400.0 million to the Private Offering.

We will repurchase Class N Shares acquired by MassMutual under the Subscription Agreement or the Initial Subscription Agreement on a monthly basis at a price per share that will generally be equal to the NAV per Class N Share as of the last day of the month preceding the Determination Date. “Determination Date” means the date that is five business days prior to the first calendar day of the month in which the repurchase occurs. The aggregate amount of MassMutual Shares that we are required to repurchase in any month will be equal to the sum of (a) 100% of monthly net proceeds from the sale of shares of common stock in our public offering to Invesco Global Property Plus Fund (the “IGP+ Fund”), a fund managed by an affiliate of the Adviser plus (b) between 50% and 100% (at our discretion) of our monthly net proceeds from the sale of shares of common stock in our public offering to investors other than IGP+ Fund. We will not be required to repurchase more than $70.0 million of MassMutual Shares during any Fundraising Period. “Fundraising Period” means each of (1) the period beginning on May 14, 2021, and ending on May 31, 2022, (2) the period beginning on June 1, 2022 and ending on May 31, 2023, and (3) the period beginning on June 1, 2023 and ending on May 31, 2024. In our sole discretion, we may repurchase an amount of MassMutual Shares that exceeds $70.0 million in any Fundraising Period. In any month, MassMutual may elect to forego the next monthly repurchase. We will not be required under any circumstances to repurchase more than $200.0 million in Class N Shares over the course of the three Fundraising Periods. We will limit our monthly repurchases as necessary to ensure that the aggregate NAV of MassMutual Shares is not less than $50.0 million.

Upon (i) the expiration of the Lock-Up Period (as defined below) and (ii) our repurchase of $200.0 million in MassMutual Shares in accordance with the automatic repurchase rights described above, MassMutual will have the right to request that we repurchase any outstanding MassMutual Shares, subject to the terms set forth below. The repurchase price will generally be equal to the NAV per Class N share as of the last day of the preceding month. The aggregate amount of MassMutual Shares that we are required to repurchase in any month is limited to the lesser of (a) 15% of the net proceeds from the sale of shares of common stock in the Primary Offering to persons other than MassMutual and its affiliates in the month prior to the month in which MassMutual submits its repurchase request, and (b) 1.5% of our aggregate NAV as of the last day of the month prior to the month in which MassMutual submits its repurchase request. The “Lock-Up Period” is defined as the period beginning on September 28, 2020 and ending upon the earlier of (1) May 14, 2024 (the third anniversary of the date that the SEC declared effective the Company’s registration statement with respect to its initial public offering of common stock), and (2) the date that the Company’s aggregate NAV is at least $1.5 billion.

The repurchase rights granted to MassMutual under the Subscription Agreement, as described above, supersede and replace the repurchase rights originally granted to MassMutual under the terms of the Initial Subscription Agreement.

In accordance with the Subscription Agreement, on August 5, 2021, we repurchased $22.0 million of MassMutual Shares.

Private Offering

In July 2021, the Private Offering was increased to $500.0 million.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this quarterly report on Form 10-Q, or this “Quarterly Report,” we refer to Invesco Real Estate Income Trust Inc. and its consolidated subsidiaries as “we,” “us,” “our Company,” or “our,” unless we specifically state otherwise or the context indicates otherwise. We refer to our external manager, Invesco Advisers, Inc., as our “Adviser,” and we refer to the indirect parent company of our Adviser, Invesco Ltd. together with its consolidated subsidiaries (which does not include us), as “Invesco”.

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes to our unaudited condensed consolidated financial statements, which are included in Item 1 of this Quarterly Report.

Forward Looking Statements

We make forward-looking statements in this Quarterly Report and other filings we make with the Securities and Exchange Commission (“SEC”) within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, investment strategies, financial condition, liquidity, results of operations, plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “project,” “forecast” or similar expressions and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” and any other statement that necessarily depends on future events, we intend to identify forward-looking statements. Factors that could cause actual results to differ from those expressed in our forward-looking statements include, but are not limited to:

•ongoing spread and economic and operational impact of the COVID-19 pandemic;

•economic and regulatory changes that impact the real estate market in general;

•our business and investment strategy;

•our ability to achieve our investment objective;

•our investment portfolio and pipeline;

•our ability to raise a substantial amount of capital on an ongoing basis;

•our ability to deploy capital quickly to capitalize on potential investment opportunities;

•increases in interest rates and lack of availability of financing;

•valuations and appraisals of our real properties, real estate-related securities and any property-level and entity-level debt, and their impact on NAV;

•difference between actual operating results and what was budgeted for that period;

•our intention and ability to make distributions, including our ability to fund distributions from sources other than cash flow from operations, including without limitation, the sale of or repayments under our assets, borrowing, or offering proceeds;

•our ability to satisfy repurchase requests;

•the adequacy of our cash flow from operations and borrowings to meet our short-term liquidity needs;

•our ability to maintain sufficient liquidity to meet our short-term liquidity needs; and

•our reliance on the Adviser to conduct our operations.

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The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Summary

We are a Maryland corporation focused on investing in stabilized, income-oriented commercial real estate in the United States. To a lesser extent, we also invest in real estate-related securities to provide a source of liquidity for our share repurchase plan, cash management and other purposes. We own, and expect to continue to own, all or substantially all of our assets through Invesco REIT Operating Partnership L.P. (“INREIT OP”), of which we are the sole general partner.

We are externally managed and advised by our Adviser, a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd., a leading independent global investment management firm. Our Adviser utilizes the personnel and global resources of Invesco Real Estate to provide investment management services to us. We qualified to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes for the taxable year ended December 31, 2020. To maintain our REIT qualification, we are generally required to distribute at least 90% of our REIT taxable income to our stockholders annually. We operate our business in a manner that permits our exclusion from the definition of “Investment Company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

On May 14, 2021, the SEC declared our Registration Statement on Form S-11 (File No. 333-254931) for our public offering of common stock effective. We have registered a public offering of up to $3.0 billion in shares of common stock, consisting of up to $2.4 billion in shares in our primary offering (the “Primary Offering”) and up to $600 million in shares under our distribution reinvestment plan (collectively, the “Offering”). We are offering to sell any combination of five classes of shares of our common stock, Class T shares, Class S shares, Class D shares, Class I shares and Class E shares in the Offering, with a dollar value up to the maximum offering amount. The share classes have different upfront selling commissions and dealer manager fees and different ongoing stockholder servicing fees. The purchase price per share for each class of our common stock sold in the Offering will vary and will generally equal our prior month’s net asset value (“NAV”) per share for such class, as determined monthly, plus any applicable upfront selling commissions and dealer manager fees. As of the date of this Quarterly Report, we have received aggregate proceeds of approximately $22.0 million from the Offering and used those proceeds to repurchase $22.0 million of Class N shares, as defined below. All of the Class N shares that were repurchased were classified as redeemable common stock on our condensed consolidated balance sheets. We intend to continue selling shares on a monthly basis.

We are conducting a private offering (the “Private Offering”) of up to $400 million in shares of our Class N common stock (“Class N shares” or “Class N common stock”). In July 2021, the Private Offering was increased to $500.0 million. As of June 30, 2021, we issued 6,090,595 shares of Class N common stock to affiliates of the Company in the Private Offering for total net proceeds of $159.4 million after deducting offering costs of $1.0 million. As of the date of this Quarterly Report, we have aggregate investor commitments from affiliates to purchase an additional $260.2 million of Class N common stock, excluding a $30 million commitment from Invesco Realty, Inc. that collateralizes our revolving credit facility.

We commenced real estate operations in September 2020. As of June 30, 2021, we owned an office property, a multifamily property, two industrial properties and real estate-related securities. We also hold interests in a joint venture that owns a portfolio of twenty medical office buildings and a limited liability company that owns a multifamily property.

