Invesco Real Estate Income Trust Inc.
03/24/2025 | Press release | Distributed by Public on 03/24/2025 15:16
Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Part I Item 1A - "Risk Factors" in this Annual Report on Form 10-K.
Overview
We are a Maryland corporation formed in October 2018. We invest primarily in stabilized, income-oriented commercial real estate in the United States. To a lesser extent, we also originate and acquire private real estate debt and invest in real estate-related securities. We own, and expect to continue to own, all or substantially all of our assets through Invesco REIT Operating Partnership L.P. ("INREIT OP" or "Operating Partnership"), of which we are the sole general partner.
We are externally managed and advised by our Adviser, a registered investment advisor and an indirect, wholly-owned subsidiary of Invesco Ltd., an independent global investment management firm. Our Adviser utilizes the personnel and global resources of Invesco Real Estate, the real estate investment center of Invesco, to provide investment management services to us. We qualified to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2020. To maintain our REIT qualification, we must meet a number of organizational and operational requirements, including that we are generally required to distribute at least 90% of our REIT taxable income to our stockholders annually. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent we annually distribute all of our net taxable income (determined without regard to our net capital gain and dividends-paid deduction) to stockholders and maintain our qualification as a REIT. We operate our business in a manner that permits our exclusion from the definition of "Investment Company" under the Investment Company Act of 1940, as amended (the "Investment Company Act").
As of December 31, 2024, we own or have invested in 58 properties. See "Investment Portfolio-Real Estate" below for additional information on these investments. As of December 31, 2024, we also own real estate-related securities, have an investment in a commercial loan and have invested in an affiliated fund which invests primarily in mortgage loans that are collateralized by commercial and residential real estate throughout the United States.
Public Offering
In May 2021, we commenced our initial public offering of up to $3.0 billion in shares of common stock. On November 12, 2024, our initial public offering terminated and we commenced our follow-on public offering of up to $3.0 billion consisting of up to $2.4 billion in shares in our Primary Offering and up to $600.0 million in shares under our distribution reinvestment plan. We are offering to sell any combination of five classes of shares of our common stock, Class T shares, Class S shares, Class D shares, Class I shares and Class E shares in the Offering, with a dollar value up to the maximum offering amount. The share classes have different upfront selling commissions and dealer manager fees and different ongoing stockholder servicing fees. The purchase price per share for each class of our common stock sold in the Offering will vary and will generally equal our prior month's NAV per share for such class, as determined monthly, plus any applicable upfront selling commissions and dealer manager fees. We intend to continue selling shares in our follow-on public offering on a monthly basis.
As of March 24, 2025, we have received gross aggregate proceeds of $221.9 million through our public offerings.
Private Offerings
We are conducting private offerings of up to $1.0 billion in shares of our Class N common stock ("Class N shares" or "Class N common stock" and the "Class N Private Offering, respectively") and up to $20.0 million in shares of our Class E common stock ("Class E shares" and the "Class E Private Offering," respectively) (the Class N Private Offering and Class E Private Offering, collectively, the "Private Offerings"). As of March 24, 2025, we have received offering proceeds of $593.7 million from the Private Offerings, and we have repurchased $74.8 million of Class N shares and $0.4 million of Class E shares, funded by proceeds from both the Offering and Private Offerings. All of the Class N shares that were repurchased were classified as Class N redeemable common stock on our consolidated balance sheets.
In August 2022, our board of directors authorized management to initiate, through the Operating Partnership, a program (the "DST Program") to issue and sell up to a maximum aggregate offering amount of $3.0 billion of beneficial interests ("Interests") in specific Delaware statutory trusts (the "DSTs") holding real properties (the "DST Properties"). These Interests will be issued and sold to "accredited investors," as that term is defined under Regulation D promulgated by the SEC under the Securities Act of 1933, as amended (the "Securities Act") in private placements exempt from registration pursuant to Section 4(a)(2) of the Securities Act (the "DST Offerings"). Under the DST Program, each DST Property may be sourced from our real properties or from third parties, will be held in a separate DST, and will be leased back by a wholly-owned subsidiary of the Operating Partnership in accordance with a master lease agreement. Each master lease agreement is guaranteed by the Operating Partnership, which has a fair market value purchase option (the "FMV Option") giving it the right, but not the obligation, to acquire the interests in the applicable DST from the investors any time after two years from the closing of the applicable DST offering in exchange for units of the Operating Partnership ("OP Units") or cash. After a one-year holding period, investors who acquire OP Units under the FMV Option generally have the right to cause the Operating Partnership to redeem all or a portion of their OP Units for, at our sole discretion, shares of our common stock, cash, or a combination of both.
The DST Program gives us the opportunity to expand and diversify our capital-raising strategies by offering what we believe to be an attractive investment product for investors that may be seeking replacement properties to complete like-kind exchange transactions under Section 1031 of the Internal Revenue Code of 1986, as amended. Certain affiliates of the Adviser receive fees in connection with the sale of the Interests and the management of the DSTs. We intend to use the net offering proceeds from the DST Program to make investments in accordance with our investment strategy and policies, reduce our borrowings, repay indebtedness, fund the repurchase of shares of all classes of our common stock under our share repurchase plan and for other corporate purposes. We commenced our first DST Offering in February 2023. As of March 24, 2025, we have raised $82.6 million from our DST Program.
Factors Affecting Operating Results
Our results of operations are affected by a number of factors and depend on the rental income we generate from the properties that we acquire or lend on, the timing of lease expirations, operating expenses, income or loss from unconsolidated entities, general market conditions and the competitive environment for real estate assets. Of these factors, interest rates, capital flows, transaction activity, and a changing macroeconomic landscape had the most direct impacts on our performance and financial condition during 2024.
Market Conditions
Our business is affected by conditions in the financial markets and economic conditions in the United States and to a lesser extent, elsewhere in the world. Inflation and economic trend data, along with policy shifts with a new administration, will ultimately determine if and when interest rates decline. For the time being, borrowing costs remain in the 5-7% range, which will inform how investors underwrite value and their conviction in required growth. Our investment decisions today are further colored by a divergence in sector fundamentals and pricing that is wider than historical long-term averages. We continue to believe that we're transitioning between value cycles and prioritizing investment level execution will be critical to generating outperformance.
Rental Property Operating Results
We generate rental property income primarily from rental revenue received by the properties that we acquire. The amount of rental revenue depends upon a number of factors, including our ability to enter into leases with above or at market value rents for the properties that we acquire, and rent collection, which primarily relates to each future tenant's financial condition and ability to make rent payments to us on time. Rental property operating expenses include real estate taxes, property insurance, repairs and maintenance, property management fees, utilities and other costs associated with owning real estate.
Our investments are diversified across sectors, including industrial, healthcare, multifamily, self-storage and student-housing.
While market volatility and certain fundamental factors have affected and may continue to affect the commercial real estate market and our performance, we believe there are positive long-term fundamentals within our portfolio and benefits from our recent portfolio repositioning. In addition, we believe that demand will continue for Section 1031 investment products, supporting our DST Program.
