At March 31, 2025 and December 31, 2024, the Company’s indebtedness was comprised of borrowings that bear interest at variable and fixed rates. The fair value of the Company’s borrowings under variable rates at March 31, 2025 and December 31, 2024 approximate their carrying values as the debt is at variable rates currently available and resets on a monthly basis.
The fair value of the Company’s fixed rate debt as of March 31, 2025 and December 31, 2024 is estimated by using Level 2 inputs such as discounting the estimated future cash flows using current market rates for similar loans that would be made to borrowers with similar credit ratings and for the same remaining maturities.
Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement at such fair value amounts may not be possible.
Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items, such as the net gain on change in fair value of debt held under the fair value option, which are recorded in the interim period. The provision for income taxes for the three months ended March 31, 2024 reflects an income tax expense of $0.1 million at an estimated annual effective tax rate of (0.4)%. There was no income tax expense at March 31, 2025. The difference between the Company’s effective tax rate and the federal statutory rate is primarily due to the valuation allowance recorded during each period. As of March 31, 2025 and December 31, 2024, the Company maintained a full valuation allowance on its deferred tax assets as the timing of the utilization of its net operating losses is uncertain. For the three months ended March 31, 2025 and 2024, the Company recorded a valuation allowance of $2.0 million and $1.7 million, respectively, against the deferred tax asset.
Note 16 – Related Party Transactions
Receivables and Payables
As of each of March 31, 2025 and December 31, 2024, the Company had $1.0 million in receivables due from related parties, included in Other assets, net on the condensed consolidated balance sheets. The $1.0 million at March 31, 2025 and December 31, 2024 relates to the merger pursuant to which the Company acquired Lamar Station Plaza West, including the note receivable due from a related party. Additionally, as of each of March 31, 2025 and December 31, 2024, the Company had less than $0.1 million in payables due to properties managed by the Company related to amounts borrowed by the Company for working capital, which are reflected in Payables due to related parties on the condensed consolidated balance sheets.
Approximately $0.1 million of the Company’s accounts receivable, net balance at March 31, 2025 was owed from related parties. There were no accounts receivable owed from related parties at December 31, 2024.
Tax Protection Agreements
On December 27, 2019, the Company and the Operating Partnership entered into tax protection agreements (the “Initial Tax Protection Agreements”) with each of the prior investors in BSV Colonial Investor LLC, BSV Lamonticello Investors LLC and BSV Patrick Street Member LLC, including Messrs. Jacoby, Yockey and Topchy, in connection with their receipt of Common OP units in certain of the Initial Mergers. On April 4, 2023, the Company and the Operating Partnership entered into a tax protection agreement (together with the Initial Tax Protection Agreements, the “Tax Protection Agreements”), with each of the prior investors in BSV Lamont Investors LLC, including Messrs. Jacoby, Yockey and Topchy, in connection with their receipt of Common OP units in the merger whereby the Company acquired Lamar Station Plaza West. Pursuant to the Tax Protection Agreements, until the seventh anniversary of the completion of the applicable merger, the Company and the Operating Partnership may be required to indemnify the other parties thereto for their tax liabilities related to built-in gain that exists with respect to the properties known as Midtown Colonial, Midtown Lamonticello, Vista Shops at Golden Mile and Lamar Station Plaza West (the “Protected Properties”). Furthermore, until the seventh anniversary of the completion of the applicable merger, the Company and the Operating Partnership will be required to use commercially reasonable efforts to avoid any event, including a sale of the Protected Properties, that triggers built-in gain to the other parties to the Tax Protection Agreements, subject to certain exceptions, including like-kind exchanges under Section 1031 of the Code.
Guarantees
The Company’s subsidiaries’ obligations under the Eagles Sub-OP Operating Agreement and Brookhill mortgage loan are guaranteed by Messrs. Jacoby and Yockey. The Company has agreed to indemnify Mr. Yockey for any losses he incurs as a result of his guarantee of the Brookhill mortgage loan. Mr. Jacoby is also a guarantor under the mortgage loan agreements for Coral Hills Shopping Center, Cromwell Field Shopping Center, Highlandtown Village Shopping Center, Midtown Colonial and Midtown Lamonticello, and West Broad Shopping Center.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read together with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. References to “we,” “our,” “us,” and “Company” refer to Broad Street Realty, Inc., together with its consolidated subsidiaries.
Forward-Looking Statements
We make statements in this Quarterly Report on Form 10-Q (this “report”) that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). These forward-looking statements include, without limitation, statements about our estimates, expectations, predictions and forecasts of our future business plans and financial and operating performance and/or results, as well as statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. When we use the words “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “project,” “seek,” or similar expressions or their negatives, as well as statements in future tense, we intend to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, beliefs and expectations, such forward-looking statements are not predictions of future events or guarantees of future performance, and our actual financial and operating results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such differences are described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024 and in other documents that we file from time to time with the Securities and Exchange Commission (the “SEC”), which factors include, without limitation, the following:
•our limited access to capital and our ability to repay, refinance, restructure and/or extend our indebtedness as it becomes due;
•the substantial rights of the Fortress Member (as defined herein) under the Eagles Sub-OP Operating Agreement (as defined below), including repayment and control rights due to the occurrence of a Trigger Event (as defined in the Eagles Sub-OP Operating Agreement), as discussed below under “—Factors that May Impact Future Results of Operations—Fortress Member’s Rights”;
•our success in implementing our business strategy and our ability to identify, underwrite, finance, consummate and integrate acquisitions or investments;
•adverse economic or real estate developments, either nationally or in the markets in which our properties are located;
•changes in financial markets and interest rates, or to our business or financial condition;
•the nature and extent of our competition;
•other factors affecting the retail industry or the real estate industry generally;
•availability of financing and capital;
•the performance of our portfolio; and
•the impact of any financial, accounting, legal or regulatory issues or litigation.
Given these uncertainties, undue reliance should not be placed on our forward-looking statements. We assume no duty or responsibility to publicly update or revise any forward-looking statement that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. We urge you to review the disclosures concerning risks in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024 for further discussion of these and other risks, as well as the risks, uncertainties and other factors discussed in this report and identified in other documents we file with the SEC from time to time. You should carefully consider these risks before making any investment decisions in the Company. New risks and uncertainties may also emerge from time to time that could materially and adversely affect us.
Overview
We are focused on owning and managing essential grocery-anchored and mixed-use assets located in densely populated technology employment hubs and higher education centers within the Mid-Atlantic, Southeast and Colorado markets. As of March 31, 2025, we owned 15 properties. The properties in our portfolio are dispersed in sub-markets that we believe generally have high population densities, high traffic counts, good visibility and accessibility, which provide our tenants with attractive locations to serve the necessity-based needs of the surrounding communities. In addition, we provide commercial real estate brokerage services for our own portfolio and third-party office, industrial and retail operators and tenants.
The table below provides certain information regarding our portfolio as of March 31, 2025 and December 31, 2024. For additional information, see “—Our Portfolio.”
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
Number of properties |
|
|
15 |
|
|
|
15 |
|
Number of states |
|
|
4 |
|
|
|
4 |
|
Total rentable square feet (in thousands) |
|
|
1,911 |
|
|
|
1,911 |
|
Retail - all properties |
|
|
1,649 |
|
|
|
1,649 |
|
Retail - operating properties (1) |
|
|
1,508 |
|
|
|
1,508 |
|
Residential |
|
|
262 |
|
|
|
262 |
|
Leased % of rentable square feet (2): |
|
|
|
|
|
|
Total portfolio |
|
|
91.4 |
% |
|
|
92.1 |
% |
Retail - all properties |
|
|
90.1 |
% |
|
|
90.9 |
% |
Retail - operating properties (1) |
|
|
95.1 |
% |
|
|
95.9 |
% |
Residential |
|
|
99.7 |
% |
|
|
100.0 |
% |
Occupied % of rentable square feet (2): |
|
|
|
|
|
|
Total portfolio |
|
|
87.9 |
% |
|
|
89.5 |
% |
Retail - all properties |
|
|
86.1 |
% |
|
|
87.8 |
% |
Retail - operating properties (1) |
|
|
91.3 |
% |
|
|
93.2 |
% |
Residential |
|
|
99.7 |
% |
|
|
100.0 |
% |
Total residential units/beds |
|
240/620 |
|
|
240/620 |
|
Monthly residential base rent per bed |
|
$ |
1,268.21 |
|
|
$ |
1,277.27 |
|
Annualized residential base rent per leased square foot (3) |
|
$ |
35.96 |
|
|
$ |
36.22 |
|
Annualized retail base rent per leased square foot (3) |
|
$ |
15.52 |
|
|
$ |
15.31 |
|
(1)Excludes Lamar Station Plaza East and the retail portion of Midtown Row, which are under redevelopment.
(2)Percent leased is calculated as (a) gross leasable area (“GLA”) of rentable commercial square feet occupied or subject to a lease as of March 31, 2025 or December 31, 2024, as applicable, divided by (b) total GLA as of March 31, 2025 or December 31, 2024, as applicable, expressed as a percentage. The total percent occupied, which excludes leases that have been signed but not commenced, was 87.9% and 89.5% as of March 31, 2025 and December 31, 2024, respectively.
(3)Annualized base rent per leased square foot is calculated as total annualized base rent divided by leased GLA as of March 31, 2025 or December 31, 2024, as applicable.
The table below provides certain information regarding our retail portfolio as of March 31, 2025 and December 31, 2024. For additional information, see “—Our Portfolio.”
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
Total rentable square feet (in thousands) |
|
|
1,649 |
|
|
|
1,649 |
|
Anchor spaces |
|
|
848 |
|
|
|
854 |
|
Inline spaces |
|
|
801 |
|
|
|
795 |
|
Leased % of rentable square feet (1): |
|
|
|
|
|
|
Total retail portfolio |
|
|
90.1 |
% |
|
|
90.9 |
% |
Anchor spaces |
|
|
95.0 |
% |
|
|
95.1 |
% |
Inline spaces |
|
|
84.8 |
% |
|
|
86.4 |
% |
Occupied % of rentable square feet (1): |
|
|
|
|
|
|
Total retail portfolio |
|
|
86.1 |
% |
|
|
87.8 |
% |
Anchor spaces |
|
|
92.9 |
% |
|
|
95.1 |
% |
Inline spaces |
|
|
78.8 |
% |
|
|
79.9 |
% |
Weighted average remaining lease term (in years) (2) |
|
|
5.2 |
|
|
|
5.2 |
|
(1)Percent leased is calculated as (a) GLA of rentable commercial square feet occupied or subject to a lease as of March 31, 2025 or December 31, 2024, as applicable, divided by (b) total GLA as of March 31, 2025 or December 31, 2024, as applicable, expressed as a percentage. The total percent occupied, which excludes leases that have been signed but not commenced, was 86.1% and 87.8% as of March 31, 2025 and December 31, 2024, respectively.