Q2 2021 Highlights

Operating Results

•Declared monthly net distributions totaling $2.7 million for the three months ended June 30, 2021, comprised of net distributions of $0.1125 per share for Class T, $0.1125 per share for Class S, $0.1263 per share for Class D, $0.2622 per share for Class I, $0.2622 per share for Class E and $0.4242 per share for Class N.(1)

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•Year-to-date total return through June 30, 2021, without upfront selling commissions, was 1.5% for Class T, 1.5% for Class S, 1.6% for Class D, 2.5% for Class I, 2.9% for Class E and 7.3% for Class N. Year-to-date total return through June 30, 2021, assuming maximum upfront selling commissions, was (2.0)% for Class T, (2.0)% for Class S, 0.1% for Class D, 2.5% for Class I, 2.9% for Class E and 7.3% for Class N.(1)(2)

•Inception-to-date total return through June 30, 2021, without upfront selling commissions, was 1.5% for Class T, 1.5% for Class S, 1.6% for Class D, 2.5% for Class I, 2.9% for Class E and 16.7% for Class N. Inception-to-date total return through June 30, 2021, assuming maximum upfront selling commissions, was (2.0)% for Class T, (2.0)% for Class S, 0.1% for Class D, 2.5% for Class I, 2.9% for Class E and 16.7% for Class N.(1)(2)

Capital Activity and Financings

•Entered into a seven-year mortgage loan with an unaffiliated lender for $45.0 million during the three months ended June 30, 2021.

•Paid down our revolving credit facility by $44.0 million during the three months ended June 30, 2021.

(1) The inception date was June 1, 2021 for Class T, S and D shares; May 21, 2021 for Class I shares; May 14, 2021 for Class E shares and September 28, 2020 for Class N shares.

(2) Total return is calculated as the change in NAV per share during the respective periods plus any distributions per share declared in the period and assumes any distributions are reinvested in accordance with our distribution reinvestment plan.

Investment Portfolio

Summary of Portfolio

The following table summarizes the allocation of our investment portfolio based on fair value as of June 30, 2021:

Asset Allocation	Percentage
Real Estate	97	%
Real Estate-Related Securities	2	%
Cash and Cash Equivalents	1	%
Total	100	%

The following tables describe the diversification of our investments in real estate based on fair value as of June 30, 2021:

By Property Type (1)	Percentage
Healthcare	53	%
Industrial	9	%
Office	11	%
Multifamily	27	%
Total	100	%

By Geography (1)	Percentage
South	50	%
West	28	%
East	—	%
Midwest	22	%
Total	100	%

(1)The tables herein include our investments in both consolidated and unconsolidated real estate. The Sunbelt Medical Office Portfolio is included at our pro rata share (42.5%) of the underlying real estate. For San Simeon Apartments, we included the fair value of our investment in San Simeon Holdings. See “—Real Estate” below for additional information on these investments.

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As of June 30, 2021, we have acquired an ownership interest in 25 properties for a total purchase price of $238.1 million, inclusive of closing costs. Our diversified portfolio of income producing assets primarily consists of healthcare, office, industrial and multifamily properties, concentrated in growth markets across the United States.

The following table provides a summary of our portfolio as of June 30, 2021:

Segment	Number of Properties	Sq. Feet / Units	Occupancy Rate	Gross Asset Value ($ in thousands) (1)		Segment Revenue ($ in thousands)(2)		Percentage of Total Segment Revenue
Healthcare	20	1,030,397 sq. ft.	95%	$	178,062	$	10,542	65%
Industrial	2	94,007 sq. ft.	100%	31,600		1,132		7%
Office	1	80,980 sq. ft.	100%	37,284		1,378		9%
Multifamily	2	709 units	93%	89,714		3,155		19%
Total	25			$	336,660	$	16,207	100%

(1)Based on fair value as of June 30, 2021. The Gross Asset Value includes investments in both consolidated and unconsolidated real estate. The Sunbelt Medical Office Portfolio is included at our pro rata share (42.5%) of the underlying real estate. For San Simeon Apartments, we included the fair value of our investment in San Simeon Holdings. See “—Real Estate” below for additional information on these investments.

(2)Segment revenue is presented for the six months ended June 30, 2021. Healthcare and Multifamily segment revenue includes income from unconsolidated entities.

Real Estate

The following table provides information regarding our portfolio of real estate as of June 30, 2021:

Segment and Investment	Number of Properties	Location(s)	Acquisition Date(s)	Ownership Interest	Purchase Price ($ in thousands)		Sq. Feet / Units		Occupancy
Healthcare:
Sunbelt Medical Office Portfolio (1)	20	CA, CO, FL, TN, TX	September 2020 / December 2020 / February 2021	42.5%	$	86,416	1,030,397	sq. ft.	95%
Total Healthcare	20				86,416		1,030,397	sq. ft.
Industrial:
Excelsior Warehouse	1	Norwalk, CA	December 2020	100%	18,594		53,527	sq. ft.	100%
Industry Warehouse	1	Pico Rivera, CA	December 2020	100%	12,483		40,480	sq. ft.	100%
Total Industrial	2				31,077		94,007	sq. ft.
Office:
Willows Facility	1	Redmond, WA	December 2020	100%	35,729		80,980	sq. ft.	100%
Total Office	1				35,729		80,980	sq. ft.
Multifamily:
Cortona Apartments	1	St. Louis, MO	January 2021	100%	71,083		278	units	97%
San Simeon Apartments (2)	1	Houston, TX	December 2020	51%	13,789		431	units	89%
Total Multifamily	2				84,872		709	units
Total Investment Properties	25				$	238,094

(1)We hold our interest in the Sunbelt Medical Office Portfolio through a 50% ownership interest in the Invesco JV, a joint venture between INREIT OP and Invesco U.S. Income Fund L.P., an affiliate of Invesco. The Invesco JV holds an 85% ownership interest in a joint venture with Welltower, Inc., the prior owner of the Sunbelt Medical Office Portfolio. We account for our investment using the equity method of accounting. The dates of acquisition and aggregate purchase price in the table above reflect the dates of our investments and the total amount of our investment in the Invesco JV.

(2)We own an investment in San Simeon Holdings LLC (“San Simeon Holdings”), a limited liability company that owns San Simeon Apartments. Our investment is structured as a preferred membership interest and we account for our investment in the San Simeon Apartments using the equity method of accounting. The acquisition date and purchase price in the table above reflect the date and amount of our equity investment in San Simeon Holdings. Purchase price represents our initial equity investment into San Simeon Holdings and includes an interest reserve held in restricted cash of $0.8 million.

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Investments in Real Estate-Related Securities

As of June 30, 2021, our Real Estate-Related Securities portfolio consisted of investments in commercial mortgage backed securities (“CMBS”), corporate debt and preferred stock in real estate investment trusts. The following table details our investments in real estate-related debt securities as of June 30, 2021:

	June 30, 2021
$ in thousands	Principal Balance		Unamortized Premium (Discount)		Amortized Cost		Unrealized Gain (Loss), Net		Fair Value		Period-end Weighted Average Yield	Weighted-Average Maturity Date
Non-agency CMBS	$	2,846	$	152	$	2,998	$	3	$	3,001	2.52 %	12/1/2033
Corporate debt	1,125		94		1,219		7		1,226		1.90 %	5/3/2024
Total	$	3,971	$	246	$	4,217	$	10	$	4,227

As of June 30, 2021, we also hold investments in preferred stock of real estate investment trusts with a fair value of $0.5 million and a period-end weighted average yield of 6.64 %.