2024 Highlights
Operating Results
•Declared monthly net distributions totaling $36.8 million for the year ended December 31, 2024. The details of the average annualized distribution rates and total returns are shown in the following table:
| Class T | Class S | Class D | Class I | Class E | Class N | |||||||||||||||||||||||||||||||||
|
Average Annualized Distribution Rate(1)
|
5.9% | 5.8% | 6.1% | 6.2% | 5.9% | 6.0% | ||||||||||||||||||||||||||||||||
|
Year-to-Date Total Return, without upfront selling commissions(2)
|
(0.7)% | (0.6)% | (0.4)% | (0.2)% | 0.6% | 0.7% | ||||||||||||||||||||||||||||||||
|
Year-to-Date Total Return, assuming maximum upfront selling commissions(2)
|
(4.1)% | (4.0)% | (1.9)% | (0.2)% | 0.6% | 0.7% | ||||||||||||||||||||||||||||||||
|
Inception-to-Date Total Return, without upfront selling commissions(2)(3)
|
4.4% | 4.6% | 4.7% | 5.0% | 6.5% | 8.4% | ||||||||||||||||||||||||||||||||
|
Inception-to-Date Total Return, assuming maximum upfront selling commissions(2)(3)
|
3.4% | 3.5% | 4.2% | 5.0% | 6.5% | 8.4% | ||||||||||||||||||||||||||||||||
(1)The annualized distribution rate is calculated as the current month's distribution annualized and divided by the prior month's NAV, which is inclusive of all fees and expenses.
(2) Total return is calculated as the change in NAV per share during the respective periods plus any distributions per share declared in the period and assumes any distributions are reinvested in accordance with our distribution reinvestment plan.
(3) The inception date was June 1, 2021 for Class T, S and D shares; May 21, 2021 for Class I shares; May 14, 2021 for Class E shares and September 28, 2020 for Class N shares.
Capital Activity
•We raised $47.6 million of net proceeds from the sale of our common stock during the year ended December 31, 2024, and also raised a total of $39.2 million in net proceeds from the DST Program during the year ended December 31, 2024.
Financings
•We exercised the extension right on the Revolving Credit Facility in July 2024, which extended the maturity date to September 5, 2025. We also entered into a loan amendment to the Revolving Credit Facility on October 11, 2024. An incremental commitment was made by Invesco Realty, Inc. to provide up to $35.0 million of additional capital to the Company under the Revolving Credit Facility, which provides for a reduction in borrowing limitations from properties in the Company's DST Program.
•We repaid the Bixby Kennesaw mortgage note in connection with the disposition of the property in the current year and incurred debt extinguishment charges of $0.2 million.
Investments
•We received proceeds of $21.8 million from the repayment of the 9801 Blue Grass commercial loan upon maturity.
•We acquired seven real estate properties for a total purchase price of $107.8 million, including a multifamily apartment community in Dallas, Texas, and industrial properties in Charlotte, North Carolina, and Lumberton, New Jersey. The acquisitions are consistent with our strategy of acquiring income-producing commercial real estate assets in growth markets across the United States.
•We closed on dispositions of three properties for a total sales price of $130.2 million, including two self-storage properties in Salem, Oregon, and one student housing property in Kennesaw, Georgia.
•We increased our investment in our Retail GP Fund overall by $8.9 million as a result of one new investment and one sale of an investment bringing our net investment to $22.0 million.
•We increased our investments in real estate-related securities to $56.5 million.
•We redeemed all issued and outstanding shares of our Series A Preferred Stock for approximately $62,500, plus accrued and unpaid dividends.
Investment Portfolio
Summary of Portfolio
The following chart summarizes the allocation of our investment portfolio based on fair value as of December 31, 2024:
Investment Allocation(1)
The following charts describe the diversification of our investments in real estate based on fair value as of December 31, 2024:
Property Type(2)
Geography(3)
(1)Investment allocation is measured as the asset value of each investment category (real estate property investments, private real estate debt, real estate-related securities or cash) against the total asset value of all investment categories, excluding the value of any third-party interests in such assets. Real estate investments include our direct property investments, unconsolidated investments and our interest in retail properties through INREIT's interest in ITP Investments LLC. See "-Real Estate" below for additional information on these investments. Totals may not sum to 100% due to rounding.
(2)Property Type weighting is measured as the asset value of real estate investments for each sector category (Healthcare, Industrial, Office, Multifamily, Grocery-Anchored Retail, Self-Storage, Student Housing, Private Real Estate Debt, Other) against the total asset value of all real estate investments, excluding the value of any third-party interests in such real estate investments. The Other segment includes non-controlling interests in retail properties through our interest in ITP Investments LLC. Totals may not sum to 100% due to rounding.
(3)Geography weighting excludes the asset value of any investments in private real estate debt, real estate-related securities or cash and is measured as the asset value of direct real estate properties and unconsolidated investments for each geographical category (East, Midwest, South, West) against the total asset value of all real estate property investments. Totals may not sum to 100% due to rounding.
As of December 31, 2024, we owned interests in 58 properties, which we acquired for a total purchase price of $880.0 million, inclusive of closing costs. Our diversified portfolio of income producing assets consists of healthcare, office, industrial, self-storage, multifamily, student housing and grocery-anchored retail properties, as well as real estate debt investments, concentrated in growth markets across the United States.
The following table provides a summary of our real estate portfolio as of December 31, 2024:
| Segment |
Number of Properties |
Sq. Feet / Units /Beds |
Occupancy Rate |
Gross Asset
Value
(in thousands)(1)
|
Segment
Revenue
(in thousands)(2)
|
Percentage of
Total Segment
Revenue(3)
|
||||||||||||||||||||||||||||||||
| Healthcare | 20 | 1,030,397 sq. ft. | 91% | $ | 167,013 | $ | 3,741 | 4% | ||||||||||||||||||||||||||||||
| Office | 1 | 80,980 sq. ft. | 100% | 28,900 | 2,990 | 4% | ||||||||||||||||||||||||||||||||
| Industrial | 12 | 1,877,967 sq. ft. | 80% | 207,652 | 10,198 | 12% | ||||||||||||||||||||||||||||||||
| Self-Storage | 8 | 462,520 sq. ft. | 88% | 78,309 | 9,332 | 11% | ||||||||||||||||||||||||||||||||
| Multifamily | 2 | 541 units | 92% | 125,570 | 12,419 | 15% | ||||||||||||||||||||||||||||||||
| Student Housing | 1 | 833 beds | 90% | 194,040 | 21,639 | 26% | ||||||||||||||||||||||||||||||||
| Grocery-Anchored Retail | 1 | 122,225 sq. ft. | 100% | 60,200 | 5,587 | 7% | ||||||||||||||||||||||||||||||||
|
Other(4)
|
13 | 4,252,125 sq. ft. | 92% | 46,083 | 5,467 | 7% | ||||||||||||||||||||||||||||||||
| Total | 58 | $ | 907,767 | $ | 71,373 | 86% | ||||||||||||||||||||||||||||||||
(1)Based on fair value as of December 31, 2024. The Gross Asset Value includes investments in both consolidated and unconsolidated real estate. The unconsolidated investments, excluding preferred equity investments, are included at our pro-rata share of the investment. For our preferred equity investments, we include the fair value of our preferred equity investment. See "-Real Estate" below for additional information on these investments.
(2)Segment revenue is presented for the year ended December 31, 2024. Healthcare and Other segment revenue includes income from unconsolidated entities.
(3)The Percentage of Total Segment Revenue does not equal 100% as it does not include real estate debt and real estate-related securities. See the tables below for the remainder of our segment revenue.
(4)The full amount of the Other segment is comprised of non-controlling interests we own in retail properties through our interest in ITP Investments LLC. See "-Real Estate" below for additional information on these investments.
The following table provides a summary of our real estate debt as of December 31, 2024:
| Segment |
Number of Instruments |
Fair
Value
(in thousands)(1)
|
Segment
Revenue
(in thousands)(2)
|
Percentage of
Total Segment
Revenue(3)
|
||||||||||||||||||||||
| Real Estate Debt | 3 | $ | 63,601 | $ | 8,432 | 10% | ||||||||||||||||||||
(1)Based on fair value as of December 31, 2024. The Fair Value includes investment in a commercial mortgage, the investment in an affiliated debt fund and unconsolidated preferred equity. See "-Real Estate Debt" below for additional information on these investments.