(2)The average remaining lease term (in years) excludes the future options to extend the term of the lease.
We are structured as an “Up-C” corporation with substantially all of our operations conducted through Broad Street Operating Partnership, LP (our “Operating Partnership”) and its direct and indirect subsidiaries. As of March 31, 2025, we owned 86.4% of the
Class A common units of limited partnership interest in the Operating Partnership (“Common OP units”) and Series A preferred units of limited partnership interest in the Operating Partnership (“Preferred OP units” and, together with the Common OP units, “OP units”), and we are the sole member of the sole general partner of our Operating Partnership. We began operating in our current structure on December 27, 2019 upon the completion of certain mergers that were part of the previously announced series of mergers (collectively, the “Mergers”) on such date, and we operate as a single reporting segment.
Portfolio Summary
As of March 31, 2025, we owned 15 properties, of which 12 are located in the Mid-Atlantic region and three are located in Colorado. Retail properties comprise our entire portfolio except for a portion of one of our properties (Midtown Row), which includes a student housing property. Our retail properties have 1,648,730 total square feet of GLA. The following table provides additional information about the retail properties in our portfolio as of March 31, 2025.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Name |
|
City/State |
|
Year
Built /
Renovated (1) |
|
|
GLA |
|
|
Percent
Leased (2) |
|
|
Total Annualized Base Rent (3) |
|
|
Annualized Base Rent per Leased SF (4) |
|
|
Percentage of Total Annualized Base Rent |
|
|
Gross Real
Estate Assets
(in thousands) |
|
Operating Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avondale Shops |
|
Washington, D.C. |
|
2010 |
|
|
|
28,308 |
|
|
|
100.0 |
% |
|
$ |
683,798 |
|
|
$ |
24.16 |
|
|
|
3.0 |
% |
|
$ |
8,380 |
|
Brookhill Azalea Shopping Center |
|
Richmond, VA |
|
2012 |
|
|
|
163,008 |
|
|
|
82.1 |
% |
|
|
1,545,224 |
|
|
|
11.55 |
|
|
|
6.6 |
% |
|
|
18,318 |
|
Coral Hills Shopping Center |
|
Capitol Heights, MD |
|
|
2012 |
|
|
|
85,514 |
|
|
|
100.0 |
% |
|
|
1,494,645 |
|
|
|
17.48 |
|
|
|
6.5 |
% |
|
|
16,680 |
|
Crestview Square Shopping Center |
|
Landover Hills, MD |
|
|
2012 |
|
|
|
74,694 |
|
|
|
95.6 |
% |
|
|
1,516,608 |
|
|
|
21.23 |
|
|
|
6.6 |
% |
|
|
18,698 |
|
Cromwell Field Shopping Center |
|
Glen Burnie, MD |
|
|
2020 |
|
|
|
233,506 |
|
|
|
90.9 |
% |
|
|
2,186,935 |
|
|
|
10.30 |
|
|
|
9.5 |
% |
|
|
20,111 |
|
The Shops at Greenwood Village |
|
Greenwood Village, CO |
|
|
2019 |
|
|
|
199,571 |
|
|
|
98.5 |
% |
|
|
3,586,184 |
|
|
|
18.25 |
|
|
|
15.6 |
% |
|
|
31,524 |
|
Highlandtown Village Shopping Center |
|
Baltimore, MD |
|
|
1987 |
|
|
|
57,524 |
|
|
|
100.0 |
% |
|
|
1,178,761 |
|
|
|
20.49 |
|
|
|
5.1 |
% |
|
|
7,449 |
|
Hollinswood Shopping Center |
|
Baltimore, MD |
|
|
2020 |
|
|
|
112,671 |
|
|
|
97.8 |
% |
|
|
1,834,686 |
|
|
|
16.65 |
|
|
|
8.0 |
% |
|
|
24,816 |
|
Lamar Station Plaza West |
|
Lakewood, CO |
|
|
2016 |
|
|
|
186,887 |
|
|
|
100.0 |
% |
|
|
2,178,158 |
|
|
|
11.65 |
|
|
|
9.4 |
% |
|
|
24,738 |
|
Midtown Colonial |
|
Williamsburg, VA |
|
|
2018 |
|
|
|
95,472 |
|
|
|
100.0 |
% |
|
|
1,315,064 |
|
|
|
13.77 |
|
|
|
5.7 |
% |
|
|
17,944 |
|
Midtown Lamonticello |
|
Williamsburg, VA |
|
|
2019 |
|
|
|
63,065 |
|
|
|
76.7 |
% |
|
|
924,517 |
|
|
|
19.11 |
|
|
|
4.0 |
% |
|
|
16,043 |
|
Vista Shops at Golden Mile |
|
Frederick, MD |
|
|
2009 |
|
|
|
98,674 |
|
|
|
100.0 |
% |
|
|
1,900,402 |
|
|
|
19.26 |
|
|
|
8.2 |
% |
|
|
15,144 |
|
West Broad Commons Shopping Center |
|
Richmond, VA |
|
|
2017 |
|
|
|
109,551 |
|
|
|
100.0 |
% |
|
|
1,562,887 |
|
|
|
14.27 |
|
|
|
6.8 |
% |
|
|
19,964 |
|
Subtotal/Weighted Average (Operating Properties) |
|
|
|
|
|
1,508,445 |
|
|
|
95.1 |
% |
|
|
21,907,869 |
|
|
|
15.27 |
|
|
|
95.0 |
% |
|
|
239,809 |
|
Properties under Redevelopment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lamar Station Plaza East |
|
Lakewood, CO |
|
|
1984 |
|
|
|
84,745 |
|
|
|
34.8 |
% |
|
|
543,726 |
|
|
|
18.41 |
|
|
|
2.4 |
% |
|
|
8,754 |
|
Midtown Row (Retail Portion) |
|
Williamsburg, VA |
|
|
2021 |
|
|
|
55,540 |
|
|
|
37.4 |
% |
|
|
601,935 |
|
|
|
29.00 |
|
|
|
2.6 |
% |
|
|
127,386 |
|
Subtotal/Weighted Average (Properties under Redevelopment) |
|
|
|
|
|
140,285 |
|
|
|
35.8 |
% |
|
|
1,145,661 |
|
|
|
22.78 |
|
|
|
5.0 |
% |
|
|
136,140 |
|
Total/Weighted Average All Properties |
|
|
|
|
|
1,648,730 |
|
|
|
90.1 |
% |
|
$ |
23,053,530 |
|
|
$ |
15.52 |
|
|
|
100.0 |
% |
|
$ |
375,949 |
|
(1)Represents the most recent year in which a property was built or renovated. For purposes of this table, renovation means significant upgrades, alterations or additions to the property.
(2)Percent leased is calculated as (a) GLA of rentable commercial square feet occupied or subject to a lease as of March 31, 2025 divided by (b) total GLA, expressed as a percentage. The total percent occupied, which excludes leases that have been signed but not commenced, was 86.1% as of March 31, 2025.
(3)Total annualized base rent is calculated by multiplying (a) monthly base rent (before abatements) as of March 31, 2025, for leases that had commenced as of such date, by (b) 12. Total annualized base rent does not include tenant reimbursements for real estate taxes, insurance, common area maintenance or other operating expenses.
(4)Annualized base rent per leased square foot is calculated as total annualized base rent divided by leased GLA as of March 31, 2025.
Geographic Concentration
The following table contains information regarding the geographic concentration of the properties in our portfolio as of March 31, 2025, which includes rental income for the three months ended March 31, 2025 and 2024.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
Number
of
Properties |
|
Gross Real Estate Assets (1) |
|
|
Percentage of Total Real Estate Assets |
|
|
Rental income for the three months ended March 31, |
|
Location |
|
March 31, 2025 |
|
March 31, 2025 |
|
|
March 31, 2025 |
|
|
2025 |
|
|
2024 |
|
Maryland |
|
6 |
|
$ |
102,898 |
|
|
|
27.4 |
% |
|
$ |
3,617 |
|
|
$ |
3,074 |
|
Virginia |
|
5 |
|
|
199,655 |
|
|
|
53.1 |
% |
|
|
3,979 |
|
|
|
3,965 |
|
Washington D.C. |
|
1 |
|
|
8,380 |
|
|
|
2.2 |
% |
|
|
131 |
|
|
|
183 |
|
Colorado |
|
3 |
|
|
65,016 |
|
|
|
17.3 |
% |
|
|
2,115 |
|
|
|
2,289 |
|
|
|
15 |
|
$ |
375,949 |
|
|
|
100.0 |
% |
|
$ |
9,842 |
|
|
$ |
9,511 |
|
Critical Accounting Policies
Refer to our audited consolidated financial statements and notes thereto for the year ended December 31, 2024 for a discussion of our accounting policies, including the critical accounting policies of revenue recognition, real estate investments, asset impairment, income taxes, and our accounting policy on consolidation, which are included in our 2024 Annual Report on Form 10-K, which was filed with the SEC on March 28, 2025, as amended on April 29, 2025 (“2024 Annual Report”). During the three months ended March 31, 2025, there were no material changes to these policies. See Note 2 “—Accounting Guidance” to our condensed consolidated financial statements in Item 1 of this report for recently-adopted accounting pronouncements.