Lease Expirations

The following schedule details the expiring leases at our industrial, office and healthcare properties by annualized base rent and square footage as of June 30, 2021:

Year	Number of Expiring Leases	Annualized Base Rent ($ in thousands) (1)(2)		% of Total Annualized Base Rent Expiring	Square Feet	% of Total Square Feet Expiring
2021 (remaining)	19	$	1,168	4%	45,646	4%
2022	39	2,716		9%	92,757	8%
2023	38	2,547		9%	100,510	9%
2024	34	2,635		9%	132,331	12%
2025	14	971		3%	42,927	4%
2026	12	4,331		15%	127,692	11%
2027	7	988		3%	38,955	3%
2028	7	2,972		10%	77,746	7%
2029	3	3,305		11%	113,651	10%
2030	5	1,017		3%	86,273	8%
Thereafter	12	6,831		24%	271,886	24%
Total	190	$	29,481	100%	1,130,374	100%

(1)Annualized base rent is determined from the annualized June 30, 2021 base rent per leased square foot of the applicable year and excludes tenant recoveries, straight-line rent and above-market and below-market lease amortization.

(2)Includes 100% of the Sunbelt Medical Office Portfolio.

Factors Affecting Our Operating Results

Our results of operations are affected by a number of factors and depend on the rental income we generate from the properties that we acquire, the timing of lease expirations, operating expenses, income or loss from unconsolidated entities, general market conditions and the competitive environment for real estate assets.

Rental Property Operating Results

We generate rental property income primarily from rental revenue received by the properties that we acquire. The amount of rental revenue depends upon a number of factors, including our ability to enter into leases with above or at market value rents for the properties that we acquire, and rent collection, which primarily relates to each future tenant’s financial condition and ability to make rent payments to us on time. Rental property operating expenses include real estate taxes, property insurance, repairs and maintenance, property management fees, utilities and other costs associated with owning real estate.

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General and Administrative

Our operating expenses include general and administrative expenses, including legal, accounting, and other expenses related to corporate governance, public reporting and compliance with the various provisions of securities laws. Increases or decreases in our operating expenses will impact our overall financial performance.

Income From Unconsolidated Real Estate Entities, Net

We have two investments in unconsolidated real estate entities that are accounted for using the equity method of accounting. Our income or loss from these investments is reported in our condensed consolidated statement of operations as income (loss) from unconsolidated real estate entities, net.

Market Conditions

The COVID-19 pandemic has slowed global economic activity, caused significant volatility in financial markets and negatively impacted most commercial real estate property types. The responses of many countries, including the United States, to the pandemic have included mandatory quarantines, restrictions on business activities, including construction activities, restrictions on group gatherings, restrictions on travel and mandatory closures. These actions are creating disruption in the global economy and supply chains and adversely impacting many industries, including owners of real estate. Moreover, there is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. economy and consumer confidence. Occupier demand and property valuations are dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, rent levels and availability of competing space. The extent to which COVID-19 impacts our results will depend on future developments, many of which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the implementation of vaccines to combat and eventually bring an end to the COVID-19 pandemic. Business disruption resulting from the COVID-19 pandemic could negatively impact our tenants’ ability to pay rent, our ability to lease vacant space, and our ability to complete development and redevelopment projects. These consequences, in turn, could materially impact our results of operations.

Competitive Environment

We face competition from a diverse mix of market participants, including but not limited to, other REITs, pension funds, insurance companies, investment funds and companies, partnerships and developers. Competition from others may diminish our opportunities to acquire a desired investment on favorable terms or at all. In addition, the competition we face may put pressure on us to reduce the rental rates for the properties that we acquire below those that we expect to charge, which would adversely affect our financial results.

Proposed Changes to the London Interbank Offered Rate (“LIBOR”)

In 2017, the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. This announcement indicates that the continuation of LIBOR will not be guaranteed after 2021. The Alternative Reference Rates Committee (“ARRC”), which was convened by the Federal Reserve Board and the New York Fed to help ensure a successful transition from LIBOR, has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. ARRC has proposed a paced market transition plan to SOFR from LIBOR, and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. Further, on March 5, 2021, the FCA announced that December 31, 2021 will be the cessation date for one week and two month U.S. Dollar (“USD”) LIBOR. The FCA also set June 30, 2023 as the cessation date for the other five tenors (overnight and one, three, six and twelve months) of USD LIBOR.

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On April 6, 2021, New York State (“NYS”) put into law legislation to help address challenges surrounding legacy LIBOR contracts that have no effective means to transition away from LIBOR and to incentive the selection of SOFR-based fallback rates in other contracts. The law applies to existing USD LIBOR contracts governed by NYS law that use LIBOR as a benchmark and contain no fallback provisions or contain fallback provisions that result in a benchmark replacement that is based in any way on any LIBOR value. For these in scope contracts, the NYS law provides that on and after “LIBOR Replacement Date” (the date that USD LIBOR ceases to be published or to be representative), USD LIBOR is replaced by operation of law with the relevant SOFR-based rate plus the spread adjustment recommended for that contract type by the US Federal Reserve or the ARRC, and any LIBOR-based fallback provisions are permanently overridden. Additionally, the law applies to existing USD LIBOR contracts governed by NYS law that contain fallback provisions that permit or require a party to select a benchmark replacement that is based in any way on any LIBOR value or otherwise in its discretion. For such contracts, the law authorizes and safe harbors the selection by such party of the relevant SOFR-based rate plus the spread adjustment recommended for that contract type by the Fed or the ARRC to apply on and after the “LIBOR Replacement Date”.

SOFR is an overnight rate unlike LIBOR which is a forward-looking term rate, making SOFR an inexact replacement for LIBOR. There is currently no perfect way to create robust, forward-looking, SOFR term rates. The ARRC has announced that they will not recommend a forward-looking SOFR term rate by mid-2021, as previously announced, due to insufficient development of the SOFR derivatives markets. Market participants are still considering how various types of financial instruments and securitization vehicles should react to a discontinuation of LIBOR. It is possible that not all of our assets and liabilities will transition away from LIBOR at the same time or to the same alternative reference rate, in each case increasing the difficulty of hedging. Switching existing financial instruments and hedging transactions from LIBOR to SOFR requires calculations of a spread and there is no assurance that the spread adjustment will avoid negative financial impacts on our portfolio at the time of transition.

We have contracts that are indexed to LIBOR and are monitoring this activity and evaluating the related risks. However, it is not possible to predict the effect of any of these developments, and any future initiatives to regulate, reform or change the manner of administration of LIBOR could result in adverse consequences related to contracts that are indexed to LIBOR.

In October 2019, the IRS and Treasury proposed regulations that are expected to provide taxpayers relief from adverse impacts resulting from the transition away from LIBOR to an alternative reference rate. The proposed regulations make clear that a change in the reference rate (and associated alterations to payment terms) of a financial instrument is generally not considered a taxable event, provided the fair value of the modified instrument is substantially equivalent to the fair value of the unmodified instrument.

The Financial Accounting Standards Board has also issued accounting guidance that provides optional expedients and exceptions to contracts, hedging relationships and other transactions impacted by LIBOR transition if certain criteria are met.

Qualification as a REIT

We qualified as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2020. We believe that we have been organized and are operating in such a manner to continue to qualify for taxation as a REIT under the applicable provisions of the Code so long as our board of directors determines that REIT qualification remains in our best interest. Many of the requirements for taxation as a REIT are highly technical and complex. We will monitor the business and transactions that may potentially impact our REIT status. As a REIT, we will not be subject to federal income tax with respect to the portion of our income that meets certain criteria and is distributed annually to stockholders. However, if we were to fail to meet these requirements, we could be subject to federal income tax on our taxable income at regular corporate rates. We would not be able to deduct distributions paid to stockholders in any year in which we fail to qualify as a REIT. We would also be disqualified for the four taxable years following the year during which REIT qualification was lost unless we were entitled to relief under specific statutory provisions.

Results of Operations

We commenced real estate operations in September 2020. Accordingly, our results of operations for the three and six months ended June 30, 2021 and 2020 are not comparable and we have not described the increases (decreases) from the corresponding 2020 period when we had no real estate operations. We expect revenues and expenses to increase during the year ending December 31, 2021 because we will have a full year of operations in 2021 and expect to continue making additional investments.

