Cover Page
Cover Page - shares | 9 Months Ended | |
Sep. 30, 2022 | Nov. 10, 2022 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Sep. 30, 2022 | |
Document Transition Report | false | |
Entity File Number | 000-55580 | |
Entity Registrant Name | HIGHLANDS REIT, INC. | |
Entity Incorporation, State or Country Code | MD | |
Entity Tax Identification Number | 81-0862795 | |
Entity Address, Address Line One | 1 South Dearborn Street | |
Entity Address, Address Line Two | 20th Floor | |
Entity Address, City or Town | Chicago | |
Entity Address, State or Province | IL | |
Entity Address, Postal Zip Code | 60603 | |
City Area Code | 312 | |
Local Phone Number | 583-7990 | |
Title of 12(g) Security | Common Stock | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 885,566,824 | |
Entity Central Index Key | 0001661458 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2022 | |
Document Fiscal Period Focus | Q3 | |
No Trading Symbol Flag | true |
Consolidated Balance Sheets (un
Consolidated Balance Sheets (unaudited) - USD ($) $ in Thousands | Sep. 30, 2022 | Dec. 31, 2021 |
Investment properties | ||
Land | $ 79,726 | $ 83,168 |
Building and other improvements | 270,471 | 270,387 |
Construction in progress | 13 | 6,542 |
Total | 350,210 | 360,097 |
Less accumulated depreciation | (74,374) | (67,478) |
Net investment properties | 275,836 | 292,619 |
Cash and cash equivalents | 30,680 | 18,321 |
Restricted cash and escrows | 1,793 | 3,689 |
Accounts receivable (net of allowance of $192 and $153 as of September 30, 2022 and December 31, 2021, respectively) | 4,927 | 2,739 |
Deferred costs and other assets, net | 4,808 | 3,645 |
Total assets | 318,044 | 321,013 |
Liabilities | ||
Debt, net | 61,891 | 62,130 |
Accounts payable and accrued expenses | 10,796 | 9,526 |
Intangible liabilities, net | 27 | 658 |
Other liabilities | 2,091 | 2,162 |
Total liabilities | 74,805 | 74,476 |
Commitments and contingencies (see Note 11) | ||
Stockholders’ Equity | ||
Common stock, $0.01 par value, 1,000,000 shares authorized, 885,567 and 885,222 shares issued and outstanding as of September 30, 2022 and December 31, 2021 | 8,856 | 8,852 |
Additional paid-in capital | 1,411,914 | 1,411,818 |
Accumulated distributions in excess of net income | (1,177,981) | (1,173,905) |
Accumulated other comprehensive income (loss) | 375 | (202) |
Total Highlands REIT, Inc. stockholders’ equity | 243,164 | 246,563 |
Non-controlling interests | 75 | (26) |
Total equity | 243,239 | 246,537 |
Total liabilities and equity | $ 318,044 | $ 321,013 |
Consolidated Balance Sheets (_2
Consolidated Balance Sheets (unaudited) (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2022 | Dec. 31, 2021 |
Statement of Financial Position [Abstract] | ||
Allowance for accounts and rent receivables | $ 192 | $ 153 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
Common stock, shares issued | 885,566,824 | 885,221,996 |
Common stock, shares outstanding | 885,566,824 | 885,221,996 |
Consolidated Statements of Oper
Consolidated Statements of Operations and Comprehensive Loss (unaudited) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Revenues | ||||
Total revenues | $ 7,604 | $ 7,122 | $ 23,353 | $ 21,236 |
Expenses | ||||
Property operating expenses | 2,229 | 2,017 | 6,573 | 6,112 |
Real estate taxes | 1,400 | 1,513 | 3,836 | 4,639 |
Depreciation and amortization | 2,596 | 2,640 | 7,829 | 7,967 |
General and administrative expenses | 2,325 | 1,996 | 7,259 | 8,481 |
Total expenses | 8,550 | 8,166 | 25,497 | 27,199 |
Loss on sale of investment properties, net | 0 | 0 | (6) | 0 |
Loss from operations | (946) | (1,044) | (2,150) | (5,963) |
Interest income | 46 | 3 | 55 | 27 |
Interest expense | (705) | (715) | (1,982) | (2,537) |
Net loss | (1,605) | (1,756) | (4,077) | (8,473) |
Net loss attributable to non-controlling interests | 3 | 7 | 1 | 17 |
Net loss attributable to Highlands REIT, Inc. common stockholders | $ (1,602) | $ (1,749) | $ (4,076) | $ (8,456) |
Net income per common share, basic (in dollars per share) | $ 0 | $ 0 | $ 0 | $ (0.01) |
Net income per common share, diluted (in dollars per share) | $ 0 | $ 0 | $ 0 | $ (0.01) |
Weighted average number of common shares outstanding, basic (in shares) | 885,567,000 | 881,673,000 | 885,365,000 | 881,136,000 |
Weighted average number of common shares outstanding, diluted (in shares) | 885,567,000 | 881,673,000 | 885,365,000 | 881,136,000 |
Comprehensive loss | ||||
Net income | $ (1,605) | $ (1,756) | $ (4,077) | $ (8,473) |
Unrealized gain on derivatives | 112 | 56 | 679 | 230 |
Total other comprehensive income | 112 | 56 | 679 | 230 |
Comprehensive loss | (1,493) | (1,700) | (3,398) | (8,243) |
Comprehensive income attributable to non-controlling interests | (14) | (2) | (101) | (18) |
Comprehensive loss attributable to Highlands REIT, Inc. common stockholders | (1,507) | (1,702) | (3,499) | (8,261) |
Rental income | ||||
Revenues | ||||
Total revenues | 7,321 | 6,842 | 22,626 | 20,498 |
Other property income | ||||
Revenues | ||||
Total revenues | $ 283 | $ 280 | $ 727 | $ 738 |
Consolidated Statements of Equi
Consolidated Statements of Equity (unaudited) - USD ($) $ in Thousands | Total | Common Stock | Additional Paid-in Capital | Accumulated Distributions in Excess of Net Income | Accumulated Other Comprehensive Income (Loss) | Total Company's Stockholders' Equity | Non- controlling Interests |
Beginning balance at Dec. 31, 2020 | $ 257,063 | $ 8,778 | $ 1,409,767 | $ (1,160,859) | $ (548) | $ 257,138 | $ (75) |
Beginning balance (in shares) at Dec. 31, 2020 | 877,759 | ||||||
Net income (loss) | (4,688) | (4,678) | (4,678) | (10) | |||
Other comprehensive income | 113 | 96 | 96 | 17 | |||
Share-based compensation (in shares) | 3,557 | ||||||
Share-based compensation | 995 | $ 35 | 960 | 995 | |||
Ending balance (in shares) at Mar. 31, 2021 | 881,316 | ||||||
Ending balance at Mar. 31, 2021 | 253,483 | $ 8,813 | 1,410,727 | (1,165,537) | (452) | 253,551 | (68) |
Beginning balance at Dec. 31, 2020 | 257,063 | $ 8,778 | 1,409,767 | (1,160,859) | (548) | 257,138 | (75) |
Beginning balance (in shares) at Dec. 31, 2020 | 877,759 | ||||||
Net income (loss) | (8,473) | ||||||
Other comprehensive income | 230 | ||||||
Ending balance (in shares) at Sep. 30, 2021 | 881,673 | ||||||
Ending balance at Sep. 30, 2021 | 249,916 | $ 8,817 | 1,410,824 | (1,169,315) | (353) | 249,973 | (57) |
Beginning balance at Mar. 31, 2021 | 253,483 | $ 8,813 | 1,410,727 | (1,165,537) | (452) | 253,551 | (68) |
Beginning balance (in shares) at Mar. 31, 2021 | 881,316 | ||||||
Net income (loss) | (2,029) | (2,029) | (2,029) | 0 | |||
Other comprehensive income | 61 | 52 | 52 | 9 | |||
Share-based compensation (in shares) | 357 | ||||||
Share-based compensation | 101 | $ 4 | 97 | 101 | |||
Ending balance (in shares) at Jun. 30, 2021 | 881,673 | ||||||
Ending balance at Jun. 30, 2021 | 251,616 | $ 8,817 | 1,410,824 | (1,167,566) | (400) | 251,675 | (59) |
Net income (loss) | (1,756) | (1,749) | (1,749) | (7) | |||
Other comprehensive income | 56 | 47 | 47 | 9 | |||
Share-based compensation (in shares) | 0 | ||||||
Share-based compensation | 0 | $ 0 | 0 | 0 | |||
Ending balance (in shares) at Sep. 30, 2021 | 881,673 | ||||||
Ending balance at Sep. 30, 2021 | 249,916 | $ 8,817 | 1,410,824 | (1,169,315) | (353) | 249,973 | (57) |
Beginning balance at Dec. 31, 2021 | 246,537 | $ 8,852 | 1,411,818 | (1,173,905) | (202) | 246,563 | (26) |
Beginning balance (in shares) at Dec. 31, 2021 | 885,222 | ||||||
Net income (loss) | (888) | (890) | (890) | 2 | |||
Other comprehensive income | 385 | 327 | 327 | 58 | |||
Ending balance (in shares) at Mar. 31, 2022 | 885,222 | ||||||
Ending balance at Mar. 31, 2022 | 246,034 | $ 8,852 | 1,411,818 | (1,174,795) | 125 | 246,000 | 34 |
Beginning balance at Dec. 31, 2021 | 246,537 | $ 8,852 | 1,411,818 | (1,173,905) | (202) | 246,563 | (26) |
Beginning balance (in shares) at Dec. 31, 2021 | 885,222 | ||||||
Net income (loss) | (4,077) | ||||||