Factors that May Impact Future Results of Operations
Fortress Member’s Rights
On November 22, 2022, the Company, the Operating Partnership and Broad Street Eagles JV LLC, a newly formed subsidiary of the Operating Partnership (the “Eagles Sub-OP”), entered into a Preferred Equity Investment Agreement with CF Flyer PE Investor LLC (the “Fortress Member”), an affiliate of Fortress Investment Group LLC (“Fortress”), pursuant to which the Fortress Member invested $80.0 million in the Eagles Sub-OP in exchange for a preferred membership interest (the “Fortress Preferred Interest” and such investment, the “Preferred Equity Investment”). In connection with the Preferred Equity Investment, the Operating Partnership and the Fortress Member entered into the Amended and Restated Limited Liability Company Agreement of the Eagles Sub-OP (the “Eagles Sub-OP Operating Agreement”). All of our properties are owned by subsidiaries of the Eagles Sub-OP.
On May 21, 2024, we agreed with the Fortress Member that, after revision of the total yield calculation as of March 31, 2024, we did not meet the minimum total yield requirement under the Eagles Sub-OP Operating Agreement, which would have been a Trigger Event (as defined in the Eagles Sub-OP Operating Agreement). Effective May 21, 2024, the Fortress Member and the Operating Partnership entered into a temporary waiver agreement (the “Temporary Waiver”) to waive the total yield failure and the existence of the Trigger Event until such time as the Fortress Member elected to revoke such waiver, which the Fortress Member was entitled to do at any time in its sole discretion. As previously disclosed, on April 8, 2025, the Fortress Member rescinded the Temporary Waiver and removed the Operating Partnership as the managing member of the Eagles Sub-OP in accordance with the terms of the Eagles Sub-OP Operating Agreement (the “Rescission and Removal Notice”). As a result of the Rescission and Removal Notice, the Fortress Member automatically became the managing member of the Eagles Sub-OP in accordance with the terms of the Eagles Sub-OP Operating Agreement. The Rescission and Removal Notice also resulted in (i) the removal of any representatives of the Operating Partnership serving on any board of management of a subsidiary of the Eagles Sub-OP and (ii) the rescission of the rights of any agent or officer of the Eagles Sub-OP designated by the Operating Partnership, as the managing member of the Eagles Sub-OP.
As a result of the Trigger Event, the Fortress Member has the right to cause the Eagles Sub-OP to redeem the Fortress Preferred Interest by payment to the Fortress Member of the full Redemption Amount (as defined in the Eagles Sub-OP Operating Agreement) upon not less than 90 days prior written notice to the Eagles Sub-OP. Additionally, as a result of the Trigger Event, the Fortress Member may cause the Eagles Sub-OP to sell one or more properties to third-party buyers unaffiliated with the Fortress Member until the entire Fortress Preferred Interest has been redeemed for the Redemption Amount. Further, as a result of the Trigger Event, the Fortress Member
may (i) cause the Eagles Sub-OP to use certain reserve accounts to pay the Fortress Member the full Redemption Amount, (ii) terminate all property management and other service agreements with our affiliates, (iii) take any action in connection with curing or reacting to a default under any mortgage loan and (iv) otherwise exercise its rights and remedies pursuant to the terms of the Eagles Sub-OP Operating Agreement.
As a result of the Trigger Event, (i) the rate for distributions payable on the Fortress Preferred Interest automatically increased by the lesser of 4% or the maximum rate permitted by applicable law and (ii) all distributions payable on the Fortress Preferred Interest are payable in cash, including the portion of distributions payable on the Fortress Preferred Interest that previously accrued on and was added to the Preferred Equity Investment. As of April 30, 2025, the Fortress Member is allowing only the Current Preferred Return (as defined below) to be paid in cash until it decides otherwise.
As a result of the Rescission and Removal Notice, the Fortress Member has full control of all cash accounts owned by the Eagles Sub-OP and its subsidiaries, which accounts hold substantially all of our cash. Any use of such cash by us or the Operating Partnership requires the consent of the Fortress Member, and we can provide no assurance that the Fortress Member will provide such consent. On May 20, 2025, the Fortress Member informed our board of directors that it will fund our general and administrative expenses for key personnel, licenses, software and other expenses to be approved by the Fortress Member for the next two months, up to a total of $750,000, after which the Fortress Member will determine the appropriate next steps.
The Fortress Member, in its capacity as managing member of Eagles Sub-OP, intends to cause Eagles Sub-OP to sell one or more properties to third-party buyers unaffiliated with the Fortress Member until the Preferred Equity Investment has been redeemed for the Redemption Amount and the entire outstanding principal balance of the Fortress Mezzanine Loan and the Prepayment Premium (as defined below) has been repaid. Further, the Company and the Fortress Member are currently marketing certain of the properties for sale. We can provide no assurances as to the timing of the sales of the properties or that the properties will be successfully sold. As of March 31, 2025, the Redemption Amount was $111.9 million and the outstanding principal balance of the Fortress Mezzanine Loan (as defined below) and the Prepayment Premium (as defined below) was $19.1 million. The combined carrying amount of the Preferred Equity Investment and the Fortress Mezzanine Loan was approximately $118.3 million at March 31, 2025. We can provide no assurances that the proceeds from the sales of our properties will be sufficient to pay the Redemption Amount and the outstanding principal balance of the Fortress Mezzanine Loan and the Prepayment Premium and to satisfy our other liabilities.
De-Consolidation of the Eagles Sub-OP
For the three months ended March 31, 2025 and all prior periods (since inception of the Eagles Sub-OP), we have consolidated the Eagles Sub-OP as it was concluded that the Eagles Sub-OP met the criteria of a variable interest entity (“VIE”) and we were considered to have a controlling financial interest. As described above, on April 8, 2025, the Fortress Member rescinded the Temporary Waiver and removed the Operating Partnership as the managing member of the Eagles Sub-OP. As such, we will deconsolidate the Eagles Sub-OP in the second quarter of 2025 and account for our investment in the Eagles Sub-OP using the equity method of accounting in accordance with ASC 323 Investments—Equity Method and Joint Ventures (“ASC 323”) at the time of deconsolidation, as we no longer have a controlling financial interest in the Eagles Sub-OP. The deconsolidation will materially impact our financial condition and operating results beginning in the second quarter of 2025 since the Eagles Sub-OP owns all of our income-producing real estate assets. We expect to recognize approximately $62.3 million gain on deconsolidation of VIE in our condensed consolidated statements of operations for the three and six months ended June 30, 2025, which is the difference between the net carrying value of our investment in the Eagles Sub-OP and the fair value of our investment in the Eagles Sub-OP.
Rental Income
The amount of rental income generated by the properties in our portfolio depends on our ability to renew expiring leases or re-lease space upon the scheduled or unscheduled termination of leases, lease currently available space and maintain or increase rental rates at our properties. Our rental income in future periods could be adversely affected by local, regional, or national economic conditions, an oversupply of or a reduction in demand for retail space, changes in market rental rates, our ability to provide adequate services and maintenance at our properties, fluctuations in interest rates and dispositions of properties. In addition, economic downturns affecting our markets or downturns in our tenants’ businesses that impair our ability to renew or re-lease space and the ability of our tenants to fulfill their lease commitments to us could adversely affect our ability to maintain or increase rent and occupancy.
Scheduled Lease Expirations
Our ability to re-lease expiring space at rental rates equal to or greater than that of current rental rates will impact our results of operations. Our properties are marketed to smaller tenants that generally desire shorter-term leases. As of March 31, 2025, approximately 45.7% of our portfolio (based on GLA) was leased to tenants occupying less than 10,000 square feet. In addition, as of March 31, 2025, approximately 9.9% of our GLA was vacant and approximately 3.2% of our leases (based on GLA) were scheduled to expire on or before December 31, 2025. Although we maintain ongoing dialogue with our tenants, we generally raise the issue of renewal at least 12 months prior to lease renewal often providing concessions for early renewal. If our current tenants do not renew their leases or terminate their leases early, we may be unable to re-lease the space to new tenants on favorable terms or at all.
General and Administrative Expenses
General and administrative expenses include employee compensation costs, professional fees, consulting, and other general administrative expenses. We expect that our general and administrative expenses will decrease over time.
Capital Expenditures
We incur capital expenditures at our properties that vary in amount and frequency based on each property’s specific needs. We expect our capital expenditures will be for recurring maintenance to ensure our properties are in good working condition, including parking and roof repairs, façade maintenance and general upkeep. We also will incur capital expenditures related to repositioning and refurbishing properties where we have identified opportunities to improve our properties to increase occupancy, and we may incur capital expenditures related to redevelopment or development consistent with our business and growth strategies.
Results of Operations
This section provides a comparative discussion on our results of operations and should be read in conjunction with our condensed consolidated financial statements, including the accompanying notes.