(2)Segment revenue is presented for the year ended December 31, 2024. The Real Estate Debt segment revenue includes income from unconsolidated entities as a result of the San Simeon Preferred Equity investment, income from commercial loans and income from an investment in an affiliated fund.
(3)The Percentage of Total Segment Revenue does not equal 100% as it does not include the real estate portfolio and real estate-related securities.
The following table provides a summary of our real estate-related securities as of December 31, 2024:
| Segment |
Number of Instruments |
Fair
Value
(in thousands)(1)
|
Segment
Revenue
(in thousands)(2)
|
Percentage of
Total Segment
Revenue(3)
|
||||||||||||||||||||||
| Real Estate-Related Securities | 25 | $ | 56,472 | $ | 3,688 | 4% | ||||||||||||||||||||
(1)Based on fair value as of December 31, 2024. The Fair Value includes investments in liquid real estate-related securities consisting of investments in commercial mortgage backed securities ("CMBS") and common stock of REITs. See "-Investments in Real Estate-Related Securities" below for additional information on these investments.
(2)Segment revenue is presented for the year ended December 31, 2024. The Real Estate-Related Securities segment revenue includes the gain (loss) from real estate-related securities, net.
(3)The Percentage of Total Segment Revenue does not equal 100% as it does not include the real estate portfolio and real estate debt.
Real Estate
The following table provides information regarding our portfolio of real estate as of December 31, 2024:
| Segment and Investment | Number of Properties | Location(s) | Acquisition Date(s) | Ownership Interest | Purchase Price (in thousands) |
Sq. Feet / Units /Beds |
Occupancy | |||||||||||||||||||||||||||||||||||||
| Healthcare: | ||||||||||||||||||||||||||||||||||||||||||||
|
Sunbelt Medical Office Portfolio(1)
|
20 | CA, CO, FL, TN, TX | September 2020 / December 2020 / February 2021 | 42.5% | $ | 86,416 | 1,030,397 | sq. ft. | 91% | |||||||||||||||||||||||||||||||||||
| Total Healthcare | 20 | 86,416 | 1,030,397 | sq. ft. | ||||||||||||||||||||||||||||||||||||||||
| Office: | ||||||||||||||||||||||||||||||||||||||||||||
| Willows Commerce 9805 | 1 | Redmond, WA | December 2020 | 100% | 35,729 | 80,980 | sq. ft. | 100% | ||||||||||||||||||||||||||||||||||||
| Total Office | 1 | 35,729 | 80,980 | sq. ft. | ||||||||||||||||||||||||||||||||||||||||
| Industrial: | ||||||||||||||||||||||||||||||||||||||||||||
|
13034 Excelsior(6)
|
1 | Norwalk, CA | December 2020 | 100% | 18,594 | 53,527 | sq. ft. | 100% | ||||||||||||||||||||||||||||||||||||
|
5201 Industry(6)
|
1 | Pico Rivera, CA | December 2020 | 100% | 12,483 | 40,480 | sq. ft. | 100% | ||||||||||||||||||||||||||||||||||||
|
Midwest Industrial Portfolio(2)
|
4 | IL, OH, MO |
September 2021 / January 2022 / March 2022 |
95% | 115,566 | 1,338,425 | sq. ft. | 76% | ||||||||||||||||||||||||||||||||||||
| International Business 4535 | 1 | Charlotte, NC | July 2024 | 100% | 8,731 | 61,200 | sq. ft. | 100% | ||||||||||||||||||||||||||||||||||||
| NJ Exit 5 Industrial Portfolio | 5 | Lumberton, NJ | December 2024 | 95% | 62,069 | 384,335 | sq. ft. | 85% | ||||||||||||||||||||||||||||||||||||
| Total Industrial | 12 | 217,443 | 1,877,967 | sq. ft. | ||||||||||||||||||||||||||||||||||||||||
| Self-Storage: | ||||||||||||||||||||||||||||||||||||||||||||
|
River Road Storage(5)(6)
|
1 | Salem, OR | September 2021 | 100% | 15,540 | 76,034 | sq. ft. | 90% | ||||||||||||||||||||||||||||||||||||
|
South Loop Storage(6)
|
1 | Houston, TX | September 2021 | 100% | 11,141 | 66,981 | sq. ft. | 91% | ||||||||||||||||||||||||||||||||||||
|
University Parkway Storage(6)
|
1 | Winston-Salem, NC | April 2022 | 100% | 12,154 | 52,275 | sq. ft. | 88% | ||||||||||||||||||||||||||||||||||||
|
Bend Self-Storage Portfolio(6)
|
2 | Bend, OR | June 2022 | 100% | 18,078 | 62,805 | sq. ft. | 89% | ||||||||||||||||||||||||||||||||||||
|
Clarksville Self-Storage Portfolio(6)
|
3 | Clarksville, TN | July 2022 | 100% | 24,529 | 204,425 | sq. ft. | 85% | ||||||||||||||||||||||||||||||||||||
| Total Self-Storage | 8 | 81,442 | 462,520 | sq. ft. | ||||||||||||||||||||||||||||||||||||||||
| Multifamily: | ||||||||||||||||||||||||||||||||||||||||||||
|
Everly Roseland(3)
|
1 | Roseland, NJ | April 2022 | 57% | 162,023 | 360 | units | 97% | ||||||||||||||||||||||||||||||||||||
| Elan at Bluffview | 1 | Dallas, TX | November 2024 | 100% | 36,954 | 181 | units | 82% | ||||||||||||||||||||||||||||||||||||
| Total Multifamily | 2 | 198,977 | 541 | units | ||||||||||||||||||||||||||||||||||||||||
| Student Housing: | ||||||||||||||||||||||||||||||||||||||||||||
| The Carmin | 1 | Tempe, AZ | December 2021 | 98% | 163,692 | 833 | beds | 90% | ||||||||||||||||||||||||||||||||||||
| Total Student Housing | 1 | 163,692 | 833 | beds | ||||||||||||||||||||||||||||||||||||||||
| Grocery-Anchored Retail: | ||||||||||||||||||||||||||||||||||||||||||||
| Cortlandt Crossing | 1 | Mohegan Lake, NY | February 2022 | 100% | 65,553 | 122,225 | sq. ft. | 100% | ||||||||||||||||||||||||||||||||||||
| Total Grocery-Anchored Retail | 1 | 65,553 | 122,225 | sq. ft. | ||||||||||||||||||||||||||||||||||||||||
| Other: | ||||||||||||||||||||||||||||||||||||||||||||
|
Retail GP Fund(4)
|
13 |
Various(4)
|
Various(4)
|
4.5% - 9% | 30,700 | 4,252,125 | sq. ft. | 92% | ||||||||||||||||||||||||||||||||||||
| Total Other | 13 | 30,700 | 4,252,125 | sq. ft. | ||||||||||||||||||||||||||||||||||||||||
| Total Investment Properties | 58 | $ | 879,952 | |||||||||||||||||||||||||||||||||||||||||
(1)We hold our interest in the Sunbelt Medical Office Portfolio through a 50% ownership interest in a joint venture with Invesco U.S. Income Fund L.P., an affiliate of Invesco, (the "Invesco JV"). The Invesco JV holds an 85% ownership interest in a joint venture with a third party. We account for our investment using the equity method of accounting. The dates of acquisition and aggregate purchase price in the table above reflect the dates of our investments and the total amount of our investment in the Invesco JV.
(2)Meridian Business 940, Capital Park 2919, 3101 Agler and Earth City 13330 are collectively presented as Midwest Industrial Portfolio.