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The following table sets forth the results of our operations:

	Three Months Ended June 30,				Six Months Ended June 30,
$ in thousands	2021		2020		2021		2020
Revenues
Rental revenue	$	2,452	$	—	$	4,567	$	—
Other revenue	117		—		180		—
Total revenues	2,569		—		4,747		—
Expenses
Rental property operating	599		—		1,111		—
General and administrative	979		353		2,140		1,556
Performance participation allocation	609		—		791		—
Depreciation and amortization	2,037		—		3,562		—
Total expenses	4,224		353		7,604		1,556
Other income (expense), net
Income (loss) from unconsolidated real estate entities, net	(228)		—		1,503		—
Income from real estate-related securities	55		—		64		—
Interest expense	(580)		—		(1,082)		—
Total other income (expense), net	(753)		—		485		—
Net loss attributable to Invesco Real Estate Income Trust Inc.	(2,408)		(353)		(2,372)		(1,556)
Dividends to preferred stockholders	(2)		—		(4)		—
Net loss attributable to common stockholders	$	(2,410)	$	(353)	$	(2,376)	$	(1,556)

Rental Revenue and Rental Property Operating Expenses

Our rental revenue primarily consists of fixed contractual base rent from our tenants and is recognized on a straight-line basis over the non-cancelable terms of the related leases. Our rental property operating expenses generally include the costs of ownership of real estate, including insurance, utilities, real estate taxes and repair and maintenance expense. During the six months ended June 30, 2021, we acquired the Cortona Apartments and assumed the underlying tenant leases when we acquired the property.

General and Administrative Expenses

During the three and six months ended June 30, 2021, general and administrative expenses were $1.0 million and $2.1 million, respectively, and consisted primarily of organization costs related to our Private Offering, accounting, audit and tax fees, legal fees, other professional services fees and directors expenses. During the three and six months ended June 30, 2020, general and administrative expenses were $0.4 million and $1.6 million, respectively, and consisted primarily of organization costs related to our Private Offering.

Income from Unconsolidated Real Estate Entities, Net

During the three months ended June 30, 2021, we incurred a net loss from unconsolidated real estate entities of $0.2 million. During the six months ended June 30, 2021, we incurred net income from unconsolidated real estate entities of $1.5 million.

Performance Participation Allocation

During the three and six months ended June 30, 2021, the performance participation allocation accrual was $0.6 million and $0.8 million, respectively.

Depreciation and Amortization

During the three and six months ended June 30, 2021, depreciation and amortization expenses were $2.0 million and $3.6 million, respectively, driven by depreciation and amortization on the four consolidated properties we own.

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Interest Expense

For the three and six months ended June 30, 2021, we incurred interest expense of $0.6 million and $1.1 million, respectively, that primarily consists of interest expense on our mortgage loan and revolving credit facility. Interest expense also includes amortization of deferred financing costs related to obtaining our mortgage loan and revolving credit facility. See “— Liquidity and Capital Resources” below as well as Note 8 — “Mortgage Note and Revolving Credit Facility” to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion of our borrowing arrangements.

Funds from Operations, Adjusted Funds from Operations and Funds Available for Distribution

We believe funds from operations (“FFO”) is a meaningful non-GAAP measure. Our condensed consolidated financial statements are presented in accordance with GAAP under historical cost accounting which, among other things, requires depreciation of real estate investments to be calculated on a straight-line basis. As a result, our operating results imply that the value of our real estate investments will decrease evenly over a set time period. However, we believe that the value of our real estate investments will fluctuate over time based on market conditions and as such, depreciation under historical cost accounting may be less informative. FFO is a standard REIT industry metric defined by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as net income or loss (computed in accordance with GAAP), excluding (i) gains or losses from sales of depreciable real property, (ii) impairment write-downs on depreciable real property, plus (iii) real estate-related depreciation and amortization and (iv) similar adjustments for non-controlling interests and unconsolidated real estate entities. We did not sell any real estate property or record any impairment during the three and six months ended June 30, 2021.

We also believe that adjusted FFO (“AFFO”) is a meaningful non-GAAP measure of our operating results. AFFO further adjusts FFO for our operating results to reflect the specific characteristics of our business by adjusting for items we believe are not related to our core operations. Our adjustments to FFO to arrive at AFFO include removing the impact of (i) straight-line rental income, (ii) amortization of below-market lease intangibles, (iii) organization costs and certain operating expenses advanced by the Adviser, (iv) unrealized losses (gains) from changes in fair value of real estate-related securities, (v) non-cash performance participation allocation or other non-cash incentive compensation even if repurchased by us and (vi) similar adjustments for non-controlling interests and unconsolidated real estate entities. We may add additional adjustments from FFO to arrive at AFFO as appropriate.

We also believe funds available for distribution (“FAD”) is a meaningful non-GAAP measure that provides useful information for considering our operating results and certain other items relative to the amount of our distributions by removing the impact of certain non-cash items from our operating results. FAD is calculated as AFFO excluding (i) realized gains (losses) on investments in real estate-related securities and (ii) management fees paid in shares of our common stock or INREIT OP units even if repurchased by us, and including deductions for (a) recurring tenant improvements, leasing commissions, and other capital projects, (b) stockholder servicing fees paid during the period and (c) similar adjustments for non-controlling interests and unconsolidated real estate entities. FAD is not indicative of cash available to fund our cash needs and does not represent cash flows from operating activities in accordance with GAAP, as it excludes adjustments for working capital items and actual cash receipts from interest income recognized on investments in real estate debt. Cash flows from operating activities in accordance with GAAP would generally be adjusted for such items. Furthermore, FAD is adjusted for stockholder servicing fees and recurring tenant improvements, leasing commissions and other capital expenditures, which are not considered when determining cash flows from operating activities in accordance with GAAP.

FFO, AFFO, and FAD should not be considered to be more relevant or accurate than the GAAP methodology in calculating net income (loss) or in evaluating our operating performance. In addition, FFO, AFFO, and FAD should not be considered as alternatives to net income (loss) as indications of our performance or as alternatives to cash flows from operating activities as indications of our liquidity, but rather should be reviewed in conjunction with these and other GAAP measurements. Further, FFO, AFFO, and FAD are not intended to be used as liquidity measures indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. In addition, our methodology for calculating AFFO and FAD may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported AFFO and FAD may not be comparable to the AFFO and FAD reported by other companies.

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The following table presents a reconciliation of FFO, AFFO and FAD to net income attributable to our stockholders:

	Three Months Ended June 30,		Six Months Ended June 30,
$ in thousands	2021			2021
Net loss attributable to our stockholders	$	(2,410)		$	(2,376)
Adjustments to arrive at FFO:
Real estate depreciation and amortization	2,037			3,562
Amount attributed to unconsolidated real estate entities for above adjustment	2,282			4,268
FFO attributable to our stockholders	1,909			5,454
Adjustments to arrive at AFFO:
Straight-line rental income	(104)			(310)
Amortization of below-market lease intangibles	(49)			(98)
Organization costs (1)	264			264
Accrued preferred return from preferred membership interest	(246)			(487)
Unrealized gains from changes in the fair value of real estate-related securities	(25)			(13)
Non-cash share based compensation awards	19			39
Non-cash performance participation allocation	609			791
Other operating expenses (2)	785			2,025
Amount attributed to unconsolidated real estate entities for unrealized losses (gains) on derivatives	274			(1,277)
Amount attributed to unconsolidated real estate entities for above adjustments	(259)			(517)
AFFO attributable to our stockholders	3,177			5,871
Adjustments to arrive at FAD:
Recurring capital expenditures attributed to unconsolidated real estate entities(3)	(750)			(893)
FAD attributable to our stockholders	$	2,427		$	4,978

(1)The Adviser has agreed to advance all of our organization costs incurred through the earlier of (1) the date that our NAV reaches $1.0 billion and (2) December 31, 2022. We will reimburse the Adviser for all of our advanced expenses ratably over the 60 months following the earlier of (1) the date our NAV reaches $1.0 billion and (2) December 31, 2022. We will reimburse the Adviser for any subsequent organization costs as incurred.