Comparison of the three months ended March 31, 2025 to the three months ended March 31, 2024
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
Change |
|
(dollars in thousands) |
|
March 31, 2025 |
|
|
March 31, 2024 |
|
|
$ |
|
|
% |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
9,842 |
|
|
$ |
9,511 |
|
|
$ |
331 |
|
|
|
3 |
% |
Commissions |
|
|
707 |
|
|
|
502 |
|
|
|
205 |
|
|
|
41 |
% |
Management fees and other income |
|
|
57 |
|
|
|
58 |
|
|
|
(1 |
) |
|
|
(2 |
%) |
Total revenues |
|
|
10,606 |
|
|
|
10,071 |
|
|
|
535 |
|
|
|
5 |
% |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
|
576 |
|
|
|
421 |
|
|
|
155 |
|
|
|
37 |
% |
Property operating |
|
|
3,104 |
|
|
|
3,006 |
|
|
|
98 |
|
|
|
3 |
% |
Depreciation and amortization |
|
|
3,580 |
|
|
|
3,819 |
|
|
|
(239 |
) |
|
|
(6 |
%) |
Impairment of real estate assets |
|
|
43 |
|
|
|
110 |
|
|
|
(67 |
) |
|
|
(61 |
%) |
Bad debt (recovery) expense |
|
|
(71 |
) |
|
|
142 |
|
|
|
(213 |
) |
|
|
(150 |
%) |
General and administrative |
|
|
3,579 |
|
|
|
3,480 |
|
|
|
99 |
|
|
|
3 |
% |
Total operating expenses |
|
|
10,811 |
|
|
|
10,978 |
|
|
|
(167 |
) |
|
|
(2 |
%) |
Operating loss |
|
|
(205 |
) |
|
|
(907 |
) |
|
|
702 |
|
|
|
77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
165 |
|
|
|
217 |
|
|
|
(52 |
) |
|
|
(24 |
%) |
Derivative fair value adjustment |
|
|
(582 |
) |
|
|
889 |
|
|
|
(1,471 |
) |
|
|
165 |
% |
Net (loss) gain on fair value change of debt held under the fair value option |
|
|
(240 |
) |
|
|
2,343 |
|
|
|
(2,583 |
) |
|
|
110 |
% |
Interest expense |
|
|
(4,765 |
) |
|
|
(4,333 |
) |
|
|
(432 |
) |
|
|
10 |
% |
Loss on extinguishment of debt |
|
|
— |
|
|
|
(7 |
) |
|
|
7 |
|
|
|
(100 |
%) |
Other expense |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
5 |
|
|
|
83 |
% |
Total other expense |
|
|
(5,423 |
) |
|
|
(897 |
) |
|
|
(4,526 |
) |
|
|
505 |
% |
Net loss before income taxes |
|
|
(5,628 |
) |
|
|
(1,804 |
) |
|
|
(3,824 |
) |
|
|
212 |
% |
Income tax expense |
|
|
— |
|
|
|
(134 |
) |
|
|
134 |
|
|
|
(100 |
%) |
Net loss |
|
$ |
(5,628 |
) |
|
$ |
(1,938 |
) |
|
$ |
(3,690 |
) |
|
|
190 |
% |
Less: Preferred equity return on Fortress preferred equity |
|
|
(3,497 |
) |
|
|
(3,022 |
) |
|
|
(475 |
) |
|
|
16 |
% |
Less: Preferred equity accretion to redemption value |
|
|
(997 |
) |
|
|
(1,379 |
) |
|
|
382 |
|
|
|
(28 |
%) |
Less: Preferred OP units return |
|
|
(170 |
) |
|
|
(139 |
) |
|
|
(31 |
) |
|
|
22 |
% |
Plus: Net loss attributable to noncontrolling interest |
|
|
1,351 |
|
|
|
839 |
|
|
|
512 |
|
|
|
61 |
% |
Net loss attributable to common stockholders |
|
$ |
(8,941 |
) |
|
$ |
(5,639 |
) |
|
$ |
(3,302 |
) |
|
|
59 |
% |
Revenues for the three months ended March 31, 2025 increased approximately $0.5 million, or 5%, compared to the three months ended March 31, 2024, as a result of approximately $0.3 million and $0.2 million increase in rental income and commissions, respectively. The increase in rental income is primarily due to an increase in recoveries from tenants and the increase in commissions is due to a higher transaction volume of leasing.
Total operating expenses for the three months ended March 31, 2025 decreased approximately $0.2 million, or 2%, compared to the three months ended March 31, 2024, primarily due to (i) a $0.2 million decrease in depreciation and amortization expense primarily related to a $0.3 million decrease in amortization of in-place lease intangibles and a $0.1 million increase in amortization of real property depreciation, (ii) a $0.2 million decrease in bad debt expense due to cash received for commissions that were previously written off due to uncollectability and (iii) a $0.1 million decrease in impairment of real estate assets relating to early lease terminations. These decreases were partially offset by (i) a $0.2 million increase in cost of services, (ii) a $0.1 million increase in property operating expenses and (iii) a $0.1 million increase in general and administrative expenses primarily due to professional service fees.
Interest and other income for the three months ended March 31, 2025 decreased approximately $0.1 million compared to the three months ended March 31, 2024, primarily due to a reduction in business interruption insurance proceeds received during the first quarter of 2025 related to fire damage at one of our retail properties.
The net loss on derivative fair value adjustment was approximately $0.6 million for the three months ended March 31, 2024 compared to a gain of approximately $0.9 million for the three months ended March 31, 2024. The decrease of approximately $1.5 million was primarily due to a $1.0 million decrease in the fair value of interest rate swaps and a $0.5 million decrease in the fair value of the embedded derivative liability relating to the Preferred Equity Investment.
Net (loss) gain on fair value change of debt held under the fair value option reflects the change in fair value of the Fortress Mezzanine Loan for which we elected the fair value option.
Interest expense for the three months ended March 31, 2025 increased approximately $0.4 million, or 10%, compared to the three months ended March 31, 2024, primarily due to the incurrence of $0.2 million of interest expense relating to additional refinancings and a $0.1 million increase due to the increase in the Mezzanine Loan Interest (as defined below) rate. We had additional net borrowings of approximately $9.2 million after March 31, 2024.
Income tax expense for the three months ended March 31, 2025 decreased approximately $0.1 million compared to the three months ended March 31, 2024, which is primarily attributable to the Company recording a full valuation allowance against its deferred tax asset during the three months ended March 31, 2025.
Preferred equity return on Fortress preferred equity reflects the portion of the distribution to the Fortress Member that is payable in cash and the portion that is accrued and added to the Preferred Equity Investment.
Preferred equity accretion to redemption value reflects the accretion of the carrying value of the Fortress preferred equity to the Redemption amount over the remaining term.
Preferred OP units return reflects the portion of the distribution to holders of the Preferred OP units that are payable in cash and the portion that are accrued and added to the liquidation preference of the Preferred OP units.
Net loss attributable to noncontrolling interest for the three months ended March 31, 2025 increased $0.5 million compared to the three months ended March 31, 2024. The net loss attributable to noncontrolling interest reflects the proportionate share of the OP units held by outside investors in the operating results of the Operating Partnership.
Leasing Activity
Below is a summary of leasing activity for our retail portfolio for the three months ended March 31, 2025 and 2024:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deals |
|
|
Inline Deals |
|
|
|
For the Three Months Ended March 31, |
|
|
For the Three Months Ended March 31, |
|
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
New leases |
|
|
|
|
|
|
|
|
|
|
|
|
Number of leases |
|
|
1 |
|
|
|
9 |
|
|
|
1 |
|
|
|
9 |
|
Square footage |
|
|
2,400 |
|
|
|
17,892 |
|
|
|
2,400 |
|
|
|
17,892 |
|
Annualized base rent (1) |
|
$ |
6,000 |
|
|
$ |
395,122 |
|
|
$ |
6,000 |
|
|
$ |
395,122 |
|
Annualized base rent per square feet (2) |
|
$ |
2.50 |
|
|
$ |
22.08 |
|
|
$ |
2.50 |
|
|
$ |
22.08 |
|
Number of comparable leases (3) |
|
|
1 |
|
|
|
5 |
|
|
|
1 |
|
|
|
5 |
|
Comparable rent spread (4) |
|
|
— |
|
|
|
4.8 |
% |
|
|
— |
|
|
|
4.8 |
% |
Weighted-average lease term (in years) |
|
|
— |
|
|
|
6.4 |
|
|
|
— |
|
|
|
6.4 |
|
Renewals and options: |
|
|
|
|
|
|
|
|
|
|
|
|
Number of leases |
|
|
14 |
|
|
|
9 |
|
|
|
14 |
|
|
|
8 |
|
Square footage |
|
|
25,132 |
|
|
|
45,087 |
|
|
|
25,132 |
|
|
|
20,692 |
|
Annualized base rent (1) |
|
$ |
624,281 |
|
|
$ |
713,198 |
|
|
$ |
624,281 |
|
|
$ |
399,628 |
|
Annualized base rent per square feet (2) |
|
$ |
24.84 |
|
|
$ |
15.82 |
|
|
$ |
24.84 |
|
|
$ |
19.31 |
|
Comparable rent spread |
|
|
5.4 |
% |
|
|
5.9 |
% |
|
|
5.4 |
% |
|
|
2.9 |
% |
Weighted-average lease term (in years) (5) |
|
|
6.4 |
|
|
|
6.2 |
|
|
|
6.4 |
|
|
|
6.0 |
|
Number of leases, excluding options exercised |
|
|
14 |
|
|
|
9 |
|
|
|
14 |
|
|
|
8 |
|
Comparable rent spread, all leases |
|
|
5.3 |
% |
|
|
5.6 |
% |
|
|
5.3 |
% |
|
|
3.6 |
% |
Portfolio retention rate (6) |
|
|
100.0 |
% |
|
|
19.6 |
% |
|
|
100.0 |
% |
|
|
19.6 |
% |
(1)Annualized base rent (in thousands) is calculated as (a) the monthly cash base rent before abatements as of March 31, 2025 or 2024, as applicable, multiplied by (b) 12. Annualized base rent does not include tenant reimbursements for real estate taxes, insurance, common area or other operating expenses.
(2)Annualized base rent per leased square foot is calculated as total annualized base rent divided by leased GLA as of March 31, 2025 or 2024, as applicable.
(3)Comparable leases are leases with terms consistent with the prior lease for substantially the same space, which has been vacant for less than twelve months.
(4)Comparable rent spread is calculated as the percentage increase or decrease in first-year annualized base rent (excluding any free rent or escalations) on new or renewal leases (including options) over the annualized base rent of the expiring year of the previous lease, where the lease was considered a comparable lease.
(5)Weighted-average lease terms (in years) excludes month-to-month tenants but includes tenants operating on license agreements.
(6)Portfolio retention rate is calculated as (a) total square feet of retained tenants with leases originally expiring during the three months ended March 31, 2025 or 2024, as applicable, divided by (b) total square feet of leases originally expiring during the three months ended March 31, 2025 or 2024, as applicable.
Non-GAAP Performance Measures
We present the non-GAAP performance measures set forth below. These measures should not be considered as an alternative to, or more meaningful than, net income (calculated in accordance with U.S. generally accepted accounting principles (“GAAP”)) or other GAAP financial measures, as an indicator of financial performance and are not alternatives to, or more meaningful than, cash flow from operating activities (calculated in accordance with GAAP) as a measure of liquidity. Non-GAAP performance measures have limitations as they do not include all items of income and expense that affect operations, and accordingly, should always be considered as supplemental financial results to those calculated in accordance with GAAP. Our computation of these non-GAAP performance measures may differ in certain respects from the methodology utilized by other real estate companies and, therefore, may not be comparable to similarly titled measures presented by other real estate companies. Investors are cautioned that items excluded from these non-GAAP performance measures are relevant to understanding and addressing financial performance.