(3)We hold our interest in Everly Roseland through a 60% consolidated ownership interest in Everly Roseland Co-Invest, a co-investment between INREIT OP and Invesco Real Estate Atlas US Everly LLC ("Atlas US"), an affiliate of Invesco. Invesco Global Property Plus Fund, the majority owner in Atlas US, owns more than 10% of our outstanding common stock as of the date of this Report. The Everly Roseland Co-Invest holds a 95% consolidated ownership interest in a joint venture with a third-party.
(4)We hold an 85% ownership interest in a joint venture, ITP Investments LLC ("ITP LLC"). ITP LLC has a 90% interest in PT Co-GP Fund, LLC ("Retail GP Fund"), which was formed to invest in retail properties through non-controlling general partner interests. The ownership interest and aggregate purchase price in the table above reflects ITP LLC's ownership interest and the total amount paid by ITP LLC to obtain non-controlling general partner interests in the retail properties. The properties were acquired over several transactions from October 2021 to June 2024 and are located throughout the United States.
(5)River Road Storage, Blossom Drive Storage and Glen Creek Storage were previously collectively presented as Salem Self-Storage Portfolio. Blossom Drive Storage and Glen Creek Storage were sold in December 2024.
(6)These properties are held through our DST Program as of December 31, 2024 and have been consolidated in our consolidated balance sheets. Any profits interest due to the third-party investors in the DST Program are reported within non-controlling interests in consolidated joint ventures in our consolidated balance sheets.
Lease Expirations
The following schedule details the expiring leases at our consolidated office, industrial, and grocery-anchored retail properties, as well as our unconsolidated healthcare properties by annualized base rent and square footage as of December 31, 2024. The table below excludes our self-storage, multifamily and student housing properties as substantially all leases at such properties expire within 12 months.
| Year |
Number of Expiring Leases |
Annualized
Base Rent (in thousands)(1)(2)
|
% of Total Annualized Base Rent Expiring |
Square Feet |
% of Total Square Feet Expiring |
|||||||||||||||||||||||||||
| 2025 | 37 | $ | 3,999 | 9% | 158,551 | 6% | ||||||||||||||||||||||||||
| 2026 | 48 | 8,436 | 19% | 484,269 | 18% | |||||||||||||||||||||||||||
| 2027 | 28 | 3,337 | 7% | 353,579 | 13% | |||||||||||||||||||||||||||
| 2028 | 35 | 4,905 | 11% | 141,815 | 5% | |||||||||||||||||||||||||||
| 2029 | 32 | 6,455 | 14% | 517,366 | 20% | |||||||||||||||||||||||||||
| 2030 | 18 | 2,899 | 6% | 157,532 | 6% | |||||||||||||||||||||||||||
| 2031 | 12 | 1,566 | 4% | 142,775 | 5% | |||||||||||||||||||||||||||
| 2032 | 10 | 994 | 2% | 33,877 | 1% | |||||||||||||||||||||||||||
| 2033 | 4 | 289 | 1% | 9,595 | 1% | |||||||||||||||||||||||||||
| 2034 | 13 | 1,280 | 3% | 55,542 | 2% | |||||||||||||||||||||||||||
| Thereafter | 21 | 11,063 | 24% | 597,114 | 23% | |||||||||||||||||||||||||||
| Total | 258 | $ | 45,223 | 100% | 2,652,015 | 100% | ||||||||||||||||||||||||||
(1)Annualized base rent is determined from the annualized December 31, 2024 base rent per leased square foot of the applicable year and excludes tenant recoveries, straight-line rent and above-market and below-market lease amortization.
(2)Includes 100% of the Sunbelt Medical Office Portfolio.
Real Estate Debt
We hold an investment in San Simeon Preferred Equity. San Simeon Preferred Equity owns San Simeon Apartments, a 431 unit multifamily property in Houston, Texas which is 91% occupied. Our investment is structured as a preferred membership interest, and we account for our investment in the San Simeon Apartments using the equity method of accounting. At December 31, 2024, we hold a total equity investment of $28.7 million.
We have an investment in Invesco Commercial Mortgage Income - U.S. Fund, L.P. ("CMI"), an affiliate of Invesco managed by our Adviser, which invests primarily in mortgage loans that are collateralized by commercial and residential real estate throughout the United States. As of December 31, 2024, our investment in CMI was $21.3 million.
The following table summarizes our investments in commercial loans as of December 31, 2024 and 2023:
| Current Principal Balance | Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| in thousands | Origination Date | Loan Type |
Interest Rate(1)
|
Periodic Payment Terms | December 31, 2024 | December 31, 2023 | December 31, 2024 | December 31, 2023 |
Maturity Date(2)
|
|||||||||||||||||||||||||||||||||||||||||||||||
| 9801 Blue Grass Loan | 9/1/2022 | Mezzanine |
N/A
|
N/A | $ | - | $ | 21,800 | $ | - | $ | 21,689 | 9/9/2024 | |||||||||||||||||||||||||||||||||||||||||||
| 5805 N Jackson Gap Loan | 1/20/2023 | Mezzanine |
12.48%
|
Interest only | 13,007 | 13,007 | 12,996 | 12,937 | 2/9/2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 13,007 | $ | 34,807 | $ | 12,996 | $ | 34,626 | ||||||||||||||||||||||||||||||||||||||||||||||||
(1)Represents the interest rate as of December 31, 2024. Loan earns interest at Secured Overnight Financing Rate ("SOFR") plus a spread.
(2)On February 9, 2025, the borrower of 5805 N Jackson Gap Loan exercised its first option to extend the maturity date to February 9, 2026.
During the year ended December 31, 2024, the commercial loan issued to 9801 Blue Grass, was repaid at par value upon maturity. The loan had an interest rate of 12.57% as of December 31, 2023.
We elected the fair value option for our commercial loans and, accordingly, there are no capitalized origination costs or fees associated with our loans.
Investments in Real Estate-Related Securities
As of December 31, 2024, our liquid real estate-related securities portfolio consisted of investments in commercial mortgage backed securities ("CMBS") and common stock of REITs. The following table details our investments in real estate-related securities as of December 31, 2024:
| in thousands | Principal Balance | Unamortized Premium (Discount) |
Amortized Cost / Cost(1)
|
Unrealized Gain (Loss), Net | Fair Value | Period-end Weighted Average Yield | Weighted-Average Maturity Date | |||||||||||||||||||||||||||||||||||||
| Non-agency CMBS | $ | 52,377 | $ | (1,553) | $ | 50,824 | $ | 49 | $ | 50,872 | 6.81 | % | 1/14/2027 | |||||||||||||||||||||||||||||||
| Common stock of REITs | N/A | N/A | 5,543 | 56 | 5,600 | 4.41 | % | N/A | ||||||||||||||||||||||||||||||||||||
| Total | $ | 52,377 | $ | (1,553) | $ | 56,367 | $ | 105 | $ | 56,472 | ||||||||||||||||||||||||||||||||||
(1)For non-agency CMBS, the amount presented represents amortized cost. For common stock of REITs, the amount presented represents cost.