Other comprehensive income | 679 | ||||||
Ending balance (in shares) at Sep. 30, 2022 | 885,567 | ||||||
Ending balance at Sep. 30, 2022 | 243,239 | $ 8,856 | 1,411,914 | (1,177,981) | 375 | 243,164 | 75 |
Beginning balance at Mar. 31, 2022 | 246,034 | $ 8,852 | 1,411,818 | (1,174,795) | 125 | 246,000 | 34 |
Beginning balance (in shares) at Mar. 31, 2022 | 885,222 | ||||||
Net income (loss) | (1,584) | (1,584) | (1,584) | ||||
Other comprehensive income | 182 | 155 | 155 | 27 | |||
Share-based compensation (in shares) | 345 | ||||||
Share-based compensation | 100 | $ 4 | 96 | 100 | |||
Ending balance (in shares) at Jun. 30, 2022 | 885,567 | ||||||
Ending balance at Jun. 30, 2022 | 244,732 | $ 8,856 | 1,411,914 | (1,176,379) | 280 | 244,671 | 61 |
Net income (loss) | (1,605) | (1,602) | (1,602) | (3) | |||
Other comprehensive income | 112 | 95 | 95 | 17 | |||
Share-based compensation (in shares) | 0 | ||||||
Share-based compensation | 0 | $ 0 | 0 | 0 | |||
Ending balance (in shares) at Sep. 30, 2022 | 885,567 | ||||||
Ending balance at Sep. 30, 2022 | $ 243,239 | $ 8,856 | $ 1,411,914 | $ (1,177,981) | $ 375 | $ 243,164 | $ 75 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2022 | Sep. 30, 2021 | |
Cash flows from operating activities: | ||
Net loss | $ (4,077) | $ (8,473) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 7,829 | 7,967 |
Amortization of below market leases | (22) | (64) |
Amortization of debt discounts and financing costs | 118 | 182 |
Straight-line rental income | (2,140) | (328) |
Write-off of debt issuance costs | 0 | 225 |
Loss on sale of investment properties, net | 6 | 0 |
Non-cash stock-based compensation expense | 100 | 1,979 |
Changes in assets and liabilities: | ||
Accounts and rents receivable, net | (48) | (27) |
Deferred costs and other assets, net | (660) | (60) |
Accounts payable and accrued expenses | 1,270 | (1,568) |
Other liabilities | 607 | 28 |
Net cash flows provided by (used in) operating activities | 2,983 | (139) |
Cash flows from investing activities: | ||
Capital expenditures and tenant improvements | (392) | (7,227) |
Proceeds from sale of investment properties, net | 8,938 | 0 |
Payment of leasing fees | (709) | (964) |
Net cash flows provided by (used in) investing activities | 7,837 | (8,191) |
Cash flows from financing activities: | ||
Payment of debt issuance costs | (222) | 0 |
Payoff of debt | (8,677) | 0 |
Proceeds from debt | 9,265 | 0 |
Payoff of term loan related to credit agreement | 0 | (20,000) |
Principal payments of debt | (723) | (802) |
Payment for tax withholding for share-based compensation | 0 | (883) |
Net cash flows used in financing activities | (357) | (21,685) |
Net increase (decrease) in cash and cash equivalents and restricted cash and escrows | 10,463 | (30,015) |
Cash and cash equivalents and restricted cash and escrows, at beginning of period | 22,010 | 53,637 |
Cash and cash equivalents and restricted cash and escrows, at end of period | 32,473 | 23,622 |
Restricted Cash [Abstract] | ||
Cash and cash equivalents | 30,680 | 20,131 |
Restricted cash | 1,793 | 3,491 |
Total cash, cash equivalents and restricted cash | 32,473 | 23,622 |
Supplemental disclosure of cash flows information: | ||
Cash paid for interest | 1,874 | 2,206 |
Supplemental schedule of non-cash investing and financing activities: | ||
Non-cash accruals for capital expenditures and tenant improvements | $ 414 | $ 428 |
Organization
Organization | 9 Months Ended |
Sep. 30, 2022 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | Organization Highlands REIT, Inc. (“Highlands”), which was formed in December 2015, is a Maryland corporation with a portfolio of assets including multi-family, retail, office and industrial properties, a correctional facility and unimproved land. Prior to April 28, 2016, Highlands was a wholly-owned subsidiary of InvenTrust Properties Corp. (“InvenTrust” and formerly known as Inland American Real Estate Trust, Inc.), its former parent. Unless stated otherwise or the context otherwise requires, the terms “we,” “our” and “us” and references to the “Company” refer to Highlands and its consolidated subsidiaries. On April 28, 2016, Highlands was spun-off from InvenTrust through a pro rata distribution by InvenTrust of 100% of the outstanding shares of common stock, $0.01 par value per share (the “Common Stock”), of Highlands to holders of record of InvenTrust's common stock as of the close of business on April 25, 2016 (the “Record Date”). Each holder of record of InvenTrust's common stock received one share of Common Stock for every one share of InvenTrust's common stock held at the close of business on the Record Date (the “Distribution”). As a result, Highlands became an independent, self-advised, non-traded public company. Highlands has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”) for U.S. federal income tax purposes commencing with Highlands' short taxable year ending December 31, 2016. Each of our assets is owned by a separate legal entity which maintains its own books and financial records, and each entity’s assets are not available to satisfy the liabilities of other affiliated entities, except as otherwise disclosed in Note 7. With the exception of one asset we own through a variable interest entity with a third-party partner (the “Corvue Venture”), we are the sole owner of each of these separate legal entities. As of September 30, 2022, we have an approximate 85% interest in the Corvue Venture and have funded equity contributions to the Corvue Venture in the approximate amount of $9,000. See Note 2 for additional information regarding the basis of presentation of the Corvue Venture, which is consolidated in the accompanying consolidated financial statements. As of September 30, 2022 and December 31, 2021, the Company owned 19 and 20 investment properties, respectively, and one parcel of unimproved land. Impact of COVID-19 Pandemic The impact of the COVID-19 pandemic was not as material during the three and nine months ended September 30, 2022 and 2021, as compared to prior periods, due to the reduced impact of government mandated business closures and the related improvement of our tenants' financial performance. The primary impact of the pandemic was and continues to be related to our tenants' ability to make rental payments in a timely fashion or at all. We have been working with our tenants to collect rental payments pursuant to our contractual rights under our lease agreements. At this time, given the uncertainty related to variants of the virus, we are unable to predict whether cases of COVID-19 in our markets will decrease, increase, or remain the same, whether additional COVID-19 vaccines will be available to the general public or will be effective against new variants of the virus, whether local governments will mandate closures of our tenants' businesses or implement other restrictive measures on their and our operations in the future in response to any future resurgence of the pandemic or the degree to which consumers will frequent our tenants' businesses. We have taken and will continue to take a number of measures to mitigate the impact of the pandemic on our business and financial condition. |
Basis of Presentation and Summa