(2)The Adviser has agreed to advance all of our operating expenses on our behalf through the earlier of (1) the date that our aggregate NAV is at least $500 million and (2) December 31, 2021. We will reimburse the Adviser for all such advanced expenses ratably over the 60 months following the earlier of (1) the date that our aggregate NAV is at least $500 million and (2) December 31, 2021.

(3)Recurring capital expenditures are required to maintain our investments. Capital expenditures exclude underwritten tenant improvements, leasing commissions and capital expenditures with useful lives over 10 years.

Net Asset Value

The purchase price per share for each class of our common stock will generally equal our prior month’s NAV per share, as determined monthly, plus any applicable selling commissions and dealer manager fees. Our NAV for each class of shares is based on the net asset values of our investments (including securities investments), the addition of any other assets (such as cash on hand) and the deduction of any other liabilities, including the allocation/accrual of any performance participation and any stockholder servicing fees applicable to such class of shares. NAV is not a measure used under GAAP and the valuations of and certain adjustments made to our assets and liabilities used in the determination of NAV will differ from GAAP. You should not consider NAV to be equivalent to stockholders’ equity or any other GAAP measure.

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The following table reconciles stockholders’ equity per our condensed consolidated balance sheet to our NAV:

$ in thousands	June 30, 2021
Stockholders' equity	$	(3,053)
Adjustments:
Redeemable common stock (1)	155,169
Organization costs, offering costs and certain operating expenses (2)	9,988
Unrealized real estate appreciation (3)	8,623
Accumulated depreciation and amortization (4)	8,537
Other assets (2)	(4,171)
NAV	$	175,093

(1)MassMutual's Class N shares are redeemable common stock and we include the value of these shares as a component of our NAV. MassMutual’s Class N shares have been classified as redeemable common stock on our condensed consolidated balance sheets because MassMutual has the contractual right to redeem the shares under certain circumstances. MassMutual's redemption rights are not transferable.

(2)The Adviser has agreed to advance all of our organization and offering expenses (other than upfront selling commissions, dealer manager fees and ongoing stockholder servicing fees) incurred through the earlier of (1) the date that our NAV reaches $1.0 billion and (2) December 31, 2022. We will reimburse the Adviser for all of our advanced expenses ratably over the 60 months following the earlier of (1) the date our NAV reaches $1.0 billion and (2) December 31, 2022. We will reimburse the Adviser for any subsequent organization and offering expenses as incurred.

The Adviser has agreed to advance all of our operating expenses on our behalf through the earlier of (1) the date that our aggregate NAV is at least $500 million and (2) December 31, 2021. We will reimburse the Adviser for all such advanced expenses ratably over the 60 months following the earlier of (1) the date that our aggregate NAV is at least $500 million and (2) December 31, 2021. These costs include certain prepaid expenses that are classified as other assets in our GAAP condensed consolidated financial statements that has also been excluded from our NAV.

Under GAAP, organization and operating costs are expensed as incurred and offering costs are charged to equity as such amounts are incurred. For NAV, all such costs will be recognized as a reduction to NAV as they are reimbursed ratably over 60 months.

(3)Our investments in real estate are presented under historical cost in our GAAP condensed consolidated financial statements. As such, any increases or decreases in the fair market value of our investments in real estate are not recorded in our GAAP results. For purposes of determining our NAV, our investments in real estate are recorded at fair value.

(4)We depreciate our investments in real estate and amortize certain other assets and liabilities in accordance with GAAP. Such depreciation and amortization, including depreciation and amortization related to our investments in unconsolidated entities, is excluded for purposes of determining our NAV.

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The following table provides a breakdown of the major components of our total NAV as of June 30, 2021:

$ in thousands, except share data
Components of NAV	June 30, 2021
Investments in real estate	$	142,284
Investments in real estate-related securities	4,747
Investments in unconsolidated entities	109,285
Cash and cash equivalents	2,123
Restricted cash	859
Other assets	740
Revolving credit facility	(81,281)
Other liabilities	(2,873)
Accrued performance participation allocation	(791)
Net Asset Value	$	175,093
Number of outstanding shares of common stock	6,247,426

We calculate our total NAV per share as follows as of June 30, 2021:

NAV Per Share ($ in thousands, except per share data)	Class T Shares		Class S Shares		Class D Shares		Class I Shares		Class E Shares		Class N Shares		Total
Net asset value	$	3	$	3	$	3	$	14	$	4,384	$	170,686	$	175,093
Number of outstanding shares of common stock	91		91		91		492		156,066		6,090,595		6,247,426
NAV Per Share as of June 30, 2021	$	27.8771	$	27.8771	$	27.8771	$	27.9777	$	28.0959	$	28.0246

Our real estate properties are valued by an independent advisor using a discounted cash flow methodology. The following table summarizes the weighted averages of the key unobservable inputs used in the June 30, 2021 valuations:

Property Type	Discount Rate	Exit Capitalization Rate
Healthcare	6.1%	5.6%
Office	6.8%	5.8%
Multifamily	6.3%	5.0%
Industrial	6.1%	5.4%

These assumptions are determined by Capright and reviewed by the Adviser. A change in these assumptions would impact the calculation of the value of our property investments. For example, assuming all other factors remain unchanged, the changes listed below would result in the following effects on our investment values:

Input	Hypothetical Change	Healthcare Investment Values	Office Investment Values	Multifamily Investment Values	Industrial Investment Values
Discount Rate	0.25% decrease	+2.0%	+2.0%	+1.9%	+2.0%
(weighted average)	0.25% increase	(1.9)%	(2.0)%	(1.9)%	(1.9)%
Exit Capitalization Rate	0.25% decrease	+2.9%	+3.1%	+3.3%	+3.2%
(weighted average)	0.25% increase	(2.7)%	(2.8)%	(3.0)%	(2.9)%

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Distributions

In November 2020, we began declaring monthly distributions. The net distribution varies for each class based on the applicable stockholder servicing fee, which is deducted from the monthly distribution per share and paid directly to the applicable distributor. The table below details the net distribution for each of our share classes for the six months ended June 30, 2021:

Declaration Date	Class T Shares		Class S Shares		Class D Shares		Class I Shares		Class E Shares		Class N Shares
January 31, 2021	$	—	$	—	$	—	$	—	$	—	$	0.1364
February 28, 2021	—		—		—		—		—		0.1428
March 31, 2021	—		—		—		—		—		0.1488
April 30, 2021	—		—		—		—		—		0.1620
May 31, 2021	—		—		—		0.1302		0.1302		0.1302
June 30, 2021	0.1125		0.1125		0.1263		0.1320		0.1320		0.1320
Total	$	0.1125	$	0.1125	$	0.1263	$	0.2622	$	0.2622	$	0.8522

For the three and six months ended June 30, 2021, we declared distributions in the amount of $2.7 million and $5.0 million, respectively.

The following table summarizes our distributions declared during the three and six months ended June 30, 2021. We did not make any distributions prior to commencing operations in September 2020.

	Three Months Ended				Six Months Ended
	June 30, 2021				June 30, 2021
$ in thousands	Amount		Percentage		Amount		Percentage
Distributions
Payable in cash	$	2,633	99	%	$	5,010	99	%
Reinvested in shares	26		1	%	27		1	%
Total distributions	$	2,659	100	%	$	5,037	100	%
Sources of Distributions
Cash flows from operating activities	$	887	34	%	$	3,647	73	%
Distributions of capital from investments in unconsolidated real estate entities	1,746		66	%	1,363		27	%
Total sources of distributions	$	2,633	100	%	$	5,010	100	%
Cash flows from operating activities	$	887			$	3,647
Funds from Operations (1)	$	1,909			$	5,454
Adjusted Funds from Operations (1)	$	3,177			$	5,871
Funds Available for Distribution (1)	$	2,427			$	4,978

(1)See “—Funds from Operations, Adjusted Funds from Operations and Funds Available for Distribution” above for descriptions of Funds from Operations (FFO), Adjusted Funds from Operations (AFFO), and Funds Available for Distribution (FAD), for reconciliations of them to GAAP net income attributable to INREIT stockholders, and for considerations on how to review these metrics.