Results of Operations
The following table sets forth the results of our operations:
| For the Year Ended December 31, | |||||||||||||||||
| in thousands | 2024 | 2023 | $ Change | ||||||||||||||
| Revenues | |||||||||||||||||
| Rental revenue | $ | 59,303 | $ | 62,374 | $ | (3,071) | |||||||||||
| Income from commercial loans | 3,701 | 4,439 | (738) | ||||||||||||||
| Other revenue | 3,090 | 3,193 | (103) | ||||||||||||||
| Total revenues | 66,094 | 70,006 | (3,912) | ||||||||||||||
| Expenses | |||||||||||||||||
| Rental property operating | 25,561 | 25,651 | (90) | ||||||||||||||
| General and administrative | 7,714 | 4,836 | 2,878 | ||||||||||||||
| Management fee - related party | 2,013 | 1,720 | 293 | ||||||||||||||
| Depreciation and amortization | 24,550 | 25,491 | (941) | ||||||||||||||
| Total expenses | 59,838 | 57,698 | 2,140 | ||||||||||||||
| Other income (expense), net | |||||||||||||||||
| Income (loss) from unconsolidated entities, net | 2,476 | 1,908 | 568 | ||||||||||||||
| Gain (loss) from real estate-related securities, net | 3,688 | 1,027 | 2,661 | ||||||||||||||
| Gain (loss) from disposition of investments in real estate | 33,628 | 54 | 33,574 | ||||||||||||||
| Debt extinguishment charges | (193) | (632) | 439 | ||||||||||||||
| Income (loss) from investment in affiliated fund, net | 1,498 | 493 | 1,005 | ||||||||||||||
| Gain (loss) on derivative instruments, net | 2,001 | 1,662 | 339 | ||||||||||||||
| Unrealized gain (loss) on commercial loans | 170 | (181) | 351 | ||||||||||||||
| Impairment loss on investments in real estate | - | (7,924) | 7,924 | ||||||||||||||
| Interest income | 1,761 | 111 | 1,650 | ||||||||||||||
| Interest expense | (24,171) | (27,265) | 3,094 | ||||||||||||||
| Other income (expense) | (370) | (346) | (24) | ||||||||||||||
| Total other income (expense), net | 20,488 | (31,093) | 51,581 | ||||||||||||||
| Net income (loss) attributable to Invesco Real Estate Income Trust Inc. | $ | 26,744 | $ | (18,785) | $ | 45,529 | |||||||||||
| Dividends to preferred stockholders | $ | (4) | $ | (8) | $ | 4 | |||||||||||
| Issuance and redemption costs of redeemed preferred stock | (24) | - | - | ||||||||||||||
| Net (income) loss attributable to non-controlling interests in consolidated joint ventures | 531 | 1,673 | (1,142) | ||||||||||||||
| Net (income) loss attributable to non-controlling interest in INREIT OP | (21) | 82 | (103) | ||||||||||||||
| Net income (loss) attributable to common stockholders | $ | 27,226 | $ | (17,038) | $ | 44,264 | |||||||||||
Rental Revenue, Other Revenue and Rental Property Operating Expenses
Our rental revenue primarily consists of fixed contractual base rent from our tenants and is recognized on a straight-line basis over the non-cancelable terms of the related leases. Our rental property operating expenses generally include the costs of ownership of real estate, including insurance, utilities, real estate taxes and repair and maintenance expense. Rental revenue, other revenue and rental property operating expenses decreased by $3.1 million, $0.1 million and $0.1 million, respectively, for the year ended December 31, 2024 as compared to the same period in 2023. The decrease is due primarily to the sale of a multifamily property at the end of 2023, which reduced multi-family rent revenue and property operating expense for the comparative period. We did not have significant acquisition activity until November and December 2024, so the decrease in revenue was not replaced in the current year. Other revenue is consistent with comparative periods in 2023 and the decrease is due to normal fluctuations in other revenue spread amongst all properties.
Income from Commercial Loans and Unrealized Gain (Loss) on Commercial Loans
During the year ended December 31, 2024, income from our commercial loans decreased by $0.7 million compared to the year ended December 31, 2023. The decrease was primarily due to the repayment of the Blue Grass commercial loan that matured in early September 2024. Unrealized gain (loss) on commercial loans increased by $0.4 million driven by changes to the interest rate environment as compared to 2023.
General and Administrative Expenses
During the year ended December 31, 2024, general and administrative expenses increased $2.9 million compared to the year ended December 31, 2023.The increase was due to higher corporate level expenses incurred in 2024 primarily related to the commencement of the second DST Offering.
Management Fee
During the year ended December 31, 2024, the management fee increased by $0.3 million compared to the year ended December 31, 2023 due to the additional 1.0% management fee payable from selling interests in our first and second DST Offerings that we began receiving proceeds for in September 2023 and November 2024, respectively.
Depreciation and Amortization
During the year ended December 31, 2024, depreciation and amortization decreased $0.9 million compared to the year ended December 31, 2023, primarily due to the sale of a large multifamily property at the end of 2023 which is no longer contributing toward this expense in 2024. We did not have significant acquisition activity until November and December 2024, so the decrease in depreciation and amortization was not replaced in the current year.
Income (Loss) from Unconsolidated Entities, Net
During the year ended December 31, 2024, income (loss) from unconsolidated entities, net increased $0.6 million compared to the year ended December 31, 2023, due to an increase in income across all of our unconsolidated investments, excluding Retail GP Fund, which had a decrease primarily due to higher depreciation and amortization in 2024 driven by additional investments in seven properties since October 2023.
Gain (Loss) from Real Estate-Related Securities, Net
During the year ended December 31, 2024, Gain (loss) from real estate-related securities, net increased by $2.7 million compared to the year ended December 31, 2023. The increase was primarily due to an increase in unrealized gains from improved market conditions on CMBS investments.
Gain (Loss) from Disposition of Investments in Real Estate
During the year ended December 31, 2024, we completed dispositions of two self-storage properties and a student housing property for a total gain of $33.6 million. During the year ended December 31, 2023, we recorded a net gain on the disposition of our Cortona at Forest Park property of $0.1 million.
Debt Extinguishment Charges
During the year ended December 31, 2024, we incurred debt extinguishment charges of $0.2 million related to the early prepayment of the mortgage on the Bixby Kennesaw student housing property as a result of the sale. During the year ended December 31, 2023, we incurred debt extinguishment charges of $0.6 million related to the early prepayment of the mortgage on Cortona at Forest Park as a result of the sale.
Income (Loss) from Investment in Affiliated Fund, Net
During the year ended December 31, 2024, income (loss) from investment in affiliated fund, net increased by $1.0 million compared to the year ended December 31, 2023. The increase is primarily due to net investment income of the fund exceeding net realized and unrealized losses on underlying portfolio investments for the year ended December 31, 2024 as compared to 2023.
Gain (Loss) on Derivative Instruments, Net
During the year ended December 31, 2024, our gains on derivative instruments increased $0.3 million compared to the year ended December 31, 2023. The increase is primarily due to favorable changes in unrealized gains in the current period as compared to 2023, which are market driven. This increase was partially offset by a decrease in contractual interest received from the derivative instruments.
Impairment Loss on Investments in Real Estate
During the year ended December 31, 2024, impairment loss on investments in real estate decreased by $1.7 million, compared to the year ended December 31, 2023. In the prior period, we recorded impairment of investments in real estate of $1.7 million related to the sale of the Cortona Apartments which did not recur in the current period.
Interest Income
During the year ended December 31, 2024, interest income increased by $1.7 million compared to the year ended December 31, 2023. The increase was primarily due to the commencement of interest earned on cash and cash equivalents beginning at the end of 2023.
Interest Expense
During the year ended December 31, 2024, interest expense decreased $3.1 million compared to the year ended December 31, 2023. The decreaseis primarily due to the repayment of the mortgage associated with a property sold towards the end of 2023 and a lower average outstanding balance throughout the year on our revolving line of credit.
Other Expense
During the year ended December 31, 2024, other expense remained consistent as compared to the year ended December 31, 2023.
Refer to Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of the Annual Report on Form 10-K for the year ended December 31, 2023 for discussion of our consolidated results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Liquidity and Capital Resources
Liquidity
Our primary needs for liquidity and capital resources are to fund our investments, to make distributions to our stockholders, to repurchase shares of our common stock under our share repurchase plan, to pay our offering costs and operating fees and expenses and to pay interest on our borrowings. We will obtain the funds required to purchase investments and conduct our operations from the net proceeds of our Private Offerings, our Offering, DST Program and any future offerings we may conduct (collectively, the "Capital Raising Programs"), from secured and unsecured borrowings from banks and other lenders and from net cash provided by operating activities. Generally, cash needs for items other than asset acquisitions are met from operations, and cash needs for asset acquisitions are funded by our Capital Raising Programs and debt financings. However, there may be a delay between the sale of our shares and our purchase of assets that could result in a delay in the benefits to our stockholders, if any, of returns generated from our investment operations.