Net Operating Income and Same-center Net Operating Income
Net operating income (“NOI”) is a supplemental non-GAAP measure of the operating performance of our properties. We define NOI as rental income less property operating expenses, including real estate taxes. We also exclude the impact of straight‑line rent revenue, net amortization of above and below market leases, depreciation and amortization, interest, impairments and gains or losses of real estate assets and other significant infrequent items that create volatility in our earnings and make it difficult to determine the earnings generated by our core ongoing business. Same-center NOI should not be viewed as an alternative measure to net income or loss calculated in accordance with GAAP as a measurement of our financial performance. We believe that NOI is a helpful measure because it provides additional information to allow management, investors and our current and potential creditors to evaluate and compare our core operating results.
Same-center NOI is a supplemental non-GAAP financial measure which we use to assess our operating results. For the three months ended March 31, 2025 and 2024, Same-center NOI represents the NOI for 15 properties that were wholly owned and operational for the entire portion of each reporting period. Same-center NOI should not be viewed as an alternative measure to net income or loss calculated in accordance with GAAP as a measurement of our financial performance, as it does not reflect the operations of our entire portfolio. We believe that Same-center NOI is a helpful measure because it provides additional information to allow management, investors and our current and potential creditors to enhance the comparability of our operating performance between periods.
The table below compares Same-center NOI for the three months ended March 31, 2025 and 2024:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, |
|
|
Change |
|
(unaudited, dollars in thousands) |
|
2025 |
|
|
2024 |
|
|
$ |
|
|
% |
|
|
|
Retail |
|
|
|
Residential |
|
|
Total |
|
|
Retail |
|
|
Residential |
|
|
Total |
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income (1) |
|
$ |
7,683 |
|
(2) |
|
$ |
2,386 |
|
|
$ |
10,069 |
|
|
$ |
7,120 |
|
|
$ |
2,118 |
|
|
$ |
9,238 |
|
|
$ |
831 |
|
|
|
9 |
% |
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating |
|
|
2,884 |
|
|
|
|
690 |
|
|
|
3,574 |
|
|
|
2,800 |
|
|
|
625 |
|
|
|
3,425 |
|
|
|
149 |
|
|
|
4 |
% |
Total Same-center NOI |
|
$ |
4,799 |
|
|
|
$ |
1,696 |
|
|
$ |
6,495 |
|
|
$ |
4,320 |
|
|
$ |
1,493 |
|
|
$ |
5,813 |
|
|
$ |
682 |
|
|
|
12 |
% |
(1)Excludes straight-line revenue and net amortization of above and below market lease.
(2)Rental income for the retail portfolio excludes $0.1 million of business interruption proceeds for rent that was abated due to a fire at one of our retail properties. This amount is reflected in net interest and other income.
The increase in total Same-center NOI for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, is mainly due to (i) an increase in scheduled rent increases for retail period over period, (ii) an increase in recoveries from tenants and (iii) an increase in residential base rent.
Our reconciliation of Same-center NOI for the three months ended March 31, 2025 and 2024 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, |
|
|
|
2025 |
|
|
2024 |
|
(unaudited, dollars in thousands) |
|
Retail |
|
|
Residential |
|
|
Total |
|
|
Retail |
|
|
Residential |
|
|
Total |
|
Net (loss) income |
|
$ |
(4,477 |
) |
|
$ |
(1,151 |
) |
|
$ |
(5,628 |
) |
|
$ |
(3,050 |
) |
|
$ |
1,112 |
|
|
$ |
(1,938 |
) |
Adjusted to exclude: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions |
|
|
(707 |
) |
|
|
— |
|
|
|
(707 |
) |
|
|
(502 |
) |
|
|
— |
|
|
|
(502 |
) |
Management and other income |
|
|
(57 |
) |
|
|
— |
|
|
|
(57 |
) |
|
|
(58 |
) |
|
|
— |
|
|
|
(58 |
) |
Straight-line rent revenue |
|
|
143 |
|
|
|
— |
|
|
|
143 |
|
|
|
(352 |
) |
|
|
— |
|
|
|
(352 |
) |
Amortization of above and below market lease, net |
|
|
85 |
|
|
|
— |
|
|
|
85 |
|
|
|
81 |
|
|
|
— |
|
|
|
81 |
|
Consolidated eliminations adjustments |
|
|
(470 |
) |
|
|
— |
|
|
|
(470 |
) |
|
|
(416 |
) |
|
|
— |
|
|
|
(416 |
) |
Cost of services |
|
|
576 |
|
|
|
— |
|
|
|
576 |
|
|
|
421 |
|
|
|
— |
|
|
|
421 |
|
Depreciation and amortization |
|
|
2,945 |
|
|
|
635 |
|
|
|
3,580 |
|
|
|
3,187 |
|
|
|
632 |
|
|
|
3,819 |
|
Impairment of real estate assets |
|
|
43 |
|
|
|
— |
|
|
|
43 |
|
|
|
110 |
|
|
|
— |
|
|
|
110 |
|
Impairment of real estate held for sale |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Bad debt (recovery) expense |
|
|
(71 |
) |
|
|
— |
|
|
|
(71 |
) |
|
|
142 |
|
|
|
— |
|
|
|
142 |
|
General and administrative |
|
|
3,474 |
|
|
|
105 |
|
|
|
3,579 |
|
|
|
3,443 |
|
|
|
37 |
|
|
|
3,480 |
|
Loss on disposal of properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net interest and other income |
|
|
(165 |
) |
|
|
— |
|
|
|
(165 |
) |
|
|
(217 |
) |
|
|
— |
|
|
|
(217 |
) |
Derivative fair value adjustment |
|
|
582 |
|
|
|
— |
|
|
|
582 |
|
|
|
(889 |
) |
|
|
— |
|
|
|
(889 |
) |
Net loss (gain) on fair value change on debt held under the fair value option |
|
|
24 |
|
|
|
216 |
|
|
|
240 |
|
|
|
(235 |
) |
|
|
(2,108 |
) |
|
|
(2,343 |
) |
Interest expense |
|
|
2,874 |
|
|
|
1,891 |
|
|
|
4,765 |
|
|
|
2,513 |
|
|
|
1,820 |
|
|
|
4,333 |
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
7 |
|
Other expense |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
Income tax expense, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
134 |
|
|
|
— |
|
|
|
134 |
|
NOI |
|
|
4,800 |
|
|
|
1,696 |
|
|
|
6,496 |
|
|
|
4,325 |
|
|
|
1,493 |
|
|
|
5,818 |
|
Less: Non Same-center NOI relating to dispositions (1) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
(5 |
) |
|
|
— |
|
|
|
(5 |
) |
Total Same-center NOI |
|
$ |
4,800 |
|
|
$ |
1,696 |
|
|
$ |
6,496 |
|
|
$ |
4,320 |
|
|
$ |
1,493 |
|
|
$ |
5,813 |
|
(1)Reflects operating revenues and expenses for Spotswood Valley Square Shopping Center and Dekalb Plaza.
Funds From Operations and Adjusted Funds from Operations
Funds from operations (“FFO”) is a supplemental non-GAAP financial measure of real estate companies’ operating performance. The National Association of Real Estate Investment Trusts (“Nareit”) defines FFO as follows: net income (loss), computed in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains and losses from the sale of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis.
Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Considering the nature of our business as a real estate owner and operator, we believe that FFO is useful to investors in measuring our operating and financial performance because the definition excludes items included in net income that do not relate to or are not indicative of our operating and financial performance, such as depreciation and amortization related to real estate, and items which can make periodic and peer analysis of operating and financial performance more difficult, such as gains and losses from the sale of certain real estate assets and impairment write-downs of certain real estate assets. Specifically, in excluding real estate related depreciation and amortization and gains and losses from sales of depreciable operating properties, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.
However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to
fund our cash needs, including our ability to pay dividends or service indebtedness. Also, FFO should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.
Adjusted FFO (“AFFO”) is calculated by excluding the effect of certain items that do not reflect ongoing property operations, including stock-based compensation expense, deferred financing and debt issuance cost amortization, non-real estate depreciation and amortization, straight-line rent expense, straight-line rent revenue, non-cash interest expense and other non-comparable or non-operating items. Management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO.
AFFO is not intended to represent cash flow or liquidity for the period and is only intended to provide an additional measure of our operating performance. We believe that Net income/(loss) is the most directly comparable GAAP financial measure to AFFO. Management believes that AFFO is a widely recognized measure of the operations of real estate companies and presenting AFFO enables investors to assess our performance in comparison to other real estate companies. AFFO should not be considered as an alternative to net income/(loss) (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.
Our reconciliation of net loss to FFO and AFFO for the three months ended March 31, 2025 and 2024 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
Change |
|
(unaudited, dollars in thousands) |
|
2025 |
|
|
2024 |
|
$ |
|
|
% |
|
Net loss |
|
$ |
(5,628 |
) |
|
$ |
(1,938 |
) |
$ |
(3,690 |
) |
|
|
190 |
% |
Real estate depreciation and amortization |
|
|
3,529 |
|
|
|
3,715 |
|
|
(186 |
) |
|
|
(5 |
%) |
Amortization of direct leasing costs |
|
|
29 |
|
|
|
23 |
|
|
6 |
|
|
|
26 |
% |
FFO attributable to common shares and OP units |
|
|
(2,070 |
) |
|
|
1,800 |
|
|
(3,870 |
) |
|
|
(215 |
%) |
Stock-based compensation expense |
|
|
348 |
|
|
|
360 |
|
|
(12 |
) |
|
|
(3 |
%) |
Deferred financing and debt issuance cost amortization |
|
|
242 |
|
|
|
193 |
|
|
49 |
|
|
|
25 |
% |
Impairment of real estate assets (1) |
|
|
43 |
|
|
|
110 |
|
|
(67 |
) |
|
|
(61 |
%) |
Intangibles amortization |
|
|
85 |
|
|
|
81 |
|
|
4 |
|
|
|
5 |
% |
Non-real estate depreciation and amortization |
|
|
22 |
|
|
|
80 |
|
|
(58 |
) |
|
|
(73 |
%) |
Straight-line rent expense |
|
|
(2 |
) |
|
|
66 |
|
|
(68 |
) |
|
|
(103 |
%) |
Non-cash interest expense |
|
|
400 |
|
|
|
331 |
|
|
69 |
|
|
|
21 |
% |
Recurring capital expenditures |
|
|
(230 |
) |
|
|
(93 |
) |
|
(137 |
) |
|
|
147 |
% |
Straight-line rent revenue |
|
|
143 |
|
|
|
(352 |
) |
|
495 |
|
|
|
(141 |
%) |
Non-cash fair value adjustment |
|
|
822 |
|
|
|
(3,232 |
) |
|
4,054 |
|
|
|
(125 |
%) |
AFFO attributable to common shares and OP units |
|
$ |
(197 |
) |
|
$ |
(656 |
) |
$ |
459 |
|
|
|
(70 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding to common shares |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
36,681,457 |
|
|
|
35,875,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders per share |
|
|
|
|
|
|
|
|
|
|
|
Diluted (2) |
|
$ |
(0.24 |
) |
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding to common shares and OP units |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
42,189,268 |
|
|
|
41,435,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO attributable to common shares and OP units |
|
|
|
|
|
|
|
|
|
|
|
Diluted (3) |
|
$ |
(0.05 |
) |
|
$ |
0.04 |
|
|
|
|
|
|
(1)Impairment of real estate assets relates to the early termination of leases.