Basis of Presentation and Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2022 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Summary of Significant Accounting Policies | Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The accompanying consolidated financial statements include the accounts of Highlands and its consolidated subsidiaries. Highlands consolidates its wholly-owned subsidiaries and any other entities which it controls (i) through voting rights or similar rights or (ii) by means other than voting rights if Highlands is the primary beneficiary of a variable interest entity (“VIE”). The portions of the equity and net income of consolidated subsidiaries that are not attributable to the Company are presented separately as amounts attributable to non-controlling interests in our consolidated financial statements. Entities which Highlands does not control, and entities which are VIEs in which Highlands is not a primary beneficiary, if any, are accounted for under appropriate GAAP. Highlands' subsidiaries generally consist of limited liability companies (“LLCs”). The effects of all significant intercompany transactions have been eliminated. Refer to the Company’s audited consolidated financial statements for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on March 16, 2022, as certain note disclosures contained in such audited financial statements have been condensed or omitted from these interim consolidated financial statements. Variable Interest Entities As of September 30, 2022 and December 31, 2021, we have determined we are the primary beneficiary of one VIE, the Corvue Venture, and have consolidated the operations of this entity in the accompanying consolidated financial statements. We reviewed the operating agreement of the Corvue Venture in order to determine our rights and the rights of our third-party partner, including whether those rights are protective or participating. We have determined we are the primary beneficiary of the Corvue Venture because we have (a) the power to direct the activities that most significantly impact the economic performance of the Corvue Venture, (b) the obligation to absorb the losses that could be significant to the Corvue Venture and (c) the right to receive the benefits that could be significant to the Corvue Venture. Included in total assets and liabilities on the Company’s consolidated balance sheets as of September 30, 2022 is $25,295 and $18,143, respectively, related to the Corvue Venture. Included in total assets and liabilities on the Company’s consolidated balance sheets as of December 31, 2021 is $25,396 and $18,521, respectively, related to the Corvue Venture. The assets of the Corvue Venture may only be used to settle obligations of the Corvue Venture and the creditors of the Corvue Venture have no recourse to the general credit of the Company. Reclassifications The Company has made certain reclassifications to the consolidated statements of cash flows as of September 30, 2021, to conform to the 2022 presentation. Recently Issued Accounting Pronouncements Recently issued accounting standards or pronouncements not discussed herein have been excluded because they are either not relevant to the Company, or are not expected to have, or did not have, a material effect on the consolidated financial statements of the Company. |
Disposed Investment Properties
Disposed Investment Properties | 9 Months Ended |
Sep. 30, 2022 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Disposed Investment Properties | Disposed Investment Properties The following table reflects the investment property dispositions during the nine months ended September 30, 2022. The Company recognized a net loss on sale of investment properties of $6. Property Location Disposition Date Gross Disposition Price Sale Proceeds, Net Loss on Sale State Street Market Rockford, Illinois March 10, 2022 $ 9,000 $ 8,938 $ (6) There were no investment property dispositions during the nine months ended September 30, 2021. |
Leases
Leases | 9 Months Ended |
Sep. 30, 2022 | |
Leases [Abstract] | |
Leases | Leases Leasing as a lessor We lease multifamily properties under operating leases with terms of generally one year or less. We lease commercial properties under operating leases with remaining lease terms that range from less than one year to fifteen Lease income related to the Company's operating leases is comprised of the following: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Lease income related to fixed lease payments $ 6,248 $ 5,908 $ 19,260 $ 17,440 Lease income related to variable lease payments (1) 1,073 934 3,366 3,058 Other 283 280 727 738 Total revenues $ 7,604 $ 7,122 $ 23,353 $ 21,236 (1) Variable lease payments are comprised of tenant recovery income. Future Minimum Rental Income As of September 30, 2022, commercial operating leases provide for future minimum rental income, assuming no expiring leases are renewed, as follows. Apartment leases are not included as the terms are generally for one year or less. 2022 (remaining) $ 1,879 2023 9,263 2024 9,158 2025 8,409 2026 8,139 Thereafter 52,207 Total $ 89,055 |
Accounts Payable and Accrued Ex
Accounts Payable and Accrued Expenses | 9 Months Ended |
Sep. 30, 2022 | |
Payables and Accruals [Abstract] | |
Accounts Payable and Accrued Expenses | Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following: September 30, 2022 December 31, 2021 Accrued real estate taxes $ 6,629 $ 6,593 Accrued compensation 2,511 1,140 Accrued interest payable 205 215 Other accrued expenses 1,451 1,578 Total accounts payable and accrued expenses $ 10,796 $ 9,526 |
Debt
Debt | 9 Months Ended |
Sep. 30, 2022 | |
Debt Disclosure [Abstract] | |
Debt | Debt Total debt outstanding as of September 30, 2022 and December 31, 2021 was as follows: September 30, 2022 December 31, 2021 Debt, gross $ 62,687 $ 62,821 Mortgage discount (224) (257) Deferred financing costs, net (572) (434) Total Debt, Net $ 61,891 $ 62,130 As of September 30, 2022, the Company’s outstanding mortgage indebtedness included six mortgage loans with various maturities through July 2032, as follows: Debt maturing during the year As of September 30, 2022 Weighted average interest rate 2022 (remaining) $ — — % 2023 17,594 3.28 % (1) 2024 — — % 2025 — — % 2026 24,379 4.56 % Thereafter 20,714 4.33 % Total $ 62,687 4.12 % (1) See below for discussion of the swap agreement entered into with the mortgage loan obtained in connection with the acquisition of The Locale. The weighted average interest rate reflected is the fixed swap rate. The Company obtained two loans on June 30, 2022 which were each secured by a mortgage encumbering one of the Company's multi-family assets. The loan secured by a mortgage on Kenilworth Court has a principal amount of $3,784, and the loan secured by a mortgage on The Lafayette has a principal amount of $5,481. Both loans mature on July 1, 2032, bear interest at a fixed rate of 4.74% and require interest-only payments for the duration of their 10-year term. The Company's mortgage on The Locale matures September 1, 2023. Prior to maturity, the Company expects it will exercise the one-year extension option provided for in the loan documents, which requires, among other criteria, that, at the time of extension, the mortgage is not in default and a minimum debt service coverage ratio and minimum loan to value ratio are met. The Company's ability to pay off the mortgages when they become due is dependent upon the Company's ability either to refinance the related mortgage debt or to sell the related asset. With respect to each mortgage loan, if the applicable wholly-owned property-owning subsidiary is unable to refinance or sell the related asset, or in the event that the estimated asset value is less than the mortgage balance, the applicable wholly-owned property-owning subsidiary may, if appropriate, satisfy a mortgage obligation by transferring title of the asset to the lender or permitting a lender to foreclose. As of September 30, 2022 and December 31, 2021, none of our mortgage debt was recourse to the Company, although Highlands or its subsidiaries may act as guarantor under customary, non-recourse, carve-out guarantees in connection with obtaining mortgage loans on certain of our investment properties. The loan documents governing the mortgage that encumbered State Street Market included a “cash trap” provision that was triggered when DICK'S Sporting Goods, which was an anchor tenant at the property, failed to renew its lease agreement. The lender exercised its right to trigger this “cash trap” provision, and, beginning in the fourth quarter of 2020, all of the cash flows from