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Liquidity and Capital Resources

Our primary needs for liquidity and capital resources are to fund our investments, to make distributions to our stockholders, to repurchase shares of our common stock under our share repurchase plan, to pay our offering costs and operating fees and expenses and to pay interest on our borrowings. We will obtain the funds required to purchase investments and conduct our operations from the net proceeds of our Private Offering, our Primary Offering and any future offerings we may conduct, from secured and unsecured borrowings from banks and other lenders and from any undistributed funds from operations. Generally, cash needs for items other than asset acquisitions are met from operations, and cash needs for asset acquisitions are funded by our Private Offering, the Offering and debt financings. However, there may be a delay between the sale of our shares and our purchase of assets that could result in a delay in the benefits to our stockholders, if any, of returns generated from our investment operations.

Our target leverage ratio after we have raised substantial offering proceeds and acquired a broad portfolio of real estate investments is approximately 50% to 60%. We calculate our “leverage ratio” by dividing (1) the sum of our consolidated property-level debt, entity-level debt, and allocation of debt from investments in real estate funds managed by the Adviser or its affiliates in which we may invest, net of cash and restricted cash, by (2) the asset value of our real estate investments and equity in our real estate-related securities portfolio (in each case measured using the greater of fair market value and cost of gross real estate), including our investments in unconsolidated real estate entities. Our leverage ratio calculation does not include (i) indebtedness incurred in connection with funding a deposit in advance of the closing of an investment, (ii) indebtedness incurred as other working capital advances, (iii) indebtedness on our real estate securities investments, or (iv) the pro rata share of debt within our unconsolidated investments. Our charter prohibits us from borrowing more than 300% of our net assets, which approximates borrowing 75% of the cost of our investments. We may exceed this limit if a majority of our independent directors approves each borrowing in excess of the limit and we disclose the justification for doing so to our stockholders.

If we are unable to raise substantial funds in the Offering, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate with the performance of the specific assets we acquire. Further, we have certain fixed operating expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able to raise substantial funds in the Offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make distributions.

Our offering and operating fees and expenses include, among other things, the management fee we pay to the Adviser, the performance participation allocation that INREIT OP will pay to the Special Limited Partner, stockholder servicing fees we will pay to the Dealer Manager, legal, audit and valuation expenses, federal and state filing fees, printing expenses, administrative fees, transfer agent fees, marketing and distribution expenses and fees related to acquiring, financing, appraising and managing our properties. The Adviser and its affiliates provide us with our management team, including our officers and appropriate support personnel. The Adviser or the Adviser's affiliates may provide us services that would otherwise by performed by third parties. In such event, we will reimburse the Adviser or the Adviser's affiliate the cost of performing such services provided that such reimbursements will not exceed the amount that would be payable if such services were provided by a third party in an arms-length transaction.

The Adviser has agreed to advance all of our operating expenses on our behalf through the earlier of (1) the date that our NAV reaches $500 million and (2) December 31, 2021, at which time we will reimburse the Adviser for our advanced operating expenses ratably over 60 months. We will reimburse the Adviser for any subsequent offering expenses as incurred. As of June 30, 2021, the Adviser has advanced $4.7 million of general and administrative expenses on our behalf.

The Adviser has agreed to advance all of our organization and offering expenses on our behalf (other than upfront selling commissions, dealer manager fees and ongoing stockholder servicing fees) through the earlier of (1) the date that our NAV reaches $1.0 billion and (2) December 31, 2022, at which time we will reimburse the Adviser for all of our advanced expenses ratably over 60 months. We will reimburse the Adviser for any subsequent organization and offering expenses as incurred. As of June 30, 2021, the Adviser had incurred offering expenses of $1.0 million and organization costs of $1.2 million on our behalf in connection with the private offering of our Class N shares that are recorded as a component of due to affiliates on our condensed consolidated balance sheet. The Adviser and its affiliates have also incurred organization and offering expenses of $3.1 million on our behalf in connection with the Offering that are recorded as a component of due to affiliates on our condensed consolidated balance sheet.

As of June 30, 2021, our indebtedness included a loan secured by one of our properties and a line of credit.

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On May 25, 2021, we entered into a seven-year mortgage loan with an unaffiliated lender for $45.0 million (the “Cortona Loan”) secured by the Cortona Apartments. The Cortona Loan bears interest at the greater of (a) 2.65% or (b) the sum of (i) 2.40% plus (ii) LIBOR and matures on June 1, 2028. The Cortona Loan contains customary conditions to funding and various affirmative and negative financial covenants.

On May 25, 2021, we paid down our revolving credit facility (“Revolving Credit Facility”) by $44.0 million with proceeds from the Cortona Loan.

See Note 8 — “Mortgage Note and Revolving Credit Facility” to our condensed consolidated financial statements for a discussion of our borrowing arrangements.

Other potential future sources of capital include incremental secured or unsecured financings from banks or other lenders and proceeds from the sale of assets. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. We have not yet identified any sources for these types of financings.

At June 30, 2021, we had cash and cash equivalents of $2.1 million and restricted cash of $0.9 million. Our restricted cash primarily consists of an interest reserve that we are contractually required to maintain on deposit under the terms of our preferred membership interest in the limited liability company that owns the San Simeon Apartments. Other restricted cash consists of amounts in escrow related to a mortgage at one of our properties and security deposits.

We hold a preferred membership interest in an unconsolidated limited liability company that owns the San Simeon Apartments and have committed to fund improvements to the San Simeon Apartments. We are required to fund these commitments as requested through December 31, 2023. As of June 30, 2021, our undrawn capital commitment was $8.8 million.

We have committed to fund up to $3.5 million of tenant improvements at our Willows Facility through December 31, 2021.

We believe that our current level of cash and borrowing capacity under our Revolving Credit Facility, together with expected future cash flows from our Offering, Private Offering and future operations, will be sufficient to meet the needs of our existing operations and planned requirements for the foreseeable future.

Cash Flows

The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash:

	Six Months Ended June 30,
$ in thousands		2021		2020
Cash flows provided by operating activities		$	3,647	$	—
Cash flows used in investing activities		(83,511)		—
Cash flows provided by financing activities		79,128		—
Net decrease in cash and cash equivalents and restricted cash		$	(736)	$	—

Operating Activities — Net cash provided by operating activities of $3.6 million for the six months ended June 30, 2021 consists of our net loss of approximately $2.4 million adjusted for non-cash items and changes in assets and liabilities. The change in our assets and liabilities is primarily due to the timing of cash receipts and cash payments, including amounts we owe our affiliates.

Investing Activities — We used net cash of $83.5 million during the six months ended June 30, 2021, primarily to make investments of $86.6 million in real estate, capital improvements to real estate, unconsolidated real estate entities and real-estate related securities. Cash used to fund these investments was partially offset by cash distributions from unconsolidated real estate entities of $2.5 million and sales of real-estate related securities of $0.6 million.

Financing Activities — Our financing activities provided net cash of $79.1 million for the six months ended June 30, 2021. Our primary sources of cash from financing activities were net proceeds from the issuance of our common stock of $71.1 million, proceeds from a mortgage at one of our properties of $45.0 million and proceeds from borrowings under the Revolving Credit Facility of $80.9 million. These cash inflows were offset by the repayment of the previous credit facility of $67.7 million, repayment of the Revolving Credit Facility of $44.0 million, paid distributions of $4.7 million, and the payment of financing costs of $1.5 million.

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Critical Accounting Policies

Below is a discussion of our critical accounting policies. We consider these policies critical because they involve significant judgments and assumptions and require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. Our accounting policies have been established to conform with GAAP. The preparation of the financial statements in accordance with GAAP requires us to use judgments in the application of such policies. These judgments will affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.