(2)The weighted average common shares outstanding used to compute net loss per diluted common share only includes the common shares. We have excluded the OP units since the conversion of OP units is anti-dilutive in the computation of diluted net loss per share for the periods presented.
(3)The weighted average common shares outstanding used to compute FFO per diluted common share includes OP units that were excluded from the computation of diluted net loss per share. Conversion of these OP units is dilutive in the computation of FFO per diluted common share but is anti-dilutive for the computation of diluted earnings per share for the periods presented.
The decrease in FFO for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, is mainly due to a $2.6 million decline in fair value change of debt held under the fair value option and a $1.5 million decline in non-cash fair value adjustment relating to the decrease in net gains on derivative instruments. This was partially offset by an increase of $0.5 million of total revenues.
The increase in AFFO for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to an increase of $0.5 million of total revenues.
See “Results of Operations” above for further discussion.
Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDAre
We calculate EBITDAre in accordance with standards established by Nareit and define EBITDAre as net income or loss computed in accordance with GAAP (i) plus depreciation and amortization, interest expense and income tax expense, (ii) plus or minus losses or gains on the disposition of properties, (iii) plus impairment losses and (iv) with appropriate adjustments to reflect our share of EBITDAre of unconsolidated affiliates and consolidated affiliates with non-controlling interests, in each case as applicable. We define Adjusted EBITDAre as EBITDAre plus non-cash stock compensation, non-cash amortization related to above and below market leases, straight-line rent expense and less straight-line rent revenue and non-cash fair value adjustment. Some of the adjustments can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. EBITDAre and Adjusted EBITDAre are non-GAAP financial measures and should not be viewed as alternatives to net income or loss calculated in accordance with GAAP as a measurement of our operating performance. We believe that EBITDAre and Adjusted EBITDAre are helpful measures because they provide additional information to allow management, investors and our current and potential creditors to evaluate and compare our core operating results and our ability to service debt. We also believe that EBITDAre and Adjusted EBITDAre can help facilitate comparisons of operating performance between periods and with other real estate companies.
Our reconciliation of net loss to EBIDTAre and Adjusted EBITDAre for the three months ended March 31, 2025 and 2024 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
Change |
|
(unaudited, dollars in thousands) |
|
2025 |
|
|
2024 |
|
|
$ |
|
|
% |
|
Net loss |
|
$ |
(5,628 |
) |
|
$ |
(1,938 |
) |
|
$ |
(3,690 |
) |
|
|
190 |
% |
Interest expense |
|
|
4,765 |
|
|
|
4,333 |
|
|
|
432 |
|
|
|
10 |
% |
Income tax expense |
|
|
— |
|
|
|
134 |
|
|
|
(134 |
) |
|
|
(100 |
%) |
Depreciation and amortization expense |
|
|
3,580 |
|
|
|
3,819 |
|
|
|
(239 |
) |
|
|
(6 |
%) |
EBITDA |
|
|
2,717 |
|
|
|
6,348 |
|
|
|
(3,631 |
) |
|
|
(57 |
%) |
Impairment loss |
|
|
43 |
|
|
|
110 |
|
|
|
(67 |
) |
|
|
(61 |
%) |
EBITDAre |
|
|
2,760 |
|
|
|
6,458 |
|
|
|
(3,698 |
) |
|
|
(57 |
%) |
Stock-based compensation expense |
|
|
348 |
|
|
|
360 |
|
|
|
(12 |
) |
|
|
(3 |
%) |
Straight-line rent revenue |
|
|
143 |
|
|
|
(352 |
) |
|
|
495 |
|
|
|
(141 |
%) |
Amortization of above and below market lease, net |
|
|
85 |
|
|
|
81 |
|
|
|
4 |
|
|
|
5 |
% |
Straight-line rent expense |
|
|
(2 |
) |
|
|
66 |
|
|
|
(68 |
) |
|
|
(103 |
%) |
Non-cash fair value adjustment |
|
|
822 |
|
|
|
(3,232 |
) |
|
|
4,054 |
|
|
|
(125 |
%) |
Adjusted EBITDAre |
|
$ |
4,156 |
|
|
$ |
3,381 |
|
|
$ |
775 |
|
|
|
23 |
% |
EBITDAre decreased $3.7 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 mainly due to an increase in (i) net loss on fair value change in debt held under the fair value option and (ii) loss on derivative fair value adjustment. These losses were partially offset by an increase in total revenues. See “Results of Operations” above for further discussion.
Adjusted EBITDAre increased $0.8 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 mainly due to an increase in total revenues, partially offset by a net increase in operating expenses and a net decrease in interest and other income. See “Results of Operations” above for further discussion.
Liquidity and Capital Resources
Overview
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay any outstanding borrowings, fund and maintain our assets and operations and other general business needs.
Our short-term liquidity requirements consist primarily of debt service requirements, operating expenses, recurring capital expenditures (such as repairs and maintenance of our properties), and non-recurring capital expenditures (such as capital improvements
and tenant improvements). As of March 31, 2025 and May 30, 2025, we had unrestricted cash and cash equivalents of approximately $13.5 million and $0.7 million, respectively, and restricted cash of approximately $4.8 million at March 31, 2025, which is available for debt service shortfall requirements, certain capital expenditures, real estate taxes and insurance subject to the Fortress Member’s consent. There were no restricted cash as of May 30, 2025. As a result of the Rescission and Removal Notice, the Fortress Member has full control of all cash accounts owned by the Eagles Sub-OP and its subsidiaries, which accounts hold substantially all our cash. Any use of such cash by us or the Operating Partnership requires the consent of the Fortress Member, and we can provide no assurance that the Fortress Member will provide such consent. On May 20, 2025, the Fortress Member informed our board of directors that it will fund the Company’s general and administrative expenses for key personnel, licenses, software and other expenses to be approved by the Fortress Member for the next two months, up to a total of $750,000, after which the Fortress Member will determine the appropriate next steps. We project we will not have sufficient cash flow to cover our obligations over the next twelve months.
As of March 31, 2025, we had three mortgage loans (Hollinswood Shopping Center Loan, Brookhill Azalea Shopping Center Loan and Avondale Shops Loan) with a combined principal balance outstanding of approximately $24.0 million that will mature within twelve months of the date that the condensed consolidated financial statements included in this report are issued. On May 6, 2025, we entered into an agreement to extend the maturity date of one of the mortgage loans from June 1, 2025 to December 1, 2025, and, on May 20, 2025, we entered into an agreement to extend the maturity date of one of the mortgage loans from April 30, 2025 to July 29, 2025. Also, in May 2025, we reached a verbal agreement with the lender to extend the maturity date of the third mortgage loan from June 1, 2025 to September 1, 2025 with an option to extend it for an additional 90 days, but we can provide no assurance that the lender will enter into a definitive agreement to effect this extension. We sought only a short-term extension with the current lender as we and the Fortress Member are seeking to sell the property that secures the mortgage loan. We project that we will not have sufficient cash available to pay off the mortgage loans upon maturity and therefore we and the Fortress Member are seeking to sell the properties that secure the mortgage loans. Although we have a history of demonstrating our ability to successfully refinance our loans as they come due, there can be no assurances that we will be successful in our efforts to refinance the loans on favorable terms or at all. We also have the option to sell the properties securing the loans and use the proceeds to satisfy the outstanding loan obligations. If we are ultimately unable to repay or refinance these loans or sell the properties prior to maturity, the lender has the right to place the loans in default and ultimately foreclose on the properties securing the loans. Under this circumstance, we would not have any further financial obligations to the lenders as the current estimated market values of these properties are in excess of the outstanding loan balances.
On May 21, 2024, we agreed with the Fortress Member that, after revision of the total yield calculation as of March 31, 2024, we did not meet the minimum total yield requirement under the Eagles Sub-OP Operating Agreement, which would constitute a Trigger Event. Effective May 21, 2024, the Fortress Member and the Operating Partnership entered into the Temporary Waiver to waive the total yield failure and the existence of the Trigger Event until such time as the Fortress Member elected to revoke such waiver, which the Fortress Member was entitled to do at any time in its sole discretion. On April 8, 2025, the Fortress Member provided the Rescission and Removal Notice, which rescinded the Temporary Waiver and removed the Operating Partnership as the managing member of the Eagles Sub-OP in accordance with the terms of the Eagles Sub-OP Operating Agreement. As a result of the Rescission and Removal Notice, the Fortress Member automatically became the managing member of the Eagles Sub-OP in accordance with the terms of the Eagles Sub-OP Operating Agreement. The Rescission and Removal Notice also resulted in (i) the removal of any representatives of the Operating Partnership serving on any board of management of a subsidiary of the Eagles Sub-OP and (ii) the rescission of the rights of any agent or officer of the Eagles Sub-OP designated by the Operating Partnership, as the managing member of the Eagles Sub-OP.