State Street Market which would otherwise have been available for our use were trapped into a blocked account controlled by the lender pending approval of a substitute lease or repayment of the loan. The Company sold the State Street Market asset on March 10, 2022 and the mortgage was simultaneously repaid. The funds previously trapped and held by the lender, along with all required lender escrows, totaling $2.0 million, were returned to the Company in April 2022. Some of the mortgage loans require compliance with certain covenants, such as debt service coverage ratios and minimum net worth requirements. As of September 30, 2022 and December 31, 2021, the Company was in compliance with such covenants. Termination of Credit Agreement On January 21, 2021, the Company repaid $5,000 of the outstanding principal balance of its secured revolving credit facility (the "Revolving Credit Loan") under the Company's Credit Agreement, previously entered into on February 15, 2019 with Huntington National Bank (the "Credit Agreement") and on March 29, 2021, repaid in full all of the remaining outstanding indebtedness related to the Revolving Credit Loan, consisting of approximately $15,000 of principal plus accrued and unpaid interest thereon. The Credit Agreement and related security interests, and all commitments thereunder, were terminated in conjunction with such payment in full. LIBOR Reform In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee ("ARRC"), which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for USD LIBOR in derivatives and other financial contracts. The Company is not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form. The Company obtained a mortgage loan in the principal amount of $18,750 in connection with the acquisition of The Locale in 2019. Because that loan is indexed to LIBOR, the Company is monitoring and evaluating the related risks that have arisen in connection with transitioning to an alternative rate, including any resulting value transfer that may occur. The value of derivative instruments tied to LIBOR, as well as interest rates on our current or future indebtedness, may also be impacted if LIBOR is limited or discontinued. For some instruments, the method of transitioning to an alternative reference rate may be challenging, especially if we cannot agree with the respective counterparty about how to make the transition. While we expect LIBOR to be available in substantially its current form until at least the end of June 2023, it is possible that LIBOR will become unavailable prior to that point. This could occur, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified. Alternative rates and other market changes related to the replacement of LIBOR, including the introduction of financial products and changes in market practices, may lead to risk modeling and valuation challenges, such as adjusting interest rate accrual calculations and building a term structure for an alternative rate. The introduction of an alternative rate also may create additional basis risk and increased volatility as alternative rates are phased in and utilized in parallel with LIBOR. |
Fair Value Measurements
Fair Value Measurements | 9 Months Ended |
Sep. 30, 2022 | |
Fair Value Disclosures [Abstract] | |
Fair Value Measurements | Fair Value Measurements In accordance with ASC 820, Fair Value Measurement and Disclosures, the Company defines fair value based on the price that would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below: • Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. • Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. • Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The Company has estimated fair value using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that would be realized upon disposition. Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis Risk Management Objective of Using Derivatives The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of debt funding and, to a limited extent, the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments, described below, are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company may use interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. We do not enter into derivative financial instruments for speculative purposes. As of September 30, 2022 and December 31, 2021, we had one derivative financial instrument designated as a cash flow hedge, with a notional amount of $18,750 and a maturity date of September 1, 2023. This derivative is an interest rate swap that is measured at fair value on a recurring basis. For derivatives designated, and that qualify, as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income or loss on the consolidated balance sheets and is subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. The amounts recorded as other comprehensive income related to our derivative financial instrument were $112 and $679 for the three and nine months ended September 30, 2022, respectively, and $56 and $230 for the three and nine months ended September 30, 2021, respectively. Amounts reported in accumulated other comprehensive gain related to derivatives will be reclassified to interest expense as interest payments are made on our variable rate debt. The Company estimates that $442 will be reclassified as a decrease to interest expense over the next twelve months. The table below presents the fair value of the Company’s derivative financial instrument as well as its classification on the consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively. September 30, 2022 Level 1 Level 2 Level 3 Total Derivative financial instruments designated as cash flow hedges: Classified as “Deferred costs and other assets, net” $ — $ 441 $ — $ 441 December 31, 2021 Derivative financial instruments designated as cash flow hedges: Level 1 Level 2 Level 3 Total Classified as “Other liabilities” $ — $ 238 $ — $ 238 The fair value of our derivative financial instrument was determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of the derivative financial instrument. This analysis reflected the contractual terms of the derivative, including the period to maturity, and used observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While it was determined that the majority of the inputs used to value the derivative fall within Level 2 of the fair value hierarchy under authoritative accounting guidance, the credit valuation adjustments associated with the derivative also utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of September 30, 2022, the significance of the impact of the credit valuation adjustments on the overall valuation of the derivative financial instrument was assessed, and it was determined that these adjustments were not significant to the overall valuation of the derivative financial instrument. As a result, it was determined that the derivative financial instrument in its entirety should be classified in Level 2 of the fair value hierarchy. Non-Recurring Measurements In accordance with ASC 360-10, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. During the three and nine months ended September 30, 2022 and 2021, events and circumstances indicated that certain investment properties might be impaired. However, the Company's estimate of undiscounted cash flows indicated that such carrying amounts were expected to be recovered. Nonetheless, it is reasonably possible that the estimate of undiscounted cash flows may change in the future resulting in the need to write down assets to fair value. Financial Liabilities Disclosed at Fair Value on a Recurring Basis The table below represents the fair value of financial instruments presented at carrying values in the consolidated financial statements as of September 30, 2022 and December 31, 2021. September 30, 2022 December 31, 2021 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Debt $ 62,687 $ 57,749 $ 62,821 $ 61,052 The Company estimates the fair value of its