Our target leverage ratio is approximately 50% to 60%. As used herein, "leverage ratio" is measured by dividing (x) the sum of the Company's consolidated property-level debt, entity-level debt and debt-on-debt, net of cash and restricted cash, by (y) the asset value of the Company's real estate investments, private real estate debt investments and equity in the Company's real estate-related securities portfolio (in each case measured using the greater of fair market value and cost), including the Company's net investment in unconsolidated investments. For purposes of determining the asset value of the Company's real estate investments, the Company includes the asset value of the DST Properties due to the master lease structure, including the Company's fair market value purchase option. The leverage ratio calculation does not include (i) indebtedness incurred in connection with funding a deposit in advance of the closing of an investment, (ii) indebtedness incurred as other working capital advances, (iii) indebtedness on the Company's real estate securities investments or (iv) the pro rata share of debt within the Company's unconsolidated investments. Further, the refinancing of any amount of existing indebtedness will not be deemed to constitute incurrence of new indebtedness for purposes of the leverage ratio calculation so long as no additional amount of net indebtedness is incurred in connection therewith (excluding the amount of transaction expenses associated with such refinancing). Our charter prohibits us from borrowing more than 300% of our net assets, which approximates borrowing 75% of the cost of our investments. We may exceed this limit if a majority of our independent directors approves each borrowing in excess of the limit and we disclose the justification for doing so to our stockholders.
If we are unable to raise substantial funds in the Capital Raising Programs, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make. Further, we have certain fixed operating expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able to raise substantial funds in the Capital Raising Programs. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make distributions.
The Adviser and its affiliates provide us with our management team, including our officers and appropriate support personnel. The Adviser or the Adviser's affiliates may provide us services that would otherwise be performed by third parties. In such event, we will reimburse the Adviser or the Adviser's affiliate the cost of performing such services provided that such reimbursements will not exceed the amount that would be payable if such services were provided by a third party in an arms-length transaction.
The Adviser advanced all of our operating expenses on our behalf through December 31, 2021.Beginning January 2022 and ceasing September 2022, we began ratably reimbursing the Adviser over 60months for the operating expenses incurred prior to December 31, 2021 and will recommence reimbursements to the Adviser following the earlier of (1) the date that our NAV reaches $1.0 billionand (2) December 31, 2027. As of December 31, 2024 and 2023, we have $5.4 million, respectively, due to the Adviser for advanced operating expenses that are recorded as a component of due to affiliates on our consolidated balance sheets.
The Adviser advanced all of our organization and offering expenses (other than upfront selling commissions, dealer manager fees, and ongoing stockholder servicing fees) incurred through December 31, 2022. We will begin reimbursing the Adviser for advanced organization and offering expenses upon the earlier of (1) the date that our NAV reaches $1.0 billion and (2) December 31, 2027. We will reimburse the Adviser for all of our advanced expenses ratably over 60 months following such date. As of December 31, 2024 and 2023, we have $6.8 million, respectively, due to the Adviser for advanced organization and offering expenses that are recorded as a component of due to affiliates on our consolidated balance sheets.
InJanuary 2022, we began reimbursing the Adviser on a quarterly basis for operating expenses incurred subsequent to December 31, 2021. As of December 31, 2024 and 2023, we have $4.9 million and $4.1 million, respectively, due to the Adviser for operating expenses. The amount due to the Adviser is recorded as a component of due to affiliates on our consolidated balance sheets.
In January 2023, we began reimbursing the Adviser on a quarterly basis for organization and offering expenses incurred subsequent to December 31, 2022. As of December 31, 2024 and 2023, we have $1.4 million and $0.8 million, respectively, due to the Adviser for organization and offering expenses that are recorded as a component of due to affiliates on our consolidated balance sheets.
Under our charter, we may reimburse the Adviser, at the end of each fiscal quarter, for total operating expenses paid by the Adviser. However, we may not reimburse the Adviser at the end of any fiscal quarter for total operating expenses (as defined in our charter) that, in the four consecutive fiscal quarters then ended, exceed the greater of 2% of average invested assets or 25% of net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of our assets for that period (the "2%/25% Guidelines").
We may reimburse the Adviser for expenses in excess of the 2%/25% Guidelines if a majority of our independent directors determines that such excess expenses (an "Excess Amount") are justified based on unusual and non-recurring factors. Operating expenses for the four fiscal quarters ended December 31, 2024 did not exceed the charter-imposed limitation.
MassMutual committed to purchase $400.0 million of Class N common stock in our Class N Private Offering and has fully met its commitment as of December 31, 2022.
On October 15, 2024, we and MassMutual entered into Amendment No. 2 to the Subscription Agreement, which extends the commencement date of MassMutual's liquidity rights from January 1, 2025 to January 1, 2026 and our ability to recycle MassMutual's capital from December 31, 2024 to June 30, 2025.
Through June 30, 2025, we may choose to repurchase Class N shares from MassMutual on a monthly basis, subject to certain thresholds based on monthly net offering proceeds, at the then current Class N transaction price in an amount with an aggregate repurchase price no greater than (1) the aggregate purchase price paid by MassMutual for Class N shares less (2) $200.0 million less (3) the aggregate repurchase price paid to MassMutual by us. In any month, however, MassMutual may require us to make or elect to forego the next monthly repurchase. Under the terms of MassMutual's subscription agreements, through June 30, 2025, we may require MassMutual to purchase additional Class N shares, in an amount equal to the aggregate purchase price paid by MassMutual for Class N shares that were subsequently repurchased by us.
Beginning January 1, 2026 and continuing until we have repurchased $200.0 million of MassMutual shares, we are required to repurchase MassMutual shares on a monthly basis, subject to thresholds based on monthly net offering proceeds. In any month, MassMutual may choose to waive our obligation to repurchase shares. We are required to limit repurchases to ensure that the aggregate NAV of MassMutual shares is at least $50.0 million.
Beginning January 1, 2026, MassMutual holds the right to request that we repurchase MassMutual shares on a monthly basis, subject to thresholds based on monthly net offering proceeds and the Company's NAV. This right to request that we repurchase MassMutual shares is in addition to the requirement to repurchase MassMutual shares described in the preceding paragraph.
Capital Resources
As of December 31, 2024, our indebtedness includes four mortgages secured by their corresponding properties and a financing obligation. We also have additional funds available to us through our revolving credit facility. We do not currently have an outstanding balance on the revolving credit facility as of December 31, 2024.
In September 2023, INREIT OP entered into an amendment to the existing Revolving Credit Facility with Bank of America, N.A. ("Bank of America"). The interest rate and spread terms remained identical to the terms outlined below. With this amendment, the facility provides aggregate commitments of $100.0 million with an ability to request an increase up to $150.0 million in aggregate commitments. The amendment extended the maturity date to September 6, 2024 and granted an option to extend the term to September 5, 2025, subject to certain conditions. In July 2024, we exercised this extension right, extending the term of the Revolving Credit Facility to September 5, 2025. On October 11, 2024, we entered into a fifth amendment to the Revolving Credit Facility to provide for, among other things, a reduction in borrowing limitations from properties in the Company's DST Program in exchange for an incremental commitment by Invesco Realty, Inc. to provide up to $35.0 million of additional capital to the Company to repay outstanding obligations under the Revolving Credit Facility in the event of default. The funds are not available to fund our operating or investing activities.