All of our properties are owned by subsidiaries of the Eagles Sub-OP. The Fortress Member, in its capacity as managing member of Eagles Sub-OP, intends to cause Eagles Sub-OP to sell one or more properties to third-party buyers unaffiliated with the Fortress Member until the Preferred Equity Investment has been redeemed for the Redemption Amount and the entire outstanding principal balance of the Fortress Mezzanine Loan and the Prepayment Premium has been repaid. Further, the Company and the Fortress Member are currently marketing certain of the properties for sale. We can provide no assurances as to the timing of the sales of the properties or that the properties will be successfully sold. As of March 31, 2024, the Redemption Amount was $111.9 million and the outstanding principal balance of the Fortress Mezzanine Loan and the Prepayment Premium was $19.1 million. The combined carrying amount of the Preferred Equity Investment and the Fortress Mezzanine Loan was approximately $118.3 million at March 31, 2025. We can provide no assurances that the proceeds from the sales of our properties will be sufficient to pay the Redemption Amount and the outstanding principal balance of the Fortress Mezzanine Loan and the Prepayment Premium and to satisfy our other liabilities. See Note 8 “Mortgage and Other Indebtedness” and Note 10 “Fortress Preferred Equity Investment” for additional information.
Based on the above, there is substantial doubt about our ability to continue as a going concern for a period of one year after the date that the condensed consolidated financial statements included in this report are available to be issued. Our ability to continue as a going concern is dependent on our ability to find third-party equity and/or debt financing to pay off the Preferred Equity Investment and the Fortress Mezzanine Loan or the Company and the Fortress Member’s ability to sell properties as described above. However, management cannot provide any assurances that we will be successful in accomplishing any of our plans. If we cannot obtain third-party equity and/or debt financing, or if the Company and the Fortress Member cannot sell properties as described above, we will not be able to satisfy our debt and preferred equity obligations. The accompanying financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
As described below, under our existing debt agreements, we are subject to continuing covenants. In the event of a default, the lenders could accelerate the timing of payments under the applicable debt obligations, and we may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on our liquidity, financial condition and results of operations. Other than the event of default under the mezzanine loan agreement (the “Fortress Mezzanine Loan Agreement”) for the Fortress Mezzanine Loan, as of March 31, 2025, we were in compliance with all of the other covenants under our debt agreements.
Consolidated Indebtedness and Preferred Equity
Indebtedness Summary
The following table sets forth certain information regarding our outstanding indebtedness as of March 31, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
Maturity Date |
|
Rate Type |
|
Interest Rate |
|
Balance Outstanding at March 31, 2025 |
|
|
Hollinswood Shopping Center Loan (1) |
|
June 1, 2025 |
|
SOFR + 2.36% |
|
6.68% |
|
|
12,048 |
|
|
Avondale Shops Loan |
|
June 1, 2025 (2) |
|
Fixed |
|
4.00% |
|
|
2,714 |
|
|
Vista Shops at Golden Mile Loan (net of discount of $77) (3) |
|
February 8, 2029 |
|
SOFR + 2.75% |
|
6.90% |
|
|
15,934 |
|
|
Brookhill Azalea Shopping Center Loan |
|
April 30, 2025 (4) |
|
SOFR + 2.75% |
|
7.07% |
|
|
9,198 |
|
|
Crestview Shopping Center Loan (net of discount of $28) |
|
September 29, 2026 |
|
Fixed |
|
7.83% |
|
|
11,817 |
|
|
Lamar Station Plaza West Loan (net of discount of $49) |
|
December 10, 2027 |
|
Fixed |
|
5.67% |
|
|
18,498 |
|
|
Highlandtown Village Shopping Center Loan (net of discount of $27) |
|
May 10, 2028 |
|
SOFR + 2.5% (5) |
|
6.09% |
|
|
8,723 |
|
|
Midtown Colonial and Midtown Lamonticello Shopping Center Loan (net of discount of $150) |
|
May 1, 2027 |
|
Fixed |
|
7.92% |
|
|
19,010 |
|
|
Midtown Row Loan (net of discount of $13) |
|
December 1, 2027 |
|
Fixed |
|
6.48% |
|
|
75,987 |
|
|
Midtown Row/Fortress Mezzanine Loan (6) |
|
December 1, 2027 |
|
Fixed |
|
14.00% (7) |
|
|
16,688 |
|
|
Cromwell Field Shopping Center Loan (net of discount of $41) |
|
December 22, 2027 |
|
Fixed |
|
6.71% |
|
|
12,897 |
|
(8) |
Coral Hills Shopping Center Loan (net of discount of $165) |
|
October 31, 2033 |
|
Fixed |
|
6.95% |
|
|
12,336 |
|
|
West Broad Shopping Center Loan (net of discount of $77) |
|
December 21, 2033 |
|
Fixed |
|
7.00% |
|
|
11,498 |
|
|
The Shops at Greenwood Village (net of discount of $59) |
|
October 10, 2028 |
|
SOFR + 2.85% (9) |
|
5.85% |
|
|
21,494 |
|
|
|
|
|
|
|
|
|
|
$ |
248,842 |
|
|
Unamortized deferred financing costs, net |
|
|
|
|
|
|
|
|
(1,978 |
) |
|
Total Mortgage and Other Indebtedness |
|
|
|
|
|
|
|
$ |
246,864 |
|
|
(1)On March 27, 2025, we entered into an agreement to extend the maturity date of this loan to June 1, 2025. In May 2025, we reached a verbal agreement with the lender to further extend the maturity date of this loan to September 1, 2025 with an option to extend the maturity date for an additional 90 days, but we can provide no assurance that the lender will enter into a definitive agreement to effect this extension.
(2)On May 6, 2025, we entered into an agreement to extend the maturity date of this loan to December 1, 2025.
(3)We have entered into an interest rate swap which fixes the interest rate of this loan at 6.90%.
(4)On January 31, 2025, we entered into an agreement to extend the maturity date of this loan to April 30, 2025. On May 20, 2025, we entered into another agreement to further extend the maturity date of this loan to July 29, 2025 and amend the interest rate to SOFR plus 3.09%.
(5)We have entered into an interest rate swap which fixes the interest rate of this loan at 6.09%.
(6)The outstanding balance reflects the fair value of the debt.
(7)A portion of the interest on this loan is paid in cash (the “Current Interest”) and a portion of the interest is capitalized and added to the principal amount of the loan each month (the “Capitalized Interest” and, together with the Current Interest, the “Mezzanine Loan Interest”). The initial Mezzanine Loan Interest rate was 12% per annum, comprised of a 5% Current Interest rate and a 7% Capitalized Interest rate. The Capitalized Interest rate increases each year by 1% and, as of March 31, 2025, was 9%. Effective April 8, 2025, the interest rate was increased by 4% as a result of the Trigger Event.
(8)At March 31, 2025, there was additional borrowing capacity of $2.1 million available to us to fund leasing costs and for the performance earnout.
(9)We entered into an interest rate swap which fixes the interest rate of this loan at 5.85%.
As of March 31, 2025 and December 31, 2024, we had approximately $232.2 million and $232.3 million, respectively, of outstanding mortgage indebtedness secured by individual properties. The Hollinswood mortgage, Vista Shops mortgage, Brookhill mortgage, Crestview mortgage, Highlandtown mortgage, Cromwell mortgage, Lamar Station Plaza West mortgage, Midtown Row mortgage, Coral Hills mortgage, West Broad mortgage and Greenwood Village mortgage require the Company to maintain a minimum debt service coverage ratio (as such term is defined in the respective loan agreements) as follows in the table below.
|
|
|
|
|
Minimum Debt Service Coverage |
Hollinswood Shopping Center |
|
1.40 to 1.00 |
Vista Shops at Golden Mile |
|
1.25 to 1.00 |
Brookhill Azalea Shopping Center |
|
1.30 to 1.00 |
Crestview Shopping Center |
|
1.25 to 1.00 |
Highlandtown Village Shopping Center |
|
1.25 to 1.00 |
Cromwell Field Shopping Center (1) |
|
1.20 to 1.00 |
Lamar Station Plaza West |
|
1.30 to 1.00 |
Midtown Row |
|
1.15 to 1.00 |
Coral Hills Shopping Center |
|
1.20 to 1.00 |
West Broad Shopping Center |
|
1.25 to 1.00 |
The Shops at Greenwood Village |
|
1.40 to 1.00 |
(1)The debt service coverage ratio testing commenced December 31, 2023 with the following requirements: (i) 1.20 to 1.00 as of December 31, 2023; (ii) 1.20 to 1.00 as of December 31, 2024 and (iii) 1.35 to 1.00 as of December 31, 2025 and for the remaining term of the loan.
Other than the event of default under the Fortress Mezzanine Loan Agreement, as of March 31, 2025, we were in compliance with all covenants under our debt agreements.
Fortress Mezzanine Loan
In connection with the acquisition of Midtown Row, we entered into a $15.0 million mezzanine loan (the “Fortress Mezzanine Loan”) secured by 100% of the membership interests in the entity that owns Midtown Row. The mezzanine loan matures on December 1, 2027. The Fortress Mezzanine Loan Agreement provides for cross-default in the event of a Trigger Event under the Eagles Sub-OP Operating Agreement or an event of default under the loan agreement for the Midtown Row mortgage.
As discussed below, effective May 21, 2024, the Fortress Member and the Operating Partnership entered into the Temporary Waiver. On April 8, 2025, the Fortress Member provided the Rescission and Removal Notice. Accordingly, as a result of the Rescission and Removal Notice and the resulting Trigger Event under the Eagles Sub-OP Operating Agreement, an event of default exists and is continuing under the Fortress Mezzanine Loan. As a result of the event of default, (i) CF Flyer Mezz may require the immediate payment of all amounts owed under the Fortress Mezzanine Loan, (ii) CF Flyer Mezz may foreclose on the collateral for the Fortress Mezzanine Loan, (iii) the interest rate of the Fortress Mezzanine Loan automatically increased by the lesser of 4% or the maximum rate permitted by applicable law and (iv) CF Flyer Mezz may apply any sums in any cash management system account in any order and in any manner as CF Flyer Mezz may elect. If CF Flyer Mezz accelerates the maturity date of all or any portion of the Fortress Mezzanine Loan by reason of the event of default, then, in addition to the payment of the outstanding principal and accrued and unpaid interest of the Fortress Mezzanine Loan, CF Flyer Mezz will be entitled to receive a prepayment premium in an amount sufficient to provide CF Flyer Mezz with the greater of (i) all accrued and unpaid interest (including all accrued and unpaid capitalized interest) with respect to the Fortress Mezzanine Loan and (ii) a 1.40x minimum multiple on the amount of the Fortress Mezzanine Loan (the “Prepayment Premium”).