debt instruments using a weighted average market effective interest rate of 7.15% and 5.05% per annum as of September 30, 2022 and December 31, 2021, respectively. The Company estimates the fair value of its mortgage loans by discounting the anticipated future cash flows of each instrument at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are based on credit spreads observed in the marketplace during the quarter for similar debt instruments, and a floor rate that the Company has derived using its subjective judgment for each asset segment. Based on this, the Company determines the appropriate rate for each of its individual mortgage loans based upon the specific terms of the agreement, including the term to maturity, the quality and nature of the underlying property and its leverage ratio. The weighted average market effective interest rates used range from 5.52% |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2022 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income TaxesThe Company is taxed and operates in a manner that will allow the Company to continue to qualify as a REIT for U.S. federal income tax purposes. So long as it maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed to stockholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its REIT taxable income (subject to certain adjustments) to its stockholders each year. If the Company fails to continue to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and would not be able to re-elect REIT status during the four years following the year of the failure. Although the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and U.S. federal income and excise taxes on its undistributed income.During the three and nine months ended September 30, 2022 and 2021, no income tax benefit or expense was included in the consolidated statements of operations and comprehensive loss. |
Segment Reporting
Segment Reporting | 9 Months Ended |
Sep. 30, 2022 | |
Segment Reporting [Abstract] | |
Segment Reporting | Segment Reporting GAAP has established guidance for reporting information about a company’s operating segments. The Company monitors and reviews its segment reporting structure in accordance with guidance under ASC Topic 280, Segment Reporting (“ASC 280”) to determine whether any changes have occurred that would impact its reportable segments. The Company currently has two business segments, consisting of multi-family and other. The following table summarizes net operating income by segment for the three months ended September 30, 2022 and 2021. Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Total Multi-family Other Total Multi-family Other Lease income $ 7,321 $ 3,918 $ 3,403 $ 6,842 $ 3,669 $ 3,173 Other property income 283 283 — 280 280 — Total revenues 7,604 4,201 3,403 7,122 3,949 3,173 Property operating and real estate tax expenses 3,629 1,996 1,633 3,530 1,921 1,609 Net operating income $ 3,975 $ 2,205 $ 1,770 $ 3,592 $ 2,028 $ 1,564 Non-allocated expenses (1) (4,921) (4,636) Other income and expenses (2) (659) (712) Net loss attributable to non-controlling interests 3 7 Net loss attributable to Highlands REIT, Inc. common stockholders $ (1,602) $ (1,749) (1) Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. (2) Other income and expenses consists of interest income and interest expense. Nine months ended September 30, 2022 Nine months ended September 30, 2021 Total Multi-family Other Total Multi-family Other Rental income $ 22,626 $ 11,743 $ 10,883 $ 20,498 $ 10,907 $ 9,591 Other property income 727 713 14 738 677 61 Total income 23,353 12,456 10,897 21,236 11,584 9,652 Property operating and real estate tax expenses 10,409 5,761 4,648 10,751 5,575 5,176 Net operating income $ 12,944 $ 6,695 $ 6,249 $ 10,485 $ 6,009 $ 4,476 Non-allocated expenses (1) (15,088) (16,448) Loss on sale of investment properties, net (6) — Other income and expenses (2) (1,927) (2,510) Net (income) loss attributable to non-controlling interests 1 17 Net loss attributable to Highlands REIT, Inc. common stockholders $ (4,076) $ (8,456) Balance Sheet Data Real estate assets, net $ 275,836 $ 172,353 $ 103,483 $ 296,113 $ 177,883 $ 118,230 Non-segmented assets (3) 42,208 30,571 Total assets $ 318,044 $ 326,684 Capital expenditures $ 392 $ 285 $ 107 $ 7,227 $ 473 $ 6,754 (1) Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. (2) Other income and expenses consists of interest income and interest expense. (3) Non-segmented assets include cash and cash equivalents, restricted cash and escrows, accounts receivable and deferred costs and other assets. |
Share Based Compensation
Share Based Compensation | 9 Months Ended |
Sep. 30, 2022 | |
Share-Based Payment Arrangement, Noncash Expense [Abstract] | |
Share Based Compensation | Share Based Compensation Incentive Award Plan On April 28, 2016, the board of directors adopted, ratified and approved the Highlands REIT, Inc. 2016 Incentive Award Plan (the “Incentive Award Plan”) under which the Company may grant cash and equity-based incentive awards to eligible employees, directors, and consultants. Prior to the Company’s spin-off from InvenTrust, the board of directors of the Company (then a wholly-owned subsidiary of InvenTrust) adopted, and InvenTrust, as the sole stockholder of Highlands, approved, the Incentive Awards Plan. During the nine months ended September 30, 2022, the Company granted 345 shares of common stock with an aggregate value of $100 based on an estimated net asset value per share of $0.29. During the nine months ended September 30, 2021, the Company granted 6,875 of fully vested shares of common stock with an aggregate value of $1,925 based on an estimated net asset value per share of $0.28. Under the Incentive Award Plan, the Company was initially authorized to grant up to 43,000 shares of the Company's common stock pursuant to awards under the Incentive Award Plan. On August 12, 2021, the board of directors increased the authorized number of shares of its Common Stock under the Incentive Award Plan from 43,000 to 67,000 pursuant to that certain Second Amendment to Highlands REIT, Inc. 2016 Incentive Award Plan, dated as of August 12, 2021. As of September 30, 2022, 21,199 shares were available for future issuance under the Incentive Award Plan. For the nine months ended September 30, 2022, the Company incurred $100 compensation expense and had no required payment for tax withholding for share-based compensation. No tax withholding was required because the shares were granted to our non-employee directors. For the nine months ended September 30, 2021, the Company recognized share-based |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2022 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material adverse effect on the financial statements of the Company. Highlands has also agreed to indemnify InvenTrust against all taxes related to the Company and its assets, including taxes attributable to periods prior to the separation and distribution. InvenTrust has agreed to indemnify the Company for any taxes attributable to the failure of InvenTrust or MB REIT (Florida), Inc., a subsidiary of the Company, to maintain its qualification as a REIT for any taxable year ending on or before December 31, 2016. In April 2020, the Company executed a lease with Northwestern Medical Group for approximately 29,000 square feet at our Sherman Plaza asset. The lease required a significant amount of landlord work, a tenant allowance and a broker commission. The total commitment is estimated to be approximately $3,900. As of September 30, 2022, we estimate that remaining costs under this commitment are approximately $1,300. Rent commenced on this lease in the third quarter of 2021 and payment of the outstanding tenant allowance will be made upon tenant's request and verification that all requirements for payment have been met. In February 2021, the Company executed a lease with Veeco Instruments, Inc. for approximately 97,000 square feet at our Trimble office asset. The lease requires a significant tenant allowance and broker commission. The total commitment is estimated to be approximately $9,100. As of September 30, 2022, we estimate that remaining costs under this commitment are approximately $1,000. The tenant was responsible for rent pursuant to this lease beginning January 1, 2022, however, the tenant has 12 months of rent abatement before any amounts are payable. A portion of the leasing commission related to this lease remains payable by the Company upon the date the tenant's rent abatement ends, which is January 1, 2023. The remainder of the tenant allowance will be paid by the Company upon the tenant receiving its final certificate of occupancy. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2022 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent EventsIn November 2022, the Company executed a lease with XP Power, LLC. for approximately 80,000 square feet at our Trimble office asset. Rental payments under this lease are expected to commence in January 2024. The lease requires significant landlord work, a tenant allowance and broker commission. The total cost commitment is estimated to be approximately $12.4 million. |
Basis of Presentation and Sum_2
Basis of Presentation and Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2022 | |
Accounting Policies [Abstract] | |
Impact of COVID-19 Pandemic | Impact of COVID-19 Pandemic The impact of the COVID-19 pandemic was not as material during the three and nine months ended September 30, 2022 and 2021, as compared to prior periods, due to the reduced impact of government mandated business closures and the related improvement of our tenants' financial performance. The primary impact of the pandemic was and continues to be related to our tenants' ability to make rental payments in a timely fashion or at all. We have been working with our tenants to collect rental payments pursuant to our contractual rights under our lease agreements. At this time, given the uncertainty related to variants of the virus, we are unable to predict whether cases of COVID-19 in our markets will decrease, increase, or remain the same, whether additional COVID-19 vaccines will be available to the general public or will be effective against new variants of the virus, whether local governments will mandate closures of our tenants' businesses or implement other restrictive measures on their and our operations in the future in response to any future resurgence of the pandemic or the degree to which consumers will frequent our tenants' businesses. We have taken and will continue to take a number of measures to mitigate the impact of the pandemic on our business and financial condition. |
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The accompanying consolidated financial statements include the accounts of Highlands and its consolidated subsidiaries. Highlands consolidates its wholly-owned subsidiaries and any other entities which it controls (i) through voting rights or similar rights or (ii) by means other than voting rights if Highlands is the primary beneficiary of a variable interest entity (“VIE”). The portions of the equity and net income of consolidated subsidiaries that are not attributable to the Company are presented separately as amounts attributable to non-controlling interests in our consolidated financial statements. Entities which Highlands does not control, and entities which are VIEs in which Highlands is not a primary beneficiary, if any, are accounted for under appropriate GAAP. Highlands' subsidiaries generally consist of limited liability companies (“LLCs”). The effects of all significant intercompany transactions have been eliminated. |
Variable Interest Entities | Variable Interest EntitiesAs of September 30, 2022 and December 31, 2021, we have determined we are the primary beneficiary of one VIE, the Corvue Venture, and have consolidated the operations of this entity in the accompanying consolidated financial statements. We reviewed the operating agreement of the Corvue Venture in order to determine our rights and the rights of our third-party partner, including whether those rights are protective or participating. We have determined we are the primary beneficiary of the Corvue Venture because we have (a) the power to direct the activities that most significantly impact the economic performance of the Corvue Venture, (b) the obligation to absorb the losses that could be significant to the Corvue Venture and (c) the right to receive the benefits that could be significant to the Corvue Venture. |
Reclassifications | Reclassifications The Company has made certain reclassifications to the consolidated statements of cash flows as of September 30, 2021, to conform to the 2022 presentation. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements Recently issued accounting standards or pronouncements not discussed herein have been excluded because they are either not relevant to the Company, or are not expected to have, or did not have, a material effect on the consolidated financial statements of the Company. |
Disposed Investment Properties
Disposed Investment Properties (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Schedule of Disposal Group | The following table reflects the investment property dispositions during the nine months ended September 30, 2022. The Company recognized a net loss on sale of investment properties of $6. Property Location Disposition Date Gross Disposition Price Sale Proceeds, Net Loss on Sale State Street Market Rockford, Illinois March 10, 2022 $ 9,000 $ 8,938 $ (6) |
Leases (Tables)
Leases (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Leases [Abstract] | |
Lease Income | Lease income related to the Company's operating leases is comprised of the following: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Lease income related to fixed lease payments $ 6,248 $ 5,908 $ 19,260 $ 17,440 Lease income related to variable lease payments (1) 1,073 934 3,366 3,058 Other 283 280 727 738 Total revenues $ 7,604 $ 7,122 $ 23,353 $ 21,236 (1) Variable lease payments are comprised of tenant recovery income. |
Payments to be received under Topic 842 | As of September 30, 2022, commercial operating leases provide for future minimum rental income, assuming no expiring leases are renewed, as follows. Apartment leases are not included as the terms are generally for one year or less. 2022 (remaining) $ 1,879 2023 9,263 2024 9,158 2025 8,409 2026 8,139 Thereafter 52,207 Total $ 89,055 |
Accounts Payable and Accrued _2
Accounts Payable and Accrued Expenses (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Payables and Accruals [Abstract] | |
Schedule of Accounts Payable and Accrued Expenses | Accounts payable and accrued expenses consist of the following: September 30, 2022 December 31, 2021 Accrued real estate taxes $ 6,629 $ 6,593 Accrued compensation 2,511 1,140 Accrued interest payable 205 215 Other accrued expenses 1,451 1,578 Total accounts payable and accrued expenses $ 10,796 $ 9,526 |
Debt (Tables)
Debt (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Debt Disclosure [Abstract] | |
Schedule of Debt Outstanding | Total debt outstanding as of September 30, 2022 and December 31, 2021 was as follows: September 30, 2022 December 31, 2021 Debt, gross $ 62,687 $ 62,821 Mortgage discount (224) (257) Deferred financing costs, net (572) (434) Total Debt, Net $ 61,891 $ 62,130 |
Scheduled Maturities of Mortgage Indebtedness | As of September 30, 2022, the Company’s outstanding mortgage indebtedness included six mortgage loans with various maturities through July 2032, as follows: Debt maturing during the year As of September 30, 2022 Weighted average interest rate 2022 (remaining) $ — — % 2023 17,594 3.28 % (1) 2024 — — % 2025 — — % 2026 24,379 4.56 % Thereafter 20,714 4.33 % Total $ 62,687 4.12 % (1) See below for discussion of the swap agreement entered into with the mortgage loan obtained in connection with the acquisition of The Locale. The weighted average interest rate reflected is the fixed swap rate. |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Fair Value Disclosures [Abstract] | |