Borrowings under the Revolving Credit Facility carry interest at a rate equal to (i) SOFR, (ii) SOFR with an interest period of one, three or six-months, or (iii) a Base Rate, where the base rate is the highest of (a) federal funds rate plus 0.5%, (b) the rate of interest as publicly announced by Bank of America N.A. as its "prime rate", (c) SOFR with an interest period of one month plus 1.0%, or (d) 1.0%, in each case, plus an applicable margin that is based on our leverage ratio.
As of December 31, 2024 and 2023, the Company did not have an outstanding principal balance on its revolving credit facility. An unused commitment fee of 0.25% accrues on the daily amount by which the aggregate commitments exceed the total outstanding balance of the Revolving Credit Facility. The weighted-average interest rate for the years ended December 31, 2024 and 2023 was 6.95% and 6.64%, respectively. As of December 31, 2024, the borrowing capacity on the Revolving Credit Facility was $72.1 million. The borrowing capacity is less than the difference between the current facility capacity of $100.0 million and the current principal outstanding balance as the calculation of borrowing capacity is limited by the aggregate fair value and cash flows of our unencumbered properties.
As of December 31, 2024, we were in compliance with all loan covenants in our revolving credit facility agreement.
The following table summarizes certain characteristics of our mortgage notes that are secured by the Company's properties:
| in thousands | Principal Balance Outstanding | |||||||||||||||||||||||||||||||||||||
| Indebtedness |
Interest Rate(1)
|
Maturity Date |
Extended Maturity Date(6)
|
Maximum Principal Amount | December 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||
|
Bixby Kennesaw(2)
|
S + 1.71%(2)
|
9/24/2026 | N/A | 53,000 | - | 53,000 | ||||||||||||||||||||||||||||||||
| The Carmin |
S + 1.75%(3)
|
1/1/2025 | 1/1/2027 | 65,500 | 65,500 | 65,500 | ||||||||||||||||||||||||||||||||
| Cortlandt Crossing |
3.13%
|
3/1/2027 | N/A | 39,660 | 39,660 | 39,660 | ||||||||||||||||||||||||||||||||
| Everly Roseland |
S + 1.45%(4)
|
4/28/2027 | 4/28/2029 | 113,500 | 111,441 | 110,874 | ||||||||||||||||||||||||||||||||
| Midwest Industrial Portfolio |
4.44% and S + applicable margin(5)
|
7/5/2027 | N/A | 70,000 | 70,000 | 70,000 | ||||||||||||||||||||||||||||||||
| Total mortgages payable | 286,601 | 339,034 | ||||||||||||||||||||||||||||||||||||
| Deferred financing costs, net | (1,335) | (2,290) | ||||||||||||||||||||||||||||||||||||
| Mortgages payable, net | $ | 285,266 | $ | 336,744 | ||||||||||||||||||||||||||||||||||
(1)The term "S" refers to the relevant floating benchmark rate, SOFR.
(2)On December 27, 2024, we sold the Bixby Kennesaw student housing property and repaid the mortgage note secured by the property. We incurred debt extinguishment charges of $0.2 million in connection with the early repayment of the mortgage note. The weighted-average interest rate for the years ended December 31, 2024 and 2023 was 6.91% and 6.62%, respectively.
(3)The weighted-average interest rate for the years ended December 31, 2024 and 2023 was 6.98% and 6.52%, respectively.
(4)The weighted-average interest rate for the years ended December 31, 2024 and 2023 was 6.61% and 6.48%, respectively.
(5)The mortgage note secured by Meridian Business 940, Capital Park 2919, 3101 Agler and Earth City 13330 (collectively the "Midwest Industrial Portfolio") bears interest at two rates. Of the $70.0 million principal balance, $35.0 million bears interest at a fixed rate of 4.44%, and $35.0 million bears interest at a floating rate of the greater of (a) 2.20% or (b) the sum of 1.70% plus SOFR. The weighted-average interest rate of the combined $70.0 million principal balance for the years ended December 31, 2024 and 2023 was 5.82% and 6.71%, respectively.
(6)We may elect to extend the maturity date upon meeting certain conditions, which may include payment of a non-refundable extension fee. On January 1, 2025, we exercised the first extension option of the mortgage note for The Carmin, which extended the maturity date to January 1, 2026. We have one remaining extension available which would extend the maturity date to January 1, 2027. Subsequent to December 31, 2024, we sold a partial interest in The Carmin and repaid the mortgage note secured by the property.
As of December 31, 2024, we are in compliance with all loan covenants in our mortgage notes.
In connection with the acquisition of The Carmin, a student housing property, we entered into a ground lease executed as a sale and leaseback transaction in 2021 whereby we sold The Carmin to an unaffiliated third party for $54.0 million and simultaneously leased back the property from the same unaffiliated third party for 104 years. We accounted for the sale and leaseback of The Carmin as a failed sale and leaseback transaction because the lease is classified as a finance lease. Accordingly, we did not recognize the sale of The Carmin, and we recorded the net proceeds from the sale as a financing lease obligation. We continue to account for the property as a real estate investment in our consolidated financial statements and depreciate the property as if we were the legal owner. We allocate the rental payments we make under the lease between interest expense and principal repayment of the financing obligation using the effective interest method and amortize over the 104 year lease term. The total principal payments will not exceed the difference between the gross proceeds from the sale of $54.0 million and the initial carrying value of the land of $17.6 million, resulting in maximum principal payments of $36.3 million over the term of the arrangement.
See Note 9 - "Borrowings" to our consolidated financial statements in this Annual Report on Form 10-K for a discussion of our borrowing arrangements.
Other potential future sources of capital include incremental secured or unsecured financings from banks or other lenders and proceeds from the sale of assets. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. We have not yet identified any sources for these types of financings.
At December 31, 2024, we had cash and cash equivalents of $48.2 million and restricted cash of $4.9 million. Our restricted cash consists of subscriptions received in advance, an interest reserve that we are contractually required to maintain on deposit under the terms of our preferred membership interest in a limited liability company, amounts in escrow for taxes and insurance related to mortgages at certain properties and security deposits.
We currently have no deposits or lines of credit with community or regional banking organizations, as such terms are defined by the Federal Reserve. The commercial loan we hold is a mezzanine loan for which the senior loan is held by a community or regional banking organization and in this case the senior loan is fully funded with no future funding obligation. Our Adviser and its affiliates use a formal bank monitoring program to seek to ensure a comprehensive and disciplined approach for the selection and ongoing monitoring of the financial institutions with whom funds and companies managed by our Adviser and its affiliates, such as our Company, do business. All financial institutions with which we do business must be initially approved by Invesco's treasurer and are subject to ongoing monitoring.
Capital Uses
During periods when we are selling more shares than we are repurchasing, we primarily use our capital to acquire our investments, which we also fund with other capital resources. During periods when we are repurchasing more shares than we are selling, we primarily use our capital to fund repurchases. During the year ended December 31, 2024, we received repurchase requests below the applicable repurchase limits under our Share Repurchase Plan and fulfilled all repurchase requests.
Our operating expenses include, among other things, the management fee we pay to the Adviser and the performance participation allocation that INREIT OP pays to the Special Limited Partner, both of which will impact our liquidity to the extent the Adviser or the Special Limited Partner elects to receive such payments in cash, or subsequently redeem shares or OP units previously issued to them. To date, the Adviser and the Special Limited Partner have both always elected to be paid in OP units, resulting in a non-cash expense.
Forward-Looking Statements Regarding Liquidity
We believe that with respect to liquidity, we are well positioned with $120.3 million of immediate liquidity as of December 31, 2024, made up of $72.1 million of undrawn capacity on our Revolving Credit Facility and $48.2 million of cash and cash equivalents. In addition, we hold $56.5 million in investments in real estate-related securities that could be liquidated to satisfy any potential liquidity requirements.