The previously disclosed note sale and assignment agreement, pursuant to which CF Flyer Mezz Holdings LLC, the lender under the Fortress Mezzanine Loan (“CF Flyer Mezz”) and an affiliate of Fortress, agreed to sell the Fortress Mezzanine Loan, was terminated by CF Flyer Mezz on March 31, 2025 following a breach by the buyer of its obligations to complete the purchase.
See Note 8, “Mortgage and Other Indebtedness” for further information.
Fortress Preferred Equity Investment
On November 22, 2022, the Company, the Operating Partnership and the Eagles Sub-OP entered into a Preferred Equity Investment Agreement with the Fortress Member pursuant to which the Fortress Member invested $80.0 million in the Eagles Sub-OP in exchange for the Fortress Preferred Interest.
In connection with the Preferred Equity Investment, the Operating Partnership and the Fortress Member entered into the Eagles Sub-OP Operating Agreement, and the Operating Partnership contributed to the Eagles Sub-OP its subsidiaries that, directly or indirectly, own Brookhill Azalea Shopping Center, Vista Shops, Hollinswood Shopping Center, Avondale Shops, Greenwood Village Shopping Center and Lamar Station Plaza East in November 2022, as well as Cromwell Field in December 2022. Pursuant to the Eagles
Sub-OP Operating Agreement, the Operating Partnership had the obligation to contribute to the Eagles Sub-OP its direct or indirect subsidiaries owning eight properties. As of March 31, 2025, the Operating Partnership had contributed to the Eagles Sub-OP its subsidiaries that own Highlandtown, Crestview, Coral Hills, West Broad, Midtown Colonial and Midtown Lamonticello and, with the approval of the Fortress Member, sold Spotswood and Dekalb Plaza. All of our properties are owned by subsidiaries of the Eagles Sub-OP.
Pursuant to the Amended and Restated Limited Liability Company Agreement of the Eagles Sub-OP (the “Eagles Sub-OP Operating Agreement”), the Fortress Member is entitled to monthly distributions, a portion of which is paid in cash (the “Current Preferred Return”) and a portion that accrues on and is added to the Preferred Equity Investment each month (the “Capitalized Preferred Return” and, together with the Current Preferred Return, the “Preferred Return”). The initial Preferred Return was 12% per annum, comprised of a 5% Current Preferred Return and a 7% Capitalized Preferred Return. The Capitalized Preferred Return increases each year by 1%. Commencing on November 22, 2027, the Preferred Return will be 19% per annum, all payable in cash, and will increase an additional 3% each year thereafter. Upon (i) the occurrence of a Trigger Event, (ii) during a three-month period in which distributions on the Preferred Equity Investment are not made because such payments would cause a violation of Delaware law or (iii) if a Qualified Public Offering has not occurred on or prior to November 22, 2027, the entire Preferred Return shall accrue at the then-applicable Preferred Return plus 4% and shall be payable monthly in cash. As of March 31, 2025, the Capitalized Preferred Return was approximately $21.4 million and is reflected within Redeemable noncontrolling Fortress preferred interest on the condensed consolidated balance sheets. For each of the three months ended March 31, 2025 and 2024, we recognized $1.2 million of Current Preferred Return, and, for the three months ended March 31, 2025 and 2024, we recognized $2.2 million and $1.8 million, respectively, of Capitalized Preferred Return, in each case as a reduction to additional paid-in capital in the condensed consolidated statements of equity. For the three months ended March 31, 2025 and 2024, we recognized $3.6 million and $3.2 million, respectively, of Current Preferred Return and $5.7 million and $7.5 million, respectively, of Capitalized Preferred Return, as a reduction to additional paid-in capital in the condensed consolidated statements of equity.
On May 21, 2024, we agreed with the Fortress Member that, after revision of the total yield calculation as of March 31, 2024, we did not meet the minimum total yield requirement under the Eagles Sub-OP Operating Agreement, which would have been a Trigger Event. Effective May 21, 2024, the Fortress Member and the Operating Partnership entered into the Temporary Waiver to waive the total yield failure and the existence of the Trigger Event until such time as the Fortress Member elected to revoke such waiver, which the Fortress Member was entitled to do at any time in its sole discretion. On April 8, 2025, the Fortress Member provided the Rescission and Removal Notice, which rescinded the Temporary Waiver and removed the Operating Partnership as the managing member of the Eagles Sub-OP in accordance with the terms of the Eagles Sub-OP Operating Agreement. As a result of the Rescission and Removal Notice, the Fortress Member automatically became the managing member of the Eagles Sub-OP in accordance with the terms of the Eagles Sub-OP Operating Agreement. The Rescission and Removal Notice also resulted in (i) the removal of any representatives of the Operating Partnership serving on any board of management of a subsidiary of the Eagles Sub-OP and (ii) the rescission of the rights of any agent or officer of the Eagles Sub-OP designated by the Operating Partnership, as the managing member of the Eagles Sub-OP.
As a result of the Trigger Event, the Fortress Member has the right to cause the Eagles Sub-OP to redeem the Fortress Preferred Interest by payment to the Fortress Member of the full Redemption Amount upon not less than 90 days prior written notice to the Eagles Sub-OP. Additionally, as a result of the Trigger Event, the Fortress Member may cause the Eagles Sub-OP to sell one or more properties to third-party buyers unaffiliated with the Fortress Member until the entire Fortress Preferred Interest has been redeemed for the Redemption Amount. Further, as a result of the Trigger Event, the Fortress Member may (i) cause the Eagles Sub-OP to use certain reserve accounts to pay the Fortress Member the full Redemption Amount, (ii) terminate all property management and other service agreements with our affiliates, (iii) take any action in connection with curing or reacting to a default under any mortgage loan and (iv) otherwise exercise its rights and remedies pursuant to the terms of the Eagles Sub-OP Operating Agreement. Further, the Fortress Mezzanine Loan Agreement provides for cross-default in the event of a Trigger Event.
As a result of the Trigger Event, (i) the rate for distributions payable on the Fortress Preferred Interest automatically increased by the lesser of 4% or the maximum rate permitted by applicable law and (ii) all distributions payable on the Fortress Preferred Interest are payable in cash, including the portion of distributions payable on the Fortress Preferred Interest that previously accrued on and was added to the Preferred Equity Investment.
As a result of the Rescission and Removal Notice, the Fortress Member has full control of all cash accounts owned by the Eagles Sub-OP and its subsidiaries, which accounts hold substantially all of our cash. Any use of such cash by us or the Operating Partnership requires the consent of the Fortress Member, and we can provide no assurance that the Fortress Member will provide such consent. On May 20, 2025, the Fortress Member informed our board of directors that it will fund our general and administrative expenses for key personnel, licenses, software and other expenses to be approved by the Fortress Member for the next two months, up to a total of $750,000, after which the Fortress Member will determine the appropriate next steps.
The previously disclosed preferred membership interest and warrant purchase agreement, pursuant to which the Fortress Member and CF Flyer Mezz agreed to sell 100% of the Fortress Preferred Interest and the outstanding warrant to purchase 2,560,000 shares of our common stock at an exercise price of $0.01 per share, was terminated by the Fortress Member and CF Flyer Mezz on March 31, 2025 following a breach by the buyer of its obligations to complete the purchase.
See Note 10 “Fortress Preferred Equity Investment” for further information.
Cash Flows
The table below sets forth the sources and uses of cash reflected in our condensed consolidated statements of cash flows for the three months ended March 31, 2025 and 2024.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
(in thousands) |
|
2025 |
|
|
2024 |
|
|
Change |
|
Cash and cash equivalents and restricted cash at beginning of period |
|
$ |
20,734 |
|
|
$ |
13,797 |
|
|
$ |
6,937 |
|
Net cash from operating activities |
|
|
(1,008 |
) |
|
|
1,296 |
|
|
|
(2,304 |
) |
Net cash from investing activities |
|
|
27 |
|
|
|
(2,285 |
) |
|
|
2,312 |
|
Net cash from financing activities |
|
|
(1,442 |
) |
|
|
4,473 |
|
|
|
(5,915 |
) |
Cash and cash equivalents and restricted cash at end of period |
|
$ |
18,311 |
|
|
$ |
17,281 |
|
|
$ |
1,030 |
|
Operating Activities- Cash from operating activities decreased by approximately $2.3 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Operating cash flows were primarily impacted by a net decrease in changes in operating assets and liabilities of approximately $2.7 million, of which approximately $1.7 million, $0.7 million and $0.5 million was related to the net change in accounts payable and accrued liabilities, other assets and accounts receivable, respectively. This decrease was partially offset by an increase of approximately $0.2 million in deferred revenues.
Investing Activities- Cash from investing activities during the three months ended March 31, 2025 increased by approximately $2.3 million compared to the three months ended March 31, 2024. This increase was primarily due to a $2.1 million decrease in capital expenditures for real estate during the three months ended March 31, 2025 as compared to the corresponding period in 2024 and approximately a $0.3 million increase of insurance proceeds received in 2025 to cover repairs relating to fire damage at one of our retail properties
Financing Activities- Cash from financing activities during the three months ended March 31, 2025 decreased by approximately $5.9 million compared to the three months ended March 31, 2024. The decrease resulted primarily from (i) a net increase in the loan secured by Vista Shops at Golden Mile of approximately $4.9 million from the refinance of the loan (ii) additional draws of $1.3 million under the loan secured by the Cromwell Field Shopping Center and (iii) an increase in scheduled principal payments on loans of approximately $0.1 million as compared to the corresponding period in 2024. This was partially offset by a $0.3 million decrease in debt origination and discount fees for the three months ended March 31, 2025.