Derivative Liabilities Measured On A Recurring Basis | The table below presents the fair value of the Company’s derivative financial instrument as well as its classification on the consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively. September 30, 2022 Level 1 Level 2 Level 3 Total Derivative financial instruments designated as cash flow hedges: Classified as “Deferred costs and other assets, net” $ — $ 441 $ — $ 441 December 31, 2021 Derivative financial instruments designated as cash flow hedges: Level 1 Level 2 Level 3 Total Classified as “Other liabilities” $ — $ 238 $ — $ 238 |
Schedule of the Fair Value of Financial Instruments | The table below represents the fair value of financial instruments presented at carrying values in the consolidated financial statements as of September 30, 2022 and December 31, 2021. September 30, 2022 December 31, 2021 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Debt $ 62,687 $ 57,749 $ 62,821 $ 61,052 |
Segment Reporting (Tables)
Segment Reporting (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Segment Reporting [Abstract] | |
Summary of Net Property Operations | The following table summarizes net operating income by segment for the three months ended September 30, 2022 and 2021. Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Total Multi-family Other Total Multi-family Other Lease income $ 7,321 $ 3,918 $ 3,403 $ 6,842 $ 3,669 $ 3,173 Other property income 283 283 — 280 280 — Total revenues 7,604 4,201 3,403 7,122 3,949 3,173 Property operating and real estate tax expenses 3,629 1,996 1,633 3,530 1,921 1,609 Net operating income $ 3,975 $ 2,205 $ 1,770 $ 3,592 $ 2,028 $ 1,564 Non-allocated expenses (1) (4,921) (4,636) Other income and expenses (2) (659) (712) Net loss attributable to non-controlling interests 3 7 Net loss attributable to Highlands REIT, Inc. common stockholders $ (1,602) $ (1,749) (1) Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. (2) Other income and expenses consists of interest income and interest expense. Nine months ended September 30, 2022 Nine months ended September 30, 2021 Total Multi-family Other Total Multi-family Other Rental income $ 22,626 $ 11,743 $ 10,883 $ 20,498 $ 10,907 $ 9,591 Other property income 727 713 14 738 677 61 Total income 23,353 12,456 10,897 21,236 11,584 9,652 Property operating and real estate tax expenses 10,409 5,761 4,648 10,751 5,575 5,176 Net operating income $ 12,944 $ 6,695 $ 6,249 $ 10,485 $ 6,009 $ 4,476 Non-allocated expenses (1) (15,088) (16,448) Loss on sale of investment properties, net (6) — Other income and expenses (2) (1,927) (2,510) Net (income) loss attributable to non-controlling interests 1 17 Net loss attributable to Highlands REIT, Inc. common stockholders $ (4,076) $ (8,456) Balance Sheet Data Real estate assets, net $ 275,836 $ 172,353 $ 103,483 $ 296,113 $ 177,883 $ 118,230 Non-segmented assets (3) 42,208 30,571 Total assets $ 318,044 $ 326,684 Capital expenditures $ 392 $ 285 $ 107 $ 7,227 $ 473 $ 6,754 (1) Non-allocated expenses consists of general and administrative expenses and depreciation and amortization. (2) Other income and expenses consists of interest income and interest expense. (3) Non-segmented assets include cash and cash equivalents, restricted cash and escrows, accounts receivable and deferred costs and other assets. |
Organization (Details)
Organization (Details) $ / shares in Units, $ in Thousands | Aug. 16, 2019 USD ($) | Apr. 28, 2016 $ / shares shares | Sep. 30, 2022 parcel property $ / shares | Dec. 31, 2021 property parcel $ / shares |
Conversion of Stock [Line Items] | ||||
Common stock, par value (in dollars per share) | $ / shares | $ 0.01 | $ 0.01 | $ 0.01 | |
Number of assets (in property) | property | 19 | 20 | ||
Parcels of land | parcel | 1 | 1 | ||
Common stock | ||||
Conversion of Stock [Line Items] | ||||
Shares issued for each share held at date of spin-off (in shares) | shares | 1 | |||
Corvue Venture | ||||
Conversion of Stock [Line Items] | ||||
Ownership percentage | 85% | |||
Equity investment contributions | $ | $ 9,000 |
Basis of Presentation and Sum_3
Basis of Presentation and Summary of Significant Accounting Policies - Additional Information (Details) - USD ($) $ in Thousands | Sep. 30, 2022 | Dec. 31, 2021 | Sep. 30, 2021 |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Assets | $ 318,044 | $ 321,013 | $ 326,684 |
Liabilities | 74,805 | 74,476 | |
Variable Interest Entity, Primary Beneficiary | Corvue Venture | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Assets | 25,295 | 25,396 | |
Liabilities | $ 18,143 | $ 18,521 |
Disposed Investment Propertie_2
Disposed Investment Properties - Narrative (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Discontinued Operations and Disposal Groups [Abstract] | ||||
Loss on sale of investment properties, net | $ 0 | $ 0 | $ (6) | $ 0 |
Disposed Investment Propertie_3
Disposed Investment Properties - Disposals (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Sale Proceeds, Net | $ 8,938 | $ 0 | ||
Loss on Sale | $ 0 | $ 0 | (6) | 0 |
State Street Market Rockford, IL | ||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||
Gross Disposition Price | $ 9,000 | $ 0 | 9,000 | $ 0 |
Sale Proceeds, Net | $ 8,938 |
Leases - Narrative (Details)
Leases - Narrative (Details) | Sep. 30, 2022 |
Minimum | |
Lessor, Lease, Description [Line Items] | |
Lease terms | 1 year |
Maximum | |
Lessor, Lease, Description [Line Items] | |
Lease terms | 15 years |
Leases - Lease Income (Details)
Leases - Lease Income (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Leases [Abstract] | ||||
Lease income related to fixed lease payments | $ 6,248 | $ 5,908 | $ 19,260 | $ 17,440 |
Lease income related to variable lease payments | 1,073 | 934 | 3,366 | 3,058 |
Other | 283 | 280 | 727 | 738 |
Total revenues | $ 7,604 | $ 7,122 | $ 23,353 | $ 21,236 |
Leases - Receivable Maturity (D
Leases - Receivable Maturity (Details) $ in Thousands | Sep. 30, 2022 USD ($) |
Leases [Abstract] | |
2022 (remaining) | $ 1,879 |
2023 | 9,263 |
2024 | 9,158 |
2025 | 8,409 |
2026 | 8,139 |
Thereafter | 52,207 |
Total | $ 89,055 |
Accounts Payable and Accrued _3
Accounts Payable and Accrued Expenses (Details) - USD ($) $ in Thousands | Sep. 30, 2022 | Dec. 31, 2021 |
Payables and Accruals [Abstract] | ||
Accrued real estate taxes | $ 6,629 | $ 6,593 |
Accrued compensation | 2,511 | 1,140 |
Accrued interest payable | 205 | 215 |
Other accrued expenses | 1,451 | 1,578 |
Total accounts payable and accrued expenses | $ 10,796 | $ 9,526 |
Debt - Outstanding Debt (Detail
Debt - Outstanding Debt (Details) - USD ($) $ in Thousands | Sep. 30, 2022 | Dec. 31, 2021 |
Debt Disclosure [Abstract] | ||
Debt, gross | $ 62,687 | $ 62,821 |
Mortgage discount | (224) | (257) |
Deferred financing costs, net | (572) | (434) |
Total Debt, Net | $ 61,891 | $ 62,130 |
Debt - Scheduled Maturities (De
Debt - Scheduled Maturities (Details) - USD ($) $ in Thousands | Sep. 30, 2022 | Dec. 31, 2021 |
Debt Instrument [Line Items] | ||
Total | $ 62,687 | $ 62,821 |
Mortgages | ||
Debt Instrument [Line Items] | ||
2022 (remaining) | 0 | |
2023 | 17,594 | |
2024 | 0 | |
2025 | 0 | |
2026 | 24,379 | |
Thereafter | 20,714 | |
Total | $ 62,687 | |
Weighted average interest rate | ||
2022 (remaining) | 0% | |
2023 | 3.28% | |
2024 | 0% | |
2025 | 0% | |
2026 | 4.56% | |
Thereafter | 4.33% | |
Total | 4.12% |
Debt - Additional Information (
Debt - Additional Information (Details) $ in Thousands | 9 Months Ended | ||||||
Mar. 29, 2021 USD ($) | Jan. 21, 2021 USD ($) | Sep. 30, 2022 USD ($) loan | Sep. 30, 2021 USD ($) | Apr. 30, 2022 USD ($) | Dec. 31, 2021 USD ($) | Dec. 31, 2019 USD ($) | |
Debt Instrument [Line Items] | |||||||