Principles of Consolidation and Variable Interest Entities

We consolidate entities in which we have a controlling financial interest. In determining whether we have a controlling financial interest in a partially owned entity, we consider whether the entity is a variable interest entity (“VIE”) and whether we are the primary beneficiary. We are the primary beneficiary of a VIE when we have both the power to direct the most significant activities impacting the economic performance of the VIE and the obligation to absorb losses or receive benefits significant to the VIE.

We apply the equity method of accounting if we have significant influence over an entity, typically when we hold 20 percent or more of the voting common stock (or equivalent) of an investee but do not have a controlling financial interest. In certain circumstances, such as with investments in limited liability companies or limited partnerships, we apply the equity method of accounting when we own as little as three to five percent.

We have an investment in a limited liability company that is structured as preferred membership interest, and our equity interest is structured to receive a fixed return. Accordingly, we do not participate in any economic upside or downside of the limited liability company. Further, because there is a mandatory redemption feature associated with our preferred membership interest, our future involvement with the limited liability company is limited. We have concluded that the limited liability company is a VIE and that we are not the primary beneficiary because we do not have the power to direct the activities of the VIE that most significantly impact its economic performance. Our economic risk with respect to our investment is limited to our equity ownership and any uncollected distributions.

Purchase Price Allocation of Acquired Real Estate

We generally account for the acquisition of real estate as an asset acquisition which requires that we assess the fair value of acquired tangible and intangible assets and liabilities (including land, buildings, tenant improvements, above-market and below-market leases, acquired in-place leases, other identified intangible assets and assumed liabilities) and allocate the purchase price to the acquired assets and assumed liabilities. The cost of the acquisition is then allocated to the assets acquired and liabilities assumed based on their relative estimated fair values. We assess relative fair value based on estimated cash flow projections that utilize discount and/or capitalization rates that we deem appropriate, as well as other available market information. We estimate future cash flows based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions.

The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. We also consider an allocation of purchase price to acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including but not limited to the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals.

We record acquired above-market and below-market leases at their fair values (using a discount rate that reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amounts to be paid under each in-place lease and (2) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. Other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. When estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. When estimating costs to execute similar leases, we consider leasing commissions, legal and other related expenses.

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Impairment of Investments in Real Estate

We review our real estate properties for indicators of impairment each quarter or when there is an event or change in circumstances that indicates an impaired value. We assess recoverability based on the estimated undiscounted future cash flows expected to be generated from the operation and eventual disposition of our properties over the period we expect to hold the properties. Our estimate of undiscounted future cash flows includes, but is not limited to, factors such as market conditions, rental prices, hold period and occupancy levels. These assumptions could differ materially from actual results. If the carrying amount of the real estate investment is no longer recoverable and exceeds the fair value of our investment, we recognize an impairment loss. The impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value, or fair value, less cost to sell, if classified as held for sale. If we change our strategy or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized, and such loss could be material to our results. If we determine that an impairment has occurred, we reduce the affected assets to their fair value or fair value, less cost to sell if classified as held for sale.

Impairment of Investments in Unconsolidated Real Estate Entities

We evaluate the carrying amount of our investment in an unconsolidated real estate entity for potential indicators of impairment if the carrying amount of our investment exceeds its fair value. We record an impairment charge when we determine an impairment is other-than-temporary. To determine whether impairment is other-than-temporary, we consider whether we have the ability and intent to hold the investment until the carrying amount is fully recovered. The evaluation of an investment in an unconsolidated real estate entity for potential impairment can require us to exercise significant judgment.

Rental Revenue and Collectability

We recognize rental revenue on our leases based on a number of factors, including the initial determination that the contract is or contains a lease. Generally, all of our contracts are, or contain leases, and therefore revenue is recognized when the lessee takes possession of or controls the physical use of the leased assets. In most instances this occurs on the lease commencement date. At the inception of a new lease, including new leases that arise from amendments, we assess the terms and conditions of the lease to determine the proper lease classification.

A lease is classified as an operating lease if none of the following criteria are met: (i) ownership transfers to the lessee at the end of the lease term, (ii) the lessee has a purchase option that is reasonably expected to be exercised, (iii) the lease term is for a major part of the economic life of the leased property, (iv) the present value of the future lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the leased property, and (v) the leased property is of such a specialized nature that it is expected to have no future alternative use to us at the end of the lease term. If one or more of these criteria are met, the lease will generally be classified as a sales-type lease, unless the lease contains a residual value guarantee from a third party other than the lessee, in which case it would be classified as a direct financing lease under certain circumstances.

Rental revenue primarily consists of fixed contractual base rent arising from tenant leases at our industrial, office and healthcare properties under operating leases. Revenue under operating leases that are deemed probable of collection, is recognized as revenue on a straight-line basis over the non-cancelable term of the related leases. For leases that have fixed and measurable rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded in the condensed consolidated balance sheets. For leases that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. Our estimate of collectability includes, but is not limited to, factors such as the tenant’s payment history, financial condition, industry and geographic area. These estimates could differ materially from actual results.

Pending Accounting Pronouncements

See Note 2 — “Summary of Significant Accounting Policies” to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion of pending accounting pronouncements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, revenues or results of operations, liquidity, capital expenditures or capital resources other than those described in the table below.

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Contractual Obligations

The following table aggregates our contractual obligations and commitments with payments due subsequent to June 30, 2021:

$ in thousands
Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Indebtedness(1)	$	81,900	$	—	$	36,900	$	—	$	45,000
Interest expense(2)	10,664		910		5,459		2,423		1,872
Commitment to fund property improvements(3)	8,772		3,245		5,378		149		—
Tenant improvement allowance(4)	3,500		3,500		—		—		—
Total	$	104,836	$	7,655	$	47,737	$	2,572	$	46,872

(1)Represents principal payments based on the fully extended maturity date. See Note 8 — “Mortgage Note and Revolving Credit Facility” to our condensed consolidated financial statements in this Quarterly Report for a discussion of our borrowing arrangements.

(2)Represents interest payments based on the fully extended maturity date and interest rates in effect at June 30, 2021.

(3)We hold a preferred membership interest in the unconsolidated limited liability company that owns the San Simeon Apartments and have committed to fund an additional $8.8 million to the San Simeon Apartments. Under the terms of the limited liability company agreement, we are required to fund our commitment as requested through December 31, 2023. We have attributed the total undrawn capital commitment based on the capital expenditure budget for the property. See Note 4 — “Investments in Unconsolidated Real Estate Entities” and Note 14 — “Commitments and Contingencies” to our condensed consolidated financial statements in this quarterly report on Form 10-Q for a discussion of our preferred membership interest and capital commitment.

(4)We have committed to fund up to $3.5 million of tenant leasehold improvements at our Willows Facility through December 31, 2021.

The Adviser has advanced $4.7 million of general and administrative expenses and $2.2 million of organization and offering expenses on our behalf with respect to the Private Offering as of June 30, 2021. The Adviser also advanced $3.1 million of organization and offering costs related to the Offering on our behalf through June 30, 2021. We will reimburse the Adviser for such advanced operating expenses ratably over the 60 months following the earlier of (1) the date that our NAV reaches $500 million and (2) December 31, 2021. We will reimburse the Adviser for all such advanced organization and offering expenses ratably over the 60 months following the earlier of (1) the date that our NAV reaches $1.0 billion and (2) December 31, 2022. We have excluded the amounts due to the Adviser from the table above as these obligations do not have fixed and determinable payments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary components of our market risk are related to interest rates, credit and real estate values. While we do not seek to avoid risk completely, we believe that risk can be quantified from historical experience, and we seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake.

For additional discussion of market risk associated with the COVID-19 pandemic see the discussion in “Risk Factors” in our SEC Registration Statement on Form S-11 (File 333-254931) and elsewhere in this quarterly report on Form 10-Q.