Cash Flows
The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash:
| in thousands | For the Year Ended December 31, 2024 | For the Year Ended December 31, 2023 | For the Year Ended December 31, 2022 | ||||||||||||||
| Cash flows provided by operating activities | $ | 18,048 | $ | 20,219 | $ | 31,114 | |||||||||||
| Cash flows provided by (used in) investing activities | 12,093 | 26,469 | (430,919) | ||||||||||||||
| Cash flows provided by (used in) financing activities | (20,454) | (48,558) | 429,548 | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash | $ | 9,687 | $ | (1,870) | $ | 29,743 | |||||||||||
Operating Activities - Cash flows from operating activities of $18.0 million for the year ended December 31, 2024 consists of our net income of $26.7 million adjusted for non-cash items and changes in assets and liabilities. The change in our assets and liabilities is primarily due to the timing of cash receipts and cash payments, including amounts we owe our affiliates. Cash flows provided by operating activities decreased $10.9 million during the year ended December 31, 2023 compared to the corresponding period in 2022 primarily due to an increase in interest expense from the rise in interest rates.
Investing Activities- Cash flows from investing activities decreased $14.4 million during the year ended December 31, 2024 compared to the corresponding period in 2023 primarily due to acquisitions of real estate and purchases of real estate related securities of $141.8 million. These decreases were offset by proceeds from the dispositions of real estate, proceeds from the repayment of the Blue Grass commercial loan, proceeds from the sale of real estate related securities, and distributions of capital from unconsolidated entities of $99.1 million together with no additional investments in our affiliated fund or originations of commercials loans of $28.0 million. Cash flows from investing activities increased $457.4 million during the year ended December 31, 2023 compared to the corresponding period in 2022 primarily due to a decrease in acquisitions of real estate of $367.2 million and an increase in proceeds from the disposition of real estate of $61.5 million.
Financing Activities- Cash flows from financing activities increased $28.1 million for the year ended December 31, 2024 compared to the corresponding period in 2023 primarily due to contributions from our non-controlling interests and a decrease in common stock distributions for an overall increase of $44.6 million. This increase was offset by decreases in subscriptions received in advance, proceeds from the issuance of common stock, stock repurchase and net borrowings of $15.7 million. Cash flows provided by financing activities decreased $478.1 million for the year ended December 31, 2023 compared to the corresponding period in 2022 primarily due to a decrease in proceeds from the sale of common stock of $260.3 million, a decrease in net borrowings of $197.2 million and a decrease in the sale of interest to non-controlling interest of $22.5 million.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. All of these estimates reflect our best judgment about current, and for some estimates, future economic and market conditions and their effects based on information available as of the date of these financial statements. If conditions change from those expected, it is possible that materially different amounts could be reported in our financial statements.
Purchase Price Allocation of Acquired Real Estate
Upon the acquisition of a property, we assess the fair value of acquired tangible and intangible assets and liabilities (including land, buildings, tenant improvements, above-market and below-market leases, acquired in-place leases, other identified intangible assets and assumed liabilities) and allocate the purchase price to the acquired assets and assumed liabilities on a relative fair value basis in accordance with Accounting Standard Codification 805, Business Combinations. All expenses related to the acquisition are capitalized and allocated among the identified assets. Generally, the most significant portion of the allocation is to building and land and requires the use of market-based estimates and assumptions.
We estimate value using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors considered in our analysis include an estimate of carrying costs during hypothetical expected lease-up periods, considering current market rental rates and costs to execute similar leases. We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets and liabilities acquired. In estimating carrying costs, management also includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on specific local cap rates and discount rates. We also estimate costs to execute similar leases, including leasing commissions, legal and other related expenses to the extent that such costs are not already incurred in connection with a new lease origination as part of the transaction. We also consider the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and management's expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors. A change in any of the assumptions above, which are subjective, could have a material impact on our results of operations.
The allocation of the purchase price directly affects the following in our consolidated financial statements:
•the amount of purchase price allocated to the various tangible and intangible assets and liabilities on our consolidated balance sheets;
•the amounts allocated to the value of above-market and below-market lease values are amortized to rental income over the remaining non-cancelable terms of the respective leases. The amounts allocated to all other tangible and intangible assets are amortized to depreciation or amortization expense. Thus, depending on the amounts allocated between land and other depreciable assets, changes in the purchase price allocation among our assets could have a material impact on our FFO, a metric which is used by many REIT investors to evaluate our operating performance; and
•the period of time over which tangible and intangible assets are depreciated varies greatly, and thus, changes in the amounts allocated to these assets will have a direct impact on our results of operations. Intangible assets are generally amortized over the respective life of the leases. Also, we depreciate our buildings up to 40 years, but do not depreciate our land. These differences in timing could have a material impact on our results of operations.
Impairment of Long-Lived Assets
We review real estate properties (including any related amortizable intangible assets or liabilities) for impairment each quarter or when there is an indicator, including property operating performance, changes in anticipated holding period, general market conditions, that the value of the real estate properties may be impaired. A property value is considered impaired if our estimate of current and expected operating cash flows of the property over its anticipated hold period is less than the net carrying value of the property. Our estimate of the expected future cash flows used in testing for impairment is subjective and based on, among other things, our estimates regarding future market conditions, rental rates, occupancy levels, costs of tenant improvements, assumptions regarding the residual value of our properties at the end of our anticipated holding period, discount rates, exit capitalization rates and the length of our anticipated holding period. In preparing the projection of undiscounted future cash flows, we estimate exit capitalization rates and market rental rates using information that we obtain from market comparability studies and other comparable sources, and apply the undiscounted cash flows against our expected holding period. These assumptions could differ materially from actual results. If changes in our strategy or the market conditions result in a reduction in the holding period and an earlier sale date, an impairment loss could be recognized and such loss could be material. If impairment were indicated, the carrying value of the property would be written down to its estimated fair value based on our best estimate of the property's discounted future cash flows using market derived capitalization rates, discount rates and market rental rates applied against our expected hold period.
Impairment of Investments in Unconsolidated Entities
We review investments in unconsolidated entities for impairment each quarter or when there is an indicator that the carrying amount of the investments may not be fully recoverable. An investment is considered to be impaired when the decline in value below the carrying amount is determined to be other than temporary. Our evaluation of considering whether factors indicate that a potential impairment has occurred can require us to exercise significant judgment. If impairment was indicated, the carrying amount of the investment would be written down to its fair value based on our best estimate, which is also subjective and requires the use of certain assumptions. Our estimate of the fair value used in testing investments in unconsolidated entities for impairment is calculated in a manner similar to our real estate properties.
Redeemable Equity Instruments
We report our Class N redeemable common stock and redeemable non-controlling interest in INREIT OP on our consolidated balance sheets at redemption value. Redemption value is determined based on our NAV per share or unit as of our balance sheet date. For purposes of determining our NAV, our investments in real estate are recorded at fair value based on third party valuations prepared by licensed appraisers in accordance with standard industry practice.
These fair value estimates of our investments in real estate are particularly important as they are used for the calculation of NAV, which determines the adjustment to the carrying value of our Class N redeemable common stock and redeemable non-controlling interest in INREIT OP. Significant differences in the fair value of our Class N redeemable common stock and redeemable non-controlling interest in INREIT OP stock may result from changes in market conditions that cause our NAV, and thus the redemption value, to increase or decrease during the period. Although increases and decreases in our NAV do not have an impact to our consolidated statements of operations, they would cause a significant change in our equity.
Pending Accounting Pronouncements
See Note 2 - "Summary of Significant Accounting Policies" to our consolidated financial statements in this Annual Report on Form 10-K for a discussion of pending accounting pronouncements.
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