Number of mortgage loan | loan | 6 | ||||||
Number of loans | loan | 2 | ||||||
Restricted cash | $ 1,793 | $ 3,491 | $ 3,689 | ||||
Payoff of debt | $ 8,677 | $ 0 | |||||
Mortgages | |||||||
Debt Instrument [Line Items] | |||||||
Restricted cash | $ 2,000 | ||||||
Mortgages | Mortgage Loan in Connection with Acquisition of The Locale | |||||||
Debt Instrument [Line Items] | |||||||
Principal amount | $ 18,750 | ||||||
Debt Instrument, Extension Term | 1 year | ||||||
Line of Credit | Revolving Credit Facility | |||||||
Debt Instrument [Line Items] | |||||||
Payoff of debt | $ 15,000 | $ 5,000 | |||||
Secured Debt | Loan Secured by Mortgage on Kenilworth Court | |||||||
Debt Instrument [Line Items] | |||||||
Principal amount | $ 3,784 | ||||||
Fixed rate | 4.74% | ||||||
Loan term | 10 years | ||||||
Secured Debt | Loan Secured by Mortgage on The Lafayette | |||||||
Debt Instrument [Line Items] | |||||||
Principal amount | $ 5,481 | ||||||
Fixed rate | 4.74% | ||||||
Loan term | 10 years |
Fair Value Measurements - Narra
Fair Value Measurements - Narrative (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2022 USD ($) derivative_instrument | Sep. 30, 2021 USD ($) | Sep. 30, 2022 USD ($) derivative_instrument | Sep. 30, 2021 USD ($) | Dec. 31, 2021 USD ($) derivative_instrument | |
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
Unrealized gain on derivatives | $ 112 | $ 56 | $ 679 | $ 230 | |
Cash flow hedges to be reclassified in the next twelve months | $ 442 | ||||
Discount rate | Long-term debt | |||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
Measurement input percentage | 0.0715 | 0.0715 | 0.0505 | ||
Discount rate | Long-term debt | Minimum | |||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
Measurement input percentage | 0.0552 | 0.0552 | 0.0338 | ||
Discount rate | Long-term debt | Maximum | |||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
Measurement input percentage | 0.0881 | 0.0881 | 0.0687 | ||
Cash Flow Hedging | Interest Rate Swap | |||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||
Number of derivative instruments | derivative_instrument | 1 | 1 | 1 | ||
Notional amount | $ 18,750 | $ 18,750 | $ 18,750 |
Fair Value Measurements - Deriv
Fair Value Measurements - Derivative Liabilities (Details) - Recurring - USD ($) $ in Thousands | Sep. 30, 2022 | Dec. 31, 2021 |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Derivative liabilities | $ 441 | $ 238 |
Level 1 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Derivative liabilities | 0 | 0 |
Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Derivative liabilities | 441 | 238 |
Level 3 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Derivative liabilities | $ 0 | $ 0 |
Fair Value Measurements - Not M
Fair Value Measurements - Not Measured at Fair Value (Details) - USD ($) $ in Thousands | Sep. 30, 2022 | Dec. 31, 2021 |
Carrying Value | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Debt | $ 62,687 | $ 62,821 |
Estimated Fair Value | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Debt | $ 57,749 | $ 61,052 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Income Tax Disclosure [Abstract] | ||||
Income tax expense (benefit) | $ 0 | $ 0 | $ 0 | $ 0 |
Segment Reporting - Narrative (
Segment Reporting - Narrative (Details) | 9 Months Ended |
Sep. 30, 2022 segment | |
Segment Reporting [Abstract] | |
Number of business segments (in segments) | 2 |
Segment Reporting - Net Propert
Segment Reporting - Net Property Operations (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | |
Segment Reporting Information [Line Items] | |||||
Total revenues | $ 7,604 | $ 7,122 | $ 23,353 | $ 21,236 | |
Operating expenses | 3,629 | 3,530 | 10,409 | 10,751 | |
Net operating income (loss) | 3,975 | 3,592 | 12,944 | 10,485 | |
Loss on sale of investment properties, net | 0 | 0 | (6) | 0 | |
Net loss attributable to non-controlling interests | 3 | 7 | 1 | 17 | |
Net loss attributable to Highlands REIT, Inc. common stockholders | (1,602) | (1,749) | (4,076) | (8,456) | |
Total assets | 318,044 | 326,684 | 318,044 | 326,684 | $ 321,013 |
Capital expenditures | 392 | 7,227 | |||
Rental income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 7,321 | 6,842 | 22,626 | 20,498 | |
Other property income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 283 | 280 | 727 | 738 | |
Other | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 3,403 | 3,173 | 10,897 | 9,652 | |
Operating expenses | 1,633 | 1,609 | 4,648 | 5,176 | |
Net operating income (loss) | 1,770 | 1,564 | 6,249 | 4,476 | |
Other | Rental income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 3,403 | 3,173 | 10,883 | 9,591 | |
Other | Other property income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 0 | 0 | 14 | 61 | |
Reconciling items | |||||
Segment Reporting Information [Line Items] | |||||
Non-allocated expenses | (4,921) | (4,636) | (15,088) | (16,448) | |
Other income and expenses | (659) | (712) | (1,927) | (2,510) | |
Total assets | 42,208 | 30,571 | 42,208 | 30,571 | |
Operating Segments And Corporate, Non-Segment | |||||
Segment Reporting Information [Line Items] | |||||
Total assets | 275,836 | 296,113 | 275,836 | 296,113 | |
Net Lease | Operating segments | |||||
Segment Reporting Information [Line Items] | |||||
Total assets | 172,353 | 177,883 | 172,353 | 177,883 | |
Capital expenditures | 285 | 473 | |||
Retail | Operating segments | |||||
Segment Reporting Information [Line Items] | |||||
Total assets | 103,483 | 118,230 | 103,483 | 118,230 | |
Capital expenditures | 107 | 6,754 | |||
Multi-family | Operating segments | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 4,201 | 3,949 | 12,456 | 11,584 | |
Operating expenses | 1,996 | 1,921 | 5,761 | 5,575 | |
Net operating income (loss) | 2,205 | 2,028 | 6,695 | 6,009 | |
Multi-family | Operating segments | Rental income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | 3,918 | 3,669 | 11,743 | 10,907 | |
Multi-family | Operating segments | Other property income | |||||
Segment Reporting Information [Line Items] | |||||
Total revenues | $ 283 | $ 280 | $ 713 | $ 677 |
Share Based Compensation (Detai
Share Based Compensation (Details) - USD ($) $ / shares in Units, $ in Thousands | 9 Months Ended | |||
Sep. 30, 2022 | Sep. 30, 2021 | Aug. 12, 2021 | Apr. 28, 2016 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Payment for tax withholding for share-based compensation | $ 0 | $ 883 | ||
Executive Officer | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Granted (in shares) | 345,000 | 6,875 | ||
Granted (in dollars per share) | $ 290 | $ 0.28 | ||
Aggregate value of shares granted | $ 100 | $ 1,925 | ||
Incentive awards | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Number of shares authorized to grant (up to) (in shares) | 67,000,000 | 43,000,000 | ||
Shares available for future issuance (in shares) | 21,199,000 | |||
Incentive Award Plan | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Stock-based compensation expense | $ 100 | $ 1,979 |
Commitments and Contingencies (
Commitments and Contingencies (Details) $ in Millions | 1 Months Ended | 9 Months Ended | ||
Feb. 28, 2021 USD ($) ft² | Apr. 30, 2020 ft² | Sep. 30, 2022 USD ($) | Apr. 30, 2021 USD ($) | |
Northwestern Medical Group Lease | ||||
Loss Contingencies [Line Items] | ||||
Leased area (in square feet) | ft² | 29,000 | |||
Current estimated commitment | $ 3.9 | |||
Re-estimated remaining obligation | $ 1.3 | |||
Veeco Instrument, Inc. Lease | ||||
Loss Contingencies [Line Items] | ||||
Leased area (in square feet) | ft² | 97,000 | |||
Current estimated commitment | $ 9.1 | |||
Re-estimated remaining obligation | $ 1 | |||
Rent abatement | 12 months |
Subsequent Events (Details)
Subsequent Events (Details) $ in Millions | Nov. 10, 2022 USD ($) ft² |
Forecast | |
Subsequent Event [Line Items] | |
Estimated cost commitment | $ | $ 12.4 |
Subsequent event | |
Subsequent Event [Line Items] | |
Leased area | ft² | 80,000 |