8-K: Inland Real Estate Income Trust Announces Estimated Net Asset Value of $19.17 Per Share

Inland Real Estate Income Trust has set its estimated net asset value (NAV) at $19.17 per share as of December 31, 2023, impacting share repurchase and distribution reinvestment plans.

Summary

• Inland Real Estate Income Trust has determined its estimated net asset value (NAV) to be $19.17 per share as of December 31, 2023.
• This valuation was performed by CBRE Capital Advisors, Inc., who provided a range of $18.57 to $20.95 per share.
• The board selected a value below the midpoint of the range due to concerns about the impact of higher interest rates and the performance of big box retailers.
• The company's total estimated net asset value is approximately $693.3 million, based on 36.2 million shares outstanding.
• The new share price for the distribution reinvestment plan (DRP) is $19.17 per share.
• Share repurchases under the Share Repurchase Program (SRP) will be at $15.34 per share, which is 80% of the NAV.
• The real estate portfolio consists of 52 retail properties totaling 7.2 million square feet with a weighted average ownership period of 7.4 years.
• The value of the real estate assets decreased by 9.8% compared to the original cost plus capital expenditures.
• The valuation was based on a discounted cash flow analysis, using a weighted average discount rate of 8.15% and a weighted average terminal capitalization rate of 7.30%.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the decrease in NAV, concerns about big box retailers, and the overall challenges in the real estate market. However, the company is taking a conservative approach and following industry best practices.

Positives

• The company engaged a reputable third-party firm, CBRE Capital Advisors, for the valuation.
• The valuation process followed industry best practices and guidelines from the Institute for Portfolio Alternatives (IPA).
• The company has a diversified portfolio of 52 retail properties.
• The company has a distribution reinvestment plan (DRP) and a share repurchase program (SRP) in place.

Negatives

• The estimated per share NAV decreased from $19.86 in 2022 to $19.17 in 2023.
• The value of the real estate assets decreased by 9.8% compared to the original cost plus capital expenditures.
• The board selected a NAV below the midpoint of the valuation range due to concerns about higher interest rates and big box retailers.
• Approximately 31% of the company's annualized base rent comes from non-grocery big box retailers, which are facing challenges.
• The company acknowledges that the NAV is a snapshot in time and may not represent the actual value a stockholder would receive.

Risks

• The company is exposed to risks associated with general economic conditions, including high inflation and increasing interest rates.
• Competition from internet retailers poses a risk to the company's tenants and their sales revenue.
• The company faces risks related to unforeseen events affecting the commercial real estate industry and retail real estate.
• The value of the company's real estate assets is subject to market fluctuations and changes in interest rates.
• The company's reliance on big box retailers poses a risk due to shifting consumer preferences and internet competition.
• The costs to backfill big box spaces can be expensive, in addition to capital expenditures required to maintain the properties as they age.

Future Outlook

The company expects to publish an updated Estimated Per Share NAV on at least an annual basis. The company also notes that the NAV is a snapshot in time and will likely change over time.

Management Comments

• The Board considered the effects of big box retailers in determining the estimated per share value.
• The Board believes that big box is a retail sector that continues to be negatively impacted more than other retail sectors due to shifting consumer preferences and Internet competition.
• The Board selected an estimated per share NAV of $19.17 that is below the mid-point of the range in the Valuation Report due to the decrease in the value of the real estate assets and the uncertainties surrounding big box retailers.
• The Board, including all of the Board's independent members, and not CBRE Cap, is ultimately and solely responsible for the determination of the Estimated Per Share NAV.

Industry Context

The announcement reflects the broader challenges faced by the retail real estate sector, particularly the impact of e-commerce and changing consumer preferences on big box retailers. The increase in interest rates is also impacting real estate valuations across the industry.

Comparison to Industry Standards

• The company's valuation methodology aligns with the Institute for Portfolio Alternatives (IPA) guidelines, which are a standard for non-listed direct investment vehicles.
• The use of a discounted cash flow analysis is a common practice in real estate valuation.
• The company's engagement of CBRE Capital Advisors, a reputable firm, is consistent with industry practices for independent valuations.
• The decrease in real estate asset value is consistent with the broader trend of increased discount rates and terminal capitalization rates due to higher market interest rates, which is impacting many real estate companies.
• The company's decision to select a NAV below the midpoint of the valuation range reflects a conservative approach, which is not uncommon in the current market environment.

Management Changes

Stakeholder Impact

• Shareholders will see a decrease in the estimated value of their shares.
• Shareholders participating in the DRP will purchase shares at $19.17 per share.
• Shareholders selling shares through the SRP will receive $15.34 per share.
• The company's employees may be impacted by the changes in leadership.
• The company's tenants may be impacted by the challenges faced by big box retailers.

Next Steps

• The company will use the new NAV for share repurchases and distribution reinvestments.
• The company expects to publish an updated Estimated Per Share NAV on at least an annual basis.

Key Dates

Keywords

Net Asset Value, NAV, Real Estate, Valuation, Share Repurchase, Distribution Reinvestment, Retail Properties, CBRE Capital Advisors, Big Box Retailers, Discounted Cash Flow