Interest Rate Risk

Interest rate risk is highly sensitive to many factors, including governmental, monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. We are subject to interest rate risk in connection with the Cortona Loan, Revolving Credit Facility and our investments in real estate securities. We are also subject to interest rate risk through our investments in unconsolidated real estate entities that have been financed with floating rate debt. We seek to manage our exposure to interest rate risk by utilizing a combination of fixed- and floating-rate financing with staggered maturity dates. Additionally, we may hedge our interest rate risk by using derivative contracts to fix or cap the interest expense on a portion of our floating-rate debt.

As of June 30, 2021, we had borrowed $81.9 million under our mortgage note and Revolving Credit Facility, which are variable rate and indexed to one-month U.S. Dollar denominated LIBOR (“Reference Rate”). For the three and six months ended June 30, 2021, a 10% increase in the Reference Rate would have resulted in approximately $2,000 and $15,000 increase in interest expense, respectively.

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We have invested a portion of our portfolio in fixed rate real estate debt securities and intend to invest in both fixed and floating rate real estate debt securities in the future. On floating-rate securities, our net income will increase or decrease depending on interest rate movements. Additionally, interest rate movement can impact the valuation of debt securities depending on various aspects of the instrument, including, but not limited to, the credit rating, duration and structure of the interest rate payments.

Credit Risk

We are exposed to credit risk with respect to the tenants that occupy properties we own. To mitigate this risk, we undertake a credit evaluation of major tenants prior to making an investment. This analysis includes extensive due diligence of a potential tenant’s creditworthiness and business, as well as an assessment of the strategic importance of the property to the tenant’s core business operations.

Additionally, we are exposed to credit risk in the real estate-related debt investments that we make with respect to a borrower’s ability to make required interest and principal payments on scheduled due dates. We manage this risk by conducting a credit analysis prior to making an investment and by actively monitoring our portfolio and the underlying credit quality, including subordination and diversification of our real estate-related debt portfolio. In addition, we re-evaluate the credit risk inherent in our investments on a regular basis under fundamental considerations such as gross domestic product, unemployment, interest rates, retail sales, store closing/openings, corporate earnings, housing inventory, affordability and regional home price trends.

Finally, we may be exposed to counterparty credit risk under the terms of a derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We will seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.

Real Estate Market Value Risk

Commercial property values are subject to volatility and may be adversely affected by a number of factors, including but not limited to: national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report was made under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of June 30, 2021, we were not involved in any material legal proceedings.

ITEM 1A. RISK FACTORS

Except as set forth below, there were no material changes during the period covered by this Quarterly Report to the risk factors previously disclosed in our Registration Statement on Form S-11 (File 333-254931) that was declared effective by the Securities and Exchange Commission on May 14, 2021.

We may invest in operating companies.

We may selectively invest in real estate-related operating companies, such as development companies or property managers, which in turn may develop or service the assets of, or provide technology or services to, (i) our Company, (ii) the Adviser or its affiliates, (iii) Other Invesco Accounts or (iv) third parties. We may make such investments in order to provide access to real estate investments within our investment strategy or to enhance our financial performance. Our investments in real estate-related operating companies may take the form of preferred equity or other non-controlling interests, including debt interests. The nature of our interest in a real estate-related operating company may not permit us to actively manage or control the operations of such real estate-related operating company. A real estate-related operating company in which we invest may not be profitable at the time of our investment, or at any time. As a result of the foregoing risks and the risks inherent in an investment in any business, we may not be able to fully recover our investment in an operating company.

Other Invesco Accounts means collective investment funds, REITs, vehicles, separately managed accounts, products or other similar arrangements sponsored, advised, or managed by Invesco or one of its affiliates, including the affiliated funds, whether currently in existence or subsequently established (in each case, including any related successor funds, alternative vehicles, supplemental capital vehicles, seed funds, co-investment vehicles and other entities formed in connection with Invesco or its affiliates side-by-side or additional general partner investments with respect thereto).

The Adviser may face conflicts of interest related to the Company’s investments in operating companies.

The Company may invest in real estate-related operating companies, including property managers and development companies, that service owners and operators of real estate (each, a “Service Company”). A Service Company may be engaged by the Adviser, Other Invesco Accounts or their affiliates to service or develop assets in which the Adviser or Other Invesco Accounts hold an interest. The Adviser (and the Service Company as a result of its relationship with the Adviser) may have an incentive to provide lower pricing to Other Invesco Accounts. In addition to pricing, conflicts of interest may arise in determining the scope of services to be provided by a Service Company to an Other Invesco Account and the terms of any such engagement, including indemnification provisions. The Adviser (and the Service Company) also may face conflicts of interest in determining whether and the extent to which to exercise remedies against a defaulting Other Invesco Account, which may adversely impact the returns on the Company’s investment in the Service Company.

Similarly, Other Invesco Accounts may invest in real estate-related operating companies, including property managers, development companies or other real estate service providers (each, a “Related Service Company”). The Adviser may be incentivized to direct work for its clients and affiliates, including the Company and assets owned by the Company, towards such Related Service Companies, both to nurture these businesses and due to the compensation received as a result of the Other Invesco Accounts’ interest in such Related Service Companies. Conflicts may arise in determining whether the Company should engage a Related Service Company to service an asset and in determining the terms of such engagement, including price and other terms, such as indemnification provisions. The Adviser also may be conflicted in determining whether a Related Service Company has adequately performed its obligations to the Company and whether to impose any penalties available for failure to do so, which may adversely impact the assets serviced by a Related Service Company.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

On May 1, 2021, we granted our independent directors an aggregate of 703 shares of Class N common stock in accordance with our equity incentive plan.

On May 14, 2021, we exchanged 156,066 Class N shares of our common stock held by our directors and employees of the Adviser and its affiliates, for no additional consideration, on a one-for-one basis into Class E shares of our common stock.

The transactions described above were exempt from the registration provisions of the Securities Act by virtue of Section 4(a)(2) thereof because they were not part of any public offering and did not involve any general solicitation or general advertising.

Use of Offering Proceeds

On May 14, 2021, our Registration Statement on Form S-11 (File No. 333-254931) for the Offering was declared effective under the Securities Act. As of June 30, 2021, we have issued and sold in the offering (1) 273 shares of our common stock (consisting of 91 Class T shares, 91 Class S shares and 91 Class D shares) in the Primary Offering for total proceeds of $7,500 and (2) 492 shares of our common stock (consisting entirely of Class I shares) under our distribution reinvestment plan for a total value of approximately $14,000. We intend to use the net proceeds from such sales for the purposes set forth in the prospectus for the Offering and in a manner within the investment guidelines approved by our board of directors, who serve as fiduciaries to our stockholders.

Share Repurchases

During the six months ended June 30, 2021, we did not repurchase any shares of our common stock under our share repurchase plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

Exhibit Number	Exhibit Description
3.1	Second Articles of Amendment and Restatement of Invesco Real Estate Income Trust Inc. (filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form S-11 filed on March 31, 2021 and incorporated herein by reference).
3.2	Bylaws of Invesco Real Estate Income Trust Inc. (filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-11 filed on March 31, 2021 and incorporated herein by reference).
10.1+	Loan Agreement, dated May 25, 2021, by and between Cortona Residences Owner, LLC and MetLife Real Estate Lending LLC (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on June 1, 2021 and incorporated herein by reference).
10.2	Promissory Note, dated May 25, 2021, by and between Cortona Residences Owner, LLC and MetLife Real Estate Lending LLC (filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on June 1, 2021 and incorporated herein by reference).
31.1*	Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
+ Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
* Filed herewith

The agreements and other documents filed as exhibits to this quarterly report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Invesco Real Estate Income Trust Inc.
	/s/ R. Scott Dennis
	R. Scott Dennis
	Chairperson of the Board, President and Chief Executive Officer
	(Principal Executive Officer)
	/s/ R. Lee Phegley, Jr.
	R. Lee Phegley, Jr.
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)
Date: August 12, 2021

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